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1995-0914_METROPOLITAN / MWDOC_Letter Agr No. 4076 1st AmdI 1� MWD METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA Office of the General Mana,i er Municipal Water District of Orange County Post Office Box 20895 Fountain Valley, California 92728 Attention Mr. Stanley E. Sprague General Manager Capistrano Valley Water District 32450 Paseo Adelanto San Juan Capistrano, California 92675 Attention Mr. Ray Auerbach General Manager Gentlemen: 40 August 9, 1996 First Amendment to Letter Agreement No. 4076 for Participation in a Landscape Water Audit and Irrigation Computer Control System Retrofit Project This letter, when signed by all parties, shall serve as the First Amendment (Amendment) to Letter Agreement No. 4076 (Agreement) between The Metropolitan Water District of Southern California (Metropolitan), The Municipal Water District of Orange County (MWDOC), and Capistrano Valley Water District (CVWD). This Agreement is for CVWD to conduct large landscape water audits, and to retrofit and connect seven landscape sites to the City of Capistrano's existing central irrigation computer control system. 1. This Amendment is necessary due to increases in the cost of equipment that have occurred since the original proposal was prepared. • 0 THE MFTROPOVTAN K'A7FR 07SMV OF SOUTHERN C411FORNIA Municipal Water District of Orange County -2- August 9, 1996 2. In lieu of terminating the Agreement and executing a new agreement, the parties hereby amend the Agreement increasing the maximum amount payable under the Agreement from $57,000 to $77,000. The term of this Agreement remains unchanged. Change from: The total cost of the Project is estimated to be $57,000. These costs will be shared with Metropolitan contributing $28,500 or 50 percent of total Project costs, USBR contributing $22,800 or 40 percent of total Project costs and CVWD providing $5,700 or 10 percent of total Project costs. Change to: The total cost of the Project is estimated to be $77,000. These costs will be shared with Metropolitan contributing $38,500 or 50 percent of total Project costs, USBR contributing $30,800 or 40 percent of total Project costs and CVWD providing $7,700 or 10 percent of total Project costs. shall Except as hereby amended, Letter Agreement No. 4076 remain in full force and effect. 0 0 THE MEMOROVTAN WATER XMICr OF SON71,68N C HORN/A Municipal Water District of Orange County -3- August 9, 1996 Metropolitan has fully executed three originals of this Amendment. If the terms are acceptable to you, please sign all three and forward to CVWD, who is to sign all three and return one original each to Metropolitan, and MWDOC, and retain one for their records. PSS/dlh/as In Triplicate Municipal Water District of Orange County APPROVED AS TO FORM BY ,aalZt Title f Date_ L�'L Very truly yours, John R. Wodraska GeneralMa er Salvador E. Vazquez Acting Director, Public Affairs APPROVED AS TO FORM N. Gregory Taylor General Cou s By .l ; Deputy eneral Counsel Capistrano Valley Water District By_-Z� - 4g ZZ General Manager Fagg UST40jewmim• •� a Title OFFICE OF THE CITY ATTORNEY 0 1� MWD METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA Office of the General Manager Municipal Water District of Orange County P.O. Box 20895 Fountain Valley, California 92728 Attention Mr. Stanley E. Sprague General Manager Capistrano Valley Water District 32450 Paseo Adelanto San Juan Capistrano, California 92675 Attention Mr. Ray Auerbach General Manager Gentlemen: 0 September 8, 1995 Letter Agreement No. 4076 for Participation in a Landscape Audit and Irrigation Computer Control System Retrofit Project When signed by all parties, this letter will serve as an agreement (Agreement) among The Metropolitan Water District of Southern California (Metropolitan), Municipal Water District of Orange County (MWDOC), and Capistrano Valley Water District (CVWD). This Agreement is to be funded by Metropolitan and CVWD, with additional funding provided by the United States Bureau of Reclamation (USBR) under a grant agreement with Metropolitan. Metropolitan's funding is provided through the Conservation Credits Program which is designed to assist member and subagencies in conserving Metropolitan's water supplies. `�����wu, ushnge'E.�, Cabfomia • Ml� 1,g adJrL�xs Box 51153. Los Anycle,, Caii.on is 9001- • i. i.,,)M.,n: i. i'i I1 I(J011 0 THE METROPOLITAN WATER 0/STRICT OF SOUTHERN CALIFORNIA Municipal Water District of Orange County _2_ September 8, 1995 1. CVWD has submitted a proposal to: (1) conduct 100 large landscape irrigation water audits with quarterly follow-up visits; and (2) provide, install, and connect to the City of San Juan Capistrano's central irrigation computer control system seven radio -controlled satellite controllers in seven additional landscape sites (Project). The Project description is marked Exhibit A and attached hereto and incorporated herein by this reference. Under the terms of this Agreement, CVWD will perform tasks as outlined in Exhibit A. 2. This Agreement will be effective upon final execution. CVWD will begin work on Project within 60 days after execution of the Agreement. CVWD will complete all work and provide all final verification to Metropolitan by September 30, 1996, or when all work described in Exhibit A has been completed, whichever occurs first. 3. If an extension is needed, CVWD will provide Metropolitan with a written request and justification and Metropolitan will request additional time for this Project from USSR. 4. Mr. John Wiedmann is appointed Agreement Administrator for Metropolitan for the purpose of administering this Agreement and making any decisions in connection therewith on behalf of Metropolitan. Metropolitan reserves the right to change the designated Agreement Administrator upon providing written notice to MWDOC and CVWD. 5. Mr. Joe Berg is appointed Agreement Administrator for MWDOC for the purpose of administering this Agreement and making decisions in connection therewith on behalf of MWDOC. MWDOC reserves the right to change the designated Agreement Administrator upon providing written notice to Metropolitan. 0 THE METROPOLITAN WATER 9/STRICT Of SOUTHERN CAUEORNIA 0 Municipal Water District of Orange County -3- September 8, 1995 6. Mr. Jim Widner is appointed Agreement Administrator for CVWD for the purpose of administering this Agreement and making decisions in connection therewith on behalf of CVWD. CVWD reserves the right to change the designated Agreement Administrator upon providing written notice to MWDOC and Metropolitan. Project Reporting Requirements 7. For USBR reporting compliance CVWD will be responsible for providing Metropolitan with a Final Report and, if applicable, an Interim Report. Both reports must use the format shown in Exhibit B, which is attached hereto and incorporated herein by reference. The Final Report is due 30 days after Project completion. For any given year that the Project is underway on September 30 (end of Federal fiscal year), an Interim Report is due the following November 1 for Project activities occurring through September 30. Project Funding 8. The total cost of the Project is estimated to be $57,000. These costs will be shared with Metropolitan contributing $28,500 or 50 percent of total Project costs, USBR contributing $22,800 or 40 percent of total Project costs, and CVWD providing $5,700 or 10 percent of total Project costs. 9. Within 60 days after execution of this Agreement, Metropolitan will provide $11,400 to MWDOC. This represents an advance (Advance) of 20 percent of the total estimated funding. These funds will be transferred by means of a credit on Metropolitan's water service billing to MWDOC. MWDOC agrees to pass on any credits for Project to CVWD for implementation of this Project. 10. Payments thereafter will be made on a bimonthly reimbursement basis for Project expenditures incurred. Bimonthly requests for reimbursement must be accompanied by documentation of expenditures listed in the invoice format specified in Exhibit C, which is attached hereto and incorporated herein by reference. Metropolitan will reimburse only invoices that are signed and approved by CVWD's Agreement Administrator. 0 TNF RfTROMMAN WATER OTSTRTCT Of SOUTHERN CA[TFORNIA Municipal Water District of Orange County -4- September 8, 1995 11. Each approved invoice will be reimbursed by Metropolitan to CVWD at 60 percent of the total invoiced amount. Payment of the remaining 40 percent will be withheld to reflect CVWD's financial participation, graduated repayment of the Advance, and monies withheld until all Project deliverables have been received and approved by Metropolitan. 12. Upon receipt and approval by Metropolitan and USBR of the Final Report (see Project Reporting Requirements, Paragraph 7) a final expense reconciliation will occur. If upon reconciliation, funds are due from Metropolitan and USER, Metropolitan will credit these funds to MWDOC, who agrees to pass the credit to CVWD within 60 days from date of receipt and approval of the Final Report. If the reconciliation indicates Metropolitan has remitted excess funds to MWDOC, Metropolitan will invoice MWDOC, who will invoice CVWD for the excess funds. MWDOC will remit payment to Metropolitan for the excess funds within 40 days of the date of receipt of the invoice. Installation Verification 13. During the Term of this Agreement, CVWD will provide to Metropolitan and MWDOC written verification from the equipment manufacturer that the satellite controllers have been properly sited and installed. Certifications 14. CVWD agrees to execute the following certifications that are marked Exhibit D and are attached hereto and incorporated herein by reference. These certifications are required as outlined in Section 26.52.223-6 and 27.52.223-5 of the General Provisions of the Cooperative Agreement No. 4 -FC -30- 00120 between Metropolitan and USER and include the following: Drug Free Workplace; Lobbying Certification; and Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion. TRE METROPOLITAN WATER 0/STRICT OF SOUTHERN CA(6ORNTA Municipal Water District of Orange County -5- September 8, 1995 Access to Data 15. Metropolitan, MWDOC, CVWD, and their authorized representatives agree to provide technical data and information as required by the other parties to implement Project and evaluate Project implementation, costs, and water savings. Metropolitan, MWDOC, and CVWD will make available for inspection to the other parties, upon reasonable advance notice, all records, books, computer files, and other documents relating to Project. Compliance 16, CVWD will conduct Project in compliance with requirements specified in, but not limited to, the General Provisions of Cooperative Agreement No. 4 -FC -30-00120 between Metropolitan and USBR, and as incorporated in the General Provisions and in the following Office of Management and Budget (OMB) Circulars: A-87 - Cost Principles for State and Local Governments; A-102 (revised) - Grants and Cooperative Agreements with Public organizations and State and Local Governments; A -128 - Audits of State and Local Governments; and The Common Rule - Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments. These documents are incorporated by reference and included as Exhibit E. Audit and Record Retention 17. Metropolitan, MWDOC, and CVWD agree to provide access to any books, documents, papers, and records that are directly pertinent to this Agreement for the purpose of making audit, examination, excerpts, and transcriptions. CVWD will provide a copy of its annual audit to Metropolitan. Metropolitan, MWDOC, and CVWD will retain all required records for three years after final payment has been made and all other pending matters have been closed. Termination 18. This Agreement may be terminated by any of the parties hereto for any reason 30 days after notice in writing to the 0 0 TRE MfTROP&MAN WATfR 0/STRICT OF SOUTHERN CALIFORNIA Municipal Water District of Orange County -6- other parties. Upon such termination, CVWD will provide Metropolitan with all documentation verifying the implementation and costs of Project up to and including the date of termination. The value of services performed up to and including the date of termination will be determined in accordance with the rates for services outlined in Attachment 6 of Exhibit A. Responsibilities 19. MWDOC will pay invoiced amounts to Metropolitan within 40 days from the date of invoice. If payment is received after the due date, but within the first 30 days after the due date, a penalty will be assessed of one-half percent of the total invoice amount. If payment is received more than 30 days after the due date, a penalty of one-half percent of the total invoice amount will be assessed each 30 days thereafter. 20. CVWD is responsible for the design, implementation, personnel, equipment and supplies, and all capital and operating costs related to and incurred by Project. All materials and equipment necessary to implement Project are the exclusive property of CVWD. Metropolitan and MWDOC have no ownership, right, title, security interest, or other interest in any Project facilities, materials, or equipment, nor any rights, duties, or responsibilities for operation or maintenance thereof. Any modifications to Project, which may alter the implementation, effectiveness, and/or costs must be agreed to in writing by all parties. 21. CVWD is responsible for assuring that Project complies with requirements of California Environmental Quality Act (CEQA). 22. As lead Agency for Project, CVWD is responsible for providing sufficient qualified personnel and/or selecting a qualified independent contractor to implement Project. 23. Metropolitan, MWDOC, and CVWD each agrees that it is responsible for its own actions under this Agreement and agrees to indemnify and hold the other parties and their officers and agents harmless, and agrees to defend the other parties against any claim or asserted liability arising out of its actions, 9 THE METROROCITAN WATER 0/STRICT Of SOUTHERN CAUEORNIA n U Municipal Water District of Orange County -7- September 8, 1995 either willful or negligent, or its actions in implementing the Project. Such indemnity will include any losses relating to any claim made, whether or not a court action is filed, and will include attorney fees and administrative and overhead costs related to or arising out of such claim or asserted liability. CVWD is responsible for any such actions arising under CEQA. Notice 24. Any written communication required or permitted to be given hereunder will be deemed received upon personal delivery or 48 hours after deposit in any United States mail depository, first class postage prepaid, and addressed to the party for whom intended, as follows: If to Metropolitan: The Metropolitan Water District of Southern California P. O. Box 54153 Los Angeles, California 90054 Attention John P. Wiedmann If to MWDOC: Municipal Water District of Orange County P. O. Box 20895 Fountain Valley, California 92728 Attention Mr. Stanley E. Sprague If to CVWD: Capistrano Valley Water District 32450 Paseo Adelanto San Juan Capistrano, California 92675 Attention Mr. Jim Widner Any party may change such address by giving notice to the other parties as provided herein. 0 0 THE METROPOLITAN WATER DISTRICT Of SOUTHERN CAUPoRNIA Municipal Water District of Orange County _g_ September 8, 1995 Other Terms 25. Metropolitan may, at its own expense and discretion, provide follow-up analysis and verification of actual results achieved through Project implementation. 26. It is understood that any alteration or variation of the terms of this Agreement will not be valid unless made in writing and signed by all parties hereto, and that this Agreement constitutes the entire agreement between all parties. 27. This Agreement will inure to the benefit of, and be binding upon, Metropolitan, MWDOC, CVWD, and their respective successors. This Agreement is not assignable by any party in whole or in part. 28. The partial or total invalidity of one or more parts of this Agreement will not affect the intent or validity of this Agreement. 29. This Agreement will be deemed a contract under the laws of the State of California, and for all purposes will be interpreted in accordance with such laws. Metropolitan, MWDOC, and CVWD hereby agree and consent to the exclusive jurisdiction of the courts of the State of California and that the venue of any action brought hereunder will be in Los Angeles County, California. TNF MfTROPOLITAN WATER 0/STRICT Of SOOTfIFRN CALIFORNIA Municipal Water District of Orange County -9- September 8, 1995 Metropolitan has fully executed all three originals of this Agreement. If the terms are acceptable to you, please sign all three originals and forward them on to CVWD. CVWD is to sign and return one each to Metropolitan and MWDOC, and retain one original for their records. Very truly yours, John QI J1y 14. Malinowski Director, Public Affairs APPROVED AS TO FORM N. Gregory Taylor General., Counsel By ✓� Deputy Genera Counsel PSS:cl Attachments In Triplicate Municipal Water District Capistrano Valley Water of Orange County District By By General WnageGeneral Manager APPROVED AS, TO FORM APPRO AS TO F�OR/M By �a Date %J y�� Date `S/�� EXHIBIT A CVWD LARGE LANDSCAPE IRRIGATION AUDIT PROGRAM STATEMENT OF PURPOSE AND JUSTIFICATION In FY 1992/93, 400 landscape accounts consumed 18% (558,000 hundred cubic feet - ccf) of the water used in the Capistrano Valley Water District (CVWD). Over 30% of that water was subject to penalty charges based on our tiered rate system (Attachment 1). The proposed Large Landscape Program expands the existing landscape water audit program and includes two components: A. In cooperation with the City of San Juan Capistrano, bring seven large common -area landscapes on-line with the City's existing radio -controlled irrigation system. The locations of these controllers are listed in attachment 2 and installation will be completed no later than the end of June, 1995. The cost of the controllers will include hardware, installation, and commissioning. In addition to providing a summary of the past two years' water use for these accounts, CVWD agrees to provide water consumption data for the next two years on a quarterly basis. B. Target 100 landscape accounts with use in Tier If and Tier III, for selective audits of aging, inefficient irrigation systems. By demonstrating water savings at selected sites, homeowner associations and others will be encouraged to invest in further system upgrades (see Attachment 3). CVWD has a 3 -tier allocation system for all landscape accounts based on plant water requirements as recommended by Metropolitan. The monthly allocations are tailored for each account by its' square footage, and the monthly evapotranspiration (ET). By evaluating the billing history, we can identify the water wasters and can help make strides in curbing waste, while still keeping San Juan Capistrano green. A preliminary sorting of landscape accounts reveals the accounts with use above Tier 1 (Attachment 3). Over the course of the audit process, comprehensive water management plans will be developed to include all meters and controllers on a given site. 1 0 0 II. MAKE-UP OF TEAM EFFORT A. Francie Kennedy, Conservation Coordinator, Capistrano Valley Water District (2 years). Francie is a Certified Landscape Irrigation Auditor with 20 years experience in all phases of horticulture. She will oversee this project, decide which accounts to audit, direct the audits, suggest scheduling changes, edit reports, and monitor follow-up. B. Intern (to be hired on receipt of funding). The intern will accompany the Conservation Coordinator to audits and related site visits and meetings, and assist in taking measurements and recording data. The ability to take good quality field notes, maintain records and files, and type reports is important. The ideal candidate will have a working knowledge of irrigation systems, with trouble -shooting and repair experience. A horticulture background would be a plus, as would bilingual ability. C. Other CVWD office support staff will be called upon in the areas of database management, engineering, and maintenance. Grant funding will not be spent on these in-house staff persons who will help on an as - needed, as -available basis. D. Other Experts. Should any account or audit require specialized knowledge or experience beyond that of CVWD staff, the intern, and the irrigation supervisor of a given site, an outside contractor may be hired for short-term work. III. METHODS AND PROCEDURES A. Tasks 1. Hire intern to assist CVWD Conservation Coordinator with the following: 2. Refine list of target accounts (see "B" below). 3. Review history of consumption by Tier II and III accounts on the target list (CVWD billing records). 4. Market the program to these target accounts (see "C" below). 5. Set appointments and begin performing audits per Irrigation Training and Research Center (ITRC, San Luis Obispo), and Irrigation Association (IA) methods and standards (see "D" below). 6. Write first audit reports. 7. Followup, monitoring both water consumption and any repairs or retrofits suggested in the reports (see "F" below). 8. Review consumption and irrigation scheduling quarterly, or more frequently if necessary, and generate followup reports. 2 0 0 B. Target Participants One hundred Tier II and III landscape accounts will be targeted for audits. The choice will be based on several factors such as square footage of the landscaped area served by each meter, total annual consumption, and most importantly, the amount of water consumed over CVWD's base allocation for the site which is subject to penalty charges. We have access to billing records for the past four years. For most accounts, we also have on file general site plans for the area served by each meter, with descriptions of the associated plant material and square footage. These were provided by customers when the tiered rate system, based on square footage, was adopted in 1990-91. This information will be updated in the field as part of the audit process. CVWD customer service and field work records will be reviewed, noting any history of stuck meters, repairs or leaks. As time permits between phases of the larger audits, other individual landscape meters throughout the district with a history of Tier III consumption (assumed to be wasteful), will also be targeted for investigation. C. Marketing In most cases, a working relationship has already been established between the various management companies and CVWD. All management companies have been willing to provide the name and number of their landscape maintenance contractor, and several have invited CVWD representatives to meetings of their landscape committee to offer suggestions on ways to conserve water. Further, many of the landscape contractors sent workers to attend the recent session of "Protector del Agua" offered through CVWD. An attitude of teamwork is developing. Each customer on the target list will be contacted by telephone and introduced to the large audit program and it's potential to save them both water and money. I anticipate a receptive attitude and invitations to attend their next committee meeting. In conversation with management representatives, CVWD hopes to elicit figures comparing their water bill with their total landscape maintenance bill with an eye toward potential reduction of other maintenance costs associated with overwatering. At the landscape committee meeting, I will present the parameters of the grant and it's implementation. I will review the history of water use on site, and estimate potential savings, I will then set an appointment to meet with the landscape site supervisor for the initial irrigation audit. 3 0 0 Other marketing options include: ■ The inevitable "word travels fast" phone calls to CVWD from HOAs who heard about it from their friends and wonder why they are not on the first list of targets; ■ Attending one of the regularly scheduled meetings between the City of San Juan Capistrano and representatives from each of the homeowners associations (HOAs) and landscape districts within the City to introduce the program as an item on their agenda; ■ The landscaper maintaining one landscape account on the target list may also maintain other areas in the district. Knowledge of a particular landscape company's style on one project may influence investigation of others they maintain. Education of the gardeners will be a priority. ■ HOAs, commercial, industrial, and institutional customers may be targeted for landscape audits in conjunction with comprehensive water - use surveys of selected commercial and multi -family residential accounts, most with separate landscape meters. D. Auditing and Scheduling Audits will be performed per the standards of the Irrigation Training and Research Center (ITRC, San Luis Obispo), and the Irrigation Association, by a certified landscape irrigation auditor along with the intern and landscape maintenance staff familiar with the layout and operation of the irrigation system. Also present may be other interested parties including members of an association's landscape committee or board. Audits will sample the variety of vegetation and irrigation types within a given customer's landscape. For example, in a 10 -acre HOA common area, we may sample one large flat lawn, one steep acacia -covered slope, and one median strip to determine which type of irrigation within the HOA most merits immediate attention and further audits of similar areas. Wherever applicable, ITRC software will be utilized for auditing, scheduling and budgeting water. E. Follow-up Follow-up on targeted, audited accounts will begin with their next water bill, and continue with monitoring their progress as they adjust runtimes, install uniform heads, repair leaks, etc., per initial audit findings. 4 0 0 Quarterly review of the appearance of the landscape, water consumption records by meter, and irrigation schedule records, will allow refinements to be made. At this time, the next season's water budget and irrigation schedule will be discussed,and further adjustments can be implemented when appropriate to the weather. When plant material needs replacement, customers will be encouraged to reduce areas of turf and other thirsty plants, with drought -tolerant plants. As a part of both the marketing and follow-up phases of these audits, letters may be sent from CVWD to residents of an area being audited along with graphs of water use in the common areas measured against the base allocation. This will let them know of the mutual effort taking place between CVWD, their own board, and their gardener, to save them money and conserve water. HOAs with newsletters will be encouraged to publicize their efforts to keep water bills, therefore dues, down. Residents will be urged to report leaks immediately to minimize common -area water waste. Occasional reminders with updates and progress reports on water saved will add to the area's generally heightened awareness and observation of water and wasteful conditions. Every landscape account will have its peculiarities and the follow-up process will be tailored to each customer's needs and abilities. IV. PROGRAM IMPLEMENTATION TIMELINE (Attachment 5) ■ Funds received; mobilization (February -March 1995) Advertise, hire, and train intern to use computer system and help in audits ■ Refine target list and set appointments (February -June 1995) ■ Perform audits (April -November 1995) ■ Followup (April 1995 -November 1996) By July 1995, all 100 accounts will be in the process of marketing, auditing, followup, seasonal scheduling, and further followup. Continue this staggered/overlapping implementation until complete. 5 0 0 V. DESCRIPTION AND TIMETABLE OF DELIVERABLES TO BE PROVIDED A summary audit report for every account audited will be forwarded to Metropolitan. This will include a history of consumption for that meter, major findings during the audit, suggested scheduling changes and suggested repairs and retrofits. Quarterly progress reports will follow this initial audit report, summarizing changes made to the irrigation schedule, and any hardware retrofits performed by the landscaper. Over the course of the year following the initial audit, a comparison of consumption with previous years will be developed, and these figures will be included in a final report to the customer and to Metropolitan. 11 0 ATTACHMENT 1 0 O O C O O O O O O O O O �a..L ,Cq asn jo luaajad S.LN31N.LSnfQV 113M WdV3 ,UID 3JIAIM 31WA 90UVHJ ON TIEIV.LOd NON NOLLJn1LLSNOO TdIO2I3Y�IY�IOJ 31in.L'In:)rd9v g U ONIdV JSQNV'I OQNOJ `I ulflw-'QIS31I 1RIUM I.L"InNi-'QIS31I S31NOH 3'IIGOW SIM 3IDUV"I - 'QIS311 5101 UV'InD3d - QIS31i I. 0 ATTACHMENT 1A* V/ ! Gn! t,6 -0 -ICI 46-nON 46-100 i i V6-daS i 46-OnV { 1 46 [nf e 1 i 46-unf i 46-�eYV 46-idV 46-�I^t 6-9x3 46-Lwf e o` e o 0 O �"'7, O O O O O O O O c o o o� O asn .Cly;uom}O;uaafad 9 ATTACHMENT 2 0 CENTRAL IRRIGATION CONTROLLER LOCATIONS 1. Belford Drive and Rosedale Drive - Belford Terrace Landscape District 2. La Novia and San Juan Creek Road - Los Corrales Landscape District 3. Royale Drive - Capistrano Royale Landscape District 4. Ortega Highway and Via Cuartel - All three Mission Woods Landscape District Calle Arroyo and Via Parra Calle Arroyo and Sundance 5. Paseo Activo - Seaview Landscape District 0 ATTACHMENT 3 0 TARGETING LANDSCAPE WATER THE BIGGEST CONSUMERS (other than the City) CUSTOMER'S NAME ACCOUNTS TOTAL FY CONS (in ccf) Capistrano Business Plaza 6 9,908 Capistrano Royale HOA 11 12,907 Capo Villas HOAs 1, 2 & 3 13 13,575 Captain's Hill HOA 9 12,880 Hidden Mtn Estates 9 13,388 Hunt Club Comm Assn 10 14,667 Mariners Village HOA 8 10,172 Mesa Loma Vista Slope 1 8,622 Mesa Vista N HOA 6 16,555 Moreland -Connemara HOA 11 17,334 Rancho Mission Viejo 1 14,237 San Juan Hills East 17 18,762 San Juan Mesa Verde HOA 4 10,114 Sun Hallow HOA 8 13,150 Village San Juan 23 59,633 TOTAL 0 137 245,904 ccf/yr 0 ATTACHMENT 4 COST SUMMARY AGENCY: Capistrano Valley Water District 32450 Paseo Adelanto San Juan Capistrano, CA 92675 CONTACTS: Jim Widner, Administrative Services Manager France Kennedy, Conservation Coordinator PHONE: (714) 493-1515 FAX: (714) 493-3955 PROJECT TITLE: Large Landscape Irrigation Program (Best Management Practice #5) PROJECT TYPE: Expand existing landscape water audit program WATER SAVINGS: 142,500 ccf per year/327 of per year TOTAL COST: $57,000 Radio Controllers at 7 locations/$5,000 each ..... $35,000 Conservation Coordinator currently part-time - additional time to implement project ............ $10,000 Intern to assist Conservation Coordinator - at $1 2/hour/1 0 hours per account/100 accounts ... $12,000 TOTAL COST ...................... $57,000 AGENCY SHARE: $5,700 IMPLEMENT: Within one month from receipt of funding 9 Q LL l z 0 N Q � n N � A r � Q O � LL E � E o z t i o°c 0 N Q A A r � Q CD N C co LL y O 4 0 O — CL z 0 N Q F- W 2 U <W G _N z U U 0 O a C O o a U z � W N N cl 2 O Q N J cw arc < a d a ~ z3 m O W 0 0 LO z w ¢ a 0 Q n a Tm Q (� U EXfIIBIT B USER CO -FUNDED CONSERVATION PROJECT REPORT Date of Report: Agreement No.: Participants Member Agency: Subagency(ies): Other: Summary Overview Project Type (circle all that apply) General: 1) new 2) on-going 3) pilot ULFT's: 1) rebate 2) direct install 3) voucher 4) CBO 5) high school 5) other CII: 1) surveys 2) retrofits 3) research Landscape: 1) audits 2) retrofits 3) research Residential: 1) audits 2) retrofits (showerheads, ULFT's) 3) research Target Audience: 1) single-family 2) multi -family 2) low income 4) ethnic 5) educational 6) commercial 7) institutional 8) industrial Applicable BMP(s): Project Size Dates Total # of units: Units completed to date (#): Units completed to date (�): Other (e.g., acres, dwellings, etc.): Start data (month/year): Completion date (month/year): Duration (months): Phase: of Funding Method (circle one): 1) 50/40/10 (USSR) 2) 50/51 Amounts ($) USBR: Metropolitan: Agency: Subagency: End user: Other: Savings, Costs and Expenditures Water Savings AF savings (list assumptior Costs Equipment: Labor: In-kind services: Total: Cost/AF Metropolitan cost/AF: Agency/subagency cost/AF: Regional cost/AF: Expenditures To date ($): To date (% of total): Narrative Project description, including marketing strategies, implementation methods, evaluation measures, agency/customer benefits, challenges, successes, etc.: Agency Address City, State ZIP phone FAX • 0 EXHTFIT C Metropolitan Water District of Southern California Attention: Accounts Payable Los Angeles, California 90054 Period of performance: —j—k— to �_ Classification # Emp Total Hourly Labor Cost hours rate Personnel subtotal Materials and Supplies Description Ori Unit cost Ext cost Materials and Supplies subtotal Description Otr Unit cost Ext Cost Equipment subtotal Other ExRjnses Classification Qtr Unit cost Ext cost Other Expenses subtotal Approved by: Total Project Costs: $0.00 Name Tide Less 40% MWD Withhold: $0.00 Date Total Amount this Invoice: $0.00 Total Previous Invoices: $0.00 Total Invoices to Date: $0.00 Iructions for certifi#ion EXHIBIT o * 'I. By signing and/or submitting this application or grant agreement, the grantee is providing the Certification Regarding Drug -Free Workplace Requirements. 2. This Certification is a material representation of fact upon which reliance is placed when the agency awards the grant. If it is later determined that the grantee knowingly rendered a false certification, or otherwise violates the requirements of th Drug -Free Workplace Act, the agency in addition to any other remedies available to the Federal Government, may take action authorized under the Drug -Free Workplace Act. For grantees other than individuals. Alternate I applies. 4 For grantees who are individuals. Alternate II applies. S. Workplaces under grants, for grantees other than individuals, need not be identified on the certification. If known, they may be identified in the grant application. If the grantee does not identify the workplaces at the time of application, or upon award, if there is no application, the grantee must keep the identity of the workplace(s) on file in its office and make the information available for Federal inspection. Failure to identify all known workplaces constitutes a violation of the grantee's drug-free workplace requirements. 6. Workplace identifications must include the actual address of buildings (or parts of buildings) or other sites where work under the grant takes place. Categorical descriptions may be used (e.g., all vehicles of a mass transit authority or State highway department while in operation. State employees in each local unemployment office, performers in concert halls or radio studios). 7. If the workplace identified to the agency changes during the performance of the grant, the grantee shall inform the agency of the change(s), if it previously identified the workplaces in question (see paragraph five). 8. Definitions of terms in the Nonprocurement Suspension and Debarment common rule and Drug -Free Workplace common rule apply to this justification. Grantees' attention is called, in particular, to the following definitions from these rules: "Controlled substance" means a controlled substance in Schedules I through V of the Controlled Substances Act (21 U.S.C. 812) and as further defined by regulation (21 CFR 1308.11 through 1308.15); "Conviction" means a finding of guilt (including a plea of nolo contendere) or imposition of sentence, or both, by any judicial body charged with the responsibility to determine violations of the Federal or State criminal drug statutes; "Criminal drug statute" means a Federal or non -Federal criminal statute involving the manufacture, distribution, dispensing, use, or possession of any controlled substance; "Employee" means the employee of a grantee directly engaged in the performance of work under a grant, including (I) all "direct charge" employees; (ii) all "indirect charge" employees unless their impact or involvement is insignificant to the performance of the grant; and (iii) temporary personnel and consultants who are directly engaged in the performance of work under the grant and who are on the grantee's payroll. This definition does not include workers not on the payroll of the grantee (e.g., volunteers, even if used to meet a matching requirement; consultants or independent contractors not on the grantees payroll; or employees of subrecipients or subcontractors in covered work places). Signature Name Title Date EXHIBIT D S. Department of the InW or Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion Lower Tier Covered Transactions N This certification is required by the regulations implementing Executive Order 12549, Debarment and Suspension, 43 CFR Part 12, Section 12.510, Participants, responsibilities. The regulations were published as Part VII of the May 26, 1988 Federal Regis (pages 19160-19211). Copies of the regulations are included in the proposal package. For further assistance in obtaining a copy of the regulations, contact the U.S. Department of the Interior, Acquisition and Assistance Division, Office of Acquisition and Property Management, 18th and C Streets, N.W., Washington D.C. 20240. (BEFORE COMPLETING CERTIFICATION, READ INSTRUCTIONS ON REVERSE) (1) The prospective lower tier participants certifies, by submission of this proposal, that neither it nor its principals is presently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from participation in this transaction by any Federal department or agency. (2) Where the prospective lower tier participant is unable to certify to any of the statements in this certification, such prospective participant shall attach an explanation to this proposal. Name and Title of Authorized Representative Signature Date Name and Title of Authorized Representative Signature Date EXHIBIT D S. Department of the Interior Certification Regarding Lobbying This certification is required by Section 1352, title 31, U.S. Code, entitled "Limitation on use of appropriated funds to influence certain Federal contracting and financial transactions." (BEFORE COMPLETING CERTIFICATION, READ INSTRUCTIONS ON REVERSE) Certification for Contracts, Grants, Loans and Cooperative Agreements. The undersigned certifies, to the best of his or her knowledge and belief, that: (1) No Federal appropriated funds have been paid or will be paid by or on the behalf of the undersigned, to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, and officer or employee of Congress, or an employee of a Member of Congress in connection with the awarding of any Federal contract, the making of any Federal grant, the making of any Federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment, or modification of any Federal contract, grant, loan, or cooperative agreement. (2) If any funds other than Federal appropriated funds have been paid or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with this Federal contract, grant, loan, or cooperative agreement, the undersigned shall complete and submit Standard Form -LLL, "Disclosure Form to Report Lobbying," in accordance with its instructions. (3) The undersigned shall require that the language of this certification be included in the award documents for all subawards at all tiers (including subcontracts, subgrants, and contracts under grants, loans, and cooperative agreements) and that all subrecipients shall certify accordingly. This certification is a material representation of fact upon which reliance was placed when this transaction was made or entered into. Submission of this certification is a prerequisite for making or entering into this transaction imposed by Section 1352, title 31, U.S. Code. Any person who fails to file required certification shall be subject to a civil penalty of not less than $10,000 and not more than $100,000 for each such failure. Signature Date • • Exhibit E COOPERATIVE AGREEMENT NO. 4 -FC -30-00120 BETWEEN BUREAU OF RECLAMATION AND THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA This is a cooperative agreement (Agreement) between the United States Bureau of Reclamation (Reclamation) and the Metropolitan Water District of Southern California (Metropolitan) to financially co -participate in the implementation of urban water conservation projects in the Metropolitan service area. 1. BACKGROUND Reclamation has responsibility under Federal regulation (Title 43, Code of Federal Regulations, Part 417.2) to ensure that "...deliveries of Colorado River water to each Contractor will not exceed those reasonably required for beneficial use." Under the Reclamation Act of 1902 as amended and supplemented, Reclamation Reform Act of 1982 (Public Law 97-923), the Water Resources Research Act (Public Law 98-242, Title I, Section 10304 and 10305), Small Reclamation Reform Act of 1956 (Public Law 984), and Code of Federal Regulations 43 Part 417.2 (Procedural Methods for Implementing Colorado River Water Conservation Measures with Lower Basin Contractors and Others) Reclamation has authority to enter into this Agreement for support of Metropolitan's water conservation activities. As part of a comprehensive water conservation program in Southern California to assure beneficial water use, Metropolitan requested Federal funding assistance to implement specific water conservation projects with its member and subagencies (Agencies). The specific projects proposed include, but are not limited to: retrofitting ultra-low flush (ULF) toilets, low -flow showerheads, indoor and outdoor water audits with residential, commercial, industrial, and institutional customers, research landscaping water use and new technology applications, school and industrial retrofits, and water distribution system leak detection and repair. These projects are attached and incorporated herein by reference as Statement of Work (SOW), entitled: "The Metropolitan Water District of Southern California Supporting Implementation of Urban Water Conservation Best Management Practices. NO. 4 -FC -30-00120 Cooperative Agreement 2. OBJECTIVES AND NEED FOR THIS ASSISTANCE. Implementation of urban water conservation programs, such as those proposed here, are vital to achieving beneficial use and supply reliability goals. Recently, Reclamation became a signatory to the Memorandum of Understanding Regarding Urban Water Conservation in California (MOU) to implement best management practices (BMP). Reclamation has also made the implementation of BMP's a requirement of its water contractors as part of the contract renewal process in the Western states. Financial participation with Metropolitan and its member and subagencies that are also signatories to the MOU is part of Reclamation's objective to fulfilling its obligations. There is a need to implement innovative water projects, quantify water savings, and assess the effectiveness of new technologies and marketing methodologies as proposed by Metropolitan, which may be transferable throughout Reclamation's contractors. This funding assistance is necessary to encourage agencies that have not been able to participate in projects before due to financial and technological constraints. Co -participation with Metropolitan and its Agencies assures more cost-effective implementation of conservation projects. A joint water conservation program will evaluate water use in an consistent manner, and will be of value to the local entities, the state, and the Nation. 3. RESULTS OR BENEFITS EXPECTED. The results and benefits of the water conservation program are described in the SOW. 4. RESPONSIBILITIES OF THE PARTIES. 4.1 Reclamation, MIM Responsibilities. Reclamation, MWD will': 4.1.1 Not be obligated to expend funds or to make any funds available for the purpose herein stated in excess of appropriations authorized by law and administratively allocated for this work, such appropriations shall be used to calculate the maximum cost shared amounts using the proportions set forth herein. 4.1.2 Meet at a mutually agreed time and place, to discuss the progress and final product associated with the work herein described. 4.1.3 Acknowledge the other parties contributing to this Agreement in any documents, reports, and dedications associated with the work herein described. 4.1.4 Meet and confer as necessary to resolve any differences with respect to the implementation of this Agreement. 0 9 NO. 4 -FC -30-00120 Cooperative Agreement 4.2 Reclamation Responsibilities. Reclamation will: 4.2.1 Contribute funds in an amount up to $1,000,000 for work described in the attached SOW for this Agreement. 4.2.2 Assign a program coordinator to oversee the progress of the project and to act as liaison with MWD toward the success of this action. The expenses of such representative to be paid by Reclamation. 4.3 MWD Responsibilities. MWD will: 4.3.1 Establish a restricted cash general ledger account (Account) to deposit Reclamation funds into for purposes of accepting and being reimbursed by those funds as provided for the projects and purposes outlined in the SOW and in accordance with Section 5.1. 4.3.2 Contribute funds in an amount not to exceed $2,359,791 to implement projects described in the SOW. This contribution includes Metropolitan's obligation of $1,359,791 and Reclamation's contribution of $1,000,000 which Metropolitan is advancing for the implementation of the projects in the SOW. This total contribution shall be held by Metropolitan for purposes of distributing it among the projects in the SOW for implementation, either by, with payments to its contractors or through water billing credits to Agencies. 4.3.3 Execute agreements with each of the Agencies as included in the SOW or as may be added or changed as allowed in the SOW. Those agreements shall obligate those Agencies for a total combined amount not to exceed $262,200. Agency funds shall either be held by themselves to fund the execution of their particular projects or shall be obligated to reimburse Metropolitan for implantation expenses by Metropolitan contractors. 4.3.4 Provide quarterly financial reports to Reclamation showing expenditures and balance of project funds. 4.3.5 Assign Michael D. Moynahan as its representative to oversee the progress of the project and to act as liaison with Reclamation toward the success of this action, with expenses of such representative to be paid by MWD. N0. 4 -FC -30-00120 Cooperative Agreement 4.3.6 Provide the necessary personnel and equipment to conduct the work described in the attached SOW of this Agreement or facilitate the development of agreements with Agencies to assure that the work will be conducted. Such work will be conducted utilizing contributed funds or by providing services in-kind offsetting required contributed funds under Section 4.3.2. 4.3.7 Comply with the General Provisions for Agreements which are marked Exhibit A and are attached hereto and incorporated herein with this reference. 4.3.8 Comply with all local laws, ordinances, and building codes in pursuing the work done under this Agreement. 4.3.9 Comply with the provisions of the National Environmental Policy Act in performing all work. 4.3.10 Abide by the provisions of the following: (I) Office of Management and Budget (OMB) Circulares which are incorporated by reference and included in Exhibit A: OMB Circular A-102 (Revised) - Grants and Cooperative Agreements with public organizations and state and local Governments; OMB Circular A-87 - Cost Principles for State and local Governmets; OMB Circular A-128 - Audit Requirements for public organizations and state and local Governments. (2) If any subcontractors are utilized, the terms of the clause, Utilization of Small Business Concerns and Small Disadvantaged Business Concerns, shall apply, which is included in Exhibit A. (3) Certification form DI -1953 Regarding Debarment, Suspension, and Other Responsibility Matters, Certification form DI -1955 Regarding Drug -Free Workplace Requirements, Certification form 0I-1962 Statement for Loan Guarantees and Loan Insurance, Certification Regarding Lobbying, and the Disclosure of Lobbying Activities are to be completed, signed, and returned with the signed agreement. (4) Standard Form 4240 Assurances -Construction Programs is to be completed, signed, and returned with the signed agreement. 4.3.11 May provide funding only to water suppliers intending to implement projects identified in the SOW who are signatories to the "Memorandum of Understanding Regarding Urban Water Conservation in California", dated September 1991. This requirement assures continuing water conservation efforts by water purveyors in the Southern California area. 0 NO. 4 -FC -30-00120 Cooperative Agreement 4.3.12 Will provide Reclamation with annual reports regarding the progress and findings on the projects listed in the SOW. S. PAYMENT. 5.1 ADVANCE OF FUNDS 5.1.1 Metropolitan shall advance both its contribution and Reclamations funds to Agencies as a water billing credit for project implementation or to pay for consulting services for contractors under agreement to Metropolitan. 5.1.2 Metropolitan shall submit a request for reimbursement for project costs to Reclamation's Grants and Cooperative Agreement Officer for reimbursement of Reclamation funds it advanced to agencies or as payment to Metropolitan's contractors. 5.1.3 Request for reimbursement of funds will be timed to be in accord with the cash requirements of the recipient organizations in carrying out the purposes of the Agreement. Requests for reimbursement should be sent to Reclamation 25 days prior to initiating the work program activities to allow adequate time for review and processing of the reimbursement request. 5.1.4 Prerequisites for reimbursement from Reclamation are: (1) A completed Standard Form 270 (SF -270). Request for Advance of Reimbursement. (2) Review and approval by designated Reclamation Assistance Representative. 5.1.5 With theses prerequisites in place, Metropolitan will be reimbursed in a timely manner to enable accomplishment of the work as described in the SOW. The amount of each reimbursement will not be less than the sum shown as the requirement on the approved SOW less an estimated balance of funds available from the prior reimbursements for particular projects. All payments are subject to appropriation and reservation of funds. 5.1.6 In the event reimbursement of funds available from Reclamation are insufficient to complete the SOW additional funds may be made available on the basis of a supplemental detailed SOW submitted and approved in like manner as the first. Any additional funds made available by Reclamation subsequent to the initial payment shall be dependent upon performance by the recipients in a manner satisfactory to Reclamation's Grants and Cooperative Agreements Officer, of all prior work, but availability of such funds shall not commit the Grants and Cooperative Agreements Officer to approval of performance of such prior work. NO. 4 -FC -30-00120 Cooperative Agreement 5.1.7 The Grants and Cooperative Agreements Officer may, at his election, withhold any funds contemplated hereunder at any time when, in his opinion, Metropolitan is in default or delinquent with respect to performance of any of the items or conditions of this Agreement. 5.2 USE AND REPORTING OF REIMBURSED FUNDS FROM RECLAMATION 5.2.1 Immediately upon receipt of reimbursed funds from Reclamation, Metropolitan shall deposit said funds into the Account. Thereafter, Metropolitan may draw upon this Account to finance or be reimbursed for the work approved under the provisions of this Agreement. Each withdrawal must be wholly attributable to expenditures approved by the SOW. Interest earned on Account shall be used in accomplishing the work approved herein. 5.2.2 The funds from Reclamation shall be used only for costs and expenses incurred by the recipients for the performance of work identified and approved in the SOW. If Metropolitan uses funds pursuant to this Agreement for purposes other than authorized, as determined by the Grants and Cooperative Agreements Officer, Metropolitan shall reimburse the Account in the amount of funds so misused. 5.2.3 For each quarterly period, MWD shall provide the following information to the Reclamation Assistant Representative: (1) Verification of agency agreements and/or authorizations of work to contractors (2) Notices of receipt of Reclamation funds (3) Records of disbursement of funds (4) Reconciliation of receipts to disbursements (5) Copies of checks, invoices, and enough other supporting documentation to enable the Assistance Representative to properly review and approve the expenditures made from the Account. The submittals required under this clause may change as regulations are revised. MWD will be notified in writing of any revisions. 5.3 REQUEST FOR REIMBURSEMENT 5.3.1 In the event Metropolitan requires reimbursement for expenditures not included in or covered by reimbursed funds, Metropolitan may submit a request for additional reimbursement to Reclamation. 0 NO. 4 -FC -30-00120 Cooperative Agreement 5.4 COST BREAKDOWN FOR WORK INCURRED 5.4.1 Annually and upon completion of the water conservation programs, Metropolitan shall submit to Reclamation a detailed cost breakdown covering all actual costs incurred to date. This break down shall cover costs included in the SOW and specific to those projects, which may also include, but are not limited to, the following items: (1) labor (salaries/wages, benefits, etc.) (2) equipment (1) currently owned by Metropolitan or agency (2) rented (3) purchased by Metropolitan or agency under this Agreement (3) materials (4) inspection (5) special services (6) legal services (7) general expenses (8) subcontracts (9) property damage payments (approved by Reclamation) (10) travel expenses (11) miscellaneous (12) insurance (13) general administrative and overhead 5.4.2 This detailed cost breakdown shall be applied against any outstanding reimbursement of funds issued under the provisions of this Agreement, in the following manner: (1) If the detailed cost breakdown is more than the amount of funds paid for that specific increment or work program, the remaining costs shall be paid from the next request of funds. If the Agreement is complete, Metropolitan may submit a request for reimbursement to Reclamation proportionate to contributions. (2) If the detailed cost breakdown is less than the amount of funds advanced for that specific increment or work program, the remaining funds shall be applied to the next request for funds. If the Agreement is complete, remaining funds shall be promptly refunded to Reclamation. NO. 4 -FC -30-00120 Cooperative Agreement 5.5 NOTIFICATIONS AND FILING FOR REIMBURSEMENT 5.5.1 To assist the Government in providing timely funding, the recipients are requested to furnish an original SF -270, to the following address: Regional Director Bureau of Reclamation Attention: LC -120 P.O. Box 61470 Boulder City NY 89006-1470 5.5.2 Any notice and/or payment of funds to MWD shall be sent post paid, or delivered to: Michael D. Moynahan, Conservation Branch Manager The Metropolitan Water District of Southern California P.O. Box 54153 350 South Grand Ave. Los Angeles CA 90054-0153 6. FUNDING. 6.1 AMOUNT OF OBLIGATION 6.1.1 The current total estimated cost for accomplishing the scope of work as set forth herein is $2,621,990. The amount presently obligated by Reclamation with respect to this Agreement, and hereby established as a ceiling, is $1,000,000.: 3X0-1316-6000-700-02-0-0 6.1.2 If Metropolitan does not utilize the entire amount allotted per fiscal year, the balance will be carried forward for use in the next fiscal year. No legal liability on the part of Reclamation for any payment may arise from performance under this Agreement until funds are made available to the Grants and Cooperative Agreements Officer for performance, and until Metropolitan receives notice of availability, to be confirmed in writing. 7. TERM OF AGREEMENT. The term of this Agreement shall be from the date of the award through September 30, 1995. S. MODIFICATION. This Agreement may be modified through bi-lateral agreement between the parties. Any modifications made to this Agreement shall be confirmed in writing prior to performance of the change. Metropolitan assumes all risks, liabilities, and consequences of performing additional work outside the specified SOW without prior written approval from the Grants and Cooperative Agreements Officer. 0 9 NO. 4 -FC -30-00120 Cooperative Agreement 9. TERMINATION. Either party may terminate this Agreement upon 30 days' written notice to the other party. Payments under this Agreement shall not exceed the maximum amount specified elsewhere in the Agreement. 10. NOTICE OF COSTS APPROACHING TOTAL ESTIMATED COSTS. Whenever Metropolitan has reason to believe that the total cost of the work under this Agreement will be substantially greater or less than the presently estimated cost of the work, Metropolitan shall promptly notify Reclamation in writing. Metropolitan shall also notify Reclamation, in writing, when the aggregate of costs incurred and outstanding commitments allowable under this Agreement is equal to ninety percent (90X). When the costs incurred or outstanding commitments equal one hundred percent (100%) of such estimated total costs, Metropolitan shall make no further commitments or expenditures (except to meet existing commitments) and shall be excused from further performance of the work unless and until Reclamation and Metropolitan agree in writing to increase the total estimated cost to be incurred with respect to this Agreement. 11. CONTINGENT UPON APPROPRIATION. The commitment of Reclamation and Metropolitan under this Agreement is contingent upon appropriation and reservation of funds being made. 12. Liability. Metropolitan agrees that it will assume liability, pursuant to California law, for the negligence of its employees or agents in carrying out the provisions of the SOW. Metropolitan agrees to hold Reclamation harmless.in regard to any damages caused by the employees or agents of MWD in performing work financed under this agreement. Any liability of the United States shall be limited to that allowed under the Federal Tort Claims Act. 13. Dispute Resolutions 13.1 Any dispute among the assigned representatives (Sections 4.3.5 and 4.2.2) relating to the authority and actions to reach a unanimous decision shall be resolved in the following manner. (1) any entity requesting resolution of a dispute shall send written notice to other assigned representative which shall set forth in detail the position of the entity requesting resolution. (2) within thirty (30) days of the sending of such notice, the Conservation Branch Manager of Metropolitan and the Regional Director of the Lower Colorado Region of the United States Bureau of Reclamation shall have met and attempted to resolve the dispute. (3) any such resolution shall be in writing and be binding on the actions of the Parties under this Agreement. NO. 4 -FC -30-00120 Cooperative Agreement h M- :or 34. CIRCULARS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . 51 35. UTILIZATION OF SHALL BUSINESS CONCERNS (SEP 1986) . . . . . . . . . . 52 36. RESOLVING DISAGREEMENTS (MAR 1993) . . . . . . . . . . . . . . . . . . 53 37. STEVENS AMENDMENT (SEP 1992) . . . . . . . . . . . . . . . . . . . . . 54 38. USE OF METRIC SYSTEM (MAR 1993) . . . . . . . . . . . . . . . . . . . 55 39. BUDGET (MAR 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . 56 40. DATE OF INCURRENCE OF COSTS (MAR 1993) . . . . . . . . . . . . . . . . 56 2 GIC PROVISIONS FOR COOPERATIVEOREEMENTS General Provisions for Grant and Cooperative Agreements. Although the clause consistently uses "Grantee," "Cooperator" should be substituted in each case if applicable. 1. 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 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") as procurement contract under a grant or subgrant and means a procurement subcontract under a contract. 3 "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 groups 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 Interiors 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, including cooperative agreement, 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, 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. 4 "Obligations" mean*he amounts of orders placed. clllfcraccs and subgrants awarded, goods and services received, and similar transactions during a given period that will require payment by the grantee during the same or a future period. "OMB" 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 in-kind contributions applied, and the new increase (or decrease) in the amounts owed by the grantee for goods and other property received for services performed by employees, contractors, subgrantees, subcontractors, and other payees, and other amounts becoming owed under programs for which no current services or performances are required, such as annuities, insurance claims, and other benefits. "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 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 part. R "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 a result of a grant; (3) Refusal to extend a grant or award additional funds, to make a competing or noncompating 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 expenditures 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. SUBPART A. FINANCIAL ADMINISTRATION 2. 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 -- q (1) PAR preparation of reports requirR 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 violations 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 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 and outlays must be compared budgeted amounts for each grant and 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. (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 check, 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 case 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. 7 (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. 3. 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 t based on the grantee's or subgrantee's actual rate of disbursement. 1 (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 or 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 grantees 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 disbursement. (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. 0 (g) Wichholdi[lpayments. • (1) Unless otherwise required by Federal statute, awarding agencies shall not withhold payments for proper charges incurred by grantees or subgrantees unless -- (i) The grantee or subgrantee has failed to comply with grant award conditions or (ii) The grantee or subgrantee is indebted to the United States. (2) Cash withheld for failure to comply with grant award condition, but without suspension of the grant, shall be released to the grantee upon subsequent compliance. When a grant is suspended, payment adjustments will be made in accordance with Section 20. (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 at 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. 4. ALLOWABLE COSTS (a) Limitation on use of funds. Grant funds may be used only for: (1) The allowable cost of the grantees subgrantees.and cost -type contractors, including allowable costs in the form of payments to fixed-price contractors; and E (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. State, local or Indian tribal government. OMB Circular A-87. OMB Circular A-122 Private nonprofit organization other than an (1) institution of higher education, (2) hospital, or (3) organization named in OMB Circular A-122 as not subject to OMB Circular A-21. that circular. 48 CFR Part 31. Contract Cost Principles and Educational institutions. Procedures, or uniform cost accounting standards that For-profit organization other than a comply with cost principles hospital and an organization named acceptable to the Federal in OMB Circular A-122 as not subject agency. to that circular. S. PERIOD TO 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, 10 6. MATCHING OR CO&HARING • (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 cost incurred by the grantee, subgrantee or a cost - type contractor under the assistance agreement, This includes allowable costs borne by non -Federal grants or by other cash donations from non -Federal third parties. (2) The value of third party in-kind contributions applicable tot he 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 Section VII, 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 Section VII.) (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 subgrantees or cost -type contractors. These 11 records must show how the value placed on third party in-kind contributions was derived. To the extent feasible, volunteer services will be supported by the same methods that the organization uses to support the allocability of regular personnel costs. (7) Special standards for third party in -.kind contributions. (i) Third party in-kind contributions count towards satisfying a cost sharing or matching requirement only where, if the party receiving the contributions were to pay for them, the payments would be allowable costs. (ii) Some third party in-kind contributions are goods and services that, if the grantee, subgrantee, or contractor receiving the contribution had to pay for them, the payments would have been an indirect cost. Costs sharing or matching credit for such contributions shall be given only if the grantee, subgrantee, or contract 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. I (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 will be valued at the employee's regular rate of pay_exclusive of the employee's fringe benefits and overhead costs. If services are in a different line of work, paragraph c(1) of this section applies. 12 (d) Valuatioof third party donated suppliend 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, 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 Section 4 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. 13 (g) Appraisal of real property. In some cases under paragraph (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 of 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. 7. 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 generating program income. If authorized by Federal ` regulations or the grant agreement, costs incident to the generation of program income may be may be deducted from gross income to determine program income. (d) Governmental revenues. Taxes, special assessments, levies, fines,and other such revenues raised by a grantee or subgrantee are not program income unless the revenues are specifically identified in the grant agreement or Federal agency regulations as program income. (e) Royalties. Income from royalties and license fees for copyrighted material, patents, and inventions developed by a grantee or subgrantee is program income only if the revenues are specifically identified in the grant agreement or Federal agency regulations as program income. (see Section 13). (f) Property. Proceeds from the sale of real property or equipment will be handled in accordance with the requirements of Section 10 and 11. (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 the subgrantees and between the sources kinds, or amounts of income. When Federal agencies authorize the alternatives in 14 paragraphs (g)(2) a*(3) of this section, program 19ome 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. 8. NON-FEDERAL AUDIT (a) Basic Rule. Grantees and subgrantees are responsible for obtaining audits in accordance with the Single Audit Act of 1984 (31 U.S.C. 7501-7) and Federal agency implementing regulations. The audits shall be made by an independent auditor in accordance with generally accepted government auditing standards covering financial and compliance audits. (b) Subgrantees. State and local governments, as those terms are defined for purposes of the Single Audit Act, that receive Federal financial assistance and provide $25,000 or more of it in a fiscal year to a subgrantee shall: (1) Determine whether State or local subgrantees have met the audit requirements of the Act and whether subgrantees covered by OMB Circular A-110, "Uniform Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations" have met the audit requirement. Commercial contractors (private for-profit and private and governmental organizations) providing goods and services to State and local governments are not required to have a single audit performed. State and local governments should use their own procedures to ensure that the contractor has complied with laws and regulations affecting the expenditure of Federal funds; (2) Determine whether the subgrantee spent Federal assistance funds provided in accordance with applicable laws and regulations. This may be accomplished by reviewing an audit of the subgrantee made in accordance with 15 the Act, Circular A-1010, 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 grantees 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, Section 15 shall be followed. SUBPART B. CHANGES, PROPERTY, AND SUBAAARDS 9. 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 Section 4) 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 10 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). 16 (2) Confouction projects. Grantees and0bgrantees 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 Section 15 but does not apply to the procurement of equipment, supplies, and general support services. (e) Additional prior approval requirement. The awarding agency may not require prior approval for any budget revision which is not described in paragraph (c) of this section. (f) Requesting prior approval. (1) A request for prior approval of any budget revision will be in the same budget formal the grantee used in its application and shall be accompanied by a narrative justification for the proposed revision. (2) A request for a prior approval under the applicable Federal cost principles (see Section 4) 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 17 project which requires Federal prior approval, the grantee will obtain the Federal agency's approval before approving the subgrantee's request. 10, 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 those purposes, 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 title after compensating the awarding agency. The amount paid to the awarding agency will be computed by applying the awarding agency's percentage of participation in the cost of the original purchase to the fair market value of the property. However, in those situations where a grantee or subgrantee is disposing of real property acquired with grant funds and acquiring replacement real property under the same program, the net proceeds from the disposition may be used as an offset to the cost of the replacement property. (2) Sale of property. Sell the property and compensate the awarding agency. The amount due to the awarding agency will be calculated by applying the awarding agency's percentage of participation in the cost of the original purchase to the proceeds of the sale after deduction of any actual and reasonable selling and fixing -up expenses. If the grant is still active, the net proceeds from sale may be offset against the original cost of the property. When a grantee or subgrantee is directed to sell property, sales procedures shall be followed that provide for competition to the extent practicable and result in the highest possible return. (3) Transfer of title. Transfer title to the awarding agency or to a third -party designated/approved by the awarding agency. The grantee or subgrantee shall be paid an amount calculated by applying the grantee or subgrantee's percentage of participation in the purchase of the real property to the current fair market value of the property. 11. 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 18 procedures. Other Vantees 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 Section 7 (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. 19 (5) If the grantee or subgrantee is authorized or required to sell the property, proper sales procedures must be established to ensure the highest possible return. (e) Disposition. When original or replacement equipment acquired under a grant or subgrant is no longer needed for the original project or program or for other activities currently or previously supported by a Federal agency, disposition of the equipment will be made as follows: (1) Items of equipment with a current per-unit fair market value of less than $5,000 may be retained, sold or otherwise disposed of with no further obligation to the awarding agency. (2) Items of equipment with a current per-unit fair market value in excess of $5,000 may be retained or sold and the awarding agency shall have a right to an amount calculated by multiplying the current market value or proceeds from sale by the awarding agency's share of the equipment. (3) In cases where a grantee or subgrantee fails to take appropriate disposition actions, the awarding agency may direct the grantee or subgrantee to take excess and disposition actions. (f) Federal equipment. In the event a grantee or subgrantee is provided federally -owned equipment: (1) Title will remain vested in the Federal Government. (2) Grantees or subgrantees will manage the equipment in accordance with Federal agency rules and procedures, and submit an annual inventory listing. (3) When the equipment is no longer needed, the grantee or subgrantee will request disposition instructions from the Federal agency. (g) Right to transfer title. The Federal awarding agency may reserve the right to transfer title to the Federal Government or a third part named by the awarding agency when such a third party is otherwise eligible under existing statutes. Such transfers shall be subject to the following standards: (1) The property shall be identified in the grant or otherwise made known to the grantee in writing. (2) The Federal awarding agency shall issue disposition instruction within 120 calendar days after the end of the Federal support of the project for which it was acquired. If the Federal awarding agency fails to issue disposition instructions within the 120 calendar -day period the grantee shall follow Section 11(e). (3) When title to equipment is transferred, the grantee shall be paid an amount calculated by applying the percentage or participation in the purchase to the current fair market value of the property. 20 12. SUPPLIES • 0 (a) Title. Title to supplies acquired under a grant or subgrant will vast, 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. 13. 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. 14. 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." 21 15. PROCUREMENT (a) States. When procuring property and services under a grant, a State will follow the same policies and procedures it uses for procurements from its non -Federal funds. The State will ensure that every purchase order or other contract includes any clauses required by Federal statutes and executive orders and their implementing regulations. Other grantees and subgrantees will follow paragraphs (b) through (i) 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 and subgrantees will maintain a written code of standards of conduct governing the performance of their employees engaged in the award and administration of contracts. No employee, officer or agent of the grantee or subgrantee shall participate in selection, or in the award or administration of a contract supported by Federal funds if a conflict of interest, real or apparent, would be involved. Such a conflict would arise when: (i) The employee, officer or agent, (ii) Any member of his immediate family, (iii) His or her partner, or (iv) An organization which employs, or is about to employ, any of the above, has a financial or other interest in the firm selected for award. The grantee's or subgrantee's officers, employees or agents will neither solicit nor accept gratuities, favors or anything of monetary value from contractors, potential contractors, or parties to subagreements. Grantee and subgrantees may set minimum rules where the financial interest is not substantial or the gift is an unsolicited item of nominal intrinsic value. to the extent permitted by State or local law or regulations, such standards or conduct will provide for penalties, sanctions, or other disciplinary actions for violations of such standards by the grantee's and subgrantee's officers, employees, or agents, or by contractors or their agents. The awarding agency may in regulation provide additional prohibitions relative to real, apparent, or potential conflicts of interest. (4) Grantee and subgrantee procedures will provide for a review of proposed procurements to avoid purchase of unnecessary or duplicative items. Consideration should be given to consolidating or breaking out procurements to obtain a more economical purchase. Where appropriate, an analysis will be made of lease versus purchase alternatives, and any other appropriate analysis to determine the most economical approach. 22 (5) To foster greater economy and effici• y, grantees and subgrantees are encouraged to enter into State and local intergovernmental agreements for procurement or use of common goods and services. (6) Grantees and subgrantees are encouraged to use Federal excess and surplus property in lieu of purchasing new equipment and property whenever such use is feasible and reduces project costs. (7) Grantees and subgrantees are encouraged to use value engineering clauses in contracts for construction projects of sufficient size to offer reasonable opportunities for cost reductions. Value engineering is a systematic and creative analysis of each contract item or task to ensure that its essential function is provided at the overall lower cost. (8) Grantees and subgrantees will make awards only to responsible contractors possessing the ability to perform successfully under the terms and conditions of a proposed procurement. Consideration will be given to such matters as contractor integrity, compliance with public policy, record of past performance, and financial and technical resources. (9) Grantees and subgrantees will maintain records sufficient to detail the significant history of a procurement, these records will include, but are not necessarily limited to the following: rationale for the method of procurement selection of contract type, contractor selection or rejection, and the basis for the contract price. (10) Grantees and subgrantees will use time and material type contracts only -- (i) After a determination that no other contract is suitable, and (ii) If the contract includes a ceiling price that the contractor exceeds at its own risk. (11) Grantees and subgrantees alone will be responsible, in accordance with good administrative practice and sound business judgment, for the settlement of all contractual and administrative issues arising out of procurements. These issues include, but are not limited to source evaluation, protests, disputes, and claims. These standards do not relieve the grantee or subgrantee of any contractual responsibilities under its contracts. Federal agencies will not substitute their judgment for that of the grantee or subgrantee unless the matter is primarily a Federal concern. Violations of law will be referred to the local, State, or Federal authority having proper jurisdiction. (12) Grantees and subgrantees will have protest procedures to handle and resolve disputes relating to their procurements and shall in all instances disclose information regarding the protest to the awarding agency. A 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: NO (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 Section 15. 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 24 when necessary, sheset forth chose minimum essent• 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 subgrantses 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 subgrantees will not preclude potential bidders from qualifying during the solicitation period. (d) Methods of procurement be followed. (1) Procurement by small purchase procedures. Small purchase procedures are those relatively simple and informal procurement methods for securing services, supplies, or other property that do not cost more than $25,000 in the aggregate. If small purchase procurements are used, price or rate quotations will be obtained from an adequate number of qualified sources. (2) Procurement by sealed bids (formal advertising). Bids are publicly solicited and a firm -fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid, conforming with all the material terms and conditions of the invitation for bids, is the lowest in price. The sealed bid method is the preferred method for procuring construction, if the conditions in Section 15(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; 25 (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 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. 26 M0 Procurement by noncompetitive 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, ie.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. 27 M 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 Section 4). 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 28 0 (ii) The procurement be awarded without competition or only response to a solicitation; or 0 is expected to exceed $25,000 and is to one bid or offer is received in (iii) The procurement, which is expected to exceed $25,000, specifies a "brand name" product; or (iv) The proposed award over $25,000 is to be awarded to other than the apparent low bidder under a sealed bid procurement; or (v) A proposed contract modification changes the scope of a contract or increases the contract amount by more than $25,000. (3) A grantee or -subgrantee will be exempt from the pre -award review in paragraph (g)(2) of this section if the awarding agency determines that its procurement systems comply with the standards of this section. (i) A grantee or subgrantee may request that its procurement system be reviewed by the awarding agency to determine whether its system meets their standards in order for its system to be certified. Generally, these reviews shall occur where there is a continuous high -dollar funding, and third -party contracts are awarded on a regular basis; (ii) A grantee or subgrantee may self -certify its procurement system. Such self -certification shall not limit the awarding agency's right to survey the system. Under a self -certification procedure, awarding agencies may wish to rely on written assurances from the grantee or subgrantee that it is complying with these standards. A grantee or subgrantee will cite specific procedures, regulations, standards, etc., as being in compliance with these requirements and have its system available for review. (h) Bonding requirements. For construction or facility improvement contracts or subcontracts exceeding $100,000, the awarding agency may accept the bonding policy and requirements of the grantee or subgrantee provided the awarding agency has made a determination that the awarding agency's interest is adequately protected. If such a determination has not been made, the minimum requirements shall be as follows: (1) A bid guarantee for 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 100 percent of the contract price. A "performance bond is one executed in connection with a contract to secure fulfillment of all the contracts 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 executed in connection with a 29 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 Procurement Policy. (1) Administrative, contractual, or legal remedies in instances where contractor's violate or breach contract terms, and provide such sanctions and penalties as may be appropriate. (Contracts other than small purchases) (2) Termination for cause and for convenience by the grantee or subgrantee including the manner by which it will be effected and the basis for settlement. (All contracts in excess of $10,000) (3) Compliance with Executive Order 11246 of September 24, 1965, 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 a-7) as supplemented by Department of Labor regulations (29 CFR Part 5). (Construction contracts in excess of $2,000 awarded by grantees and subgrantees when required by Federal grant program legislation) (6) Compliance with Sections 103 and 107 of the Contract Work Hours and Safety Standards Act (40 U.S.C. 327-330) as supplemented by Department of Labor regulations (29 CFR Part 5). (Construction contracts awarded by grantees and subgrantees in excess of $2,000 and in excess of $2,500 for other contracts which involve the employment of mechanics or laborers) (7) Notice of awarding agency requirements and regulations pertaining to reporting. (8) Notice of awarding agency requirements and regulations pertaining to patent rights with respect to any discovery or invention which arises or is developed in the course of or under such contract. (9) Awarding agency requirements and regulations pertaining to copyrights and rights in data. (10) Access by the grantee, the subgrantee, the Federal grantor agency, the Comptroller General of the United States, or any of their duly authorized representatives to any books, documents, papers, and records of the 30 contractor which a9directly pertinent to that spe• is 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. I. 94-163). 16. 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 award of requirements imposed upon them by Federal statute and regulations; (3) Ensure that a provision for compliance with Section 4 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 cash advances by Federal agencies. (b) All other grantees. All other grantees shall follow the provisions of this part which are applicable to awarding agencies when awarding and administering subgrants (whether on a cost reimbursement or fixed amount basis) of financial assistance to local and Indian tribal governments. Grantees shall: (1) Ensure that every subgrant includes a provision for compliance with this part; (2) Ensure that every subgrant includes any clauses required by Federal Statute and executive orders and their implementing regulations; and (3) Ensure that subgrantees are aware of requirements imposed upon them by Federal statutes and regulations. 31 SUBPART C. REPORTS, RECORDS, RETENTION, AND 17. MONITORING AND REPORTING PROGRAM PERFORMANCE (a) Monitoring by grantees. Grantees are responsible for managing the day-to-day operations of grant and subgrant supported activities. Grantees must monitor grant and subgrant supported activities to assure compliance with applicable Federal requirements and that performance goals are being achieved. Grantee monitoring must cover each program, function, or activity. (b) Nonconstruction performance reports. The Federal agency may, if it decides that performance information available from subsequent applications contains sufficient information to meet its programmatic needs, require the grantee to submit a performance report only upon expiration or termination of grant support. Unless waived by the Federal agency this report will be due on the same date as the final Financial Status Report. (1) Grantees shall submit annual performance reports unless the awarding agency requires quarterly or semi-annual reports. However, performance reports will not be required more frequently than quarterly. Annual reports shall be due 90 days after the grant year, quarterly or semi- annual reports shall be due 30 days after the reporting period. The final performance report will be due 90 days after the expiration or termination of grant support. If a justified request is submitted by a grantee, the Federal agency may extend the due date for any performance report. Additionally, requirements for unnecessary performance report 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 32 and subgrants. The feral agency will require add• onal 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. 18. FINANCIAL REPORTING (a) General. (1) Except as provided in paragraphs (a)(2) and (5) of this section, grantees will use only the forms specified in paragraphs (a) through (e) of this section, and such supplementary or other forms as may from time to time be authorized by OMB, for: (i) Submitting financial reports to Federal agencies, or (ii) Requesting advances or reimbursements when letters of credit are not used. (2) Grantees need not apply the forms prescribed in this section in dealing with their subgrantees. However, grantees shall not impose more burdensome requirements on subgrantees. (3) Grantees shall follow all applicable standard and supplemental Federal agency instructions approved by OMB to 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 33 substantive supplementary instructions only with the approval of OHB. 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. (S) 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 form 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 this section. (2) Accounting basis. Each grantee will report program outlays and program income on a cash or accrual basis as prescribed by the awarding agency. If the Federal agency requires accrual information and the grantee's accounting records are not normally kept on the accrual basis, the grantee shall not be required to convert its accounting system but shall develop such accrual information through 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 semi- annual 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 of 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. 34 (ii These reports will be used bye 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. Request 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. Request 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 Section 18. (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 Section 18(d), instead of this form. 35 (ii) The frequency for submitting reimbursement requests is treated in Section 18(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 Section 18(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 Section 18(d). (iii) The Federal agency may substitute the Financial Status Report specified in Section 18(b)(1) 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 Section 18(b)(2). 19. 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 Section 15(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 36 resolution of all Ques which arise from it, or All 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 start on the day the grantee or subgrantee submits to the awarding agency its single or last expenditure report for that period. However, if grant support is continued or renewed quarterly, the retention period for each year's records starts on the day the grantee submits its expenditure report for the last quarter of the Federal fiscal year. In all other cases, the retention period starts on the day the grantee submits its final expenditure report, If an expenditure report has been waived, the retention period starts on the day the report would have been due. (2) Real property and equipment records. The retention period for real property and equipment records starts from the date of the disposition or replacement or transfer at the direction of the awarding agency. (3) Records for income transactions after grant or subgrant support. In some cases grantees must report income after the period of grant support. Where there is such=a requirement, the retention period for the records pertaining to the earning of the income starts from the end of the grantee's fiscal year in which the income is earned. (4) Indirect cost rate proposals, cost allocations plans, etc. This paragraph applies to the following types of documents and their supporting records: indirect cost rate computations or proposals, cost allocations plans, and any similar accounting computation 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 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 computation. (d) Substitution of microfilm. Copies made by microfilming, photocopying, or similar methods may be substituted for the original records. (e) Access to records. MA (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. 20. ENFORCEMENT (a) Remedies for noncompliance. If a grantee or subgrantee materially fails to comply with any term of an award, whether stated in a Federal statute or regulation, an assurance, in a State plan or application, a notice of award, or elsewhere, the awarding agency may take one or more of the following actions, as appropriate in the circumstances: (1) Temporarily withhold cash payments pending correction of the deficiency by the grantee or subgrantee or more severe enforcement action by the awarding agency, (2) Disallow (that is, deny both use of the 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 provided 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: 38 (1) The411sts result from obligations which were properly incurred by the grantee or subgrantee before the effective date of suspension or termination, are not in anticipation Of it, and, in the case of a termination, are noncancellable, and, (2) The costs would be allowable if the award were not suspended or expired normally at the end of the funding period in which the termination takes effect. (d) Relationship to Debarment and Suspension. The enforcement remedies identified in this section, including suspension and termination, do not preclude grantee or subgrantee from being subject to "Debarment and Suspension" under E.O. 12549 (see Section 14). 21. TERMINATION FOR CONVENIENCE Except as provided in Section 20 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 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 Section 20 or paragraph (a) of this section. SUBPART D. AFTER -THE -GRANT REQUIREMENTS 22. 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). 39 (3) Final request for payment (SF -270) (if applicable). (4) Invention disclosure (if applicable). (5) Federally owned property report: In accordance with Section 11(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 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. 23. 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 Section 19; (d) Property management requirements in Section 10 and Section 11; and (e) Audit requirements in Section 8. 24. COLLECTION OF AMOUNT DUE (a) Any funds paid to a grantee in excess of the amount to which the grantee is finally determined to be entitled under the terms of the award constitute a debt to the Federal Government. If not paid within a reasonable period after demand, the Federal agency may reduce the debt by: (1) Making an administrative offset against other requests for reimbursements, (2) Withholding advance payments otherwise due to the grantee, or (3) Other action permitted by law. 40 (b) Except wile otherwise provided by staturPor 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. OTHER CLAUSES, NOTICES, AND CERTIFICATIONS 25. 52.203-1 OFFICIALS NOT TO BENEFIT (APR 1984) No member of or delegate to Congress, or resident commissioner, shall be admitted to any share or part of this contract, or to any benefit arising from it. However, this clause does not apply to this contract to the extent that this contract is made with a corporation for the corporation's general benefit. 26. 52.223-6 DRUG-FREE WORKPLACE (JUL 1990) (a) Definitions. As used in this clause, "Controlled substance" means a controlled substance in schedules I through V of Section 202 of the Controlled Substances Act (21 U.S.C. 812) and as further defined in regulation at 21 CFR 1308.11 - 1308.15. "Conviction' means a finding of guilt (including a plea of nolo contendere) or imposition of sentence, or both, by any judicial body charged with the responsibility to determine violations of the Federal or State criminal drug statutes. "Criminal drug statute" means -a Federal or non -Federal criminal statute involving the manufacture, distribution, dispensing, possession or use of any controlled substance. "Drug-free workplace" means a site for the performance of work done in connection with a specific contract at which employees of the contractor are prohibited from engaging in the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance. "Employee" means an employee of a contractor directly engaged in the performance of work under a Government contract. "Directly engaged" is defined to include all direct cost employees and any other Contractor employee who has other than a minimal impact or involvement in contract performance. "Individual" means an offeror/contractor that has no more than one employee including the offeror/contractor. (b) The Contractor, if other than an individual, shall --within 30 calendar days after award (unless a longer period is agreed to in writing for contracts of 30 calendar days or more performance duration); or as soon as possible for contracts of less than 30 calendar days perform duration -- 41 (1) Publish a statement notifying its employees that the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance is prohibited in the contractor's workplace and specifying the actions that will be taken against employees for violations of such prohibition; (2) Establish a drug-free awareness program to inform such employees about -- (i) The dangers of drug abuse in the workplace; (ii) The contractor's policy of maintaining a drug-free workplace; (iii) Any available drug counseling, rehabilitation, and employee assistance programs; and (iv) The penalties that may be imposed upon employees for drug abuse violations occurring in the workplace. (3) Provide all employees engaged in performance of the contract with a copy of the statement required by subparagraph (b)(1) of this clause; (4) Notify such employees in the statement required by subparagraph (b)(1) of this clause, that as a condition of continued employment on this contract, the employee will -- (i) Abide by the terms of the statement; and (ii) Notify the employer of any criminal drug statute conviction for a violation occurring in the workplace no later than five (5) days after such conviction. (5) Notify the contracting officer within ten (10) days after receiving notice under subdivision (b)(4)(ii) of this clause, from an employee or otherwise receiving actual notice of such conviction; (6) Within 30 days after receiving notice under subdivision (b)(4)(ii) of this clause of a conviction, impose the following sanctions or remedial measures on any employee who is convicted of drug abuse violations occurring in the workplace: (i) Taking appropriate personnel action against such employee, up to and including termination; or (ii) Require such employee to satisfactorily participate in a drug abuse assistance or rehabilitation program approved for such purposes by a Federal, State, or local health, law-enforcement, or other appropriate agency. (7) Make a good faith effort to maintain a drug-free workplace through implementation of subparagraphs (b)(1) through (b)(6) of this clause. 42 0 0 (c) The Contractor, if an individual, agrees by award of the contract or acceptance of a purchase order, not to engage in the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance in the performance of this contract. (d) In addition to other remedies available to the Government, the Contractor's failure to comply with the requirements of paragraphs (b) and (c) of this clause may, pursuant to FAR 23.506, render the contractor subject to suspension of contract payments, termination of the contract for default, and suspension or debarment. 27. 52.223-5 CERTIFICATION REGARDING A DRUG-FREE WORKPIACE (NAR 1989) (a) Definitions. As used in this provision, "Controlled substance" means controlled substance in Schedules I through V of Section 202 of the Controlled Substances Act (21 U.S.C. 812) and as further defined in regulation at 21 CFR 1308.11-1308.15. "Conviction" means a finding of guilt (including a plea of nolo contendere) or imposition of sentence, or both, by any judicial body charged with the responsibility to determine violations of the Federal or State criminal drug statutes. "Criminal drug statute" means a Federal or non -Federal criminal statute involving the manufacture, distribution, dispensing, possession or use of any controlled substance. "Drug-free workplace" means a site for the performance of work done in connection with a specific contract at which employees of the Contractor are prohibited from engaging in the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance. "Employee" means an employee of a Contractor directly engaged in the performance of work under a Government contract. "Individual" means an offeror/contractor that has no more than one employee including the offeror/contractor. (b) By submission of its offer, the offeror, if other than an individual, who is making an offer that equals or exceeds $25,000, certifies and agrees, that with respect to all employees of the offeror to be employed under a contract resulting from this solicitation, it will --no later than 30 calendar days after contract award (unless a longer period is agreed to in writing), for contracts of 30 calendar days or more performance duration, or as soon as possible for contracts of less than 30 calendar days performance duration; but in any case, by a date prior to when performance is expected to be completed -- (1) Publish a statement notifying such employees that the unlawful manufacture, distribution, dispensing, possession or use of a controlled substance is prohibited in the Contractor's workplace and specifying the 43 actions that will be taken against employees for violations of such prohibition; (2) Establish an ongoing drug-free awareness program to inform such employees about -- (i) The dangers of drug abuse in the workplace; (ii) The Contractor's policy of maintaining a drug-free workplace; (iii)Any available drug counseling, rehabilitation, and employee assistance programs; and (iv) The penalties that may be imposed upon employees for drug abuse violations occurring in the workplace; (3) Provide all employees engaged in performance of the contract with a copy of the statement required by subparagraph (b)(1) of this provision; (4) Notify such employees in the statement required by subparagraph (b) (1) of this provision, that as a condition of continued employment on the contract resulting from this solicitation, the employee will - (i) Abide by the terms of the statement; and (ii) Notify the employer of any criminal drug statute conviction for a violation occurring in the workplace no later than five (5) days after such conviction; (5) Notify the contracting officer within ten (10) days after receiving notice under subdivision (b)(4)(ii) of this provision, from an employee or otherwise receiving actual notice of such conviction; and (6) Within 30 days after receiving notice under subdivision (b)(4)(ii) of this provision of a conviction, impose the following sanctions or remedial measures on any employee who is convicted of drug abuse violations occurring in the workplace: (i) Take appropriate personnel action against such employee, up to and including termination; or (ii) Require such employee to satisfactorily participate in a drug abuse assistance or rehabilitation program approved for such purposes by a Federal, State, or local health, law enforcement, or other appropriate agency. (7) Make a good faith effort to maintain a drug-free workplace through implementation of subparagraphs (b)(1) through (b)(6) of this provision. (c) By submission of its offer, the offeror, if an individual who is making an offer of any dollar value, certifies and agrees that the offeror will not engage in the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance in the performance of the contract resulting from this solicitation. (d) Failure of the offeror to provide the certification required by paragraphs (b) or (c) of this provision, renders the offeror unqualified and ineligible for award. (See FAR 9.104(g) and 19.602-1(a)(2)(i).) 44 (e) In addition to other remedies available to the Government, the certification in paragraphs (b) and (c) of this provision concerns a matter within the jurisdiction of an agency of the United States and the making of a false, fictitious, or fraudulent certification may render the maker subject to prosecution under Title 18, United States Code, Section 1001. 28, 52.203-12 LIMITATION ON PAYMENTS TO INFLUENCE CERTAIN FEDERAL TRANSACTIONS (JAN 1990) (a) Definitions. in 2.101. "Agency," as used in this clause, means executive agency as defined "Covered Federal action" means any of the following Federal actions: (a) The awarding of any Federal contract; (b) The making of any Federal grant; (c) The making of any Federal loan; (d) The entering into of any cooperative agreement; and, (e) The extension, continuation, renewal, amendment, or modification of any Federal contract, grant, loan, or cooperative agreement. "Indian tribe" and "tribal organization," as used in this clause, have the meaning provided in section 4 of the Indian Self -Determination and Education Assistance Act (25 U.S.C. 450B) and include Alaskan Natives. "Influencing or attempting to influence," as used in this clause, means making, with the intent to influence, any communication to or appearance before an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with any covered Federal action. "Local government," as used in this clause, means a unit of government in a State and, if chartered, established, or otherwise recognized by a State for the performance of a governmental duty, including a local public authority, a special district, an intrastate district, a council of governments, a sponsor group representative organization, and any other instrumentality of a local government. "Officer or employee of an agency," as used in this clause, includes the following individuals who are employed by an agency: (a) An individual who is appointed to a position in the Government under title 5, U.S. Code, including a position under a temporary appointment; (b) A member of the uniformed services as defined in section 101(3), title 37, U.S. Code; (c) A special Government employee as defined in section 202, title 18, U.S. Code; and, 45 (d) An individual who is a member of a Federal advisory committee, as defined by the Federal Advisory Committee Act, title 5, U.S. Code appendix 2. "Person," as used in this clause, means an individual, corporation, company, association, authority, firm, partnership, society, State, and local government, regardless of whether such entity is operated for profit or not for profit. This term excludes an Indian tribe, tribal organization, or any other Indian organization with respect to expenditures specifically permitted by other Federal law. "Reasonable compensation," as used in this clause, means, with respect to a regularly employed officer or employee of any person, compensation that is consistent with the normal compensation for such officer or employee for work that is not furnished to, not funded by, or not furnished in cooperation with the Federal Government. "Reasonable payment," as used in this clause, means, with respect to professional and other technical services, a payment in an amount that is consistent with the amount normally paid for such services in the private sector. "Recipient," as used in this clause, includes the contractor and all subcontractors. This term excludes an Indian tribe, tribal organization, or any other Indian organization with respect to expenditures specifically permitted by other Federal law. "Regularly employed," as used in this clause, means, with respect to an officer or employee of a person requesting or receiving a Federal contract, an officer or employee who is employed by such person for at least 130 working days within one year immediately preceding the date of the submission that initiates agency consideration of such person for receipt of such contract. An officer or employee who is employed by such person for less than 130 working days within one year immediately preceding the date of the submission that initiates agency consideration of such person shall be considered to be regularly employed as soon as he or she is employed by such person for 130 working days. "State," as used in this clause, means a State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, a territory or possession of the United States, an agency or instrumentality of a State, and a multi -State, regional, or interstate entity having governmental duties and powers. (b) Prohibitions. (1) Section 1352 of title 31, United States Code, among other things, prohibits a recipient of a Federal contract, grant, loan, or cooperative agreement from using appropriated funds to pay any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with any of the following covered Federal actions: the 46 awarding of any Federal contract, the making of any Federal grant, the making of any Federal loan, the entering into of any cooperative agreement, or the modification of any Federal contract, grant, loan, or cooperative agreement. (2) The Act also requires Contractors to furnish a disclosure if any funds other than Federal appropriated funds (including profit or fee received under a covered Federal transaction) have been paid, or will be paid, to any person for influencing or attempting to influence an officer or employee of an agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with a Federal contract, grant, loan, or cooperative agreement. (3) The prohibitions of the Act do not apply under the following conditions: (i) Agency and legislative liaison by own employees. (A) The prohibition on the use of appropriated funds, in subparagraph (b)(1) of this clause, does not apply in the case of a payment of reasonable compensation made to an officer or employee of a person requesting or receiving a covered Federal action if the payment is for agency and legislative liaison activities not directly related to a covered Federal action. (B) For purposes of subdivision (b)(3)(i)(A) of this clause, providing any information specifically requested by an agency or Congress is permitted at any time. (C) The following agency and legislative liaison activities are permitted at any time where they are not related to a specific solicitation for any covered Federal action: (1) Discussing with an agency the qualities and characteristics (including individual demonstrations) of the person's products or services, conditions or terms of sale, and service capabilities. (2) Technical discussions and other activities regarding the application or adaptation of the person's products or services for an agency's use. (D) The following agency and legislative liaison activities are permitted where they are prior to formal solicitation of any covered Federal action: (1) Providing any information not specifically requested but necessary for an agency to make an informed decision about initiation of a covered Federal action; (2) Technical discussions regarding the preparation of an unsolicited proposal prior to its official submission; and, 47 (3) Capability presentations by persons seeking awards from an agency pursuant to the provisions of the Small Business Act, as amended by Public Law 95-507, and subsequent amendments. (E) Only those activities expressly authorized by subdivision (b)(3)(i)(A) of this clause are permitted under this clause. (ii) Professional and technical services. (A) The prohibition on the use of appropriated funds, in subparagraph (b)(1) of this section, does not apply in the case of -- (1) A payment of reasonable compensation made to an officer or employee of a person requesting or receiving a Federal action or an extension, continuation, renewal, amendment, or modification of a covered Federal action, if payment is for professional or technical services rendered directly in the preparation, submission, or negotiation of any bid, proposal, or application for that Federal action or for meeting requirements imposed by or pursuant to law as a condition for receiving that Federal action. (2) Any reasonable payment to a person, other than an officer or employee of a person requesting or receiving a covered Federal action or an extension, continuation, renewal, amendment, or modification of a covered Federal action if the payment is for professional or technical services rendered directly in the preparation, submission, or negotiation of any bid, proposal, or application for that Federal action or for meeting requirements imposed by or pursuant to law as a condition for receiving that Federal action. Persons other than officers or employees of a person requesting or receiving a covered Federal action include consultants and trade associations. (B) For purposes of paragraph (b)(3)(ii)(A) of this clause, "professional and technical services" shall be limited to advice and analysis directly applying any professional or technical discipline. For example, drafting of a legal document accompanying a bid or proposal by a lawyer is allowable. Similarly, technical advice provided by an engineer on the performance or operational capability of a piece of equipment rendered directly in the negotiation of a contract is allowable. However, communications with the intent to influence made by a professional (such as a licensed lawyer) or a technical person (such as a licensed accountant) are not allowable under this section unless they provide advice and analysis directly applying their professional or technical expertise and unless the advice or analysis is rendered directly and solely in the preparation, submission or negotiation of a covered Federal action. Thus, for example, communications with the intent to influence made by a lawyer that do not provide legal advice or analysis directly and solely related to the legal aspects of his or her client's proposal, but generally advocate one proposal over another are not allowable under this section because the lawyer is not providing professional legal services. Similarly, communications with the intent to influence made by an engineer providing an engineering analysis prior to the preparation or submission of a bid or proposal are not allowable under this section since the 48 0 0 engineer is providing technical services but not directly in the preparation, submission or negotiation of a covered Federal action. (C) Requirements imposed by or pursuant to law as a condition for receiving a covered Federal award include those required by law or regulation, and any other requirements in the actual award documents. (D) Only those services expressly authorized by subdivisions (b)(3)(ii)(A)(1) and (2) of this clause are permitted under this clause. (E) The reporting requirements of FAR 3.803(a) shall not apply with respect to payments of reasonable compensation made to regularly employed officers or employees of a person. (iii) Disclosure. (A) The Contractor who requests or receives from an agency a Federal contract shall file with that agency a disclosure form, OMB Standard Form -LLL "Disclosure of Lobbying Activities," if such person has made or has agreed to make any payment using nonappropriated funds (to include profits from any covered Federal action), which would be prohibited under subparagraph (b)(1) of this clause, if paid for with appropriated funds. (B) The Contractor shall file a disclosure form at the end of each calendar quarter in which there occurs any event that materially affects the accuracy of the information contained in any disclosure form previously filed by such person under subparagraph (c)(1) of this clause. An event that materially affects the accuracy of the information reported includes: (1) A cumulative increase of $25,000 or more in the amount paid or expected to be paid for influencing or attempting to influence a covered Federal action; or (2) A change in the person(s) or individual(s) influencing or attempting to influence a covered Federal action; or, (3) A change in the officer(s), employee(s), or Member(s) contacted to influence or attempt to influence a covered Federal action. (C) The Contractor shall require the submittal of a certification, and if required, disclosure form by any person who requests or received any subcontract exceeding $100,000 under the Federal contract. (D) All subcontractor disclosure forms (but not certifications) shall be forwarded from tier to tier until received by the prime Contractor. The prime Contractor shall submit all disclosures to the Contracting Officer at the end of the calendar quarter in which the disclosure form is submitted by the subcontractor. Each subcontractor certification shall be retained in the subcontract file of the awarding Contractor. (iv) Agreement. The Contractor agrees not to make any payment prohibited by this clause. 49 (v) Penalties. (A) Any person who makes an expenditure prohibited under paragraph (a) of this clause or who fails to file or amend the disclosure form to be filed or amended by paragraph (b) of this clause shall be subject to civil penalties as provided for by 31 U.S.C. 1352. An imposition of a civil penalty does not prevent the Government from seeking any other remedy that may be applicable. (B) Contractors may rely without liability on the representations made by their subcontractors in the certification and disclosure form. (vi) Cost allowability. Nothing in this clause makes allowable or reasonable any costs which would otherwise be unallowable or unreasonable. Conversely, costs made specifically unallowable by the requirements in this clause will not be made allowable under any of the provision. 29. 52.203-11 CERTIFICATION AND DISCLOSURE REGARDING PAYMENTS TO INFLUENCE CERTAIN FEDERAL TRANSACTIONS (APR 1991) (a) The definitions and prohibitions contained in the clause at FAR 52.203- 12, Limitation on Payments to Influence Certain Federal Transactions, included in this solicitation, are hereby incorporated by reference in paragraph (b) of this certification. (b) The offeror, by signing its offer, hereby certifies to the best of his or her knowledge and belief as of December 23, 1989 that -- (1) No Federal appropriated funds have been paid or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress on his or her behalf in connection with the awarding of any Federal contract, the making of any Federal grant, the making of any Federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment or modification of any Federal contract, grant, loan, or cooperative agreement. (2) If any funds other than Federal appropriated funds (including profit or fee received under a covered Federal transaction) have been paid, or will be paid, to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress on his or her behalf in connection with this solicitation, the offeror shall complete and submit, with its offer, OMB Standard Form LLL, Disclosure of Lobbying Activities, to the Contracting Officer; and (3) He or she will include the language of this certification in all subcontract awards at any tier and require that all recipients of subcontract awards in excess of $100,000 shall certify and disclose accordingly. .19 0 0 (c) Submission of this certification and disclosure is a prerequisite for making or entering into this contract imposed by Section 1352, Title 31, United States Code. Any person who makes an expenditure prohibited under this provision or who fails to file or amend the disclosure form to be filed or amended by this provision, shall be subject to a civil penalty of not less than $10,000 and not more than $100,000 for each such failure. 30. DEPARTMENT OF THE INTERIOR CERTIFICATION REGARDING DRUG-FREE WORKPLACE REQUIREMENTS (FORK DI -1955) 31. CERTIFICATION REGARDING DEBARMENT, SUSPENSION, AND OTHER RESPONSIBILITY MATTERS (FORM DI -1953) 32. DISCLOSURE OF LOBBYING ACTIVITIES (FORM SF -LLL) 33. MINORITY BUSINESS ENTERPRISE DEVELOPMENT It is a national policy to place a fair share of purchases with minority business firms. The Department of the Interior is strongly committed to the objectives of this policy and encourages all recipients of its grants and cooperative agreements to take affirmative steps to ensure such fairness. In particular, recipients should: A. Place minority business firms on bidder's mailing list. B. Solicit these firms whenever they are potential sources of supplies, equipment, construction, or services. C. Where feasible, divide total requirements into smaller needs, and set delivery schedules that will encourage participation by these firms. D. Use the assistance of the Minority Business Development Agency of the Department of Commerce, the Small Business Administration, the Office of Small and Disadvantaged Business Utilization, DOI, the Business Utilization and Development Specialists who reside in each DOI bureau and office, and similar State and local offices, where they exist. 34. CIRCULARS BY REFERENCE The following circulars are included in this grant or cooperative agreement by reference: OMB -87 Costs Principles for State and Local Government 51 35. UTILIZATION OF SMALL BUSINESS CONCERNS AND SMALL DISADVANTAGED BUSINESS CONCERNS - RECLAMATION (SEP 1986) It is the policy of the United States that small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals shall have the maximum practicable opportunity to participate in performing grants and cooperative agreements awarded by any Federal agency. The recipient hereby agrees to carry out this policy in the awarding of subagreements and contracts to the fullest extent consistent with efficient grant/cooperative agreement performance. The recipient further agrees to cooperate in any studies or surveys as may be conducted by the United States Small Business Administration or the awarding agency of the United States as may be necessary to determine the extent of the recipient's compliance with this clause. As used in this agreement, the term "small business concern" shall mean a small business as defined pursuant to section 3 of the Small Business Act and relevant regulations promulgated pursuant thereto. The term "small business concern owned and controlled by socially and economically disadvantaged individuals" shall mean a small business concern: a. Which is at least 51 percent owned by one or more socially and economically disadvantaged individuals; or in the case of any publicly owned business, at least 51 per centum of the stock of which is owned by one or more socially and economically disadvantaged individuals; and b. Whose management and daily business operations are controlled by one or more of such individuals. The recipient shall presume that socially and economically disadvantaged individuals include Black Americans, Hispanic Americans, Native Americans, Asian -Pacific Americans, Asian -Indian Americans and other minorities, or any other individual found to be disadvantaged by the Administration pursuant to section 8(a) of the Small Business Act. Recipients acting in good faith may rely on written representation by their subrecipients or contractors regarding their status as either a small business concern or a small business concern owned and controlled by socially and economically disadvantaged individuals. 52 36. RESOLVING DISAGREEMENTS - RECLAMATION (NAR 1993) When entering into a cooperative agreement with a recipient. Reclamation commits itself to working with the recipient in a harmonious manner to achieve the objectives of the project successfully. When disagreements arise between the parties, they must be resolved according to the procedures discussed below: (a) Reclamation shall attempt first to resolve disagreements with the recipient through informal discussion among the Grants or Contract Specialist the Program Officer, and the recipient's Project Director. (b) If the disagreement cannot be resolved through informal discussion between these parties, the Grants Specialist and the Program Officer shall document the nature of the disagreement and bring it to the attention of the Grants Officer. (c) After reviewing the facts of the disagreement, as presented by the Grants and Program Offices, the Grants Officer will arrange a formal meeting. If agreement still cannot be reached, the parties will collectively decide on any varied approaches which might be used to resolve the disagreement. The parties shall be responsible for their individual expenses related to any approach utilized to resolve the disagreement. (d) Ultimately, if all other attempts at resolving the disagreement fails, a decision will be made by the Regional Director whose decision shall be final and conclusive. Any post award issue will be open for resolution in accordance with the above procedures, with the exception of disagreements regarding continuation of the agreement (since either party may terminate the agreement with the specified notice), or other matters specifically addressed by the agreement itself. 53 37. STEVENS AMENDMENT - RECLAMATION (SEP 1992) (a) No amount of any grant made by a Federal agency shall be used to finance the acquisition of goods or services (including construction services) unless the recipient of the grant agrees, as a condition for the receipt of such grant, to - (1) specify in any announcement of the awarding of a contract for the procurement of goods or service (including construction services) the amount of Federal funds that will be used to finance the acquisition; and (2) express the amount announced pursuant to paragraph (1) as a percentage of the total costs of the planned acquisition. (b) The requirements of subsection (a) shall not apply to a procurement for goods or services (including construction services) that has an aggregate value of less than $500,000. 54 0 0 38. USE OF THE METRIC SYSTEM - RECLAMATION (MAR 1993) Section 5163 of Public Law 100-418, the Omnibus Trade and Competitiveness Act of 1988 (Trade Act), amended the Metric Conversion Act of 1975 and designated the metric system of weights and measures for United States trade and commerce. As a result of the Trade Act, the President issued Executive Order 12770 dated July 25, 1991, to implement the Congressional designation of the metric system of measurement as the preferred system of weights and measures for United States trade and commerce. The metric system of measurement shall be used in grants and cooperative agreements, except to the extent that such use is impractical or is likely to cause significant inefficiencies, or is not economically feasible. To the extent possible, scientific and technical reports and recipient -furnished materials provided under the agreement, including computer programs, shall use appropriate metric units. 55 39. BUDGET - RECLAMATION (MAR 1993) Contingent upon availability of funds, the total amount of this cooperative agreement S1.000.000 will be transferred from Reclamation to The Metropolitan Water District of Southern California in accordance with the terms stated in the attached agreement (see Cooperative Agreement No. 4 -FC -30-00120; Item 5.1 [Advance of Funds]). 56 n n L� 40. DATE OF INCURRENCE OF COSTS - RECIANATION (MAR 1993) The Recipient shall be entitled to reimbursement of costs incurred in an amount not to exceed $1.000.000 on or after eon block 16 on Assistance Arreement form, which if incurred after this agreement had been entered into, would have been reimbursable under the provisions of the agreement. 57 0 Wednesday January 28, 1981 A-87 Part X Office of Management and Budget Cost Principles for State and Local Governments 9548 Federal Register , Vol. 46, No. 18 / Wednesday. January 981 / Notices OFFICE OF MANAGEMENT AND BUDGET Cost Principles for State and Local Govemments AGENCY: Office of Management and Budget. ACTION: Final policy. SUMMARY; This notice advises that Federal Management Circular 74-4 (Revised), dated July 1& 1974, is reissued under its original designation of Office of Management and Budget Circular No. A-87. No substantive changes are made in the Circular. The Circular is set forth below in its entirety. EFFECTIVE DATE: The revision was effective January 15. 1961. FOR FURTHER INFORMATION CONTACT: Palmer Marcantonio. Deputy Chief. Financial Management Branch. Budget Review Division, 6002 New Executive Office Building, Washington, D.C. 20503, 202/395-4773. TO OBTAIN SINGLE COPIES OF THE CIRCULAR, CONTACT. Document Distribution Center. Office of Administration. C-236 New Executive Office Building, Washington, D.C. 20503. TO OBTAIN MULTIPLE COPIES, CONTACT: Superintendent of Documents. U.S. Government Printing Office. Washington, D.C. 20402. Daniel F. Macro. _ Budget and Management Officer. January 15. 1991. To: The Heads of Executive Departments and Establishments. Subject: Cost principles for State and local governments. 1. Purpose. This Circular establishes principles and standards for determining costs applicable to grants, contracts, and other agreements with State and local governments and federally -recognized Indian tribal. governments. 2. Supersession. This Circular supersedes Federal Management Circular 74-4 as revised. The Circular is reissued under its original designation of OMB Circular A-97. 3. Summary of changes. No substantive changes arc made in the Circular. 4. Policy intent. This Circular provides principles for determining the allowable costs of programa administered by State, local, and federally -recognized Indian tribal governments under grants from and convects with the Federal Government. They arc designed to provide the basis for a uniform approach to the problem of determining costs and to promote efficiency and better relationships between grantees and the Federal Government. The principles are for determining costs only and am not intended to identify the circumstances nor to dictate -he extent of Federal and State or local participation in the financing of a particular :roject. They are designed to provide that ederafly-asaieted programa bear their fair share of costs recognized under these principles except where restricted or prohibited by law. No provision for profit or other increment above cost is intended. 5. Applicability and scope. a. The provisions of this Circular apply to all Federal agencies responsible for administering programs that involve grants and contracts with Stare, loin and federally - recognized Indian tribal governments. b'Its provisions do not apply to grants and contracts with: III Publicly -financed educational institutions subject to Office of Management and Budget Circular A-21. and (2) Publicly owned hospitals and other providers of medical care subject to requirements promulgated by the sponsoring Federal agencies. Any other exceptions will be approved by the Office of Management and Budget in particular cases where adequate justification is presented. 6. Attachments. The principles and related policy guides are set forth in the attachments. which arc: Attachment A -Principles for deterrnfnirrg costs applicable to grants and contracts with Slate, local. and federally -recognized Indian tribal governments. Attachment B -Standards for selected items of cost. 7. Inquiries. Further information concerning this Circular may be obtained by contacting the Financial Management Branch. Budget Review Division. Office of Management and Budget. Washington, D.C. 20503, telephone 202-395-4773. James T. McIntyre. Jr. Director' [Circular No. A-87] Attachment A -Principles for Determining Costs Applicable to Grants and Contracts With State, local. and Federally Recognized Indian Tribal Governments TABLE OF CONTENTS. A. Purpose and scope 1. Objectives 2 policy guides 3. Application B. Definitions 1. Approval or authorization of the grantor Federal agency 2. Coat allocation plan 3. Cost 4. Cost objective 5. Federal agency 6. Federally -recognized Indian tribal governments 7. Grant e. Grant program 9. Grantee 10. Local unit 11. Other State or local agencies 12. Services 13. Supporting services C. Basic guidelines 1. Factors affecting allowability of costs 2 Allocable costs 3. Applicable credits D. Composition of cost 1. Total war 2 Classification of costs E. Direct costs 1. General 2. Application F. Indirect costs 1. General 2. Grantee departmental indirect costs 3. Limitation on indirect costs C. Cost incurred by agencies other than the grantee 1. General 2 Alternative methods of determining indirect cost H. Cort incurred bygmntee department Jar othen 1. General I. Cost allocation plan 1. General 2. Requirements 3. Instructions for preparation of cost allocation plans 4. Negotiation and approval of indirect war proposals for States 5. Negotiation and approval of indirect cost propossls for local governments a. Negotiation and approval of indirect wit proposals for federally -recognized Indian tribal governments 7. Resolution of problems A. Purpose and scope. 1. Objectives. This Attachment sets forth principles for determining the allowable costs of programs administered by State, local, and federally -recognized Indian tribal governments under grants from and contracts with the Federal Government. The principles are for the purpose of cost determination and are not intended to identify the circumstances or dictate the extent of Federal and State or local participation in the financing of a particular grant. They are designed to provide that federally -assisted programs bear their fair share of costs recognized under these principles, except where restricted or prohibited by law. No provision for profit or other increment above cost is intended. 2. Policygaides. The application of these principles is based on the fundamental premises that: a. State, local, and federally recognized Indian tribal governments are responsible for the efficient and effective administration of grant and contract programs through the application of sound management practices. b. The grantee or contractor assumes the responsibility for seeing that federally -assisted program funds have been expended and accounted for consistent with underlying agreements and program objectives. c. Each grantee or contractor organization, in recognition of its own unique combination of staff facilities and experience, will have the primary responsibility for employing whatever form of organization and management Federas.�atar / Vol. 46. No. 18 / Wednesdaysuary 28. 1981 / Notices 99 techniques may be necessary to assure proper and efficient administration. 3. Application. These principles will be applied by all Federal agencies in determining costs incurred by Slate, local, and federally recognized Indian tribal governments under Federal grants and cost reimbursement type contracts (including subgranta and subcontracts) except those with (a) publicly -financed educational institutions subject to Office of Management and Budget Circular A- 21, and (b) publicly -owned hospitals and other providers of medical care subject to requirements promulgated by the sponsoring Federal agencies. B. Definitions. 1. Approval or authorization of the grantor federal agency means documentation evidencing consent prior to incurring specific cost. 2. Cost allocation plan means the documentation identifying, accumulating, and distributing allowable costs under grants and contracts together with the allocation methods used. 3. Cost, as used herein, means cost as determined on a cash, accrual, or other basis acceptable to the Federal grantor agency as a discharge of the grantee's accountability for Federal funds. 4. Cost objective means a pool. center. or area established for the accumulation of cost. Such areas Include organizational units, functions, objects or items of expense, as well as ultimate cost objectives including specific grants. projects, contracts, and other activities. 5. Federal agency means any department, agency, commission. or instrumentality in the executive branch of the Federal Government which makes grants to or contracts with State, local, or federally -recognized Indian tribal governments. .6. Federally -recognized Indian tribal governments 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. 7. Grant means an agreement between the Federal Government and a State. local, or federally -recognized Indian tribal government whereby the Federal Government provides funds or aid in kind to carry out specified programs. services. or activities. The principles and policies stated in this Circular as applicable to grants in general also apply to any federally -sponsored cost reimbursement -type of agreement performed by a State, local, or federally - recognized Indian tribal government. a. G,ant program means those activities and operations of the grantee which are necessary to carry out the purposes of the grant, including any portion of the program financed by the grantee. 9. Grantee means the department or agency of State. local, or federally ' recognized Indian tribal government which is responsible for administration of the grant. 10. Local unit means any political subdivision of gavernment below the State level. 11. other State or local agencies means department or agencies of the State or local unit which provide goods. facilities, and services to a grantee. 12. Services, as used herein. means goods and facilities, as well as services. 13. and services means auxiliary functions necessary to sustain the direct effort involved in administering a grant program or an activity providing service to the grant program. These services may be centralized in the grantee department or in some other agency, and inlcude procurement, payroll, personnel functions. maintenance and operation of space. data processing, accounting. budgeting, auditing, mail and messenger service. and the like. C. Basic guidelines. 1. Factors affecting allowability of costs. To allowable under a grant program. costs must meet the following general criteria: a. Be necessary and reasonable for proper and efficient administration of the grant programs. be allocable thereto under these principles. and except as specifically provided herein, not be a general expense required to carry out the overall responsibilities of State, local or federally -recognized Indian tribal governments. b. Be authorized or not prohibited under State or local laws or regulations. c. Conform to any limitations or exclusions set forth in these principles. Federal laws, or other governing limitations as to types or amounts of cost items. d. Be consistent with policies, regulations. and procedures that apply uniformly to both federally assisted and other activities of the unit of government of which the grantee is a part. e. Be accorded consistent treatment through application of generally accepted accounting principles appropriate to the circumstances. I. Not be allocable to or included as a cost of any other federally financed program in either the current or a prior period. g. Be net of all applicable credits. 2. Allocable costs. a. A cost is allocable to a particular cost objective to the extent of benefit: received by such objective. b. Any cost allocable to a particular grant or cost objective under the principles provided for in this Circular may not be shifted to other Federal grant programs to overcome fund deficiencies, avoid restrictions impose by law or grant agreements. or for oth reasons. c. Where an allocation of joint cost will ultimately result in charges to a grant program, an allocation plan will required as prescribed in Section 1. 3. Applicable credits. a. Applicable credits refer to those receipts or reduction of expenditure - type transactions which offset or redu expense items allocable to grants as direct or indirect costs. Examples of such transactions are: purchase discounts; rebates or allowances, recoveries or indeminties on losses; as of publications, equipment, and scrap; income from personal or incidental services; and adjustments of overpayments or erroneous charges. b. Applicable credits may also arise when Federal funds are received or ar available from sources other than the grant program involved to finance operations or capital items of the grantee. This includes costs arising fro the use or depreciation of items donatr or financed by the Federal Governer to fulfill matching requirments under another grant program. These types of credits should likewise be used to reduce related expenditures in determining the rates or amounts applicable to a given grant. D. Composition of Cost 1. Total cost. The total cost of a grar program is comprised of the allowable direct cost incident to its performance plus its allocable portion of allowable indirect costs, less applicable credits. 2. Classification of costs. There is n( universal rule for classifying certain costs as either direct or indirect under every accounting system. A cost may 1 direct with respect to some specific service or function, but indirect with respect to the grant or other ultimate cost objective. It is essential, therefore that each item of cost be treated consistently either as a direct or an indirect cost. Specific guides for determining direct and indirect costs allocable under grant programs are provided in the sections which follow: E. Direct Costs 1. General. Direct costs are those th can be identified specifically with a 9550 Federal Registat , Vol. 48. No. 18 / Wednesday. January 1981 / Notices particular cost objective. These costs may be charged directly to grants. contracts, or to other programs against which costs are finally lodged. Direct costs may also be charged to cost objectives used for the accumulation of costs pending distribution in due course to grants and other ultimate cost objectives. 2. Application. Typical direct costs chargeable to grant programs are: a. Compensation of employees for the time and efforts devoted specifically to the execution of grant programs. b. Cost of materials acquired, consumed, or expended specifically for the purpose of the grant. c. Equipment and other approved capital expenditures. d. Other items of expense incurred specifically to carry out the grant agreement. e. Services furnished specifically for the grant program by other agencies, provided such charges are consistent with criteria outlined in Section G of these principles. F. Indirect Costs - 1. General. Indirect costs are those (a) incurred for a common or joint purpose benefiting more than one cost objective, and (b) not readily assignable to the cost objectives specifically benefited. without effort disproportionate to the results achieved. The term "indirect costs," as used herein, applies to costs of this type originating in the grantee department, as well as those incurred by other departments in supplying goods, services, and facilities, to the grantee department. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of indirect cost within a grantee department or in other agencies providing services to a grantee department. indirect cost pools should be distributed to benefiting cost objectives on bases which will produce an equitable result in consideration of relative benefits derived. 2. Grantee departmental indirect costs. All grantee departmental indirect costs, including the various levels of supervision, are eligible for allocation to grant programs provided they meet the conditions set forth in this Circular. In lieu of determining the actual amount of grantee departmental indirect cost allocable to a grant program, the following methods may be used. a. Predetermined fixed rates for indirect costs. A predetermined fixed rate for computing indirect costs applicable to a grant may be negotiated annually in situations where the cost experience and other pertinent facts available are deemed sufficient to enable the contracting parties to reach an informed judgment (1) as to the probable level of indirect costs in the grantee department during the period to be covered by the negotiated rate, and (2) that the amount allowable under the predetermined rate would not exceed actual indirect cost, b. Negotiated lump sum for overhead. A negotiated fixed amount in lieu of indirect costs may be appropriate under circumstances where the benefits derived from a grantee department's indirect services cannot be readily determined as in the case of small, self- contained or isolated activity. When this method is used, a determination should be made that the amount negotiated will be approximately the same as the actual indirect cost that may be incurred. Such amounts negotiated in lieu of indirect costs will be treated as an offset to total indirect expenses of the grantee department before allocation to remaining activities. The base on which such remaining expenses are allocated should be appropriately adjusted. 3. Limitation on indirect costs. a. Federal grants may be subject to laws that limit the amount of indirect costs that maybe allowed. Agencies that sponsor grants of this type will establish procedures which will assure that the amount actually allowed for indirect costs under each such grant does not exceed the maximum allowable under the statutory limitation or the amount otherwise allowable under this Circular, whichever is the smaller. b. When the amount allowable under a statutory limitation is less than the amount otherwise allocable as indirect costs under this Circular, the amount not recoverable as indirect costs under a grant not be shifted to another federally - sponsored grant program or contract. G. Cost Incurred by Agencies Other Than the Grantee 1. General. The cost of service provided by other agencies may only include allowable direct costs of the service plus a pro rate share of allowable supporting costs (Section 8.12.) and supervision directly required in performing the service, but not supervision of a general nature such as that provided by the head of a department and his staff assistants not directly involved in operations. However, supervision by the head of a department or agency whose sole function is providing the service furnished would be an eligible cost. Supporting costs include those furnished by other units of the supplying department or by other agencies. 2. Alternative methods of determining indirect cost. In lieu of determining actual indirect cost related to a particular service furnished by another agency, either of the following alternative methods may be used provided only one method is used for a specific service during the fiscal year involved. a. Standout indirect tate. An amount equal to ten percent of direct labor cost in providing the service performed by another State agency (excluding overtime, shift. or holiday premiums and fringe benefits) may be allowed in lieu of actual allowable indirect cost for that service. b. Predetermined fixed rote. A predetermined fixed rate for indirect cost of the unit or activity providing service may be negotiated as set forth in Section F.2.a. H. Cost Incurred by Grantee Department for Others 1. General. The principles provided in Section G will also be used in determining the cost of services provided by the grantee department to another agency. f. Cost Allocation Plan 1. General. A plan for allocation of costs will be required to support the distribution of any joint costs related to the grant program. All costs included in the plan will be supported by formal accounting records which will substantiate the propriety of eventual charges. 2• Requirements. The allocation plan of the grantee department should cover all joint costs of the department as well as costs to be allocated under plans of other agencies or organizational units which are to be included in the costs of federally -sponsored programs. The cost allocation plans of all the agencies rendering services to the grantee department, to the extent feasible, should be presented in a single document: The allocation plan should contain, but not necessarily be limited to, the following: a. The nature and extent of services provided and their relevance to the federally -sponsored programs. b. The items of expense to be included. c. The methods to be used in distributing cost. 3. Instructions for preparation of cost allocation plans. The Department of Health and Human Services in consultation with the other Federal agencies concerned, will be responsible for developing and issuing the instructions for use by grantees in preparation of cost allocation plans. Feder-egfster / Vol. 4e. No. 18 / Wedrlesdam�nuary 28. 1961 / Notices 9 This responsibility applies to both central support services at the State, local. and Indian tribal level and indirect cost proposals of individual grantee departments. 4. Negotiation and approval of indirect cost proposals for States. a. The Department of Health and Human Services, in collaboration with the other Federal agencies concerned, will be responsible for negotiation. approval, and audit of cost allocation plans. which will be submitted to it by the States. These plans will cover central support service costs of the State. b. At the grantee department level in a State. a single cognizant Federal agency will have responsibility similar to that set forth in a. above, for the negotiation. approval, and audit of the indirect cost proposal. A current list of agency assignments is maintained by the Office of Management and Budget. c. Questions concerning the cost allocation plans approved under a. and b. above, should be directed to the agency responsible for such approvals. 5. Negotiation and approval of indirect cost proposals for local governments. a. Cost allocation plans will be retained at the local government level for audit by a designated Federal agency except in those cases where that agency requests that cost allocation plans be submitted to it for negotiation and approval. b. A list of cognizant Federal agencies assigned responsibility for negotiation, approval and audit of central support service cost allocation plans at the local government level is maintained by the the Office of Management and Budget. c. At the grantee department level of local governments, the Federal agency with the predominant interest in the work of the grantee department will be responsible for necessary negotiation. approval and audit of the indirect cost proposal. 6. Negotiation and approval of indirect cost proposals for federally recognized Indian tribal governments. The Federal agency with the predominant interest in the work of the grantee department will be responsible for necessary negotiation, approval and audit of the indirect cost proposal. 7. Resolution of problems. To the extent that problems are encountered among the Federal agencies in connection with 4 and 5 above, the Office of Management and Budget will lend assistance as required. (Circular No. A-471 Attachment B -Standards for Selected Items of Costs Table of Contents A. Purpose and applicability 1. Objective 2. Application B. Allowable costs 1. Accounting 2. Advertising 3. Advisory councils 4. Audit service 5. Bonding 6. Budgeting 7. Building lease management e. Central stores 9. Communications 10. Compensation for personal services 11. Depredation and use allowances 12. Disbursing service 13. Employee fringe benefits 14. Employee morale, health and welfare costs 15. Exhibits 1& Legal expenses 17. Maintenance and repair 1& Materials and supplies ig. Memberships. subscriptions and professional activites 2o. Motor pools 21. Payroll preparation 22. Personnel administration 23. Printing and reproduction 24. Procurement service 25. Taxes 25. Training and education 27. Transportation 26. Travel C. Costs allowable with approval of grantor agency 1. Automatic data processing 2. Building space and related facilities 3. Capital expenditures 4. Insurance and indemnification 5. Management studies 6. Preagreement costs 7. Professional services e. Proposal costa D. Unallowable costs 1. Bad debts 2. Contingencies 3. Contributions and donations 4. Entertainment 5. Fines and penalties e. Govemor's expenses 7. Interest and other financial costs a. Legislative expenses 9. Underrecovery of costs under grant agreements A. Purpose and applicability. 1. Objective. This Attachment provides standards for determining the allowability of selected items of cost. 2 Application. These standards will apply irrespective of whether a particular item of cost is treated as direct or indirect cost. Failure to mention a particular item of cost in the standards is not intended to imply that it is either allowable or unallowable, rather determination of allowability in each case should be based on the treatment of standards provided for similar or related items of cost. The allowability of the selected items of t is subject to the general policies and principles slated in Attachment A of Circular. B. Allowable costs. 1. Accounting. The cost of establisl and maintaining accounting and othe information systems required for the management of grant programs is allowable. This includes costs idcurn by central service agencies for these purposes. The cost of maintaining central accounting records required 1, overall State or Indian tribal government purposes. such es appropriation and fund accounts by t Treasurer. Comptroller, or similar officials. is considered to be a genera. expense of government and is not allowable. 2. Advertising. Advertising media includes newspapers, magazines. redi and television programs, direct mail. trade papers, and the like. The advertising costs allowable are those which are solely for. a. Recruitment of personnel require. for the grant program. b. solicitation of bids for the procurement of goods and services required. c. disposal of scrap or surplus materials acquired in the performance the grant agreement. d. Other purposes specifically provided for in the grant agreement. 3. Advisory councils. Costs fncurrec by State advisory councils or committees established pursuant to Federal requirements to carry out grist programs are allowable. The cost of li organizations is allowable when provided for in the grant agreement. 4. Audit service. The cost of audit& necessary for the administration and management of functions related to grant programs is allowable. S. Bonding. Costs of premiums on bonds covering employees who handl, grantee agency funds are allowable. 6. Budgeting. Costs incurred for the development. preparation, presentatio and execution of budgets are allowabl Costs for services of a central budget office are generally not allowable sinc these are costs of general government. However, where employees of the central budget office actively partieipe in the grantee agency's budget procese the cost of identifiable services is allowable. 7. Building lease management. The administrative cost for lease management which includes review of lease proposals, maintenance of a list available property for lease, and relati activities is allowable. 9552 Federal Register / Vol. 46. No. 16 / Wednesday. January 1981 / Notices B. Central stores. The cost of maintaining and operating a central stores organization for supplies. equipment. and materials used either directly or indirectly for grant programs is allowable. 9. Communications. Communication costs incurred for telephone calls or service, teletype service, wide area telephone service (WATS), Centrex. telpak (tie lines), postage, messenger service and similar expenses are allowable. 10. Compensation far personal services. a. General. Compensation for personal services includes all remuneration, paid currently or accrued. for services rendered during the period of performance under the grant agreement, including but not necessarily limited to wages, salaries, and supplementary compensation and benefits (Section B.13.). The costs of such compensation are allowable to the extent that total compensation for individual employees: (1) is reasonable for the services rendered; (2) follows an appointment made in accordance with State, local, or Indian tribal government laws and rules and which meets Federal merit system or other requirements, where applicable; and (3) is determined and supported as provided in b. below. Compensation for employees engaged in federally -assisted activities will be. considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the State, local. or Indian tribal government. In cases where the kinds of employees required for the federally -assisted activities are not found in the other activities of the State, local, or Indian tribal government, compensation will be considered reasonable to the extent that It is comparable to that paid for similar work in the labor market in which the employing government competes for the kind of employees involved. Compensation surveys providing data representative of the labor market involved will be an acceptable basis for, evaluating reasonableness. b. Payroll and distribution of time. Amounts charged to grant programs for personal services, regardless of whether treated as direct or indirect costs, will be based on payrolls documented and provided in accordance with generally accepted practice of the State. local, or Indian tribal government. Payrolls must be supported by time and attendance or equivalent records for individual employees. Salaries and wages of employees chargeable to more than one grant program or other cost objective will be supported by appropriate time distribution records. The method used should produce an equitable distribution of time and effort. 11. Depreciation and use allowances. a. Grantees may be compensated for the use of buildings, capital improvements. and equipment through use allowances or depreciation. Use allowances are the means of providing compensation in lieu of depreciation or other equivalent costs. However. a combination of the two methods may not be used in connection with a single class of fixed assets. b. The computation of depreciation or use allowance will be based on acquisition cost. Where actual cost records have not been maintained. a reasonable estimate of the original acquisition cost may be used in the computation. The computation will exclude the cost or any portion of the cost of buildings and equipment donated or home directly or indirectly by the Federal Government through charges to Federal grant propgrams or otherwise. irrespective of where title was originally vested or where it presently resides. In addition, the computation will also exclude the cost of land. Depreciation or a use allowance on idle or excess facilities is not allowable, except when specifically authorized by the grantor Federalagency. c. Where the depreciation method is followed, adequate property records must be maintained, and any generally - accepted method of computing depreciation may be used. However, the method of computing depreciation must be consistently applied for any specific asset or class of assets for all affected federally -sponsored programs and must result in equitable charges considering the extent of the use of the assets for the benefit of such programs. d. In lieu of depreciation. a use allowance for buildings and improvements may be computed at an annual rate not exceeding two percent of acquisition cost. Theuseallowance for equipment (excluding items properly capitalized as building cost) will be computed at an annual rate not exceeding six and two-thirds percent of acquisition cost of usuable equipment. e. No depreciation or use charge may be allowed on any assets that would be considered as fully depreciated. provided, however, that reasonable use charges may be negotiated for any such assets if warranted after taking into consideration the cost of the facility or item involved, the estimated useful life remaining at time of negotiation, the effect of any increased maintenance charges or decreased efficiency due to age, and any other factors pertinent to the utilization of the facility or item for the purpose contemplated. 12. Disbursing service. The cost of disbursing grant program funds by the Treasurer or other designated officer is allowable. Disbursing services cover the processing of checks or warrants, from preparation to redemption. including the necessary records of accountability and reconciliation of such records with related cash accounts. 13. Employee fringe benefits. Costs identified under a. and b. below are allowable to the extent that total compensation for employees is reasonable as defined in Section B.10. a. Employee benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave. sick leave. court leave. military leave. and the like, if they are: (1) provided prusuant to an approved leave system; and (2) the cost thereof is equitably allocated to all related activities. including grant programs. b. Employee benefits in the form of employers' contribution or expenses for social security, employees' life and health insurance plans. unemployment insurance coverage, workmen's compensation insurance. pension plans. severance pay, and the like, provided such benefits are granted under approved plans and are distributed equitably to grant programs and to other activities. 14. Employee morale. health and welfare costs. The costs of health or first-aid clinics and/or infirmaries. recreational facilities. employees' counseling services, employee information publications, and any related expenses incurred in accordance with general State. local or Indian tribal policy. are allowable. Income generated from any of these activities will be offset against expenses. 15. Exhibits. Costs of exhibits relating specifically to the grant programs are allowable. 16. Legal expenses. The cost of legal expenses required in the administration of grant programs is allowable. Legal services furnished by the chief legal officer of a State. local or Indian tribal government or his staff solely for the purpose of discharging his general responsibilities as legal officer are unallowable. Legal expenses for the prosecution of claims against the Federal Government are unallowable. 17. Maintenance and repair. Costs incurred for necessary maintenance. repair, or upkeep of property which neither add to the permanent value of the property nor appreciably prolong its intended life, but keep it in an efficient operating condition, are allowable. 18. Materials and supplies. The cost of materials and supplies necessary to Federajokpgistee / Vol. 46. No. 18 / Wednesdary 28. 1981 / Notices 95 carry out the grant programs is allowable. Purchases made specifically for the grant program should be charged thereto at their actual prices after deducting all cash discounts, trade discounts, rebates, and allowances received by the grantee. Withdrawals from general stores or stockrooms should be charged at cost under any recognized method of pricing consistently applied. Incoming transportation charges are a proper part of material cost. 19. Memberships. subscriptions and professional activities. a. Memberships. The cost of membership in civic, business, technical and professional organizations is allowable provided: (1) the benefit from the membership is related to the grant program: (2) the expenditure is for agency membership: (3) the cost of the membership is reasonably related to the value of the services or benefits received; and (4) the expenditure is not for membership in an organization which devotes a substantial part of its activities to influencing legislation. b. Reference material. The cost of books, and subscriptions to civic. business. professional, and technical periodicals is allowable when related to the grant program. c. Meetings and conferences. Costs are allowable when the primary purpose of the meeting is the dissemination of technical information relating to the grant program and they are consistent with regular practices followed for other activities of the grantee. 20. Motorpools. The costs of a service organization which provides automobiles to user grantee agencies at a mileage or fixed rate and/or provides vehicle maintenance, inspection and repair services are allowable. 21. Payroll preparation. The cost of preparing payrolls and maintaining necessary related wage records is allowable. 22. Personnel administration. Costs for the recruitment, examination. certification. classification, training. establishment of pay standards, and related activities for grant programs, are allowable. 23. Printing and reproduction. Costs for printing and reproduction services necessary for grant administration. including but not limited to forms. reports. manuals. and informational literature, are allowable. Publication costs of reports or other media relating to grant program accomplishments or results are allowable when provided for in the grant agreement. 24. Procurement service. The cost of procurement service. including solicitation of bids. preparation and award of contracts, and all phases of contract admmi]tration in providing goods, facilities and services for grant programs. is allowable. 25. Taxes. In general. taxes or payments in lieu of taxes which the grantee agency is legally required to pay are allowable. 25. Training and education. The cost of in-service training, customarily provided for employee development. which directly or indirectly benefits grant programs is allowable. Out -of - service training involving extended periods of time is allowable only when specifically authorized by the grantor agency. 27. Transportation. Costs incurred for freight, cartage, express, postage and other transportation costs relating either to goods purchased. delivered, or moved from one location to another are allowable. Ze. Travel. Travel costs are allowable for expenses for transportation. lodging, subsistence, and related items incurred by employees who are in travel status on official business incident to a grant program. Such costs may be charged on an actual basis, on a per diem or mileage basis in lieu of actual costs incurred, or on a combination of the two, provided the method used is applied to an entire trip, and results in charges consistent with those normally allowed in like circumstances in non - federally sponsored activities. The difference in cost between first-class air accommodations and less -than -first- class air accommodations are not is unallowable except when leas -than - first -class air accommodations reasonably available. Notwithstanding the provisions of paragraphs D.6. and 8.. travel costs of officials covered by those paragraphs. when specifically related to grant programs. are allowable with the prior approval of a grantor agency. C. Costs Allowable With Approval of Grantor Agency 1. Automatic data processing. The cost of data processing services to grant programs is allowable. This cost may include rental of equipment or depreciation on grantee -owned equipment. The acquisition of equipment, whether by outright purchase, rental -purchase agreement or other method of purchase, is allowable only upon specific prior approval of the grantor Federal agency as provided under the selected item for capital expenditures. 2. Building space and related facilities. The cost of space in privately or publicly owned buildings used for the benefit of the grant program is allowable subject to the conditions stated below. The total cost of space. whether in a privately or publicly owned building, may not exceed the rental cost of comparable space and facilities in a privately -owned building in the same locality. The cost of space procured fin grant program usage may not be charg to the program for periods of nonoccupancy, without authorization c the grantor Federal agency. a. Rental cost. The rental cost of space in a privately -owned building is allowable. Similar costs for publicly owned buildings newly occupied on or after October 1, 1980. are allowable where "rental rate" systems, or equivalent systems that adequately reflect actual costs, are employed. Sad charges must be determined on the has of actual cost (including depreciation based on the useful life of the building, interest paid or accrued, operation and maintenance, and other allowable costs). Where these costs are included in rental charges, they may not be charged elsewhere. No costs will be included for purchases or construction that were originally financed by the Federal Government. b. Maintenance and operation. The cost of utilities, insurance, security, janitorial services, elevator service, upkeep of grounds, normal repairs and alterations and the like, are allowable t the extent they are not otherwise included in rental or other charges for space. c. Rearrangements and alterations. Costs incurred for rearrangement and alteration of facilities required specifically for the grant program or those that materially increase the value or useful life of the facilities (Section C.3.) are allowable when specifically approved by the grantor agency. d. Depreciation and just allowances on publicly -owned buildings. The costs are allowable as provided in Section B.11. e. Occupancy of space under rental - purchase or a lease with option -to - purchase agreement. The cost of space procured under such arrangements is allowable when specifically approved by the Federal grantor agency. 3. Captial expenditures. The cost of facilities, equipment, other capital assets, and repairs which materially increase the value or useful life of capital assets is allowable when such procurement is specifically approved by the Federal grantor agency. When asset acquired with Federal grant funds are is) sold: (b) no longer available for use in a federally -sponsored program: or (c) used for purposes not authorized by the grantor agency, the Federal grantor agency's equity in the asset will be refunded in the.same proportion as 9SS4 Federal Register / Vol. 48. No. 18 / Wednesday, January 28. 1.._. / Notices Federal participation in its cost. In case any assets are traded on new items, only the net cost of the newly -acquired assets is allowable. 4. Insurance and indemnification. a. Costs of insurance required, or approved and maintained pursuant to the grant agreement. are allowable. b. Costs of other insurance in connection with the general conduct of activities are allowable subject to the following limitations: (1) types and extent and cost of coverage will be in accordance with general State or local government policy and sound business practice. (2) Costs of insurance or of contributions to any reserve covering the risk of loss of, or damage to. Federal Government property are unallowable except to the extent that the grantor agency has specifically requited or approved such costs. c. Contributions to a reserve for a self- insurance program approved by the Federal grantor agency are allowable to the extent that the type of coverage, extent of coverage, and the rates and premiums would have been allowed had insurance been purchased to cover the risks. d. Actual losses which could have been covered by permissible insurance (through an approved self-insurance program or otherwise) are unallowable unless expressly provided for in the grant agreement. However. costs incurred because of losses not covered under nominal deductible insurance coverage provided in keeping with sound management practice, and minor losses not covered by insurance. such as spoilage, breakage and disappearance of small hand tools which occur in the ordinary course of operations, are allowable. e. Indemnification. Includes securing the grantee against liabilities to third persons and other losses not compensated by insurance or otherwise. The Government is obligated to indemnify the grantee only to the extent expressly provided for in the grant agreement, except as provided in d. above. 5. Management studies. The cost of management studies to improve the effectiveness and efficiency of grant management for ongoing programs is allowable except that the cost of studies performed by agencies other than the grantee department or outside consultants is allowable only when authorized by the Federal grantor agency. a. Preagreement costs. Costs incurred prior to the effective date of the grant or contract, whether or not they would have been allowable thereunder if incurred after such date, are allowable when specifically provided for in the grant agreement. 7. Professional services. Costs of professional services rendered by individuals or organizations not a part of the grantee department.are allowable subject to such prior authorization as may be required by the Federal grantor agency. a. Proposal costs. Costs of preparing proposals on potential Federal Government grant agreements are allowable when specifically provided for in the grant agreement. D. Unallowable Costs 1. Bad debts. Any losses arising from uncollectible accounts and other claims. and related costs. are unallowable. 2. Contingencies. Contributions to a contingency reserve or any similar provision for unforeseen events are unallowable. 3. Contributions and donations. Unallowable. 4. Entertainment. Costs of amusements. social activities. and incidental costs relating thereto, such as meals, beverages, lodgings, rentals. transportation, and gratuities. are unallowable. 5. Fines and penalties. Costs resulting from violations of, or failure to comply with Federal. State and local laws and regulations are unallowable. 6. Governor's expenses. The salaries and expenses of the Office of the Governor of a State. or the chief executive of a political subdivision, are considered a cost of general State or local government and are unallowable. However, for a federally -recognized Indian tribal government, only that portion of the salaries and expenses of the office of the chief executive that is a cost of general government is unallowable. Theportion of salaries and expenses directly attributable to managing and operating programs by the chief executive and his staff is allowable. The allowable portion shall be determined by the Federal cognizant agency and the Indian government representative on a reasonable basis. 7. Interest and other financial costs. Interest on borrowings (however represented), bond discounts, cost of financing and refinancing operations. and legal and professional fees paid in connection therewith, are unallowable except when authorized by Federal legislation and except as provided for in paragraph C.2.a of this Attachment. 8. Legislative expenses. Salaries and other expenses of the State legislature or similar local governmental bodies such as county supervisors, city councils. school boards. etc., whether incurred for purposes of legislation or executive direction, are unallowable. 9. Underrecovery of costs under grant agreements. Any excess of cost over the Federal contribution under one grant agreement is unallowable under other grant agreements. Ra Dsn naso iiMd t-rral: aN.m� saaaw COOK stisoI-r IOXECUTIVE OFFICE OF THE PRESIDAR �. OFFICE OF MANAGEMENT AND BUDGET WASPVYGTON. D.C. 20503 March 3, 1988 CIRCULAR NO. A-102 (Revised) TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS SUBJECT: Grants and Cooperative Agreements with State and Local Governments 1. purpose. This Circular establishes consistency and uniformity among Federal agencies in the management of grants and cooperative agreements with State, local, and federally recognized Indian tribal governments. This revision supersedes Office of Management and Budget (OMB) Circular No. A-102, dated January 1981. 2. Authority. This Circular is issued under the authority of the Budget and Accounting Act of 1921, as amended; the Budget and Accounting Procedures Act of 1950, as amended; Reorganization Plan No. 2 of 1970; and Executive Order 11541. Also included in the Circular are standards to ensure consistent implementation of sections 202, 203, and 204 of the Intergovernmental Cooperation Act of 1968, the Office of Federal Procurement Policy Act Amendments of 1983, and sections 6301-08, title 31, United States Code. 3. Background. On March 12, 1987, the President directed all affected agencies to issue a grants management common rule to adopt government -wide terms and conditions for grants to State and local governments. This revised Circular provides guidance to Federal agencies on business -like management of grant programs and other matters not covered in the common rule. The revision replaces and rescinds Circular A-102, dated January 1981, including Attachments A - P. 4. Coverage. Consistent with their legal obligations, all Federal agencies administering programs that involve grants and cooperative agreements with State, local and Indian tribal governments (grantees) shall follow the policies in this Circular and issue a common grants management rule (common rule). If the enabling legislation for a specific grant program prescribes policies or requirements that differ from those in this Circular, the provisions of the enabling legislation shall govern. 5. Deviations. The Office of Management and Budget may grant deviations from the requirements of this Circular when permissible under existing law. However, in the interest of uniformity and consistency, deviations will be permitted only in exceptional circumstances. 6. Pre -Award Policies. a. Use of grants and cooperative agreements. Sections 6301-08, title 31, United States Code govern the use of grants, contracts and cooperative agreements. A grant or cooperative agreement shall be used only when the principal purpose of a transaction is to accomplish a public purpose of support or stimulation authorized by Federal statute. Contracts shall be used when the principal purpose is acquisition of property or services for the direct benefit or use of the Federal Government. The statutory criterion for choosing between grants and cooperative agreements is that for the latter, "substantial involvement is expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement." (1) Federal agencies shall provide the public with an advance notice in the Federal Resister, or by other appropriate means, of intended funding priorities for discretionary assistance programs, unless funding priorities are established by Federal statute. These priorities shall be approved by a policy level official. (2) Whenever time permits, agencies shall provide the public an opportunity to comment on intended funding priorities. (3) All discretionary grant awards in excess of $25,000 shall be reviewed for consistency with agency priorities by a policy level official. c. Standard Forms for Applying for Grants and Cooperative • _ (1) Agencies shall use the following standard application forms unless they obtain OMB approval under the Paperwork Reduction Act of 1980 (44 U.S.C. 35) and the 5 CFR Part 1320, "Controlling Paperwork Burdens on the Public": o SF -424 Facesheet o SF -424a Budget Information (Non -Construction) o SF -424b Budget Information (Construction) o SF -424c Standard Assurances (Non -Construction) o SF -424d Standard Assurances (Construction) 9 • when different or additional information is needed to comply with legislative requirements or to meet specific program needs, agencies shall also obtain prior OMB approval. (2) A preapplication shall be used for all construction, land acquisition and land development projects or programs when the need for Federal funding exceeds $100,000, unless the Federal agency determines that a preapplication is not needed. A preapplication is used to: (a) Establish communication between the agency and the applicant, (b) Determine the applicant's eligibility, (c) Determine how well the project can compete with similar projects from others, and (d) Discourage any proposals that have little or no chance for Federal funding before applicants incur significant costs in preparing detailed applications. (3) Agencies shall use the Budget Information (Construction) and Standard Assurances (Construction) when the major purpose of the project or program is construction, land acquisition or land development. (4) Agencies may specify how and whether budgets shall be shown by functions or activities within the program or project. (5) Agencies should generally include a request for a program narrative statement which is based on the following instructions: (a) Objectives and need for assistance. Pinpoint any relevant physical, economic, social, financial, institutional, or other problems requiring a solution. Demonstrate the need for the assistance and state the principal and subordinate objectives of the project. Supporting documentation or other testimonies from concerned interests other than the applicant may be used. Any relevant data based on planning studies should be included or footnoted. (b) Results or Benefits Expected. Identify results and benefits to be derived. For example, show how the facility will be used. For land acquisition or development projects, explain how the project will benefit the public. (c) Approach. Outline a plan of action pertaining to the scope and detail how the proposed work will be accomplished for each assistance program. Cite factors which might accelerate or decelerate the work and your reasons for taking this approach as opposed to others. Describe any unusual M features of the project, such as design or technological innovations, reductions in cost or time, or extraordinary social and community involvements. Provide for each assistance program quantitative projections of the accomplishments to be achieved, if possible. When accomplishments cannot be quantified, list the activities in chronological order to show the schedule of accomplishments and their target dates. Identify the kinds of data to be collected and maintained, and discuss the criteria to be used to evaluate the results and success of the project. Explain the methodology that will be used to determine if the needs identified and discussed are being met and if the results and benefits identified are being achieved. List each organization, cooperator, consultant, or other key individuals who will work on the project along with a short description of the nature of their effort or contribution. (d) Geographic Location. Give a precise location of the project and area to be served by the proposed project. Maps or other graphic aids may be attached. (e) If applicable, provide the following information: for research and demonstration assistance requests, present a biographical sketch of the program director with the following information: name, address, telephone number, background, and other qualifying experience for the project. Also, list the name, training and background for other key personnel engaged in the project. Describe the relationship between this project and other work planned, anticipated, or underway under Federal assistance. Explain the reason for all requests for supplemental assistance and justify the need for additional funding. Discuss accomplishments to date and list in chronological order a schedule of accomplishments, progress or milestones anticipated with the new funding request. If there have been significant changes in the project objectives, location, approach or time delays, explain and justify. For other requests for changes, or amendments, explain the reason for the change(s). If the scope or objectives have changed or an extension of time is necessary, explain the circumstances and justify. If the total budget has been exceeded or if the individual budget items have changes more than the prescribed limits, explain and justify the change and its effect on the project. (6) Additional assurances shall not be added to those contained on the standard forms, unless specifically required by statute. d. Debarment and Suspension. Federal agencies shall not award assistance to applicants that are debarred or suspended, or otherwise excluded from or ineligible for participation in Federal assistance programs under Executive Order 12549. 4 0 0 Agencies shall establish procedures for the effective use of the Consolidated List of Debarred, Suspended, voluntarily Excluded and Ineligible Assistance Participants to assure that they do not award assistance to listed parties in violation of the Executive Order. Agencies shall also establish procedures to provide for effective use and/or dissemination of the list to assure that their grantees and subgrantees (including contractors) at any tier do not make awards in violation of implementing regulations. e. Awards and Adiustments. (1) Ordinarily awards shall be made at least ten days prior to the beginning of the grant period. (2) Agencies shall notify grantees immediately of any anticipated adjustments in the amount of an award. This notice shall be provided as early as possible in the funding period. Reductions in funding shall apply only to periods after notice is provided. Whenever an agency adjusts the amount of an award, it shall also make an appropriate adjustment to the amount of any required matching or cost sharing. f. Carryover Balances. Agencies shall be prepared to identify to OMB the amounts of carryover balances (e.g., the amounts of estimated, grantee unobligated balances available for carryover into subsequent grant periods). This presentation shall detail the fiscal and programmatic (level of effort) impact in the following period. g. Special Conditions or Restrictions. Agencies may impose special conditions or restrictions on awards to "high risk" applicants/grantees in accordance with section .12 of the common rule. Agencies shall document use of the "Exception" provisions of section .6 and "High-risk" provisions of section 12 of the common rule. h. waiver of Single State Agency Requirements. (1) Requests to agencies from the Governors, or other duly constituted State authorities, for waiver of "single" State agency requirements in accordance with section 6504, title 31, United States Code, shall be given expeditious handling and, whenever possible, an affirmative response. (2) When it is necessary to refuse a request for waiver of "single" State agency requirements under section 204, the Federal grantor agency shall advise the Office of Management and Budget prior to informing the State that the request cannot be granted. The agency shall indicate to OMB the reasons for the denial of the request. (7) Legislative proposals embracing grant-in-aid 3 programs shall avoid inclusion of proposals for "single" State agencies in the absence of compelling reasons to do otherwise. In addition, existing requirements in present grant-in-aid programs shall be reviewed and legislative proposals developed for the removal of these restrictive provisions. i. Patent Rights. Agencies shall use the standard patent rights clause specified in "Rights to Inventions made by Nonprofit Organizations and Small Business Firms" (37 CFR Part 401), when providing support for research and development. 7. post -award Policies. a. Cash Management. Agency methods and procedures for transferring funds shall minimize the time elapsing between the transfer to recipients of grants and cooperative agreements and the recipient's need for the funds. (1) Such transfers shall be made consistent with program purpose, applicable law and Treasury regulations at 31 CFR Part 205. (2) Where letters -of -credit are used to provide funds, they shall be in the same amount as the award. b. Grantee Financial Management Systems. In assessing the adequacy of an applicant's financial management system, the awarding agency shall rely on readily available sources of information such as audit reports to the maximum extent possible. If additional information is necessary to assure prudent management of agency funds, it shall be obtained from the applicant or from an on-site review. C. Financial Status Reports. (1) Federal agencies shall require grantees to use the SF -269, Financial Status Report -Long Form, or SF -269a, Financial Status Report -Short Form, to report the status of funds for all nonconstruction projects or programs. Federal agencies need not require the Financial Status Report when the SF -270, Request for Advance or Reimbursement, or SF -272, Report of Federal Cash Transactions, is determined to provide adequate information. (2) Federal agencies shall not require grantees to report on the status of funds by object class category of expenditure (e.g., personnel, travel, equipment). (3) If reporting on the status of funds by programs, functions or activities within the project or program is required by statute or regulation, Federal agencies shall instruct grantees to use block 12, Remarks, on the SF -269 or a supplementary form approved by the OMB under the Paperwork 2 0 . Reduction Act of 1980. (4) Federal agencies shall prescribe whether the reporting shall be on a cash or an accrual basis. If the Federal agency requires accrual information and the grantee's accounting records are not normally kept on an accrual basis, the grantee shall not be required to convert its accounting system but shall develop such accrual information through an analysis of the documentation on hand. d. Business Enterprise and Labor Surplus Area Firms. It is national policy to award a fair share of contracts to small and minority business firms. Grantees shall take similar appropriate affirmative action to support of women's enterprises and are encouraged to procure goods and services from labor surplus areas. (1) Agencies shall encourage grantees to generate program income to help defray program costs. However, Federal agencies shall not permit grantees to use grant -acquired equipment to compete unfairly with the private sector. (2) Federal agencies shall instruct grantees to deduct program income from total program costs as specified in the common rule at paragraph ,.25(g)(1), unless agency regulations or the terms of the grant award state otherwise. Authorization for recipients to follow the other alternatives in paragraph _.25(g)(2) and (3) shall be granted sparingly. f. Site Visits and Technical Assistance. Agencies shall conduct site visits only as warranted by program or project needs. Technical assistance site visits shall be provided only (1) in response to requests from grantees, (2) based on demonstrated program need, or (3) when recipients are designated "high risk" under section `.12 of the common rule. 8. After -the -grant Policies. a. Closeout. Federal agencies shall notify grantees in writing before the end of the grant period of final reports that shall be due, the dates by which they must be received, and where they must be submitted. Copies of any required forms and instructions for their completion shall be included with this notification. The Federal actions that must precede closeout are: (1) Receipt of all required reports, (2) Disposition or recovery of federally -owned assets (as distinct from property acquired under the grant), and (3) Adjustment of the award amount and the amount of Federal cash paid the recipient. (b) Annual Reconciliation of Continuing Assistance Awards, Federal agencies *hall reconcile continuing awards at least annually and evaluate program performance and financial reports. Items to be reviewed include: (1) A comparison of the recipient's work plan to its progress reports and project outputs, (2) the Financial Status Report (SF -269), (3) Request(s) for payment,. (4) Compliance with any matching, level of effort or maintenance of effort requirement, and (5) A review of federally -owned property (as distinct from property acquired under the grant). ( 9. fttitlements (Raservedl lo. p2ligy Review (cunseti. The Circular will have a policy review three years from the date of issuance. 11. Effective Date. The Circular is effective on publication. 12. Inauiries, Further information concerning this Circular may be obtained from: Financial Management Division Now E7Cecutive Office Building, Room 10215 Office of Management and Budget Washington, D.C. 20503 (202) 398-3050 J 1R'LI irec r a i 0 0 COMMON RULE CbmmoN Rule Text of the Common Rule The text of the common rule as adopted by the agencies in this document appears below. PART UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND COOPERATIVE AGREEMENTS TO STATE AND LOCAL Suborn A—General Sec _.1 Purpose and scope of this par. _2 Scope of subpart. __3 Definitions. ._.a Applicability. __S Effect on other Issuances. _e Additions and exceptions. Subpart 6—Pre-Awn, tl Requirements _10 Forma for applying fm grants. __11 Stole ptana. _12 Special grant or subgrant conditions for "high-risk" grantees. Subpart C—Post-Award RegWrmants Fm acial Administration, __20 Standards for financial management systemr. _21 Payment. _.22 Allowable costs. _23 Period of availability of (undo. .-24 Matching of coal sharing. .__.25 Program income. _. _26 Non -Federal audit. Changes. Property. and Subawards __30 Changes. __31 Real property. _.__32 Fquipment. ._.33 Supplivs. —_34 Copyrights. ... .35 Subawards to debarred and saspendcd parties. _._30 Proaaretnent. .._..37 Subgranls. Reports. Records. Retention. and Enforcement _ .. _40 Manitnring and reporting pragram performance. ._ _41 Financial reporting. _. _42 Retention and access requirements for records. _ _..73 Enforcement. . __ Aa 1'crmination for Wna'enicrtcr. Subpart 0—Atter•tna-Grant Re"i emer•ts _. _SO Closeout. .._ ..51 Mur disallowances and adjustments. .... _52. Collcctinn of .m0un:s du•-. Subpart E—Entidements (Reserved) SINGLE AUDIT GUIDE / 22.163 . • Subpart A—General 1 . t purpose and scope of this part This part establishes uniform ddmmistrauve rules for Federal grants and coopersuve agreemeals and subawards to Slate. local and Indian tribal governments. 4 .2 Soap. of sutitiert This subpart contains general nils pertaining to this part and procedures for control of exceptions from this part. g _.3 wnnutens. As used in this para "Acorued expenditures' mean the charges inatrred by the grantee during a given period requiring the provision of funds far. (1) Goods and other tangible property received: (2) services performed by employees. contrsetors. subgreniees. subcontractors. and other payees. and (3) other amounts becoming owed under programs for which no current services or performance is required. such as annwbes. 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 (i) 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 grantees cash outlay. mcludma the 22.164 / SINGLE AUDIT GUIDE outlav of munry Conrribuied to the grantee or subgrantee by other public agencies and institutions. and private orgamzatioos 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 "subgrent" in this section and except where qualified by "Federal") a procurement contract tinder a grant or subgrant. and means a procurement subcontract under s contract. "Cost sharing or matching" memos the value of the third party to 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 coats 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 mat of 55.000 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 -289 "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 8881 certified by the Secretary of the Interior as eligible for the special programa and services provided by him through the Bureau of Indian Affairs. "Government" means a Slate or local government or a federally recognized Indian tribal government. "Grant" means an award of financial assistance. including cooperative agreements. to 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 .usestance, Burn as a fellowship or other lump gum 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 • 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 stale 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 requite payment by the 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 programa 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 subgranlees. 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 ro 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 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 Slates. 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 nut include procurement purchases. nor does it include any form of assistance which is excluded from the definition of "grant" in this part. "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 to grant transactions for a period. pending completion of ar, 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. "rernnnation'- 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. "Terns 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. § _4 ADplleablltty. (a) General. Subparts A -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 1-6. or. (1) Crania 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; IAlcohol. 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 programl and Titles 1-111 of the fob Training Partnership Act of 1982 and under the Public Health Services Act (Section 1921). Alcohol and Drug Abuse Treatment and Rehabilitation Block Grunt and Part C of Title V. Slental t iiuunuq Ride I lealth Service for the Homeless Block Grant). (3) Entitlement grants to carry out the following programs of the Social Security Act: (il 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(C): HHS grants for WIN are subject to this part): (ii) Child Support Enforcement and Establishment of Paternity (Title IV -D of the Act): (III) Faster Care and Adoption Assistance (Title IV -E of the Act): (iv) Aid to the Aged Blind. and Disabled (Titles 1. 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)(8). (4) Entitlement grants under the following programs of The National School Lunch. Act: (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 1906: (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. 15221e)) and subsection 501(a)ofthe Refugee Education Assistance Act of 19M (Pub. L 96-422. 94 Stal. 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: (ell Grants to local education agencies under 20 U.S.C. 236 through 241-1(a). and 242 through 244 (portions of the Impact Aid programl, except for 20 U.S.C. 238(d)(2)(c) and 240(f) (Entitlement Increase for Handicapped Childrenl: and SINCH .-11101i (:UII11- / 22.165 '. rr)rf rl i-rn r'rtl. 1101 Pavments under the Veterans Administrations State Home Per Diem Program (18 U.S.C.641(al)• Ibl Entitlement programs. Entitlement programs enumerated above in § _.4(a) (11-(61 are subject to Subpart E. § _5 Effect on airier lurraneea. All other grants administration provisions of codified program regulations. program manuals. handbooks and other nonregulalory 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 § _.8. § __.6 Additions and exceptions (al For classes of grants and grantees subject to this pan. 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 §__10 Forms for apptying 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 subgranls. However. grantees are encouraged to avoid more detailed or burdensome application requirements for subgrants. (b) Authorizedforms and instructions for governmental organizations (1) In applying for grants. applicants shall only use standard application forms or those prescribed by the granling agency with the approval of OMB under the Paperwork Reduction Act of 1960. ('t) 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 22.166 / SINGLE AUDIT GUIDE to plan. budget, and evaluate the work under a grant. Other supplementary instructions may be issued only with the approval of OMB to the extent required under the Paperwork Reduction Act of 1980. For any standard form, except the SF -424 facesheet. Federal agencies may shade out or instruct the applicant to disregard any line item that is not needed. (4) When a grantee applies for additional funding (such as a continuation or supplemental award( or amends a previously submitted application. only the affected pages need be submitted. Previously submitted pages with information that is still current need not be resubmitted. J__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 Slate 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 Slate shall comply with all applicable Federal statutes and regulations in effect wi!h 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 Stale 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. § ._ _ .12 Special grant or wbgrant conditions for "Ing"Isk" grantees (a) A grantee or subgrantee may he considered "high risk" if an awarding agency determines that a grantee or subgrantee: (1) 1 Las a hutnry of unsatislactory performance. or (2) Is not financially stable. or 131 Has a management system which dues 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: (4) Additional project monitoring: (5) Requiring the grante or subgrunice 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: (1) The corrective actions which most be taken before they will tie removed and the time allowed for completing the corrective actions and (4) The method of requesting reconsideration of the.runditiors/ restrictions imposed. Subpart C—Post-Award Requirements Financial Administration § _...20 Standards for financial management systems. (a) A Stale must expand and accrianl for grant funds in accordance with Siatar laws and procedures for expending uud accounting for its own funds. Fiscal control and accounting procedures of the State. as well as its subgrantees and cast -type contractors. must be sufficient tui (1) Permit preparation of report♦ required by this part and the swut % authorizing the grant. and (21 Permit the tracing of funds to .a Icvel of expenditures adequa:u to establish that such funds !ta•. c no; Luc:: used in violation of the rrstriwnurs and prn6ibitinns of apphcabie st..;ctes. h Id 311 (hl The financial management systems of other grantees and subgrantees must meet the following standards: 11) 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 contral. 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. (51 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 allocabifity 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 fetter -of -credit or electronic transfer of funds methods. the grantee must make drawdowns as close as possible to the time of making disbursements. Grant^es 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. f —.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 grantees or subgrantee'y 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 or a working capital advance basis. Under this procedure the awarding agency shall advance rash 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 COMmon Ruli disbursements. The working cap advance method of payment shd, used by grantees or subgrantees reason for using such method is t unwillingness or inability of the g to provide timely advances to the subgrantee to meet the subgrante, actual cash disbursements. (0 Effect of program income. re, and audit recoveries on payment. Grantees and subgrantees shall di repayments to and interest earned revolving fund before requesting additional cash payments for the s activity. (2) Except as provided in paragr. (f)(1) of this section, grantees and subgrantees shall disburse progron income. rebates. refunds, contract settlements, audit recoveries and interest earned on such funds befor requesting additional cash paymen (g) Withholding payments. (1) Un otherwise required by Federal statu awarding agencies shall not withho payments for proper charges incurrt 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 car with grant award condition. but with suspension of the grant, shall be released to the grantee upon subaegt compliance. When a grant is suspenc payment adjustments will be made it accordance with f _.43(c). (3) A Federal agency shall not mak payment to grantees for amounts that are withheld by grantees or subgranif from payment to contractors to assure satisfactory completion of work. Payments shall be made by the Feder, agency when the grantees or subgrantees actually disburse the withheld funds to the contractors or tc escrow accounts established to assure satisfactory completion of work. (h) Cash depositories. 11) Consistent with the national goal of expanding the opportunities (or minority business enterprises, grantees and subgrantees are encouraged to use minority banks 1 bank which is owned at least So perces by minorit, group members). A list of minority owned batiks can be obtained from the Minority Business Devetopme. Agency. Department of Commerce. Washington. DC 20230. (2) A grantee or subgrantee shall maintain a separate bank account unly when required by Federal -State agreement. (i) Interest earned on advances. Except for interest earned on advances of funds exempt under the SINGLC ALJOIT Gt HO[ / 22.167 "gPYI r nr... it, 0 Interguvernmental Cooperation Act (31 U S.C. 6501 et seq.) and the Indian Self. Determination Act 123 U.S.C. 4501. grantees and suhgrantees shall promptly. but at least quarterly. remil interest earned on advances to the Federal agency. The grantee or subgrantee may keep interest amounts up to 5100 per year for administrative expenses. § _.22 Allowable Costs. (al 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 Cosrs of a— I use rile Onnooies n -- State. local or irlOan OMB Gcular A -a7 trgal govenatwN. p.ata nonpo6l OBM WaAar A -t22 I aganzalpn inner than an (1) nseM,pl of tagher edreaoon. 121 hoatatal. or (3) pganzalan named n OMB C+c,Aw A-122 as not suotact as east cra/ar. Educau0rtal nsNUWns......1 OMB CrMar A-21. Fw-wola w9arszaeon 40 CFF Part 31. olner than a llospaal CMVM Cost and an w9notaton PrncWes and named n OBM Procal"es. W taefornl GrcWw A-122 as rol Will accounting wlxecl to mat cveviSi. standards trial con" .en Coal pnooles =41,14ere to the Federal agency. § _23 Period to availability or funds. (a) Ceneral. 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 22.168 / SINGLE AUDIT GUIDE • 1111 days .liter the end of the funding period Iur is specified to a program regulatulnl to coincide with the submission of the annual Financial Siatus Report ISF-269). The Federal axenry may extend this deadline at the request of the grantee. § —.24 Matching or cost Sharing. (a) Basic rule: Costs and contributions orceptable. 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 penod 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 § _.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 § _...-.25(g)d 151 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 aw.adow lh,, 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 express) ' y permit this kind of Income to he used tmeet the requirement. (6) Records. Costs and third party in- kind contributions counting towards satisfying a cost sharing or matching requirement must be verifiable from the records of grantees and subgrantee or cost -type contractors. These records must show how the value placed on third party in-kind contributions was derived. To the extent feasible. volunteer services will be supported by the same methods that the organization uses to support the allocability of regular personnel costs. (7) Special standards for third party in-kind contributions. (i) Third party in- kind contributions count towards satisfying a cost sharing or matching requirement only where, if the party receiving the contributions were to pay for them. the payments would be allowable costs. (if) 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 servires—(11 bolunteerservrces. Unpaid services provided to a grantee or subgrantee by individuals will he valued at rates consistent with those ord,nartiv paid fur similar work in the grantee's or subgrantre'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 rase. 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 it 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) A wards for capital expenditures. 1f 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 (if) of this section apply: (i) If approval is obtained from the awarding agenrv. the market value at the time of do: ••n of the donated equipment or .',ngs and the fair rental rate of a-naled land may be counted as ct... ': ring or matching. In the case of a ,nt. the terms of the grant agreern. --Av require that the approval be o:,c-:ued 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 coat-shanng 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 § _.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), (el 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. § .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 rhe 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, eta 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. t 0unrn,at Rule (c) Cast ofgeneranm; program income. If authorized by Federal regulations or the grant agreement. r. incident to the generation of program income may be deducted from gross income to determine program income Idl Governmental revenues. Taxes special assessments. levies. fines. am other such revenues raised by a gran or subgrantee are not program incom unless the revenues are specifically identified in the grant agreement or Federal agency regulations as progra: income. (e) Royalties. Income from royalties and license fees for copyrighted material. patents, and inventions developed by a grantee or subgrantee program income only if the revenues specifically identified in the grant agreement or Federal agency regulaw as program income. (See 1 _.74.) (f) Property. Proceeds from the sale real property or equipment will be handled in accordance with the requirements of 11 __.JS and —.] (g) Use of program income. Program income shall be deducted from outldv which may be both Federal and non: Federal as described below. unless th Federal agency regulations or the grit agreement specify another alternative (or a combination of the alternative%(. specifying alternatives. the Federal agency may distinguish between incor earned by the granteq and income earned by subgrantees and between it sources. kinds. or amounts of income. When Federal agencies authorize the alternatives in paragraphs (g) (2) and I of this section. program income in excess of any limits stipulated shall al 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 lime of the award shall be used to reduce the Federal agency and grantee contributions rash than to increase the fords committed I the project. (21 Addaion. When authorized. program income may be added to the funds committed to the grant agreemer by the Federal agency and the grantee The program income shall be used for the purposes And under the condiuon., the gr.,m azn:_ment. (7) Cost shnr+ng or matching. When author -zed. procram income may bw used to meet the cost sharing or matching requirement of the grant agreement. The amnont of the Federal grant award remains the same SINGII A111)17 6U/01' / 22.169 tits; -r,1, ,rr,'r 11. • • (lit Incoare alter the award period. Then- are no Federal requirements govemmg 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. 1 --26 Non-Fedanl audU. (a) Basic Rule. Grantees and aubgrantees are responsible for obtaining audits in accordance with the Single Audit Act of 1984 (31 U.S.C. 7501- 7) and Federal agency implementing regulations. The audits shall be made by an independent auditor in accordance with generally accepted government auditing standards covering financial and compliance audits. (b) Subgrontees. 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 e 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 goads and services to State and focal governments are not required to have a single audit performed. State and local govenments should use their own procedures to ensure that the contractor has complied with jaws 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. (cl Auditor selection. In arranging for audit services. § __26 shall be followed. Changes. Property, and Subawards § _.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 § —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 staled 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: (f) 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 5100.000. (ii() 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 nonconatruction 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. Granters or subgrantees must obtain the prior approval of the awarding agency whenever any of the following actions is anticipated: 22.170 / SINGLE AUDIT GUIDE ( I I Any revision of the scope or objectives of the protect (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 centra( to the purposes of the award. This approval requirement is in addition to the approval requirements of 1--36 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 (cj of this section. (0 Requesting prior approval (1) A request for prior approval of any budget revision will be in the same budget formal the grantee used in its application and shall be accompanied by a narrative justification for the proposed revision. (2) A request for a prior approval . under the applicable Federal coal principles (see § _.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. 1-31 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 purposes. 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 title after compensating the awarding agency. The amount paid to the awarding agency will be computed by applying the awarding agency's percentage of participation in the cost of the original purchase to the fair market value of the property. However. in those situations where a grantee or subgrantee is disposing of real property acquired with grant funds and acquiring replacement real property under the same program4 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 o/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. §_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 protect for which it was acquired as long as needed. whether or not the protect 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 an 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 §-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 lakes 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. (31 A control system must be de% eloped to ensure adequate safeguards to prevent loss. damage. or theft of the property. Any loss. damage. or theft shall be investigated. l -nnmq hitt, (4) Adequate maintenance proc must be developed to keep the prt in good condition. (5) It the grantee or subgrantee authorized or required to sell the property. proper Sales procedures be established to ensure the highe Possible return. (e) Disposition. When original o replacement equipment acquired u a grant or subgranl is no longer ne for the original project or program other activities currently or previo- supported by a Federal agency. disposition of the equipment will b made as follows: (1) Items of equipment with a cut per-unit fair market value of less tl SS.00n may be retained. sold or otherwise disposed of with no furl obligation to the awarding agency. (21 Items of equipment with a cur per unit fair market value in excess 55.000 may be retained or sold and awarding agency shall have a right amount calculated by multiplying tl current market value or proceeds fr sale by the awarding agency's shay the equipment. (3) In cases where a grantee or subgrantee fails to take appropriate disposition actions. the awarding aE may direct the grantee or subgrante take excess and disposition actions (f) Federal equipment. In the even 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 accordant with Federal agency rules and procedures. and submit an annual inventory listing. (3) When the equipment is no long needed. the grantee or subgrantee w request disposition instructions from Federal agency. (g) Right to transfer title. The Fedc awarding agency may reserve the ril to transfer title to the Federal Government or a third part named b the awarding agency when such a th party is otherwise eligible under exis statutes. Such transfers shall be subj to the following standards: (1) The property shall be identified the grant or otherwise made known i the grantee in writing. (2) The Federal awarding agency s issue disposition instruction within 1 calendar days after the end of the Federal support of the project for wh it was acquired. If the Federal aw.vd agency fads to issue disposition instructions within the 120 calendar-� period :he grantee shall follow _.32(e) SINGII ;1111)11 (,UIDI: / 22.171 ',uppl� rnrrrr. • (3) When title to equipment is transferred. the grantee shall be paid an amount calculated by applying the percentage of participation to the purchase to the current fair market value of the property. 4 —33 suppoes (al 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 55.000 in total aggregate fair market value upon termination orcompletion 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. J __34 copyrights. The Federal awarding agency reserves a royalty -free. nonexclusive. and irrevocable license to reproduce. publish or otherwise use. and to authonze 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. 6 _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." 4 _34 Procurement (a) States. When procuring property and services under a grant. a State will follow the same policies and procedures it uses for procurements from its non - Federal funds. The State will ensure that every purchase order or other contract includes any clauses required by Federal statutes and executive orders and their implementing regulations. Other grantee@ 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 Slate and local laws and regulations, provided that the procurements conform to applicable Federal law and the standards identified in this section. 22.172 / SINGLE AUDITGUIDE I_j Gnunces .ind subgruntees will maintain a contract administration system which ensures that contractors perform in accordance with the terms. cundmuns, and specifications of their contracts or purchase orders. (71 Grantees and subgrantees will maintain a written code of standards of conduct govemrng 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. (it) Any member of his immediate family. (iii) His or her partner. or (iv) An organization which employs. or to about to employ, any of the above, hag a financial or other interest in the firm selected for award. The grantee'9 or subgrantee's officers. employees or agents will neither solicit nor accept gratuities, favors or anything of monetary value from contractors. potential contractors, or parties to subagreements. Grantee and subgrantees may set minimum rules where the financial interest is not substantial or the gift is an unsolicited item of nominal intrinsic value. To the extent permitted by State or local law or regulations, such standards or conduct will provide for penalties. sanctions. or other disciplinary actions for violations of such standards by the grantee's and subgrantee's officers. employees. or agents. or by contractors or their agents. The awarding agency may in regulation provide additional prohibitions relative to real, apparent. or potential conflicts of interest. (41 Grantee and subgrantee procedures will provide for a review of proposed procurements to avoid purchase of unnecessary br 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 r�L new equrpmrnt 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 ansylsis of each contract item or task to ensure that its essential function is provided at the overall lower cost. (6) 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 polity. record of past performance, and financial and technical resources. (9) Grantees and subgrantees will maintain records sufficient to detail the significant history of a procurement. These records will include, but are not necessarily limited to the following: rationale for the method of procurement. selection of contract type. contractor selection or rejection, and the basis for the contract price. (lo) Grantees and subgranteeg 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 limilerl 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 guhgrantees 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 agerrv. 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: p) 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 1_.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. tui) Noncompetitive pricing practices between firma 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 Slate 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 I;e procured. and when necessary. shall set forth those muumum 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. 11) 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 coat more than 525.0W in the aggregate. If small purchase procurements are used. price or rate quotations will be obtained from an adequate number of qualified sources. (2) Procurement by sealed bids (formal advertising). Bids are publicly solicited and a firm -fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid. conforming with all the material terms and conditions of the invitation for bids. is the lowest in price. The sealed bid method is the preferred method for procuring construction. if the conditions in 1 _36(d)(21(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: (BI 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. lul If sealed bids .ire 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 speciftcattons 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 discounts are usually taken advantage oh 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: (it) Proposals will be solicited from au 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 ne:;otiatmn of fair and reasonable compensation. The method. where price is not used as a selection factor. can oniP he used in procurement of A/F. SINGLE AUDIT GUIDE / 22.173 v�lyd,'�m'rt: protrssum.d services. It cannot be used to pun. hale 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. (tl 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 proft 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 laborsurplus 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 22.174 / SINGLE AUDITGUIDE Ivt) Requtnng the prime contractor. if subcontracts are to be let. to take the Affirmative steps listed in paragraphs (el(ZI (il through (v) of this section. (f) Contract cast and price. (11 Grantees and subgrantees must perform a cost or price analysis to 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 cast 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 tacking. and for sole source procurements. including contract modifications or change orders. unless price resonableness 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 home by the contractor. the contractors 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.occost estimates included in negotiated prices are consistent with Federal cost principles (see § _.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 sohcatton 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 ( delete' 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 525.000 and is to be awarded without competition or only one bid or offer is received in response to a solicitation: or (iii) The procurement. which is expected to exceed $25.000. specifies a "brand name" product; or (iv) The proposed award over 525.000 is to be awarded to other than the apparent low bidder under a sealed bid procurement: or (v) A proposed contract modification changes the scope of a contract or increases the contract amount by more than s25.000. (3) A grantee or subgrantee will be exempt from the pre -award review in paragraph (g)(2) of this section if the awarding agency determines that its procurement systems comply with the standards of this section. (i) A grantee or subgrantee may request that its procurement system be reviewed by the awarding agency to determine whether its system meets these standards in order for its system to be certified. Generally. these reviews shall occur where there is a continuous high -dollar funding. and third -party contracts are awarded on a regular basis: (ii) A grantee or subgrantee may self - certify its procurement system. Such self -certification shall not limit the awarding agency's right to survey the system. Under a self -certification procedure. awarding agencies may wish to rely on written assurances from the grantee or subgrantee that it is complying with these standard grantee or subgrantee wiI1tT1 .,,,,..s. procedures. regulations. standards. as being in compliance with these requirements and have its system available for review (h) Bonding requirements. For construction or facility improvement contracts or subconstracts exceeding 5100.000, the awarding agency may accept the bonding policy and requirements of the grantee or subgrantee provided the awarding agency has made a determination that the awarding agency's interest is adequately protected. If such a determination has not been made. the minimum requirements shall be as follows: (1) A bid guarantee from each bidder equivalent to five percent of the bid price. The "bid guarantee" shall consist of a firm commitment such as a bid bond. certified check, or other negotiable instrument accompanying a bid as assurance that the bidder will, upon acceptance of his bid. execute such contractual documents as may be required within the time specified. (2) A performance bond on the port of the contractor for too 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 too 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 Procurement Policy. (1) Administrative. contractual. or legal remedies in instances where contractors violate or breach contract terms, and provide for such sanctions and penalties as may be appropriate. (Contracts other than small purchases) (2) Termination for cause and for convenience by the grantee or subgrantee including the manner by which it will be effected and the basis for settlement. (All contracts in excess of 510.000) (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 510.000 by grantees and their contractors or subgrantees) (4) Compliance with the Copeland "Ann -Kickback" Act (18 U.S.C. 874) as supplemented in Department of labor regulations (29 CFR Part 3). (All contracts and subgrants for construction or repair) (5) Compliance with the Davis -Bacon Act (40 U.S.C. 276a to a-71 as supplemented by Department of Labor regulations (29 CFR Part 5). (Construction contracts in excess of S2.o00 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 SZOOO, and in excess of 52.5011 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 5100.000) (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). t ,yin rui vt Ro6• § _.37 Suogrants. Jai 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 Section _.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 othergrontees. All other grantees shall follow the provisions of this part which are applicable to awarding agencies when awarding and administering subgrants (whether on a cost reimbursement or fixed amount basis) of financial assistance to local and Indian tribal governments. Grantees shall: (1) Ensure that every subgrant includes a provision for compliance with this part: (2) Ensure that every subgrant includes any clauses required by Federal statute and executive orders and their implementing regulations: and (3) Ensure that subgrantees are aware of requirements imposed upon them by Federal statutes and regulations. (c) Exceptions. By their own terms. certain provisions of this part do not apply to the award and administration of subgrants: (1) Section _.10: (2) Section _.11: (3) The letter -of -credit procedures specified in Treasury Regulations at 31 CFR Part 205, cited in § __.21: and (4) Section _.SO. Reports. Records. Retention, and Enforcement 1 _.40 Monitoring and reporting program performance. (a) ,ttunitoring by grantees. Grantees are responsible for managing the day-lo- day ay-lmday operations of grant and subgrant supported activities. Grantees must monitor grant and subgrant supported activities to assure compliance with applicable Federal requirements and that perfnrmunce goals are being SINGLE AUDIT GUIDE / 22.175 ae.hu•ced Grauhtee munrtoring must cover each program. function or aenvuv Ih) Nonconsunrctron performance rt -ports. The Federal agency may. if it decides that performance information wadable 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 &hull submit annual performance reports unless the awarding agency requires quarterly or semi-annual reports. However. performance reports will not be required more frequently than quarterly. Annual reports shall be due 90 days after the grant year. quarterly or semi-annual reports shall be due 30 days after the reporting period. The final performance report will be due 90 days after the expiration or termination of grant support. If a justified request is submitted by a grantee. the Federal agency may extend the due date for any performance report. Additionally. requirements for unnecessary perfotmmnoe 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. (dl Significant developments. Events may occur between the scheduled 22.176 / SINGLE AUDIT GUIDE 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: (11 Problems. delays. or adverse conditions which will materially fmpatr 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 orproducing more beneficial results wthan orfgitut planned. (o) Federal agerroies 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. g _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 is) through (e) of this section. and such supplementary or other forms •e may from time to time be authorized by OMB. for. (i) Submitting finencial reports to Federal agencies. or (ii) Requesting advances or reimbursements when letters of credit are not used. (2) Grantees need not apply the forms prescribed in this section in dealing with their subgrantees. Howeyer. 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 extend required under the Paperwork Reduction Act of 19M 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. 0 151 Federal ngencies 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 Staters Report. ---(i ) Form. Grantees will use Standard Form 269 or 269A. Financial Status Report. to report the status of funds for all nonconstrvction grants and for construction grants when required in accordance with paragraph I _41(e)(2)(iii) of this section. (2)Accounting basis. Each grantee will report program outlays and program income on a rash 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 accural basis. the grantee 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 Transore,nos Report—(1) Form. (i) Fur 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 fur each grant from grantees. The formal 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. (31 Cash in hands of subgrantees. When considered necessary and fusible 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 air contractors and to provide short narrative explanations of actions taken by the grantee to reduce the excess balances. (4) Frequency and due dote. 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 r>eerbursement—(1) Advance payments. Requests for Treasury check advance payments will be submitted on Standard Farm 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 rade to the grantee automatically ors a predetermined basis.) 12) 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.) 131 The frequency for submitting payment requests is treated in § _.41(b)(3). le) Outlay report and request for r>:rbursenient for construction programs. (1) Grants that support construction activities paid by reimbursement method. IQ Requests for reimbursement under construction grants will be submitted on Standard Form 271. Outlay Report and Request for Reimbursement for Construction Programs. Federal agencies nay. however. prescribe the Request for Advance or Reimbursement form. specified in § _.41(d). instead of this fam. (ri) The frequency for submitting rmbursement requests is treated in § _.41(b)(3). RI Grants that support construction activities paid by letter of credit. clertromc 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 § _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 § —41(d). (iii) The Federal agency may substitute the Financial Status Report specified in § _.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 § _.41(b)(2). § _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 (fi) 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 § _.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 recordkeepmg. awarding ageneses may make special arrangements with grantees and subgrantees to retain any records which are continuously needed fur joint use. .— I � "It Mini l:nlr 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 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 for 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. (is I If nut submitted for negotiatiwi. If the p, oposal. plan. or other computalwo is nut required to be submitted !n the Fed«rat Government (or to the graoir-11 for negotiation purposes. then the 3 -year rrrciwon period for the proposal plan. nr SINGLE AUDIT GUIDE / 22.177 vdrinrnr. • co.mpuratmn and its supporting records starts from end of the fiscal year (or other accounting period) covered by the proposal. plan, or other computation. Idl 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 Stateor 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 we.pertfnent to the grant. in order to make audits. examinations, excerpts. and transcripts. (2) Errpiration of right of access. The rights of access is this section must not be limited to the required retention period but shall last as longas she records are retained. !Q Restrictions on public ace&&& The Federal Freedom of Information Act (5 U.S.C. S52) does not apply to records Unless required by Federal. State. or local law, grantees and subgrantees are Dot required to permit public access to their moords. §_47 E loveement. (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 w application. a notice of award. or elsewhere. the awarding agency may take one or more of the following actions. as appropriate in the circumstances: (l) Temporarily withhold cash payments pending correction of the deficiency by the grantee or subgrantee at 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. 22.178 / SINGLE AUDIT GUIDE (c) Effects of suspension and termination. Casts 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 subgransee costs during suspension or after termination which are necessary and not reasonably avoidable are allowable if: (1) The torts result from obligations which were properfy incurred by the grantee -or subgrantee before the effective date of:auapertsion cir termination. are not in anticipation of It. and. in the rase of a termination. are nuseancellable, and. (2) The costs would be allowable if the award were not suspended or expired normally at the end of the funding period in which the termination takes effect. (d) Relationship to Debarment and Suspension. The enforcement remedies identified in this section. including suspension and termination. do not preclude grantee or subgrantee from being subject to "Debarment and Suspension" under ED. 12549 (see § —35). §_44 Terminanon for convenience. Except as provided in § 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 §.—.43 or paragraph (a) of this section. Subpart D—After-The-Grant Requirements §.._.50 CloseouL (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) Reporis. Within 90 days after the expiration or tecounation of the grant, the grantee must submit all financial. performance. and other reports required as a condition of the grant. Upon request by the gramee. Federal agencies may extend this timeframe. These may include but are not limited to: (1) Final performance or progress report (21 Financial Status Report (SF20W or Outlay Report and Request for Reimbursement for Construction programs (SF -2711 (as applicable./ 13) Final request for payment (SF -2701 (if applicable). (4) Invention disclosure (if applicable). (5) Federallyowned property report In accordance with § _32(f), a grantee must submit an ifwentory 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 costa. (d) Cash adjustments. (1) The Federal agency will make prompt payment to the grantee for allowable reimbursable coats. (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. § .___.51 Later disallowances and adjustments. The closeout of a grant docs not affect: (a) The Federal agency's right to disallow costs and recover funds un. 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 1-42'. (d)Property management requirements in If _31 and § _32: and (e) Audit requirements in § § __ _ .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 swurd constitute a debt to the Federal Coveroment. If not paid within a reasonable period after demand. the Federal agency may reduce the debt by: (1) Making an adminstrattve offset against other requests for reimbursements. (2) Withholding advance payments otherwise due to the grantee. or (7) 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. Il). The date from which interest is computed is not extended by litigation or the fling of any form of appeal. Common Rule Subpart E—Entittement I Reserved I IFR Doc. 88-SZSI Filed 3 -I0 -0a: SAS anfl 111,14.1.01a cools ]61}x11-0. 64S . gIf•01•Y. 1310. 1-w 41,10-]1•Y, 4210.]]-Y. U10.14Y. U10. IYY. 47]]-01�.MIO-01-Y. !000-01•Y. ?f 1S-0bY. 032601.w 4116CI- .Y, f110Ar.Y. {}1{.}1•Y, f150- 06 -Y. ?155-01-Y. IS37-01-Y. 7536-01-Y, ?0]6.01.41. {0!026-q aN01w. O1042•Y SINGLE AUDIT GUIDE / 22.179 Office of ManagemeAnd Budget Circular A-128 (4/12/85) OFFICE OF MANAGEMENT AND BUDGET Issuance of Circular A-128 "Audits of State and Local Governments" AGENCY: Office of Managenlrn! turd Fludget. ACTION: Final Issuance of OMB Circular A-128. "Audits of State and Loral Governments." SUMMARY: This OPIS Circular Provides pulley guidance to Federal c,gencies in d,e implcmenta!iun of the Single Audit Art of 1984 (Pub. L. 9P SOZI. It estaldishes uniform requirements for audits of Federal financial assistance provided to Stade and local governments and promotes the efficient and effective use of audit services. EFFECTIVE DATE: This Circuldtwas effective April 12. 1985, and shall apply to fiscal years of State and local guvernments that began after December 31, 1984. Earlier implementation is encouraged. However. until it is imn!emenled, the audit provisions of Attachment P to Circular A-102 shall continue to be observed. FOR FURTHER INFORMATION CONTACT: Palmer A. Marcantonio, Financial Management Divisinn. Office of Slanogement and Budget, Washington. U.C. 20503. (202) 395-3993. EXECUTIVE OFFICE OF THE PRESIDENT O,!7ire ojhlanagement and Budget CIRCULAR NO. A-129 Ap"! 12.1985 to the Heads of Executive Departments and F.stdhlishments. 9ubi-ct: Audits of State and Local 1:ovemments. 1. Purpose This Circular is issued p;:rsuanl to (fie Single Audi! Act of 1984. Pub. L. 98-502. It establishes audit n: g,nremects for Slade and Inca) gusernments that rcrrwe Federal aid. and defines Federal responsibilities fur implementing and monitoring Ihuse rccunremenls. uperses.siom The Circular supersedes Attachment P. "Audit Rrquiremenln," of Circular A-102, `Uniform requirements for grants to St.,te and local governments.' u. Unckground. The Single: Audit Acl builds upon earlier efforts to improve audits of Federal acd programs. The Act requires State or local governments that receive $100.000 ar more it year in Federal funds to have an audit made fat that year. Section 7505 of the Art requires the Director of the Office of 61,m.igemcat :and Budget to pr( -scribe policies, procedures and guidelines to implement the Act. It speates that the Director shall designate "cognizant' Federal agencies. determine criteria for making appropriate charges to Federal programs for the cost of audits. and provide procedures to assure that small firms or firms owned and controlled by disadvantaged individuals have the opportunity to participate in conlnccIs for single audits. 4. Policy. The Single Audit Act requires the following: a. State or local governments that rccei ce $100.000 or more a year in Federal financial assistance shall have an audit made in accordance with this Circular. h. State or local governments that receive between $25.000 and $100.0001 a year shall have an audit made in accordance with this Circular. or in accordance with Federal laws and regulations governing the programs they participate in. c. State or local governments that receive less than $25.000 a year shall be exempt from compliance with the Ar.! and other Federal audit requirements. These Stale and local governments shall be governed by audit requirements prescribed by Slate or local law or regulation. d. Nothing in this paragraph exempts Slate or local governments from maintaining records of Federal financial assistance or from providing access to such records to Federal agencies. as provided for in Federal law or in Circular A-102. "Uniform requirements for grants to Stale or local governments." 5. Definitions. For the purposes of this Clre.ulur the following definitions fium the Single Audit Act apply: a. "Cognizant agency" means the Federal agency assigned by the Office of \1an.tgeinenl and Budget to carry out the responsibilities described in paragraph 17 of this Circular. h. "Federal financial assistance- mcams assistance provided by a Federal agency in the form of grants, contracts. cmwprralive agreements. loans. loan ;_carmtee& property, interest subsidies. insurance. or direct appropriations, but dors not include direct Federal crash asstslonce to individuals. it includes awards received directly from Federal agencies, or indirectly through other units of State and local governments. r.. "Federal agency" has the same meaning as the term "agency" in section 551(1( of Title 5. United Slates Code. d. "Generally accepted accounting principles- has the meaning specified in lh,• generally accepted government auditing standards. F.:Jerdi GrJntti M,u a.utrnrem Handnuak June 1985 A-128:1 e. "Generally accepted government auditing standards" means the Sln.whjrds Far Audit o/Curernment Or;,crnizntii,ns. Prggrun,s. Activities. and Fuuctw rs. developed by the Comptroller General. dated Febuary 27. 1981. f. "Independent auditor" means: (1) it State or local government auditor who meets the independence standards specified in generally accepted government auditing standards: or (21 a public accountant who meets such independence standards. g. "Internal controls- means the plan of organization and methods and procedures adopted by management to ensure that: (1) resource use is consistent with laws. regulations. and policies: (2)resources are safeguarded against ":isle. loss, and misuse: and (3) reliable data are obtained. maintained, and fairly disclosed in reports. It. 'Indian tribe" means any Indian tribe. band, nations. or other organized group or community, including any Alaskan Native village or regional or v illage. corporations (as defined in. or established under, the Alaskan Native Claims Settlement Act( that is recognized by the United Stales its eligible for the special programs and services provided by the United Slates to Indians because of their status as Indians. i. "Local government" means any unit of local government within a State. including a county, a borough. municipality,. city, town. township. perish. local public authority, special district, school district. intrastate district, council of governments. and any other instrumentality of local government. j. ' Major Federal Assistance Program." as defined by Pub. L. 98-502. is des,:ribed in the Attachment to this Circular. k. "Public accuuntanis" means lh,.,sc individuals who meet the qualdi(ation standards included in generally accepted government auditing standards for personnel performing government audits. I. " Sl,:td' means anv Slate of the United States. the District of Columb i a. the Commonwealth of Puerto Rico, the Virgin Islands. Guam. American Samoa. the Commonwealth of the Northern Mariana Islands. and the Trust Territury of the Pacific Islands. any instrumentality thereof. and any multi Stale. regional. or interstate entity that has governmental functionsand any Indian tribe.. in "Subrecipient- means any person nr government department, agency. OF Appendix I Office of Management and Budget Circular A-128 (4/12/85) establishment that reccrvvs Federal ianrial assistance to carry out a ogram through a Slate or local government, but does not include an individual that is a beneficiary of such it program. A subrecipient may also be it direct recipient of Federal financial assistance. 6. Scope of audit. The Single Audit Act provides that: a. The audit shall be made by an independent auditor in accordance with gaoerally accepted government auditing standards covering financial and compliance audits. b. The audit shall cover the entire operations of a State or local government or, at the option of that government. it may cover departments. agencies or establishments that received, expended, or otherwise administered Federal financial assistance duringthe year. However, if a State or local government receives S25,000 or more in General Revenue Sharing Funds in a fiscal year. it shall have an audit of its entire operations. A series of audits of individural departments, agencies, and establishments for the same fiscal year may be considered a single audit. c. Public hospitals and public colleges d universities may be excluded from .le and local audits and the ,quirements of this Circular. However. if such entities are excluded. audits of these entities shall be made in accordance with statutory requirements and the provisions of Circular A-110. "Uniform requirements for grants to universities. hospitals, and other nonprofit organizations" d. The auditor shall determine whether: (1) the financial statements of the government. department. agency or establishment present fairly its financial position and the results of its financial operations in accordanre with generally ,u:cepted accounting principles: (2) the organization has internal acruunting and other control systems to provide reasonable assurance that it is managing Federal financial assistance programs in compliance with applicable Lows and regulations: and (3) the organization has complied with laws and regulations that may have material effect on its financial statements and on each major Federal assistance program. 7. Freyuencv of oudiL Audits shall be made annually unless the State or local government has, by January 1, 1987. a sstitutional or statutory requirement less frequent audits. For lbose vernmenls, the cognizant agency shall permit biennial audits, covering both years. if the government so requests. It shall also honor requests for biennial audits by governments that have an nlnimistralive polies' calling for audits Icss frequent than annual, bill only for fiscal years beginning before January 1, 1987. 8. 1wenml control and compliance reviews. The Single Audit Act requires !hat the independent auditor determine and report on whether the organization has internal control systems to provide reasonable assurance that it is managing Federal assistance programs in compliance with applicable laws and regulations. a. Internal control review. In order to provide this assurance the auditor must make a study and evaluation of internal control systems used in administering Federal assistance programs. The study and evaluation must be made whether or not the auditor intends to plane reliance on such systems. As part of this review, the auditor shall: (1) Test whether these internal control systems are functioning in accordance with prescribed procedures. 121 Examine the recipient's system for monitoring subrecipients and obtaining and acting on subrecipient audit reports. b. Compliance review. The law also requites the auditor to determine whether the organization has complied with laws and regulations that may have a material effect on each major Federal assistance program. (1) In order to determine which major programs are to be tested fur compliance. State and local governments shall identify in their accounts all Federal funds received and expended and the programs under which they were received. This shall include funds received directly from Federal agencies and through other Slate and local governments. (2) The review must include the selection and testing of a representative number of charges from each major Federal assistance program. The selection and testing of transactions shall be based on the auditor's professional judgment considering such factors as the amount of expeditures for the program and the individual awards; the newness of the program or changes in its conditions: prior experience with the program, particularly as revealed in audits and other evaluations (e.g.. inspections. program reviews); the extent to which the program is carried out through subrecipients; the extent to which the program contracts for goods or services: the level to which the program is already subject to program reviews or other forms of independent oversiehL the adequacy of the controls A-128:2 for ensuring compliance: the expectation of adherence or lack of adherence to the applicable laws and regulations; and the potential impact of adverse findings. (a) In making the test of transactions, the auditor shall determine whether: —The amounts reported as expenditures were for allowable services, and —The records show that those who received services or benefits were eligible to receive them. (b) In addition to transaction testing. the auditor shall determine whether: —Matching requirements. levels of effort and earmarking limitations were met, —Federal financial reports and claims for advances and reimbursements contain information that is supported by the books and records from which the basic financial statements have been prepared, and —Amounts claimed or used for matching were determined in accordance with OMB Circular AA7, "Cost principles for State and local governments," and Attachment F of Circular A-102, "Uniform requirements for grants to State and local governments." (c) The principal compliance requirements of the largest Federal aid programs may be ascertained by referring to the Compliance Supplement lar Single Audits of State and Laval Governments, issued by OMB and available from the Government Printing Office. For those programs not covered in the Compliance Supplement. the auditor may ascertain compliance requirements by researching the sWu:es, regulations, and agreements governing individual programs. (3) Transactions related to other Fedvrdl assistance programs that are sale.,;ted in connection with examimt tions of financial statements and evaluations of internal controls shall be tested for compliance with Federal laws and regulations that apply to such transactions. 9. Subrecipients. State or local gmernments that receive Federal financial assistance and provide $25.000 or more of it in a fiscal year to a subrecipient shall: ;1. Determine whether Stale or local subrecipients have mel the audit requirements of this Circular and whether subrecipients covered by Circular A-110, "Uniform requirements for grants to universities. hospitals, and other nonprofit organizations." have met that requirement; b. determine whether the subrecipient spent Federal assistance funds provided in accordance with applicable laws and regulations. This may he accomplished Federal Grants Management Handbook June 1985 Appendix I Office of Managemened Budget Circular A-128 (4/085) by reviewing an audit of the subrecipient made in accordance with this Circular. Circular A-110, or through other means (e.g.. program reviews) if the subrecipient has not yet had such an audit: c. ensure that appropriate corrective action is taken within six months after receipt of the audit report in instances of noncompliance with Federal laws and regulations; d. consider whether subrecipient audits necessitate adjustment of the recipient's own records; and e. require each subrecipient to permit independent auditors to have access to the records and financial statements as necessary to comply with this Circular. 10. Relation to other audit requirements. The Single Audit Act provides that an audit made in accordance with this Circular shall be ire lieu of any financial or financial compliance audit required under individual Federal assistance programs.. To the extent that a single audit provides Federal agencies with information and assurances they need to ra rry out their overall responsibilities, they shall rely upon and use such information. However, a Federal agency shall make any additional audits which are necessary to carry out its responsibilities under Federal law and regulation. Any additional Federal audit effort shall be planned and carried out in such a way as to avoid duplication. a. The provisions of this Circular do not limit the authority of Federal agencies to make. or contract for audits and evaluations of Federal financial assistance programs, nor do they limit the authority of any Federal agency inspector General or other Federal audit official. h. The provisions of this Circular do 11011 auth•rrize any State or local government or subrecipient thereof to constrain Federal agencies, in any manner. from carrying out additional audits. c. A Federal agency that makes or contracts for audits in addition to the audits made by recipients pursuant to this Circular shall, consistent with other applicable laws and regulations, arrange for funding the cost of such additional ,:udi(s. Such additional audits include ccunomy and efficiency audits. In igram results audits, and program evaluations. 111. Cnqnizant agency responsibilities. The Single Audit Act provides for cognizant Federal agencies to oversee the implementation of this Circular. a. The Office of Management and Budget will assign cognizant agencies for States and their subdivisions and I,irger local governments and their subdivisions. Other Federal agencies may participate with an assigned cognizant agency, in order to fulfill the cognizant responsibilities. Smaller governments not assigned a cognizant agency will be under the general oversight of the Federal agency that provides them the most funds whether directly or indirectly. b. A cognizant agency shall have the following responsibilities: (1) Ensure that audits are made and reports are received in a timely manner and in accordance with the requirements of this Circular. (2) Provide technical advice and liaison to State and focal governments and independent auditors. (3) Obtain or make quality control reviews of selected audits made by non - Federal audit organizations, and provide the results, when appropriate, to other interested organizations. (4) Promptly inform other affected Federal agencies and appropriate Federal law enforcement officials of any reported illegal acts or irregularities. They should also inform State or local law enforcement and prosecuting authorities, if not advised by the recipient, of any violation of law within their jurisdiction. (5) Advise the recipient of audits that have been found not to have met the requirements set forth in this Circular. In such instances, the recipient will be expected to work with the auditor to lake corrective action. If corrective action is not taken, the cognizant agency shall notify the recipient and Federal awarding agencies of the facts and make recommendations for followup action. Major inadequacies or repetitive substandard performance of .rdependent auditors shall he referred to appropriate professional bodies for disciplinary action. (e) Coordinate, to the extent practicable, audits made by or for Federal agencies that are in addition to the audits made pursuant to this Circular: so that the additional audits build upon such audits. (7) Oversee the resolution of audit findings that affect the programs of more than one agency. 12. illegal acts or irregularities. If the auditor becomes aware of illegal acts or other irregularities, prompt notice shall be given to recipient management officials above the level of involvement. (See also paragraph 13(x)(3) below for the auditor's reporting responsibilities.) The recipient, in turn, shall promptly notify the cognizant agency of the illegal acts or irregularities and of proposed arid actual actions, if any. Illegal acts and irregularities include such matters A-128:3 as conflicts of interest. falsification of records or reports. and misappropriations of funds or other assets. 13. Audit Reports. Audit reports must be prepared at the completion of the audit. Reports serve many needs of Slate and local governments as well as meeting the requirements of the Single Audit Act. a. The audit report shall state that the audit was made in accordance with the provisions of this Circular. The report shall be made up of at least: (1) The auditor's report on financial statements and on a schedule of Federal assistance: the financial statements; and a schedule of Federal assistance, showing the total expenditures for each Federal assistance program as identified in the Catalog of Federal Domestic Assistance. Federal programs or grants that have not been assigned a catalog number shall be identified under the caption "other Federal assistance." (2) The auditor's report on the study and evaluation of internal control systems must identify the organization's significant internal accounting controls. and those controls designed to provide reasonable assurance that Federal programs are being managed in compliance with laws and regulations. It must also identify the controls that were evaluated, the controls that were not evaluated, and the material weaknesses identified as a result of the evaluation. (3) The auditor's report on compliance containing: —A statement of positive assurance with respect to those items tested for compliance, including compliance with law and regulations pertaining to financial reports and claims for advances and reimbursements; —Negative assurance pn those items not tested: —A summary of all instances of noncompliance: and —An identification of total amounts questioned. if any, for each Federal assistance award, as a result of noncompliance. b. The three parts of the audit report may be bound into a single report. or presented at the same time as separate ducuments. c. All fraud abuse. or illegal acts or indications of such acts. including all questioned costs found as the result of these acts that auditors become aw.m. of, should normally be covered in a separate written report submitted in accordance with paragraph 13f. d. In addition to the audit report, the recipient shall provide comments on the findings and recummenda t ions in the I epnrt. ciduding a plan for corrective Fctei.a Gl.nl5 Maneycnwnl Handbook June 1985 Appendix Office of Management aa1d Budget Circular A-128 (4l1k,dS) action taken or planned and comments .a the status of corrective action taken prior findings. If corrective action is +t necessary. a statement describing the reason it is not should accompany the audit report. e. The reports shall be made available by the State or local government for public inspection within 30 days after the completion of the audit. f. In accordance with generally accepted government audit standards, reports shall be submitted by the auditor to the organization audited and to those requiring or arranging for the audit. In addition, the recipient shall submit copies of the reports to each Federal department or agency that provided Federal assistance funds to the recipient. Subreciptents shall submit copies to recipients that provided them Federal assistance funds. The reports shall be sent within 30 days after the completion of the audit. but no later than one year after the end of the audit period unless a longer period is agreed to with the cognizant agency. g. Recipients of more than $100,000 in Federal funds shall submit one copy of the audit report within 30 days after issuance to a central clearinghouse to be designated by the Office of Management -•nd Budget. The clearinghouse will keep mpleted audits on file and follow up .Ih State and local governments that nave not submitted required audit. reports. h. Recipients shall keep audit reports on file for three years from their issuance. 14. Audit Resolution. As provided in paragraph 11, the cognizant agency shall be responsible for monitoring the resolution of audit findings that affect the programs of more than one Federal agency. Resolution of findings that relate to the programs of a single Fe•dond ag•:ncy will be the responsibibly ,if the w6piont and that agency. Alternate arrangements may be mmdc on n case -by -rase basis by agreement among the agencies concerned. Rcsoinliun shall be made within six months :offer receipt of the report by the. Foderal departmenls and agencies. Corrective action should proceed as r.rpidty as possible. 15. ri�•dit wurApup'ns nerd reports. Workpapers and reports shall be retained for a minimum of three years fvm the date of the audit report, unless Ili(! auditor is notified in writing by the ,:ugniz,rnl agency it) extend the retention I;.•riud. Audit workpapers shall be made ,nribrhlc upon request to the cognizant •ncy or its designee or the General counting Office. if the cumpleliun of oc audit. Ili.:ludit Chats. 'I he oust of audits made in accordance with the provisions of this Circular are allowable charges to I'rderd assisLmre programs. a. The charges may be considered a direct rust or an allocated indirect cost. determined in accordance with the provision of Circular A-87, "Cost principles for State and local governments.— b. Generally, the percentage of costs charged to Federal assistance programs for a single audit shall not exceed the percentage that Federal funds expended represent of total funds expended by the recipient during the fiscal year. The percentage may be exceeded, however. if appropriate documentation demonstrates higher actual cost. 17. Sanctions. The Single Audit Act provides that no cost may be charged to Federal assistance programs for audits required by the Act that are not made in accordance with this Circular. In cases of continued inability or unwillingness to have a proper audit. Federal agencies must consider other appropriate sanctions including: —Withholding a percentage of assistance payments until the audit is completed satisfactorily, —Withholding or disallowing overhead costs. and —Suspending the Federal assistance agreement until the audit is made. 10. Auditor S•electiarl. In arranging for audit services State :and local governments shall follow the procurement standards prescribed by Attachment O of Circular A-102, "Uniform requirements fur grants to State and local governments." The standards provide that while recipients are encouraged to enter into intergovernmental agreements for audit and other services, analysis should be made to determine whether it would be more economical to purr-hase the services from private firms. In instances where use of such intergovernmental agreements are required by State statutes (e.g.. audit services) these statutes will take precedence. 19. Small and Minority Audit Firms. Small audit firms and audit firms owned and controlled by socially and economically disadvantaged individuals shall have the maximum practicable opportunity to participate in contra cls awarded to fulfill the requirements of this Circular. Recipients of Federal assistance shall take the following stens to further this goal: a. Assure that small audit firms and audit firms owned and controlled by sorialiy and economically disadvantaged individuals are used to the fullest extent practicable. b. Aiuke information on forthcoming A-128:4 opuurtunities available and arrange timeframes for the audit so as to encourage and facilitate participation by small audit firms and audit firms owned and controlled by socially and economically disadvantaged individuals. c. Consider in the. contract process whether firms competing for larger audits intend to subcontract with small audit firms arid audit firms owned and controlled by socially and economically disadvantaged individuals. d. Encourage contracting with small audit firms or audit firms owned and controlled by socially and economically disadvantaged individuals which have traditionally audited government programs and, in such cases where this is rut possible, assure that these firms are given consideration for audit subcontracting opportunities. e. Encourage contracting with consortiums of small audit firms as described in paragraph (a) above when a rontract is too large for an individual small audit firm or audit firm owned and controlled by socially and economically disadvantaged individuals. f. Use the services and assistance, as appropriate, of such organizations as the Small Business Administration in the solicitation and utilization of small audit firms oe audit firms owned and controlled by socially and economically disadvantaged individuals. 20. Repurting. Each Federal agency will report to the Director of OMB on or before March 1, 1987, and annually thereafter on the effectiveness of Slaw and local governments in carrying oat die provisions of this Circular. The report must identify each State or local government or Indian tribe that. in the opinion of the agency. is failing to comply with the Circular. 21. Regulations. Each Federal agency shall include the provisions of this Circular in its regulations implementing the Single Audit Act. 22. Effective dote. This Circular is effective upon publication and shall apply to fiscal years of State and local governments that begin after December 31. 1904. Earlier implementation is encouraged. However, until it is implemented. the audit provisions of Attachment P to Circular A-102 shall continue to be observed. 23. Inquiries. All questions or inquiries should be addressed to Financial Management Division. Office of Management and Budget, telephone number 2021395-3993. 24. Sunset review date. This Circular shall have an independent policy review to ascertain its effectiveness three years from the date of issuance. Oavnl A. Sin, kman, Orr, v:bm F ericraI GranT% Ma nag Pn n•nl Hnnrtboolt lune 1985 Appendix I Office of Managemeand Budget Circular A-128 (4*185) A-128:5 Atmchment—Circular A-128 Definition of Afajor Program as Procuh?d in Pub. L. 98-502 -Major Federal Assistance Program," for State and local governments having Federal assistance expenditures between $100.000 and $100.000.000. means any program for which Federal expenditures during the applicable year exceed the larger of $300,000. or 3 percent of such total expenditures. where total expenditures of Federal assistance exceed $100.000.000. the followine criteria apply: iola� eapenblaea a faMral kna.,nal eSw Faamal af3nlarKa IIX ap wora aOMMCa SI mea, Mao rom, Bur last Man ao1' cogen Nal 4cM a SIOo mlean Isle ..... ....,_! SO SI mea, Iu eror. ............. M mien. f2 e,lliOn S7 meon....._...__I S) mien. u moon 114 mam......._...J f,B aron. M e,laon Ss meal _........__.I S,3 ss mee„ ! w m meoeS) 0u f)ew�n l _......__....._. Sea mien. IFR floc. 85-10877 Filed 5-3-85: 8:45 aml BILIAMa coo af,a-B,-M Fed,r.11 (irenls Man.lyemenl Handbook June 1985 Appendix I