[Title 21 CFR III]
[Code of Federal Regulations (annual edition) - April 1, 2002 Edition]
[Title 21 - FOOD AND DRUGS]
[Chapter III - OFFICE OF NATIONAL DRUG CONTROL POLICY]
[From the U.S. Government Printing Office]


21FOOD AND DRUGS92002-04-012002-04-01falseOFFICE OF NATIONAL DRUG CONTROL POLICYIIICHAPTER IIIFOOD AND DRUGS
           CHAPTER III--OFFICE OF NATIONAL DRUG CONTROL POLICY




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Part                                                                Page
1400

[Reserved]

1401            Public availability of information..........         171
1402            Mandatory declassification review...........         174
1403            Uniform administrative requirements for 
                    grants and cooperative agreements to 
                    State and local governments.............         175
1404            Governmentwide debarment and suspension 
                    (nonprocurement) and governmentwide 
                    requirements for drug-free workplace 
                    (grants)................................         208
1405-1499

[Reserved]

[[Page 171]]

                          PART 1400 [RESERVED]



PART 1401--PUBLIC AVAILABILITY OF INFORMATION--Table of Contents




Sec.
1401.1 Purpose.
1401.2 The Office of National Drug Control Policy--organization and 
          functions.
1401.3 Definitions.
1401.4 Access to information.
1401.5 How to request records.
1401.6 Expedited process.
1401.7 Prompt response.
1401.8 Extension of time.
1401.9 Appeals.
1401.10 Fees to be charged--general.
1401.11 Fees to be charged--miscellaneous provisions.
1401.12 Fees to be charged--categories of requesters.
1401.13 Waiver or reduction of fees.

    Authority: 5 U.S.C. 552, as amended.

    Source: 64 FR 69901, Dec. 15, 1999, unless otherwise noted.



Sec. 1401.1  Purpose.

    The purpose of this part is to prescribe rules, guidelines and 
procedures to implement the Freedom of Information Act (FOIA), as 
amended, 5 U.S.C. 552.



Sec. 1401.2  The Office of National Drug Control Policy--organization and functions.

    (a) The Office of National Drug Control Policy (ONDCP) was created 
by the Anti-Drug Abuse Act of 1988, 21 U.S.C. 1501 et seq., and 
reestablished under 21 U.S.C. 1701 et seq. The mission of ONDCP is to 
coordinate the anti-drug efforts of the various agencies and departments 
of the Federal government, to consult with States and localities and 
assist their anti-drug efforts, to conduct a national media campaign, 
and to annually promulgate the National Drug Control Strategy.
    (b) ONDCP is headed by the Director of National Drug Control Policy. 
The Director is assisted by a Deputy Director of National Drug Control 
Policy, a Deputy Director for Supply Reduction, a Deputy Director for 
Demand Reduction, and a Deputy Director for State and Local Affairs.
    (c) Offices within ONDCP include Chief of Staff, and the Offices of 
Legal Counsel, Strategic Planning, Legislative Affairs, Programs Budget 
and Evaluation, Supply Reduction, Demand Reduction, Public Affairs, 
State and Local Affairs, and the Financial Management Office.
    (d) The Office of Public Affairs is responsible for providing 
information to the press and to the general public. If members of the 
public have general questions about ONDCP that can be answered by 
telephone, they may call the Office of Public Affairs at (202) 395-6618. 
This number should not be used to make FOIA requests. All oral requests 
for information under FOIA will be rejected.



Sec. 1401.3  Definitions.

    For the purpose of this part:
    (a) All the terms defined in the Freedom of Information Act apply.
    (b) Commercial-use request means a request from or on behalf of one 
who seeks information for a cause or purpose that furthers the 
commercial, trade or profit interests of the requester or the person or 
institution on whose behalf the request is made. In determining whether 
a requester properly belongs in this category, ONDCP will consider the 
intended use of the information.
    (c) Direct costs means the expense actually expended to search, 
review, or duplicate in response to a FOIA request. For example, direct 
costs include 116% of the salary of the employee performing work and the 
actual costs incurred while operating equipment.
    (d) Duplicate means the process of making a copy of a document. Such 
copies may take the form of paper, microform, audio-visual materials, or 
machine-readable documentation. ONDCP will provide a copy of the 
material in a form that is usable by the requester.
    (e) Educational institution means preschool, a public or private 
elementary or secondary school, an institution of undergraduate higher 
education, an institution of graduate higher education, an institution 
of professional education, or an institution of vocational education 
that operates a program or programs of scholarly research.

[[Page 172]]

    (f) Noncommercial scientific institution means an institution that 
is not operated on a commercial basis as that term is defined in this 
section, and that is operated solely for the purpose of conducting 
scientific research not intended to promote any particular product or 
industry.
    (g) Records and any other terms used in this part in reference to 
information includes any information that would be an agency record 
subject to the requirements of this part when maintained in any format, 
including electronic format.
    (h) Representative of the news media means any person actively 
gathering news for an entity that is organized and operated to publish 
or broadcast news to the public. News is information about current 
events or information that would be of interest to the public. Examples 
of the news media include television or radio stations that broadcast to 
the public at large and publishers of news periodicals that make their 
products available to the general public for purchase or subscription. 
Freelance journalists may be regarded as working for the news media 
where they demonstrate a reasonable basis for expecting publication 
through that organization, even though not actually employed by it.
    (i) Request means a letter or other written communication seeking 
records or information under FOIA.
    (j) Review means the process of examining documents that are located 
during a search to determine if any portion should lawfully be withheld. 
It is the processing of determining disclosability.
    (k) Search means to review, manually or by automated means, agency 
records for the purpose of locating those records responsive to a 
request.



Sec. 1401.4  Access to information.

    The Office of National Drug Control Policy makes available 
information pertaining to matters issued, adopted, or promulgated by 
ONDCP, that are within the scope of 5 U.S.C. 552(a)(2). A public reading 
area and the ONDCP FOIA Handbook are located at http://
www.whitehousedrugpolicy.gov/about/about.html.



Sec. 1401.5  How to request records.

    (a) Each request must reasonably describe the record(s) sought 
including the type of document, specific event or action, originator of 
the record, date or time period, subject matter, location, and all other 
pertinent data.
    (b) Requests must be received by ONDCP through the mail or by 
electronic facsimile transmission. Mailed requests must be addressed to 
Executive Office of the President, Office of National Drug Control 
Policy, Office of Legal Counsel, Washington, DC 20503. The applicable 
fax number is (202) 395-5543.
    (c) The words ``FOIA REQUEST'' or ``REQUEST FOR RECORDS'' must be 
clearly marked on the cover-letter, letter and envelope. The time 
limitations imposed by Sec. 1401.7 will not begin until the Office of 
the General Counsel identifies a letter or fax as a FOIA request.



Sec. 1401.6  Expedited process.

    (a) Requests and appeals will be given expedited treatment whenever 
ONDCP determines either:
    (1) The lack of expedited treatment could reasonably be expected to 
pose an imminent threat to the life or physical safety of an individual; 
or
    (2) An urgency to inform the public about an actual or alleged 
federal government activity occurs and the request is made by a person 
primarily engaged in disseminating information.
    (b) A request for expedited processing may be made at the time of 
the initial request for records or at a later time.
    (c) A requester who seeks expedited processing must submit a 
statement, certified to be true and correct to the best of that person's 
knowledge and belief, explaining in detail the basis for requesting 
expedited processing. A requester within the category in paragraph 
(a)(2) of this section also must establish a particular urgency to 
inform the public about the government activity involved in the request, 
beyond the public's right to know about government activity generally. 
The formality of certification may be waived as a matter of 
administrative discretion.
    (d) Within ten days of receipt of a request for expedited 
processing, ONDCP will decide whether to grant it and will

[[Page 173]]

notify the requester of the decision. If a request for expedited 
treatment is granted, the request will be given priority and will be 
processed as soon as practicable. If a request for expedited processing 
is denied, any appeal of that decision will be acted on expeditiously.



Sec. 1401.7  Prompt response.

    The General Counsel, or designee, will determine within 20 days 
(excepting Saturdays, Sundays and legal public holidays) after the 
receipt of a FOIA request whether it is appropriate to grant the request 
and will provide written notification to the person making the request. 
If the request is denied, the written notification will include the 
names of the individuals who participated in the determination, the 
reasons for the denial, and that an appeal may be lodged within the 
Office of National Drug Control Policy.



Sec. 1401.8  Extension of time.

    (a) In unusual circumstances, the Office of General Counsel may 
extend the time limit prescribed in Sec. 1401.7 or Sec. 1401.9 by 
written notice to the FOIA requester. The notice will state the reasons 
for the extension and the date a determination is expected. The 
extension period may be divided among the initial request and an appeal 
but will not exceed a total of 10 working days (excepting Saturdays, 
Sundays, or legal public holidays).
    (b) The phrase ``unusual circumstances'' means:
    (1) The requested records are located in establishments that are 
separated from the office processing the request;
    (2) A voluminous amount of separate and distinct records are 
demanded in a single request; or
    (3) Another agency or two or more components in the same agency have 
substantial interest in the determination of the request.
    (c) Where unusual circumstance exist, ONDCP may provide an 
opportunity for amendment of the initial request so that the request may 
be timely processed. Refusal by the person to reasonably modify the 
request or arrange an alternative time frame shall be considered as a 
factor for purposes of 5 U.S.C. 552 (a)(6)(C).
    (d) ONDCP may aggregate requests by a requester or a group of 
requestors where multiple requests reasonably appear to be a single 
request.



Sec. 1401.9  Appeals.

    An appeal to the ONDCP must explain in writing the legal and factual 
basis for the appeal. It must be received by mail at the address 
specified in Sec. 1401.5 within 30 days of receipt of a denial. The 
Director or designee will decide the appeal within 20 days (excepting 
Saturdays, Sundays, and legal public holidays). If the Director or 
designee deny an appeal in whole or in part, the written determination 
will contain the reason for the denial, the names of the individuals who 
participated in the determination, and the provisions for judicial 
review.



Sec. 1401.10  Fees to be charged--general.

    ONDCP will recoup the full allowable costs it incurs in response to 
a FOIA request.
    (a) Manual search for records. ONDCP will charge 116% of the salary 
of the individual(s) making a search.
    (b) Computerized search for records. ONDCP will charge 116% of the 
salary of the programmer/operator and the apportionable time of the 
central processing unit directly attributed to the search.
    (c) Review of records. ONDCP will charge 116% of the salary of the 
individual(s) conducting a review. Records or portions of records 
withheld under an exemption subsequently determined not to apply may be 
reviewed to determine the applicability of exemptions not considered. 
The cost for a subsequent review is assessable.
    (d) Duplication of records. Request for copies prepared by computer 
will cost 116% of the apportionable operator time and the cost of the 
tape or disk. Other methods of duplication will cost 116% of the salary 
of the individual copying the data plus 15 cents per copy of 8\1/2\ x 11 
inch original.
    (e) Other charges. ONDCP will recover the costs of providing other 
services such as certifying records or sending records by special 
methods.

[[Page 174]]



Sec. 1401.11  Fees to be charged--miscellaneous provisions.

    (a) Remittance shall be mailed to the Office of Legal Counsel, 
ONDCP, Washington DC 20503, and made payable to the order of the 
Treasury of the United States on a postal money order or personal check 
or bank draft drawn on a bank in the United States.
    (b) ONDCP may require advance payment where the estimated fee 
exceeds $250, or a requester previously failed to pay within 30 days of 
the billing date.
    (c) ONDCP may assess interest charges beginning the 31st day of 
billing. Interest will be at the rate prescribed in section 3717 of 
title 31 of the United States Code and will accrue from the date of the 
billing.
    (d) ONDCP may assess search charges where records are not located or 
where records are exempt from disclosure.
    (e) ONDCP may aggregate individual requests and charge accordingly 
for requests seeking portions of a document or documents.



Sec. 1401.12  Fees to be charged--categories of requesters.

    (a) There are four categories of FOIA requesters: commercial use 
requesters; educational and non-commercial scientific institutions; 
representatives of the news media; and all other requesters.
    (b) The specific levels of fees for each of these categories are:
    (1) Commercial use requesters. ONDCP will recover the full direct 
cost of providing search, review and duplication services. Commercial 
use requesters will not receive free search-time or free reproduction of 
documents.
    (2) Educational and non-commercial scientific institution 
requesters. ONDCP will charge the cost of reproduction, excluding 
charges for the first 100 pages. Requesters must demonstrate the request 
is authorized by and under the auspices of a qualifying institution and 
that the records are sought for scholarly or scientific research not a 
commercial use.
    (3) Requesters who are representatives of the news media. ONDCP will 
charge the cost of reproduction, excluding charges for the first 100 
pages. Requesters must meet the criteria in Sec. 1401.3(h), and the 
request must not be made for a commercial use. A request that supports 
the news dissemination function of the requester shall not be considered 
a commercial use.
    (4) All other requesters. ONDCP will recover the full direct cost of 
the search and the reproduction of records, excluding the first 100 
pages of reproduction and the first two hours of search time. Requests 
for records concerning the requester will be treated under the fee 
provisions of the Privacy Act of 1974, 5 U.S.C. 552a, which permits fees 
only for reproduction.



Sec. 1401.13  Waiver or reduction of fees.

    Fees chargeable in connection with a request may be waived or 
reduced where ONDCP determines that disclosure is in the public interest 
because it is likely to contribute significantly to public understanding 
of the operations or activities of the Government and is not primarily 
in the commercial interest of the requester.



PART 1402--MANDATORY DECLASSIFICATION REVIEW--Table of Contents




Sec.
1402.1 Purpose.
1402.2 Responsibility.
1402.3 Information in the custody of ONDCP.
1402.4 Information classified by another agency.
1402.5 Appeal procedure.
1402.6 Fees.
1402.7 Suggestions and complaints.

    Authority: Section 3.4, E.O. 12356 (3 CFR, 1982 Comp., p. 166), and 
Information Security Oversight Office Directive No. 1 (32 CFR 2001.32).

    Source: 57 FR 55089, Nov. 24, 1992, unless otherwise noted.



Sec. 1402.1  Purpose.

    Other government agencies, U.S. citizens or permanent resident 
aliens may request that classified information in files of the Office of 
National Drug Control Policy (ONDCP) be reviewed for possible 
declassification and release. This part prescribes the procedures for 
such review and subsequent release or denial.

[[Page 175]]



Sec. 1402.2  Responsibility.

    All requests for the mandatory declassification review of classified 
information in ONDCP files should be addressed to the Security Officer, 
Office of National Drug Control Policy, Executive Office of the 
President, Washington, DC 20500, who will acknowledge receipt of the 
request. When a request does not reasonably describe the information 
sought, the requester shall be notified that unless additional 
information is provided, or the scope of the request is narrowed, no 
further action will be taken.



Sec. 1402.3  Information in the custody of ONDCP.

    Information contained in ONDCP files and under the exclusive 
declassification jurisdiction of ONDCP will be reviewed by the Director 
of the Office of Planning, Budget, and Administration of ONDCP and/or 
the office of primary interest to determine whether, under the 
declassification provisions of section 3.1 of Executive Order 12356 (3 
CFR, 1982 Comp., p. 166), the requested information may be declassified. 
If the information may not be released, in whole or in part, the 
requester shall be given a brief statement as to the reasons for denial, 
a notice of the right to appeal the determination to the Director of 
ONDCP, and a notice that such an appeal must be filed within 60 days in 
order to be considered.



Sec. 1402.4  Information classified by another agency.

    When a request is received for information that was classified by 
another agency, the Director of the Office of Planning, Budget, and 
Administration of ONDCP will forward the request and a copy of the 
document(s) along with any other related materials, to the appropriate 
agency for review and determination as to release. Recommendations as to 
release or denial may be made if appropriate. The requester will be 
notified of the referral, unless the receiving agency objects on the 
grounds that its association with the information requires protection.



Sec. 1402.5  Appeal procedure.

    Appeals reviewed as a result of a denial will be routed to the 
Director of ONDCP, who will take action as necessary to determine 
whether any part of the information may be declassified. If so, the 
Director shall notify the requester of this determination and shall make 
any information available that is declassified and is otherwise 
releasable. If continued classification is required, the requester shall 
be notified by the Director of ONDCP of the reasons therefore.



Sec. 1402.6  Fees.

    There will normally be no fees charged for the mandatory review of 
classified material for declassification under this part.



Sec. 1402.7  Suggestions and complaints.

    Suggestions and complaints regarding the information security 
program of ONDCP should be submitted, in writing, to the Security 
Officer, Office of National Drug Control Policy, Washington, DC 20500.



PART 1403--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS--Table of Contents




                           Subpart A--General

Sec.
1403.1 Purpose and scope of this part.
1403.2 Scope of subpart.
1403.3 Definitions.
1403.4 Applicability.
1403.5 Effect on other issuances.
1403.6 Additions and exceptions.

                    Subpart B--Pre-Award Requirements

1403.10 Forms for applying for grants.
1403.11 State plans.
1403.12 Special grant or subgrant conditions for ``high-risk'' grantees.

                   Subpart C--Post-Award Requirements

                        Financial Administration

1403.20 Standards for financial management systems.
1403.21 Payment.
1403.22 Allowable costs.
1403.23 Period of availability of funds.
1403.24 Matching or cost sharing.
1403.25 Program income.
1403.26 Non-Federal audit.

[[Page 176]]

                    Changes, Property, and Subawards

1403.30 Changes.
1403.31 Real property.
1403.32 Equipment.
1403.33 Supplies.
1403.34 Copyrights.
1403.35 Subawards to debarred and suspended parties.
1403.36 Procurement.
1403.37 Subgrants.

              Reports, Records, Retention, and Enforcement

1403.40 Monitoring and reporting program performance.
1403.41 Financial reporting.
1403.42 Retention and access requirements for records.
1403.43 Enforcement.
1403.44 Termination for convenience.

                 Subpart D--After-The-Grant Requirements

1403.50 Closeout.
1403.51 Later disallowances and adjustments.
1403.52 Collection of amounts due.

Subpart E--Entitlement [Reserved]

Appendix A to Part 1403--OMB Circular A-128, ``Audits of State and Local 
          Governments''

    Authority: 5 U.S.C. 301.

    Source: 57 FR 55092, Nov. 24, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 1403.1  Purpose and scope of this part.

    This part establishes uniform administrative rules for Federal 
grants and cooperative agreements and subawards to State, local and 
Indian tribal governments.



Sec. 1403.2  Scope of subpart.

    This subpart contains general rules pertaining to this part and 
procedures for control of exceptions from this part.



Sec. 1403.3  Definitions.

    As used in this part:
    Accrued expenditures mean the charges incurred by the grantee during 
a given period requiring the provision of funds for:
    (1) Goods and other tangible property received;
    (2) Services performed by employees, contractors, subgrantees, 
subcontractors, and other payees; and
    (3) Other amounts becoming owed under programs for which no current 
services or performance is required, such as annuities, insurance 
claims, and other benefit payments.
    Accrued income means the sum of:
    (1) Earnings during a given period from services performed by the 
grantee and goods and other tangible property delivered to purchasers, 
and
    (2) Amounts becoming owed to the grantee for which no current 
services or performance is required by the grantee.
    Acquisition cost of an item of purchased equipment means the net 
invoice unit price of the property including the cost of modifications, 
attachments, accessories, or auxiliary apparatus necessary to make the 
property usable for the purpose for which it was acquired. Other charges 
such as the cost of installation, transportation, taxes, duty or 
protective in-transit insurance, shall be included or excluded from the 
unit acquisition cost in accordance with the grantee's regular 
accounting practices.
    Administrative requirements mean those matters common to grants in 
general, such as financial management, kinds and frequency of reports, 
and retention of records. These are distinguished from ``programmatic'' 
requirements, which concern matters that can be treated only on a 
program-by-program or grant-by-grant basis, such as kinds of activities 
that can be supported by grants under a particular program.
    Awarding agency means:
    (1) With respect to a grant, the Federal agency, and
    (2) With respect to a subgrant, the party that awarded the subgrant.
    Cash contributions means the grantee's cash outlay, including the 
outlay of money contributed to the grantee or subgrantee by other public 
agencies and institutions, and private organizations and individuals. 
When authorized by Federal legislation, Federal funds received from 
other assistance agreements may be considered as grantee or subgrantee 
cash contributions.

[[Page 177]]

    Contract means (except as used in the definitions for ``grant'' and 
``subgrant'' in this section and except where qualified by ``Federal'') 
a procurement contract under a grant or subgrant, and means a 
procurement subcontract under a contract.
    Cost sharing or matching means the value of the third party in-kind 
contributions and the portion of the costs of a federally assisted 
project or program not borne by the Federal Government.
    Cost-type contract means a contract or subcontract under a grant in 
which the contractor or subcontractor is paid on the basis of the costs 
it incurs, with or without a fee.
    Equipment means tangible, nonexpendable, personal property having a 
useful life of more than one year and an acquisition cost of $5,000 or 
more per unit. A grantee may use its own definition of equipment 
provided that such definition would at least include all equipment 
defined above.
    Expenditure report means:
    (1) For nonconstruction grants, the SF-269 ``Financial Status 
Report'' (or other equivalent report);
    (2) For construction grants, the SF-271 ``Outlay Report and Request 
for Reimbursement'' (or other equivalent report).
    Federally recognized Indian tribal government means the governing 
body or a governmental agency of any Indian tribe, band, nation, or 
other organized group or community (including any Native village as 
defined in section 3 of the Alaska Native Claims Settlement Act, 85 
Stat. 688) certified by the Secretary of the Interior as eligible for 
the special programs and services provided by him through the Bureau of 
Indian Affairs.
    Government means a State or local government or a federally 
recognized Indian tribal government.
    Grant means an award of financial assistance, including cooperative 
agreements, in the form of money, or property in lieu of money, by the 
Federal Government to an eligible grantee. The term does not include 
technical assistance which provides services instead of money, or other 
assistance in the form of revenue sharing, loans, loan guarantees, 
interest subsidies, insurance, or direct appropriations. Also, the term 
does not include assistance, such as a fellowship or other lump sum 
award, which the grantee is not required to account for.
    Grantee means the government to which a grant is awarded and which 
is accountable for the use of the funds provided. The grantee is the 
entire legal entity even if only a particular component of the entity is 
designated in the grant award document.
    Local government means a county, municipality, city, town, township, 
local public authority (including any public and Indian housing agency 
under the United States Housing Act of 1937) school district, special 
district, intrastate district, council of governments (whether or not 
incorporated as a nonprofit corporation under state law), any other 
regional or interstate government entity, or any agency or 
instrumentality of a local government.
    Obligations means the amounts of orders placed, contracts and 
subgrants awarded, goods and services received, and similar transactions 
during a given period that will require payment by the grantee during 
the same or a future period.
    OMB means the United States Office of Management and Budget.
    Outlays (expenditures) means charges made to the project or program. 
They may be reported on a cash or accrual basis. For reports prepared on 
a cash basis, outlays are the sum of actual cash disbursement for direct 
charges for goods and service, the amount of indirect expense incurred, 
the value of in-kind contributions applied, and the amount of cash 
advances and payments made to contractors and subgrantees. For reports 
prepared on an accrued expenditure basis, outlays are the sum of actual 
cash disbursements, the amount of indirect expense incurred, the value 
of in-kind contributions applied, and the new increase (or decrease) in 
the amounts owed by the grantee for goods and other property received, 
for services performed by employees, contractors, subgrantees, 
subcontractors, and other payees, and other amounts becoming owed under 
programs for which no current services or performance are required, such 
as annuities, insurance claims, and other benefit payments.

[[Page 178]]

    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.
    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) In action taken by a suspending official in accordance with 
agency regulations implementing E.O. 12549 to immediately exclude a 
person from participating in grant transactions for a period, pending 
completion of an investigation and such legal or debarment proceedings 
as may ensue.
    Termination means permanent withdrawal of the authority to obligate 
previously-awarded grant funds before that authority would otherwise 
expire. It also means the voluntary relinquishment of that authority by 
the grantee or subgrantee. ``Termination'' does not include:
    (1) Withdrawal of funds awarded on the basis of the grantee's 
underestimate of the unobligated balance in a prior period;
    (2) Withdrawal of the unobligated balance as of the expiration of a 
grant;
    (3) Refusal to extend a grant or award additional funds, to make a 
competing or noncompeting continuation, renewal, extension, or 
supplemental award; or
    (4) Voiding of a grant upon determination that the award was 
obtained fraudulently, or was otherwise illegal or invalid from 
inception.
    Terms of a grant or subgrant mean all requirements of the grant or 
subgrant, whether in statute, regulations, or the award document.
    Third party in-kind contributions mean property or services which 
benefit a federally assisted project or program and which are 
contributed by non-Federal third parties without charge to the grantee, 
or a cost-type contractor under the grant agreement.
    Unliquidated obligations for reports prepared on a cash basis mean 
the amount of obligations incurred by the grantee that has not been 
paid. For reports prepared on an accrued expenditure basis, they 
represent the amount of obligations incurred by the grantee for which an 
outlay has not been recorded.
    Unobligated balance means the portion of the funds authorized by the 
Federal agency that has not been obligated by the grantee and is 
determined

[[Page 179]]

by deducting the cumulative obligations from the cumulative funds 
authorized.



Sec. 1403.4  Applicability.

    (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 Sec. 1403.6, or:
    (1) Grants and subgrants to State and local institutions of higher 
education or State and local hospitals;
    (2) The block grants authorized by the Omnibus Budget Reconciliation 
Act of 1981 (Community Services; Preventive Health and Health Services; 
Alcohol, Drug Abuse, and Mental Health Services; Maternal and Child 
Health Services; Social Services; Low-Income Home Energy Assistance; 
States' Program of Community Development Block Grants for Small Cities; 
and Elementary and Secondary Education other than programs administered 
by the Secretary of Education under title V, subtitle D, chapter 2, 
section 583--the Secretary's discretionary grant program) and titles I-
III of the Job Training Partnership Act of 1982 and under the Public 
Health Services Act (Section 1921), Alcohol and Drug Abuse Treatment and 
Rehabilitation Block Grant and part C of title V, Mental Health Service 
for the Homeless Block Grant);
    (3) Entitlement grants to carry out the following programs of the 
Social Security Act:
    (i) Aid to Needy Families with Dependent Children (title IV-A of the 
Act, not including the Work Incentive Program (WIN) authorized by 
section 402(a)19(G); HHS grants for WIN are subject to this part);
    (ii) Child Support Enforcement and Establishment of Paternity (title 
IV-D of the Act);
    (iii) Foster Care and Adoption Assistance (title IV-E of the Act);
    (iv) Aid to the Aged, Blind, and Disabled (titles I, X, XIV, and 
XVI-AABD of the Act); and
    (v) Medical Assistance (Medicaid) (title XIX of the Act) not 
including the State Medicaid Fraud Control program authorized by section 
1903(a)(6)(B);
    (4) Entitlement grants under the following programs of The National 
School Lunch Act:
    (i) School Lunch (section 4 of the Act),
    (ii) Commodity Assistance (section 6 of the Act),
    (iii) Special Meal Assistance (section 11 of the Act),
    (iv) Summer Food Service for Children (section 13 of the Act), and
    (v) Child Care Food Program (section 17 of the Act);
    (5) Entitlement grants under the following programs of The Child 
Nutrition Act of 1966:
    (i) Special Milk (section 3 of the Act), and
    (ii) School Breakfast (section 4 of the Act);
    (6) Entitlement grants for State Administrative expenses under The 
Food Stamp Act of 1977 (section 16 of the Act);
    (7) A grant for an experimental, pilot, or demonstration project 
that is also supported by a grant listed in paragraph (a)(3) of this 
section;
    (8) Grant funds awarded under subsection 412(e) of the Immigration 
and Nationality Act (8 U.S.C. 1522(e)) and subsection 501(a) of the 
Refugee Education Assistance Act of 1980 (Pub. L. 96-422, 94 Stat. 
1809), for cash assistance, medical assistance, and supplemental 
security income benefits to refugees and entrants and the administrative 
costs of providing the assistance and benefits;
    (9) Grants to local education agencies under 20 U.S.C. 236 through 
241-1(a), and 242 through 244 (portions of the Impact Aid program), 
except for 20 U.S.C. 238(d)(2)(c) and 240(f) (Entitlement Increase for 
Handicapped Children); and
    (10) Payments under the Veterans Administration's State Home Per 
Diem Program (38 U.S.C. 641(a)).
    (b) Entitlement programs. Entitlement programs enumerated above in 
Sec. 1403.4(a) (3) through (8) are subject to subpart E.



Sec. 1403.5  Effect on other issuances.

    All other grants administration provisions of codified program 
regulations, program manuals, handbooks and other nonregulatory 
materials which are inconsistent with this part

[[Page 180]]

are superseded, except to the extent they are required by statute, or 
authorized in accordance with the exception provision in Sec. 1403.6.



Sec. 1403.6  Additions and exceptions.

    (a) For classes of grants and grantees subject to this part, Federal 
agencies may not impose additional administrative requirements except in 
codified regulations published in the Federal Register.
    (b) Exceptions for classes of grants or grantees may be authorized 
only by OMB.
    (c) Exceptions on a case-by-case basis and for subgrantees may be 
authorized by the affected Federal agencies.



                    Subpart B--Pre-Award Requirements



Sec. 1403.10  Forms for applying for grants.

    (a) Scope. (1) This section prescribes forms and instructions to be 
used by governmental organizations (except hospitals and institutions of 
higher education operated by a government) in applying for grants. This 
section is not applicable, however, to formula grant programs which do 
not require applicants to apply for funds on a project basis.
    (2) This section applies only to applications to Federal agencies 
for grants, and is not required to be applied by grantees in dealing 
with applicants for subgrants. However, grantees are encouraged to avoid 
more detailed or burdensome application requirements for subgrants.
    (b) Authorized forms and instructions for governmental 
organizations. (1) In applying for grants, applicants shall only use 
standard application forms or those prescribed by the granting agency 
with the approval of OMB under the Paperwork Reduction Act of 1980.
    (2) Applicants are not required to submit more than the original and 
two copies of preapplications or applications.
    (3) Applicants must follow all applicable instructions that bear OMB 
clearance numbers. Federal agencies may specify and describe the 
programs, functions, or activities that will be used to plan, budget, 
and evaluate the work under a grant. Other supplementary instructions 
may be issued only with the approval of OMB to the extent required under 
the Paperwork Reduction Act of 1980. For any standard form, except the 
SF-424 facesheet, Federal agencies may shade out or instruct the 
applicant to disregard any line item that is not needed.
    (4) When a grantee applies for additional funding (such as a 
continuation or supplemental award) or amends a previously submitted 
application, only the affected pages need be submitted. Previously 
submitted pages with information that is still current need not be 
resubmitted.



Sec. 1403.11  State plans.

    (a) Scope. The statutes for some programs require States to submit 
plans before receiving grants. Under regulations implementing Executive 
Order 12372, ``Intergovernmental Review of Federal Programs,'' States 
are allowed to simplify, consolidate and substitute plans. This section 
contains additional provisions for plans that are subject to regulations 
implementing the Executive Order.
    (b) Requirements. A State need meet only Federal administrative or 
programmatic requirements for a plan that are in statutes or codified 
regulations.
    (c) Assurances. In each plan the States will include an assurance 
that the State shall comply with all applicable Federal statutes and 
regulations in effect with respect to the periods for which it receives 
grant funding. For this assurance and other assurances required in the 
plan, the State may:
    (1) Cite by number the statutory or regulatory provisions requiring 
the assurances and affirm that it gives the assurances required by those 
provisions,
    (2) Repeat the assurance language in the statutes or regulations, or
    (3) Develop its own language to the extent permitted by law.
    (d) Amendments. A State will amend a plan whenever necessary to 
reflect: (1) New or revised Federal statutes or regulations or (2) a 
material change in any State law, organization, policy, or State agency 
operation. The State will obtain approval for the amendment and

[[Page 181]]

its effective date but need submit for approval only the amended 
portions of the plan.



Sec. 1403.12  Special grant or subgrant conditions for ``high-risk'' grantees.

    (a) A grantee or subgrantee may be considered ``high risk'' if an 
awarding agency determines that a grantee or subgrantee:
    (1) Has a history of unsatisfactory performance, or
    (2) Is not financially stable, or
    (3) Has a management system which does not meet the management 
standards set forth in this part, or
    (4) Has not conformed to terms and conditions of previous awards, or
    (5) Is otherwise not responsible; and if the awarding agency 
determines that an award will be made, special conditions and/or 
restrictions shall correspond to the high risk condition and shall be 
included in the award.
    (b) Special conditions or restrictions may include:
    (1) Payment on a reimbursement basis;
    (2) Withholding authority to proceed to the next phase until receipt 
of evidence of acceptable performance within a given funding period;
    (3) Requiring additional, more detailed financial reports;
    (4) Additional project monitoring;
    (5) Requiring the grantee or subgrantee to obtain technical or 
management assistance; or
    (6) Establishing additional prior approvals;
    (c) If an awarding agency decides to impose such conditions, the 
awarding official will notify the grantee or subgrantee as early as 
possible, in writing, of:
    (1) The nature of the special conditions/restrictions;
    (2) The reason(s) for imposing them;
    (3) The corrective actions which must be taken before they will be 
removed and the time allowed for completing the corrective actions; and
    (4) The method of requesting reconsideration of the conditions/
restrictions imposed.



                   Subpart C--Post-Award Requirements

                        Financial Administration



Sec. 1403.20  Standards for financial management systems.

    (a) A State must expend and account for grant funds in accordance 
with State laws and procedures for expending and accounting for its own 
funds. Fiscal control and accounting procedures of the State, as well as 
its subgrantees and cost-type contractors, must be sufficient to--
    (1) Permit preparation of reports required by this part and the 
statutes authorizing the grant, and
    (2) Permit the tracing of funds to a level of expenditures adequate 
to establish that such funds have not been used in violation of the 
restrictions and prohibitions of applicable statutes.
    (b) The financial management systems of other grantees and 
subgrantees must meet the following standards:
    (1) Financial reporting. Accurate, current, and complete disclosure 
of the financial results of financially assisted activities must be made 
in accordance with the financial reporting requirements of the grant or 
subgrant.
    (2) Accounting records. Grantees and subgrantees must maintain 
records which adequately identify the source and application of funds 
provided for financially-assisted activities. These records must contain 
information pertaining to grant or subgrant awards and authorizations, 
obligations, unobligated balances, assets, liabilities, outlays or 
expenditures, and income.
    (3) Internal control. Effective control and accountability must be 
maintained for all grant and subgrant cash, real and personal property, 
and other assets. Grantees and subgrantees must adequately safeguard all 
such property and must assure that it is used solely for authorized 
purposes.
    (4) Budget control. Actual expenditures or outlays must be compared 
with budgeted amounts for each grant or subgrant. Financial information

[[Page 182]]

must be related to performance or productivity data, including the 
development of unit cost information whenever appropriate or 
specifically required in the grant or subgrant agreement. If unit cost 
data are required, estimates based on available documentation will be 
accepted whenever possible.
    (5) Allowable cost. Applicable OMB cost principles, agency program 
regulations, and the terms of grant and subgrant agreements will be 
followed in determining the reasonableness, allowability, and 
allocability of costs.
    (6) Source documentation. Accounting records must be supported by 
such source documentation as canceled checks, paid bills, payrolls, time 
and attendance records, contract and subgrant award documents, etc.
    (7) Cash management. Procedures for minimizing the time elapsing 
between the transfer of funds from the U.S. Treasury and disbursement by 
grantees and subgrantees must be followed whenever advance payment 
procedures are used. Grantees must establish reasonable procedures to 
ensure the receipt of reports on subgrantees' cash balances and cash 
disbursements in sufficient time to enable them to prepare complete and 
accurate cash transactions reports to the awarding agency. When advances 
are made by letter-of-credit or electronic transfer of funds methods, 
the grantee must make drawdowns as close as possible to the time of 
making disbursements. Grantees must monitor cash drawdowns by their 
subgrantees to assure that they conform substantially to the same 
standards of timing and amount as apply to advances to the grantees.
    (c) An awarding agency may review the adequacy of the financial 
management system of any applicant for financial assistance as part of a 
preaward review or at any time subsequent to award.



Sec. 1403.21  Payment.

    (a) Scope. This section prescribes the basic standard and the 
methods under which a Federal agency will make payments to grantees, and 
grantees will make payments to subgrantees and contractors.
    (b) Basic standard. Methods and procedures for payment shall 
minimize the time elapsing between the transfer of funds and 
disbursement by the grantee or subgrantee, in accordance with Treasury 
regulations at 31 CFR part 205.
    (c) Advances. Grantees and subgrantees shall be paid in advance, 
provided they maintain or demonstrate the willingness and ability to 
maintain procedures to minimize the time elapsing between the transfer 
of the funds and their disbursement by the grantee or subgrantee.
    (d) Reimbursement. Reimbursement shall be the preferred method when 
the requirements in paragraph (c) of this section are not met. Grantees 
and subgrantees may also be paid by reimbursement for any construction 
grant. Except as otherwise specified in regulation, Federal agencies 
shall not use the percentage of completion method to pay construction 
grants. The grantee or subgrantee may use that method to pay its 
construction contractor, and if it does, the awarding agency's payments 
to the grantee or subgrantee will be based on the grantee's or 
subgrantee's actual rate of disbursement.
    (e) Working capital advances. If a grantee cannot meet the criteria 
for advance payments described in paragraph (c) of this section, and the 
Federal agency has determined that reimbursement is not feasible 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 grantee's disbursing cycle. Thereafter, the awarding agency shall 
reimburse the grantee for its actual cash disbursements. The working 
capital advance method of payment shall not be used by grantees or 
subgrantees if the reason for using such method is the unwillingness or 
inability of the grantee to provide timely advances to the subgrantee to 
meet the subgrantee's actual cash disbursements.
    (f) Effect of program income, refunds, and audit recoveries on 
payment. (1) Grantees and subgrantees shall disburse repayments to and 
interest

[[Page 183]]

earned on a revolving fund before requesting additional cash payments 
for the same activity.
    (2) Except as provided in paragraph (f)(1) of this section, grantees 
and subgrantees shall disburse program income, rebates, refunds, 
contract settlements, audit recoveries and interest earned on such funds 
before requesting additional cash payments.
    (g) Withholding payments. (1) Unless otherwise required by Federal 
statute, awarding agencies shall not withhold payments for proper 
charges incurred by grantees or subgrantees unless--
    (i) The grantee or subgrantee has failed to comply with grant award 
conditions or
    (ii) The grantee or subgrantee is indebted to the United States.
    (2) Cash withheld for failure to comply with grant award condition, 
but without suspension of the grant, shall be released to the grantee 
upon subsequent compliance. When a grant is suspended, payment 
adjustments will be made in accordance with Sec. 1403.43(c).
    (3) A Federal agency shall not make payment to grantees for amounts 
that are withheld by grantees or subgrantees from payment to contractors 
to assure satisfactory completion of work. Payments shall be made by the 
Federal agency when the grantees or subgrantees actually disburse the 
withheld funds to the contractors or to escrow accounts established to 
assure satisfactory completion of work.
    (h) Cash depositories. (1) Consistent with the national goal of 
expanding the opportunities for minority business enterprises, grantees 
and subgrantees are encouraged to use minority banks (a bank which is 
owned at least 50 percent by minority group members). A list of minority 
owned banks can be obtained from the Minority Business Development 
Agency, Department of Commerce, Washington, DC 20230.
    (2) A grantee or subgrantee shall maintain a separate bank account 
only when required by Federal-State agreement.
    (i) Interest earned on advances. Except for interest earned on 
advances of funds exempt under the Intergovernmental Cooperation Act (31 
U.S.C. 6501 et seq.) and the Indian Self-Determination Act (23 U.S.C. 
450), grantees and subgrantees shall promptly, but at least quarterly, 
remit interest earned on advances to the Federal agency. The grantee or 
subgrantee may keep interest amounts up to $100 per year for 
administrative expenses.



Sec. 1403.22  Allowable costs.

    (a) Limitation on use of funds. Grant funds may be used only for:
    (1) The allowable costs of the grantees, subgrantees and cost-type 
contractors, including allowable costs in the form of payments to fixed-
price contractors; and
    (2) Reasonable fees or profit to cost-type contractors but not any 
fee or profit (or other increment above allowable costs) to the grantee 
or subgrantee.
    (b) Applicable cost principles. For each kind of organization, there 
is a set of Federal principles for determining allowable costs. 
Allowable costs will be determined in accordance with the cost 
principles applicable to the organization incurring the costs. The 
following chart lists the kinds of organizations and the applicable cost 
principles.

------------------------------------------------------------------------
           For the costs of a--                Use the principles in--
------------------------------------------------------------------------
State, local or Indian tribal government..  OMB Circular A-87.
Private nonprofit organization other than   OMB Circular A-122.
 (1) institution of higher education, (2)
 hospital, or (3) organization named in
 OMB Circular A-122 as not subject to that
 circular.
Educational institutions..................  OMB Circular A-21.
For-profit organizations other than a       48 CFR part 31. Contract
 hospital and an organization named in OMB   Cost Principles and
 Circular A-122 as not subject to that       Procedures, or uniform cost
 circular.                                   accounting standards that
                                             comply with cost principles
                                             acceptable to the Federal
                                             agency.
------------------------------------------------------------------------



Sec. 1403.23  Period of availability of funds.

    (a) General. Where a funding period is specified, a grantee may 
charge to the award only costs resulting from obligations of the funding 
period unless carryover of unobligated balances is permitted, in which 
case the carryover balances may be charged for costs resulting from 
obligations of the subsequent funding period.

[[Page 184]]

    (b) Liquidation of obligations. A grantee must liquidate all 
obligations incurred under the award not later than 90 days after the 
end of the funding period (or as specified in a program regulation) to 
coincide with the submission of the annual Financial Status Report (SF-
269). The Federal agency may extend this deadline at the request of the 
grantee.



Sec. 1403.24  Matching or cost sharing.

    (a) Basic rule: Costs and contributions acceptable. With the 
qualifications and exceptions listed in paragraph (b) of this section, a 
matching or cost sharing requirement may be satisfied by either or both 
of the following:
    (1) Allowable costs incurred by the grantee, subgrantee or a cost-
type contractor under the assistance agreement. This includes allowable 
costs borne by non-Federal grants or by others cash donations from non-
Federal third parties.
    (2) The value of third party in-kind contributions applicable to the 
period to which the cost sharing or matching requirements applies.
    (b) Qualifications and exceptions--(1) Costs borne by other Federal 
grant agreements. Except as provided by Federal statute, a cost sharing 
or matching requirement may not be met by costs borne by another Federal 
grant. This prohibition does not apply to income earned by a grantee or 
subgrantee from a contract awarded under another Federal grant.
    (2) General revenue sharing. For the purpose of this section, 
general revenue sharing funds distributed under 31 U.S.C. 6702 are not 
considered Federal grant funds.
    (3) Cost or contributions counted towards other Federal cost-sharing 
requirements. Neither costs nor the values of third party in-kind 
contributions may count towards satisfying a cost sharing or matching 
requirement of a grant agreement if they have been or will be counted 
towards satisfying a cost sharing or matching requirement of another 
Federal grant agreement, a Federal procurement contract, or any other 
award of Federal funds.
    (4) Costs financed by program income. Costs financed by program 
income, as defined in Sec. 1403.25, shall not count towards satisfying a 
cost sharing or matching requirement unless they are expressly permitted 
in the terms of the assistant agreement. (This use of general program 
income is described in Sec. 1403.25(g).)
    (5) Services or property financed by income earned by contractors. 
Contractors under a grant may earn income from the activities carried 
out under the contract in addition to the amounts earned from the party 
awarding the contract. No costs of services or property supported by 
this income may count toward satisfying cost sharing or matching 
requirement unless other provisions of the grant agreement expressly 
permit this kind of income to be used to meet the requirement.
    (6) Records. Costs and third party in-kind contributions counting 
towards satisfying a cost sharing or matching requirement must be 
verifiable from the records of grantees and subgrantee or cost-type 
contractors. These records must show how the value placed on third party 
in-kind contributions was derived. To the extent feasible, volunteer 
services will be supported by the same methods that the organization 
uses to support the allocability of regular personnel costs.
    (7) Special standards for third party in-kind contributions. (i) 
Third party in-kind contributions count towards satisfying a cost 
sharing or matching requirement only where, if the party receiving the 
contributions were to pay for them, the payments would be allowable 
costs.
    (ii) Some third party in-kind contributions are goods and services 
that, if the grantee, subgrantee, or contractor receiving the 
contribution had to pay for them, the payments would have been an 
indirect costs. Costs sharing or matching credit for such contributions 
shall be given only if the grantee, subgrantee, or contractor has 
established, along with its regular indirect cost rate, a special rate 
for allocating to individual projects or programs the value of the 
contributions.
    (iii) A third party in-kind contribution to a fixed-price contract 
may count towards satisfying a cost sharing or matching requirement only 
if it results in:

[[Page 185]]

    (A) An increase in the services or property provided under the 
contract (without additional cost to the grantee or subgrantee) or
    (B) A cost savings to the grantee or subgrantee.
    (iv) The values placed on third party in-kind contributions for cost 
sharing or matching purposes will conform to the rules in the succeeding 
sections of this part. If a third party in-kind contribution is a type 
not treated in those sections, the value placed upon it shall be fair 
and reasonable.
    (c) Valuation of donated services--(1) Volunteer services. Unpaid 
services provided to a grantee or subgrantee by individuals will be 
valued at rates consistent with those ordinarily paid for similar work 
in the grantee's or subgrantee's organization. If the grantee or 
subgrantee does not have employees performing similar work, the rates 
will be consistent with those ordinarily paid by other employers for 
similar work in the same labor market. In either case, a reasonable 
amount for fringe benefits may be included in the valuation.
    (2) Employees of other organizations. When an employer other than a 
grantee, subgrantee, or cost-type contractor furnishes free of charge 
the services of an employee in the employee's normal line of work, the 
services will be valued at the employee's regular rate of pay exclusive 
of the employee's fringe benefits and overhead costs. If the services 
are in a different line of work, paragraph (c)(1) of this section 
applies.
    (d) Valuation of third party donated supplies and loaned equipment 
or space. (1) If a third party donates supplies, the contribution will 
be valued at the market value of the supplies at the time of donation.
    (2) If a third party donates the use of equipment or space in a 
building but retains title, the contribution will be valued at the fair 
rental rate of the equipment or space.
    (e) Valuation of third party donated equipment, buildings, and land. 
If a third party donates equipment, buildings, or land, and title passes 
to a grantee or subgrantee, the treatment of the donated property will 
depend upon the purpose of the grant or subgrant, as follows:
    (1) Awards for capital expenditures. If the purpose of the grant or 
subgrant is to assist the grantee or subgrantee in the acquisition of 
property, the market value of that property at the time of donation may 
be counted as cost sharing or matching.
    (2) Other awards. If assisting in the acquisition of property is not 
the purpose of the grant or subgrant, paragraphs (e)(2) (i) and (ii) of 
this section apply:
    (i) If approval is obtained from the awarding agency, the market 
value at the time of donation of the donated equipment or buildings and 
the fair rental rate of the donated land may be counted as cost sharing 
or matching. In the case of a subgrant, the terms of the grant agreement 
may require that the approval be obtained from the Federal agency as 
well as the grantee. In all cases, the approval may be given only if a 
purchase of the equipment or rental of the land would be approved as an 
allowable direct cost. If any part of the donated property was acquired 
with Federal funds, only the non-federal share of the property may be 
counted as cost-sharing or matching.
    (ii) If approval is not obtained under paragraph (e)(2)(i) of this 
section, no amount may be counted for donated land, and only 
depreciation or use allowances may be counted for donated equipment and 
buildings. The depreciation or use allowances for this property are not 
treated as third party in-kind contributions. Instead, they are treated 
as costs incurred by the grantee or subgrantee. They are computed and 
allocated (usually as indirect costs) in accordance with the cost 
principles specified in Sec. 1403.22, 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 donates 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

[[Page 186]]

funds, only the non-federal share of the property may be counted as cost 
sharing or matching.
    (g) Appraisal of real property. In some cases under paragraphs (d), 
(e) and (f) of this section, it will be necessary to establish the 
market value of land or a building or the fair rental rate of land or of 
space in a building. In these cases, the Federal agency may require the 
market value or fair rental value be set by an independent appraiser, 
and that the value or rate be certified by the grantee. This requirement 
will also be imposed by the grantee on subgrantees.



Sec. 1403.25  Program income.

    (a) General. Grantees are encouraged to earn income to defray 
program costs. Program income includes income from fees for services 
performed, from the use of rental of real or personal property acquired 
with grant funds, from the sale of commodities or items fabricated under 
a grant agreement, and from payments of principal and interest on loans 
made with grant funds. Except as otherwise provided in regulations of 
the Federal agency, program income does not include interest on grant 
funds, rebates, credits, discounts, refunds, etc., and interest earned 
on any of them.
    (b) Definition of program income. Program income means gross income 
received by the grantee or subgrantee directly generated by a grant 
supported activity, or earned only as a result of the grant agreement 
during the grant period. ``During the grant period'' is the time between 
the effective date of the award and the ending date of the award 
reflected in the final financial report.
    (c) Cost of generating program income. If authorized by Federal 
regulations or the grant agreement, costs incident to the generation of 
program income may be deducted from gross income to determine program 
income.
    (d) Governmental revenues. Taxes, special assessments levies, fines, 
and other such revenues raised by a grantee or subgrantee are not 
program income unless the revenues are specifically identified in the 
grant agreement or Federal agency regulations as program income.
    (e) Royalties. Income from royalties and license fees for 
copyrighted material, patents, and inventions developed by a grantee or 
subgrantee is program income only if the revenues are specifically 
identified in the grant agreement or Federal agency regulations as 
program income. (See Sec. 1403.34.)
    (f) Property. Proceeds from the sale of real property or equipment 
will be handled in accordance with the requirements of Sec. 1403.31 and 
Sec. 1403.32.
    (g) Use of program income. Program income shall be deducted from 
outlays which may be both Federal and non-Federal as described below, 
unless the Federal agency regulations or the grant agreement specify 
another alternative (or a combination of the alternatives). In 
specifying alternatives, the Federal agency may distinguish between 
income earned by the grantee and income earned by subgrantees and 
between the sources, kinds, or amounts of income. When Federal agencies 
authorize the alternatives in paragraphs (g) (2) and (3) of this 
section, program income in excess of any limits stipulated shall also be 
deducted from outlays.
    (1) Deduction. Ordinarily program income shall be deducted from 
total allowable costs to determine the net allowable costs. Program 
income shall be used for current costs unless the Federal agency 
authorizes otherwise. Program income which the grantee did not 
anticipate at the time of the award shall be used to reduce the Federal 
agency and grantee contributions rather than to increase the funds 
committed to the project.
    (2) Addition. When authorized, program income may be added to the 
funds committed to the grant agreement by the Federal agency and the 
grantee. The program income shall be used for the purposes and under the 
conditions of the grant agreement.
    (3) Cost sharing or matching. When authorized, program income may be 
used to meet the cost sharing or matching requirement of the grant 
agreement. The amount of the Federal grant award remains the same.
    (h) Income after the award period. There are no Federal requirements 
governing the disposition of program income earned after the end of the 
award

[[Page 187]]

period (i.e., until the ending date of the final financial report, see 
paragraph (a) of this section), unless the terms of the agreement or the 
Federal agency regulations provide otherwise.



Sec. 1403.26  Non-Federal audit.

    (a) Basic rule. Grantees and subgrantees are responsible for 
obtaining audits in accordance with the Single Audit Act Amendments of 
1996 (31 U.S.C. 7501-7507) and revised OMB Circular A-133, ``Audits of 
States, Local Governments, and Non-Profit Organizations.'' The audits 
shall be made by an independent auditor in accordance with generally 
accepted government auditing standards covering financial audits.
    (b) Subgrantees. State or local governments, as those terms are 
defined for purposes of the Single Audit Act Amendments of 1996, that 
provide Federal awards to a subgrantee, which expends $300,000 or more 
(or other amount as specified by OMB) in Federal awards in a fiscal 
year, 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 Administrative Requirements for Grants and Agreements 
with Institutions of Higher Education, Hospitals, and Other Non-Profit 
Organizations,'' have met the audit requirements of the Act. Commercial 
contractors (private for-profit and private and governmental 
organizations) providing goods and services to State and local 
governments are not required to have a single audit performed. State and 
local governments should use their own procedures to ensure that the 
contractor has complied with laws and regulations affecting the 
expenditure of Federal funds;
    (2) Determine whether the subgrantee spent Federal assistance funds 
provided in accordance with applicable laws and regulations. This may be 
accomplished by reviewing an audit of the subgrantee made in accordance 
with the Act, Circular A-110, or through other means (e.g., program 
reviews) if the subgrantee has not had such an audit;
    (3) Ensure that appropriate corrective action is taken within six 
months after receipt of the audit report in instance of noncompliance 
with Federal laws and regulations;
    (4) Consider whether subgrantee audits necessitate adjustment of the 
grantee's own records; and
    (5) Require each subgrantee to permit independent auditors to have 
access to the records and financial statements.
    (c) Auditor selection. In arranging for audit services, Sec. 1403.36 
shall be followed.

[57 FR 55092, Nov. 24, 1992, as amended at 62 FR 45939, 45941, Aug. 29, 
1997]

                    Changes, Property, and Subawards



Sec. 1403.30  Changes.

    (a) General. Grantees and subgrantees are permitted to rebudget 
within the approved direct cost budget to meet unanticipated 
requirements and may make limited program changes to the approved 
project. However, unless waived by the awarding agency, certain types of 
post-award changes in budgets and projects shall require the prior 
written approval of the awarding agency.
    (b) Relation to cost principles. The applicable cost principles (see 
Sec. 1403.22) contain requirements for prior approval of certain types 
of costs. Except where waived, those requirements apply to all grants 
and subgrants even if paragraphs (c) through (f) of this section do not.
    (c) Budget changes--(1) Nonconstruction projects. Except as stated 
in other regulations or an award document, grantees or subgrantees shall 
obtain the prior approval of the awarding agency whenever any of the 
following changes is anticipated under a nonconstruction award:
    (i) Any revision which would result in the need for additional 
funding.
    (ii) Unless waived by the awarding agency, cumulative transfers 
among direct cost categories, or, if applicable, among separately 
budgeted programs, projects, functions, or activities which exceed or 
are expected to exceed ten percent of the current total approved budget, 
whenever the awarding agency's share exceeds $100,000.
    (iii) Transfer of funds allotted for training allowances (i.e., from 
direct

[[Page 188]]

payments to trainees to other expense categories).
    (2) Construction projects. Grantees and subgrantees shall obtain 
prior written approval for any budget revision which would result in the 
need for additional funds.
    (3) Combined construction and nonconstruction projects. When a grant 
or subgrant provides funding for both construction and nonconstruction 
activities, the grantee or subgrantee must obtain prior written approval 
from the awarding agency before making any fund or budget transfer from 
nonconstruction to construction or vice versa.
    (d) Programmatic changes. Grantees or subgrantees must obtain the 
prior approval of the awarding agency whenever any of the following 
actions is anticipated:
    (1) Any revision of the scope or objectives of the project 
(regardless of whether there is an associated budget revision requiring 
prior approval).
    (2) Need to extend the period of availability of funds.
    (3) Changes in key persons in cases where specified in an 
application or a grant award. In research projects, a change in the 
project director or principal investigator shall always require approval 
unless waived by the awarding agency.
    (4) Under nonconstruction projects, contracting out, subgranting (if 
authorized by law) or otherwise obtaining the services of a third party 
to perform activities which are central to the purposes of the award. 
This approval requirement is in addition to the approval requirements of 
Sec. 1403.36 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 (c) of this section.
    (f) Requesting prior approval. (1) A request for prior approval of 
any budget revision will be in the same budget format the grantee used 
in its application and shall be accompanied by a narrative justification 
for the proposed revision.
    (2) A request for a prior approval under the applicable Federal cost 
principles (see Sec. 1403.22) may be made by letter.
    (3) A request by a subgrantee for prior approval will be addressed 
in writing to the grantee. The grantee will promptly review such request 
and shall approve or disapprove the request in writing. A grantee will 
not approve any budget or project revision which is inconsistent with 
the purpose or terms and conditions of the Federal grant to the grantee. 
If the revision requested by the subgrantee would result in a change to 
the grantee's approved project which requires Federal prior approval, 
the grantee will obtain the Federal agency's approval before approving 
the subgrantee's request.



Sec. 1403.31  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 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 were 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.

[[Page 189]]

The amount due to the awarding agency will be calculated by applying the 
awarding agency's percentage of participation in the cost of the 
original purchase to the proceeds of the sale after deduction of any 
actual and reasonable selling and fixing-up expenses. If the grant is 
still active, the net proceeds from sale may be offset against the 
original cost of the property. When a grantee or subgrantee is directed 
to sell property, sales procedures shall be followed that provide for 
competition to the extent practicable and result in the highest possible 
return.
    (3) Transfer of title. Transfer title to the awarding agency or to a 
third-party designated/approved by the awarding agency. The grantee or 
subgrantee shall be paid an amount calculated by applying the grantee or 
subgrantee's percentage of participation in the purchase of the real 
property to the current fair market value of the property.



Sec. 1403.32  Equipment.

    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to equipment acquired under a grant or subgrant will 
vest upon acquisition in the grantee or subgrantee respectively.
    (b) States. A State will use, manage, and dispose of equipment 
acquired under a grant by the State in accordance with State laws and 
procedures. Other grantees and subgrantees will follow paragraphs (c) 
through (e) of this section.
    (c) Use. (1) Equipment shall be used by the grantee or subgrantee in 
the program or project for which it was acquired as long as needed, 
whether or not the project or program continues to be supported by 
Federal funds. When no longer needed for the original program or 
project, the equipment may be used in other activities currently or 
previously supported by a Federal agency.
    (2) The grantee or subgrantee shall also make equipment available 
for use on other projects or programs currently or previously supported 
by the Federal Government, providing such use will not interfere with 
the work on the projects or program for which it was originally 
acquired. First preference for other use shall be given to other 
programs or projects supported by the awarding agency. User fees should 
be considered if appropriate.
    (3) Notwithstanding the encouragement in Sec. 1403.25(a) to earn 
program income, the grantee or subgrantee must not use equipment 
acquired with grant funds to provide services for a fee to compete 
unfairly with private companies that provide equivalent services, unless 
specifically permitted or contemplated by Federal statute.
    (4) When acquiring replacement equipment, the grantee or subgrantee 
may use the equipment to be replaced as a trade-in or sell the property 
and use the proceeds to offset the cost of the replacement property, 
subject to the approval of the awarding agency.
    (d) Management requirements. Procedures for managing equipment 
(including replacement equipment), whether acquired in whole or in part 
with grant funds, until disposition takes place will, as a minimum, meet 
the following requirements:
    (1) Property records must be maintained that include a description 
of the property, a serial number or other identification number, the 
source of property, who holds title, the acquisition date, and cost of 
the property, percentage of Federal participation in the cost of the 
property, the location, use and condition of the property, and any 
ultimate disposition data including the date of disposal and sale price 
of the property.
    (2) A physical inventory of the property must be taken and the 
results reconciled with the property records at least once every two 
years.
    (3) A control system must be developed to ensure adequate safeguards 
to prevent loss, damage, or theft of the property. Any loss, damage, or 
theft shall be investigated.
    (4) Adequate maintenance procedures must be developed to keep the 
property in good condition.
    (5) If the grantee or subgrantee is authorized or required to sell 
the property, proper sales procedures must be established to ensure the 
highest possible return.
    (e) Disposition. When original or replacement equipment acquired 
under a grant or subgrant is no longer needed

[[Page 190]]

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 party 
named by the awarding agency when such a third party is otherwise 
eligible under existing statutes. Such transfers shall be subject to the 
following standards:
    (1) The property shall be identified in the grant or otherwise made 
known to the grantee in writing.
    (2) The Federal awarding agency shall issue disposition instruction 
within 120 calendar days after the end of the Federal support of the 
project for which it was acquired. If the federal awarding agency fails 
to issue disposition instructions within the 120 calendar-day period the 
grantee shall follow Sec. 1403.32(e).
    (3) When title to equipment is transferred, the grantee shall be 
paid an amount calculated by applying the percentage of participation in 
the purchase to the current fair market value of the property.



Sec. 1403.33  Supplies.

    (a) Title. Title to supplies acquired under a grant or subgrant will 
vest, upon acquisition, in the grantee or subgrantee respectively.
    (b) Disposition. If there is a residual inventory of unused supplies 
exceeding $5,000 in total aggregate fair market value upon termination 
or completion of the award, and if the supplies are not needed for any 
other federally sponsored programs or projects, the grantee or 
subgrantee shall compensate the awarding agency for its share.



Sec. 1403.34  Copyrights.

    The Federal awarding agency reserves a royalty-free, nonexclusive, 
and irrevocable license to reproduce, publish or otherwise use, and to 
authorize others to use, for Federal Government purposes:
    (a) The copyright in any work developed under a grant, subgrant, or 
contract under a grant or subgrant; and
    (b) Any rights of copyright to which a grantee, subgrantee or a 
contractor purchases ownership with grant support.



Sec. 1403.35  Subawards to debarred and suspended parties.

    Grantees and subgrantees must not make any award or permit any award 
(subgrant or contract) at any tier to any party which is debarred or 
suspended or is otherwise excluded from or ineligible for participation 
in Federal assistance programs under Executive Order 12549, ``Debarment 
and Suspension.''



Sec. 1403.36  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

[[Page 191]]

follow paragraphs (b) through (i) of this section.
    (b) Procurement standards. (1) Grantees and subgrantees will use 
their own procurement procedures which reflect applicable State and 
local laws and regulations, provided that the procurements conform to 
applicable Federal law and the standards identified in this section.
    (2) Grantees and subgrantees will maintain a contract administration 
system which ensures that contractors perform in accordance with the 
terms, conditions, and specifications of their contracts or purchase 
orders.
    (3) Grantees and subgrantees will maintain a written code of 
standards of conduct governing the performance of their employees 
engaged in the award and administration of contracts. No employee, 
officer or agent of the grantee or subgrantee shall participate in 
selection, or in the award or administration of a contract supported by 
Federal funds if a conflict of interest, real or apparent, would be 
involved. Such a conflict would arise when:
    (i) The employee, officer or agent,
    (ii) Any member of his immediate family,
    (iii) His or her partner, or
    (iv) An organization which employs, or is about to employ, any of 
the above, has a financial or other interest in the firm selected for 
award. The grantee's or subgrantee's officers, employees or agents will 
neither solicit nor accept gratuities, favors or anything of monetary 
value from contractors, potential contractors, or parties to 
subagreements. Grantee and subgrantees may set minimum rules where the 
financial interest is not substantial or the gift is an unsolicited item 
of nominal intrinsic value. To the extent permitted by State or local 
law or regulations, such standards or conduct will provide for 
penalties, sanctions, or other disciplinary actions for violations of 
such standards by the grantee's and subgrantee's officers, employees, or 
agents, or by contractors or their agents. The awarding agency may in 
regulation provide additional prohibitions relative to real, apparent, 
or potential conflicts of interest.
    (4) Grantee and subgrantee procedures will provide for a review of 
proposed procurements to avoid purchase of unnecessary or duplicative 
items. Consideration should be given to consolidating or breaking out 
procurements to obtain a more economical purchase. Where appropriate, an 
analysis will be made of lease versus purchase alternatives, and any 
other appropriate analysis to determine the most economical approach.
    (5) To foster greater economy and efficiency, grantees and 
subgrantees are encouraged to enter into State and local 
intergovernmental agreements for procurement or use of common goods and 
services.
    (6) Grantees and subgrantees are encouraged to use Federal excess 
and surplus property in lieu of purchasing new equipment and property 
whenever such use is feasible and reduces project costs.
    (7) Grantees and subgrantees are encouraged to use value engineering 
clauses in contracts for construction projects of sufficient size to 
offer reasonable opportunities for cost reductions. Value engineering is 
a systematic and creative analysis of each contract item or task to 
ensure that its essential function is provided at the overall lower 
cost.
    (8) Grantees and subgrantees will make awards only to responsible 
contractors possessing the ability to perform successfully under the 
terms and conditions of a proposed procurement. Consideration will be 
given to such matters as contractor integrity, compliance with public 
policy, record of past performance, and financial and technical 
resources.
    (9) Grantees and subgrantees will maintain records sufficient to 
detail the significant history of a procurement. These records will 
include, but are not necessarily limited to the following: rationale for 
the method of procurement, selection of contract type, contractor 
selection or rejection, and the basis for the contract price.
    (10) Grantees and subgrantees will use time and material type 
contracts only--
    (i) After a determination that no other contract is suitable, and
    (ii) If the contract includes a ceiling price that the contractor 
exceeds at its own risk.

[[Page 192]]

    (11) Grantees and subgrantees alone will be responsible, in 
accordance with good administrative practice and sound business 
judgment, for the settlement of all contractual and administrative 
issues arising out of procurements. These issues include, but are not 
limited to source evaluation, protests, disputes, and claims. These 
standards do not relieve the grantee or subgrantee of any contractual 
responsibilities under its contracts. Federal agencies will not 
substitute their judgment for that of the grantee or subgrantee unless 
the matter is primarily a Federal concern. Violations of law will be 
referred to the local, State, or Federal authority having proper 
jurisdiction.
    (12) Grantees and subgrantees will have protest procedures to handle 
and resolve disputes relating to their procurements and shall in all 
instances disclose information regarding the protest to the awarding 
agency. A protestor must exhaust all administrative remedies with the 
grantee and subgrantee before pursuing a protest with the Federal 
agency. Reviews of protests by the Federal agency will be limited to:
    (i) Violations of Federal law or regulations and the standards of 
this section (violations of State or local law will be under the 
jurisdiction of State or local authorities) and
    (ii) Violations of the grantee's or subgrantee's protest procedures 
for failure to review a complaint or protest. Protests received by the 
Federal agency other than those specified above will be referred to the 
grantee or subgrantee.
    (c) Competition. (1) All procurement transactions will be conducted 
in a manner providing full and open competition consistent with the 
standards of Sec. 1403.36. Some of the situations considered to be 
restrictive of competition include but are not limited to:
    (i) Placing unreasonable requirements on firms in order for them to 
qualify to do business,
    (ii) Requiring unnecessary experience and excessive bonding,
    (iii) Noncompetitive pricing practices between firms or between 
affiliated companies,
    (iv) Noncompetitive awards to consultants that are on retainer 
contracts,
    (v) Organizational conflicts of interest,
    (vi) Specifying only a ``brand name'' product instead of allowing 
``an equal'' product to be offered and describing the performance of 
other relevant requirements of the procurement, and
    (vii) Any arbitrary action in the procurement process.
    (2) Grantees and subgrantees will conduct procurements in a manner 
that prohibits the use of statutorily or administratively imposed in-
State or local geographical preferences in the evaluation of bids or 
proposals, except in those cases where applicable Federal statutes 
expressly mandate or encourage geographic preference. Nothing in this 
section preempts State licensing laws. When contracting for 
architectural and engineering (A/E) services, geographic location may be 
a selection criteria provided its application leaves an appropriate 
number of qualified firms, given the nature and size of the project, to 
compete for the contract.
    (3) Grantees will have written selection procedures for procurement 
transactions. These procedures will ensure that all solicitations:
    (i) Incorporate a clear and accurate description of the technical 
requirements for the material, product, or service to be procured. Such 
description shall not, in competitive procurements, contain features 
which unduly restrict competition. The description may include a 
statement of the qualitative nature of the material, product or service 
to be procured, and when necessary, shall set forth those minimum 
essential characteristics and standards to which it must conform if it 
is to satisfy its intended use. Detailed product specifications should 
be avoided if at all possible. When it is impractical or uneconomical to 
make a clear and accurate description of the technical requirements, a 
``brand name or equal'' description may be used as a means to define the 
performance or other salient requirements of a procurement. The specific 
features of the named brand which must be met by offerors shall be 
clearly stated; and
    (ii) Identify all requirements which the offerors must fulfill and 
all other factors to be used in evaluating bids or proposals.

[[Page 193]]

    (4) Grantees and subgrantees will ensure that all prequalified lists 
of persons, firms, or products which are used in acquiring goods and 
services are current and include enough qualified sources to ensure 
maximum open and free competition. Also, grantees and subgrantees will 
not preclude potential bidders from qualifying during the solicitation 
period.
    (d) Methods of procurement to be followed. (1) Procurement by small 
purchase procedures. Small purchase procedures are those relatively 
simple and informal procurement methods for securing services, supplies, 
or other property that do not cost more than the simplified acquisition 
threshold fixed at 41 U.S.C. 403(11) (currently set at $100,000). If 
small purchase procedures are used, price or rate quotations shall be 
obtained from an adequate number of qualified sources.
    (2) Procurement by sealed bids (formal advertising). Bids are 
publicly solicited and a firm-fixed-price contract (lump sum or unit 
price) is awarded to the responsible bidder whose bid, conforming with 
all the material terms and conditions of the invitation for bids, is the 
lowest in price. The sealed bid method is the preferred method for 
procuring construction, if the conditions in Sec. 1403.36(d)(2)(i) 
apply.
    (i) In order for sealed bidding to be feasible, the following 
conditions should be present:
    (A) A complete, adequate, and realistic specification or purchase 
description is available;
    (B) Two or more responsible bidders are willing and able to compete 
effectively and for the business; and
    (C) The procurement lends itself to a firm fixed price contract and 
the selection of the successful bidder can be made principally on the 
basis of price.
    (ii) If sealed bids are used, the following requirements apply:
    (A) The invitation for bids will be publicly advertised and bids 
shall be solicited from an adequate number of known suppliers, providing 
them sufficient time prior to the date set for opening the bids;
    (B) The invitation for bids, which will include any specifications 
and pertinent attachments, shall define the items or services in order 
for the bidder to properly respond;
    (C) All bids will be publicly opened at the time and place 
prescribed in the invitation for bids;
    (D) A firm fixed-price contract award will be made in writing to the 
lowest responsive and responsible bidder. Where specified in bidding 
documents, factors such as discounts, transportation cost, and life 
cycle costs shall be considered in determining which bid is lowest. 
Payment discounts will only be used to determine the low bid when prior 
experience indicates that such 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

[[Page 194]]

of services though A/E firms are a potential source to perform the 
proposed effort.
    (4) Procurement by noncompetitive proposals is procurement through 
solicitation of a proposal from only one source, or after solicitation 
of a number of sources, competition is determined inadequate.
    (i) Procurement by noncompetitive proposals may be used only when 
the award of a contract is infeasible under small purchase procedures, 
sealed bids or competitive proposals and one of the following 
circumstances applies:
    (A) The item is available only from a single source;
    (B) The public exigency or emergency for the requirement will not 
permit a delay resulting from competitive solicitation;
    (C) The awarding agency authorizes noncompetitive proposals; or
    (D) After solicitation of a number of sources, competition is 
determined inadequate.
    (ii) Cost analysis, i.e., verifying the proposed cost data, the 
projections of the data, and the evaluation of the specific elements of 
costs and profits, is required.
    (iii) Grantees and subgrantees may be required to submit the 
proposed procurement to the awarding agency for pre-award review in 
accordance with paragraph (g) of this section.
    (e) Contracting with small and minority firms, women's business 
enterprise and labor surplus area firms. (1) The grantee and subgrantee 
will take all necessary affirmative steps to assure that minority firms, 
women's business enterprises, and labor surplus area firms are used when 
possible.
    (2) Affirmative steps shall include:
    (i) Placing qualified small and minority businesses and women's 
business enterprises on solicitation lists;
    (ii) Assuring that small and minority businesses, and women's 
business enterprises are solicited whenever they are potential sources;
    (iii) Dividing total requirements, when economically feasible, into 
smaller tasks or quantities to permit maximum participation by small and 
minority business, and women's business enterprises;
    (iv) Establishing delivery schedules, where the requirement permits, 
which encourage participation by small and minority business, and 
women's business enterprises;
    (v) Using the services and assistance of the Small Business 
Administration, and the Minority Business Development Agency of the 
Department of Commerce; and
    (vi) Requiring the prime contractor, if subcontracts are to be let, 
to take the affirmative steps listed in paragraphs (e)(2) (i) through 
(v) of this section.
    (f) Contract cost and price. (1) Grantees and subgrantees must 
perform a cost or price analysis in connection with every procurement 
action including contract modifications. The method and degree of 
analysis is dependent on the facts surrounding the particular 
procurement situation, but as a starting point, grantees must make 
independent estimates before receiving bids or proposals. A cost 
analysis must be performed when the offeror is required to submit the 
elements of his estimated cost, e.g., under professional, consulting, 
and architectural engineering services contracts. A cost analysis will 
be necessary when adequate price competition is lacking, and for sole 
source procurements, including contract modifications or change orders, 
unless price reasonableness can be established on the basis of a catalog 
or market price of a commercial product sold in substantial quantities 
to the general public or based on prices set by law or regulation. A 
price analysis will be used in all other instances to determine the 
reasonableness of the proposed contract price.
    (2) Grantees and subgrantees will negotiate profit as a separate 
element of the price for each contract in which there is no price 
competition and in all cases where cost analysis is performed. To 
establish a fair and reasonable profit, consideration will be given to 
the complexity of the work to be performed, the risk borne by the 
contractor, the contractor's investment, the amount of subcontracting, 
the quality of its record of past performance, and industry profit rates 
in the surrounding geographical area for similar work.

[[Page 195]]

    (3) Costs or prices based on estimated costs for contracts under 
grants will be allowable only to the extent that costs incurred or cost 
estimates included in negotiated prices are consistent with Federal cost 
principles (see Sec. 1403.22). 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 
constructing cost methods of contracting shall not be used.
    (g) Awarding agency review. (1) Grantees and subgrantees must make 
available, upon request of the awarding agency, technical specifications 
on proposed procurements where the awarding agency believes such review 
is needed to ensure that the item and/or service specified is the one 
being proposed for purchase. This review generally will take place prior 
to the time the specification is incorporated into a solicitation 
document. However, if the grantee or subgrantee desires to have the 
review accomplished after a solicitation has been developed, the 
awarding agency may still review the specifications, with such review 
usually limited to the technical aspects of the proposed purchase.
    (2) Grantees and subgrantees must on request make available for 
awarding agency pre-award review procurement documents, such as requests 
for proposals or invitations for bids, independent cost estimates, etc. 
when:
    (i) A grantee's or subgrantee's procurement procedures or operation 
fails to comply with the procurement standards in this section; or
    (ii) The procurement is expected to exceed the simplified 
acquisition threshold and is to be awarded without competition or only 
one bid or offer is received in response to a solicitation; or
    (iii) The procurement, which is expected to exceed the simplified 
acquisition threshold, specifies a ``brand name'' product; or
    (iv) The proposed award is more than the simplified acquisition 
threshold and is to be awarded to other than the apparent low bidder 
under a sealed bid procurement; or
    (v) A proposed contract modification changes the scope of a contract 
or increases the contract amount by more than the simplified acquisition 
threshold.
    (3) A grantee or subgrantee will be exempt from the pre-award review 
in paragraph (g)(2) of this section if the awarding agency determines 
that its procurement systems comply with the standards of this section.
    (i) A grantee or subgrantee may request that its procurement system 
be reviewed by the awarding agency to determine whether its system meets 
these standards in order for its system to be certified. Generally, 
these reviews shall occur where there is a continuous high-dollar 
funding, and third-party contracts are awarded on a regular basis.
    (ii) A grantee or subgrantee may self-certify its procurement 
system. Such self-certification shall not limit the awarding agency's 
right to survey the system. Under a self-certification procedure, 
awarding agencies may wish to rely on written assurances from the 
grantee or subgrantee that it is complying with these standards. A 
grantee or subgrantee will cite specific procedures, regulations, 
standards, etc., as being in compliance with these requirements and have 
its system available for review.
    (h) Bonding requirements. For construction or facility improvement 
contracts or subcontracts exceeding the simplified acquisition 
threshold, the awarding agency may accept the bonding policy and 
requirements of the grantee or subgrantee provided the awarding agency 
has made a determination that the awarding agency's interest is 
adequately protected. If such a determination has not been made, the 
minimum requirements shall be as follows:
    (1) A bid guarantee from each bidder equivalent to five percent of 
the bid price. The ``bid guarantee'' shall consist of a firm commitment 
such as a bid bond, certified check, or other negotiable instrument 
accompanying a bid as assurance that the bidder will, upon acceptance of 
his bid, execute such contractual documents as may be required within 
the time specified.
    (2) A performance bond on the part of the contractor for 100 percent 
of the contract price. A ``performance bond'' is

[[Page 196]]

one executed in connection with a contract to secure fulfillment of all 
the contractor's obligations under such contract.
    (3) A payment bond on the part of the contractor for 100 percent of 
the contract price. A ``payment bond'' is one executed in connection 
with a contract to assure payment as required by law of all persons 
supplying labor and material in the execution of the work provided for 
in the contract.
    (i) Contract provisions. A grantee's and subgrantee's contracts must 
contain provisions in paragraph (i) of this section. Federal agencies 
are permitted to require changes, remedies, changed conditions, access 
and records retention, suspension of work, and other clauses approved by 
the Office of Federal Procurement Policy.
    (1) Administrative, contractual, or legal remedies in instances 
where contractors violate or breach contract terms, and provide for such 
sanctions and penalties as may be appropriate. (Contracts more than the 
simplified acquisition threshold)
    (2) Termination for cause and for convenience by the grantee or 
subgrantee including the manner by which it will be effected and the 
basis for settlement. (All contracts in excess of $10,000)
    (3) Compliance with Executive Order 11246 of September 24, 1965, 
entitled ``Equal Employment Opportunity,'' as amended by Executive Order 
11375 of October 13, 1967, and as supplemented in Department of Labor 
regulations (41 CFR chapter 60). (All construction contracts awarded in 
excess of $10,000 by grantees and their contractors or subgrantees)
    (4) Compliance with the Copeland ``Anti-Kickback'' Act (18 U.S.C. 
874) as supplemented in Department of Labor regulations (29 CFR Part 3). 
(All contracts and subgrants for construction or repair)
    (5) Compliance with the Davis-Bacon Act (40 U.S.C. 276a to 276a-7) 
as supplemented by Department of Labor regulations (29 CFR Part 5). 
(Construction contracts in excess of $2000 awarded by grantees and 
subgrantees when required by Federal grant program legislation)
    (6) Compliance with Sections 103 and 107 of the Contract Work Hours 
and Safety Standards Act (40 U.S.C. 327-330) as supplemented by 
Department of Labor regulations (29 CFR Part 5). (Construction contracts 
awarded by grantees and subgrantees in excess of $2000, and in excess of 
$2500 for other contracts which involve the employment of mechanics or 
laborers)
    (7) Notice of awarding agency requirements and regulations 
pertaining to reporting.
    (8) Notice of awarding agency requirements and regulations 
pertaining to patent rights with respect to any discovery or invention 
which arises or is developed in the course of or under such contract.
    (9) Awarding agency requirements and regulations pertaining to 
copyrights and rights in data.
    (10) Access by the grantee, the subgrantee, the Federal grantor 
agency, the Comptroller General of the United States, or any of their 
duly authorized representatives to any books, documents, papers, and 
records of the contractor which are directly pertinent to that specific 
contract for the purpose of making audit, examination, excerpts, and 
transcriptions.
    (11) Retention of all required records for three years after 
grantees or subgrantees make final payments and all other pending 
matters are closed.
    (12) Compliance with all applicable standards, orders, or 
requirements issued under section 306 of the Clean Air Act (42 U.S.C. 
1857(h)), section 508 of the Clean Water Act (33 U.S.C. 1368), Executive 
Order 11738, and Environmental Protection Agency regulations (40 CFR 
part 15). (Contracts, subcontracts, and subgrants of amounts in excess 
of $100,000).
    (13) Mandatory standards and policies relating to energy efficiency 
which are contained in the state energy conservation plan issued in 
compliance with the Energy Policy and Conservation Act (Pub. L. 94-163, 
89 Stat. 871).

[57 FR 55092, Nov. 24, 1992, as amended at 60 FR 19639, 19642, Apr. 19, 
1995]



Sec. 1403.37  Subgrants.

    (a) States. States shall follow state law and procedures when 
awarding and administering subgrants (whether on a

[[Page 197]]

cost reimbursement or fixed amount basis) of financial assistance to 
local and Indian tribal governments. States shall:
    (1) Ensure that every subgrant includes any clauses required by 
Federal statute and executive orders and their implementing regulations;
    (2) Ensure that subgrantees are aware of requirements imposed upon 
them by Federal statute and regulation;
    (3) Ensure that a provision for compliance with Sec. 1403.42 is 
placed in every cost reimbursement subgrant; and
    (4) Conform any advances of grant funds to subgrantees substantially 
to the same standards of timing and amount that apply to cash advances 
by Federal agencies.
    (b) All other grantees. All other grantees shall follow the 
provisions of this part which are applicable to 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 1403.10;
    (2) Section 1403.11;
    (3) The letter-of-credit procedures specified in Treasury 
Regulations at 31 CFR part 205, cited in Sec. 1403.21; and
    (4) Section 1403.50.

              Reports, Records, Retention, and Enforcement



Sec. 1403.40  Monitoring and reporting program performance.

    (a) Monitoring by grantees. Grantees are responsible for managing 
the day-to-day operations of grant and subgrant supported activities. 
Grantees must monitor grant and subgrant supported activities to assure 
compliance with applicable Federal requirements and that performance 
goals are being achieved. Grantee monitoring must cover each program, 
function or activity.
    (b) Nonconstruction performance reports. The Federal agency may, if 
it decides that performance information available from subsequent 
applications contains sufficient information to meet its programmatic 
needs, require the grantee to submit a performance report only upon 
expiration or termination of grant support. Unless waived by the Federal 
agency this report will be due on the same date as the final Financial 
Status Report.
    (1) Grantees shall submit annual performance reports unless the 
awarding agency requires quarterly or semi-annual reports. However, 
performance reports will not be required more frequently than quarterly. 
Annual reports shall be due 90 days after the grant year, quarterly or 
semi-annual reports shall be due 30 days after the reporting period. The 
final performance report will be due 90 days after the expiration or 
termination of grant support. If a justified request is submitted by a 
grantee, the Federal agency may extend the due date for any performance 
report. Additionally, requirements for unnecessary performance reports 
may be waived by the Federal agency.
    (2) Performance reports will contain, for each grant, brief 
information on the following:
    (i) A comparison of actual accomplishments to the objectives 
established for the period. Where the output of the project can be 
quantified, a computation of the cost per unit of output may be required 
if that information will be useful.
    (ii) The reasons for slippage if established objectives were not 
met.
    (iii) Additional pertinent information including, when appropriate, 
analysis and explanation of cost overruns or high unit costs.
    (3) Grantees will not be required to submit more than the original 
and two copies of performance reports.

[[Page 198]]

    (4) Grantees will adhere to the standards in this section in 
prescribing performance reporting requirements for subgrantees.
    (c) Construction performance reports. For the most part, on-site 
technical inspections and certified percentage-of-completion data are 
relied on heavily by Federal agencies to monitor progress under 
construction grants and subgrants. The Federal agency will require 
additional formal performance reports only when considered necessary, 
and never more frequently than quarterly.
    (d) Significant developments. Events may occur between the scheduled 
performance reporting dates which have significant impact upon the grant 
or subgrant supported activity. In such cases, the grantee must inform 
the Federal agency as soon as the following types of conditions become 
known:
    (1) Problems, delays, or adverse conditions which will materially 
impair the ability to meet the objective of the award. This disclosure 
must include a statement of the action taken, or contemplated, and any 
assistance needed to resolve the situation.
    (2) Favorable developments which enable meeting time schedules and 
objectives sooner or at less cost than anticipated or producing more 
beneficial results than originally planned.
    (e) Federal agencies may make site visits as warranted by program 
needs.
    (f) Waivers, extensions. (1) Federal agencies may waive any 
performance report required by this part if not needed.
    (2) The grantee may waive any performance report from a subgrantee 
when not needed. The grantee may extend the due date for any performance 
report from a subgrantee if the grantee will still be able to meet its 
performance reporting obligations to the Federal agency.



Sec. 1403.41  Financial reporting.

    (a) General. (1) Except as provided in paragraphs (a) (2) and (5) of 
this section, grantees will use only the forms specified in paragraphs 
(a) through (e) of this section, and such supplementary or other forms 
as may from time to time be authorized by OMB, for:
    (i) Submitting financial reports to Federal agencies, or
    (ii) Requesting advances or reimbursements when letters of credit 
are not used.
    (2) Grantees need not apply the forms prescribed in this section in 
dealing with their subgrantees. However, grantees shall not impose more 
burdensome requirements on subgrantees.
    (3) Grantees shall follow all applicable standard and supplemental 
Federal agency instructions approved by OMB to the extent required under 
the Paperwork Reduction Act of 1980 for use in connection with forms 
specified in paragraphs (b) through (e) of this section. Federal 
agencies may issue substantive supplementary instructions only with the 
approval of OMB. Federal agencies may shade out or instruct the grantee 
to disregard any line item that the Federal agency finds unnecessary for 
its decision making purposes.
    (4) Grantees will not be required to submit more than the original 
and two copies of forms required under this part.
    (5) Federal agencies may provide computer outputs to grantees to 
expedite or contribute to the accuracy of reporting. Federal agencies 
may accept the required information from grantees in machine usable 
format or computer printouts instead of prescribed forms.
    (6) Federal agencies may waive any report required by this section 
if not needed.
    (7) Federal agencies may extend the due date of any financial report 
upon receiving a justified request from a grantee.
    (b) Financial Status Report--(1) Form. Grantees will use Standard 
Form 269 or 269A, Financial Status Report, to report the status of funds 
for all nonconstruction grants and for construction grants when required 
in accordance with paragraph Sec. 1403.41(e)(2)(iii) of this section.
    (2) Accounting basis. Each grantee will report program outlays and 
program income on a cash or accrual basis as prescribed by the awarding 
agency. If the Federal agency requires accrual information and the 
grantee's accounting records are not normally kept on the accrual basis, 
the grantee shall not be

[[Page 199]]

required to convert its accounting system but shall develop such accrual 
information through an analysis of the documentation on hand.
    (3) Frequency. The Federal agency may prescribe the frequency of the 
report for each project or program. However, the report will not be 
required more frequently than quarterly. If the Federal agency does not 
specify the frequency of the report, it will be submitted annually. A 
final report will be required upon expiration or termination of grant 
support.
    (4) Due date. When reports are required on a quarterly or semiannual 
basis, they will be due 30 days after the reporting period. When 
required on an annual basis, they will be due 90 days after the grant 
year. Final reports will be due 90 days after the expiration or 
termination of grant support.
    (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.
    (ii) These reports will be used by the Federal agency to monitor 
cash advanced to grantees and to obtain disbursement or outlay 
information for each grant from grantees. The format of the report may 
be adapted as appropriate when reporting is to be accomplished with the 
assistance of automatic data processing equipment provided that the 
information to be submitted is not changed in substance.
    (2) Forecasts of Federal cash requirements. Forecasts of Federal 
cash requirements may be required in the ``Remarks'' section of the 
report.
    (3) Cash in hands of subgrantees. When considered necessary and 
feasible by the Federal agency, grantees may be required to report the 
amount of cash advances in excess of three days' needs in the hands of 
their subgrantees or contractors and to provide short narrative 
explanations of actions taken by the grantee to reduce the excess 
balances.
    (4) Frequency and due date. Grantees must submit the report no later 
than 15 working days following the end of each quarter. However, where 
an advance either by letter of credit or electronic transfer of funds is 
authorized at an annualized rate of one million dollars or more, the 
Federal agency may require the report to be submitted within 15 working 
days following the end of each month.
    (d) Request for advance or reimbursement--(1) Advance payments. 
Requests for Treasury check advance payments will be submitted on 
Standard Form 270, Request for Advance or Reimbursement. (This form will 
not be used for drawdowns under a letter of credit, electronic funds 
transfer or when Treasury check advance payments are made to the grantee 
automatically on a predetermined basis.)
    (2) Reimbursements. Requests for reimbursement under nonconstruction 
grants will also be submitted on Standard Form 270. (For reimbursement 
requests under construction grants, see paragraph (e)(1) of this 
section.)
    (3) The frequency for submitting payment requests is treated in 
Sec. 1403.41(b)(3).
    (e) Outlay report and request for reimbursement for construction 
programs--(1) Grants that support construction activities paid by 
reimbursement method. (i) Requests for reimbursement under construction 
grants will be submitted on Standard Form 271, Outlay Report and Request 
for Reimbursement for Construction Programs. Federal agencies may, 
however, prescribe the Request for Advance or Reimbursement form, 
specified in Sec. 1403.41(d), instead of this form.
    (ii) The frequency for submitting reimbursement requests is treated 
in Sec. 1403.41(b)(3).
    (2) Grants that support construction activities paid by letter of 
credit, electronic funds transfer or Treasury check advance. (i) When a 
construction grant is paid by letter of credit, electronic funds 
transfer or Treasury check advances, the grantee will report its outlays 
to the Federal agency using Standard Form 271, Outlay Report and Request 
for Reimbursement for Construction Programs. The Federal agency will 
provide any necessary special instruction. However, frequency and

[[Page 200]]

due date shall be governed by Sec. 1403.41(b) (3) and (4).
    (ii) When a construction grant is paid by Treasury check advances 
based on periodic requests from the grantee, the advances will be 
requested on the form specified in Sec. 1403.41(d).
    (iii) The Federal agency may substitute the Financial Status Report 
specified in Sec. 1403.41(b) for the Outlay Report and Request for 
Reimbursement for Construction Programs.
    (3) Accounting basis. The accounting basis for the Outlay Report and 
Request for Reimbursement for Construction Programs shall be governed by 
Sec. 1403.41(b)(2).



Sec. 1403.42  Retention and access requirements for records.

    (a) Applicability. (1) This section applies to all financial and 
programmatic records, supporting documents, statistical records, and 
other records of grantees or subgrantees which are:
    (i) Required to be maintained by the terms of this Part, program 
regulations or the grant agreement, or
    (ii) Otherwise reasonably considered as pertinent to program 
regulations or the grant agreement.
    (2) This section does not apply to records maintained by contractors 
or subcontractors. For a requirement to place a provision concerning 
records in certain kinds of contracts, see Sec. 1403.36(i)(10).
    (b) Length of retention period. (1) Except as otherwise provided, 
records must be retained for three years from the starting date 
specified in paragraph (c) of this section.
    (2) If any litigation, claim, negotiation, audit or other action 
involving the records has been started before the expiration of the 3-
year period, the records must be retained until completion of the action 
and resolution of all issues which arise from it, or until the end of 
the regular 3-year period, whichever is later.
    (3) To avoid duplicate recordkeeping, awarding agencies may make 
special arrangements with grantees and subgrantees to retain any records 
which are continuously needed for joint use. The awarding agency will 
request transfer of records to its custody when it determines that the 
records possess long-term retention value. When the records are 
transferred to or maintained by the Federal agency, the 3-year retention 
requirement is not applicable to the grantee or subgrantees.
    (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 (or to 
the grantee) to form the basis for negotiation of the rate, then the 3-
year retention period for its supporting records starts from the date of 
such submission.

[[Page 201]]

    (ii) If not submitted for negotiation. If the proposal, plan, or 
other computation is not required to be submitted to the Federal 
Government (or to the grantee) for negotiation purposes, then the 3-year 
retention period for the proposal plan, or computation and its 
supporting records starts from end of the fiscal year (or other 
accounting period) covered by the proposal, plan, or other computation.
    (d) Substitution of microfilm. Copies made by microfilming, 
photocopying, or similar methods may be substituted for the original 
records.
    (e) Access to records--(1) Records of grantees and subgrantees. The 
awarding agency and the Comptroller General of the United States, or any 
of their authorized representatives, shall have the right of access to 
any pertinent books, documents, papers, or other records of grantees and 
subgrantees which are pertinent to the grant, in order to make audits, 
examinations, excerpts, and transcripts.
    (2) Expiration of right of access. The rights of access in this 
section must not be limited to the required retention period but shall 
last as long as the records are retained.
    (f) Restrictions on public access. The Federal Freedom of 
Information Act (5 U.S.C. 552) does not apply to records. Unless 
required by Federal, State, or local law, grantees and subgrantees are 
not required to permit public access to their records.



Sec. 1403.43  Enforcement.

    (a) Remedies for noncompliance. If a grantee or subgrantee 
materially fails to comply with any term of an award, whether stated in 
a Federal statute or regulation, an assurance, in a State plan or 
application, a notice of award, or elsewhere, the awarding agency may 
take one or more of the following actions, as appropriate in the 
circumstances:
    (1) Temporarily withhold cash payments pending correction of the 
deficiency by the grantee or subgrantee or more severe enforcement 
action by the awarding agency,
    (2) Disallow (that is, deny both use of funds and matching credit 
for) all or part of the cost of the activity or action not in 
compliance,
    (3) Wholly or partly suspend or terminate the current award for the 
grantee's or subgrantee's program,
    (4) Withhold further awards for the program, or
    (5) Take other remedies that may be legally available.
    (b) Hearings, appeals. In taking an enforcement action, the awarding 
agency will provide the grantee or subgrantee an opportunity for such 
hearing, appeal, or other administrative proceeding to which the grantee 
or subgrantee is entitled under any statute or regulation applicable to 
the action involved.
    (c) Effects of suspension and termination. Costs of grantee or 
subgrantee resulting from obligations incurred by the grantee or 
subgrantee during a suspension or after termination of an award are not 
allowable unless the awarding agency expressly authorizes them in the 
notice of suspension or termination or subsequently. Other grantee or 
subgrantee costs during suspension or after termination which are 
necessary and not reasonably avoidable are allowable if:
    (1) The costs result from obligations which were properly incurred 
by the grantee or subgrantee before the effective date of suspension or 
termination, are not in anticipation of it, and, in the case of a 
termination, are noncancellable, and,
    (2) The costs would be allowable if the award were not suspended or 
expired normally at the end of the funding period in which the 
termination takes effect.
    (d) Relationship to Debarment and Suspension. The enforcement 
remedies identified in this section, including suspension and 
termination, do not preclude grantee or subgrantee from being subject to 
``Debarment and Suspension'' under E.O. 12549 (see Sec. 1403.35).



Sec. 1403.44  Termination for convenience.

    Except as provided in Sec. 1403.43 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

[[Page 202]]

case of partial termination, the portion to be terminated, or
    (b) By the grantee or subgrantee upon written notification to the 
awarding agency, setting forth the reasons for such termination, the 
effective date, and in the case of partial termination, the portion to 
be terminated. However, if, in the case of a partial termination, the 
awarding agency determines that the remaining portion of the award will 
not accomplish the purposes for which the award was made, the awarding 
agency may terminate the award in its entirety under either Sec. 1403.43 
or paragraph (a) of this section.



                 Subpart D--After-The-Grant Requirements



Sec. 1403.50  Closeout.

    (a) General. The Federal agency will close out the award when it 
determines that all applicable administrative actions and all required 
work of the grant has been completed.
    (b) Reports. Within 90 days after the expiration or termination of 
the grant, the grantee must submit all financial, performance, and other 
reports required as a condition of the grant. Upon request by the 
grantee, Federal agencies may extend this time frame. These may include 
but are not limited to:
    (1) Final performance or progress report.
    (2) Financial Status Report (SF 269) or Outlay Report and Request 
for Reimbursement for Construction Programs (SF-271) (as applicable).
    (3) Final request for payment (SF-270) (if applicable).
    (4) Invention disclosure (if applicable).
    (5) Federally-owned property report: In accordance with 
Sec. 1403.32(f), a grantee must submit an inventory of all federally 
owned property (as distinct from property acquired with grant funds) for 
which it is accountable and request disposition instructions from the 
Federal agency of property no longer needed.
    (c) Cost adjustment. The Federal agency will, within 90 days after 
receipt of reports in paragraph (b) of this section, make upward or 
downward adjustments to the allowable costs.
    (d) Cash adjustments. (1) The Federal agency will make prompt 
payment to the grantee for allowable reimbursable costs.
    (2) The grantee must immediately refund to the Federal agency any 
balance of unobligated (unencumbered) cash advanced that is not 
authorized to be retained for use on other grants.



Sec. 1403.51  Later disallowances and adjustments.

    The closeout of a grant does not affect:
    (a) The Federal agency's right to disallow costs and recover funds 
on the basis of a later audit or other review;
    (b) The grantee's obligation to return any funds due as a result of 
later refunds, corrections, or other transactions;
    (c) Records retention as required in Sec. 1403.42;
    (d) Property management requirements in Sec. 1403.31 and 
Sec. 1403.32; and
    (e) Audit requirements in Sec. 1403.26.



Sec. 1403.52  Collection of amounts due.

    (a) Any funds paid to a grantee in excess of the amount to which the 
grantee is finally determined to be entitled under the terms of the 
award constitute a debt to the Federal Government. If not paid within a 
reasonable period after demand, the Federal agency may reduce the debt 
by:
    (1) Making an administrative offset against other requests for 
reimbursement,
    (2) Withholding advance payments otherwise due to the grantee, or
    (3) Other action permitted by law.
    (b) Except where otherwise provided by statutes or regulations, the 
Federal agency will charge interest on an overdue debt in accordance 
with the Federal Claims Collection Standards (4 CFR ch. II). The date 
from which interest is computed is not extended by litigation or the 
filing of any form of appeal.

Subpart E--Entitlement [Reserved]

Appendix A to Part 1403--OMB Circular A-128, ``Audits of State and Local 
                              Governments''

Circular No. A-128
April 12, 1985.

[[Page 203]]

To the Heads of Executive Departments and Establishments
Subject: Audits of State and Local Governments.
    1. Purpose. This Circular is issued pursuant to the Single Audit Act 
of 1984, Pub. L. 98-502. It establishes audit requirements for State and 
local governments that receive Federal aid, and defines Federal 
responsibilities for implementing and monitoring those requirements.
    2. Supersession. The Circular supersedes Attachment P, ``Audit 
Requirements,'' of Circular A-102, ``Uniform requirements for grants to 
State and local governments.''
    3. Background. The Single Audit Act builds upon earlier efforts to 
improve audits of Federal aid programs. The Act requires State or local 
governments that receive $100,000 or more a year in Federal funds to 
have an audit made for that year. Section 7505 of the Act requires the 
Director of the Office of Management and Budget to prescribe policies, 
procedures and guidelines to implement the Act. It specifies 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 contracts for single audits.
    4. Policy. The Single Audit Act requires the following:
    a. State or local governments that receive $100,000 or more a year 
in Federal financial assistance shall have an audit made in accordance 
with this Circular.
    b. State or local governments that receive between $25,000 and 
$100,000 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 Act and other Federal audit 
requirements. These State and local governments shall be governed by 
audit requirements prescribed by State or local law or regulation.
    d. Nothing in this paragraph exempts State 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 state or 
local governments.''
    5. Definitions. For the purposes of this Circular the following 
definitions from the Single Audit Act apply:
    a. Cognizant agency means the Federal agency assigned by the Office 
of Management and Budget to carry out the responsibilities described in 
paragraph 11 of this Circular.
    b. Federal financial assistance means assistance provided by a 
Federal agency in the form of grants, contracts, cooperative agreements, 
loans, loan guarantees, property, interest subsidies, insurance, or 
direct appropriations, but does not include direct Federal cash 
assistance to individuals. It includes awards received directly from 
Federal agencies, or indirectly through other units of States and local 
governments.
    c. Federal agency has the same meaning as the term ``agency'' in 
section 551(1) of Title 5, United States Code.
    d. Generally accepted accounting principles has the meaning 
specified in the generally accepted government auditing standards.
    e. Generally accepted government auditing standards means the 
Standards For Audit of Government Organizations, Programs, Activities, 
and Functions, developed by the Comptroller General, dated February 27, 
1981.
    f. Independent auditor means:
    (1) A State or local government auditor who meets the independence 
standards specified in generally accepted government auditing standards; 
or
    (2) 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 waste, loss, and misuse; and
    (3) Reliable data are obtained, maintained, and fairly disclosed in 
reports.
    h. Indian tribe means any Indian tribe, band, nations, or other 
organized group or community, including any Alaskan Native village or 
regional or village corporations (as defined in, or established under, 
the Alaskan Native Claims Settlement Act) that is recognized by the 
United States as eligible for the special programs and services provided 
by the United States 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, parish, local public authority, special district, school 
district, intrastate district, council of government, and any other 
instrumentality of local government.
    j. Major Federal Assistance Program, as defined by Pub. L. 98-502, 
is described in the Attachment to this Circular.
    k. Public accountants means those individuals who meet the 
qualification standards included in generally accepted government 
auditing standards for personnel performing government audits.

[[Page 204]]

    l. State means any State of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, 
American Samoa, the Commonwealth of the Northern Mariana Islands, and 
the Trust Territory of the Pacific Islands, any instrumentality thereof, 
and any multi-State, regional, or interstate entity that has 
governmental functions and any Indian tribe.
    m. Subrecipient means any person or government department, agency, 
or establishment that receives Federal financial assistance to carry out 
a program through a State or local government, but does not include an 
individual that is a beneficiary of such a program. A subrecipient may 
also be a direct recipient of Federal financial assistance.
    6. Scope of audit. The Single Act provides that:
    a. The audit shall be made by an independent auditor in accordance 
with generally 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 during the year. 
However, if a State or local government receives $25,000 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 individual departments, 
agencies, and establishments for the same fiscal year may be considered 
a single audit.
    c. Public hospitals and public colleges and universities may be 
excluded from State and local audits and the requirements 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 accordance with generally accepted 
accounting principles;
    (2) The organization has internal accounting and other control 
systems to provide reasonable assurance that it is managing Federal 
financial assistance programs in compliance with applicable laws 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. Frequency of audit. Audits shall be made annually unless the 
State or local government has, by January 1, 1987, a constitutional or 
statutory requirement for less frequent audits. For those governments, 
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 administrative policy calling for 
audits less frequent than annual, but only for fiscal years beginning 
before January 1, 1987.
    8. Internal control and compliance reviews. The Single Audit Act 
requires that 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 place 
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.
    (2) Examine the recipient's system for monitoring subrecipients and 
obtaining and acting on subrecipient audit reports.
    b. Compliance review. The law also requires 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 for 
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 State 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 expenditures 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 oversight; the adequacy of 
the controls for ensuring compliance; the exception of adherence or lack 
of adherence to the applicable laws and regulations; and the potential 
impact of adverse findings.

[[Page 205]]

    (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 A-87, ``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 
for Single Audits of State and Local 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 statutes, regulations, and 
agreements governing individual programs.
    (3) Transactions related to other Federal assistance programs that 
are selected in connection with examinations 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 governments that receive Federal 
financial assistance and provide $25,000 or more of it in a fiscal year 
to a subrecipient shall:
    a. Determine whether State or local subrecipients have met 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 be 
accomplished 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 in 
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 carry 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.
    b. The provisions of this Circular do not authorize 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 audits. Such additional audits 
include economy and efficiency audits, program results audits, and 
program evaluations.
    11. Cognizant 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 larger local governments 
and their subdivisions. Other Federal agencies may participate with an 
assigned cognizant agency, in order to fulfill the cognizance 
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.

[[Page 206]]

    (2) Provide technical advice and liaison to State and local 
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 take 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 independent auditors shall be referred to 
appropriate professional bodies for disciplinary action.
    (6) 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(a)(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 and actual actions, 
if any. Illegal acts and irregularities include such matters 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 State 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 on 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 documents.
    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 aware 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 recommendations in the report, including a 
plan for corrective action taken or planned and comments on the status 
of corrective action taken on prior findings. If corrective action is 
not 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. 
Subrecipients 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

[[Page 207]]

report within 30 days after issuance to a central clearinghouse to be 
designated by the Office of Management and Budget. The clearinghouse 
will keep completed audits on file and follow up with State and local 
governments that have 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 Federal 
agency will be the responsibility of the recipient and that agency. 
Alternate arrangements may be made on a case-by-case basis by agreement 
among the agencies concerned.
    Resolution shall be made within six months after receipt of the 
report by the Federal departments and agencies. Corrective action should 
proceed as rapidly as possible.
    15. Audit workpapers and reports. Workpapers and reports shall be 
retained for a minimum of three years from the date of the audit report, 
unless the auditor is notified in writing by the cognizant agency to 
extend the retention period. Audit workpapers shall be made available 
upon request to the cognizant agency or its designee or the General 
Accounting Office, at the completion of the audit.
    16. Audit Costs. The cost of audits made in accordance with the 
provisions of this Circular are allowable charges to Federal assistance 
programs.
    a. The charges may be considered a direct cost 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:
--Withhodling 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.
    18. Auditor Selection. In arranging for audit services State and 
local governments shall follow the procurement standards prescribed by 
Attachment O of Circular A-102, ``Uniform requirements for 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 purchase 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 contracts awarded to fulfill the requirements of this 
Circular. Recipients of Federal assistance shall take the following 
steps to further this goal:
    a. Assure that small audit firms and audit firms owned and 
controlled by socially and economically disadvantaged individuals are 
used to the fullest extent practicable.
    b. Make information on forthcoming opportunities available and 
arrange time frames 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 and 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 not 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 contract 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 or audit firms owned and controlled 
by socially and economically disadvantaged individuals.
    20. Reporting. Each Federal agency will report to the Director of 
OMB on or before March 1, 1987, and annually thereafter on the 
effectiveness of State and local governments in carrying out the 
provisions of this Circular. The report must identify each State or 
local government or Indian tribe that, in the

[[Page 208]]

opinion of the agency, is failing to comply with Circular.
    21. Regulations. Each Federal agency shall include the provisions of 
this Circular in its regulations implementing the Single Audit Act.
    22. Effective date. This Circular is effective upon publication and 
shall apply to fiscal years of State and local governments that begin 
after December 31, 1984. 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 (202) 395-3993.
    24. Sunset review date. This Circular shall have an independent 
policy review to ascertain its effectiveness three years from the date 
of issuance.

David A. Stockman,
    Director.

                        Circular A-128 Attachment

        Definition of Major Program as Provided 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 following criteria apply:

------------------------------------------------------------------------
     Total expenditures of Federal financial           Major Federal
           assistance for all programs              assistance program
------------------------------------------------- means any program that
       More than              But less than               exceeds
------------------------------------------------------------------------
$100 million             1 billion                $3 million
    1 billion            2 billion                4 million
    2 billion            3 billion                7 million
    3 billion            4 billion                10 million
    4 billion            5 billion                13 million
    5 billion            6 billion                16 million
    6 billion            7 billion                19 million
Over 7 billion           .......................  20 million
------------------------------------------------------------------------


[57 FR 55092, Nov. 24, 1992; 58 FR 26185, Apr. 30, 1993]



PART 1404--GOVERNMENTWIDE DEBARMENT AND SUSPENSION (NONPROCUREMENT) AND GOVERNMENTWIDE REQUIREMENTS FOR DRUG-FREE WORKPLACE (GRANTS)--Table of Contents




                           Subpart A--General

Sec.
1404.100 Purpose.
1404.105 Definitions.
1404.110 Coverage.
1404.115 Policy.

                       Subpart B--Effect of Action

1404.200 Debarment or suspension.
1404.205 Ineligible persons.
1404.210 Voluntary exclusion.
1404.215 Exception provision.
1404.220 Continuation of covered transactions.
1404.225 Failure to adhere to restrictions.

                          Subpart C--Debarment

1404.300 General.
1404.305 Causes for debarment.
1404.310 Procedures.
1404.311 Investigation and referral.
1404.312 Notice of proposed debarment.
1404.313 Opportunity to contest proposed debarment.
1404.314 Debarring official's decision.
1404.315 Settlement and voluntary exclusion.
1404.320 Period of debarment.
1404.325 Scope of debarment.

                          Subpart D--Suspension

1404.400 General.
1404.405 Causes for suspension.
1404.410 Procedures.
1404.411 Notice of suspension.
1404.412 Opportunity to contest suspension.
1404.413 Suspending official's decision.
1404.415 Period of suspension.
1404.420 Scope of suspension.

       Subpart E--Responsibilities of GSA, Agency and Participants

1404.500 GSA responsibilities.
1404.505 ONDCP responsibilities.
1404.510 Participants' responsibilities.

[[Page 209]]

          Subpart F--Drug-Free Workplace Requirements (Grants)

1404.600 Purpose.
1404.605 Definitions.
1404.610 Coverage.
1404.615 Grounds for suspension of payments, suspension or termination 
          of grants, or suspension or debarment.
1404.620 Effect of violation.
1404.625 Exception provision.
1404.630 Certification requirements and procedures.
1404.635 Reporting of and employee sanctions for convictions of criminal 
          drug offenses.

Appendix A to Part 1404--Certification Regarding Debarment, Suspension, 
          and Other Responsibility Matters--Primary Covered Transactions
Appendix B to Part 1404--Certification Regarding Debarment, Suspension, 
          Ineligibility and Voluntary Exclusion--Lower Tier Covered 
          Transactions
Appendix C to Part 1404--Certification Regarding Drug-Free Workplace 
          Requirements

    Authority: Executive Order 12549, 3 CFR, 1986 Comp., p. 189; 5 
U.S.C. 301; Sec. 5151-5160 of the Drug-Free Workplace Act of 1988 (Pub. 
L. 100-690, Title V, Subtitle D, 102 stat. 4304; 41 U.S.C. 701 et seq.).

    Source: 57 FR 56263, Nov. 27, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 1404.100  Purpose.

    (a) Executive Order (E.O.) 12549 provides that, to the extent 
permitted by law, Executive departments and agencies shall participate 
in a governmentwide system for nonprocurement debarment and suspension. 
A person who is debarred or suspended shall be excluded from Federal 
financial and nonfinancial assistance and benefits under Federal 
programs and activities. Debarment or suspension of a participant in a 
program by one agency shall have governmentwide effect.
    (b) These regulations implement section 3 of E.O. 12549 and the 
guidelines promulgated by the Office of Management and Budget under 
section 6 of the E.O. by:
    (1) Prescribing the programs and activities that are covered by the 
governmentwide system;
    (2) Prescribing the governmentwide criteria and governmentwide 
minimum due process procedures that each agency shall use;
    (3) Providing for the listing of debarred and suspended 
participants, participants declared ineligible (see definition of 
``ineligible'' in Sec. 1404.105), and participants who have voluntarily 
excluded themselves from participation in covered transactions;
    (4) Setting forth the consequences of a debarment, suspension, 
determination of ineligibility, or voluntary exclusion; and
    (5) Offering such other guidance as necessary for the effective 
implementation and administration of the governmentwide system.
    (c) These regulations also implement Executive Order 12689 (3 CFR, 
1989 Comp., p. 235) and 31 U.S.C. 6101 note (Public Law 103-355, sec. 
2455, 108 Stat. 3327) by--
    (1) Providing for the inclusion in the List of Parties Excluded from 
Federal Procurement and Nonprocurement Programs all persons proposed for 
debarment, debarred or suspended under the Federal Acquisition 
Regulation, 48 CFR Part 9, subpart 9.4; persons against which 
governmentwide exclusions have been entered under this part; and persons 
determined to be ineligible; and
    (2) Setting forth the consequences of a debarment, suspension, 
determination of ineligibility, or voluntary exclusion.
    (d) Although these regulations cover the listing of ineligible 
participants and the effect of such listing, they do not prescribe 
policies and procedures governing declarations of ineligibility.

[60 FR 33040, 33045, June 26, 1995]



Sec. 1404.105  Definitions.

    The following definitions apply to this part:
    Adequate evidence. Information sufficient to support the reasonable 
belief that a particular act or omission has occurred.
    Affiliate. Persons are affiliates of each other if, directly or 
indirectly, either one controls or has the power to control the other, 
or, a third person controls or has the power to control both. Indicia of 
control include, but are

[[Page 210]]

not limited to: interlocking management or ownership, identity of 
interests among family members, shared facilities and equipment, common 
use of employees, or a business entity organized following the 
suspension or debarment of a person which has the same or similar 
management, ownership, or principal employees as the suspended, 
debarred, ineligible, or voluntarily excluded person.
    Agency. Any executive department, military department or defense 
agency or other agency of the executive branch, excluding the 
independent regulatory agencies.
    Civil judgment. The disposition of a civil action by any court of 
competent jurisdiction, whether entered by verdict, decision, 
settlement, stipulation, or otherwise creating a civil liability for the 
wrongful acts complained of; or a final determination of liability under 
the Program Fraud Civil Remedies Act of 1988 (31 U.S.C. 3801-12).
    Conviction. A judgment or conviction of a criminal offense by any 
court of competent jurisdiction, whether entered upon a verdict or a 
plea, including a plea of nolo contendere.
    Debarment. An action taken by a debarring official in accordance 
with these regulations to exclude a person from participating in covered 
transactions. A person so excluded is ``debarred.''
    Debarring official. An official authorized to impose debarment. The 
debarring official is either:
    (1) The agency head, or
    (2) An official designated by the agency head.
    Indictment. Indictment for a criminal offense. An information or 
other filing by competent authority charging a criminal offense shall be 
given the same effect as an indictment.
    Ineligible. Excluded from participation in Federal nonprocurement 
programs pursuant to a determination of ineligibility under statutory, 
executive order, or regulatory authority, other than Executive Order 
12549 and its agency implementing regulations; for example, excluded 
pursuant to the Davis-Bacon Act and its implementing regulations, the 
equal employment opportunity acts and executive orders, or the 
environmental protection acts and executive orders. A person is 
ineligible where the determination of ineligibility affects such 
person's eligibility to participate in more than one covered 
transaction.
    Legal proceedings. Any criminal proceeding or any civil judicial 
proceeding to which the Federal Government or a State or local 
government or quasi-governmental authority is a party. The term includes 
appeals from such proceedings.
    List of Parties Excluded from Federal Procurement and Nonprocurement 
Programs. A list compiled, maintained and distributed by the General 
Services Administration (GSA) containing the names and other information 
about persons who have been debarred, suspended, or voluntarily excluded 
under Executive Orders 12549 and 12689 and these regulations or 48 CFR 
part 9, subpart 9.4, persons who have been proposed for debarment under 
48 CFR part 9, subpart 9.4, and those persons who have been determined 
to be ineligible.
    Notice. A written communication served in person or sent by 
certified mail, return receipt requested, or its equivalent, to the last 
known address of a party, its identified counsel, its agent for service 
of process, or any partner, officer, director, owner, or joint venturer 
of the party. Notice, if undeliverable, shall be considered to have been 
received by the addressee five days after being properly sent to the 
last address known by the agency.
    Participant. Any person who submits a proposal for, enters into, or 
reasonably may be expected to enter into a covered transaction. This 
term also includes any person who acts on behalf of or is authorized to 
commit a participant in a covered transaction as an agent or 
representative of another participant.
    Person. Any individual, corporation, partnership, association, unit 
of government or legal entity, however organized, except: Foreign 
governments or foreign governmental entities, public international 
organizations, foreign government owned (in whole or in part) or 
controlled entities, and entities consisting wholly or partially of 
foreign governments or foreign governmental entities.

[[Page 211]]

    Preponderance of the evidence. Proof by information that, compared 
with that opposing it, leads to the conclusion that the fact at issue is 
more probably true than not.
    Principal. Officer, director, owner, partner, key employee, or other 
person within a participant with primary management or supervisory 
responsibilities; or a person who has a critical influence on or 
substantive control over a covered transaction, whether or not employed 
by the participant. Persons who have a critical influence on or 
substantive control over a covered transaction are:
    (1) Principal investigators.
    Proposal. A solicited or unsolicited bid, application, request, 
invitation to consider or similar communication by or on behalf of a 
person seeking to participate or to receive a benefit, directly or 
indirectly, in or under a covered transaction.
    Respondent. A person against whom a debarment or suspension action 
has been initiated.
    State. Any of the States of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, any territory or possession 
of the United States, or any agency of a State, exclusive of 
institutions of higher education, hospitals, and units of local 
government. A State instrumentality will be considered part of the State 
government if it has a written determination from a State government 
that such State considers that instrumentality to be an agency of the 
State government.
    Suspending official. An official authorized to impose suspension. 
The suspending official is either:
    (1) The agency head, or
    (2) An official designated by the agency head.
    Suspension. An action taken by a suspending official in accordance 
with these regulations that immediately excludes a person from 
participating in covered transactions for a temporary period, pending 
completion of an investigation and such legal, debarment, or Program 
Fraud Civil Remedies Act proceedings as may ensue. A person so excluded 
is ``suspended.''
    Voluntary exclusion or voluntarily excluded. A status of 
nonparticipation or limited participation in covered transactions 
assumed by a person pursuant to the terms of a settlement.

[57 FR 56263, Nov. 27, 1992, as amended at 60 FR 33041, 33045, June 26, 
1995]



Sec. 1404.110  Coverage.

    (a) These regulations apply to all persons who have participated, 
are currently participating or may reasonably be expected to participate 
in transactions under Federal nonprocurement programs. For purposes of 
these regulations such transactions will be referred to as ``covered 
transactions.''
    (1) Covered transaction. For purposes of these regulations, a 
covered transaction is a primary covered transaction or a lower tier 
covered transaction. Covered transactions at any tier need not involve 
the transfer of Federal funds.
    (i) Primary covered transaction. Except as noted in paragraph (a)(2) 
of this section, a primary covered transaction is any nonprocurement 
transaction between an agency and a person, regardless of type, 
including: Grants, cooperative agreements, scholarships, fellowships, 
contracts of assistance, loans, loan guarantees, subsidies, insurance, 
payments for specified use, donation agreements and any other 
nonprocurement transactions between a Federal agency and a person. 
Primary covered transactions also include those transactions specially 
designated by the U.S. Department of Housing and Urban Development in 
such agency's regulations governing debarment and suspension.
    (ii) Lower tier covered transaction. A lower tier covered 
transaction is:
    (A) Any transaction between a participant and a person other than a 
procurement contract for goods or services, regardless of type, under a 
primary covered transaction.
    (B) Any procurement contract for goods or services between a 
participant and a person, regardless of type, expected to equal or 
exceed the Federal procurement small purchase threshold fixed at 10 
U.S.C. 2304(g) and 41 U.S.C. 253(g) (currently $25,000) under a primary 
covered transaction.
    (C) Any procurement contract for goods or services between a 
participant

[[Page 212]]

and a person under a covered transaction, regardless of amount, under 
which that person will have a critical influence on or substantive 
control over that covered transaction. Such persons are:
    (1) Principal investigators.
    (2) Providers of federally-required audit services.
    (2) Exceptions. The following transactions are not covered:
    (i) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (ii) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, entities 
consisting wholly or partially of foreign governments or foreign 
governmental entities;
    (iii) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted);
    (iv) Federal employment;
    (v) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (vi) Incidental benefits derived from ordinary governmental 
operations; and
    (vii) Other transactions where the application of these regulations 
would be prohibited by law.
    (b) Relationship to other sections. This section describes the types 
of transactions to which a debarment or suspension under the regulations 
will apply. Subpart B, ``Effect of Action,'' Sec. 1404.200, ``Debarment 
or suspension,'' sets forth the consequences of a debarment or 
suspension. Those consequences would obtain only with respect to 
participants and principals in the covered transactions and activities 
described in Sec. 1404.110(a). Sections Sec. 1404.325, ``Scope of 
debarment,'' and Sec. 1404.420, ``Scope of suspension,'' govern the 
extent to which a specific participant or organizational elements of a 
participant would be automatically included within a debarment or 
suspension action, and the conditions under which affiliates or persons 
associated with a participant may also be brought within the scope of 
the action.
    (c) Relationship to Federal procurement activities. In accordance 
with E.O. 12689 and section 2455 of Public Law 103-355, any debarment, 
suspension, proposed debarment or other governmentwide exclusion 
initiated under the Federal Acquisition Regulation (FAR) on or after 
August 25, 1995 shall be recognized by and effective for Executive 
Branch agencies and participants as an exclusion under this regulation. 
Similarly, any debarment, suspension or other governmentwide exclusion 
initiated under this regulation on or after August 25, 1995 shall be 
recognized by and effective for those agencies as a debarment or 
suspension under the FAR.

[57 FR 56263, Nov. 27, 1992, as amended at 60 FR 33041, 33045, June 26, 
1995]



Sec. 1404.115  Policy.

    (a) In order to protect the public interest, it is the policy of the 
Federal Government to conduct business only with responsible persons. 
Debarment and suspension are discretionary actions that, taken in 
accordance with Executive Order 12549 and these regulations, are 
appropriate means to implement this policy.
    (b) Debarment and suspension are serious actions which shall be used 
only in the public interest and for the Federal Government's protection 
and not for purposes of punishment. Agencies may impose debarment or 
suspension for the causes and in accordance with the procedures set 
forth in these regulations.
    (c) When more than one agency has an interest in the proposed 
debarment or suspension of a person, consideration shall be given to 
designating one agency as the lead agency for making the decision. 
Agencies are encouraged to establish methods and procedures for 
coordinating their debarment or suspension actions.



                       Subpart B--Effect of Action



Sec. 1404.200  Debarment or suspension.

    (a) Primary covered transactions. Except to the extent prohibited by 
law, persons who are debarred or suspended

[[Page 213]]

shall be excluded from primary covered transactions as either 
participants or principals throughout the Executive Branch of the 
Federal Government for the period of their debarment, suspension, or the 
period they are proposed for debarment under 48 CFR part 9, subpart 9.4. 
Accordingly, no agency shall enter into primary covered transactions 
with such excluded persons during such period, except as permitted 
pursuant to Sec. 1404.215.
    (b) Lower tier covered transactions. Except to the extent prohibited 
by law, persons who have been proposed for debarment under 48 CFR part 
9, subpart 9.4, debarred or suspended shall be excluded from 
participating as either participants or principals in all lower tier 
covered transactions (see Sec. 1404.110(a)(1)(ii)) for the period of 
their exclusion.
    (c) Exceptions. Debarment or suspension does not affect a person's 
eligibility for--
    (1) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (2) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, and 
entities consisting wholly or partially of foreign governments or 
foreign governmental entities;
    (3) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted);
    (4) Federal employment;
    (5) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (6) Incidental benefits derived from ordinary governmental 
operations; and
    (7) Other transactions where the application of these regulations 
would be prohibited by law.

[60 FR 33041, 33045, June 26, 1995]



Sec. 1404.205  Ineligible persons.

    Persons who are ineligible, as defined in Sec. 1404.105(i), are 
excluded in accordance with the applicable statutory, executive order, 
or regulatory authority.



Sec. 1404.210  Voluntary exclusion.

    Persons who accept voluntary exclusions under Sec. 1404.315 are 
excluded in accordance with the terms of their settlements. The Office 
of National Drug Control Policy (ONDCP) shall, and participants may, 
contact the original action agency to ascertain the extent of the 
exclusion.



Sec. 1404.215  Exception provision.

    [Agency] may grant an exception permitting a debarred, suspended, or 
voluntarily excluded person, or a person proposed for debarment under 48 
CFR part 9, subpart 9.4, to participate in a particular covered 
transaction upon a written determination by the agency head or an 
authorized designee stating the reason(s) for deviating from the 
Presidential policy established by Executive Order 12549 and 
Sec. 1404.200. However, in accordance with the President's stated 
intention in the Executive Order, exceptions shall be granted only 
infrequently. Exceptions shall be reported in accordance with 
Sec. 1404.505(a).

[60 FR 33041, 33045, June 26, 1995]



Sec. 1404.220  Continuation of covered transactions.

    (a) Notwithstanding the debarment, suspension, proposed debarment 
under 48 CFR part 9, subpart 9.4, determination of ineligibility, or 
voluntary exclusion of any person by an agency, agencies and 
participants may continue covered transactions in existence at the time 
the person was debarred, suspended, proposed for debarment under 48 CFR 
part 9, subpart 9.4, declared ineligible, or voluntarily excluded. A 
decision as to the type of termination action, if any, to be taken 
should be made only after thorough review to ensure the propriety of the 
proposed action.
    (b) Agencies and participants shall not renew or extend covered 
transactions (other than no-cost time extensions) with any person who is 
debarred, suspended, proposed for debarment

[[Page 214]]

under 48 CFR part 9, subpart 9.4, ineligible or voluntary excluded, 
except as provided in Sec. 1404.215.

[60 FR 33041, 33045, June 26, 1995]



Sec. 1404.225  Failure to adhere to restrictions.

    (a) Except as permitted under Sec. 1404.215 or Sec. 1404.220, a 
participant shall not knowingly do business under a covered transaction 
with a person who is--
    (1) Debarred or suspended;
    (2) Proposed for debarment under 48 CFR part 9, subpart 9.4; or
    (3) Ineligible for or voluntarily excluded from the covered 
transaction.
    (b) Violation of the restriction under paragraph (a) of this section 
may result in disallowance of costs, annulment or termination of award, 
issuance of a stop work order, debarment or suspension, or other 
remedies as appropriate.
    (c) A participant may rely upon the certification of a prospective 
participant in a lower tier covered transaction that it and its 
principals are not debarred, suspended, proposed for debarment under 48 
CFR part 9, subpart 9.4, ineligible, or voluntarily excluded from the 
covered transaction (See appendix B of these regulations), unless it 
knows that the certification is erroneous. An agency has the burden of 
proof that a participant did knowingly do business with a person that 
filed an erroneous certification.

[60 FR 33041, 33045, June 26, 1995]



                          Subpart C--Debarment



Sec. 1404.300  General.

    The debarring official may debar a person for any of the causes in 
Sec. 1404.305, using procedures established in Secs. 1404.310 through 
1404.314. The existence of a cause for debarment, however, does not 
necessarily require that the person be debarred; the seriousness of the 
person's acts or omissions and any mitigating factors shall be 
considered in making any debarment decision.



Sec. 1404.305  Causes for debarment.

    Debarment may be imposed in accordance with the provisions of 
Sec. 1404.300 through Sec. 1404.314 for:
    (a) Conviction of or civil judgment for:
    (1) Commission of fraud or a criminal offense in connection with 
obtaining, attempting to obtain, or performing a public or private 
agreement or transaction;
    (2) Violation of Federal or State antitrust statutes, including 
those proscribing price fixing between competitors, allocation of 
customers between competitors, and bid rigging;
    (3) Commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, 
receiving stolen property, making false claims, or obstruction of 
justice; or
    (4) Commission of any other offense indicating a lack of business 
integrity or business honesty that seriously and directly affects the 
present responsibility of a person.
    (b) Violation of the terms of a public agreement or transaction so 
serious as to affect the integrity of an agency program, such as:
    (1) A willful failure to perform in accordance with the terms of one 
or more public agreements or transactions;
    (2) A history of failure to perform or of unsatisfactory performance 
of one or more public agreements or transactions; or
    (3) A willful violation of a statutory or regulatory provision or 
requirement applicable to a public agreement or transaction.
    (c) Any of the following causes:
    (1) A nonprocurement debarment by any Federal agency taken before 
October 1, 1988, or a procurement debarment by any Federal agency taken 
pursuant to 48 CFR subpart 9.4;
    (2) Knowingly doing business with a debarred, suspended, ineligible, 
or voluntarily excluded person, in connection with a covered 
transaction, except as permitted in Sec. 1404.215 or Sec. 1404.220;
    (3) Failure to pay a single substantial debt, or a number of 
outstanding debts (including disallowed costs and overpayments, but not 
including sums owed

[[Page 215]]

the Federal Government under the Internal Revenue Code) owed to any 
Federal agency or instrumentality, provided the debt is uncontested by 
the debtor or, if contested, provided that the debtor's legal and 
administrative remedies have been exhausted;
    (4) Violation of a material provision of a voluntary exclusion 
agreement entered into under Sec. 1404.315 or of any settlement of a 
debarment or suspension action; or
    (5) Violation of any requirement of Subpart F of this part relating 
to providing a drug-free workplace, as set forth in Sec. 1404.615 of 
this part.
    (d) Any other cause of so serious or compelling a nature that it 
affects the present responsibility of a person.



Sec. 1404.310  Procedures.

    ONDCP shall process debarment actions as informally as practicable, 
consistent with the principles of fundamental fairness, using the 
procedures in Sec. 1404.311 through Sec. 1404.314.



Sec. 1404.311  Investigation and referral.

    Information concerning the existence of a cause for debarment from 
any source shall be promptly reported, investigated, and referred, when 
appropriate, to the debarring official for consideration. After 
consideration, the debarring official may issue a notice of proposed 
debarment.



Sec. 1404.312  Notice of proposed debarment.

    A debarment proceeding shall be initiated by notice to the 
respondent advising:
    (a) That debarment is being considered;
    (b) Of the reasons for the proposed debarment in terms sufficient to 
put the respondent on notice of the conduct or transaction(s) upon which 
it is based;
    (c) Of the cause(s) relied upon under Sec. 1404.305 for proposing 
debarment;
    (d) Of the provisions of Secs. 1404.311 through 1404.314, and any 
other ONDCP procedures, if applicable, governing debarment decision 
making; and
    (e) Of the potential effect of a debarment.



Sec. 1404.313  Opportunity to contest proposed debarment.

    (a) Submission in opposition. Within 30 days after receipt of the 
notice of proposed debarment, the respondent may submit, in person, in 
writing, or through a representative, information and argument in 
opposition to the proposed debarment.
    (b) Additional proceedings as to disputed material facts. (1) In 
actions not based upon a conviction or civil judgment, if the debarring 
official finds that the respondent's submission in opposition raises a 
genuine dispute over facts material to the proposed debarment, 
respondent(s) shall be afforded an opportunity to appear with a 
representative, submit documentary evidence, present witnesses, and 
confront any witness the agency presents.
    (2) A transcribed record of any additional proceedings shall be made 
available at cost to the respondent, upon request, unless the respondent 
and the agency, by mutual agreement, waive the requirement for a 
transcript.



Sec. 1404.314  Debarring official's decision.

    (a) No additional proceedings necessary. In actions based upon a 
conviction or civil judgment, or in which there is no genuine dispute 
over material facts, the debarring official shall make a decision on the 
basis of all the information in the administrative record, including any 
submission made by the respondent. The decision shall be made within 45 
days after receipt of any information and argument submitted by the 
respondent, unless the debarring official extends this period for good 
cause.
    (b) Additional proceedings necessary. (1) In actions in which 
additional proceedings are necessary to determine disputed material 
facts, written findings of fact shall be prepared. The debarring 
official shall base the decision on the facts as found, together with 
any information and argument submitted by the respondent and any other 
information in the administrative record.
    (2) The debarring official may refer disputed material facts to 
another official for findings of fact. The debarring official may reject 
any such findings,

[[Page 216]]

in whole or in part, only after specifically determining them to be 
arbitrary and capricious or clearly erroneous.
    (3) The debarring official's decision shall be made after the 
conclusion of the proceedings with respect to disputed facts.
    (c)(1) Standard of proof. In any debarment action, the cause for 
debarment must be established by a preponderance of the evidence. Where 
the proposed debarment is based upon a conviction or civil judgment, the 
standard shall be deemed to have been met.
    (2) Burden of proof. The burden of proof is on the agency proposing 
debarment.
    (d) Notice of debarring official's decision. (1) If the debarring 
official decides to impose debarment, the respondent shall be given 
prompt notice:
    (i) Referring to the notice of proposed debarment;
    (ii) Specifying the reasons for debarment;
    (iii) Stating the period of debarment, including effective dates; 
and
    (iv) Advising that the debarment is effective for covered 
transactions throughout the executive branch of the Federal Government 
unless an agency head or an authorized designee makes the determination 
referred to in Sec. 1404.215.
    (2) If the debarring official decides not to impose debarment, the 
respondent shall be given prompt notice of that decision. A decision not 
to impose debarment shall be without prejudice to a subsequent 
imposition of debarment by any other agency.



Sec. 1404.315  Settlement and voluntary exclusion.

    (a) When in the best interest of the Government, ONDCP may, at any 
time, settle a debarment or suspension action.
    (b) If a participant and the agency agree to a voluntary exclusion 
of the participant, such voluntary exclusion shall be entered on the 
Nonprocurement List (see Subpart E of this part).



Sec. 1404.320  Period of debarment.

    (a) Debarment shall be for a period commensurate with the 
seriousness of the causes(s). If a suspension precedes a debarment, the 
suspension period shall be considered in determining the debarment 
period.
    (1) Debarment for causes other than those related to a violation of 
the requirements of Subpart F of this part generally should not exceed 
three years. When circumstances warrant, a longer period of debarment 
may be imposed.
    (2) In the case of a debarment for a violation of the requirement of 
Subpart F of this part (see Sec. 1404.305.(c)(5)), the period of 
debarment shall not exceed five years.
    (b) The debarring official may extend an existing debarment for an 
additional period, if that official determines that an extension is 
necessary to protect the public interest. However, a debarment may not 
be extended solely on the basis of the facts and circumstances upon 
which the initial debarment action was based. If debarment for an 
additional period is determined to be necessary, the procedures of 
Sec. 1404.311 through Sec. 1404.314 shall be followed to extend the 
debarment.
    (c) The respondent may request the debarring official to reverse the 
debarment decision or to reduce the period or scope of debarment. Such a 
request shall be in writing and supported by documentation. The 
debarring official may grant such a request for reasons including, but 
not limited to:
    (1) Newly discovered material evidence;
    (2) Reversal of the conviction or civil judgment upon which the 
debarment was based;
    (3) Bona fide change in ownership or management;
    (4) Elimination of other causes for which the debarment was imposed; 
or
    (5) Other reasons the debarring official deems appropriate.



Sec. 1404.325  Scope of debarment.

    (a) Scope in general. (1) Debarment of a person under these 
regulations constitutes debarment of all its divisions and other 
organizational elements from all covered transactions, unless the 
debarment decision is limited by its terms to one or more specifically 
identified individuals, divisions or other organizational elements or to 
specific types of transactions.

[[Page 217]]

    (2) The debarment action may include any affiliate of the 
participant that is specifically named and given notice of the proposed 
debarment and an opportunity to respond (see Sec. 1404.311 through 
Sec. 1404.314).
    (b) Imputing conduct. For purposes of determining the scope of 
debarment, conduct may be imputed as follows:
    (1) Conduct imputed to participant. The fraudulent, criminal or 
other seriously improper conduct of any officer, director, shareholder, 
partner, employee, or other individual associated with a participant may 
be imputed to the participant when the conduct occurred in connection 
with the individual's performance of duties for or on behalf of the 
participant, or with the participant's knowledge, approval, or 
acquiescence. The participant's acceptance of the benefits derived from 
the conduct shall be evidence of such knowledge, approval, or 
acquiescence.
    (2) Conduct imputed to individuals associated with participant. The 
fraudulent, criminal, or other seriously improper conduct of a 
participant may be imputed to any officer, director, shareholder, 
partner, employee, or other individual associated with the participant 
who participated in, knew of, or had reason to know of the participant's 
conduct.
    (3) Conduct of one participant imputed to other participants in a 
joint venture. The fraudulent, criminal, or other seriously improper 
conduct of one participant in a joint venture, grant pursuant to a joint 
application, or similar arrangement may be imputed to other participants 
if the conduct occurred for or on behalf of the joint venture, grant 
pursuant to a joint application, or similar arrangement may be imputed 
to other participants if the conduct occurred for or on behalf of the 
joint venture, grant pursuant to a joint application, or similar 
arrangement or with the knowledge, approval, or acquiescence of these 
participants. Acceptance of the benefits derived from the conduct shall 
be evidence of such knowledge, approval, or acquiescence.



                          Subpart D--Suspension



Sec. 1404.400  General.

    (a) The suspending official may suspend a person for any of the 
causes in Sec. 1404.405 using procedures established in Sec. 1404.410 
through Sec. 1404.413.
    (b) Suspension is a serious action to be imposed only when:
    (1) There exists adequate evidence of one or more of the causes set 
out in Sec. 1404.405, and
    (2) Immediate action is necessary to protect the public interest.
    (c) In assessing the adequacy of the evidence, the agency should 
consider how much information is available, how credible it is given the 
circumstances, whether or not important allegations are corroborated, 
and what inferences can reasonably be drawn as a result. This assessment 
should include an examination of basic documents such as grants, 
cooperative agreements, loan authorizations, and contracts.



Sec. 1404.405  Causes for suspension.

    (a) Suspension may be imposed in accordance with the provisions of 
Sec. 1404.400 through Sec. 1404.413 upon adequate evidence:
    (1) To suspect the commission of an offense listed in 
Sec. 1404.305(a); or
    (2) That a cause for debarment under Sec. 1404.305 may exist.
    (b) Indictment shall constitute adequate evidence for purposes of 
suspension actions.



Sec. 1404.410  Procedures.

    (a) Investigation and referral. Information concerning the existence 
of a cause for suspension from any source shall be promptly reported, 
investigated, and referred, when appropriate, to the suspending official 
for consideration. After consideration, the suspending official may 
issue a notice of suspension.
    (b) Decision making process. ONDCP shall process suspension actions 
as informally as practicable, consistent with principles of fundamental 
fairness, using the procedures in Sec. 1404.411 through Sec. 1404.413.

[[Page 218]]



Sec. 1404.411  Notice of suspension.

    When a respondent is suspended, notice shall immediately be given:
    (a) That suspension has been imposed;
    (b) That the suspension is based on an indictment, conviction, or 
other adequate evidence that the respondent has committed irregularities 
seriously reflecting on the propriety of further Federal Government 
dealings with the respondent;
    (c) Describing any such irregularities in terms sufficient to put 
the respondent on notice without disclosing the Federal Government's 
evidence;
    (d) Of the cause(s) relied upon under Sec. 1404.405 for imposing 
suspension;
    (e) That the suspension is for a temporary period pending the 
completion of an investigation or ensuing legal, debarment, or Program 
Fraud Civil Remedies Act proceedings;
    (f) Of the provisions of Sec. 1404.411 through Sec. 1404.413 and any 
other ONDCP procedures, if applicable, governing suspension decision 
making; and
    (g) Of the effect of the suspension.



Sec. 1404.412  Opportunity to contest suspension.

    (a) Submission in opposition. Within 30 days after receipt of the 
notice of suspension, the respondent may submit, in person, in writing, 
or through a representative, information and argument in opposition to 
the suspension.
    (b) Additional proceedings as to disputed material facts. (1) If the 
suspending official finds that the respondent's submission in opposition 
raises a genuine dispute over facts material to the suspension, 
respondent(s) shall be afforded an opportunity to appear with a 
representative, submit documentary evidence, present witnesses, and 
confront any witness the agency presents, unless:
    (i) The action is based on an indictment, conviction or civil 
judgment, or
    (ii) A determination is made, on the basis of Department of Justice 
advice, that the substantial interests of the Federal Government in 
pending or contemplated legal proceedings based on the same facts as the 
suspension would be prejudiced.
    (2) A transcribed record of any additional proceedings shall be 
prepared and made available at cost to the respondent, upon request, 
unless the respondent and the agency, by mutual agreement, waive the 
requirement for a transcript.



Sec. 1404.413  Suspending official's decision.

    The suspending official may modify or terminate the suspension (for 
example, see Sec. 1404.320(c) for reasons for reducing the period or 
scope of debarment) or may leave it in force. However, a decision to 
modify or terminate the suspension shall be without prejudice to the 
subsequent imposition of suspension by any other agency or debarment by 
any agency. The decision shall be rendered in accordance with the 
following provisions:
    (a) No additional proceedings necessary. In actions: based on an 
indictment, conviction, or civil judgment; in which there is no genuine 
dispute over material facts; or in which additional proceedings to 
determine disputed material facts have been denied on the basis of 
Department of Justice advice, the suspending official shall make a 
decision on the basis of all the information in the administrative 
record, including any submission made by the respondent. The decision 
shall be made within 45 days after receipt of any information and 
argument submitted by the respondent, unless the suspending official 
extends this period for good cause.
    (b) Additional proceedings necessary. (1) In actions in which 
additional proceedings are necessary to determine disputed material 
facts, written findings of fact shall be prepared. The suspending 
official shall base the decision on the facts as found, together with 
any information and argument submitted by the respondent and any other 
information in the administrative record.
    (2) The suspending official may refer matters involving disputed 
material facts to another official for findings of fact. The suspending 
official may reject any such findings, in whole or in part, only after 
specifically determining them to be arbitrary or capricious or clearly 
erroneous.

[[Page 219]]

    (c) Notice of suspending official's decision. Prompt written notice 
of the suspending official's decision shall be sent to the respondent.



Sec. 1404.415  Period of suspension.

    (a) Suspension shall be for a temporary period pending the 
completion of an investigation or ensuing legal, debarment, or Program 
Fraud Civil Remedies Act proceedings, unless terminated sooner by the 
suspending official or as provided in paragraph (b) of this section.
    (b) If legal or administrative proceedings are not initiated within 
12 months after the date of the suspension notice, the suspension shall 
be terminated unless an Assistant Attorney General or United States 
Attorney requests its extension in writing, in which case it may be 
extended for an additional six months. In no event may a suspension 
extend beyond 18 months, unless such proceedings have been initiated 
within that period.
    (c) The suspending official shall notify the Department of Justice 
of an impending termination of a suspension, at least 30 days before the 
12-month period expires, to give that Department an opportunity to 
request an extension.



Sec. 1404.420  Scope of suspension.

    The scope of a suspension is the same as the scope of a debarment 
(see Sec. 1404.325), except that the procedures of Sec. 1404.410 through 
Sec. 1404.413 shall be used in imposing a suspension.



       Subpart E--Responsibilities of GSA, Agency and Participants



Sec. 1404.500  GSA responsibilities.

    (a) In accordance with the OMB guidelines, GSA shall compile, 
maintain, and distribute a list of all persons who have been debarred, 
suspended, or voluntarily excluded by agencies under Executive Order 
12549 and these regulations, and those who have been determined to be 
ineligible.
    (b) At a minimum, this list shall indicate:
    (1) The names and addresses of all debarred, suspended, ineligible, 
and voluntarily excluded persons, in alphabetical order, with cross-
references when more than one name is involved in a single action;
    (2) The type of action;
    (3) The cause for the action;
    (4) The scope of the action;
    (5) Any termination date for each listing; and
    (6) The agency and name and telephone number of the agency point of 
contact for the action.



Sec. 1404.505  ONDCP responsibilities.

    (a) The agency shall provide GSA with current information concerning 
debarments, suspension, determinations of ineligibility, and voluntary 
exclusions it has taken.
    (b) Unless an alternative schedule is agreed to by GSA, the agency 
shall advise GSA of the information set forth in Sec. 1404.500(b) and of 
the exceptions granted under Sec. 1404.215 within five working days 
after taking such actions.
    (c) The agency shall direct inquiries concerning listed persons to 
the agency that took the action.
    (d) Agency officials shall check the Nonprocurement List before 
entering covered transactions to determine whether a participant in a 
primary transaction is debarred, suspended, ineligible, or voluntarily 
excluded (Tel. 1B).
    (e) Agency officials shall check the Nonprocurement List before 
approving principals or lower tier participants where agency approval of 
the principal or lower tier participant is required under the terms of 
the transaction, to determine whether such principals or participants 
are debarred, suspended, ineligible, or voluntarily excluded.



Sec. 1404.510  Participants' responsibilities.

    (a) Certification by participants in primary covered transactions. 
Each participant shall submit the certification in appendix A to this 
part for it and its principals at the time the participant submits its 
proposal in connection with a primary covered transaction, except that 
States need only complete such certification as to their principals. 
Participants may decide the method and frequency by which they determine 
the eligibility of their principals. In addition, each participant may, 
but is

[[Page 220]]

not required to, check the Nonprocurement List for its principals. 
Adverse information on the certification will not necessarily result in 
denial of participation. However, the certification, and any additional 
information pertaining to the certification submitted by the 
participant, shall be considered in the administration of covered 
transactions.
    (b) Certification by participants in lower tier covered 
transactions. (1) Each participant shall require participants in lower 
tier covered transactions to include the certification in Appendix B to 
this Part for it and its principals in any proposal submitted in 
connection with such lower tier covered transactions.
    (2) A participant may rely upon the certification of a prospective 
participant in a lower tier covered transaction that it and its 
principals are not debarred, suspended, ineligible, or voluntarily 
excluded from the covered transaction by any Federal agency, unless it 
knows that the certification is erroneous. Participants may decide the 
method and frequency by which they determine the eligibility of their 
principals. In addition, a participant may, but is not required to, 
check the Nonprocurement List for its principals and for participants.
    (c) Changed circumstances regarding certification. A participant 
shall provide immediate written notice to ONDCP if at any time the 
participant learns that its certification was erroneous when submitted 
or has become erroneous by reason of changed circumstances. Participants 
in lower tier covered transactions shall provide the same updated notice 
to the participant to which it submitted its proposals.



          Subpart F--Drug-Free Workplace Requirements (Grants)



Sec. 1404.600  Purpose.

    (a) The purpose of this subpart is to carry out the Drug-Free 
Workplace Act of 1988 by requiring that--
    (1) A grantee, other than an individual, shall certify to the agency 
that it will provide a drug-free workplace;
    (2) A grantee who is an individual shall certify to the agency that, 
as a condition of the grant, he or she will not engage in the unlawful 
manufacture, distribution, dispensing, possession or use of a controlled 
substance in conducting any activity with the grant.
    (b) Requirements implementing the Drug-Free Workplace Act of 1988 
for contractors with the agency are found at 48 CFR subparts 9.4, 23.5, 
and 52.2.



Sec. 1404.605  Definitions.

    (a) Except as amended in this section, the definitions of 
Sec. 1404.105 apply to this subpart.
    (b) For purposes of this subpart--
    (1) 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 at 21 CFR 1308.11 through 1308.15;
    (2) 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;
    (3) Criminal drug statute means a Federal or non-Federal criminal 
statute involving the manufacture, distribution, dispensing, use, or 
possession of any controlled substance;
    (4) Drug-free workplace means a site for the performance of work 
done in connection with a specific grant at which employees of the 
grantee are prohibited from engaging in the unlawful manufacture, 
distribution, dispensing, possession, or use of a controlled substance;
    (5) Employee means the employee of a grantee directly engaged in the 
performance of work under the 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

[[Page 221]]

not on the payroll; or employees of subrecipients or subcontractors in 
covered workplaces);
    (6) Federal agency or agency means any United States executive 
department, military department, government corporation, government 
controlled corporation, any other establishment in the executive branch 
(including the Executive Office of the President), or any independent 
regulatory agency;
    (7) Grant means an award of financial assistance, including a 
cooperative agreement, in the form of money, or property in lieu of 
money, by a Federal agency directly to a grantee. The term grant 
includes block grant and entitlement grant programs, whether or not 
exempted from coverage under the grants management government 
government-wide common rule on uniform administrative requirements for 
grants and cooperative agreements. The term does not include technical 
assistance that provides services instead of money, or other assistance 
in the form of loans, loan guarantees, interest subsidies, insurance, or 
direct appropriations; or any veterans' benefits to individuals, i.e., 
any benefit to veterans, their families, or survivors by virtue of the 
service of a veteran in the Armed Forces of the United States;
    (8) Grantee means a person who applies for or receives a grant 
directly from a Federal agency (except another Federal agency);
    (9) Individual means a natural person;
    (10) State means any of the States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or any agency of a State, exclusive of 
institutions of higher education, hospitals, and units of local 
government. A State instrumentality will be considered part of the State 
government if it has a written determination from a State government 
that such State considers the instrumentality to be an agency of the 
State government.



Sec. 1404.610  Coverage.

    (a) This subpart applies to any grantee of the agency.
    (b) This subpart applies to any grant, except where application of 
this subpart would be inconsistent with the international obligations of 
the United States or the laws or regulations of a foreign government. A 
determination of such inconsistency may be made only by the agency head 
or his/her designee.
    (c) The provisions of subparts A, B, C, D and E of this part apply 
to matters covered by this subpart, except where specifically modified 
by this subpart. In the event of any conflict between provisions of this 
subpart and other provisions of this part, the provisions of this 
subpart are deemed to control with respect to the implementation of 
drug-free workplace requirements concerning grants.



Sec. 1404.615  Grounds for suspension of payments, suspension or 
termination of grants, or suspension or debarment.

    A grantee shall be deemed in violation of the requirements of this 
subpart if the agency head or his or her official designee determines, 
in writing, that--
    (a) The grantee has made a false certification under Sec. 1404.630;
    (b) With respect to a grantee other than an individual--
    (1) The grantee has violated the certification by failing to carry 
out the requirements of subparagraphs (A)(a)-(g) and/or (B) of the 
certification (Alternate I to Appendix C); or
    (2) Such a member of employees of the grantee have been convicted of 
violations of criminal drug statutes for violations occurring in the 
workplace as to indicate that the grantee has failed to make a good 
faith effort to provide a drug-free workplace.
    (c) With respect to a grantee who is an individual--
    (1) The grantee has violated the certification by failing to carry 
out its requirements (Alternate II to Appendix C); or
    (2) The grantee is convicted of a criminal drug offense resulting 
from a violation occurring during the conduct of any grant activity.



Sec. 1404.620  Effect of violation.

    (a) In the event of a violation of this subpart as provided in 
Sec. 1404.615, and in accordance with applicable law, the

[[Page 222]]

grantee shall be subject to one or more of the following actions:
    (1) Suspension of payments under the grant;
    (2) Suspension or termination of the grant; and
    (3) Suspension or debarment of the grantee under the provisions of 
this part.
    (b) Upon issuance of any final decision under this part requiring 
debarment of a grantee, the debarred grantee shall be ineligible for 
award of any grant from any Federal agency for a period specified in the 
decision, not to exceed five years (see Sec. 1404.320(a)(2) of this 
part).



Sec. 1404.625  Exception provision.

    The agency head may waive with respect to a particular grant, in 
writing, a suspension of payments under a grant, suspension or 
termination of a grant, or suspension or debarment of a grantee if the 
agency head determines that such a waiver would be in the public 
interest. This exception authority cannot be delegated to any other 
official.



Sec. 1404.630  Certification requirements and procedures.

    (a)(1) As a prior condition of being awarded a grant, each grantee 
shall make the appropriate certification to the Federal agency providing 
the grant, as provided in Appendix C to this part.
    (2) Grantees are not required to make a certification in order to 
continue receiving funds under a grant awarded before March 18, 1989, or 
under a no-cost time extension of such a grant. However, the grantee 
shall make a one-time drug-free workplace certification for a non-
automatic continuation of such a grant made on or after March 18, 1989.
    (b) Except as provided in this section, all grantees shall make the 
required certification for each grant. For mandatory formula grants and 
entitlements that have no application process, grantees shall submit a 
one-time certification in order to continue receiving awards.
    (c) A grantee that is a State may elect to make one certification in 
each Federal fiscal year. States that previously submitted an annual 
certification are not required to make a certification for Fiscal Year 
1990 until June 30, 1990. Except as provided in paragraph (d) of this 
section, this certification shall cover all grants to all State agencies 
from any Federal agency. The State shall retain the original of this 
statewide certification in its Governor's office and, prior to grant 
award, shall ensure that a copy is submitted individually with respect 
to each grant, unless the Federal agency had designated a central 
location for submission.
    (d)(1) The Governor of a State may exclude certain State agencies 
from the statewide certification and authorize these agencies to submit 
their own certifications to Federal agencies. The statewide 
certification shall name any State agencies so excluded.
    (2) A State agency to which the statewide certification does not 
apply, or a State agency in a State that does not have a statewide 
certification, may elect to make one certification in each Federal 
fiscal year. State agencies that previously submitted a State agency 
certification are not required to make a certification for Fiscal Year 
1990 until June 30, 1990. The State agency shall retain the original of 
this State agency-wide certification in its central office and, prior to 
grant award, shall ensure that a copy is submitted individually with 
respect to each grant, unless the Federal agency designates a central 
location for submission.
    (3) When the work of a grant is done by more than one State agency, 
the certification of the State agency directly receiving the grant shall 
be deemed to certify compliance for all workplaces, including those 
located in other State agencies.
    (e)(1) For a grant of less than 30 days performance duration, 
grantees shall have this policy statement and program in place as soon 
as possible, but in any case by a date prior to the date on which 
performance is expected to be completed.
    (2) For a grant of 30 days or more performance duration, grantees 
shall have this policy statement and program in place within 30 days 
after award.
    (3) Where extraordinary circumstances warrant for a specific

[[Page 223]]

grant, the grant officer may determine a different date on which the 
policy statement and program shall be in place.



Sec. 1404.635  Reporting of and employee sanctions for convictions of 
criminal drug offenses.

    (a) When a grantee other than an individual is notified that an 
employee has been convicted for a violation of a criminal drug statute 
occurring in the workplace, it shall take the following actions:
    (1) Within 10 calendar days of receiving notice of the conviction, 
the grantee shall provide written notice, including the convicted 
employee's position title, to every grant officer, or other designee on 
whose grant activity the convicted employee was working, unless a 
Federal agency has designated a central point for the receipt of such 
notifications. Notification shall include the identification number(s) 
for each of the Federal agency's affected grants.
    (2) Within 30 calendar days of receiving notice of the conviction, 
the grantee shall do the following with respect to the employee who was 
convicted:
    (i) Take appropriate personnel action against the employee, up to 
and including termination, consistent with requirements of the 
Rehabilitation Act of 1973, as amended; or
    (ii) Require the employee to participate satisfactorily 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.
    (b) A grantee who is an individual who is convicted for a violation 
of a criminal drug statute occurring during the conduct of any grant 
activity shall report the conviction, in writing, within 10 calendar 
days, to his or her Federal agency grant officer, or other designee, 
unless the Federal agency has designated a central point for the receipt 
of such notices. Notification shall include the identification number(s) 
for each of the Federal agency's affected grants.

Appendix A to Part 1404--Certification Regarding Debarment, Suspension, 
     and Other Responsibility Matters--Primary Covered Transactions

                     Instructions for Certification

    1. By signing and submitting this proposal, the prospective primary 
participant is providing the certification set out below.
    2. The inability of a person to provide the certification required 
below will not necessarily result in denial of participation in this 
covered transaction. The prospective participant shall submit an 
explanation of why it cannot provide the certification set out below. 
The certification or explanation will be considered in connection with 
the department or agency's determination whether to enter into this 
transaction. However, failure of the prospective primary participant to 
furnish a certification or an explanation shall disqualify such person 
from participation in this transaction.
    3. The certification in this clause is a material representation of 
fact upon which reliance was placed when the department or agency 
determined to enter into this transaction. If it is later determined 
that the prospective primary participant knowingly rendered an erroneous 
certification, in addition to other remedies available to the Federal 
Government, the department or agency may terminate this transaction for 
cause or default.
    4. The prospective primary participant shall provide immediate 
written notice to the department or agency to which this proposal is 
submitted if at any time the prospective primary participant learns that 
its certification was erroneous when submitted or has become erroneous 
by reason of changed circumstances.
    5. The terms covered transaction, debarred, suspended, ineligible, 
lower tier covered transaction, participant, person, primary covered 
transaction, principal, proposal, and voluntarily excluded, as used in 
this clause, have the meanings set out in the Definitions and Coverage 
sections of the rules implementing Executive Order 12549. You may 
contact the department or agency to which this proposal is being 
submitted for assistance in obtaining a copy of those regulations.
    6. The prospective primary participant agrees by submitting this 
proposal that, should the proposed covered transaction be entered into, 
it shall not knowingly enter into any lower tier covered transaction 
with a person who is proposed for debarment under 48 CFR part 9, subpart 
9.4, debarred, suspended, declared ineligible, or voluntarily excluded 
from participation in this covered

[[Page 224]]

transaction, unless authorized by the department or agency entering into 
this transaction.
    7. The prospective primary participant further agrees by submitting 
this proposal that it will include the clause titled ``Certification 
Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion-
Lower Tier Covered Transaction,'' provided by the department or agency 
entering into this covered transaction, without modification, in all 
lower tier covered transactions and in all solicitations for lower tier 
covered transactions.
    8. A participant in a covered transaction may rely upon a 
certification of a prospective participant in a lower tier covered 
transaction that it is not proposed for debarment under 48 CFR part 9, 
subpart 9.4, debarred, suspended, ineligible, or voluntarily excluded 
from the covered transaction, unless it knows that the certification is 
erroneous. A participant may decide the method and frequency by which it 
determines the eligibility of its principals. Each participant may, but 
is not required to, check the List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs.
    9. Nothing contained in the foregoing shall be construed to require 
establishment of a system of records in order to render in good faith 
the certification required by this clause. The knowledge and information 
of a participant is not required to exceed that which is normally 
possessed by a prudent person in the ordinary course of business 
dealings.
    10. Except for transactions authorized under paragraph 6 of these 
instructions, if a participant in a covered transaction knowingly enters 
into a lower tier covered transaction with a person who is proposed for 
debarment under 48 CFR part 9, subpart 9.4, suspended, debarred, 
ineligible, or voluntarily excluded from participation in this 
transaction, in addition to other remedies available to the Federal 
Government, the department or agency may terminate this transaction for 
cause or default.

Certification Regarding Debarment, Suspension, and Other Responsibility 
                  Matters--Primary Covered Transactions

    (1) The prospective primary participant certifies to the best of its 
knowledge and belief, that it and its principals:
    (a) Are not presently debarred, suspended, proposed for debarment, 
declared ineligible, or voluntarily excluded by any Federal department 
or agency;
    (b) Have not within a three-year period preceding this proposal been 
convicted of or had a civil judgment rendered against them for 
commission of fraud or a criminal offense in connection with obtaining, 
attempting to obtain, or performing a public (Federal, State or local) 
transaction or contract under a public transaction; violation of Federal 
or State antitrust statutes or commission of embezzlement, theft, 
forgery, bribery, falsification or destruction of records, making false 
statements, or receiving stolen property;
    (c) Are not presently indicted for or otherwise criminally or 
civilly charged by a governmental entity (Federal, State or local) with 
commission of any of the offenses enumerated in paragraph (1)(b) of this 
certification; and
    (d) Have not within a three-year period preceding this application/
proposal had one or more public transactions (Federal, State or local) 
terminated for cause or default.
    (2) Where the prospective primary participant is unable to certify 
to any of the statements in this certification, such prospective 
participant shall attach an explanation to this proposal.

[60 FR 33042, 33045, June 26, 1995]

Appendix B to Part 1404--Certification Regarding Debarment, Suspension, 
 Ineligibility and Voluntary Exclusion--Lower Tier Covered Transactions

                     Instructions for Certification

    1. By signing and submitting this proposal, the prospective lower 
tier participant is providing the certification set out below.
    2. The certification in this clause is a material representation of 
fact upon which reliance was placed when this transaction was entered 
into. If it is later determined that the prospective lower tier 
participant knowingly rendered an erroneous certification, in addition 
to other remedies available to the Federal Government the department or 
agency with which this transaction originated may pursue available 
remedies, including suspension and/or debarment.
    3. The prospective lower tier participant shall provide immediate 
written notice to the person to which this proposal is submitted if at 
any time the prospective lower tier participant learns that its 
certification was erroneous when submitted or had become erroneous by 
reason of changed circumstances.
    4. The terms covered transaction, debarred, suspended, ineligible, 
lower tier covered transaction, participant, person, primary covered 
transaction, principal, proposal, and voluntarily excluded, as used in 
this clause, have the meaning set out in the Definitions and Coverage 
sections of rules implementing Executive Order 12549. You may contact 
the person to which this proposal is submitted for assistance in 
obtaining a copy of those regulations.
    5. The prospective lower tier participant agrees by submitting this 
proposal that,

[[Page 225]]

should the proposed covered transaction be entered into, it shall not 
knowingly enter into any lower tier covered transaction with a person 
who is proposed for debarment under 48 CFR part 9, subpart 9.4, 
debarred, suspended, declared ineligible, or voluntarily excluded from 
participation in this covered transaction, unless authorized by the 
department or agency with which this transaction originated.
    6. The prospective lower tier participant further agrees by 
submitting this proposal that it will include this clause titled 
``Certification Regarding Debarment, Suspension, Ineligibility and 
Voluntary Exclusion-Lower Tier Covered Transaction,'' without 
modification, in all lower tier covered transactions and in all 
solicitations for lower tier covered transactions.
    7. A participant in a covered transaction may rely upon a 
certification of a prospective participant in a lower tier covered 
transaction that it is not proposed for debarment under 48 CFR part 9, 
subpart 9.4, debarred, suspended, ineligible, or voluntarily excluded 
from covered transactions, unless it knows that the certification is 
erroneous. A participant may decide the method and frequency by which it 
determines the eligibility of its principals. Each participant may, but 
is not required to, check the List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs.
    8. Nothing contained in the foregoing shall be construed to require 
establishment of a system of records in order to render in good faith 
the certification required by this clause. The knowledge and information 
of a participant is not required to exceed that which is normally 
possessed by a prudent person in the ordinary course of business 
dealings.
    9. Except for transactions authorized under paragraph 5 of these 
instructions, if a participant in a covered transaction knowingly enters 
into a lower tier covered transaction with a person who is proposed for 
debarment under 48 CFR part 9, subpart 9.4, suspended, debarred, 
ineligible, or voluntarily excluded from participation in this 
transaction, in addition to other remedies available to the Federal 
Government, the department or agency with which this transaction 
originated may pursue available remedies, including suspension and/or 
debarment.

    Certification Regarding Debarment, Suspension, Ineligibility an 
          Voluntary Exclusion--Lower Tier Covered Transactions

    (1) The prospective lower tier participant 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.

[60 FR 33042, 33045, June 26, 1995]

  Appendix C to Part 1404--Certification Regarding Drug-Free Workplace 
                              Requirements

                     Instructions for Certification

    1. By signing and/or submitting this application or grant agreement, 
the grantee is providing the certification set out below.
    2. The certification set out below 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 the 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.
    3. For grantees other than individuals, Alternate I applies.
    4. For grantees who are individuals, Alternate II applies.
    5. 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 
certification. 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

[[Page 226]]

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 grantee's 
payroll; or employees of subrecipients or subcontractors in covered 
workplaces).

        Certification Regarding Drug-Free Workplace Requirements

Alternate I. (Grantees Other Than Individuals)
    A. The grantee certifies that it will or will continue to provide a 
drug-free workplace by:
    (a) Publishing a statement notifying employees that the unlawful 
manufacture, distribution, dispensing, possession, or use of a 
controlled substance is prohibited in the grantee's workplace and 
specifying the actions that will be taken against employees for 
violation of such prohibition;
    (b) Establishing an ongoing drug-free awareness program to inform 
employees about--
    (1) The dangers of drug abuse in the workplace;
    (2) The grantee's policy of maintaining a drug-free workplace;
    (3) Any available drug counseling, rehabilitation, and employee 
assistance programs; and
    (4) The penalties that may be imposed upon employees for drug abuse 
violations occurring in the workplace;
    (c) Making it a requirement that each employee to be engaged in the 
performance of the grant be given a copy of the statement required by 
paragraph (a);
    (d) Notifying the employee in the statement required by paragraph 
(a) that, as a condition of employment under the grant, the employee 
will--
    (1) Abide by the terms of the statement; and
    (2) Notify the employer in writing of his or her conviction for a 
violation of a criminal drug statute occurring in the workplace no later 
than five calendar days after such conviction;
    (e) Notifying the agency in writing, within ten calendar days after 
receiving notice under subparagraph (d)(2) from an employee or otherwise 
receiving actual notice of such conviction. Employers of convicted 
employees must provide notice, including position title, to every grant 
officer or other designee on whose grant activity the convicted employee 
was working, unless the Federal agency has designated a central point 
for the receipt of such notices. Notice shall include the identification 
number(s) of each affected grant;
    (f) Taking one of the following actions, within 30 calendar days of 
receiving notice under subparagraph (d)(2), with respect to any employee 
who is so convicted--
    (1) Taking appropriate personnel action against such an employee, up 
to and including termination, consistent with the requirements of the 
Rehabilitation Act of 1973, as amended; or
    (2) Requiring such employee to participate satisfactorily 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;
    (g) Making a good faith effort to continue to maintain a drug-free 
workplace through implementation of paragraphs (a), (b), (c), (d), (e) 
and (f).
    B. The grantee may insert in the space provided below the site(s) 
for the performance of work done in connection with the specific grant:

Place of Performance (Street address, city, county, state, zip code)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Check {time}  if there are workplaces on file that are not identified 
here.
Alternate II. (Grantees Who Are Individuals)
    (a) The grantee certifies that, as a condition of the grant, he or 
she will not engage in the unlawful manufacture, distribution, 
dispensing, possession, or use of a controlled substance in conducting 
any activity with the grant;
    (b) If convicted of a criminal drug offense resulting from a 
violation occurring during the conduct of any grant activity, he or she 
will report the conviction, in writing, within 10 calendar days of the 
conviction, to every grant officer or other designee, unless the Federal 
agency designates a central point for the receipt of such notices. When 
notice is made to such a central point, it shall include the 
identification number(s) of each affected grant.

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                       PARTS 1405-1499 [RESERVED]