(a) A State must expand and account for grant funds in accordance with Statelaws and procedures for expending and accounting for its own funds. Fiscalcontrol and accounting procedures of the State, as well as its subgrantees andcost-type contractors, must be sufficient to—

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

(2) Permit the tracing of funds to a level of expenditures adequate toestablish that such funds have not been used in violation of the restrictionsand prohibitions of applicable statutes.

(b) The financial management systems of other grantees and subgrantees mustmeet the following standards:

(1) Financial reporting. Accurate, current, and completedisclosure of the financial results of financially assisted activities must bemade in accordance with the financial reporting requirements of the grant orsubgrant.

(2) Accounting records. Grantees and subgrantees must maintainrecords which adequately identify the source and application of funds providedfor financially-assisted activities. These records must contain informationpertaining to grant or subgrant awards and authorizations, obligations,unobligated balances, assets, liabilities, outlays or expenditures, and income.

(3) Internal control. Effective control and accountability mustbe maintained for all grant and subgrant cash, real and personal property, andother assets. Grantees and subgrantees must adequately safeguard all suchproperty and must assure that it is used solely for authorized purposes.

(4) Budget control. Actual expenditures or outlays must becompared with budgeted amounts for each grant or subgrant. Financial informationmust be related to performance or productivity data, including the developmentof unit cost information whenever appropriate or specifically required in thegrant or subgrant agreement. If unit cost data are required, estimates based onavailable documentation will be accepted whenever possible.

(5) Allowable cost. Applicable OMB cost principles, agencyprogram regulations, and the terms of grant and subgrant agreements will befollowed in determining the reasonableness, allowability, and allocability ofcosts.

(6) Source documentation. Accounting records must be supportedby such source documentation as cancelled checks, paid bills, payrolls, time andattendance records, contract and subgrant award documents, etc.

(7) Cash management. Procedures for minimizing the timeelapsing between the transfer of funds from the U.S. Treasury and disbursementby grantees and subgrantees must be followed whenever advance payment proceduresare used. Grantees must establish reasonable procedures to ensure the receipt ofreports on subgrantees' cash balances and cash disbursements in sufficient timeto enable them to prepare complete and accurate cash transactions reports to theawarding agency. When advances are made by letter-of-credit or electronictransfer of funds methods, the grantee must make drawdowns as close as possibleto the time of making disbursements. Grantees must monitor cash drawdowns bytheir subgrantees to assure that they conform substantially to the samestandards of timing and amount as apply to advances to the grantees.

(c) An awarding agency may review the adequacy of the financial managementsystem of any applicant for financial assistance as part of a preaward review orat any time subsequent to award.

(a) Scope. This section prescribes the basic standard and themethods under which a Federal agency will make payments to grantees, andgrantees will make payments to subgrantees and contractors.

(b) Basic standard. Methods and procedures for payment shallminimize the time elapsing between the transfer of funds and disbursement by thegrantee or subgrantee, in accordance with Treasury regulations at 31 CFR part205.

(c) Advances. Grantees and subgrantees shall be paid inadvance, provided they maintain or demonstrate the willingness and ability tomaintain procedures to minimize the time elapsing between the transfer of thefunds and their disbursement by the grantee or subgrantee.

(d) Reimbursement. Reimbursement shall be the preferred methodwhen the requirements in paragraph (c) of this section are not met. Grantees andsubgrantees may also be paid by reimbursement for any construction grant. Exceptas otherwise specified in regulation, Federal agencies shall not use thepercentage of completion method to pay construction grants. The grantee orsubgrantee may use that method to pay its construction contractor, and if itdoes, the awarding agency's payments to the grantee or subgrantee will be basedon the grantee's or subgrantee's actual rate of disbursement.

(e) Working capital advances. If a grantee cannot meet thecriteria for advance payments described in paragraph (c) of this section, andthe Federal agency has determined that reimbursement is not feasible because thegrantee lacks sufficient working capital, the awarding agency may provide cashor a working capital advance basis. Under this procedure the awarding agencyshall advance cash to the grantee to cover its estimated disbursement needs foran initial period generally geared to the grantee's disbursing cycle.Thereafter, the awarding agency shall reimburse the grantee for its actual cashdisbursements. The working capital advance method of payment shall not be usedby grantees or subgrantees if the reason for using such method is theunwillingness or inability of the grantee to provide timely advances to thesubgrantee to meet the subgrantee's actual cash disbursements.

(f) Effect of program income, refunds, and audit recoveries onpayment. (1) Grantees and subgrantees shall disburse repayments to andinterest earned on a revolving fund before requesting additional cash paymentsfor the same activity.

(2) Except as provided in paragraph (f)(1) of this section, grantees andsubgrantees shall disburse program income, rebates, refunds, contractsettlements, audit recoveries and interest earned on such funds beforerequesting additional cash payments.

(g) Withholding payments. (1) Unless otherwise required byFederal statute, awarding agencies shall not withhold payments for propercharges incurred by grantees or subgrantees unless—

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

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

(2) Cash withheld for failure to comply with grant award condition, butwithout suspension of the grant, shall be released to the grantee uponsubsequent compliance. When a grant is suspended, payment adjustments will bemade in accordance with § 66.43(c).

(3) A Federal agency shall not make payment to grantees for amounts that arewithheld by grantees or subgrantees from payment to contractors to assuresatisfactory completion of work. Payments shall be made by the Federal agencywhen the grantees or subgrantees actually disburse the withheld funds to thecontractors or to escrow accounts established to assure satisfactory completionof work.

(h) Cash depositories. (1) Consistent with the national goal ofexpanding the opportunities for minority business enterprises, grantees andsubgrantees are encouraged to use minority banks (a bank which is owned at least50 percent by minority group members). A list of minority owned banks can beobtained from the Minority Business Development Agency, Department of Commerce,Washington, DC 20230.

(2) A grantee or subgrantee shall maintain a separate bank account only whenrequired by Federal-State agreement.

(i) Interest earned on advances. Except for interest earned onadvances 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), granteesand subgrantees shall promptly, but at least quarterly, remit interest earned onadvances to the Federal agency. The grantee or subgrantee may keep interestamounts up to $100 per year for administrative expenses.

(a) Limitation on use of funds. Grant funds may be used onlyfor:

(1) The allowable costs of the grantees, subgrantees and cost-typecontractors, including allowable costs in the form of payments to fixed-pricecontractors; and

(2) Reasonable fees or profit to cost-type contractors but not any fee orprofit (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. Allowablecosts will be determined in accordance with the cost principles applicable tothe organization incurring the costs. The following chart lists the kinds oforganizations and the applicable cost principles.

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

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

(a) Basic rule: Costs and contributions acceptable. With thequalifications and exceptions listed in paragraph (b) of this section, amatching or cost sharing requirement may be satisfied by either or both of thefollowing:

(1) Allowable costs incurred by the grantee, subgrantee or a cost-typecontractor under the assistance agreement. This includes allowable costs borneby non-Federal grants or by others cash donations from non-Federal thirdparties.

(2) The value of third party in-kind contributions applicable to the periodto which the cost sharing or matching requirements applies.

(b) Qualifications and exceptions—(1) Costsborne by other Federal grant agreements. Except as provided by Federalstatute, a cost sharing or matching requirement may not be met by costs borne byanother Federal grant. This prohibition does not apply to income earned by agrantee 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 notconsidered Federal grant funds.

(3) Cost or contributions counted towards other Federal costs-sharing requirements. Neither costs nor the values of third party in-kindcontributions may count towards satisfying a cost sharing or matchingrequirement of a grant agreement if they have been or will be counted towardssatisfying a cost sharing or matching requirement of another Federal grantagreement, a Federal procurement contract, or any other award of Federal funds.

(4) Costs financed by program income. Costs financed by programincome, as defined in § 66.25, shall not count towards satisfying acost sharing or matching requirement unless they are expressly permitted in theterms of the assistance agreement. (This use of general program income isdescribed in § 66.25(g).)

(5) Services or property financed by income earned bycontractors. Contractors under a grant may earn income from the activitiescarried out under the contract in addition to the amounts earned from the partyawarding the contract. No costs of services or property supported by this incomemay count toward satisfying a cost sharing or matching requirement unless otherprovisions of the grant agreement expressly permit this kind of income to beused to meet the requirement.

(6) Records. Costs and third party in-kind contributionscounting towards satisfying a cost sharing or matching requirement must beverifiable from the records of grantees and subgrantee or cost-type contractors.These records must show how the value placed on third party in-kindcontributions was derived. To the extent feasible, volunteer services will besupported by the same methods that the organization uses to support theallocability 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 ormatching requirement only where, if the party receiving the contributions wereto pay for them, the payments would be allowable costs.

(ii) Some third party in-kind contributions are goods and services that, ifthe grantee, subgrantee, or contractor receiving the contribution had to pay forthem, the payments would have been an indirect costs. Costs sharing or matchingcredit for such contributions shall be given only if the grantee, subgrantee, orcontractor has established, along with its regular indirect cost rate, a specialrate for allocating to individual projects or programs the value of thecontributions.

(iii) A third party in-kind contribution to a fixed-price contract may counttowards satisfying a cost sharing or matching requirement only if it results in:

(A) An increase in the services or property provided under the contract(without additional cost to the grantee or subgrantee) or

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

(iv) The values placed on third party in-kind contributions for cost sharingor matching purposes will conform to the rules in the succeeding sections ofthis part. If a third party in-kind contribution is a type not treated in thosesections, the value placed upon it shall be fair and reasonable.

(c) Valuation of donated services—(1) Volunteerservices. Unpaid services provided to a grantee or subgrantee by individualswill be valued at rates consistent with those ordinarily paid for similar workin the grantee's or subgrantee's organization. If the grantee or subgrantee doesnot have employees performing similar work, the rates will be consistent withthose ordinarily paid by other employers for similar work in the same labormarket. In either case, a reasonable amount for fringe benefits may be includedin the valuation.

(2) Employees of other organizations. When an employer otherthan a grantee, subgrantee, or cost-type contractor furnishes free of charge theservices of an employee in the employee's normal line of work, the services willbe valued at the employee's regular rate of pay exclusive of the employee'sfringe benefits and overhead costs. If the services are in a different line ofwork, paragraph (c)(1) of this section applies.

(d) Valuation of third party donated supplies and loaned equipmentor space. (1) If a third party donates supplies, the contribution will bevalued 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 butretains title, the contribution will be valued at the fair rental rate of theequipment or space.

(e) Valuation of third party donated equipment, buildings, andland. If a third party donates equipment, buildings, or land, and titlepasses to a grantee or subgrantee, the treatment of the donated property willdepend upon the purpose of the grant or subgrant, as follows:

(1) Awards for capital expenditures. If the purpose of thegrant or subgrant is to assist the grantee or subgrantee in the acquisition ofproperty, the market value of that property at the time of donation may becounted as cost sharing or matching,

(2) Other awards. If assisting in the acquisition of propertyis not the purpose of the grant or subgrant, paragraphs (e)(2) (i) and (ii) ofthis section apply:

(i) If approval is obtained from the awarding agency, the market value at thetime of donation of the donated equipment or buildings and the fair rental rateof the donated land may be counted as cost sharing or matching. In the case of asubgrant, the terms of the grant agreement may require that the approval beobtained from the Federal agency as well as the grantee. In all cases, theapproval may be given only if a purchase of the equipment or rental of the landwould be approved as an allowable direct cost. If any part of the donatedproperty was acquired with Federal funds, only the non-federal share of theproperty 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 useallowances may be counted for donated equipment and buildings. The depreciationor use allowances for this property are not treated as third party in-kindcontributions. Instead, they are treated as costs incurred by the grantee orsubgrantee. They are computed and allocated (usually as indirect costs) inaccordance with the cost principles specified in § 66.22, in the sameway as depreciation or use allowances for purchased equipment and buildings. Theamount of depreciation or use allowances for donated equipment and buildings isbased on the property's market value at the time it was donated.

(f) Valuation of grantee or subgrantee donated real property forconstruction/acquisition. If a grantee or subgrantee donates real propertyfor a construction or facilities acquisition project, the current market valueof that property may be counted as cost sharing or matching. If any part of thedonated property was acquired with Federal funds, only the non-federal share ofthe 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 marketvalue of land or a building or the fair rental rate of land or of space in abuilding. In these cases, the Federal agency may require the market value orfair rental value be set by an independent appraiser, and that the value or ratebe certified by the grantee. This requirement will also be imposed by thegrantee on subgrantees.

(a) General. Grantees are encouraged to earn income to defrayprogram costs. Program income includes income from fees for services performed,from the use or rental of real or personal property acquired with grant funds,from the sale of commodities or items fabricated under a grant agreement, andfrom payments of principal and interest on loans made with grant funds. Exceptas otherwise provided in regulations of the Federal agency, program income doesnot 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 grossincome received by the grantee or subgrantee directly generated by a grantsupported activity, or earned only as a result of the grant agreement during thegrant period. “During the grant period” is the time between theeffective date of the award and the ending date of the award reflected in thefinal financial report.

(c) Cost of generating program income. If authorized by Federalregulations or the grant agreement, costs incident to the generation of programincome 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 programincome unless the revenues are specifically identified in the grant agreement orFederal agency regulations as program income.

(e) Royalties. Income from royalties and license fees forcopyrighted material, patents, and inventions developed by a grantee orsubgrantee is program income only if the revenues are specifically identified inthe grant agreement or Federal agency regulations as program income. (See§ 66.34.)

(f) Property. Proceeds from the sale of real property orequipment will be handled in accordance with the requirements of§§ 66.31 and 66.32.

(g) Use of program income. Program income shall be deductedfrom outlays which may be both Federal and non-Federal as described below,unless the Federal agency regulations or the grant agreement specify anotheralternative (or a combination of the alternatives). In specifying alternatives,the Federal agency may distinguish between income earned by the grantee andincome earned by subgrantees and between the sources, kinds, or amounts ofincome. When Federal agencies authorize the alternatives in paragraphs (g) (2)and (3) of this section, program income in excess of any limits stipulated shallalso be deducted from outlays.

(1) Deduction. Ordinarily program income shall be deducted fromtotal allowable costs to determine the net allowable costs. Program income shallbe used for current costs unless the Federal agency authorizes otherwise.Program income which the grantee did not anticipate at the time of the awardshall be used to reduce the Federal agency and grantee contributions rather thanto increase the funds committed to the project.

(2) Addition. When authorized, program income may be added tothe funds committed to the grant agreement by the Federal agency and thegrantee. The program income shall be used for the purposes and under theconditions of the grant agreement.

(3) Cost sharing or matching. When authorized, program incomemay be used to meet the cost sharing or matching requirement of the grantagreement. The amount of the Federal grant award remains the same.

(h) Income after the award period. There are no Federalrequirements governing the disposition of program income earned after the end ofthe award period (i.e., until the ending date of the final financial report, seeparagraph (a) of this section), unless the terms of the agreement or the Federalagency regulations provide otherwise.

(a) Basic rule. Grantees and subgrantees are responsible forobtaining audits in accordance with the Single Audit Act Amendments of 1996 (31U.S.C. 7501-7507) and revised OMB Circular A-133, “Audits ofStates, Local Governments, and Non-Profit Organizations.” The audits shallbe made by an independent auditor in accordance with generally acceptedgovernment auditing standards covering financial audits.

(b) Subgrantees. State or local governments, as those terms aredefined for purposes of the Single Audit Act Amendments of 1996, that provideFederal awards to a subgrantee, which expends $300,000 or more (or other amountas specified by OMB) in Federal awards in a fiscal year, shall:

(1) Determine whether State or local subgrantees have met the auditrequirements of the Act and whether subgrantees covered by OMB CircularA-110, “Uniform Administrative Requirements for Grants andAgreements 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 governmentalorganizations) providing goods and services to State and local governments arenot required to have a single audit performed. State and local governmentsshould use their own procedures to ensure that the contractor has complied withlaws and regulations affecting the expenditure of Federal funds;

(2) Determine whether the subgrantee spent Federal assistance funds providedin accordance with applicable laws and regulations. This may be accomplished byreviewing an audit of the subgrantee made in accordance with the Act, CircularA-110, or through other means (e.g., program reviews) if the subgranteehas not had such an audit;

(3) Ensure that appropriate corrective action is taken within six monthsafter receipt of the audit report in instance of noncompliance with Federal lawsand regulations;

(4) Consider whether subgrantee audits necessitate adjustment of thegrantee's own records; and

(5) Require each subgrantee to permit independent auditors to have access tothe records and financial statements.

(c) Auditor selection. In arranging for audit services,§ 66.36 shall be followed.

(a) General. Grantees and subgrantees are permitted to rebudgetwithin the approved direct cost budget to meet unanticipated requirements andmay make limited program changes to the approved project. However, unless waivedby the awarding agency, certain types of post-award changes in budgets andprojects shall require the prior written approval of the awarding agency.

(b) Relation to cost principles. The applicable cost principles(see § 66.22) contain requirements for prior approval of certaintypes of costs. Except where waived, those requirements apply to all grants andsubgrants even if paragraphs (c) through (f) of this section do not.

(c) Budget changes—(1) Nonconstructionprojects. Except as stated in other regulations or an award document,grantees or subgrantees shall obtain the prior approval of the awarding agencywhenever any of the following changes is anticipated under a nonconstructionaward:

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

(ii) Unless waived by the awarding agency, cumulative transfers among directcost categories, or, if applicable, among separately budgeted programs,projects, functions, or activities which exceed or are expected to exceed tenpercent of the current total approved budget, whenever the awarding agency'sshare exceeds $100,000.

(iii) Transfer of funds allotted for training allowances (i.e., from directpayments to trainees to other expense categories).

(2) Construction projects. Grantees and subgrantees shallobtain prior written approval for any budget revision which would result in theneed for additional funds.

(3) Combined construction and nonconstruction projects. When agrant or subgrant provides funding for both construction and nonconstructionactivities, the grantee or subgrantee must obtain prior written approval fromthe awarding agency before making any fund or budget transfer fromnonconstruction to construction or vice versa.

(d) Programmatic changes. Grantees or subgrantees must obtainthe prior approval of the awarding agency whenever any of the following actionsis anticipated:

(1) Any revision of the scope or objectives of the project (regardless ofwhether 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 agrant award. In research projects, a change in the project director or principalinvestigator shall always require approval unless waived by the awarding agency.

(4) Under nonconstruction projects, contracting out, subgranting (ifauthorized by law) or otherwise obtaining the services of a third party toperform activities which are central to the purposes of the award. This approvalrequirement is in addition to the approval requirements of § 66.36but does not apply to the procurement of equipment, supplies, and generalsupport services.

(e) Additional prior approval requirements. The awarding agencymay not require prior approval for any budget revision which is not described inparagraph (c) of this section.

(f) Requesting prior approval. (1) A request for prior approvalof any budget revision will be in the same budget formal the grantee used in itsapplication and shall be accompanied by a narrative justification for theproposed revision.

(2) A request for a prior approval under the applicable Federal costprinciples (see § 66.22) may be made by letter.

(3) A request by a subgrantee for prior approval will be addressed in writingto the grantee. The grantee will promptly review such request and shall approveor disapprove the request in writing. A grantee will not approve any budget orproject revision which is inconsistent with the purpose or terms and conditionsof the Federal grant to the grantee. If the revision, requested by thesubgrantee would result in a change to the grantee's approved project whichrequires Federal prior approval, the grantee will obtain the Federal agency'sapproval before approving the subgrantee's request.

(a) Title. Subject to the obligations and conditions set forthin this section, title to real property acquired under a grant or subgrant willvest upon acquisition in the grantee or subgrantee respectively.

(b) Use. Except as otherwise provided by Federal statutes, realproperty will be used for the originally authorized purposes as long as neededfor that purposes, and the grantee or subgrantee shall not dispose of orencumber its title or other interests.

(c) Disposition. When real property is no longer needed for theoriginally authorized purpose, the grantee or subgrantee will requestdisposition instructions from the awarding agency. The instructions will providefor one of the following alternatives:

(1) Retention of title. Retain title after compensating theawarding agency. The amount paid to the awarding agency will be computed byapplying the awarding agency's percentage of participation in the cost of theoriginal purchase to the fair market value of the property. However, in thosesituations where a grantee or subgrantee is disposing of real property acquiredwith 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 ofthe replacement property.

(2) Sale of property. Sell the property and compensate theawarding agency. The amount due to the awarding agency will be calculated byapplying the awarding agency's percentage of participation in the cost of theoriginal purchase to the proceeds of the sale after deduction of any actual andreasonable selling and fixing-up expenses. If the grant is still active, the netproceeds from sale may be offset against the original cost of the property. Whena grantee or subgrantee is directed to sell property, sales procedures shall befollowed that provide for competition to the extent practicable and result inthe highest possible return.

(3) Transfer of title. Transfer title to the awarding agency orto a third-party designated/approved by the awarding agency. The grantee orsubgrantee shall be paid an amount calculated by applying the grantee orsubgrantee's percentage of participation in the purchase of the real property tothe current fair market value of the property.

(a) The Omnibus Crime Control and Safe Streets Act of 1968, as amended,Public Law 90-351, section 808, requires that the title to all equipmentand supplies purchased with section 403 or 1302 (block or formula funds) shallvest in the criminal justice agency or nonprofit organization that purchased theproperty if it certifies to the State office described in section 408 or 1308that it will use the property for criminal justice purposes. If suchcertification is not made, title to the property shall vest in the State office,which shall seek to have the property used for criminal justice purposeselsewhere in the State prior to using it or disposing of it in any other manner.

(b) States. A State will use, manage, and dispose of equipmentacquired under a grant by the State in accordance with State laws andprocedures. Other grantees and subgrantees will follow paragraphs (c) through(e) of this section.

(c) Use. (1) Equipment shall be used by the grantee orsubgrantee in the program or project for which it was acquired as long asneeded, whether or not the project or program continues to be supported byFederal funds. When no longer needed for the original program or project, theequipment may be used in other activities currently or previously supported by aFederal agency.

(2) The grantee or subgrantee shall also make equipment available for use onother projects or programs currently or previously supported by the FederalGovernment, providing such use will not interfere with the work on the projectsor program for which it was originally acquired. First preference for other useshall be given to other programs or projects supported by the awarding agency.User fees should be considered if appropriate.

(3) Notwithstanding the encouragement in § 66.25(a) to earnprogram income, the grantee or subgrantee must not use equipment acquired withgrant funds to provide services for a fee to compete unfairly with privatecompanies that provide equivalent services, unless specifically permitted orcontemplated by Federal statute.

(4) When acquiring replacement equipment, the grantee or subgrantee may usethe equipment to be replaced as a trade-in or sell the property and use theproceeds to offset the cost of the replacement property, subject to the approvalof the awarding agency.

(d) Management requirements. Procedures for managing equipment(including replacement equipment), whether acquired in whole or in part withgrant funds, until disposition takes place will, as a minimum, meet thefollowing requirements:

(1) Property records must be maintained that include a description of theproperty, a serial number or other identification number, the source ofproperty, 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 includingthe date of disposal and sale price of the property.

(2) A physical inventory of the property must be taken and the resultsreconciled with the property records at least once every two years.

(3) A control system must be developed to ensure adequate safeguards toprevent loss, damage, or theft of the property. Any loss, damage, or theft shallbe investigated.

(4) Adequate maintenance procedures must be developed to keep the property ingood condition.

(5) If the grantee or subgrantee is authorized or required to sell theproperty, proper sales procedures must be established to ensure the highestpossible return.

(e) Disposition. When original or replacement equipmentacquired under a grant or subgrant is no longer needed for the original projector program or for other activities currently or previously supported by aFederal 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 obligationto 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 anamount calculated by multiplying the current market value or proceeds from saleby the awarding agency's share of the equipment.

(3) In cases where a grantee or subgrantee fails to take appropriatedisposition actions, the awarding agency may direct the grantee or subgrantee totake excess and disposition actions.

(f) Federal equipment. In the event a grantee or subgrantee isprovided federally-owned equipment:

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

(2) Grantees or subgrantees will manage the equipment in accordance withFederal agency rules and procedures, and submit an annual inventory listing.

(3) When the equipment is no longer needed, the grantee or subgrantee willrequest disposition instructions from the Federal agency.

(g) Right to transfer title. The Federal awarding agency mayreserve the right to transfer title to the Federal Government or a third partnamed by the awarding agency when such a third party is otherwise eligible underexisting statutes. Such transfers shall be subject to the following standards:

(1) The property shall be identified in the grant or otherwise made known tothe grantee in writing.

(2) The Federal awarding agency shall issue disposition instruction within120 calendar days after the end of the Federal support of the project for whichit was acquired. If the Federal awarding agency fails to issue dispositioninstructions within the 120 calendar-day period the grantee shall follow66.32(e).

(3) When title to equipment is transferred, the grantee shall be paid anamount calculated by applying the percentage of participation in the purchase tothe current fair market value of the property.

(a) The Omnibus Crime Control and Safe Streets Act of 1968, as amended,Public Law 90-351, section 808, requires that the title to all equipmentand supplies purchased with section 403 or 1302 (block or formula funds) shallvest in the criminal justice agency or nonprofit organization that purchased theproperty if it certifies to the State office described in section 408 or 1308that it will use the property for criminal justice purposes. If suchcertification is not made, title to the property shall vest in the State office,which shall seek to have the property used for criminal justice purposeselsewhere in the State prior to using it or disposing of it in any other manner.

(b) Disposition. If there is a residual inventory of unusedsupplies exceeding $5,000 in total aggregate fair market value upon terminationor completion of the award, and if the supplies are not needed for any otherfederally sponsored programs or projects, the grantee or subgrantee shallcompensate the awarding agency for its share.

The Federal awarding agency reserves a royalty-free, nonexclusive, andirrevocable license to reproduce, publish or otherwise use, and to authorizeothers to use, for Federal Government purposes:

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

(b) Any rights of copyright to which a grantee, subgrantee or a contractorpurchases ownership with grant support.

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 suspendedor is otherwise excluded from or ineligible for participation in Federalassistance programs under Executive Order 12549, “Debarment andSuspension.”

(a) States. When procuring property and services under a grant,a State will follow the same policies and procedures it uses for procurementsfrom its non-Federal funds. The State will ensure that every purchase order orother contract includes any clauses required by Federal statutes and executiveorders and their implementing regulations. Other grantees and subgrantees willfollow paragraphs (b) through (i) in this section.

(b) Procurement standards. (1) Grantees and subgrantees willuse their own procurement procedures which reflect applicable State and locallaws and regulations, provided that the procurements conform to applicableFederal law and the standards identified in this section.

(2) Grantees and subgrantees will maintain a contract administration systemwhich 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 ofconduct governing the performance of their employees engaged in the award andadministration of contracts. No employee, officer or agent of the grantee orsubgrantee shall participate in selection, or in the award or administration ofa contract supported by Federal funds if a conflict of interest, real orapparent, 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'sor subgrantee's officers, employees or agents will neither solicit nor acceptgratuities, favors or anything of monetary value from contractors, potentialcontractors, or parties to subagreements. Grantee and subgrantees may setminimum rules where the financial interest is not substantial or the gift is anunsolicited item of nominal intrinsic value. To the extent permitted by State orlocal law or regulations, such standards or conduct will provide for penalties,sanctions, or other disciplinary actions for violations of such standards by thegrantee's and subgrantee's officers, employees, or agents, or by contractors ortheir agents. The awarding agency may in regulation provide additionalprohibitions relative to real, apparent, or potential conflicts of interest.

(4) Grantee and subgrantee procedures will provide for a review of proposedprocurements to avoid purchase of unnecessary or duplicative items. Consideration should be given to consolidating or breaking out procurements toobtain a more economical purchase. Where appropriate, an analysis will be madeof lease versus purchase alternatives, and any other appropriate analysis todetermine the most economical approach.

(5) To foster greater economy and efficiency, grantees and subgrantees areencouraged to enter into State and local intergovernmental agreements forprocurement or use of common goods and services.

(6) Grantees and subgrantees are encouraged to use Federal excess and surplusproperty in lieu of purchasing new equipment and property whenever such use isfeasible and reduces project costs.

(7) Grantees and subgrantees are encouraged to use value engineering clausesin contracts for construction projects of sufficient size to offer reasonableopportunities for cost reductions. Value engineering is a systematic andcreative anaylsis of each contract item or task to ensure that its essentialfunction is provided at the overall lower cost.

(8) Grantees and subgrantees will make awards only to responsible contractorspossessing the ability to perform successfully under the terms and conditions ofa proposed procurement. Consideration will be given to such matters ascontractor integrity, compliance with public policy, record of past performance,and financial and technical resources.

(9) Grantees and subgrantees will maintain records sufficient to detail thesignificant history of a procurement. These records will include, but are notnecessarily limited to the following: rationale for the method of procurement,selection of contract type, contractor selection or rejection, and the basis forthe contract price.

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

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

(ii) If the contract includes a ceiling price that the contractor exceeds atits own risk.

(11) Grantees and subgrantees alone will be responsible, in accordance withgood administrative practice and sound business judgment, for the settlement ofall contractual and administrative issues arising out of procurements. Theseissues include, but are not limited to source evaluation, protests, disputes,and claims. These standards do not relieve the grantee or subgrantee of anycontractual responsibilities under its contracts. Federal agencies will notsubstitute their judgment for that of the grantee or subgrantee unless thematter is primarily a Federal concern. Violations of law will be referred to thelocal, State, or Federal authority having proper jurisdiction.

(12) Grantees and subgrantees will have protest procedures to handle andresolve disputes relating to their procurements and shall in all instancesdisclose information regarding the protest to the awarding agency. A protestormust exhaust all administrative remedies with the grantee and subgrantee beforepursuing a protest with the Federal agency. Reviews of protests by the Federalagency will be limited to:

(i) Violations of Federal law or regulations and the standards of thissection (violations of State or local law will be under the jurisdiction ofState or local authorities) and

(ii) Violations of the grantee's or subgrantee's protest procedures forfailure to review a complaint or protest. Protests received by the Federalagency other than those specified above will be referred to the grantee orsubgrantee.

(c) Competition. (1) All procurement transactions will beconducted in a manner providing full and open competition consistent with thestandards of § 66.36. Some of the situations considered to berestrictive of competition include but are not limited to:

(i) Placing unreasonable requirements on firms in order for them to qualifyto do business,

(ii) Requiring unnecessary experience and excessive bonding,

(iii) Noncompetitive pricing practices between firms or between affiliatedcompanies,

(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 ofother relevant requirements of the procurement, and

(vii) Any arbitrary action in the procurement process.

(2) Grantees and subgrantees will conduct procurements in a manner thatprohibits the use of statutorily or administratively imposed in-State or localgeographical preferences in the evaluation of bids or proposals, except in thosecases where applicable Federal statutes expressly mandate or encouragegeographic preference. Nothing in this section preempts State licensing laws.When contracting for architectural and engineering (A/E) services, geographiclocation may be a selection criteria provided its application leaves anappropriate 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 procurementtransactions. These procedures will ensure that all solicitations:

(i) Incorporate a clear and accurate description of the technicalrequirements for the material, product, or service to be procured. Suchdescription shall not, in competitive procurements, contain features whichunduly restrict competition. The description may include a statement of thequalitative nature of the material, product or service to be procured, and whennecessary, shall set forth those minimum essential characteristics and standardsto which it must conform if it is to satisfy its intended use. Detailed productspecifications should be avoided if at all possible. When it is impractical oruneconomical to make a clear and accurate description of the technicalrequirements, a “brand name or equal” description may be used as ameans 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 beclearly stated; and

(ii) Identify all requirements which the offerors must fulfill and all otherfactors to be used in evaluating bids or proposals.

(4) Grantees and subgrantees will ensure that all prequalified lists ofpersons, firms, or products which are used in acquiring goods and services arecurrent and include enough qualified sources to ensure maximum open and freecompetition. Also, grantees and subgrantees will not preclude potential biddersfrom qualifying during the solicitation period.

(d) Methods of procurement to be followed—(1) Procurement by small purchase procedures. Small purchase proceduresare those relatively simple and informal procurement methods for securingservices, supplies, or other property that do not cost more than the simplifiedacquisition threshold fixed at 41 U.S.C. 403(11) (currently set at $100,000). Ifsmall purchase procedures are used, price or rate quotations shall be obtainedfrom an adequate number of qualified sources.

(2) Procurement by sealed bids (formal advertising). Bids arepublicly solicited and a firm-fixed-price contract (lump sum or unit price) isawarded to the responsible bidder whose bid, conforming with all the materialterms and conditions of the invitation for bids, is the lowest in price. Thesealed bid method is the preferred method for procuring construction, if theconditions in § 66.36(d)(2)(i) apply.

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

(A) A complete, adequate, and realistic specification or purchase descriptionis available;

(B) Two or more responsible bidders are willing and able to competeeffectively and for the business; and

(C) The procurement lends itself to a firm fixed price contract and theselection of the successful bidder can be made principally on the basis ofprice.

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

(A) The invitation for bids will be publicly advertised and bids shall besolicited from an adequate number of known suppliers, providing them sufficienttime prior to the date set for opening the bids;

(B) The invitation for bids, which will include any specifications andpertinent attachments, shall define the items or services in order for thebidder to properly respond;

(C) All bids will be publicly opened at the time and place prescribed in theinvitation for bids;

(D) A firm fixed-price contract award will be made in writing to the lowestresponsive and responsible bidder. Where specified in bidding documents, factorssuch as discounts, transportation cost, and life cycle costs shall be consideredin determining which bid is lowest. Payment discounts will only be used todetermine the low bid when prior experience indicates that such discounts areusually 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 ofcompetitive proposals is normally conducted with more than one source submittingan offer, and either a fixed-price or cost-reimbursement type contract isawarded. It is generally used when conditions are not appropriate for the use ofsealed bids. If this method is used, the following requirements apply:

(i) Requests for proposals will be publicized and identify all evaluationfactors and their relative importance. Any response to publicized requests forproposals shall be honored to the maximum extent practical;

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

(iii) Grantees and subgrantees will have a method for conducting technicalevaluations of the proposals received and for selecting awardees;

(iv) Awards will be made to the responsible firm whose proposal is mostadvantageous to the program, with price and other factors considered; and

(v) Grantees and subgrantees may use competitive proposal procedures forqualifications-based procurement of architectural/engineering (A/E) professionalservices whereby competitors' qualifications are evaluated and the mostqualified competitor is selected, subject to negotiation of fair and reasonablecompensation. The method, where price is not used as a selection factor, canonly be used in procurement of A/E professional services. It cannot be used topurchase other types of services though A/E firms are a potential source toperform the proposed effort.

(4) Procurement by noncompetitive proposals is procurementthrough solicitation of a proposal from only one source, or after solicitationof a number of sources, competition is determined inadequate.

(i) Procurement by noncompetitive proposals may be used only when the awardof a contract is infeasible under small purchase procedures, sealed bids orcompetitive 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 adelay resulting from competitive solicitation;

(C) The awarding agency authorizes noncompetitive proposals; or

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

(ii) Cost analysis, i.e., verifying the proposed cost data, the projectionsof 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 proposedprocurement to the awarding agency for pre-award review in accordance withparagraph (g) of this section.

(e) Contracting with small and minority firms, women's businessenterprise and labor surplus area firms. (1) The grantee and subgrantee willtake all necessary affirmative steps to assure that minority firms, women'sbusiness 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 businessenterprises on solicitation lists;

(ii) Assuring that small and minority businesses, and women's businessenterprises are solicited whenever they are potential sources;

(iii) Dividing total requirements, when economically feasible, into smallertasks or quantities to permit maximum participation by small and minoritybusiness, and women's business enterprises;

(iv) Establishing delivery schedules, where the requirement permits, which encourage participation by small and minority business, and women's businessenterprises;

(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 takethe affirmative steps listed in paragraphs (e)(2) (i) through (v) of thissection.

(f) Contract cost and price. (1) Grantees and subgrantees mustperform a cost or price analysis in connection with every procurement actionincluding contract modifications. The method and degree of analysis is dependenton the facts surrounding the particular procurement situation, but as a startingpoint, grantees must make independent estimates before receiving bids orproposals. A cost analysis must be performed when the offeror is required tosubmit the elements of his estimated cost, e.g., under professional, consulting,and architectural engineering services contracts. A cost analysis will benecessary when adequate price competition is lacking, and for sole sourceprocurements, including contract modifications or change orders, unless priceresonableness can be established on the basis of a catalog or market price of acommercial product sold in substantial quantities to the general public or basedon prices set by law or regulation. A price analysis will be used in all otherinstances to determine the reasonableness of the proposed contract price.

(2) Grantees and subgrantees will negotiate profit as a separate element ofthe price for each contract in which there is no price competition and in allcases where cost analysis is performed. To establish a fair and reasonableprofit, consideration will be given to the complexity of the work to beperformed, the risk borne by the contractor, the contractor's investment, theamount of subcontracting, the quality of its record of past performance, andindustry profit rates in the surrounding geographical area for similar work.

(3) Costs or prices based on estimated costs for contracts under grants willbe allowable only to the extent that costs incurred or cost estimates includedin negotiated prices are consistent with Federal cost principles (see§ 66.22). Grantees may reference their own cost principles thatcomply with the applicable Federal cost principles.

(4) The cost plus a percentage of cost and percentage of construction costmethods of contracting shall not be used.

(g) Awarding agency review. (1) Grantees and subgrantees mustmake available, upon request of the awarding agency, technical specifications onproposed procurements where the awarding agency believes such review is neededto ensure that the item and/or service specified is the one being proposed forpurchase. This review generally will take place prior to the time thespecification is incorporated into a solicitation document. However, if thegrantee or subgrantee desires to have the review accomplished after asolicitation has been developed, the awarding agency may still review thespecifications, with such review usually limited to the technical aspects of theproposed purchase.

(2) Grantees and subgrantees must on request make available for awardingagency pre-award review procurement documents, such as requests for proposals orinvitations for bids, independent cost estimates, etc. when:

(i) A grantee's or subgrantee's procurement procedures or operation fails tocomply with the procurement standards in this section; or

(ii) The procurement is expected to exceed the simplified acquisitionthreshold and is to be awarded without competition or only one bid or offer isreceived in response to a solicitation; or

(iii) The procurement, which is expected to exceed the simplified acquisitionthreshold, specifies a “brand name” product; or

(iv) The proposed award is more than the simplified acquisition threshold andis to be awarded to other than the apparent low bidder under a sealed bidprocurement; or

(v) A proposed contract modification changes the scope of a contract orincreases the contract amount by more than the simplified acquisition threshold.

(3) A grantee or subgrantee will be exempt from the pre-award review inparagraph (g)(2) of this section if the awarding agency determines that itsprocurement systems comply with the standards of this section.

(i) A grantee or subgrantee may request that its procurement system bereviewed by the awarding agency to determine whether its system meets thesestandards in order for its system to be certified. Generally, these reviewsshall occur where there is a continuous high-dollar funding, and third-partycontracts are awarded on a regular basis.

(ii) A grantee or subgrantee may self-certify its procurement system. Suchself-certification shall not limit the awarding agency's right to survey thesystem. Under a self-certification procedure, awarding agencies may wish to relyon written assurances from the grantee or subgrantee that it is complying withthese standards. A grantee or subgrantee will cite specific procedures,regulations, standards, etc., as being in compliance with these requirements andhave its system available for review.

(h) Bonding requirements. For construction or facilityimprovement contracts or subcontracts exceeding the simplified acquisitionthreshold, the awarding agency may accept the bonding policy and requirements ofthe grantee or subgrantee provided the awarding agency has made a determinationthat the awarding agency's interest is adequately protected. If such adetermination has not been made, the minimum requirements shall be as follows:

(1) A bid guarantee from each bidder equivalent to five percent ofthe bid price. The “bid guarantee” shall consist of a firmcommitment such as a bid bond, certified check, or other negotiable instrumentaccompanying a bid as assurance that the bidder will, upon acceptance of hisbid, execute such contractual documents as may be required within the timespecified.

(2) A performance bond on the part of the contractor for 100percent of the contract price. A “performance bond” is oneexecuted in connection with a contract to secure fulfillment of all thecontractor's obligations under such contract.

(3) A payment bond on the part of the contractor for 100 percent ofthe contract price. A “payment bond” is one executed inconnection with a contract to assure payment as required by law of all personssupplying labor and material in the execution of the work provided for in thecontract.

(i) Contract provisions. A grantee's and subgrantee's contractsmust contain provisions in paragraph (i) of this section. Federal agencies arepermitted to require changes, remedies, changed conditions, access and recordsretention, suspension of work, and other clauses approved by the Office ofFederal Procurement Policy.

(1) Administrative, contractual, or legal remedies in instances wherecontractors violate or breach contract terms, and provide for such sanctions andpenalties as may be appropriate. (Contracts more than the simplified acquisitionthreshold)

(2) Termination for cause and for convenience by the grantee or subgranteeincluding 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 11375of October 13, 1967, and as supplemented in Department of Labor regulations (41CFR chapter 60). (All construction contracts awarded in excess of $10,000 bygrantees 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). (Allcontracts and subgrants for construction or repair)

(5) Compliance with the Davis-Bacon Act (40 U.S.C. 276a to 276a-7) assupplemented by Department of Labor regulations (29 CFR part 5). (Constructioncontracts in excess of $2000 awarded by grantees and subgrantees when requiredby 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 ofLabor regulations (29 CFR part 5). (Construction contracts awarded by granteesand subgrantees in excess of $2000, and in excess of $2500 for other contractswhich involve the employment of mechanics or laborers)

(7) Notice of awarding agency requirements and regulations pertaining toreporting.

(8) Notice of awarding agency requirements and regulations pertaining topatent rights with respect to any discovery or invention which arises or isdeveloped in the course of or under such contract.

(9) Awarding agency requirements and regulations pertaining to copyrights andrights in data.

(10) Access by the grantee, the subgrantee, the Federal grantor agency, theComptroller General of the United States, or any of their duly authorizedrepresentatives to any books, documents, papers, and records of the contractorwhich are directly pertinent to that specific contract for the purpose of makingaudit, examination, excerpts, and transcriptions.

(11) Retention of all required records for three years after grantees orsubgrantees make final payments and all other pending matters are closed.

(12) Compliance with all applicable standards, orders, or requirements issuedunder section 306 of the Clean Air Act (42 U.S.C. 1857(h)), section 508 of theClean Water Act (33 U.S.C. 1368), Executive Order 11738, and EnvironmentalProtection Agency regulations (40 CFR part 15). (Contracts, subcontracts, andsubgrants of amounts in excess of $100,000)

(13) Mandatory standards and policies relating to energy efficiency which arecontained in the state energy conservation plan issued in compliance with theEnergy Policy and Conservation Act (Pub. L. 94-163, 89 Stat. 871).

(a) States. States shall follow state law and procedures whenawarding and administering subgrants (whether on a cost reimbursement or fixedamount basis) of financial assistance to local and Indian tribal governments.States shall:

(1) Ensure that every subgrant includes any clauses required by Federalstatute and executive orders and their implementing regulations;

(2) Ensure that subgrantees are aware of requirements imposed upon them byFederal statute and regulation;

(3) Ensure that a provision for compliance with § 66.42 is placedin every cost reimbursement subgrant; and

(4) Conform any advances of grant funds to subgrantees substantially to thesame standards of timing and amount that apply to cash advances by Federalagencies.

(b) All other grantees. All other grantees shall follow theprovisions of this part which are applicable to awarding agencies when awardingand administering subgrants (whether on a cost reimbursement or fixed amountbasis) of financial assistance to local and Indian tribal governments. Granteesshall:

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

(2) Ensure that every subgrant includes any clauses required by Federalstatute and executive orders and their implementing regulations; and

(3) Ensure that subgrantees are aware of requirements imposed upon them byFederal statutes and regulations.

(c) Exceptions. By their own terms, certain provisions of thispart do not apply to the award and administration of subgrants:

(1) Section 66.10;

(2) Section 66.11;

(3) The letter-of-credit procedures specified in Treasury Regulations at 31CFR part 205, cited in § 66.21; and

(4) Section 66.50.

(a) Monitoring by grantees. Grantees are responsible formanaging the day-to-day operations of grant and subgrant supported activities.Grantees must monitor grant and subgrant supported activities to assurecompliance with applicable Federal requirements and that performance goals arebeing achieved. Grantee monitoring must cover each program, function oractivity.

(b) Nonconstruction performance reports. The Federal agencymay, if it decides that performance information available from subsequentapplications contains sufficient information to meet its programmatic needs,require the grantee to submit a performance report only upon expiration ortermination of grant support. Unless waived by the Federal agency this reportwill be due on the same date as the final Financial Status Report.

(1) Grantees shall submit annual performance reports unless the awardingagency requires quarterly or semi-annual reports. However, performance reportswill not be required more frequently than quarterly. Annual reports shall be due90 days after the grant year, quarterly or semi-annual reports shall be due 30days after the reporting period. The final performance report will be due 90days after the expiration or termination of grant support. If a justifiedrequest is submitted by a grantee, the Federal agency may extend the due datefor any performance report. Additionally, requirements for unnecessaryperformance reports may be waived by the Federal agency.

(2) Performance reports will contain, for each grant, brief information onthe following:

(i) A comparison of actual accomplishments to the objectives established forthe period. Where the output of the project can be quantified, a computation ofthe 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, analysisand explanation of cost overruns or high unit costs.

(3) Grantees will not be required to submit more than the original and twocopies of performance reports.

(4) Grantees will adhere to the standards in this section in prescribingperformance reporting requirements for subgrantees.

(c) Construction performance reports. For the most part, on-site technical inspections and certified percentage-of-completion data arerelied on heavily by Federal agencies to monitor progress under constructiongrants and subgrants. The Federal agency will require additional formalperformance reports only when considered necessary, and never more frequentlythan quarterly.

(d) Significant developments. Events may occur between thescheduled performance reporting dates which have significant impact upon thegrant or subgrant supported activity. In such cases, the grantee must inform theFederal agency as soon as the following types of conditions become known:

(1) Problems, delays, or adverse conditions which will materially impair theability to meet the objective of the award. This disclosure must include astatement of the action taken, or contemplated, and any assistance needed toresolve the situation.

(2) Favorable developments which enable meeting time schedules and objectivessooner or at less cost than anticipated or producing more beneficial resultsthan originally planned.

(e) Federal agencies may make site visits as warranted by program needs.

(f) Waivers, extensions. (1) Federal agencies may waive anyperformance report required by this part if not needed.

(2) The grantee may waive any performance report from a subgrantee when notneeded. The grantee may extend the due date for any performance report from asubgrantee if the grantee will still be able to meet its performance reportingobligations to the Federal agency.

(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 mayfrom 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 notused.

(2) Grantees need not apply the forms prescribed in this section in dealingwith their subgrantees. However, grantees shall not impose more burdensomerequirements on subgrantees.

(3) Grantees shall follow all applicable standard and supplemental Federalagency instructions approved by OMB to the extend required under the PaperworkReduction Act of 1980 for use in connection with forms specified in paragraphs(b) through (e) of this section. Federal agencies may issue substantivesupplementary instructions only with the approval of OMB. Federal agencies mayshade out or instruct the grantee to disregard any line item that the Federalagency finds unnecessary for its decisionmaking purposes.

(4) Grantees will not be required to submit more than the original and twocopies of forms required under this part.

(5) Federal agencies may provide computer outputs to grantees to expedite orcontribute to the accuracy of reporting. Federal agencies may accept therequired information from grantees in machine usable format or computerprintouts instead of prescribed forms.

(6) Federal agencies may waive any report required by this section if notneeded.

(7) Federal agencies may extend the due date of any financial report uponreceiving a justified request from a grantee.

(b) Financial Status Report—(1) Form.Grantees will use Standard Form 269 or 269A, Financial Status Report, to reportthe status of funds for all nonconstruction grants and for construction grantswhen required in accordance with § 66.41(e)(2)(iii).

(2) Accounting basis. Each grantee will report program outlaysand program income on a cash or accrual basis as prescribed by the awardingagency. If the Federal agency requires accrual information and the grantee'saccounting records are not normally kept on the accrual basis, the grantee shallnot be required to convert its accounting system but shall develop such accrualinformation through and analysis of the documentation on hand.

(3) Frequency. The Federal agency may prescribe the frequencyof the report for each project or program. However, the report will not berequired more frequently than quarterly. If the Federal agency does not specifythe frequency of the report, it will be submitted annually. A final report willbe required upon expiration or termination of grant support.

(4) Due date. When reports are required on a quarterly orsemiannual basis, they will be due 30 days after the reporting period. Whenrequired 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 grantsupport.

(c) Federal Cash Transactions Report—(1) Form. (i) For grants paid by letter or credit, Treasury checkadvances or electronic transfer of funds, the grantee will submit the StandardForm 272, Federal Cash Transactions Report, and when necessary, its continuationsheet, Standard Form 272a, unless the terms of the award exempt the grantee fromthis requirement.

(ii) These reports will be used by the Federal agency to monitor cashadvanced to grantees and to obtain disbursement or outlay information for eachgrant from grantees. The format of the report may be adapted as appropriate whenreporting is to be accomplished with the assistance of automatic data processingequipment provided that the information to be submitted is not changed insubstance.

(2) Forecasts of Federal cash requirements. Forecasts ofFederal cash requirements may be required in the “Remarks” sectionof the report.

(3) Cash in hands of subgrantees. When considered necessary andfeasible by the Federal agency, grantees may be required to report the amount ofcash advances in excess of three days' needs in the hands of their subgranteesor contractors and to provide short narrative explanations of actions taken bythe grantee to reduce the excess balances.

(4) Frequency and due date. Grantees must submit the report nolater than 15 working days following the end of each quarter. However, where anadvance either by letter of credit or electronic transfer of funds is authorizedat an annualized rate of one million dollars or more, the Federal agency mayrequire the report to be submitted within 15 working days following the end ofeach month.

(d) Request for advance or reimbursement—(1) Advance payments. Requests for Treasury check advance payments willbe submitted on Standard Form 270, Request for Advance or Reimbursement. (Thisform will not be used for drawdowns under a letter of credit, electronic fundstransfer or when Treasury check advance payments are made to the granteeautomatically on a predetermined basis.)

(2) Reimbursements. Requests for reimbursement undernonconstruction grants will also be submitted on Standard Form 270. (Forreimbursement requests under construction grants, see paragraph (e)(1) of thissection.)

(3) The frequency for submitting payment requests is treated in§ 66.41(b)(3).

(e) Outlay report and request for reimbursement for constructionprograms—(1) Grants that support construction activitiespaid by reimbursement method. (i) Requests for reimbursement underconstruction grants will be submitted on Standard Form 271, Outlay Report andRequest for Reimbursement for Construction Programs. Federal agencies may,however, prescribe the Request for Advance or Reimbursement form, specified in§ 66.41(d), instead of this form.

(ii) The frequency for submitting reimbursement requests is treated in§ 66.41(b)(3).

(2) Grants that support construction activities paid by letter ofcredit, electronic funds transfer or Treasury check advance. (i) When aconstruction grant is paid by letter of credit, electronic funds transfer orTreasury check advances, the grantee will report its outlays to the Federalagency using Standard Form 271, Outlay Report and Request for Reimbursement forConstruction Programs. The Federal agency will provide any necessary specialinstruction. However, frequency and due date shall be governed by§ 66.41(b) (3) and (4).

(ii) When a construction grant is paid by Treasury check advances based onperiodic requests from the grantee, the advances will be requested on the formspecified in § 66.41(d).

(iii) The Federal agency may substitute the Financial Status Report specifiedin § 66.41(b) for the Outlay Report and Request for Reimbursement forConstruction Programs.

(3) Accounting basis. The accounting basis for the OutlayReport and Request for Reimbursement for Construction Programs shall be governedby § 66.41(b)(2).

(a) Applicability. (1) This section applies to all financialand programmatic records, supporting documents, statistical records, and otherrecords of grantees or subgrantees which are:

(i) Required to be maintained by the terms of this part, program regulationsor the grant agreement, or

(ii) Otherwise reasonably considered as pertinent to program regulations orthe grant agreement.

(2) This section does not apply to records maintained by contractors orsubcontractors. For a requirement to place a provision concerning records incertain kinds of contracts, see § 66.36(i)(10).

(b) Length of retention period. (1) Except as otherwiseprovided, records must be retained for three years from the starting datespecified in paragraph (c) of this section.

(2) If any litigation, claim, negotiation, audit or other action involvingthe records has been started before the expiration of the 3-year period, therecords must be retained until completion of the action and resolution of allissues 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 specialarrangements with grantees and subgrantees to retain any records which arecontinuously needed for joint use. The awarding agency will request transfer ofrecords to its custody when it determines that the records possess long-termretention value. When the records are transferred to or maintained by theFederal agency, the 3-year retention requirement is not applicable to thegrantee or subgrantee.

(c) Starting date of retention period—(1) General. When grant support is continued or renewed at annual orother intervals, the retention period for the records of each funding periodstarts on the day the grantee or subgrantee submits to the awarding agency itssingle or last expenditure report for that period. However, if grant support iscontinued or renewed quarterly, the retention period for each year's recordsstarts on the day the grantee submits its expenditure report for the lastquarter of the Federal fiscal year. In all other cases, the retention periodstarts on the day the grantee submits its final expenditure report. If anexpenditure report has been waived, the retention period starts on the day thereport would have been due.

(2) Real property and equipment records. The retention periodfor real property and equipment records starts from the date of the dispositionor replacement or transfer at the direction of the awarding agency.

(3) Records for income transactions after grant or subgrantsupport. In some cases grantees must report income after the period of grantsupport. Where there is such a requirement, the retention period for the recordspertaining to the earning of the income starts from the end of the grantee'sfiscal 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 supportingrecords: indirect cost rate computations or proposals, cost allocation plans,and any similar accounting computations of the rate at which a particular groupof costs is chargeable (such as computer usage chargeback rates or compositefringe benefit rates).

(i) If submitted for negotiation. If the proposal, plan, orother computation is required to be submitted to the Federal Government (or tothe grantee) to form the basis for negotiation of the rate, then the 3-yearretention period for its supporting records starts from the date of suchsubmission.

(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 periodfor the proposal plan, or computation and its supporting records starts from endof 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 granteesand subgrantees. The awarding agency and the Comptroller General of theUnited States, or any of their authorized representatives, shall have the rightof access to any pertinent books, documents, papers, or other records ofgrantees and subgrantees which are pertinent to the grant, in order to makeaudits, examinations, excerpts, and transcripts.

(2) Expiration of right of access. The rights of access in thissection must not be limited to the required retention period but shall last aslong as the records are retained.

(f) Restrictions on public access. The Federal Freedom ofInformation Act (5 U.S.C. 552) does not apply to records Unless required byFederal, State, or local law, grantees and subgrantees are not required topermit public access to their records.

(a) Remedies for noncompliance. If a grantee or subgranteematerially fails to comply with any term of an award, whether stated in aFederal statute or regulation, an assurance, in a State plan or application, anotice of award, or elsewhere, the awarding agency may take one or more of thefollowing actions, as appropriate in the circumstances:

(1) Temporarily withhold cash payments pending correction of the deficiencyby the grantee or subgrantee or more severe enforcement action by the awardingagency,

(2) Disallow (that is, deny both use of funds and matching credit for) all orpart of the cost of the activity or action not in compliance,

(3) Wholly or partly suspend or terminate the current award for the grantee'sor 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, theawarding agency will provide the grantee or subgrantee an opportunity for suchhearing, appeal, or other administrative proceeding to which the grantee orsubgrantee is entitled under any statute or regulation applicable to the actioninvolved.

(c) Effects of suspension and termination. Costs of grantee orsubgrantee resulting from obligations incurred by the grantee or subgranteeduring a suspension or after termination of an award are not allowable unlessthe awarding agency expressly authorizes them in the notice of suspension ortermination or subsequently. Other grantee or subgrantee costs during suspensionor after termination which are necessary and not reasonably avoidable areallowable if:

(1) The costs result from obligations which were properly incurred by thegrantee or subgrantee before the effective date of suspension or termination,are not in anticipation of it, and, in the case of a termination, arenoncancellable, and,

(2) The costs would be allowable if the award were not suspended or expirednormally at the end of the funding period in which the termination takes effect.

(d) Relationship to debarment and suspension. The enforcementremedies identified in this section, including suspension and termination, donot preclude grantee or subgrantee from being subject to “Debarment andSuspension” under E.O. 12549 (see § 66.35).

Except as provided in § 66.43 awards may be terminated in whole orin part only as follows:

(a) By the awarding agency with the consent of the grantee or subgrantee inwhich case the two parties shall agree upon the termination conditions,including the effective date and in the case of partial termination, the portionto be terminated, or

(b) By the grantee or subgrantee upon written notification to the awardingagency, setting forth the reasons for such termination, the effective date, andin the case of partial termination, the portion to be terminated. However, if,in the case of a partial termination, the awarding agency determines that theremaining portion of the award will not accomplish the purposes for which theaward was made, the awarding agency may terminate the award in its entiretyunder either § 66.43 or paragraph (a) of this section.