Corporation Grant and Cooperative Agreement Requirements; Final Rule CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

Federal RegisterAug 12, 1994

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SUMMARY: The Corporation for National and Community Service

(Corporation) is adopting in its final rules the following two Federal

agency common rules: Uniform Administrative Requirements for Grants and

Cooperative Agreements to State and Local Governments; and

Governmentwide Debarment and Suspension (Nonprocurement) and Drug-Free

Workplace (Grants). These regulations have been adopted by the

Corporation because they are applicable to State and Local Governments

that receive grants from the Corporation. In addition, all Corporation

grantees must comply with the Governmentwide Debarment and Suspension

and Drug-Free Workplace rules. By implementing these regulations, the

Corporation grantees will know some of the terms and conditions of

their respective grants.

EFFECTIVE DATE: This final rule is effective on August 12, 1994.

FOR FURTHER INFORMATION CONTACT: Terry Russell, General Counsel, (202)

606-4949, (Voice) (202) 606-5256, (TDD), between the hours of 9:00 a.m.

and 6:00 p.m. Eastern Standard Time. For individuals with disabilities,

information will be made available in alternative formats, upon

request.

SUPPLEMENTARY INFORMATION:

Background Information

Part 2541 contains the Uniform Administrative Requirements for

Grants and Cooperative Agreements to State and Local Governments which

is a common rule developed by OMB and adopted by the Federal agencies

to ensure consistency and uniformity among Federal agencies in the

administration of grants and cooperative agreements to State, local,

and federally recognized Indian tribal governments. A full discussion

of the issues pertaining to this rule is contained in the preamble to

the final common rule that was adopted by 23 Federal agencies and

published in the Federal Register on March 11, 1988 (53 FR 8034).

Part 2542 contains the Governmentwide Debarment and Suspension

Requirements which were implemented pursuant to Executive Order 12549

to prevent waste, fraud and abuse in Federal nonprocurement

transactions. A discussion of the issues pertaining to this rule is

contained in the preamble of the final common rule that was adopted by

27 Federal agencies and published in the Federal Register on May 26,

1988 (53 FR 19161). Part 2542 also contains the Governmentwide Drug-

Free Workplace rules which were established to implement the Drug-Free

Workplace Act of 1988, 41 U.S.C. 701-722. The Drug Free Workplace Act

requires that all grantees receiving grants from any Federal agency

certify to that agency that they will maintain a drug-free workplace,

or in the case of a grantee who is an individual, certify to the agency

that his or her conduct of grant activity will be drug-free. A full

discussion of the issues pertaining to this rule is contained in the

preamble of the interim final rule that was adopted by 33 Federal

agencies and published in the Federal Register on May 25, 1990 (55 FR

21679).

The Corporation finds that publishing a notice of proposed

rulemaking on these matters would be unnecessary, and contrary to the

public interest, since the common rulemaking has been subjected to

extensive public scrutiny when OMB proposed and finalized the rules and

27 federal agencies issued these proposed rules for notice and

comments. Consequently, the Corporation for good cause pursuant to 5

U.S.C. 553(b) has decided not to publish a proposed rulemaking on these

matters and has adopted and published these rules as a final rule. This

regulation is fully in effect. No further regulatory action by the

Corporation is essential to the legal effectiveness of the rule.

Pursuant to the Regulatory Flexibility Act, it is hereby certified

that this final rule will not have a significant impact on small

business entities.

List of Subjects

45 CFR Part 2541

Accounting, Grant programs, Indians, Intergovernmental relations,

Reporting and recordkeeping requirements.

45 CFR Part 2542

Administrative practice and procedure, Drug abuse, Grant programs,

Reporting and recordkeeping requirements.

Terry Russell,

General Counsel.

Accordingly, the Corporation amends title 45, chapter XXV of the

Code of Federal Regulations by adding parts 2541 and 2542 to read as

follows:

PART 2541--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND

COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS

Subpart A--General

Sec.

2541.10 Purpose and scope of this part.

2541.20 Scope of subpart.

2541.30 Definitions.

2541.40 Applicability.

2541.50 Effect on other issuances.

2541.60 Additions and exceptions.

Subpart B--Pre-Award Requirements

2541.100 Forms for applying for grants.

2541.110 State plans.

2541.120 Special grant or subgrant conditions for ``high-risk''

grantees.

Subpart C--Post Award Requirements

2541.200 Standards for financial management systems.

2541.210 Payment.

2541.220 Allowable costs.

2541.230 Period of availability of funds.

2541.240 Matching or cost sharing.

2541.250 Program income.

2541.260 Non-Federal audit.

Subpart D--Changes, Property and Subawards

2541.300 Changes.

2541.310 Real property.

2541.320 Equipment.

2541.330 Supplies.

2541.340 Copyrights.

2541.350 Subawards to debarred and suspended parties.

2541.360 Procurement.

2541.370 Subgrants.

Subpart E--Reports, Records, Retention and Enforcement

2541.400 Monitoring and reporting program performance.

2541.410 Financial reporting.

2541.420 Retention and access requirements for records.

2541.430 Enforcement.

2541.440 Termination for convenience.

Subpart F--After the Grant Requirements

2541.500 Closeout.

2541.510 Later disallowances and adjustments.

2541.520 Collection of amounts due.

Authority: 42 U.S.C. 4950 et seq. and 12501 et seq.

Subpart A--General

Sec. 2541.10 Purpose and scope of this part.

This part establishes uniform administrative rules for Federal

grants and cooperative agreements and subawards to State, local and

Indian tribal governments.

Sec. 2541.20 Scope of subpart.

This subpart contains general rules pertaining to this part and

procedures for control of exceptions from this part.

Sec. 2541.30 Definitions.

The following definitions apply to terms used in this part and part

2542 of this chapter.

Accrued expenditures. The term accrued expenditures means the

charges incurred by the grantee during a given period requiring the

provision of funds for:

(1) Goods and other tangible property received;

(2) Services performed by employees, contractors, subgrantees,

subcontractors, and other payees; and

(3) Other amounts becoming owed under programs for which no current

services or performance is required, such as annuities, insurance

claims, and other benefit payments.

Accrued income. The term accrued income means the sum of:

(1) Earnings during a given period from services performed by the

grantee and goods and other tangible property delivered to purchasers;

and

(2) Amounts becoming owed to the grantee for which no current

services or performance is required by the grantee.

Acquisition cost. The term acquisition cost of an item of purchased

equipment means the net invoice unit price of the property including

the cost of modifications, attachments, accessories, or auxiliary

apparatus necessary to make the property usable for the purpose for

which it was acquired. Other charges such as the cost of installation,

transportation, taxes, duty or protective in-transit insurance, shall

be included or excluded from the unit acquisition cost in accordance

with the grantee's regular accounting practices.

Administrative requirements. The term administrative requirements

means those matters common to grants in general, such as financial

management, kinds and frequency of reports, and retention of records.

These are distinguished from ``programmatic'' requirements, which

concern matters that can be treated only on a program-by-program or

grant-by-grant basis, such as kinds of activities that can be supported

by grants under a particular program.

Awarding agency. The term awarding agency means:

(1) With respect to a grant, the Federal agency; and

(2) With respect to a subgrant, the party that awarded the

subgrant.

Cash contributions. The term cash contributions means the grantee's

cash outlay, including the outlay of money contributed to the grantee

or subgrantee by other public agencies and institutions, and private

organizations and individuals. When authorized by Federal legislation,

Federal funds received from other assistance agreements may be

considered as grantee or subgrantee cash contributions.

Contract. The term contract means (except as used in the

definitions for ``grant'' and ``subgrant'' in this section and except

where qualified by ``Federal'') a procurement contract under a grant or

subgrant, and means a procurement subcontract under a contract.

Cost sharing (or matching). The term cost sharing (or matching)

means the value of the third party in-kind contributions and the

portion of the costs of a federally assisted project or program not

borne by the Federal Government.

Cost-type contract. The term cost-type contract means a contract or

subcontract under a grant in which the contractor or subcontractor is

paid on the basis of the costs it incurs, with or without a fee.

Equipment. The term equipment means tangible, nonexpendable,

personal property having a useful life of more than one year and an

acquisition cost of $5,000 or more per unit. A grantee may use its own

definition of equipment provided that such definition would at least

include all equipment mentioned in this definition.

Expenditure report. The term expenditure report means:

(1) For nonconstruction grants, the SF-269 ``Financial Status

Report'' (or other equivalent report);

(2) for construction grants, the SF-271 ``Outlay Report and Request

for Reimbursement'' (or other equivalent report).

Federally recognized Indian tribal government. The term federally

recognized Indian tribal government means the governing body or a

governmental agency of any Indian tribe, band, nation, or other

organized group or community (including any Native village as defined

in section 3 of the Alaska Native Claims Settlement Act, 85 Stat. 688)

certified by the Secretary of the Interior as eligible for the special

programs and services provided by him through the Bureau of Indian

Affairs.

Government. The term government means a State or local government

or a federally recognized Indian tribal government.

Grant. The term grant means an award of financial assistance,

including cooperative agreements, in the form of money, or property in

lieu of money, by the Federal Government to an eligible grantee. The

term does not include technical assistance which provides services

instead of money, or other assistance in the form of revenue sharing,

loans, loan guarantees, interest subsidies, insurance, or direct

appropriations. Also, the term does not include assistance, such as a

fellowship or other lump sum award, which the grantee is not required

to account for.

Grantee. The term grantee means the government to which a grant is

awarded and which is accountable for the use of the funds provided. The

grantee is the entire legal entity even if only a particular component

of the entity is designated in the grant award document.

Local government. The term local government means a county,

municipality, city, town, township, local public authority (including

any public and Indian housing agency under the United States Housing

Act of 1937 (42 U.S.C. 1401 et seq.) school district, special district,

intrastate district, council of governments (whether or not

incorporated as a nonprofit corporation under state law), any other

regional or interstate government entity, or any agency or

instrumentality of a local government.

Obligations. The term obligations means the amounts of orders

placed, contracts and subgrants awarded, goods and services received,

and similar transactions during a given period that will require

payment by the grantee during the same or a future period.

OMB. The term OMB means the United States Office of Management and

Budget.

Outlays (expenditures). The term outlays (expenditures) means

charges made to the project or program. They may be reported on a cash

or accrual basis. For reports prepared on a cash basis, outlays are the

sum of actual cash disbursement for direct charges for goods and

services, the amount of indirect expense incurred, the value of in-kind

contributions applied, and the amount of cash advances and payments

made to contractors and subgrantees. For reports prepared on an accrued

expenditure basis, outlays are the sum of actual cash disbursements,

the amount of indirect expense incurred, the value of in-kind

contributions applied, and the new increase (or decrease) in the

amounts owed by the grantee for goods and other property received, for

services performed by employees, contractors, subgrantees,

subcontractors, and other payees, and other amounts becoming owed under

programs for which no current services or performance are required,

such as annuities, insurance claims, and other benefit payments.

Percentage of completion method. The term percentage of completion

method refers to a system under which payments are made for

construction work according to the percentage of completion of the

work, rather than to the grantee's cost incurred.

Prior approval. The term prior approval means documentation

evidencing consent prior to incurring specific cost.

Real property. The term real property means land, including land

improvements, structures and appurtenances thereto, excluding movable

machinery and equipment.

Share. The term share, when referring to the awarding agency's

portion of real property, equipment or supplies, means the same

percentage as the awarding agency's portion of the acquiring party's

total costs under the grant to which the acquisition costs under the

grant to which the acquisition cost of the property was charged. Only

costs are to be counted--not the value of third-party in-kind

contributions.

State. The term State means any of the several States of the United

States, the District of Columbia, the Commonwealth of Puerto Rico, any

territory or possession of the United States, or any agency or

instrumentality of a State exclusive of local governments. The term

does not include any public and Indian housing agency under the United

States Housing Act of 1937.

Subgrant. The term subgrant means an award of financial assistance

in the form of money, or property in lieu of money, made under a grant

by a grantee to an eligible subgrantee. The term includes financial

assistance when provided by contractual legal agreement, but does not

include procurement purchases, nor does it include any form of

assistance which is excluded from the definition of ``grant'' in this

part.

Subgrantee. The term subgrantee means the government or other legal

entity to which a subgrant is awarded and which is accountable to the

grantee for the use of the funds provided.

Supplies. The term supplies means all tangible personal property

other than ``equipment'' as defined in this part.

Suspension. The term suspension means, depending on the context,

either--

(1) Temporary withdrawal of the authority to obligate grant funds

pending corrective action by the grantee or subgrantee or a decision to

terminate the grant; or

(2) An action taken by a suspending official in accordance with

agency regulations implementing E.O. 12549 (3 CFR, 1986 Comp., p. 189)

to immediately exclude a person from participating in grant

transactions for a period, pending completion of an investigation and

such legal or debarment proceedings as may ensue.

Termination. The term termination means permanent withdrawal of the

authority to obligate previously-awarded grant funds before that

authority would otherwise expire. It also means the voluntary

relinquishment of that authority by the grantee or subgrantee.

Termination does not include--

(1) Withdrawal of funds awarded on the basis of the grantee's

underestimate of the unobligated balance in a prior period;

(2) Withdrawal of the unobligated balance as of the expiration of a

grant;

(3) Refusal to extend a grant or award additional funds, to make a

competing or noncompeting continuation, renewal, extension, or

supplemental award; or

(4) Voiding of a grant upon determination that the award was

obtained fraudulently, or was otherwise illegal or invalid from

inception.

Terms of a grant or subgrant mean all requirements of the grant or

subgrant, whether in statute, regulations, or the award document.

Third party in-kind contributions. The term third party in-kind

contributions means property or services which benefit a federally

assisted project or program and which are contributed by non-Federal

third parties without charge to the grantee, or a cost-type contractor

under the grant agreement.

Unliquidated obligations for reports prepared on a cash basis. The

term unliquidated obligations for reports prepared on a cash basis

means the amount of obligations incurred by the grantee that has not

been paid. For reports prepared on an accrued expenditure basis, they

represent the amount of obligations incurred by the grantee for which

an outlay has not been recorded.

Unobligated balance. The term unobligated balance means the portion

of the funds authorized by the Federal agency that has not been

obligated by the grantee and is determined by deducting the cumulative

obligations from the cumulative funds authorized.

Sec. 2541.40 Applicability.

(a) General. Subparts A through D of this part apply to all grants

and subgrants to governments, except where inconsistent with Federal

statutes or with regulations authorized in accordance with the

exception provision of Sec. 2541.60, or:

(1) Grants and subgrants to State and local institutions of higher

education or State and local hospitals.

(2) The block grants authorized by the Omnibus Budget

Reconciliation Act of 1981 (Pub. L. 97-35, 95 Stat. 357) (Community

Services; Preventive Health and Health Services; Alcohol, Drug Abuse,

and Mental Health Services; Maternal and Child Health Services; Social

Services; Low-Income Home Energy Assistance; States' Program of

Community Development Block Grants for Small Cities; and Elementary and

Secondary Education other than programs administered by the Secretary

of Education under title V, subtitle D, chapter 2, section 583--the

Secretary's discretionary grant program) and titles I-III of the Job

Training Partnership Act of 1982 (29 U.S.C. 1501 et seq.) and under the

Public Health Services Act (42 U.S.C. 201 et seq.), Alcohol and Drug

Abuse Treatment and Rehabilitation Block Grant and part C of title V,

Mental Health Service for the Homeless Block Grant).

(3) Entitlement grants to carry out the following programs of the

Social Security Act (42 U.S.C. 301 et seq.):

(i) Aid to Needy Families with Dependent Children (title IV-A of

the Act, not including the Work Incentive Program (WIN) authorized by

section 402(a)19(G); HHS grants for WIN are subject to this part);

(ii) Child Support Enforcement and Establishment of Paternity

(title IV-D of the Act);

(iii) Foster Care and Adoption Assistance (title IV-E of the Act);

(iv) Aid to the Aged, Blind, and Disabled (titles I, X, XIV, and

XVI-AABD of the Act); and

(v) Medical Assistance (Medicaid) (title XIX of the Act) not

including the State Medicaid Fraud Control program authorized by

section 1903(a)(6)(B).

(4) Entitlement grants under the following programs of The National

School Lunch Act (42 U.S.C. 1751 et seq.):

(i) School Lunch (section 4 of the Act);

(ii) Commodity Assistance (section 6 of the Act);

(iii) Special Meal Assistance (section 11 of the Act);

(iv) Summer Food Service for Children (section 13 of the Act); and

(v) Child Care Food Program (section 17 of the Act).

(5) Entitlement grants under the following programs of The Child

Nutrition Act of 1966:

(i) Special Milk (section 3 of the Act); and

(ii) School Breakfast (section 4 of the Act).

(6) Entitlement grants for State Administrative expenses under The

Food Stamp Act of 1977 (7 U.S.C. 2011 et seq.).

(7) A grant for an experimental, pilot, or demonstration project

that is also supported by a grant listed in paragraph (a)(3) of this

section.

(8) Grant funds awarded under subsection 412(e) of the Immigration

and Nationality Act (8 U.S.C. 1522(e)) and subsection 501(a) of the

Refugee Education Assistance Act of 1980 (Pub. L. 96-422, 94 Stat.

1809), for cash assistance, medical assistance, and supplemental

security income benefits to refugees and entrants and the

administrative costs of providing the assistance and benefits.

(9) Grants to local education agencies under 20 U.S.C. 236 through

241-1(a), and 242 through 244 (portions of the Impact Aid program),

except for 20 U.S.C. 238(d)(2)(c) and 240(f) (Entitlement Increase for

Handicapped Children).

(10) Payments under the Veterans Administration's State Home Per

Diem Program (38 U.S.C. 641(a)).

(b) Entitlement programs. Entitlement programs enumerated in

Sec. 2541.40(a) (3) through (8) are subject to subpart E of this part.

Sec. 2541.50 Effect on other issuances.

All other grants administration provisions of codified program

regulations, program manuals, handbooks and other nonregulatory

materials which are inconsistent with this part are superseded, except

to the extent they are required by statute, or authorized in accordance

with the exception provision in Sec. 2541.60.

Sec. 2541.60 Additions and exceptions.

(a) For classes of grants and grantees subject to this part,

Federal agencies may not impose additional administrative requirements

except in codified regulations published in the Federal Register.

(b) Exceptions for classes of grants or grantees may be authorized

only by OMB.

authorized by the affected Federal agencies.

Subpart B--Pre-Award Requirements

Sec. 2541.100 Forms for applying for grants.

(a) Scope. (1) This section prescribes forms and instructions to be

used by governmental organizations (except hospitals and institutions

of higher education operated by a government) in applying for grants.

This section is not applicable, however, to formula grant programs

which do not require applicants to apply for funds on a project basis.

(2) This section applies only to applications to Federal agencies

for grants, and is not required to be applied by grantees in dealing

with applicants for subgrants. However, grantees are encouraged to

avoid more detailed or burdensome application requirements for

subgrants.

(b) Authorized forms and instructions for governmental

organizations. (1) In applying for grants, applicants shall only use

standard application forms or those prescribed by the granting agency

with the approval of OMB under the Paperwork Reduction Act of 1980 (44

U.S.C. 3501 et seq.).

(2) Applicants are not required to submit more than the original

and two copies of preapplications or applications.

(3) Applicants must follow all applicable instructions that bear

OMB clearance numbers. Federal agencies may specify and describe the

programs, functions, or activities that will be used to plan, budget,

and evaluate the work under a grant. Other supplementary instructions

may be issued only with the approval of OMB to the extent required

under the Paperwork Reduction Act of 1980. For any standard form,

except the SF-424 facesheet, Federal agencies may shade out or instruct

the applicant to disregard any line item that is not needed.

(4) When a grantee applies for additional funding (such as a

continuation or supplemental award) or amends a previously submitted

application, only the affected pages need be submitted. Previously

submitted pages with information that is still current need not be

resubmitted.

Sec. 2541.110 State plans.

(a) Scope. The statutes for some programs require States to submit

plans before receiving grants. Under regulations implementing Executive

Order 12372 (3 CFR, 1982 Comp., p. 197), ``Intergovernmental Review of

Federal Programs,'' States are allowed to simplify, consolidate and

substitute plans. This section contains additional provisions for plans

that are subject to regulations implementing the Executive order.

(b) Requirements. A State need meet only Federal administrative or

programmatic requirements for a plan that are in statutes or codified

regulations.

that the State shall comply with all applicable Federal statutes and

regulations in effect with respect to the periods for which it receives

grant funding. For this assurance and other assurances required in the

plan, the State may:

(1) Cite by number the statutory or regulatory provisions requiring

the assurances and affirm that it gives the assurances required by

those provisions;

(2) Repeat the assurance language in the statutes or regulations;

(3) Develop its own language to the extent permitted by law.

(d) Amendments. A State will amend a plan whenever necessary to

reflect: New or revised Federal statutes or regulations; or a material

change in any State law, organization, policy, or State agency

operation. The State will obtain approval for the amendment and its

effective date but need submit for approval only the amended portions

of the plan.

Sec. 2541.120 Special grant or subgrant conditions for ``high-risk''

grantees.

(a) A grantee or subgrantee may be considered ``high risk'' if an

awarding agency determines that a grantee or subgrantee:

(1) Has a history of unsatisfactory performance; or

(2) Is not financially stable; or

(3) Has a management system which does not meet the management

standards set forth in this part; or

(4) Has not conformed to terms and conditions of previous awards;

(5) Is otherwise not responsible; and if the awarding agency

determines that an award will be made, special conditions and/or

restrictions shall correspond to the high risk condition and shall be

included in the award.

(b) Special conditions or restrictions may include:

(1) Payment on a reimbursement basis;

(2) Withholding authority to proceed to the next phase until

receipt of evidence of acceptable performance within a given funding

period;

(3) Requiring additional, more detailed financial reports;

(4) Additional project monitoring;

(5) Requiring the grantee or subgrantee to obtain technical or

management assistance; or

(6) Establishing additional prior approvals.

awarding official will notify the grantee or subgrantee as early as

possible, in writing, of:

(1) The nature of the special conditions/restrictions;

(2) The reason(s) for imposing them;

(3) The corrective actions which must be taken before they will be

removed and the time allowed for completing the corrective actions; and

(4) The method of requesting reconsideration of the conditions/

restrictions imposed.

Subpart C--Post-Award Requirements

Sec. 2541.200 Standards for financial management systems.

(a) A State must expand and account for grant funds in accordance

with State laws and procedures for expending and accounting for its own

funds. Fiscal control and accounting procedures of the State, as well

as its subgrantees and cost-type contractors, must be sufficient to--

(1) Permit preparation of reports required by this part and the

statutes authorizing the grant; and

(2) Permit the tracing of funds to a level of expenditures adequate

to establish that such funds have not been used in violation of the

restrictions and prohibitions of applicable statutes.

(b) The financial management systems of other grantees and

subgrantees must meet the following standards:

(1) Financial reporting. Accurate, current, and complete disclosure

of the financial results of financially assisted activities must be

made in accordance with the financial reporting requirements of the

grant or subgrant.

(2) Accounting records. Grantees and subgrantees must maintain

records which adequately identify the source and application of funds

provided for financially-assisted activities. These records must

contain information pertaining to grant or subgrant awards and

authorizations, obligations, unobligated balances, assets, liabilities,

outlays or expenditures, and income.

(3) Internal control. Effective control and accountability must be

maintained for all grant and subgrant cash, real and personal property,

and other assets. Grantees and subgrantees must adequately safeguard

all such property and must assure that it is used solely for authorized

purposes.

(4) Budget control. Actual expenditures or outlays must be compared

with budgeted amounts for each grant or subgrant. Financial information

must be related to performance or productivity data, including the

development of unit cost information whenever appropriate or

specifically required in the grant or subgrant agreement. If unit cost

data are required, estimates based on available documentation will be

accepted whenever possible.

(5) Allowable cost. Applicable OMB cost principles, agency program

regulations, and the terms of grant and subgrant agreements will be

followed in determining the reasonableness, allowability, and

allocability of costs.

(6) Source documentation. Accounting records must be supported by

such source documentation as canceled checks, paid bills, payrolls,

time and attendance records, contract and subgrant award documents,

etc.

(7) Cash management. Procedures for minimizing the time elapsing

between the transfer of funds from the U.S. Treasury and disbursement

by grantees and subgrantees must be followed whenever advance payment

procedures are used. Grantees must establish reasonable procedures to

ensure the receipt of reports on subgrantees' cash balances and cash

disbursements in sufficient time to enable them to prepare complete and

accurate cash transactions reports to the awarding agency. When

advances are made by letter-of-credit or electronic transfer of funds

methods, the grantee must make drawdowns as close as possible to the

time of making disbursements. Grantees must monitor cash drawdowns by

their subgrantees to assure that they conform substantially to the same

standards of timing and amount as apply to advances to the grantees.

management system of any applicant for financial assistance as part of

a preaward review or at any time subsequent to award.

Sec. 2541.210 Payment.

(a) Scope. This section prescribes the basic standard and the

methods under which a Federal agency will make payments to grantees,

and grantees will make payments to subgrantees and contractors.

(b) Basic standard. Methods and procedures for payment shall

minimize the time elapsing between the transfer of funds and

disbursement by the grantee or subgrantee, in accordance with Treasury

regulations at 31 CFR part 205.

provided they maintain or demonstrate the willingness and ability to

maintain procedures to minimize the time elapsing between the transfer

of the funds and their disbursement by the grantee or subgrantee.

(d) Reimbursement. Reimbursement shall be the preferred method when

the requirements in paragraph (c) of this section are not met. Grantees

and subgrantees may also be paid by reimbursement for any construction

grant. Except as otherwise specified in regulation, Federal agencies

shall not use the percentage of completion method to pay construction

grants. The grantee or subgrantee may use that method to pay its

construction contractor, and if it does, the awarding agency's payments

to the grantee or subgrantee will be based on the grantee's or

subgrantee's actual rate of disbursement.

(e) Working capital advances. If a grantee cannot meet the criteria

for advance payments described in paragraph (c) of this section, and

the Federal agency has determined that reimbursement is not feasible

because the grantee lacks sufficient working capital, the awarding

agency may provide cash on a working capital advance basis. Under this

procedure the awarding agency shall advance cash to the grantee to

cover its estimated disbursement needs for an initial period generally

geared to the grantee's disbursing cycle. Thereafter, the awarding

agency shall reimburse the grantee for its actual cash disbursements.

The working capital advance method of payment shall not be used by

grantees or subgrantees if the reason for using such method is the

unwillingness or inability of the grantee to provide timely advances to

the subgrantee to meet the subgrantee's actual cash disbursements.

(f) Effect of program income, refunds, and audit recoveries on

payment. (1) Grantees and subgrantees shall disburse repayments to and

interest earned on a revolving fund before requesting additional cash

payments for the same activity.

(2) Except as provided in paragraph (f)(1) of this section,

grantees and subgrantees shall disburse program income, rebates,

refunds, contract settlements, audit recoveries and interest earned on

such funds before requesting additional cash payments.

(g) Withholding payments. (1) Unless otherwise required by Federal

statute, awarding agencies shall not withhold payments for proper

charges incurred by grantees or subgrantees unless--

(i) The grantee or subgrantee has failed to comply with grant award

conditions; or

(ii) The grantee or subgrantee is indebted to the United States.

(2) Cash withheld for failure to comply with grant award condition,

but without suspension of the grant, shall be released to the grantee

upon subsequent compliance. When a grant is suspended, payment

adjustments will be made in accordance with Sec. 2541.410(c).

(3) A Federal agency shall not make payment to grantees for amounts

that are withheld by grantees or subgrantees from payment to

contractors to assure satisfactory completion of work. Payments shall

be made by the Federal agency when the grantees or subgrantees actually

disburse the withheld funds to the contractors or to escrow accounts

established to assure satisfactory completion of work.

(h) Cash depositories. (1) Consistent with the national goal of

expanding the opportunities for minority business enterprises, grantees

and subgrantees are encouraged to use minority banks (a bank which is

owned at least 50 percent by minority group members). A list of

minority owned banks can be obtained from the Minority Business

Development Agency, Department of Commerce, Washington, DC 20230.

(2) A grantee or subgrantee shall maintain a separate bank account

only when required by Federal-State agreement.

(i) Interest earned on advances. Except for interest earned on

advances of funds exempt under the Intergovernmental Cooperation Act

(31 U.S.C. 6501 et seq.) and the Indian Self-Determination Act (23

U.S.C. 450), grantees and subgrantees shall promptly, but at least

quarterly, remit interest earned on advances to the Federal agency. The

grantee or subgrantee may keep interest amounts up to $100 per year for

administrative expenses.

Sec. 2541.220 Allowable costs.

(a) Limitation on use of funds. Grant funds may be used only for--

(1) The allowable costs of the grantees, subgrantees and cost-type

contractors, including allowable costs in the form of payments to

fixed-price contractors; and

(2) Reasonable fees or profit to cost-type contractors but not any

fee or profit (or other increment above allowable costs) to the grantee

or subgrantee.

(b) Applicable cost principles. For each kind of organization,

there is a set of Federal principles for determining allowable costs.

Allowable costs will be determined in accordance with the cost

principles applicable to the organization incurring the costs. The

following chart lists the kinds of organizations and the applicable

cost principles:

------------------------------------------------------------------------

For the costs of a Use the principles in--

------------------------------------------------------------------------

State, local or Indian tribal OMB Circular A-87.

government

Private nonprofit organization OMB Circular A-122.

other than an (1) institution of

higher education, (2) hospital, or

(3) organization named in OMB

Circular A-122 as not subject to

that circular

Educational institutions OMB Circular A-21.

For-profit organization other than 48 CFR Part 31. Contract Cost

a hospital and an organization Principles and Procedures, or

named in OMB Circular A-122 as not uniform cost accounting standards

subject to that circular that comply with cost principles

acceptable to the Federal agency.

------------------------------------------------------------------------

Sec. 2541.230 Period of availability of funds.

(a) General. Where a funding period is specified, a grantee may

charge to the award only costs resulting from obligations of the

funding period unless carryover of unobligated balances is permitted,

in which case the carryover balances may be charged for costs resulting

from obligations of the subsequent funding period.

(b) Liquidation of obligations. A grantee must liquidate all

obligations incurred under the award not later than 90 days after the

end of the funding period (or as specified in a program regulation) to

coincide with the submission of the annual Financial Status Report (SF-

269). The Federal agency may extend this deadline at the request of the

grantee.

Sec. 2541.240 Matching or cost sharing.

(a) Basic rule; costs and contributions acceptable. With the

qualifications and exceptions listed in paragraph (b) of this section,

a matching or cost sharing requirement may be satisfied by either or

both of the following:

(1) Allowable costs incurred by the grantee, subgrantee or a cost-

type contractor under the assistance agreement. This includes allowable

costs borne by non-Federal grants or by other cash donations from non-

Federal third parties.

(2) The value of third party in-kind contributions applicable to

the period to which the cost sharing or matching requirements applies.

(b) Qualifications and exceptions--(1) Costs borne by other Federal

grant agreements. Except as provided by Federal statute, a cost sharing

or matching requirement may not be met by costs borne by another

Federal grant. This prohibition does not apply to income earned by a

grantee or subgrantee from a contract awarded under another Federal

grant.

(2) General revenue sharing. For the purpose of this section,

general revenue sharing funds distributed under 31 U.S.C. 6702 are not

considered Federal grant funds.

(3) Cost or contributions counted towards other Federal costs-

sharing requirements. Neither costs nor the values of third party in-

kind contributions may count towards satisfying a cost sharing or

matching requirement of a grant agreement if they have been or will be

counted towards satisfying a cost sharing or matching requirement of

another Federal grant agreement, a Federal procurement contract, or any

other award of Federal funds.

(4) Costs financed by program income. Costs financed by program

income, as defined in Sec. 2541.250, shall not count towards satisfying

a cost sharing or matching requirement unless they are expressly

permitted in the terms of the assistance agreement. (This use of

general program income is described in Sec. 2541.250(g).)

(5) Services or property financed by income earned by contractors.

Contractors under a grant may earn income from the activities carried

out under the contract in addition to the amounts earned from the party

awarding the contract. No costs of services or property supported by

this income may count toward satisfying a cost sharing or matching

requirement unless other provisions of the grant agreement expressly

permit this kind of income to be used to meet the requirement.

(6) Records. Costs and third party in-kind contributions counting

towards satisfying a cost sharing or matching requirement must be

verifiable from the records of grantees and subgrantee or cost-type

contractors. These records must show how the value placed on third

party in-kind contributions was derived. To the extent feasible,

volunteer services will be supported by the same methods that the

organization uses to support the allocability of regular personnel

costs.

(7) Special standards for third party in-kind contributions. (i)

Third party in-kind contributions count towards satisfying a cost

sharing or matching requirement only where, if the party receiving the

contributions were to pay for them, the payments would be allowable

costs.

(ii) Some third party in-kind contributions are goods and services

that, if the grantee, subgrantee, or contractor receiving the

contribution had to pay for them, the payments would have been an

indirect costs. Costs sharing or matching credit for such contributions

shall be given only if the grantee, subgrantee, or contractor has

established, along with its regular indirect cost rate, a special rate

for allocating to individual projects or programs the value of the

contributions.

(iii) A third party in-kind contribution to a fixed-price contract

may count towards satisfying a cost sharing or matching requirement

only if it results in:

(A) An increase in the services or property provided under the

contract (without additional cost to the grantee or subgrantee); or

(B) A cost savings to the grantee or subgrantee.

(iv) The values placed on third party in-kind contributions for

cost sharing or matching purposes will conform to the rules in the

succeeding sections of this part. If a third party in-kind contribution

is a type not treated in those sections, the value placed upon it shall

be fair and reasonable.

services provided to a grantee or subgrantee by individuals will be

valued at rates consistent with those ordinarily paid for similar work

in the grantee's or subgrantee's organization. If the grantee or

subgrantee does not have employees performing similar work, the rates

will be consistent with those ordinarily paid by other employers for

similar work in the same labor market. In either case, a reasonable

amount for fringe benefits may be included in the valuation.

(2) Employees of other organizations. When an employer other than a

grantee, subgrantee, or cost-type contractor furnishes free of charge

the services of an employee in the employee's normal line of work, the

services will be valued at the employee's regular rate of pay exclusive

of the employee's fringe benefits and overhead costs. If the services

are in a different line of work, paragraph (c)(1) of this section

applies.

(d) Valuation of third party donated supplies and loaned equipment

or space. (1) If a third party donates supplies, the contribution will

be valued at the market value of the supplies at the time of donation.

(2) If a third party donates the use of equipment or space in a

building but retains title, the contribution will be valued at the fair

rental rate of the equipment or space.

(e) Valuation of third party donated equipment, buildings, and

land. If a third party donates equipment, buildings, or land, and title

passes to a grantee or subgrantee, the treatment of the donated

property will depend upon the purpose of the grant or subgrant, as

follows:

(1) Awards for capital expenditures. If the purpose of the grant or

subgrant is to assist the grantee or subgrantee in the acquisition of

property, the market value of that property at the time of donation may

be counted as cost sharing or matching.

(2) Other awards. If assisting in the acquisition of property is

not the purpose of the grant or subgrant, paragraphs (e)(2) (i) and

(ii) of this section apply:

(i) If approval is obtained from the awarding agency, the market

value at the time of donation of the donated equipment or buildings and

the fair rental rate of the donated land may be counted as cost sharing

or matching. In the case of a subgrant, the terms of the grant

agreement may require that the approval be obtained from the Federal

agency as well as the grantee. In all cases, the approval may be given

only if a purchase of the equipment or rental of the land would be

approved as an allowable direct cost. If any part of the donated

property was acquired with Federal funds, only the non-federal share of

the property may be counted as cost-sharing or matching.

(ii) If approval is not obtained under paragraph (e)(2)(i) of this

section, no amount may be counted for donated land, and only

depreciation or use allowances may be counted for donated equipment and

buildings. The depreciation or use allowances for this property are not

treated as third party in-kind contributions. Instead, they are treated

as costs incurred by the grantee or subgrantee. They are computed and

allocated (usually as indirect costs) in accordance with the cost

principles specified in Sec. 2541.220, in the same way as depreciation

or use allowances for purchased equipment and buildings. The amount of

depreciation or use allowances for donated equipment and buildings is

based on the property's market value at the time it was donated.

(f) Valuation of grantee or subgrantee donated real property for

construction/acquisition. If a grantee or subgrantee donates real

property for a construction or facilities acquisition project, the

current market value of that property may be counted as cost sharing or

matching. If any part of the donated property was acquired with Federal

funds, only the non-federal share of the property may be counted as

cost sharing or matching.

(g) Appraisal of real property. In some cases under paragraphs (d),

(e) and (f) of this section, it will be necessary to establish the

market value of land or a building or the fair rental rate of land or

of space in a building. In these cases, the Federal agency may require

the market value or fair rental value be set by an independent

appraiser, and that the value or rate be certified by the grantee. This

requirement will also be imposed by the grantee on subgrantees.

Sec. 2541.250 Program income.

(a) General. Grantees are encouraged to earn income to defray

program costs. Program income includes income from fees for services

performed, from the use or rental of real or personal property acquired

with grant funds, from the sale of commodities or items fabricated

under a grant agreement, and from payments of principal and interest on

loans made with grant funds. Except as otherwise provided in

regulations of the Federal agency, program income does not include

interest on grant funds, rebates, credits, discounts, refunds, etc. and

interest earned on any of them.

(b) Definition of program income. Program income means gross income

received by the grantee or subgrantee directly generated by a grant

supported activity, or earned only as a result of the grant agreement

during the grant period. ``During the grant period'' is the time

between the effective date of the award and the ending date of the

award reflected in the final financial report.

regulations or the grant agreement, costs incident to the generation of

program income may be deducted from gross income to determine program

income.

(d) Governmental revenues. Taxes, special assessments, levies,

fines, and other such revenues raised by a grantee or subgrantee are

not program income unless the revenues are specifically identified in

the grant agreement or Federal agency regulations as program income.

(e) Royalties. Income from royalties and license fees for

copyrighted material, patents, and inventions developed by a grantee or

subgrantee is program income only if the revenues are specifically

identified in the grant agreement or Federal agency regulations as

program income. (See Sec. 2541.340)

(f) Property. Proceeds from the sale of real property or equipment

will be handled in accordance with the requirements of Secs. 2541.310

and 2541.320.

(g) Use of program income. Program income shall be deducted from

outlays which may be both Federal and non-Federal as described in

paragraphs (g)(1) and (2) of this section, unless the Federal agency

regulations or the grant agreement specify another alternative (or a

combination of the alternatives). In specifying alternatives, the

Federal agency may distinguish between income earned by the grantee and

income earned by subgrantees and between the sources, kinds, or amounts

of income. When Federal agencies authorize the alternatives in

paragraphs (g) (2) and (3) of this section, program income in excess of

any limits stipulated shall also be deducted from outlays.

(1) Deduction. Ordinarily program income shall be deducted from

total allowable costs to determine the net allowable costs. Program

income shall be used for current costs unless the Federal agency

authorizes otherwise. Program income which the grantee did not

anticipate at the time of the award shall be used to reduce the Federal

agency and grantee contributions rather than to increase the funds

committed to the project.

(2) Addition. When authorized, program income may be added to the

funds committed to the grant agreement by the Federal agency and the

grantee. The program income shall be used for the purposes and under

the conditions of the grant agreement.

(3) Cost sharing or matching. When authorized, program income may

be used to meet the cost sharing or matching requirement of the grant

agreement. The amount of the Federal grant award remains the same.

(h) Income after the award period. There are no Federal

requirements governing the disposition of program income earned after

the end of the award period (i.e., until the ending date of the final

financial report, see paragraph (a) of this section), unless the terms

of the agreement or the Federal agency regulations provide otherwise.

Sec. 2541.260 Non-Federal audit.

(a) Basic rule. Grantees and subgrantees are responsible for

obtaining audits in accordance with the Single Audit Act of 1984 (31

U.S.C.7501-7) and Federal agency implementing regulations. The audits

shall be made by an independent auditor in accordance with generally

accepted government auditing standards covering financial and

compliance audits.

(b) Subgrantees. State or local governments, as those terms are

defined for purposes of the Single Audit Act, that receive Federal

financial assistance and provide $25,000 or more of it in a fiscal year

to a subgrantee shall:

(1) Determine whether State or local subgrantees have met the audit

requirements of the Act and whether subgrantees covered by OMB Circular

A-110, ``Uniform Requirements for Grants and Other Agreements with

Institutions of Higher Education, Hospitals and Other Nonprofit

Organizations'' have met the audit requirement. Commercial contractors

(private for profit and private and governmental organizations)

providing goods and services to State and local governments are not

required to have a single audit performed. State and local governments

should use their own procedures to ensure that the contractor has

complied with laws and regulations affecting the expenditure of Federal

funds;

(2) Determine whether the subgrantee spent Federal assistance funds

provided in accordance with applicable laws and regulations. This may

be accomplished by reviewing an audit of the subgrantee made in

accordance with the Act, Circular A-110, or through other means (e.g.,

program reviews) if the subgrantee has not had such an audit;

(3) Ensure that appropriate corrective action is taken within six

months after receipt of the audit report in instance of noncompliance

with Federal laws and regulations;

(4) Consider whether subgrantee audits necessitate adjustment of

the grantee's own records; and

(5) Require each subgrantee to permit independent auditors to have

access to the records and financial statements.

Sec. 2541.360 shall be followed.

Subpart D--Changes, Property and Subawards

Sec. 2541.300 Changes.

(a) General. Grantees and subgrantees are permitted to re budget

within the approved direct cost budget to meet unanticipated

requirements and may make limited program changes to the approved

project. However, unless waived by the awarding agency, certain types

of post-award changes in budgets and projects shall require the prior

written approval of the awarding agency.

(b) Relation to cost principles. The applicable cost principles

(see Sec. 2541.220) contain requirements for prior approval of certain

types of costs. Except where waived, those requirements apply to all

grants and subgrants even if paragraphs (c) through (f) of this section

do not.

in other regulations or an award document, grantees or subgrantees

shall obtain the prior approval of the awarding agency whenever any of

the following changes is anticipated under a nonconstruction award:

(i) Any revision which would result in the need for additional

funding.

(ii) Unless waived by the awarding agency, cumulative transfers

among direct cost categories, or, if applicable, among separately

budgeted programs, projects, functions, or activities which exceed or

are expected to exceed ten percent of the current total approved

budget, whenever the awarding agency's share exceeds $100,000.

(iii) Transfer of funds allotted for training allowances (i.e.,

from direct payments to trainees to other expense categories).

(2) Construction projects. Grantees and subgrantees shall obtain

prior written approval for any budget revision which would result in

the need for additional funds.

(3) Combined construction and nonconstruction projects. When a

grant or subgrant provides funding for both construction and

nonconstruction activities, the grantee or subgrantee must obtain prior

written approval from the awarding agency before making any fund or

budget transfer from nonconstruction to construction or vice versa.

(d) Programmatic changes. Grantees or subgrantees must obtain the

prior approval of the awarding agency whenever any of the following

actions is anticipated:

(1) Any revision of the scope or objectives of the project

(regardless of whether there is an associated budget revision requiring

prior approval).

(2) Need to extend the period of availability of funds.

(3) Changes in key persons in cases where specified in an

application or a grant award. In research projects, a change in the

project director or principal investigator shall always require

approval unless waived by the awarding agency.

(4) Under nonconstruction projects, contracting out, subgranting

(if authorized by law) or otherwise obtaining the services of a third

party to perform activities which are central to the purposes of the

award. This approval requirement is in addition to the approval

requirements of Sec. 2541.360 but does not apply to the procurement of

equipment, supplies, and general support services.

(e) Additional prior approval requirements. The awarding agency may

not require prior approval for any budget revision which is not

described in paragraph (c) of this section.

(f) Requesting prior approval. (1) A request for prior approval of

any budget revision will be in the same budget formal the grantee used

in its application and shall be accompanied by a narrative

justification for the proposed revision.

(2) A request for a prior approval under the applicable Federal

cost principles (see Sec. 2541.220) may be made by letter.

(3) A request by a subgrantee for prior approval will be addressed

in writing to the grantee. The grantee will promptly review such

request and shall approve or disapprove the request in writing. A

grantee will not approve any budget or project revision which is

inconsistent with the purpose or terms and conditions of the Federal

grant to the grantee. If the revision, requested by the subgrantee

would result in a change to the grantee's approved project which

requires Federal prior approval, the grantee will obtain the Federal

agency's approval before approving the subgrantee's request.

Sec. 2541.310 Real property.

(a) Title. Subject to the obligations and conditions set forth in

this section, title to real property acquired under a grant or subgrant

will vest upon acquisition in the grantee or subgrantee respectively.

(b) Use. Except as otherwise provided by Federal statutes, real

property will be used for the originally authorized purposes as long as

needed for that purposes, and the grantee or subgrantee shall not

dispose of or encumber its title or other interests.

originally authorized purpose, the grantee or subgrantee will request

disposition instructions from the awarding agency. The instructions

will provide for one of the following alternatives:

(1) Retention of title. Retain title after compensating the

awarding agency. The amount paid to the awarding agency will be

computed by applying the awarding agency's percentage of participation

in the cost of the original purchase to the fair market value of the

property. However, in those situations where a grantee or subgrantee is

disposing of real property acquired with grant funds and acquiring

replacement real property under the same program, the net proceeds from

the disposition may be used as an offset to the cost of the replacement

property.

(2) Sale of property. Sell the property and compensate the awarding

agency. The amount due to the awarding agency will be calculated by

applying the awarding agency's percentage of participation in the cost

of the original purchase to the proceeds of the sale after deduction of

any actual and reasonable selling and fixing-up expenses. If the grant

is still active, the net proceeds from sale may be offset against the

original cost of the property. When a grantee or subgrantee is directed

to sell property, sales procedures shall be followed that provide for

competition to the extent practicable and result in the highest

possible return.

(3) Transfer of title. Transfer title to the awarding agency or to

a third-party designated/approved by the awarding agency. The grantee

or subgrantee shall be paid an amount calculated by applying the

grantee or subgrantee's percentage of participation in the purchase of

the real property to the current fair market value of the property.

Sec. 2541.320 Equipment.

(a) Title. Subject to the obligations and conditions set forth in

this section, title to equipment acquired under a grant or subgrant

will vest upon acquisition in the grantee or subgrantee respectively.

(b) States. A State will use, manage, and dispose of equipment

acquired under a grant by the State in accordance with State laws and

procedures. Other grantees and subgrantees will follow paragraphs (c)

through (e) of this section.

in the program or project for which it was acquired as long as needed,

whether or not the project or program continues to be supported by

Federal funds. When no longer needed for the original program or

project, the equipment may be used in other activities currently or

previously supported by a Federal agency.

(2) The grantee or subgrantee shall also make equipment available

for use on other projects or programs currently or previously supported

by the Federal Government, providing such use will not interfere with

the work on the projects or program for which it was originally

acquired. First preference for other use shall be given to other

programs or projects supported by the awarding agency. User fees should

be considered if appropriate.

(3) Notwithstanding the encouragement in Sec. 2541.250(a) to earn

program income, the grantee or subgrantee must not use equipment

acquired with grant funds to provide services for a fee to compete

unfairly with private companies that provide equivalent services,

unless specifically permitted or contemplated by Federal statute.

(4) When acquiring replacement equipment, the grantee or subgrantee

may use the equipment to be replaced as a trade-in or sell the property

and use the proceeds to offset the cost of the replacement property,

subject to the approval of the awarding agency.

(d) Management requirements. Procedures for managing equipment

(including replacement equipment), whether acquired in whole or in part

with grant funds, until disposition takes place will, as a minimum,

meet the following requirements:

(1) Property records must be maintained that include a description

of the property, a serial number or other identification number, the

source of property, who holds title, the acquisition date, and cost of

the property, percentage of Federal participation in the cost of the

property, the location, use and condition of the property, and any

ultimate disposition data including the date of disposal and sale price

of the property.

(2) A physical inventory of the property must be taken and the

results reconciled with the property records at least once every two

years.

(3) A control system must be developed to ensure adequate

safeguards to prevent loss, damage, or theft of the property. Any loss,

damage, or theft shall be investigated.

(4) Adequate maintenance procedures must be developed to keep the

property in good condition.

(5) If the grantee or subgrantee is authorized or required to sell

the property, proper sales procedures must be established to ensure the

highest possible return.

(e) Disposition. When original or replacement equipment acquired

under a grant or subgrant is no longer needed for the original project

or program or for other activities currently or previously supported by

a Federal agency, disposition of the equipment will be made as follows:

(1) Items of equipment with a current per-unit fair market value of

less than $5,000 may be retained, sold or otherwise disposed of with no

further obligation to the awarding agency.

(2) Items of equipment with a current per unit fair market value in

excess of $5,000 may be retained or sold and the awarding agency shall

have a right to an amount calculated by multiplying the current market

value or proceeds from sale by the awarding agency's share of the

equipment.

(3) In cases where a grantee or subgrantee fails to take

appropriate disposition actions, the awarding agency may direct the

grantee or subgrantee to take excess and disposition actions.

(f) Federal equipment. In the event a grantee or subgrantee is

provided federally-owned equipment:

(1) Title will remain vested in the Federal Government.

(2) Grantees or subgrantees will manage the equipment in accordance

with Federal agency rules and procedures, and submit an annual

inventory listing.

(3) When the equipment is no longer needed, the grantee or

subgrantee will request disposition instructions from the Federal

agency.

(g) Right to transfer title. The Federal awarding agency may

reserve the right to transfer title to the Federal Government or a

third part named by the awarding agency when such a third party is

otherwise eligible under existing statutes. Such transfers shall be

subject to the following standards:

(1) The property shall be identified in the grant or otherwise made

known to the grantee in writing.

(2) The Federal awarding agency shall issue disposition instruction

within 120 calendar days after the end of the Federal support of the

project for which it was acquired. If the Federal awarding agency fails

to issue disposition instructions within the 120 calendar-day period

the grantee shall follow paragraph (e) of this section.

(3) When title to equipment is transferred, the grantee shall be

paid an amount calculated by applying the percentage of participation

in the purchase to the current fair market value of the property.

Sec. 2541.330 Supplies.

(a) Title. Title to supplies acquired under a grant or subgrant

will vest, upon acquisition, in the grantee or subgrantee respectively.

(b) Disposition. If there is a residual inventory of unused

supplies exceeding $5,000 in total aggregate fair market value upon

termination or completion of the award, and if the supplies are not

needed for any other federally sponsored programs or projects, the

grantee or subgrantee shall compensate the awarding agency for its

share.

Sec. 2541.340 Copyrights.

The Federal awarding agency reserves a royalty-free, non-exclusive,

and irrevocable license to reproduce, publish or otherwise use, and to

authorize others to use, for Federal Government purposes:

(a) The copyright in any work developed under a grant, subgrant, or

contract under a grant or subgrant; and

(b) Any rights of copyright to which a grantee, subgrantee or a

contractor purchases ownership with grant support.

Sec. 2541.350 Subawards to debarred and suspended parties.

Grantees and subgrantees must not make any award or permit any

award (subgrant or contract) at any tier to any party which is debarred

or suspended or is otherwise excluded from or ineligible for

participation in Federal assistance programs under Executive Order

12549, ``Debarment and Suspension.''

Sec. 2541.360 Procurement.

(a) States. When procuring property and services under a grant, a

State will follow the same policies and procedures it uses for

procurements from its non-Federal funds. The State will ensure that

every purchase order or other contract includes any clauses required by

Federal statutes and executive orders and their implementing

regulations. Other grantees and subgrantees will follow paragraphs (b)

through (i) of this section.

(b) Procurement standards. (1) Grantees and subgrantees will use

their own procurement procedures which reflect applicable State and

local laws and regulations, provided that the procurements conform to

applicable Federal law and the standards identified in this section.

(2) Grantees and subgrantees will maintain a contract

administration system which ensures that contractors perform in

accordance with the terms, conditions, and specifications of their

contracts or purchase orders.

(3) Grantees and subgrantees will maintain a written code of

standards of conduct governing the performance of their employees

engaged in the award and administration of contracts. No employee,

officer or agent of the grantee or subgrantee shall participate in

selection, or in the award or administration of a contract supported by

Federal funds if a conflict of interest, real or apparent, would be

involved. Such a conflict would arise when--

(i) The employee, officer or agent;

(ii) Any member of his immediate family;

(iii) His or her partner; or

(iv) An organization which employs, or is about to employ, any of

the above, has a financial or other interest in the firm selected for

award. The grantee's or subgrantee's officers, employees or agents will

neither solicit nor accept gratuities, favors or anything of monetary

value from contractors, potential contractors, or parties to

subagreements. Grantee and subgrantees may set minimum rules where the

financial interest is not substantial or the gift is an unsolicited

item of nominal intrinsic value. To the extent permitted by State or

local law or regulations, such standards or conduct will provide for

penalties, sanctions, or other disciplinary actions for violations of

such standards by the grantee's and subgrantee's officers, employees,

or agents, or by contractors or their agents. The awarding agency may

in regulation provide additional prohibitions relative to real,

apparent, or potential conflicts of interest.

(4) Grantee and subgrantee procedures will provide for a review of

proposed procurements to avoid purchase of unnecessary or duplicative

items. Consideration should be given to consolidating or breaking out

procurements to obtain a more economical purchase. Where appropriate,

an analysis will be made of lease versus purchase alternatives, and any

other appropriate analysis to determine the most economical approach.

(5) To foster greater economy and efficiency, grantees and

subgrantees are encouraged to enter into State and local

intergovernmental agreements for procurement or use of common goods and

services.

(6) Grantees and subgrantees are encouraged to use Federal excess

and surplus property in lieu of purchasing new equipment and property

whenever such use is feasible and reduces project costs.

(7) Grantees and subgrantees are encouraged to use value

engineering clauses in contracts for construction projects of

sufficient size to offer reasonable opportunities for cost reductions.

Value engineering is a systematic and creative analysis of each

contract item or task to ensure that its essential function is provided

at the overall lower cost.

(8) Grantees and subgrantees will make awards only to responsible

contractors possessing the ability to perform successfully under the

terms and conditions of a proposed procurement. Consideration will be

given to such matters as contractor integrity, compliance with public

policy, record of past performance, and financial and technical

resources.

(9) Grantees and subgrantees will maintain records sufficient to

detail the significant history of a procurement. These records will

include, but are not necessarily limited to the following: Rationale

for the method of procurement, selection of contract type, contractor

selection or rejection, and the basis for the contract price.

(10) Grantees and subgrantees will use time and material type

contracts only--

(i) After a determination that no other contract is suitable; and

(ii) If the contract includes a ceiling price that the contractor

exceeds at its own risk.

(11) Grantees and subgrantees alone will be responsible, in

accordance with good administrative practice and sound business

judgment, for the settlement of all contractual and administrative

issues arising out of procurements. These issues include, but are not

limited to source evaluation, protests, disputes, and claims. These

standards do not relieve the grantee or subgrantee of any contractual

responsibilities under its contracts. Federal agencies will not

substitute their judgment for that of the grantee or subgrantee unless

the matter is primarily a Federal concern. Violations of law will be

referred to the local, State, or Federal authority having proper

jurisdiction.

(12) Grantees and subgrantees will have protest procedures to

handle and resolve disputes relating to their procurements and shall in

all instances disclose information regarding the protest to the

awarding agency. A protester must exhaust all administrative remedies

with the grantee and subgrantee before pursuing a protest with the

Federal agency. Reviews of protests by the Federal agency will be

limited to:

(i) Violations of Federal law or regulations and the standards of

this section (violations of State or local law will be under the

jurisdiction of State or local authorities); and

(ii) Violations of the grantee's or sub-grantee's protest

procedures for failure to review a complaint or protest. Protests

received by the Federal agency other than those specified in this

paragraph (b)(12)(ii) will be referred to the grantee or subgrantee.

in a manner providing full and open competition consistent with the

standards of this section. Some of the situations considered to be

restrictive of competition include but are not limited to:

(i) Placing unreasonable requirements on firms in order for them to

qualify to do business;

(ii) Requiring unnecessary experience and excessive bonding;

(iii) Noncompetitive pricing practices between firms or between

affiliated companies;

(iv) Noncompetitive awards to consultants that are on retainer

contracts;

(v) Organizational conflicts of interest;

(vi) Specifying only a ``brand name'' product instead of allowing

``an equal'' product to be offered and describing the performance of

other relevant requirements of the procurement; and

(vii) Any arbitrary action in the procurement process.

(2) Grantees and subgrantees will conduct procurements in a manner

that prohibits the use of statutory or administratively imposed in-

State or local geographical preferences in the evaluation of bids or

proposals, except in those cases where applicable Federal statutes

expressly mandate or encourage geographic preference. Nothing in this

section preempts State licensing laws. When contracting for

architectural and engineering (A/E) services, geographic location may

be a selection criteria provided its application leaves an appropriate

number of qualified firms, given the nature and size of the project, to

compete for the contract.

(3) Grantees will have written selection procedures for procurement

transactions. These procedures will ensure that all solicitations:

(i) Incorporate a clear and accurate description of the technical

requirements for the material, product, or service to be procured. Such

description shall not, in competitive procurements, contain features

which unduly restrict competition. The description may include a

statement of the qualitative nature of the material, product or service

to be procured, and when necessary, shall set forth those minimum

essential characteristics and standards to which it must conform if it

is to satisfy its intended use. Detailed product specifications should

be avoided if at all possible. When it is impractical or uneconomical

to make a clear and accurate description of the technical requirements,

a ``brand name or equal'' description may be used as a means to define

the performance or other salient requirements of a procurement. The

specific features of the named brand which must be met by offerors

shall be clearly stated; and

(ii) Identify all requirements which the offerors must fulfill and

all other factors to be used in evaluating bids or proposals.

(4) Grantees and subgrantees will ensure that all prequalified

lists of persons, firms, or products which are used in acquiring goods

and services are current and include enough qualified sources to ensure

maximum open and free competition. Also, grantees and subgrantees will

not preclude potential bidders from qualifying during the solicitation

period.

(d) Methods of procurement to be followed--(1) Procurement by small

purchase procedures. Small purchase procedures are those relatively

simple and informal procurement methods for securing services,

supplies, or other property that do not cost more than $25,000 in the

aggregate. If small purchase procurements are used, price or rate

quotations will be obtained from an adequate number of qualified

sources.

(2) Procurement by sealed bids (formal advertising). Bids are

publicly solicited and a firm-fixed-price contract (lump sum or unit

price) is awarded to the responsible bidder whose bid, conforming with

all the material terms and conditions of the invitation for bids, is

the lowest in price. The sealed bid method is the preferred method for

procuring construction, if the conditions in paragraph (d)(2)(i) of

this section apply.

(i) In order for sealed bidding to be feasible, the following

conditions should be present:

(A) A complete, adequate, and realistic specification or purchase

description is available;

(B) Two or more responsible bidders are willing and able to compete

effectively for the business; and

the selection of the successful bidder can be made principally on the

basis of price.

(ii) If sealed bids are used, the following requirements apply:

(A) The invitation for bids will be publicly advertised and bids

shall be solicited from an adequate number of known suppliers,

providing them sufficient time prior to the date set for opening the

bids;

(B) The invitation for bids, which will include any specifications

and pertinent attachments, shall define the items or services in order

for the bidder to properly respond;

prescribed in the invitation for bids;

(D) A firm fixed-price contract award will be made in writing to

the lowest responsive and responsible bidder. Where specified in

bidding documents, factors such as discounts, transportation cost, and

life cycle costs shall be considered in determining which bid is

lowest. Payment discounts will only be used to determine the low bid

when prior experience indicates that such discounts are usually taken

advantage of; and

(E) Any or all bids may be rejected if there is a sound documented

reason.

(3) Procurement by competitive proposals. The technique of

competitive proposals is normally conducted with more than one source

submitting an offer, and either a fixed-price or cost-reimbursement

type contract is awarded. It is generally used when conditions are not

appropriate for the use of sealed bids. If this method is used, the

following requirements apply:

(i) Requests for proposals will be publicized and identify all

evaluation factors and their relative importance. Any response to

publicized requests for proposals shall be honored to the maximum

extent practical;

(ii) Proposals will be solicited from an adequate number of

qualified sources;

(iii) Grantees and subgrantees will have a method for conducting

technical evaluations of the proposals received and for selecting

awardees;

(iv) Awards will be made to the responsible firm whose proposal is

most advantageous to the program, with price and other factors

considered; and

(v) Grantees and subgrantees may use competitive proposal

procedures for qualifications-based procurement of architectural/

engineering (A/E) professional services whereby competitors'

qualifications are evaluated and the most qualified competitor is

selected, subject to negotiation of fair and reasonable compensation.

The method, where price is not used as a selection factor, can only be

used in procurement of A/E professional services. It cannot be used to

purchase other types of services though A/E firms are a potential

source to perform the proposed effort.

(4) Procurement by noncompetitive proposals. This procurement is

through solicitation of a proposal from only one source, or after

solicitation of a number of sources, competition is determined

inadequate.

(i) Procurement by noncompetitive proposals may be used only when

the award of a contract is infeasible under small purchase procedures,

sealed bids or competitive proposals and one of the following

circumstances applies:

(A) The item is available only from a single source;

(B) The public exigency or emergency for the requirement will not

permit a delay resulting from competitive solicitation;

(D) After solicitation of a number of sources, competition is

determined inadequate.

(ii) Cost analysis, i.e., verifying the proposed cost data, the

projections of the data, and the evaluation of the specific elements of

costs and profit, is required.

(iii) Grantees and subgrantees may be required to submit the

proposed procurement to the awarding agency for pre-award review in

accordance with paragraph (g) of this section.

(e) Contracting with small and minority firms, women's business

enterprise and labor surplus area firms. (1) The grantee and subgrantee

will take all necessary affirmative steps to assure that minority

firms, women's business enterprises, and labor surplus area firms are

used when possible.

(2) Affirmative steps shall include:

(i) Placing qualified small and minority businesses and women's

business enterprises on solicitation lists;

(ii) Assuring that small and minority businesses, and women's

business enterprises are solicited whenever they are potential sources;

(iii) Dividing total requirements, when economically feasible, into

smaller tasks or quantities to permit maximum participation by small

and minority business, and women's business enterprises;

(iv) Establishing delivery schedules, where the requirement

permits, which encourage participation by small and minority business,

and women's business enterprises;

(v) Using the services and assistance of the Small Business

Administration, and the Minority Business Development Agency of the

Department of Commerce; and

(vi) Requiring the prime contractor, if subcontracts are to be let,

to take the affirmative steps listed in paragraphs (e)(2) (i) through

(v) of this section.

(f) Contract cost and price. (1) Grantees and subgrantees must

perform a cost or price analysis in connection with every procurement

action including contract modifications. The method and degree of

analysis is dependent on the facts surrounding the particular

procurement situation, but as a starting point, grantees must make

independent estimates before receiving bids or proposals. A cost

analysis must be performed when the offeror is required to submit the

elements of his estimated cost, e.g., under professional, consulting,

and architectural engineering services contracts. A cost analysis will

be necessary when adequate price competition is lacking, and for sole

source procurements, including contract modifications or change orders,

unless price reasonableness can be established on the basis of a

catalog or market price of a commercial product sold in substantial

quantities to the general public or based on prices set by law or

regulation. A price analysis will be used in all other instances to

determine the reasonableness of the proposed contract price.

(2) Grantees and subgrantees will negotiate profit as a separate

element of the price for each contract in which there is no price

competition and in all cases where cost analysis is performed. To

establish a fair and reasonable profit, consideration will be given to

the complexity of the work to be performed, the risk borne by the

contractor, the contractor's investment, the amount of subcontracting,

the quality of its record of past performance, and industry profit

rates in the surrounding geographical area for similar work.

(3) Costs or prices based on estimated costs for contracts under

grants will be allowable only to the extent that costs incurred or cost

estimates included in negotiated prices are consistent with Federal

cost principles (see Sec. 2541.220). Grantees may reference their own

cost principles that comply with the applicable Federal cost

principles.

(4) The cost plus a percentage of cost and percentage of

construction cost methods of contracting shall not be used.

(g) Awarding agency review. (1) Grantees and subgrantees must make

available, upon request of the awarding agency, technical

specifications on proposed procurements where the awarding agency

believes such review is needed to ensure that the item and/or service

specified is the one being proposed for purchase. This review generally

will take place prior to the time the specification is incorporated

into a solicitation document. However, if the grantee or subgrantee

desires to have the review accomplished after a solicitation has been

developed, the awarding agency may still review the specifications,

with such review usually limited to the technical aspects of the

proposed purchase.

(2) Grantees and subgrantees must on request make available for

awarding agency pre-award review procurement documents, such as

requests for proposals or invitations for bids, independent cost

estimates, etc., when--

(i) A grantee's or subgrantee's procurement procedures or operation

fails to comply with the procurement standards in this section; or

(ii) The procurement is expected to exceed $25,000 and is to be

awarded without competition or only one bid or offer is received in

response to a solicitation; or

(iii) The procurement, which is expected to exceed $25,000,

specifies a ``brand name'' product; or

(iv) The proposed award over $25,000 is to be awarded to other than

the apparent low bidder under a sealed bid procurement; or

(v) A proposed contract modification changes the scope of a

contract or increases the contract amount by more than $25,000.

(3) A grantee or subgrantee will be exempt from the pre-award

review in paragraph (g)(2) of this section if the awarding agency

determines that its procurement systems comply with the standards of

this section.

(i) A grantee or subgrantee may request that its procurement system

be reviewed by the awarding agency to determine whether its system

meets these standards in order for its system to be certified.

Generally, these reviews shall occur where there is a continuous high-

dollar funding, and third-party contracts are awarded on a regular

basis.

(ii) A grantee or subgrantee may self-certify its procurement

system. Such self-certification shall not limit the awarding agency's

right to survey the system. Under a self-certification procedure,

awarding agencies may wish to rely on written assurances from the

grantee or subgrantee that it is complying with these standards. A

grantee or subgrantee will cite specific procedures, regulations,

standards, etc., as being in compliance with these requirements and

have its system available for review.

(h) Bonding requirements. For construction or facility improvement

contracts or subcontracts exceeding $100,000, the awarding agency may

accept the bonding policy and requirements of the grantee or subgrantee

provided the awarding agency has made a determination that the awarding

agency's interest is adequately protected. If such a determination has

not been made, the minimum requirements shall be as follows:

(1) A bid guarantee from each bidder equivalent to five percent of

the bid price. The ``bid guarantee'' shall consist of a firm commitment

such as a bid bond, certified check, or other negotiable instrument

accompanying a bid as assurance that the bidder will, upon acceptance

of his bid, execute such contractual documents as may be required

within the time specified.

(2) A performance bond on the part of the contractor for 100

percent of the contract price. A ``performance bond'' is one executed

in connection with a contract to secure fulfillment of all the

contractor's obligations under such contract.

(3) A payment bond on the part of the contractor for 100 percent of

the contract price. A ``payment bond'' is one executed in connection

with a contract to assure payment as required by law of all persons

supplying labor and material in the execution of the work provided for

in the contract.

(i) Contract provisions. A grantee's and subgrantee's contracts

must contain provisions in this paragraph of this section. Federal

agencies are permitted to require changes, remedies, changed

conditions, access and records retention, suspension of work, and other

clauses approved by the Office of Procurement Policy.

(1) Administrative, contractual, or legal remedies in instances

where contractors violate or breach contract terms, and provide for

such sanctions and penalties as may be appropriate (contracts other

than small purchases).

(2) Termination for cause and for convenience by the grantee or

subgrantee including the manner by which it will be effected and the

basis for settlement (all contracts in excess of $10,000).

(3) Compliance with Executive Order 11246 of September 24, 1965 (3

CFR, 1964-1965 Comp., p. 339) entitled ``Equal Employment

Opportunity,'' as amended by Executive Order 11375 of October 13, 1967

(3 CFR, 1966-1970 Comp., p. 684) and as supplemented in Department of

Labor regulations (41 CFR chapter 60) (all construction contracts

awarded in excess of $10,000 by grantees and their contractors or

subgrantees).

(4) Compliance with the Copeland ``Anti-Kickback'' Act (18 U.S.C.

874) as supplemented in Department of Labor regulations (29 CFR part 3)

(all contracts and subgrants for construction or repair).

(5) Compliance with the Davis-Bacon Act (40 U.S.C. 276a to a-7) as

supplemented by Department of Labor regulations (29 CFR part 5)

(construction contracts in excess of $2,000 awarded by grantees and

subgrantees when required by Federal grant program legislation).

(6) Compliance with sections 103 and 107 of the Contract Work Hours

and Safety Standards Act (40 U.S.C. 327-330) as supplemented by

Department of Labor regulations (29 CFR part 5) (construction contracts

awarded by grantees and subgrantees in excess of $2,000, and in excess

of $2,500 for other contracts which involve the employment of mechanics

or laborers).

(7) Notice of awarding agency requirements and regulations

pertaining to reporting.

(8) Notice of awarding agency requirements and regulations

pertaining to patent rights with respect to any discovery or invention

which arises or is developed in the course of or under such contract.

(9) Awarding agency requirements and regulations pertaining to

copyrights and rights in data.

(10) Access by the grantee, the subgrantee, the Federal grantor

agency, the Comptroller General of the United States, or any of their

duly authorized representatives to any books, documents, papers, and

records of the contractor which are directly pertinent to that specific

contract for the purpose of making audit, examination, excerpts, and

transcriptions.

(11) Retention of all required records for three years after

grantees or subgrantees make final payments and all other pending

matters are closed.

(12) Compliance with all applicable standards, orders, or

requirements issued under section 306 of the Clear Air Act (42 U.S.C.

1857(h)), section 508 of the Clean Water Act (33 U.S.C. 1368),

Executive Order 11738 (3 CFR, 1971-1975 Comp., p. 799), and

Environmental Protection Agency regulations (40 CFR part 15)

(contracts, subcontracts, and subgrants of amounts in excess of

$100,000).

(13) Mandatory standards and policies relating to energy efficiency

which are contained in the State energy conservation plan issued in

compliance with the Energy Policy and Conservation Act (42 U.S.C. 6201

et seq.).

Sec. 2541.370 Subgrants.

(a) States. States shall follow State law and procedures when

awarding and administering subgrants (whether on a cost reimbursement

or fixed amount basis) of financial assistance to local and Indian

tribal governments. States shall:

(1) Ensure that every subgrant includes any clauses required by

Federal statute and executive orders and their implementing

regulations;

(2) Ensure that subgrantees are aware of requirements imposed upon

them by Federal statute and regulation;

(3) Ensure that a provision for compliance with Sec. 2541.400 is

placed in every cost reimbursement subgrant; and

(4) Conform any advances of grant funds to subgrantees

substantially to the same standards of timing and amount that apply to

cash advances by Federal agencies.

(b) All other grantees. All other grantees shall follow the

provisions of this part which are applicable to awarding agencies when

awarding and administering subgrants (whether on a cost reimbursement

or fixed amount basis) of financial assistance to local and Indian

tribal governments. Grantees shall:

(1) Ensure that every subgrant includes a provision for compliance

with this part;

(2) Ensure that every subgrant includes any clauses required by

Federal statute and executive orders and their implementing

regulations; and

(3) Ensure that subgrantees are aware of requirements imposed upon

them by Federal statutes and regulations.

do not apply to the award and administration of subgrants:

(1) Sec. 2541.100;

(2) Sec. 2541.110;

(3) The letter-of-credit procedures specified in Treasury

Regulations at 31 CFR part 205, cited in Sec. 2541.210; and

(4) Sec. 2541.500.

Subpart E--Reports, Records, Retention and Enforcment

Sec. 2541.400 Monitoring and reporting program performance.

(a) Monitoring by grantees. Grantees are responsible for managing

the day-to-day operations of grant and subgrant supported activities.

Grantees must monitor grant and subgrant supported activities to assure

compliance with applicable Federal requirements and that performance

goals are being achieved. Grantee monitoring must cover each program,

function or activity.

(b) Nonconstruction performance reports. The Federal agency may, if

it decides that performance information available from subsequent

applications contains sufficient information to meet its programmatic

needs, require the grantee to submit a performance report only upon

expiration or termination of grant support. Unless waived by the

Federal agency this report will be due on the same date as the final

Financial Status Report.

(1) Grantees shall submit annual performance reports unless the

awarding agency requires quarterly or semi-annual reports. However,

performance reports will not be required more frequently than

quarterly. Annual reports shall be due 90 days after the grant year,

quarterly or semi-annual reports shall be due 30 days after the

reporting period. The final performance report will be due 90 days

after the expiration or termination of grant support. If a justified

request is submitted by a grantee, the Federal agency may extend the

due date for any performance report. Additionally, requirements for

unnecessary performance reports may be waived by the Federal agency.

(2) Performance reports will contain, for each grant, brief

information on the following:

(i) A comparison of actual accomplishments to the objectives

established for the period. Where the output of the project can be

quantified, a computation of the cost per unit of output may be

required if that information will be useful.

(ii) The reasons for slippage if established objectives were not

met.

(iii) Additional pertinent information including, when appropriate,

analysis and explanation of cost overruns or high unit costs.

(3) Grantees will not be required to submit more than the original

and two copies of performance reports.

(4) Grantees will adhere to the standards in this section in

prescribing performance reporting requirements for subgrantees.

technical inspections and certified percentage-of-completion data are

relied on heavily by Federal agencies to monitor progress under

construction grants and subgrants. The Federal agency will require

additional formal performance reports only when considered necessary,

and never more frequently than quarterly.

(d) Significant developments. Events may occur between the

scheduled performance reporting dates which have significant impact

upon the grant or subgrant supported activity. In such cases, the

grantee must inform the Federal agency as soon as the following types

of conditions become known:

(1) Problems, delays, or adverse conditions which will materially

impair the ability to meet the objective of the award. This disclosure

must include a statement of the action taken, or contemplated, and any

assistance needed to resolve the situation.

(2) Favorable developments which enable meeting time schedules and

objectives sooner or at less cost than anticipated or producing more

beneficial results than originally planned.

(e) Site visits. Federal agencies may make site visits as warranted

by program needs.

(f) Waivers, extensions. (1) Federal agencies may waive any

performance report required by this part if not needed.

(2) The grantee may waive any performance report from a subgrantee

when not needed. The grantee may extend the due date for any

performance report from a subgrantee if the grantee will still be able

to meet its performance reporting obligations to the Federal agency.

Sec. 2541.410 Financial reporting.

(a) General.--(1) Except as provided in paragraphs (a) (2) and (5)

of this section, grantees will use only the forms specified in

paragraphs (a) through (e) of this section, and such supplementary or

other forms as may from time to time be authorized by OMB, for:

(i) Submitting financial reports to Federal agencies; or

(ii) Requesting advances or reimbursements when letters of credit

are not used.

(2) Grantees need not apply the forms prescribed in this section in

dealing with their subgrantees. However, grantees shall not impose more

burdensome requirements on subgrantees.

(3) Grantees shall follow all applicable standard and supplemental

Federal agency instructions approved by OMB to the extent required

under the Paperwork Reduction Act of 1980 for use in connection with

forms specified in paragraphs (b) through (e) of this section. Federal

agencies may issue substantive supplementary instructions only with the

approval of OMB. Federal agencies may shade out or instruct the grantee

to disregard any line item that the Federal agency finds unnecessary

for its decision making purposes.

(4) Grantees will not be required to submit more than the original

and two copies of forms required under this part.

(5) Federal agencies may provide computer outputs to grantees to

expedite or contribute to the accuracy of reporting. Federal agencies

may accept the required information from grantees in machine usable

format or computer printouts instead of prescribed forms.

(6) Federal agencies may waive any report required by this section

if not needed.

(7) Federal agencies may extend the due date of any financial

report upon receiving a justified request from a grantee.

(b) Financial Status Report.--(1) Form. Grantees will use Standard

Form 269 or 269A, Financial Status Report, to report the status of

funds for all nonconstruction grants and for construction grants when

required in accordance with paragraph (e)(2)(iii) of this section.

(2) Accounting basis. Each grantee will report program outlays and

program income on a cash or accrual basis as prescribed by the awarding

agency. If the Federal agency requires accrual information and the

grantee's accounting records are not normally kept on the accrual

basis, the grantee shall not be required to convert its accounting

system but shall develop such accrual information through an analysis

of the documentation on hand.

(3) Frequency. The Federal agency may prescribe the frequency of

the report for each project or program. However, the report will not be

required more frequently than quarterly. If the Federal agency does not

specify the frequency of the report, it will be submitted annually. A

final report will be required upon expiration or termination of grant

support.

(4) Due date. When reports are required on a quarterly or

semiannual basis, they will be due 30 days after the reporting period.

When required on an annual basis, they will be due 90 days after the

grant year. Final reports will be due 90 days after the expiration or

termination of grant support.

paid by letter or credit, Treasury check advances or electronic

transfer of funds, the grantee will submit the Standard Form 272,

Federal Cash Transactions Report, and when necessary, its continuation

sheet, Standard Form 272a, unless the terms of the award exempt the

grantee from this requirement.

(ii) These reports will be used by the Federal agency to monitor

cash advanced to grantees and to obtain disbursement or outlay

information for each grant from grantees. The format of the report may

be adapted as appropriate when reporting is to be accomplished with the

assistance of automatic data processing equipment provided that the

information to be submitted is not changed in substance.

(2) Forecasts of Federal cash requirements. Forecasts of Federal

cash requirements may be required in the ``Remarks'' section of the

report.

(3) Cash in hands of subgrantees. When considered necessary and

feasible by the Federal agency, grantees may be required to report the

amount of cash advances in excess of three days' needs in the hands of

their subgrantees or contractors and to provide short narrative

explanations of actions taken by the grantee to reduce the excess

balances.

(4) Frequency and due date. Grantees must submit the report no

later than 15 working days following the end of each quarter. However,

where an advance either by letter of credit or electronic transfer of

funds is authorized at an annualized rate of one million dollars or

more, the Federal agency may require the report to be submitted within

15 working days following the end of each month.

(d) Request for advance or reimbursement.--(1) Advance payments.

Requests for Treasury check advance payments will be submitted on

Standard Form 270, Request for Advance or Reimbursement. (This form

will not be used for drawdowns under a letter of credit, electronic

funds transfer or when Treasury check advance payments are made to the

grantee automatically on a predetermined basis.)

(2) Reimbursements. Requests for reimbursement under

nonconstruction grants will also be submitted on Standard Form 270.

(For reimbursement requests under construction grants, see paragraph

(e)(1) of this section.)

(3) The frequency for submitting payment requests is treated in

paragraph (b)(3) of this section.

(e) Outlay report and request for reimbursement for construction

programs.--(1) Grants that support construction activities paid by

reimbursement method. (i) Requests for reimbursement under construction

grants will be submitted on Standard Form 271, Outlay Report and

Request for Reimbursement for Construction Programs. Federal agencies

may, however, prescribe the Request for Advance or Reimbursement form,

specified in paragraph (d) of this section, instead of this form.

(ii) The frequency for submitting reimbursement requests is treated

in paragraph (b)(3) of this section.

(2) Grants that support construction activities paid by letter of

credit, electronic funds transfer or Treasury check advance. (i) When a

construction grant is paid by letter of credit, electronic funds

transfer or Treasury check advances, the grantee will report its

outlays to the Federal agency using Standard Form 271, Outlay Report

and Request for Reimbursement for Construction Programs. The Federal

agency will provide any necessary special instruction. However,

frequency and due date shall be governed by paragraphs (b) (3) and (4)

of this section.

(ii) When a construction grant is paid by Treasury check advances

based on periodic requests from the grantee, the advances will be

requested on the form specified in paragraph (d) of this section.

(iii) The Federal agency may substitute the Financial Status Report

specified in paragraph (b) of this section for the Outlay Report and

Request for Reimbursement for Construction Programs.

(3) Accounting basis. The accounting basis for the Outlay Report

and Request for Reimbursement for Construction Programs shall be

governed by paragraph (b)(2) of this section.

Sec. 2541.420 Retention and access requirements for records.

(a) Applicability. (1) This section applies to all financial and

programmatic records, supporting documents, statistical records, and

other records of grantees or subgrantees which are:

(i) Required to be maintained by the terms of this part, program

regulations or the grant agreement; or

(ii) Otherwise reasonably considered as pertinent to program

regulations or the grant agreement.

(2) This section does not apply to records maintained by

contractors or subcontractors. For a requirement to place a provision

concerning records in certain kinds of contracts, see

Sec. 2541.360(i)(10).

(b) Length of retention period. (1) Except as otherwise provided,

records must be retained for three years from the starting date

specified in paragraph (c) of this section.

(2) If any litigation, claim, negotiation, audit or other action

involving the records has been started before the expiration of the 3-

year period, the records must be retained until completion of the

action and resolution of all issues which arise from it, or until the

end of the regular 3-year period, whichever is later.

(3) To avoid duplicate recordkeeping, awarding agencies may make

special arrangements with grantees and subgrantees to retain any

records which are continuously needed for joint use. The awarding

agency will request transfer of records to its custody when it

determines that the records possess long-term retention value. When the

records are transferred to or maintained by the Federal agency, the 3-

year retention requirement is not applicable to the grantee or

subgrantee.

support is continued or renewed at annual or other intervals, the

retention period for the records of each funding period starts on the

day the grantee or subgrantee submits to the awarding agency its single

or last expenditure report for that period. However, if grant support

is continued or renewed quarterly, the retention period for each year's

records starts on the day the grantee submits its expenditure report

for the last quarter of the Federal fiscal year. In all other cases,

the retention period starts on the day the grantee submits its final

expenditure report. If an expenditure report has been waived, the

retention period starts on the day the report would have been due.

(2) Real property and equipment records. The retention period for

real property and equipment records starts from the date of the

disposition or replacement or transfer at the direction of the awarding

agency.

(3) Records for income transactions after grant or subgrant

support. In some cases grantees must report income after the period of

grant support. Where there is such a requirement, the retention period

for the records pertaining to the earning of the income starts from the

end of the grantee's fiscal year in which the income is earned.

(4) Indirect cost rate proposals, cost allocations plans, etc. This

paragraph applies to the following types of documents, and their

supporting records: indirect cost rate computations or proposals, cost

allocation plans, and any similar accounting computations of the rate

at which a particular group of costs is chargeable (such as computer

usage charge back rates or composite fringe benefit rates).

(i) If submitted for negotiation. If the proposal, plan, or other

computation is required to be submitted to the Federal Government (or

to the grantee) to form the basis for negotiation of the rate, then the

3-year retention period for its supporting records starts from the date

of such submission.

(ii) If not submitted for negotiation. If the proposal, plan, or

other computation is not required to be submitted to the Federal

Government (or to the grantee) for negotiation purposes, then the 3-

year retention period for the proposal plan, or computation and its

supporting records starts from end of the fiscal year (or other

accounting period) covered by the proposal, plan, or other computation.

(d) Substitution of microfilm. Copies made by microfilming,

photocopying, or similar methods may be substituted for the original

records.

(e) Access to records.--(1) Records of grantees and subgrantees.

The awarding agency and the Comptroller General of the United States,

or any of their authorized representatives, shall have the right of

access to any pertinent books, documents, papers, or other records of

grantees and subgrantees which are pertinent to the grant, in order to

make audits, examinations, excerpts, and transcripts.

(2) Expiration of right of access. The rights of access in this

section must not be limited to the required retention period but shall

last as long as the records are retained.

(f) Restrictions on public access. The Federal Freedom of

Information Act (5 U.S.C. 552) does not apply to records. Unless

required by Federal, State, or local law, grantees and subgrantees are

not required to permit public access to their records.

Sec. 2541.430 Enforcement.

(a) Remedies for noncompliance. If a grantee or subgrantee

materially fails to comply with any term of an award, whether stated in

a Federal statute or regulation, an assurance, in a State plan or

application, a notice of award, or elsewhere, the awarding agency may

take one or more of the following actions, as appropriate in the

circumstances:

(1) Temporarily withhold cash payments pending correction of the

deficiency by the grantee or subgrantee or more severe enforcement

action by the awarding agency;

(2) Disallow (that is, deny both use of funds and matching credit

for) all or part of the cost of the activity or action not in

compliance;

(3) Wholly or partly suspend or terminate the current award for the

grantee's or subgrantee's program;

(4) Withhold further awards for the program; or

(5) Take other remedies that may be legally available.

(b) Hearings, appeals. In taking an enforcement action, the

awarding agency will provide the grantee or subgrantee an opportunity

for such hearing, appeal, or other administrative proceeding to which

the grantee or subgrantee is entitled under any statute or regulation

applicable to the action involved.

subgrantee resulting from obligations incurred by the grantee or

subgrantee during a suspension or after termination of an award are not

allowable unless the awarding agency expressly authorizes them in the

notice of suspension or termination or subsequently. Other grantee or

subgrantee costs during suspension or after termination which are

necessary and not reasonably avoidable are allowable if:

(1) The costs result from obligations which were properly incurred

by the grantee or subgrantee before the effective date of suspension or

termination, are not in anticipation of it, and, in the case of a

termination, are noncancellable; and

(2) The costs would be allowable if the award were not suspended or

expired normally at the end of the funding period in which the

termination takes effect.

(d) Relationship to debarment and suspension. The enforcement

remedies identified in this section, including suspension and

termination, do not preclude grantee or subgrantee from being subject

to ``Debarment and Suspension'' under E.O. 12549 (see Sec. 2541.350).

Sec. 2541.440 Termination for convenience.

Except as provided in Sec. 2541.430 awards may be terminated in

whole or in part only as follows:

(a) By the awarding agency with the consent of the grantee or

subgrantee in which case the two parties shall agree upon the

termination conditions, including the effective date and in the case of

partial termination, the portion to be terminated; or

(b) By the grantee or subgrantee upon written notification to the

awarding agency, setting forth the reasons for such termination, the

effective date, and in the case of partial termination, the portion to

be terminated. However, if, in the case of a partial termination, the

awarding agency determines that the remaining portion of the award will

not accomplish the purposes for which the award was made, the awarding

agency may terminate the award in its entirety under either

Sec. 2541.430 or paragraph (a) of this section.

Subpart F--After the Grant Requirement

Sec. 2541.500 Closeout.

(a) General. The Federal agency will close out the award when it

determines that all applicable administrative actions and all required

work of the grant has been completed.

(b) Reports. Within 90 days after the expiration or termination of

the grant, the grantee must submit all financial, performance, and

other reports required as a condition of the grant. Upon request by the

grantee, Federal agencies may extend this time frame. These may include

but are not limited to:

(1) Final performance or progress report;

(2) Financial Status Report (SF 269) or Outlay Report and Request

for Reimbursement for Construction Programs (SF-271) (as applicable);

(3) Final request for payment (SF-270) (if applicable);

(4) Invention disclosure (if applicable);

(5) Federally-owned property report. In accordance with

Sec. 2541.320(f), a grantee must submit an inventory of all federally

owned property (as distinct from property acquired with grant funds)

for which it is accountable and request disposition instructions from

the Federal agency of property no longer needed.

receipt of reports in paragraph (b) of this section, make upward or

downward adjustments to the allowable costs.

(d) Cash adjustments. (1) The Federal agency will make prompt

payment to the grantee for allowable reimbursable costs.

(2) The grantee must immediately refund to the Federal agency any

balance of unobligated (unencumbered) cash advanced that is not

authorized to be retained for use on other grants.

Sec. 2541.510 Later disallowances and adjustments.

The closeout of a grant does not affect:

(a) The Federal agency's right to disallow costs and recover funds

on the basis of a later audit or other review;

(b) The grantee's obligation to return any funds due as a result of

later refunds, corrections, or other transactions;

(d) Property management requirements in Secs. 2541.3120 and

2541.320; and

(e) Audit requirements in Sec. 2541.410.

Sec. 2541.520 Collection of amounts due.

(a) Any funds paid to a grantee in excess of the amount to which

the grantee is finally determined to be entitled under the terms of the

award constitute a debt to the Federal Government. If not paid within a

reasonable period after demand, the Federal agency may reduce the debt

by:

(1) Making an administrative offset against other requests for

reimbursements;

(2) Withholding advance payments otherwise due to the grantee; or

(3) Other action permitted by law.

(b) Except where otherwise provided by statutes or regulations, the

Federal agency will charge interest on an overdue debt in accordance

with the Federal Claims Collection Standards (4 CFR Ch. II). The date

from which interest is computed is not extended by litigation or the

filing of any form of appeal.

PART 2542--GOVERNMENTWIDE DEBARMENT AND SUSPENSION (NONPROCUREMENT)

AND GOVERNMENTWIDE REQUIREMENTS FOR DRUG-FREE WORKPLACE (GRANTS)

Subpart A--General

Sec.

2542.10 Purpose.

2542.20 Definitions.

2542.30 Coverage.

2542.40 Policy.

Subpart B--Effect of Action

2542.100 Debarment or suspension.

2542.110 Ineligible persons.

2542.120 Voluntary exclusion.

2542.130 Exception provision.

2542.140 Continuation of covered transactions.

2542.150 Failure to adhere to restrictions.

Subpart C--Debarment

2542.200 General.

2542.210 Causes for debarment.

2542.220 Procedures.

2542.230 Investigation and referral.

2542.240 Notice of proposed debarment.

2542.250 Opportunity to contest proposed debarment.

2542.260 Debarring officials decision.

2542.270 Settlement and voluntary exclusion.

2542.280 Period of debarment.

2542.290 Scope of debarment.

Subpart D--Suspension

2542.300 General.

2542.310 Causes for suspension.

2542.320 Procedures.

2542.330 Notice of suspension.

2542.340 Opportuntiy to contest suspension.

2542.350 Suspending official's decision.

2542.360 Period of suspension.

2542.370 Scope of suspension.

Subpart E--Responsibilities of GSA, Agency and Participants

2542.400 GSA responsibilities.

2542.410 Corporation responsibilities.

2542.420 Participants' responsibilities.

Subpart F--Drug-Free Workplace Requirements (Grants)

2542.500 Purpose.

2542.510 Definitions.

2542.520 Coverage.

2542.530 Grounds for suspension of payments, suspension or

termination of grants, or suspension or debarment.

2542.540 Effect of violation.

2542.550 Exception provision.

2542.560 Certification requirements and procedures.

2542.570 Reporting of and employee sanctions for convictions of

criminal drug offenses.

Appendix A to Part 2542--Certification Regarding Debarment,

Suspension, and other Responsibility Matters--Primary Covered

Transactions

Appendix B to Part 2542--Certification Regarding Debarment,

Suspension, Ineligibility and Voluntary Exclusion--Lower Tiered

Covered Transactions

Appendix C to Part 2542--Certification Regarding Drug-Free Workplace

Requirements

Authority: 42 U.S.C. 4951 et seq., 5060 and 12644; E.O. 12549,

51 FR 6370, February 21, 1986 (3 CFR, 1986 Comp., p. 189).

Cross Reference: See also Office of Management and Budget notice

published at 55 FR 21679, May 25, 1990, and the governmentwide

common rule published at 53 FR 19161, May 26, 1988.

Subpart A--General

Sec. 2542.10 Purpose.

(a) Executive Order 12549 (3 CFR, 1986 Comp., p. 189) provides

that, to the extent permitted by law, Executive departments and

agencies shall participate in a governmentwide system for

nonprocurement debarment and suspension. A person who is debarred or

suspended shall be excluded from Federal financial and nonfinancial

assistance and benefits under Federal programs and activities.

Debarment or suspension of a participant in a program by one agency

shall have governmentwide effect.

(b) The regulations in this part implement section 3 of Executive

Order 12549 and the guidelines promulgated by the Office of Management

and Budget under section 6 of the Executive Order by:

(1) Prescribing the programs and activities that are covered by the

governmentwide system;

(2) Prescribing the governmentwide criteria and governmentwide

minimum due process procedures that each agency shall use;

(3) Providing for the listing of debarred and suspended

participants, participants declared ineligible (see definition of

``ineligible'' in Sec. 2542.20), and participants who have voluntarily

excluded themselves from participation in covered transactions;

(4) Setting forth the consequences of a debarment, suspension,

determination of ineligibility, or voluntary exclusion; and

(5) Offering such other guidance as necessary for the effective

implementation and administration of the governmentwide system.

ineligible participants and the effect of such listing, they do not

prescribe policies and procedures governing declarations of

ineligibility.

Sec. 2542.20 Definitions.

Adequate evidence. The term adequate evidence means information

sufficient to support the reasonable belief that a particular act or

omission has occurred.

Affiliate. The term affiliate means persons are affiliates of each

other if, directly or indirectly, either one controls or has the power

to control the other, or, a third person controls or has the power to

control both. Indicia of control include, but are not limited to:

Interlocking management or ownership, identity of interests among

family members, shared facilities and equipment, common use of

employees, or a business entity organized following the suspension or

debarment of a person which has the same or similar management,

ownership, or principal employees as the suspended, debarred,

ineligible, or voluntarily excluded person.

Agency. The term agency means any executive department, military

department or defense agency or other agency of the executive branch,

excluding the independent regulatory agencies.

Civil judgment. The term civil judgment means the disposition of a

civil action by any court of competent jurisdiction, whether entered by

verdict, decision, settlement, stipulation, or otherwise creating a

civil liability for the wrongful acts complained of; or a final

determination of liability under the Program Fraud Civil Remedies Act

of 1988 (31 U.S.C. 3801-12).

Conviction. The term conviction means a judgment of conviction of a

criminal offense by any court of competent jurisdiction, whether

entered upon a verdict or a plea, including a plea of nolo contendere.

Debarment. The term debarment means an action taken by a debarring

official in accordance with these regulations to exclude a person from

participating in covered transactions. A person so excluded is

``debarred.''

Debarring official. The term debarring official means an official

authorized to impose debarment. The debarring official is either:

(1) The agency head; or

(2) An official designated by the agency head.

Indictment. Indictment for a criminal offense. An information or

other filing by competent authority charging a criminal offense shall

be given the same effect as an indictment.

Ineligible. The term ineligible means excluded from participation

in Federal nonprocurement programs pursuant to a determination of

ineligibility under statutory, executive order, or regulatory

authority, other than Executive Order 12549 and its agency implementing

regulations; for example, excluded pursuant to the Davis-Bacon Act and

its implementing regulations, the equal employment opportunity acts and

executive orders, or the environmental protection acts and executive

orders. A person is ineligible where the determination of ineligibility

affects such person's eligibility to participate in more than one

covered transaction.

Legal proceedings. The term legal proceedings means any criminal

proceeding or any civil judicial proceeding to which the Federal

Government or a State or local government or quasi-governmental

authority is a party. The term includes appeals from such proceedings.

Nonprocurement list. The term nonprocurement list means a portion

of the List of Parties Excluded from Federal Procurement or

Nonprocurement Programs compiled, maintained and distributed by the

General Services Administration (GSA) containing the names and other

information about persons who have been debarred, suspended, or

voluntarily excluded under Executive Order 12549 and this part, and

those who have been determined to be ineligible.

Notice. The term notice means a written communication served in

person or sent by certified mail, return receipt requested, or its

equivalent, to the last known address of a party, its identified

counsel, its agent for service of process, or any partner, officer,

director, owner, or joint venturer of the party. Notice, if

undeliverable, shall be considered to have been received by the

addressee five days after being properly sent to the last address known

by the agency.

Participant. The term participant means any person who submits a

proposal for, enters into, or reasonably may be expected to enter into

a covered transaction. This term also includes any person who acts on

behalf of or is authorized to commit a participant in a covered

transaction as an agent or representative of another participant.

Person. The term person means any individual, corporation,

partnership, association, unit of government or legal entity, however

organized, except: Foreign governments or foreign governmental

entities, public international organizations, foreign government owned

(in whole or in part) or controlled entities, and entities consisting

wholly or partially of foreign governments or foreign governmental

entities.

Preponderance of the evidence. The term preponderance of the

evidence means proof by information that, compared with that opposing

it, leads to the conclusion that the fact at issue is more probably

true than not.

Principal. The term principal means an officer, director, owner,

partner, key employee, or other person within a participant with

primary management or supervisory responsibilities; or a person who has

a critical influence on or substantive control over a covered

transaction, whether or not employed by the participant. Persons who

have a critical influence on or substantive control over a covered

transaction are principal investigators.

Proposal. The term proposal means a solicited or unsolicited bid,

application, request, invitation to consider or similar communication

by or on behalf of a person seeking to participate or to receive a

benefit, directly or indirectly, in or under a covered transaction.

Respondent. The term respondent means a person against whom a

debarment or suspension action has been initiated.

State. The term state means any of the States of the United States,

the District of Columbia, the Commonwealth of Puerto Rico, any

territory or possession of the United States, or any agency of a State,

exclusive of institutions of higher education, hospitals, and units of

local government. A State instrumentality will be considered part of

the State government if it has a written determination from a State

government that such State considers that instrumentality to be an

agency of the State government.

Suspending official. The term suspending official means an official

authorized to impose suspension. The suspending official is either:

(1) The agency head; or

(2) An official designated by the agency head.

Suspension. The term suspension means an action taken by a

suspending official in accordance with these regulations that

immediately excludes a person from participating in covered

transactions for a temporary period, pending completion of an

investigation and such legal, debarment, or Program Fraud Civil

Remedies Act proceedings as may ensue. A person so excluded is

``suspended.''

Voluntary exclusion (or) voluntarily excluded. The term voluntary

exclusion (or) voluntarily excluded means a status of nonparticipation

or limited participation in covered transactions assumed by a person

pursuant to the terms of a settlement.

Sec. 2542.30 Coverage.

(a) The regulations in this part apply to all persons who have

participated, are currently participating or may reasonably be expected

to participate in transactions under Federal nonprocurement programs.

For purposes of the regulations in this part such transactions will be

referred to as ``covered transactions.''

(1) Covered transaction. For purposes of the regulations in this

part, a covered transaction is a primary covered transaction or a lower

tier covered transaction. Covered transactions at any tier need not

involve the transfer of Federal funds.

(i) Primary covered transaction. Except as noted in paragraph

(a)(2) of this section, a primary covered transaction is any

nonprocurement transaction between an agency and a person, regardless

of type, including: Grants, cooperative agreements, scholarships,

fellowships, contracts of assistance, loans, loan guarantees,

subsidies, insurance, payments for specified use, donation agreements

and any other nonprocurement transactions between a Federal agency and

a person. Primary covered transactions also include those transactions

specially designated by the U.S. Department of Housing and Urban

Development in such agency's regulations governing debarment and

suspension.

(ii) Lower tier covered transaction. A lower tier covered

transaction is:

(A) Any transaction between a participant and a person other than a

procurement contract for goods or services, regardless of type, under a

primary covered transaction.

(B) Any procurement contract for goods or services between a

participant and a person, regardless of type, expected to equal or

exceed the Federal procurement small purchase threshold fixed at 10

U.S.C. 2304(g) and 41 U.S.C. 253(g) (currently $25,000) under a primary

covered transaction.

participant and a person under a covered transaction, regardless of

amount, under which that person will have a critical influence on or

substantive control over that covered transaction. Such persons are:

(1) Principal investigators.

(2) Providers of federally-required audit services.

(3) Exceptions. The following transactions are not covered:

(i) Statutory entitlements or mandatory awards (but not subtier

awards thereunder which are not themselves mandatory), including

deposited funds insured by the Federal Government;

(ii) Direct awards to foreign governments or public international

organizations, or transactions with foreign governments or foreign

governmental entities, public international organizations, foreign

government owned (in whole or in part) or controlled entities, entities

consisting wholly or partially of foreign governments or foreign

governmental entities;

(iii) Benefits to an individual as a personal entitlement without

regard to the individual's present responsibility (but benefits

received in an individual's business capacity are not excepted);

(iv) Federal employment;

(v) Transactions pursuant to national or agency-recognized

emergencies or disasters;

(vi) Incidental benefits derived from ordinary governmental

operations; and

(vii) Other transactions where the application of these regulations

would be prohibited by law.

(b) Relationship to other sections. This section describes the

types of transactions to which a debarment or suspension under this

part will apply. Subpart B, ``Effect of Action,'' Sec. 2542.50,

``Debarment or suspension,'' sets forth the consequences of a debarment

or suspension. Those consequences would obtain only with respect to

participants and principals in the covered transactions and activities

described in Sec. 2542.30(a). Sections 2542.200 ``Scope of debarment,''

and 2542.280, ``Scope of suspension,'' govern the extent to which a

specific participant or organizational elements of a participant would

be automatically included within a debarment or suspension action, and

the conditions under which affiliates or persons associated with a

participant may also be brought within the scope of the action.

suspension of Federal procurement contractors and subcontractors under

Federal procurement contracts are covered by the Federal Acquisition

Regulation (FAR), 48 CFR part 9, subpart 9.4.

Sec. 2542.40 Policy.

(a) In order to protect the public interest, it is the policy of

the Federal Government to conduct business only with responsible

persons. Debarment and suspension are discretionary actions that, taken

in accordance with Executive Order 12549 and this part, are appropriate

means to implement this policy.

(b) Debarment and suspension are serious actions which shall be

used only in the public interest and for the Federal Government's

protection and not for purposes of punishment. Agencies may impose

debarment or suspension for the causes and in accordance with the

procedures set forth in this part.

debarment or suspension of a person, consideration shall be given to

designating one agency as the lead agency for making the decision.

Agencies are encouraged to establish methods and procedures for

coordinating their debarment or suspension actions.

Subpart B--Effect of Action

Sec. 2542.100 Debarment or suspension.

(a) Primary covered transactions. Except to the extent prohibited

by law, persons who are debarred or suspended shall be excluded from

primary covered transactions as either participants or principals

throughout the executive branch of the Federal Government for the

period of their debarment or suspension. Accordingly, no agency shall

enter into primary covered transactions with such debarred or suspended

persons during such period, except as permitted pursuant to

Sec. 2542.130.

(b) Lower tier covered transactions. Except to the extent

prohibited by law, persons who have been debarred or suspended shall be

excluded from participating as either participants or principals in all

lower tier covered transactions (see Sec. 2542.30(a)(1)(ii)) for the

period of their debarment or suspension.

eligibility for:

(1) Statutory entitlements or mandatory awards (but not subtier

awards thereunder which are not themselves mandatory), including

deposited funds insured by the Federal Government;

(2) Direct awards to foreign governments or public international

organizations, or transactions with foreign governments or foreign

governmental entities, public international organizations, foreign

government owned (in whole or in part) or controlled entities, and

entities consisting wholly or partially of foreign governments or

foreign governmental entities;

(3) Benefits to an individual as a personal entitlement without

regard to the individual's present responsibility (but benefits

received in an individual's business capacity are not excepted);

(4) Federal employment;

(5) Transactions pursuant to national or agency-recognized

emergencies or disasters;

(6) Incidental benefits derived from ordinary governmental

operations; and

(7) Other transactions where the application of this part would be

prohibited by law.

Sec. 2542.110 Ineligible persons.

Persons who are ineligible, as defined in Sec. 2542.20, are

excluded in accordance with the applicable statutory, executive order,

or regulatory authority.

Sec. 2542.120 Voluntary exclusion.

Persons who accept voluntary exclusions under Sec. 2542.270 are

excluded in accordance with the terms of their settlements. Corporation

shall, and participants may, contact the original action agency to

ascertain the extent of the exclusion.

Sec. 2542.130 Exception provision.

The Corporation may grant an exception permitting a debarred,

suspended, or voluntarily excluded person to participate in a

particular covered transaction upon a written determination by the

agency head or an authorized designee stating the reason(s) for

deviating from the Presidential policy established by Executive Order

12549 and Sec. 2542.100. However, in accordance with the President's

stated intention in the Executive Order, exceptions shall be granted

only infrequently. Exceptions shall be reported in accordance with

Sec. 2542.410(a).

Sec. 2542.140 Continuation of covered transactions.

(a) Notwithstanding the debarment, suspension, determination of

ineligibility, or voluntary exclusion of any person by an agency,

agencies and participants may continue covered transactions in

existence at the time the person was debarred, suspended, declared

ineligible, or voluntarily excluded. A decision as to the type of

termination action, if any, to be taken should be made only after

thorough review to ensure the propriety of the proposed action.

(b) Agencies and participants shall not renew or extend covered

transactions (other than no-cost time extensions) with any person who

is debarred, suspended, ineligible, or voluntarily excluded, except as

provided in Sec. 2542.130.

Sec. 2542.150 Failure to adhere to restrictions.

Except as permitted under Sec. 2542.130 or Sec. 2542.140, a

participant shall not knowingly do business under a covered transaction

with a person who is debarred or suspended, or with a person who is

ineligible for or voluntarily excluded from that covered transaction.

Violation of this restriction may result in disallowance of costs,

annulment or termination of award, issuance of a stop work order,

debarment or suspension, or other remedies, as appropriate. A

participant may rely upon the certification of a prospective

participant in a lower tier covered transaction that it and its

principals are not debarred, suspended, ineligible, or voluntarily

excluded from the covered transaction (see Appendix B of this part),

unless it knows that the certification is erroneous. An agency has the

burden of proof that such participant did knowingly do business with

such a person.

Subpart C--Debarment

Sec. 2542.200 General.

The debarring official may debar a person for any of the causes in

Sec. 2542.210, using procedures established in Secs. 2542.220 through

2542.260. The existence of a cause for debarment, however, does not

necessarily require that the person be debarred; the seriousness of the

person's acts or omissions and any mitigating factors shall be

considered in making any debarment decision.

Sec. 2542.210 Causes for debarment.

Debarment may be imposed in accordance with the provisions of

Secs. 2542.200 through 2542.260 for:

(a) Conviction of or civil judgment for:

(1) Commission of fraud or a criminal offense in connection with

obtaining, attempting to obtain, or performing a public or private

agreement or transaction;

(2) Violation of Federal or State antitrust statutes, including

those proscribing price fixing between competitors, allocation of

customers between competitors, and bid rigging;

(3) Commission of embezzlement, theft, forgery, bribery,

falsification or destruction of records, making false statements,

receiving stolen property, making false claims, or obstruction of

justice; or

(4) Commission of any other offense indicating a lack of business

integrity or business honesty that seriously and directly affects the

present responsibility of a person.

(b) Violation of the terms of a public agreement or transaction so

serious as to affect the integrity of an agency program, such as:

(1) A willful failure to perform in accordance with the terms of

one or more public agreements or transactions;

(2) A history of failure to perform or of unsatisfactory

performance of one or more public agreements or transactions; or

(3) A willful violation of a statutory or regulatory provision or

requirement applicable to a public agreement or transaction.

(1) A nonprocurement debarment by any Federal agency taken before

October 1, 1988, the effective date of the Governmentwide debarment and

suspension (nonprocurement) regulations, or a procurement debarment by

any Federal agency taken pursuant to 48 CFR part 9, subpart 9.4;

(2) Knowingly doing business with a debarred, suspended,

ineligible, or voluntarily excluded person, in connection with a

covered transaction, except as permitted in Sec. 2542.130 or

Sec. 2542.140;

(3) Failure to pay a single substantial debt, or a number of

outstanding debts (including disallowed costs and overpayments, but not

including sums owed the Federal Government under the Internal Revenue

Code) owed to any Federal agency or instrumentality, provided the debt

is uncontested by the debtor or, if contested, provided that the

debtor's legal and administrative remedies have been exhausted;

(4) Violation of a material provision of a voluntary exclusion

agreement entered into under Sec. 2542.270 or of any settlement of a

debarment or suspension action; or

(5) Violation of any requirement of subpart F of this part,

relating to providing a drug-free workplace, as set forth in

Sec. 2542.530 of this part.

(d) Any other cause of so serious or compelling a nature that it

affects the present responsibility of a person.

Sec. 2542.220 Procedures.

The Corporation shall process debarment actions as informally as

practicable, consistent with the principles of fundamental fairness,

using the procedures in Secs. 2542.230 through 2542.260.

Sec. 2542.230 Investigation and referral.

Information concerning the existence of a cause for debarment from

any source shall be promptly reported, investigated, and referred, when

appropriate, to the debarring official for consideration. After

consideration, the debarring official may issue a notice of proposed

debarment.

Sec. 2542.240 Notice of proposed debarment.

A debarment proceeding shall be initiated by notice to the

respondent advising:

(a) That debarment is being considered;

(b) Of the reasons for the proposed debarment in terms sufficient

to put the respondent on notice of the conduct or transaction(s) upon

which it is based;

debarment;

(d) Of the provisions of Secs. 2542.230 through 2542.260, and any

other Corporation procedures, if applicable, governing debarment

decision making; and

(e) Of the potential effect of a debarment.

Sec. 2542.250 Opportunity to contest proposed debarment.

(a) Submission in opposition. Within 30 days after receipt of the

notice of proposed debarment, the respondent may submit, in person, in

writing, or through a representative, information and argument in

opposition to the proposed debarment.

(b) Additional proceedings as to disputed material facts. (1) In

actions not based upon a conviction or civil judgment, if the debarring

official finds that the respondent's submission in opposition raises a

genuine dispute over facts material to the proposed debarment,

respondent(s) shall be afforded an opportunity to appear with a

representative, submit documentary evidence, present witnesses, and

confront any witness the agency presents.

(2) A transcribed record of any additional proceedings shall be

made available at cost to the respondent, upon request, unless the

respondent and the agency, by mutual agreement, waive the requirement

for a transcript.

Sec. 2542.260 Debarring official's decision.

(a) No additional proceedings necessary. In actions based upon a

conviction or civil judgment, or in which there is no genuine dispute

over material facts, the debarring official shall make a decision on

the basis of all the information in the administrative record,

including any submission made by the respondent. The decision shall be

made within 45 days after receipt of any information and argument

submitted by the respondent, unless the debarring official extends this

period for good cause.

(b) Additional proceedings necessary. (1) In actions in which

additional proceedings are necessary to determine disputed material

facts, written findings of fact shall be prepared. The debarring

official shall base the decision on the facts as found, together with

any information and argument submitted by the respondent and any other

information in the administrative record.

(2) The debarring official may refer disputed material facts to

another official for findings of fact. The debarring official may

reject any such findings, in whole or in part, only after specifically

determining them to be arbitrary and capricious or clearly erroneous.

(3) The debarring official's decision shall be made after the

conclusion of the proceedings with respect to disputed facts.

debarment must be established by a preponderance of the evidence. Where

the proposed debarment is based upon a conviction or civil judgment,

the standard shall be deemed to have been met.

(2) Burden of proof. The burden of proof is on the agency proposing

debarment.

(d) Notice of debarring official's decision. (1) If the debarring

official decides to impose debarment, the respondent shall be given

prompt notice:

(i) Referring to the notice of proposed debarment;

(ii) Specifying the reasons for debarment;

(iii) Stating the period of debarment, including effective dates;

and

(iv) Advising that the debarment is effective for covered

transactions throughout the executive branch of the Federal Government

unless an agency head or an authorized designee makes the determination

referred to in Sec. 2542.130.

(2) If the debarring official decides not to impose debarment, the

respondent shall be given prompt notice of that decision. A decision

not to impose debarment shall be without prejudice to a subsequent

imposition of debarment by any other agency.

Sec. 2542.270 Settlement and voluntary exclusion.

(a) When in the best interest of the Government, the Corporation

may, at any time, settle a debarment or suspension action.

(b) If a participant and the agency agree to a voluntary exclusion

of the participant, such voluntary exclusion shall be entered on the

Nonprocurement List (see subpart E of this part).

Sec. 2542.280 Period of debarment.

(a) Debarment shall be for a period commensurate with the

seriousness of the cause(s). If a suspension precedes a debarment, the

suspension period shall be considered in determining the debarment

period.

(1) Debarment for causes other than those related to a violation of

the requirements of subpart F of this part generally should not exceed

three years. Where circumstances warrant, a longer period of debarment

may be imposed.

(2) In the case of a debarment for a violation of the requirements

of subpart F of this part (see Sec. 2542.210(c)(5)), the period of

debarment shall not exceed five years.

(b) The debarring official may extend an existing debarment for an

additional period, if that official determines that an extension is

necessary to protect the public interest. However, a debarment may not

be extended solely on the basis of the facts and circumstances upon

which the initial debarment action was based. If debarment for an

additional period is determined to be necessary, the procedures of

Secs. 2542.230 through 2542.260 shall be followed to extend the

debarment.

the debarment decision or to reduce the period or scope of debarment.

Such a request shall be in writing and supported by documentation. The

debarring official may grant such a request for reasons including, but

not limited to:

(1) Newly discovered material evidence;

(2) Reversal of the conviction or civil judgment upon which the

debarment was based;

(3) Bona fide change in ownership or management;

(4) Elimination of other causes for which the debarment was

imposed; or

(5) Other reasons the debarring official deems appropriate.

Sec. 2542.290 Scope of debarment.

(a) Scope in general. (1) Debarment of a person under this part

constitutes debarment of all its divisions and other organizational

elements from all covered transactions, unless the debarment decision

is limited by its terms to one or more specifically identified

individuals, divisions or other organizational elements or to specific

types of transactions.

(2) The debarment action may include any affiliate of the

participant that is specifically named and given notice of the proposed

debarment and an opportunity to respond (see Secs. 2542.230 through

2542.260).

(b) Imputing conduct. For purposes of determining the scope of

debarment, conduct may be imputed as follows:

(1) Conduct imputed to participant. The fraudulent, criminal or

other seriously improper conduct of any officer, director, shareholder,

partner, employee, or other individual associated with a participant

may be imputed to the participant when the conduct occurred in

connection with the individual's performance of duties for or on behalf

of the participant, or with the participant's knowledge, approval, or

acquiescence. The participant's acceptance of the benefits derived from

the conduct shall be evidence of such knowledge, approval, or

acquiescence.

(2) Conduct imputed to individuals associated with participant. The

fraudulent, criminal, or other seriously improper conduct of a

participant may be imputed to any officer, director, shareholder,

partner, employee, or other individual associated with the participant

who participated in, knew of, or had reason to know of the

participant's conduct.

(3) Conduct of one participant imputed to other participants in a

joint venture. The fraudulent, criminal, or other seriously improper

conduct of one participant in a joint venture, grant pursuant to a

joint application, or similar arrangement may be imputed to other

participants if the conduct occurred for or on behalf of the joint

venture, grant pursuant to a joint application, or similar arrangement

or with the knowledge, approval, or acquiescence of these participants.

Acceptance of the benefits derived from the conduct shall be evidence

of such knowledge, approval, or acquiescence.

Subpart D--Suspension

Sec. 2542.300 General.

(a) The suspending official may suspend a person for any of the

causes in Sec. 2542.310 using procedures established in Secs. 2542.320

through 2542.350.

(b) Suspension is a serious action to be imposed only when:

(1) There exists adequate evidence of one or more of the causes set

out in Sec. 2542.320; and

(2) Immediate action is necessary to protect the public interest.

consider how much information is available, how credible it is given

the circumstances, whether or not important allegations are

corroborated, and what inferences can reasonably be drawn as a result.

This assessment should include an examination of basic documents such

as grants, cooperative agreements, loan authorizations, and contracts.

Sec. 2542.310 Causes for suspension.

(a) Suspension may be imposed in accordance with the provisions of

Secs. 2542.300 through 2542.350 upon adequate evidence:

(1) To suspect the commission of an offense listed in

Sec. 2542.300(a); or

(2) That a cause for debarment under Sec. 2542.300 may exist.

(b) Indictment shall constitute adequate evidence for purposes of

suspension actions.

Sec. 2542.320 Procedures.

(a) Investigation and referral. Information concerning the

existence of a cause for suspension from any source shall be promptly

reported, investigated, and referred, when appropriate, to the

suspending official for consideration. After consideration, the

suspending official may issue a notice of suspension.

(b) Decisionmaking process. The Corporation shall process

suspension actions as informally as practicable, consistent with

principles of fundamental fairness, using the procedures in

Secs. 2541.330 through 2542.350.

Sec. 2542.330 Notice of suspension.

When a respondent is suspended, notice shall immediately be given:

(a) That suspension has been imposed;

(b) That the suspension is based on an indictment, conviction, or

other adequate evidence that the respondent has committed

irregularities seriously reflecting on the propriety of further Federal

Government dealings with the respondent;

the respondent on notice without disclosing the Federal Government's

evidence;

(d) Of the cause(s) relied upon under Sec. 2542.310 for imposing

suspension;

(e) That the suspension is for a temporary period pending the

completion of an investigation or ensuing legal, debarment, or Program

Fraud Civil Remedies Act proceedings;

(f) Of the provisions of Secs. 2542.330 through 2542.350 and any

other Corporation procedures, if applicable, governing suspension

decisionmaking; and

(g) Of the effect of the suspension.

Sec. 2542.340 Opportunity to contest suspension.

(a) Submission in opposition. Within 30 days after receipt of the

notice of suspension, the respondent may submit, in person, in writing,

or through a representative, information and argument in opposition to

the suspension.

(b) Additional proceedings as to disputed material facts. (1) If

the suspending official finds that the respondent's submission in

opposition raises a genuine dispute over facts material to the

suspension, respondent(s) shall be afforded an opportunity to appear

with a representative, submit documentary evidence, present witnesses,

and confront any witness the agency presents, unless:

(i) The action is based on an indictment, conviction or civil

judgment; or

(ii) A determination is made, on the basis of Department of Justice

advice, that the substantial interests of the Federal Government in

pending or contemplated legal proceedings based on the same facts as

the suspension would be prejudiced.

(2) A transcribed record of any additional proceedings shall be

prepared and made available at cost to the respondent, upon request,

unless the respondent and the agency, by mutual agreement, waive the

requirement for a transcript.

Sec. 2542.350 Suspending official's decision.

The suspending official may modify or terminate the suspension (for

example, see Sec. 2542.280(c) for reasons for reducing the period or

scope of debatement or may leave it in force. However, a decision to

modify or terminate the suspension shall be without prejudice to the

subsequent imposition of suspension by any agency. The decision shall

be rendered in accordance with the following provisions.

(a) No additional proceedings necessary. In actions: Based on an

indictment, conviction, or civil judgment; in which there is no genuine

dispute over material facts; or in which additional proceedings to

determine disputed material facts have been denied on the basis of

Department of Justice advice, the suspending official shall make a

decision on the basis of all the information in the administrative

record, including any submission made by the respondent. The decision

shall be made within 45 days after receipt of any information and

argument submitted by the respondent, unless the suspending official

extends this period for good cause.

(b) Additional proceedings necessary. (1) In actions in which

additional proceedings are necessary to determine disputed material

facts, written findings of fact shall be prepared. The suspending

official shall base the decision on the facts as found, together with

any information and argument submitted by the respondent and any other

information in the administrative record.

(2) The suspending official may refer matters involving disputed

material facts to another official for findings of fact. The suspending

official may reject any such findings, in whole or in part, only after

specifically determining them to be arbitrary or capricious or clearly

erroneous.

of the suspending official's decision shall be sent to the respondent.

Sec. 2542.360 Period of suspension.

(a) Suspension shall be for a temporary period pending the

completion of an investigation or ensuing legal, debarment, or Program

Fraud Civil Remedies Act proceedings, unless terminated sooner by the

suspending official or as provided in paragraph (b) of this section.

(b) If legal or administrative proceedings are not initiated within

12 months after the date of the suspension notice, the suspension shall

be terminated unless an Assistant Attorney General or United States

Attorney requests its extension in writing, in which case it may be

extended for an additional six months. In no event may a suspension

extend beyond 18 months, unless such proceedings have been initiated

within that period.

of an impending termination of a suspension, at least 30 days before

the 12-month period expires, to give that Department an opportunity to

request an extension.

Sec. 2542.370 Scope of suspension.

The scope of a suspension is the same as the scope of a debarment

(see Sec. 2542.290) except that the procedures of Secs. 2542.320

through 2542.350 shall be used in imposing a suspension.

Subpart E--Responsibilities of GSA, Agency and Participants

Sec. 2542.400 GSA responsibilities.

(a) In accordance with the OMB guidelines, GSA shall compile,

maintain, and distribute a list of all persons who have been debarred,

suspended, or voluntarily excluded by agencies under Executive Order

12549 and this part, and those who have been determined to be

ineligible.

(b) At a minimum, this list shall indicate:

(1) The names and addresses of all debarred, suspended, ineligible,

and voluntarily excluded persons, in alphabetical order, with cross-

references when more than one name is involved in a single action;

(2) The type of action;

(3) The cause for the action;

(4) The scope of the action;

(5) Any termination date for each listing; and

(6) The agency and name and telephone number of the agency point of

contact for the action.

Sec. 2542.410 Corporation responsibilities.

(a) The agency shall provide GSA with current information

concerning debarments, suspension, determinations of ineligibility, and

voluntary exclusions it has taken. Until February 18, 1989, the agency

shall also provide GSA and OMB with information concerning all

transactions in which the Corporation has granted exceptions under

Sec. 2542.130 permitting participation by debarred, suspended, or

voluntarily excluded persons.

(b) Unless an alternative schedule is agreed to by GSA, the agency

shall advise GSA of the information set forth in Sec. 2542.400(b) and

of the exceptions granted under Sec. 2542.130 within five working days

after taking such actions.

the agency that took the action.

(d) Agency officials shall check the Nonprocurement List before

entering covered transactions to determine whether a participant in a

primary transaction is debarred, suspended, ineligible, or voluntarily

excluded.

(e) Agency officials shall check the Nonprocurement List before

approving principals or lower tier participants where agency approval

of the principal or lower tier participant is required under the terms

of the transaction, to determine whether such principals or

participants are debarred, suspended, ineligible, or voluntarily

excluded.

Sec. 2542.420 Participants' responsibilities.

(a) Certification by participants in primary covered transactions.

Each participant shall submit the certification in Appendix A of this

part for it and its principals at the time the participant submits its

proposal in connection with a primary covered transaction, except that

States need only complete such certification as to their principals.

Participants may decide the method and frequency by which they

determine the eligibility of their principals. In addition, each

participant may, but is not required to, check the Nonprocurement List

for its principals. Adverse information on the certification will not

necessarily result in denial of participation. However, the

certification, and any additional information pertaining to the

certification submitted by the participant, shall be considered in the

administration of covered transactions.

(b) Certification by participants in lower tier covered

transactions. (1) Each participant shall require participants in lower

tier covered transactions to include the certification in Appendix B of

this part for it and its principals in any proposal submitted i

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