Grants and Cooperative Agreements to State and Local Governments

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

14 CFR Part 1273

Grants and Cooperative Agreements to State and Local Governments

AGENCY: Office of Procurement, Contract Management Division, National

Aeronautics and Space Administration (NASA).

ACTION: Interim rule.

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SUMMARY: This interim rule is NASA's adoption of the Common Rule, under

Office of Management and Budget Circular No. A-102, on grants and

cooperative agreements to state and local governments.

DATES: This rule is effective July 31, 1995. Comments must be received

on or before August 28, 1995.

ADDRESSEES: Submit comments to Rich Kall, Contract Management Division

(Code HK), Office of Procurement, NASA Headquarters, Washington, DC

20546. Comments on the paperwork burden should also be addressed to the

Office of Information and Regulatory Affairs, Attention: Desk Officer

for NASA, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Rich Kall, (202) 358-0459.

SUPPLEMENTARY INFORMATION:

Background

The NASA Research Grant Handbook (14 CFR part 1260) is the current

governing rule for NASA research grants and cooperative agreements. It

does not address all types of NASA grants and cooperative agreements.

NASA intends to issue regulations on all its grant programs thru new

CFR parts. These regulations will cover grants and cooperative

agreements with state and local governments, grants and cooperative

agreements with educational institutions and other nonprofit

organizations, and cooperative agreements with commercial firms.

At this time it is our intention to adopt the Common Rule as it

applies under OMB Circular No. A-102. This rule is adopted as an

interim rule so that it may be used immediately. The Common Rule has

already undergone public comment and NASA is not making significant

changes. NASA's interim rule is the same as the common rule adopted by

other agencies, for example, the National Science Foundation at 45 CFR

part 602, except that the following corrections have been made: (1) In

Sec. 1273.3, the definition of ``share'' has been corrected by removing

the phrase ``to which the acquisition costs under the grant''; (2) in

Sec. 1273.21(e), the phrase ``provide cash or a working capital advance

basis'' in the first sentence has been changed to ``provide cash on a

working capital advance basis''; (3) in Sec. 1273.30(f), ``budget

formal'' has been changed to ``budget format''; (4) in Sec. 1273.32(g),

``third part'' has been changed to ``third party''; (5) in

Sec. 1273.36(d)(2)(i)(B), ``compete effectively and for the business''

has been changed to ``compete effectively for the business''; and (6)

in Sec. 1273.42(f), ``records Unless required'' has been changed to

``records unless required''.

Regulatory Flexibility Act

NASA certifies that this regulation will not have a significant

economic impact on a substantial number of small entities under

Regulatory Flexibility Act (5 U.S.C. 601 et seq.).

Paperwork Reduction Act

The information collection requirements in this interim rule have

been submitted to the Office of Management and Budget for review under

44 U.S.C. 3504(h). The Common Rule as adopted by NASA requires certain

reporting and recordkeeping of states and local governments in order to

determine eligibility for selection and compliance with the rule. The

estimated total annual reporting and recordkeeping burden is 1180

hours. The estimated average burden hours per response is 7 hours. The

rule proposes quarterly financial reporting and annual reporting for

property and technical results. Other reports are required at the

conclusion of the agreement or the occurrence of other events. The

estimated number of likely respondents is 30 organizations submitting

proposals per year resulting in the award of 10 grants per year.

List of Subjects in 14 CFR Part 1273.

Grant programs, Intergovernmental relations.

Tom Luedtke,

Deputy Associate Administrator for Procurement.

Accordingly, 14 CFR part 1273 is added to read as follows:

PART 1273--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND

COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS

Subpart A--General

Sec.

1273.1 Purpose and scope of this part.

1273.2 Scope of subpart.

1273.3 Definitions.

1273.4 Applicability.

1273.5 Effect on other issuances.

1273.6 Additions and exceptions.

Subpart B--Pre-Award Requirements

1273.10 Forms for applying for grants.

1273.11 State plans.

1273.12 Special grant or subgrant conditions for ``high-risk''

grantees.

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Subpart C--Post-Award Requirements

Financial Administration

1273.20 Standards for financial management systems.

1273.21 Payment.

1273.22 Allowable costs.

1273.23 Period of availability of funds.

1273.24 Matching or cost sharing.

1273.25 Program income.

1273.26 Non-Federal audit.

Changes, Property, and Subawards

1273.30 Changes.

1273.31 Real property.

1273.32 Equipment.

1273.33 Supplies.

1273.34 Copyrights.

1273.35 Subawards to debarred and suspended parties.

1273.36 Procurement.

1273.37 Subgrants.

Reports, Records, Retention, and Enforcement

1273.40 Monitoring and reporting program performance.

1273.41 Financial reporting.

1273.42 Retention and access requirements for records.

1273.43 Enforcement.

1273.44 Termination for convenience.

Subpart D--After-the-Grant Requirements

1273.50 Closeout.

1273.51 Later disallowances and adjustments.

1273.52 Collection of amounts due.

Subpart E--Entitlements (Reserved)

Authority: 31 U.S.C. 6301 to 6308; 42 U.S.C. 2451, et seq.

Subpart A--General

Sec. 1273.1 Purpose and scope of this part.

This subpart establishes uniform administrative rules for Federal

grants and cooperative agreements and subawards to State, local and

Indian tribal governments.

Sec. 1273.2 Scope of subpart.

This subpart contains general rules pertaining to this part and

procedures for control of exceptions from this part.

Sec. 1273.3 Definitions.

As used in this part:

Accrued expenditures mean 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 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 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 mean 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 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 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 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 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 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 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

defined above.

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 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 means a State or local government or a federally

recognized Indian tribal government.

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 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 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) 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 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

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grantee during the same or a future period.

OMB means the United States Office of Management and Budget.

Outlays (expenditures) mean 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 inkind 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 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 means documentation evidencing consent prior to

incurring specific cost.

Real property means land, including land improvements, structures

and appurtenances thereto, excluding movable machinery and equipment.

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 cost of the property was charged.

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

contributions.

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 United States Housing Act of

1937.

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 subpart.

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 means all tangible personal property other than

``equipment'' as defined in this part.

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 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 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 mean 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 mean

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 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. 1273.4 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. 1273.6 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 (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

and under the Public Health Services Act (Section 1921), 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:

(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:

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(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 (section 16 of the Act).

(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); and

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

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

(b) Entitlement programs. Entitlement programs enumerated above in

Sec. 1273.4(a)(3) through (8) are subject to subpart E.

Sec. 1273.5 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. 1273.6.

Sec. 1273.6 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.

(c) Exceptions on a case-by-case basis and for subgrantees may be

authorized by the affected Federal agencies.

Subpart B--Pre-Award Requirements

Sec. 1273.10 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.

(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 factsheet, 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. 1273.11 State plans.

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

plans before receiving grants. Under regulations implementing Executive

Order 12372, ``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.

(c) Assurances. In each plan the State will include an assurance

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,

or

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

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

reflect:

(1) New or revised Federal statutes or regulations; or

(2) 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. 1273.12 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,

or

(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;

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(4) Additional project monitoring;

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

management assistance; or

(6) Establishing additional prior approvals.

(c) If an awarding agency decides to impose such conditions, the

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

Financial Administration

Sec. 1273.20 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 cancelled 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.

(c) An awarding agency may review the adequacy of the financial

management system of any applicant for financial assistance as part of

a preaward review or at any time subsequent to award.

Sec. 1273.21 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.

(c) Advances. Grantees and subgrantees shall be paid in advance,

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

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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. 1273.43(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. 1273.22 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. 1273.23 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. 1273.24 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 others 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. 1273.25, 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. 1273.25(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

[[Page 33700]]

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.

(c) Valuation of donated services--(1) Volunteer services. Unpaid

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. 1273.22, 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. 1273.25 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.

(c) Cost of generating program income. If authorized by Federal

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

[[Page 33701]]

agreement or Federal agency regulations as program income. (See

Sec. 1273.34).

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

will be handled in accordance with the requirements of Secs. 1273.31

and 1273.32.

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

outlays which may be both Federal and non-Federal as described below,

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. 1273.26 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. 7501-7507) 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 forprofit 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.

(c) Auditor selection. In arranging for audit services,

Sec. 1273.36 shall be followed.

Changes, Property, and Subawards

Sec. 1273.30 Changes.

(a) General. Grantees and subgrantees are permitted to rebudget

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. 1273.22) 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.

(c) Budget changes--(1) Nonconstruction projects. Except as stated

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. 1273.36

[[Page 33702]]

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 format 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. 1273.22) 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. 1273.31 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 purpose, and the grantee or subgrantee shall not

dispose of or encumber its title or other interests.

(c) Disposition. When real property is no longer needed for the

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 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. 1273.32 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.

(c) Use. (1) Equipment shall be used by the grantee or subgrantee

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. 1273.25(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, or 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

[[Page 33703]]

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 party 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 Sec. 1273.32(e).

(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. 1273.33 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. 1273.34 Copyrights.

The Federal awarding agency reserves a royalty-free, nonexclusive,

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. 1273.35 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. 1273.36 Procurement.

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

State will allow 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) in 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 an 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 or 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

[[Page 33704]]

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 protestor 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 subgrantee's protest procedures

for failure to review a complaint or protest. Protests received by the

Federal agency other than those specified above will be referred to the

grantee or subgrantee.

(c) Competition. (1) All procurement transactions will be conducted

in a manner providing full and open competition consistent with the

standards of Sec. 1273.36. 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 statutorily 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 the simplified

acquisition threshold fixed at 41 U.S.C. 403(11) (currently set at

$100,000). If small purchase procurements are used, price or rate

quotations shall 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 Sec. 1273.36(d)(2)(i)

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

(C) The procurement lends itself to a firm fixed price contract 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;

(C) All bids will be publicly opened at the time and place

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

[[Page 33705]]

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 is procurement 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;

(C) The awarding agency authorizes noncompetitive proposals; or

(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. 1273.22). 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 the simplified

acquisition threshold and is to be awarded without competition or only

one bid or offer is received in response to a solicitation; or

[[Page 33706]]

(iii) The procurement, which is expected to exceed the simplified

acquisition threshold, specifies a ``brand name'' product; or

(iv) The proposed award is more than the simplified acquisition

threshold and 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 the simplified

acquisition threshold.

(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 the simplified acquisition

threshold, 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 paragraph (i) 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 Federal 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 more

than the simplified acquisition threshold)

(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,

entitled ``Equal Employment Opportunity,'' as amended by Executive

Order 11375 of October 13, 1967, and as supplemented in Department of

Labor regulations (41 CFR part 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 276a-7)

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

(Construction contracts in excess of $2000 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 $2000, and

in excess of $2500 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, 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 (Pub. L. 94-163,

89 Stat. 871).

Sec. 1273.37 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. 1273.42 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

[[Page 33707]]

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.

(c) Exceptions. by their own terms, certain provisions of this part

do not apply to the award and administration of subgrants:

(1) Section 1273.10;

(2) Section 1273.11;

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

Regulations at 31 CFR part 205, cited in Sec. 1273.21; and

(4) Section 1273.50.

Reports, Records, Retention, and Enforcement

Sec. 1273.40 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 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 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.

(c) Construction performance reports. For the most part, on-site

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) 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. 1273.41 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 or 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 decisionmaking 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 Sec. 1273.41(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

[[Page 33708]]

shall not be required to convert its accounting system but shall

develop such accrual information through and 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.

(c) Federal Cash Transactions Report--(1) Form. (i) For grants 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

Sec. 1273.41(b)(3).

(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

Sec. 1273.41(d), instead of this form.

(ii) The frequency for submitting reimbursement requests is treated

in Sec. 1273.41(b)(3).

(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 Sec. 1273.41(b)

(3) and (4).

(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 Sec. 1273.41(d).

(iii) The Federal agency may substitute the Financial Status Report

specified in Sec. 1273.41(b) 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 Sec. 1273.41(b)(2).

Sec. 1273.42 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. 1273.36(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.

(c) Starting date of retention period--(1) General. When grant

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

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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 chargeback 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. 1273.43 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 award 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.

(c) Effects of suspension and termination. Costs of grantee or

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 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. 1273.35).

Sec. 1273.44 Termination for convenience.

Except as provided in Sec. 1273.43 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. 1273.43 or paragraph (a) of this section.

Subpart D--After-The-Grant Requirements

Sec. 1273.50 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 timeframe. 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. 1273.32(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.

(c) Cost adjustment. The Federal agency will, within 90 days after

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

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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. 1273.51 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;

(c) Records retention as required in Sec. 1273.42;

(d) Property management requirements in Secs. 1273.31 and 1273.32;

and

(e) Audit requirements in Sec. 1273.26.

Sec. 1273.52 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

reimbursement,

(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.

Subpart E--Entitlements (Reserved)

[FR Doc. 95-15898 Filed 6-28-95; 8:45 am]

BILLING CODE 7510-01-P