[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2003 Edition]
[From the U.S. Government Printing Office]



[[Page i]]



                    7


          Part 2000 to End

                         Revised as of January 1, 2003

Agriculture





          Containing a codification of documents of general 
          applicability and future effect
          As of January 1, 2003
          With Ancillaries
          Published by:
          Office of the Federal Register
          National Archives and Records
          Administration

A Special Edition of the Federal Register



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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003



  For sale by the Superintendent of Documents, U.S. Government Printing 
                                  Office
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                              (202) 512-1800
      Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001



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                            Table of Contents



                                                                    Page
  Explanation.................................................      vi

  Title 7:
    Subtitle B--Regulations of the Department of Agriculture 
      (Continued)
          Chapter XVIII--Rural Housing Service, Rural 
          Business-Cooperative Service, Rural Utilities 
          Service, and Farm Service Agency, Department of 
          Agriculture (Continued)                                    5
          Chapter XX--Local Television Loan Guarantee Board         23
          Chapter XXVI--Office of Inspector General, 
          Department of Agriculture                                 27
          Chapter XXVII--Office of Information Resources 
          Management, Department of Agriculture                     35
          Chapter XXVIII--Office of Operations, Department of 
          Agriculture                                               41
          Chapter XXIX--Office of Energy, Department of 
          Agriculture                                               49
          Chapter XXX--Office of the Chief Financial Officer, 
          Department of Agriculture                                 57
          Chapter XXXI--Office of Environmental Quality, 
          Department of Agriculture                                223
          Chapter XXXII--Office of Procurement and Property 
          Management, Department of Agriculture                    231
          Chapter XXXIII--Office of Transportation, Department 
          of Agriculture                                           237
          Chapter XXXIV--Cooperative State Research, 
          Education, and Extension Service, Department of 
          Agriculture                                              251

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          Chapter XXXV--Rural Housing Service, Department of 
          Agriculture                                              373
          Chapter XXXVI--National Agricultural Statistics 
          Service, Department of Agriculture                       479
          Chapter XXXVII--Economic Research Service, 
          Department of Agriculture                                487
          Chapter XXXVIII--World Agricultural Outlook Board, 
          Department of Agriculture                                493
          Chapter XLI [Reserved]
          Chapter XLII--Rural Business-Cooperative Service and 
          Rural Utilities Service, Department of Agriculture       497
  Finding Aids:
      Table of CFR Titles and Chapters........................     577
      Alphabetical List of Agencies Appearing in the CFR......     595
      List of CFR Sections Affected...........................     605



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

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 7 CFR 2003.1 refers 
                       to title 7, part 2003, 
                       section 1.

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

[[Page vi]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

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issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 2003), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
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instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
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states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vii]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in 11 separate 
volumes. For the period beginning January 1, 2001, a ``List of CFR 
Sections Affected'' is published at the end of each CFR volume.

CFR INDEXES AND TABULAR GUIDES

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separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I). A list of CFR titles, chapters, 
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    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408 or e-mail 
[email protected].

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ELECTRONIC SERVICES

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CFR Sections Affected), The United States Government Manual, the Federal 
Register, Public Laws, Public Papers, Weekly Compilation of Presidential 
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free). E-mail, [email protected].

[[Page viii]]

    The Office of the Federal Register also offers a free service on the 
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site for public law numbers, Federal Register finding aids, and related 
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site also contains links to GPO Access.

                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

January 1, 2003.



[[Page ix]]



                               THIS TITLE

    Title 7--Agriculture is composed of fifteen volumes. The parts in 
these volumes are arranged in the following order: parts 1-26, 27-52, 
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1899, 1900-1939, 1940-1949, 1950-1999, and part 2000 to end. 
The contents of these volumes represent all current regulations codified 
under this title of the CFR as of January 1, 2003.

    The Food and Nutrition Service current regulations in the volume 
containing parts 210-299, include the Child Nutrition Programs and the 
Food Stamp Program. The regulations of the Federal Crop Insurance 
Corporation are found in the volume containing parts 400-699.

    All marketing agreements and orders for fruits, vegetables and nuts 
appear in the one volume containing parts 900-999. All marketing 
agreements and orders for milk appear in the volume containing parts 
1000-1199. Part 900--General Regulations is carried as a note in the 
volume containing parts 1000-1199, as a convenience to the user.

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

[[Page 1]]



                          TITLE 7--AGRICULTURE




                  (This book contains part 2000 to End)

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

  SUBTITLE B--Regulations of the Department of Agriculture (Continued)

                                                                    Part

chapter xviii--Rural Housing Service, Rural Business-
  Cooperative Service, Rural Utilities Service, and Farm 
  Service Agency, Department of Agriculture (Continued).....        2003

chapter xx--Local Television Loan Guarantee Board Procedures        2200

chapter xxvi--Office of Inspector General, Department of 
  Agriculture...............................................        2610

chapter xxvii--Office of Information Resources Management, 
  Department of Agriculture.................................        2700

chapter xxviii--Office of Operations, Department of 
  Agriculture...............................................        2810

chapter xxix--Office of Energy, Department of Agriculture...        2900

chapter xxx--Office of the Chief Financial Officer, 
  Department of Agriculture.................................        3010

chapter xxxi--Office of Environmental Quality, Department of 
  Agriculture...............................................        3100

chapter xxxii--Office of Procurement and Property 
  Management, Department of Agriculture.....................        3200

chapter xxxiii--Office of Transportation, Department of 
  Agriculture...............................................        3300

chapter xxxiv--Cooperative State Research, Education, and 
  Extension Service, Department of Agriculture..............        3400

chapter xxxv--Rural Housing Service, Department of 
  Agriculture...............................................        3550

chapter xxxvi--National Agricultural Statistics Service, 
  Department of Agriculture.................................        3600

[[Page 2]]


chapter xxxvii--Economic Research Service, Department of 
  Agriculture...............................................        3700

chapter xxxviii--World Agricultural Outlook Board, 
  Department of Agriculture.................................        3800
chapter xli[Reserved]

chapter xlii--Rural Business-Cooperative Service and Rural 
  Utilities Service, Department of Agriculture..............        4274

[[Page 3]]

  Subtitle B--Regulations of the Department of Agriculture (Continued)

[[Page 5]]



    CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVE 
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF 
                         AGRICULTURE (CONTINUED)




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


  Editorial Note: Nomenclature changes to chapter XVIII appear at 59 FR 
66443, Dec. 27, 1994; 61 FR 1109, Jan. 16, 1996; and 61 FR 2899, Jan. 
30, 1996.

                SUBCHAPTER I--ADMINISTRATIVE REGULATIONS
Part                                                                Page
2003            Organization................................           7
2018            General.....................................          17
2045            General.....................................          19

[[Page 7]]



                SUBCHAPTER I--ADMINISTRATIVE REGULATIONS





PART 2003--ORGANIZATION--Table of Contents




Subpart A--Functional Organization of the Rural Development Mission Area

Sec.
2003.1  Definitions.
2003.2  General.
2003.3-2003.4  [Reserved]
2003.5  Headquarters organization.
2003.6  Office of the Under Secretary.
2003.7-2003.9  [Reserved]
2003.10  Rural Development State Offices.
2003.11-2003.13  [Reserved]
2003.14  Field Offices.
2003.15-2003.16  [Reserved]
2003.17  Availability of information.
2003.18  Functional organization of RHS.
2003.19-2003.21  [Reserved]
2003.22  Functional organization of RUS.
2003.23-2003.25  [Reserved]
2003.26  Functional organization of RBS.
2003.27-2003.50  [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 6941; and 7 CFR 2.17.

    Source: 62 FR 67259, Dec. 24, 1997, unless otherwise noted.



Subpart A--Functional Organization of the Rural Development Mission Area



Sec. 2003.1  Definitions.

    EEO--the Equal Employment Opportunity Act of 1972, 42 U.S.C. 
Sec. 2000e et seq.
    O&M--Operations and Management.
    P&P--Policy and Planning.
    RBS--Rural Business-Cooperative Development Service, USDA, or any 
successor agency.
    RHS--Rural Housing Service, USDA, or any successor agency.
    RTB--Rural Telephone Bank authorized by 7 U.S.C. 944.
    Rural Development--Rural Development mission area of USDA.
    RUS--Rural Utilities Service, USDA, or any successor agency.
    Secretary--the Secretary of USDA.
    USDA--the United States Department of Agriculture.



Sec. 2003.2  General.

    The Rural Development mission area of the Department of Agriculture 
was established as a result of the Department of Agriculture 
Reorganization Act of 1994, Title II of Pub.L. 103-354. Rural 
Development's basic organization consists of Headquarters in Washington, 
D.C. and 47 State Offices. Headquarters maintains overall planning, 
coordination, and control of Rural Development agency programs. 
Administrators head RHS, RBS, and RUS under the direction of the Under 
Secretary for Rural Development. State Directors head the State Offices 
and are directly responsible to the Under Secretary for the execution of 
all Rural Development agency programs within the boundaries of their 
states.



Secs. 2003.3-2003.4  [Reserved]



Sec. 2003.5  Headquarters organization.

    (a) The Rural Development Headquarters is comprised of:
    (1) The Office of the Under Secretary;
    (2) Two Deputy Under Secretaries; and,
    (3) Three Administrators and their staffs.
    (b) The Rural Development Headquarters is located at 1400 
Independence Avenue, SW., Washington, DC. 20250-0700



Sec. 2003.6  Office of the Under Secretary.

    In accordance with 7 CFR Sec. 2.17 the Secretary has delegated to 
the Under Secretary, Rural Development, authority to manage and 
administer programs and support functions of the Rural Development 
mission area.
    (a) Office of the Deputy Under Secretary for P&P. This office is 
headed by the Deputy Under Secretary for P&P. The Under Secretary, Rural 
Development, has delegated to the Deputy Under Secretary for P&P, 
responsibility for formulation and development of short-and long-range 
rural development policies of the Department in accordance with 7 CFR 
Sec. 2.45. The Deputy Under Secretary for P&P reports directly to the 
Under Secretary, Rural Development, and provides guidance and 
supervision for research, policy analysis and development, strategic 
planning, partnerships and special initiatives. For budget and 
accounting

[[Page 8]]

purposes, all of the staff offices under the Deputy Under Secretary for 
P&P are housed in RBS.
    (1) The Budget Analysis Division assesses potential impacts of 
alternative policies on the mission area's programs and operations and 
develops recommendations for change. The units are headed by the Chief 
Budget Officer, who individually serves as the top policy advisor to the 
Under Secretary and Deputy Under Secretary on all matters relating to 
mission area budget policy.
    (2) The Research, Analysis and Information Division analyzes 
information on rural conditions and the strategies and techniques for 
promoting rural development. The division performs, or arranges to have 
conducted, short-term and major research studies needed to formulate 
policy.
    (3) The Reinvention and Capacity Building Division coordinates the 
mission area's strategic planning initiatives, both at the National 
level and in the State Offices. The division assists the Rural 
Development agencies in their implementation of the Government 
Performance and Results Act (GPRA) and special initiatives of the 
Administration, USDA, and the Office of the Under Secretary.
    (4) The Rural Initiatives and Partnership Division manages the 
mission area's involvement and coordination with other Federal and state 
departments and agencies to assess rural issues and develop model 
partnerships and initiatives to achieve shared rural development goals. 
The division is responsible for managing the National Rural Development 
Partnership and providing support and oversight of 37 State Rural 
Development Councils.
    (b) Office of the Deputy Under Secretary for O&M. In accordance with 
7 CFR 2.45, the Under Secretary, Rural Development, has delegated to the 
Deputy Under Secretary for O&M responsibility for providing leadership 
in planning, developing, and administering overall administrative 
management program policies and operational activities of the Rural 
Development mission area. The Deputy Under Secretary for O&M reports 
directly to the Under Secretary, Rural Development.
    (1) Office of the Deputy Administrator for O&M. Headed by the Deputy 
Administrator for O&M, this office reports directly to the Deputy Under 
Secretary for O&M, and is responsible for directing and coordinating the 
consolidated administrative and financial management functions for Rural 
Development. This office provides overall guidance and supervision for 
budget and financial management, human resources management and 
personnel services, administrative and procurement services, information 
resources management and automated data systems. For budget and 
accounting purposes, all of the staff offices under the Deputy 
Administrator for O&M are housed in RHS.
    (i) Office of the Controller. Headed by the Chief Financial Officer, 
this office supports the Deputy Administrator for O&M in executing Rural 
Development requirements related to compliance with the Chief Financial 
Officers Act of 1990 and provides leadership, coordination, and 
oversight of all financial management matters and financial execution of 
the budget for the Rural Development agencies. This office also has full 
responsibility for Rural Development agencies' accounting, financial, 
reporting, and internal controls. The office provides direct oversight 
to the Headquarters Budget Division, Financial Management Division, and 
the Office of the Assistant Controller, located in St. Louis, Missouri.
    (ii) Office of Assistant Administrator for Procurement and 
Administrative Services. Headed by the Assistant Administrator for 
Procurement and Administrative Services, this office is responsible to 
the Deputy Administrator for O&M for overseeing the Procurement 
Management Division, the Property and Supply Management Division, and 
the Support Services Division:
    (A) The Procurement Management Division is responsible for 
developing, implementing, and interpreting procurement and contracting 
policies for the Rural Development mission area. Major functions include 
planning outreach efforts and goals for small and disadvantaged 
businesses, providing staff assistance reviews in State and Local 
Offices, administering the Contracting Officer Professionalism Warrant 
program for Rural Development

[[Page 9]]

agencies, and coordinating the development of Rural Development's 
acquisition plans.
    (B) The Property and Supply Management Division is responsible for 
developing office space acquisition and utilization policies, providing 
training to field office leasing officers, administering the Leasing 
Officer Warrant program, assuring accessibility compliance in Rural 
Development's work sites, administering Rural Development's Physical 
Security program, and establishing and providing oversight to the 
worksite Energy Conservation program. This office operates a nationwide 
supply warehousing and distribution program, and oversees a nationwide 
Personal Property Management and Utilization Program, manages the U.S. 
Department of Agriculture (USDA) Excess Personal Property Program for 
field level activities, and provides direct support services to Rural 
Development's St. Louis facilities.
    (C) The Support Services Division has responsibility for designing, 
developing, administering, and controlling Rural Development's 
directives management and issuance system, coordinating Rural 
Development's Regulatory Agenda and Regulatory Program submissions to 
USDA and OMB, serving as Federal Register liaison, and analyzing and 
coordinating regulatory work plans for the Under Secretary. This office 
submits Paperwork Reduction Act public burden clearances to OMB, 
administers all printing programs, manages Rural Development travel 
policies and programs, and manages Freedom of Information Act, Privacy 
Act and Tort Claims programs.
    (iii) Office of Information Resources Management (IRM). Headed by 
the Chief Information Officer, this office is responsible to the Deputy 
Administrator for O&M for developing Rural Development's IRM policies, 
regulations, standards and guidelines. This office provides overall 
leadership and direction to activities assigned to the following four 
major divisions:
    (A) The Customer Services Division is responsible for direct 
customer and technical support (hardware and software).
    (B) The Management Services Division coordinates all IRM 
acquisition, budget, and policy and planning activities in support of 
Rural Development automation.
    (C) The Information Technology Division provides support technical 
services in the areas of data administration, system integrity 
management, research and development, and telecommunications.
    (D) The Systems Services Division is responsible for planning, 
directing, and controlling activities related to Rural Development's 
Automated Information Systems.
    (iv) Office of the Assistant Administrator for Human Resources. 
Headed by the Assistant Administrator for Human Resources, this office 
is responsible to the Deputy Administrator for O&M for the overall 
development, implementation, and management, of personnel and human 
resources support services for Rural Development. The office provides 
direction to the Headquarters Personnel Services, Human Resources 
Training and Mission Area Personnel Services Division, and Labor 
Relations Staff offices. The office is also responsible for the 
establishment of recruitment, retention, and development policies and 
programs supporting workforce diversity and affirmative action.
    (2) Office of Civil Rights Staff. Headed by a staff director, this 
staff has primary responsibility for providing leadership and 
administration of the Civil Rights Program for the Rural Development 
mission area. The staff conducts on-site reviews of borrowers and 
beneficiaries of Federal financial assistance to ensure compliance with 
Titles VI and VII of the Civil Rights Act of 1964, as amended, Title 
VIII of the Civil Rights Act of 1968, as amended, Section 504 of the 
Rehabilitation Act, the Americans with Disabilities Act, and prepares 
compliance reports. The staff conducts and evaluates Title VII 
compliance visits to insure that EEO programs are adequately 
implemented. In addition, the office develops, monitors, and evaluates 
Affirmative Employment programs for minorities, women and persons with 
disabilities, and coordinates and conducts community outreach activities 
at historically black colleges and universities. It also has oversight 
of special emphasis programs

[[Page 10]]

such as the Federal Women's Program, Hispanic Emphasis Program, and 
Black Emphasis Program. The staff director reports directly to the 
Deputy Under Secretary for O&M.
    (3) Office of Communications. Headed by a director who reports 
directly to the Deputy Under Secretary for O&M, this office has primary 
responsibility for tracking legislation and development and institution 
of policies to provide public communication and information services 
related to the Rural Development. The office maintains a constituent 
data base and conducts minority outreach efforts and administers a 
public information and media center responsible for media inquiries, 
news releases, program announcements, media advisories, and information 
retrieval. This office also serves as a liaison with Office of 
Congressional Relations (OCR), Office of the General Counsel (OGC), and 
other Departmental units involved in Congressional relations and public 
information. This office drafts testimony, prepares witnesses, and 
provides staff for hearings and markups. In addition, the office briefs 
Congressional members and staff on the Rural Development matters, 
coordinates Rural Development's legislative activities with other USDA 
agencies and OMB and develops and implements legislative strategy. The 
staff also coordinates development and production of brochures, press 
releases, and other public information materials.



Secs. 2003.7-2003.9  [Reserved]



Sec. 2003.10  Rural Development State Offices.

    (a) Headed by State Directors, State Offices report directly to the 
Under Secretary, Rural Development, and are responsible to the three 
Rural Development agency Administrators for carrying out agency program 
operations at the State level, ensuring adherence to program plans 
approved for the State by the Under Secretary, and rendering staff 
advisory and manpower support to Area and Local offices. The Rural 
Development State Directors, for budget and accounting purposes, are 
housed in the RHS agency.
    (b) Program Directors within the State Office provide oversight and 
leadership on major program functions. Major program functions include: 
Single Family and Multi-Family Housing loans and grants, Community 
Facility, Water and Waste Disposal, Business and Cooperative, and the 
Empowerment Zones and Enterprise Communities (EZ/EC) programs.
    (c) The USDA Rural Development State Office locations are as 
follows:

------------------------------------------------------------------------
                   State                              Location
------------------------------------------------------------------------
Alabama...................................  Montgomery, AL
Alaska....................................  Palmer, AK
Arizona...................................  Phoenix, AZ
Arkansas..................................  Little Rock, AR
California................................  Woodland, CA
Colorado..................................  Lakewood, CO
Delaware..................................  Camden, DE
Florida...................................  Gainesville, FL
Georgia...................................  Athens, GA
Hawaii....................................  Hilo, HI
Idaho.....................................  Boise, ID
Illinois..................................  Champaign, IL
Indiana...................................  Indianapolis, IN
Iowa......................................  Des Moines, IA
Kansas....................................  Topeka, KS
Kentucky..................................  Lexington, KY
Louisiana.................................  Alexandria, LA
Maine.....................................  Bangor, ME
Massachusetts.............................  Amherst, MA
Michigan..................................  East Lansing, MI
Minnesota.................................  St. Paul, MN
Mississippi...............................  Jackson, MS
Missouri..................................  Columbia, MO
Montana...................................  Bozeman, MT
Nebraska..................................  Lincoln, NE
Nevada....................................  Carson City, NV
New Jersey................................  Mt. Holly, NJ
New Mexico................................  Albuquerque, NM
New York..................................  Syracuse, NY
North Carolina............................  Raleigh, NC
North Dakota..............................  Bismarck, ND
Ohio......................................  Columbus, OH
Oklahoma..................................  Stillwater, OK
Oregon....................................  Portland, OR
Pennsylvania..............................  Harrisburg, PA
Puerto Rico...............................  Hato Rey, PR
South Carolina............................  Columbia, SC
South Dakota..............................  Huron, SD
Tennessee.................................  Nashville, TN
Texas.....................................  Temple, TX
Utah......................................  Salt Lake City, UT
Vermont...................................  Montpelier, VT
Virginia..................................  Richmond, VA
Washington................................  Olympia, WA
West Virginia.............................  Charleston, WV
Wisconsin.................................  Stevens Point, WI
Wyoming...................................  Casper, WY
------------------------------------------------------------------------


[62 FR 67259, Dec. 24, 1997; 63 FR 3256, Jan. 22, 1998]



Secs. 2003.11-2003.13  [Reserved]



Sec. 2003.14  Field Offices.

    Rural Development field offices report to their respective State 
Director

[[Page 11]]

and State Office Program Directors. State Directors may organizationally 
structure their offices based on the program workloads within their 
respective State. Field offices generally are patterned in a three or 
two tier program delivery structure. In a three tier system, Local 
offices report to an Area office, that reports to the State Office. In a 
two tier system, a ``Local'' or ``Area'' office reports to the State 
Office. Locations and telephone numbers of Area and Local Offices may be 
obtained from the appropriate Rural Development State Office.



Secs. 2003.15-2003.16  [Reserved]



Sec. 2003.17  Availability of information.

    Information concerning Rural Development programs and agencies may 
be obtained from the Office of Communications, Rural Development, U. S. 
Department of Agriculture, STOP 0705, 1400 Independence Avenue SW., 
Washington, DC 20250-0705.



Sec. 2003.18  Functional organization of RHS.

    (a) General. The Secretary established RHS pursuant to Sec. 233 of 
the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 
6943).
    (b) Office of the Administrator. According to 7 CFR 2.49, the 
Administrator has responsibility for implementing programs aimed at 
delivering loans and grant assistance to rural Americans and their 
communities in obtaining adequate and affordable housing and community 
facilities, in accordance with Title V of the Housing Act of 1949 (42 
U.S.C. 1471 et seq.) and the Consolidated Farm and Rural Development Act 
(7 U.S.C. 1921 et seq.).
    (1) Legislative Affairs Staff. The duties and responsibilities of 
this staff have now been aligned under the Office of Communication, 
headed by a director who reports directly to the Under Secretary for 
O&M. The Office of Communication is responsible for providing and 
carrying out legislative, public communication, and information services 
for the Rural Development mission area.
    (2) Office of Program Support Staff. The Program Support Staff is 
headed by a staff director who is responsible to the Administrator for 
monitoring managerial and technical effectiveness of RHS programs. The 
staff coordinates review and analysis of legislation, Executive Orders, 
OMB circulars, and Department regulations for their impact on Agency 
programs. The staff develops, implements, and reports on architectural 
and environmental policies, in cooperation with the Department. Staff 
responsibilities also include managing RHS's Hazardous Waste Management 
Fund, coordinating the Debarment and Suspension process for RHS, 
tracking the use of Program Loan Cost Expense funds, and maintaining the 
RHS Internet ``Home Page.''
    (3) Office of Deputy Administrator, Single Family Housing. Headed by 
the Deputy Administrator, Single Family Housing, this office is 
responsible to the Administrator for the development and implementation 
of RHS's Single Family Housing programs, which extend supervised housing 
credit to rural people of limited resources, for adequate, modest, 
decent, safe, and sanitary homes. The office is responsible for 
administering and managing sections 502 and 504 Rural Housing direct and 
guaranteed loan and grant programs, Rural Housing and Self-Help Site 
loans, the Self-Help Technical Assistance grant program, Housing 
Application Packaging and Technical and Supervisory Assistance grants, 
and Home Improvement and Repaid loans and grants. The office directs the 
following three divisions: Single Family Housing Processing Division, 
Single Family Housing Servicing and Property Management Division, and 
Single Family Housing Centralized Servicing Center in St. Louis, Mo.
    (i) Office of Single Family Housing Processing Division. Headed by a 
division director, this division is responsible for development and 
nationwide implementation of policies on processing Single Family 
Housing direct and guaranteed program loans. In addition, the division 
provides direction on the following: the Rural Housing Targeted Area 
Set-Aside program, debarments, payment assistance, title clearance and 
loan closing, site/subdivision development, Deferred Mortgage Payment 
Program; construction

[[Page 12]]

defects, credit reports, appraisals, Manufactured Housing, coordinated 
assessment reviews, Home Buyer's Counseling/Education Program, and 
allocation of loan and grant program funds.
    (ii) Office of Single Family Housing Servicing and Property 
Management Division. Headed by a division director, this division is 
responsible for the development and implementation of nationwide 
policies for servicing RHS's multi-billion dollar portfolio of Single 
Family Housing loans, and managing and selling Single Family Housing 
inventory properties. The division also conducts state program 
evaluations, identifies program weaknesses, makes recommendations for 
improvements, and identifies corrective actions.
    (iii) Office of Single Family Housing Centralized Servicing Center 
(CSC)--St. Louis, Missouri. Headed by a director, CSC is responsible for 
centrally servicing RHS's multi-billion dollar portfolio of Single 
Family Housing loans. CSC provides interest credit or payment assistance 
renewals, performs escrow activities for real estate taxes and property 
hazard insurance, oversees collection of loan payments, and grants 
interest credit, payment assistance, and moratoria.
    (4) Office of the Deputy Administrator, Multi-Family Housing 
Division. Headed by the Deputy Administrator, Multi-Family Housing, this 
office is responsible for the development and nationwide implementation 
of RHS's Multi-Family Housing programs, which extend supervised housing 
credit to rural residents an opportunity to have decent, safe, and 
sanitary rental housing. The following programs are administered and 
managed by this office: Section 515 Rural Rental Housing, Rural 
Cooperative and Congregate Housing Programs, Section 521 Rental 
Assistance, Farm Labor Housing loan and grant programs, Housing 
Preservation Grants, rural housing vouchers, and Housing Application 
Packaging Grants. This office directs the following two divisions:
    (i) Multi-Family Housing Processing Division. Headed by a division 
director, this division is responsible for the development and 
nationwide implementation of policies on processing Multi-Family Housing 
program loans. The division manages the following program areas: elderly 
and family rental housing, Farm Labor Housing loans and grants, outreach 
contacts, congregate facilities, Housing Preservation Grants, 
cooperative housing, rural housing vouchers, appraisals, Congregate 
Housing Services Grants, Rental Assistance, Housing Application 
Packaging Grants, targeted area and nonprofit set asides, Multi-Family 
Housing suspensions and debarments, title clearance and loan closing, 
allocation and monitoring of loan and grant funds, adverse decisions and 
appeals, commercial credit reports, individual credit reports, and, site 
development.
    (ii) Multi-Family Housing Portfolio Management Division. Headed by a 
division director, this division is responsible for the development and 
institution of policies on the management and servicing of the 
nationwide Multi-Family Housing programs. The Division implements 
current and long range plans for servicing Rural Rental Housing loans, 
Labor Housing loans and grants, and Rental Assistance or similar tenant 
subsidies.
    (5) Office of the Deputy Administrator, Community Programs. Headed 
by the Deputy Administrator, Community Programs, this office is 
responsible for overseeing the administration and management of 
Community Facilities loans and grants to hospitals and nursing homes, 
police and fire stations, libraries, schools, adult and child care 
centers, etc. The office monitors and evaluates the administration of 
loan and grant programs on a nationwide basis and provides guidance and 
direction for community programs through two divisions, Community 
Programs Loan Processing Division and Servicing and Special Authorities 
Division.
    (i) Community Programs Loan Processing Division. Headed by a 
director, this division is responsible for the overall administration, 
policy development, fund distribution, and processing of Community 
Facilities loans and grants and other loan and grant programs assigned 
to the Division.
    (ii) Servicing and Special Authorities Division. Headed by a 
division director, this division is responsible for the overall 
administration, policy development, and servicing of the Community

[[Page 13]]

Facilities loan and grant programs. The division conducts program 
evaluations, identifies program weaknesses, makes recommendations for 
improvements, and identifies corrective actions. The division also 
administers and services Nonprofit National Corporation loans and 
grants.

[62 FR 67259, Dec. 24, 1997, as amended at 64 FR 32388, June 17, 1999]



Secs. 2003.19-2003.21  [Reserved]



Sec. 2003.22  Functional organization of RUS.

    (a) General. The Secretary established RUS pursuant to Sec. 232 of 
the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 
6942).
    (b) Office of the Administrator. According to 7 CFR 2.47, the 
Administrator has responsibility for managing and administering the 
programs and support functions of RUS to provide financial and technical 
support for rural infrastructure to include electrification, clean 
drinking water, telecommunications, and water disposal systems, pursuant 
to the Consolidated Farm and Rural Development Act, as amended (7 U.S.C. 
1921 et seq.), and the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.). The office develops and implements strategic plans 
concerning the Rural Electrification Act of 1936, as amended. The 
Administrator serves as Governor of the Rural Telephone Bank (RTB) with 
a 13-member board of directors, and exercises and performs all 
functions, powers, and duties of the RTB in accordance with 7 U.S.C. 
944.
    (1) Borrower and Program Support Services. Borrower and Program 
Support Services consist of the three following staffs which are 
responsible to the Administrator for planning and carrying out a variety 
of program and administrative services in support of all RUS programs, 
and providing expert advice and coordination for the Administrator:
    (i) Administrative Liaison Staff. Headed by a staff director, this 
staff advises the Administrator on management issues and policies 
relating to human resources, EEO, labor-management partnership, 
administrative services, travel management, automated information 
systems, and administrative budgeting and funds control.
    (ii) Program Accounting Services Division. Headed by a division 
director, this division develops and evaluates the accounting systems 
and procedures of Electric, Telecommunications, and Water and Wastewater 
borrowers; assures that accounting policies, systems, and procedures 
meet regulatory, Departmental, General Accounting Office, OMB, and 
Treasury Department requirements; examines borrowers' records and 
operations, and reviews expenditures of loans and other funds; develops 
audit requirements; and approves Certified Public Accountants to perform 
audits of borrowers.
    (iii) Program and Financial Services Staff. Headed by a staff 
director, this staff evaluates the financial conditions of troubled 
borrowers, negotiates settlements of delinquent loans, and makes 
recommendations to program Assistant Administrators on ways to improve 
the financial health of borrowers.
    (2) Office of Assistant Administrator--Electric Program. Headed by 
the Assistant Administrator--Electric Program, this office is 
responsible to the Administrator for directing and coordinating the 
Rural Electrification program of RUS nationwide. This office develops, 
maintains, and implements regulations and program procedures on 
processing and approving loans and loan-related activities for rural 
electric borrowers. The office directs the following three divisions:
    (i) Electric Regional Divisions. Headed by division directors, these 
two divisions are responsible for administering the Rural 
Electrification program in specific geographic areas and serving as the 
single point of contact for all distribution borrowers. The divisions 
provide guidance to borrowers on RUS loan policies and procedures, 
maintain oversight of borrower rate actions, and make recommendations to 
the Administrator on borrower applications for RUS financing. The 
divisions also assure that power plant, distribution, and transmission 
systems and facilities are designed and constructed in accordance with 
the terms of the loan and proper engineering practices and 
specifications.

[[Page 14]]

    (ii) Power Supply Division. Headed by a division director, this 
division is responsible for administering the Rural Electrification 
program responsibilities with regard to power supply borrowers 
nationwide and serves as primary point of contact between RUS and all 
such borrowers. The division develops and maintains a loan processing 
program for Rural Electrification Act purposes, and develops and 
administers engineering and construction policies related to planning, 
design, construction, operation, and maintenance for power supply 
borrowers.
    (iii) Electric Staff Division. Headed by a division director, this 
division is responsible for engineering activities related to the 
design, construction, and technical operations and maintenance of power 
plants; distribution of power; and transmission systems and facilities, 
including load management and communications. The division develops 
criteria and techniques for evaluating the financing and performance of 
electric borrowers and forecasting borrowers' future power needs; and 
maintains financial expertise on the distribution and power supply loan 
program, and retail and wholesale rates.
    (3) Office of Assistant Administrator--Telecommunications Program. 
Headed by the Assistant Administrator--Telecommunications Program, this 
office is responsible to the Administrator for directing and 
coordinating the National Rural Telecommunications, Distance Learning, 
and Telemedicine programs of RUS. The Assistant Administrator, 
Telecommunications Program, serves as Assistant Governor of the RTB and 
is responsible for the day-to-day activities of the RTB. The office 
develops, maintains, and implements regulations and program procedures 
on the processing and approval of grants, loans, and loan-related 
activities for all rural telecommunications borrowers and grant 
recipients. The office directs the following three divisions:
    (i) Telecommunications Standards Division. Headed by a division 
director, this division is responsible for engineering staff activities 
related to the design, construction, and technical operation and 
maintenance of rural telecommunications systems and facilities. The 
office develops engineering practices, policies, and technical data 
related to borrowers' telecommunications systems; and evaluates the 
application of new communications network technology, including distance 
learning and telemedicine, to rural telecommunications systems.
    (ii) Advanced Telecommunications Services Staff. Headed by a staff 
director, this staff primarily serves the Assistant Administrator, 
Telecommunications Program in the role of the Assistant Governor of the 
RTB. The office performs analyses and makes recommendations to the AAT 
on issues raised by the RTB Governor, Board of Directors, or RTB 
borrowers. This staff maintains official records for the RTB Board and 
prepares minutes of RTB Board meetings. The staff director serves as the 
Assistant Secretary to the RTB. The staff performs the calculations 
necessary to determine the cost of money rate to RTB borrowers and 
recommends and develops program- wide procedures for loan and grant 
programs. The office is responsible for the Telecommunications Program's 
home page on the Internet.
    (iii) Telecommunications Area Offices. Headed by area directors, 
these four offices are responsible for administering the 
Telecommunications, Distance Learning, and Telemedicine programs for 
specific geographic areas, and serving as the single point of contact 
for all program applicants and borrowers within their respective areas. 
The offices provide guidance to applicants and borrowers on RUS and RTB 
loan policies and procedures, and make recommendations to the 
Administrator on applications for loans, guarantees, and grants. The 
offices assure that borrower systems and facilities are designed and 
constructed in accordance with the terms of the loan, acceptable 
engineering practices and specifications, and acceptable loan security 
standards.
    (4) Office of the Assistant Administrator--Water and Environmental 
Programs. Headed by the Assistant Administrator, Water and Environmental 
Programs, this office is responsible to the Administrator for directing 
and coordinating a nationwide Water and

[[Page 15]]

Waste Disposal Program for RUS as authorized under Section 306 of the 
Consolidated Farm and Rural Development Act, as amended (7 U.S.C. 1926). 
The office oversees administration of RUS policies on making and 
servicing loans and grants for water and waste facilities in rural 
America, and the development of engineering policies, and practices 
related to the construction and operation of community water and waste 
disposal systems. This office is responsible for development and 
coordination of environmental programs with regard to the Water and 
Waste Disposal Program and directs the following two divisions:
    (i) Water Programs Division. Headed by the division director, this 
division is responsible for administering the Water and Waste Disposal 
loan and grant making and servicing and special authorities activities 
nationwide. This office also makes allocation of loan and grant funds to 
field offices and manages National Office reserves.
    (ii) Engineering and Environmental Staff. Headed by a staff 
director, this staff is responsible for engineering activities at all 
stages of program implementation, including: review of preliminary 
engineering plans and specifications, procurement practices, contract 
awards, construction monitoring, and system operation and maintenance. 
The staff also develops Agency engineering practices, policies, and 
technical data related to the construction and operation of community 
water and waste disposal systems. The staff is responsible for 
coordinating environmental policy and providing technical support in 
areas such as: hazardous waste, debarment and suspension, flood 
insurance, drug free workplace requirements, and computer program 
software.



Secs. 2003.23-2003.25  [Reserved]



Sec. 2003.26  Functional organization of RBS.

    (a) General. The Secretary established RBS pursuant to Sec. 234 of 
the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 
6944).
    (b) Office of the Administrator. According to 7 CFR 2.48, the 
Administrator is responsible for managing and administering the programs 
and support functions of RBS to provide assistance to disadvantaged 
communities through grants and loans and technical assistance to 
businesses and communities for rural citizens and cooperatives, pursuant 
to the following authorities: the Rural Electrification Act of 1936, as 
amended (7 U.S.C. 940c and 950aa et seq.), the Consolidated Farm and 
Rural Development Act (7 U.S.C. 1921 et seq.), the Cooperative Marketing 
Act of 1926 (7 U.S.C. 451-457), the Agricultural Marketing Act of 1946 
(7 U.S.C. 1621-1627), and the Food Security Act of 1985 (7 U.S.C. 1932). 
These grants, loans, and technical assistance improve community welfare 
by enhancing organizational and management skills, developing effective 
economic strategies, and expanding markets for a wide range of rural 
products and services.
    (1) Resources Coordination Staff. Headed by the staff director, this 
staff is responsible to the Administrator for preparing legislative 
initiatives and modifications for program enhancement. The staff 
monitors legislative and regulatory proposals that potentially impact 
RBS functions. The staff serves as liaison on budgetary and financial 
management matters between RBS staff and the Office of the Controller, 
and assists the Administrator in presenting and supporting RBS's budget 
and program plans. The staff also advises the Administrator and RBS 
officials on management issues and policies related to: human resources, 
labor relations, civil rights, EEO, space, equipment, travel, Senior 
Executive Service and Schedule C activities, contracting, automated 
information systems, and accounting. The staff provides analysis and 
recommendations on the effectiveness of administrative and management 
activities, and performs liaison functions between RBS and the Office of 
the Deputy Under Secretary for O&M on a wide variety of administrative 
functions.
    (2) Office of the Deputy Administrator, Business Programs. Headed by 
the Deputy Administrator, Business Programs, this office is responsible 
to the Administrator for overseeing and coordinating the Business and 
Industry Guaranteed and Direct Loan programs, Intermediary Relending 
Program

[[Page 16]]

loans, Rural Business Enterprise grants, Rural Business Opportunity 
grants, Rural Economic Development loan and grant programs, and the 
Rural Venture Capital Demonstration Program. The office participates in 
policy planning, and program development and evaluation. It also directs 
the following three divisions:
    (i) Processing Division. Headed by the division director, this 
division is responsible for developing and maintaining loan processing 
regulations, and directs the processing and approval of guaranteed and 
direct business and industry loans, and the Rural Venture Capital 
Demonstration Program. It provides technical assistance to field 
employees and borrowers on loan processing and develops approval 
criteria and performance standards for loans. The division recommends 
plans, programs, and activities related to business loan programs and 
provides environmental guidance and support.
    (ii) Servicing Division. Headed by the division director, this 
office is responsible for developing and maintaining servicing 
regulations. It directs and provides technical assistance to field 
employees and borrowers on servicing business loans and grants. The 
division reviews large, complex, or potentially controversial loan and 
grant dockets related to loan servicing and recommends servicing plans, 
programs, and activities related to business loan and grant programs.
    (iii) Specialty Lenders Division. Headed by the division director, 
this office is responsible for directing and developing and maintaining 
regulations concerning the processing and approval of Intermediary 
Relending loans, Rural Business Enterprise grants, Rural Business 
Opportunity grants, and Rural Economic Development loan and grant 
programs. The division provides technical assistance to field employees 
and borrowers on loan and grant processing and other activities. It also 
develops approval criteria and performance standards and recommends 
plans, programs, and activities related to business loan and grant 
programs.
    (3) Office of the Deputy Administrator, Cooperative Services 
Programs. Headed by the Deputy Administrator, Cooperative Services 
Programs, this office is responsible to the Administrator for providing 
service to cooperative associations by administering a program of 
research and analysis of economic, social, legal, financial, and other 
related issues concerning cooperatives. The office administers programs 
to assist cooperatives in the organization and management of their 
associations and a program for economic research and analysis of the 
marketing aspects of cooperatives. The division administers and monitors 
activities of the National Sheep Industry Improvement Center and the 
Appropriate Technology Transfer to Rural Areas Program, and the Rural 
Cooperative Development Grant Program. The office directs the following 
three divisions:
    (i) Cooperative Marketing Division. Headed by the division director, 
this division is responsible for participating in the formulation of 
National policies and procedures on cooperative marketing. The division 
conducts research and analysis and gives technical assistance to farmer 
cooperatives on cooperative marketing of certain crops, livestock, 
aquaculture, forestry, poultry, semen, milk, and dairy products to 
improve their market performance and economic position.
    (ii) Cooperative Development Division. Headed by the division 
director, this division is responsible for participating in the 
formulation of National policies and procedures on cooperative 
development. The office conducts evaluations and analysis of proposed 
new cooperatives to develop plans for implementing feasible operations, 
and advises and assists rural resident groups and developing 
cooperatives in implementing sound business plans for new cooperatives. 
It provides research, analysis, and technical assistance to rural 
residents on cooperative development initiatives and strategies to 
improve economic conditions through cooperative efforts.
    (iii) Cooperative Resource Management Division. Headed by the 
division director, this division is responsible for participating in the 
formulating of National policies and procedures on cooperative resource 
management. The division conducts research and analysis and gives 
technical assistance to cooperatives on their overall structure,

[[Page 17]]

strategic management and planning, financial issues, and operational 
characteristics to improve their use of resources, financial policies, 
and ability to adapt to market conditions. The division conducts 
research and analysis of policy, taxation, Federal laws, State statutes, 
and common laws that apply to cooperative incorporation, structure, and 
operation to assist cooperatives in meeting legal requirements.
    (4) Office of the Deputy Administrator, Community Development. 
Headed by the Deputy Administrator, Community Development, this office 
is responsible to the Under Secretary, Rural Development, for 
coordinating and overseeing all functions in the Community Outreach and 
Empowerment Program areas. The office assists in providing leadership 
and coordination to National and local rural economic and community 
development efforts. For appropriation and accounting purposes, this 
office is located under RBS. The office directs the following two 
divisions:
    (i) Empowerment Program Division. Headed by the division director, 
this division is responsible for formulating policies and developing 
plans, standards, procedures, and schedules for accomplishing RBS 
activities related to ``community empowerment programs'', including EZ/
EC, AmeriCorps, and other initiatives. The office develops informational 
materials and provides technical advice and services to support States 
on community empowerment programs. It also generates information about 
rural conditions and strategies and techniques for promoting rural 
economic development for community empowerment programs.
    (ii) Community Outreach Division. Headed by the division director, 
this division is responsible for designing and overseeing overall 
systems and developing resources to support State and community level 
implementation activities for RBS programs. The office designs program 
delivery systems and tools, removes impediments to effective community-
level action, supports field offices with specialized skills, and 
establishes partnerships with National organizations with grass-roots 
membership to assure that programs and initiatives are designed and 
implemented in a way that empowers communities. It develops methods for 
working with rural business intermediaries to assist them in providing 
technical assistance to new, small business, and provides Internet-based 
services to 1890 Land-grant universities, EZ/EC, and AmeriCorps 
volunteers, linking RBS information support to communities with high 
levels of need.
    (5) Alternative Agricultural Research and Commercialization 
Corporation. Headed by a director, this Corporation is responsible for 
providing and monitoring financial assistance for the development and 
commercialization of new nonfood and nonfeed products from agricultural 
and forestry commodities in accordance with 7 U.S.C. 5901 et seq. The 
Corporation acts as a catalyst in forming private and public 
partnerships and promotes new uses of agricultural materials. It expands 
market opportunities for U.S. farmers through development of value-added 
industrial products and promotes environmentally friendly products. For 
budget and accounting purposes, this office is assigned to RBS. The 
director of the Corporation is responsible to the Office of the 
Secretary.



Secs. 2003.27-2003.50  [Reserved]



PART 2018--GENERAL--Table of Contents




Subparts A-E [Reserved]

                 Subpart F--Availability of Information

Sec.
2018.251  General statement.
2018.252  Public inspection and copying.
2018.253  Indexes.
2018.254  Requests for records.
2018.255  Appeals.
2018.256-2018.300  [Reserved]

    Authority: 5 U.S.C. 552.

Subparts A-E [Reserved]



                 Subpart F--Availability of Information

    Source: 61 FR 32645, June 25, 1996, unless otherwise noted.

[[Page 18]]



Sec. 2018.251  General statement.

    In keeping with the spirit of the Freedom of Information Act (FOIA), 
the policy of Rural Development and its component agencies, Rural 
Housing Service (RHS), Rural Utilities Service (RUS), and Rural 
Business-Cooperative Service (RBS), governing access to information is 
one of nearly total availability, limited only by the countervailing 
policies recognized by the FOIA.



Sec. 2018.252  Public inspection and copying.

    Facilities for inspection and copying are provided by the Freedom of 
Information Officer (FOIO) in the National Office, by the State Director 
in each State Office, by the Rural Development Manager (formerly, 
District Director) in each District Office, and by the Community 
Development Manager (formerly, County Supervisor) in each County Office. 
A person requesting information may inspect such materials and, upon 
payment of applicable fees, obtain copies. Material may be reviewed 
during regular business hours. If any of the Rural Development materials 
requested are not located at the office to which the request was made, 
the request will be referred to the office where such materials are 
available.



Sec. 2018.253  Indexes.

    Since Rural Development does not maintain any materials to which 5 
U.S.C. 552(a)(2) applies, it maintains no indexes.



Sec. 2018.254  Requests for records.

    Requests for records are to be submitted in accordance with 7 CFR 
1.3 and may be made to the appropriate Community Development Manager, 
Rural Development Manager, State Administrative Management Program 
Director (formerly, State Administrative Officer), State Director, 
Freedom of Information/Privacy Act Specialist, or Freedom of Information 
Officer. The last two positions are located in the Rural Development 
Support Services Division, Washington, DC 20250. The phrase ``FOIA 
REQUEST'' should appear on the outside of the envelope in capital 
letters. The FOIA requests under the Farm Credit Programs (formally FmHA 
Farmer Programs) should be forwarded to the Farm Service Agency (FSA), 
Freedom of Information Officer, Room 3624, South Agriculture Building, 
14th & Independence Avenue, SW., Washington, DC 20250-0506. Requests 
should be as specific as possible in describing the records being 
requested. The FOIO, Freedom of Information/Privacy Act Specialist, each 
State Administrative Management Program Director, each State Director, 
each Rural Development Manager, and each Community Development Manager 
are delegated authority to act respectively at the national, state, 
district, or county level on behalf of Rural Development to:
    (a) Deny requests for records determined to be exempt under one or 
more provisions of 5 U.S.C. 552(b);
    (b) Make discretionary releases (unless prohibited by other 
authority) of such records when it is determined that the public 
interests in disclosure outweigh the public and/or private ones in 
withholding; and
    (c) Reduce or waive fees to be charged where determined to be 
appropriate.



Sec. 2018.255  Appeals.

    If all or any part of an initial request is denied, it may be 
appealed in accordance with 7 CFR 1.7 to that particular Agency 
possessing the documents. Please select the appropriate Agency to 
forward your FOIA appeal from the following addresses: Administrator, 
Rural Housing Service, Room 5014, AG Box 0701, 14th & Independence 
Avenue, SW.--South Building, Washington, DC 20250-0701; Administrator, 
Rural Business-Cooperative Service, Room 5045, AG Box 3201, 14th & 
Independence Avenue, SW.--South Building, Washington, DC 20250-3201 and 
Administrator, Rural Utilities Service, Room 4501, AG Box 1510, 14th & 
Independence Avenue, SW.--South Building, Washington, DC 20250-1510. The 
phrase ``FOIA APPEAL'' should appear on the front of the envelope in 
capital letters.

[[Page 19]]



Secs. 2018.256-2018.300  [Reserved]



PART 2045--GENERAL--Table of Contents




Subparts A-II  [Reserved]

    Subpart JJ--Rural Development--Utilization of Gratuitous Services

Sec.
2045.1751  General.
2045.1752  Policy.
2045.1753  Authority to accept gratuitous services.
2045.1754  Scope of gratuitous services performed.
2045.1755  Preparation and disposition of agreement forms.
2045.1756  Records and reports.

Exhibit A to Subpart JJ--Agreement Form

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; delegation of authority by 
the Secretary of Agriculture, 7 CFR 2.23; delegation of authority by the 
Assistant Secretary for Rural Development, 7 CFR 2.70.

    Source: 43 FR 3694, Jan. 27, 1978, unless otherwise noted.

Subparts A-II [Reserved]



    Subpart JJ--Rural Development--Utilization of Gratuitous Services



Sec. 2045.1751  General.

    Section 331(b) of the Consolidated Farm and Rural Development Act 
(Pub. L. 92-419), and section 506(a) of the Housing Act of 1949, empower 
the Secretary of Agriculture to accept and utilize voluntary and 
uncompensated services in carrying out the provisions of the above cited 
Acts. The Secretary has delegated those authorities to the Administrator 
of the Farmers Home Administration (FmHA) or its successor agency under 
Public Law 103-354 in 7 CFR 2.70(a) (1) and (2).



Sec. 2045.1752  Policy.

    Voluntary and uncompensated (gratuitous) services may be accepted 
with the consent of the agency concerned, from the following sources 
under the conditions set forth in Exhibit A, ``Agreement for Utilization 
of Employee of (Enter Official Title of Governing Body or Other 
Authorized Organization) By the Farmers Home Administration or its 
successor agency under Public Law 103-354'' (Agreement Form).
    (a) Any agency of State government or of any territory or political 
subdivision.
    (b) Non-profit, educational, and charitable organizations, provided 
that no partisan, political, or profit motive is involved either 
explicitly or implicitly.



Sec. 2045.1753  Authority to accept gratuitous services.

    (a) State Directors, Director, Personnel Division, and Director, 
Finance Office, are hereby authorized to accept and utilize gratuitous 
services offered by the governmental agencies listed in 
Sec. 2045.1752(a).
    (b) An offer received by an FmHA or its successor agency under 
Public Law 103-354 State or County Office from a source listed in 
Sec. 2045.1752(b) shall be transmitted to the National Office, 
Attention: Director, Personnel Division, for decision. The offer will be 
accompanied by copies of the Articles of Incorporation and By-laws (if 
the organization is incorporated), a statement that the organization 
accepts the conditions set forth in the Agreement Form, and evidence 
that the organization is financially able to meet the required fiscal 
obligations of the agreement.



Sec. 2045.1754  Scope of gratuitous services performed.

    (a) Gratuitous services accepted in accordance with this subpart may 
be utilized to perform any function performed by regular FmHA or its 
successor agency under Public Law 103-354 employees (excluding Committee 
members). Such services must not result in the displacement of 
employees. Most of the gratuitous services should be performed at the 
County Office level and conform to a standard FmHA or its successor 
agency under Public Law 103-354 position description. A nonstandard 
position description may be developed and used, depending on current 
agency needs in a particular office and gratuitous skills available.
    (b) Orientation and other training will be provided by FmHA or its 
successor agency under Public Law 103-354 so that gratuitous services 
may be performed in accordance with current FmHA or its successor agency 
under Public Law 103-354 procedure.

[[Page 20]]

    (c) Persons performing authorized gratuitous services will be held 
to the same standard as regular FmHA or its successor agency under 
Public Law 103-354 employees performing similar duties. The issuance of, 
and accountability for, identification cards and clearance of employee 
accountability will be as prescribed in FmHA or its successor agency 
under Public Law 103-354 Instruction 2024-B which is available in all 
FmHA or its successor agency under Public Law 103-354 Offices. Such 
persons, except Construction Inspectors may, when under direct 
supervision of County Supervisors, act as Collection Officers and be 
allowed to use receipt books in accordance with FmHA or its successor 
agency under Public Law 103-354 Instructions 2024-C and 451.2 (part 1862 
of this chapter and other applicable regulations available in all FmHA 
or its successor agency under Public Law 103-354 Offices).



Sec. 2045.1755  Preparation and disposition of agreement forms.

    (a) Agreements to accept and utilize gratuitous services must be 
identical to the attached Exhibit A (Agreement Form) with such 
exceptions as may be authorized by the Office of the General Counsel, 
Department of Agriculture.
    (b) Two copies of each signed Agreement Form will be forwarded to 
the Personnel Division. One copy will be retained in the State or 
Finance Office.



Sec. 2045.1756  Records and reports.

    The FmHA or its successor agency under Public Law 103-354 official 
signing the Agreement Form will maintain records to show the names, duty 
assignments, time worked and work locations of all persons performing 
gratuitous services. Copies of time reports submitted to the persons' 
employers should suffice. These records will be necessary to respond to 
occasional requests for reports on the acceptance and utilization of 
gratuitous services in the FmHA or its successor agency under Public Law 
103-354.

          Exhibit A to Subpart JJ of Part 2045--Agreement Form

  for utilization of employees of (official title of governing body or 
  other authorized organization, i.e., pickens county, ala., board of 
                             commissioners)

by the Farmers Home Administration or its successor agency under Public 
                               Law 103-354

    1. This Agreement, date ------ between, --------------------, a 
(political subdivision), (educational), (charitable), (or nonprofit) an 
organization of the State of------------(hereinafter called the Agency) 
and the United States of America acting through Farmers Home 
Administration or its successor agency under Public Law 103-354, U.S. 
Department of Agriculture (hereinafter called the Administration) is 
entered into for the purpose of permitting certain employees of the 
Agency (hereinafter called the Agency employees) to assist in the 
Administration's effort to provide agricultural, housing and other 
assistance for rural people of the State of------------in accordance 
with Section 331(b) of the Consolidated Farm and Rural Development Act 
and Section 506(a), Title V of the Housing Act of 1949.
    2. The Administration certifies that it is empowered by the current 
Federal laws cited above, and related rules and regulations, to accept 
personnel assistance from the Agency as provided in paragraphs 4 and 5 
below; and that the work assigned to Agency employees will be useful, in 
the public interest, could not otherwise be provided, and will not 
result in the displacement of employed workers.
    3. The Agency certifies that it has the authority under the laws of 
the State of------------to enter into this Agreeement and to provide the 
services agreed upon in the manner provided for.
    4. The Administration hereby supplies the Agency with a narrative 
description which is made a part of this Agreement as Attachment ``A,'' 
explicitly setting forth the duties, knowledge, skills, and abilities to 
be required of Agency employees.
    5. The Administration agrees to:
    (a) Provide training for and responsible supervision of qualified 
and acceptable Agency employees in accordance with Attachment ``A.''
    (b) Provide work within the State of------------for qualified and 
acceptable Agency employees for periods not to exceed eight hours per 
day and 40 hours per week.

[[Page 21]]

    (c) Provide the office space, tools, equipment, and supplies to be 
used by Agency employees in performing work for the Administration.
    (d) Report in the Agency, as required, the time worked by and work 
accomplishments of Agency employees.
    (e) Consult with the Agency, as necessary, on situations involving 
delinquency, misconduct, neglect of work, and apparent conflicts of 
interest of Agency employees.
    (f) Reimburse Agency employees for proper and reasonable travel and 
per diem expenses incurred in performing official duties for the 
Administration, in accordance with Administration travel regulations.
    (g) Consider Agency employees to be Federal employees for the 
purposes of the Federal Employees Compensation Act (5 U.S.C. 8101) and 
of the Federal Tort Claims Act (28 U.S.C. 2671-2680).
    6. The Agency agrees to:
    (a) Not discriminate against any employee or applicant for 
employment because of race, color, religion, sex, age, marital status, 
physical handicap, or national origin. The Agency will take affirmative 
action to ensure that applicants are employed, and that employees are 
treated during employment, without regard to their race, color, 
religion, sex, age, marital status, physical handicap, or national 
origin. Such action shall include, but not be limited to, the following 
Employment, upgrading, demotion or transfer; recruitment or recruitment 
advertising; layoff or termination; rates of pay or other forms of 
compensation; and selection for training including apprenticeship. The 
Agency will post in conspicuous places, available to employees and 
appliants for employment, notices setting forth the provisions of this 
nondiscriminating clause.
    (b) Obtain fingerprints, police records, and work qualifications 
checks on potential assignees, and divulge the results to the 
Administration or permit the Administration to obtain this information.
    (c) Assign only Agency employees who are acceptable to the 
Administration in terms of meeting the same ability and suitability 
standards which are applied to Federal employment.
    (d) Pay all salaries and other expenses of Agency employees and 
comply with Federal, State, and local minimum wage statutes. No monies 
will be paid by the Administration under this agreement, either to the 
Agency or its employees.
    (e) Consider any Tort claims by third parties under applicable laws 
and regulations.
    (f) Reassign or terminate the assignment of Agency employees upon 
request of the Administration.
    7. The Agency and the Administration mutually understand and agree 
that the reasons for determining that an Agency employee is unacceptable 
or unsuitable for initial or continued assignment to Administration work 
may include but shall not be limited to the following:
    (a) Practicing or appearing to practice discrimination for reasons 
of race, color, religion, sex, age, marital status, physical handicap, 
or national origin.
    (b) Being or becoming involved in real or apparent conflicts of 
interest, such as, engaging directly or indirectly in business 
transactions with Administration applicants or borrowers, or using or 
appearing to use the Administration work assignment for private gain.
    (c) Engaging in or having engaged in criminal, dishonest, or immoral 
conduct, or conducting himself in a manner which might embarrass or 
cause criticism of the Administration.
    (d) Being absent from duty without authorization.
    (e) Engaging in partisan political activity prohibited to Federal 
employees doing similar work.
    (f) Lack of work.
    (g) Inability of the employee to perform the duties of the 
assignment.
    8. The term of this Agreement shall commence on the date thereof. It 
shall end on----------------, unless extended by mutual agreement, or 
unless terminated earlier by at least (30) days advanced written notice 
by either party to the other.
    9. The Agency and the Administration respectively certify, each for 
itself, that its officer signing this Agreement is duly authorized 
thereto.

  (Enter Official Title of Agency, i.e., City Council, Modesto, Calif.)

                                          BY

                                Chairman, City Council,

                                    Modesto, Calif.

                                     FARMERS HOME

               ADMINISTRATION or its successor agency under Public Law 
                                 103-354

                                          BY

                FmHA or its successor agency under Public Law 103-354 
                         State Director for (  )

USDA

[[Page 23]]



            CHAPTER XX--LOCAL TELEVISION LOAN GUARANTEE BOARD




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Part                                                                Page
2200            Local Television Loan Guarantee Board 
                    procedures..............................          25

[[Page 25]]



PART 2200--LOCAL TELEVISION LOAN GUARANTEE BOARD PROCEDURES--Table of Contents




Sec.
2200.1  Definitions.
2200.2  Purpose and scope.
2200.3  Composition of the Board.
2200.4  Authority of the Board.
2200.5  Offices.
2200.6  Meetings and actions of the Board.
2200.7  Officer and staff responsibilities.
2200.8  Ex parte communications.
2200.9  Amendments.
2200.10  [Reserved]

    Authority: 47 U.S.C. 1101 et seq.; Pub. L. 106-553; Pub. L.107-171.

    Source: 67 FR 76105, Dec. 11, 2002, unless otherwise noted.



Sec. 2200.1  Definitions.

    (a) Act means the Launching Our Communities' Access to Local 
Television Act of 2000, Title X of Public Law 106-553, 114 Stat. 2762A-
128.
    (b) Administrator means the Administrator of the Rural Utilities 
Service of the United States Department of Agriculture.
    (c) Board means the Launching Our Communities' Access to Local 
(LOCAL) Television Loan Guarantee Board.



Sec. 2200.2  Purpose and scope.

    This part is issued by the Board pursuant to Section 1004 of the 
Act. This part describes the Board's organizational structure and the 
means and rules by which the Board takes actions.



Sec. 2200.3  Composition of the Board.

    The Board consists of the Secretary of the Treasury, the Chairman of 
the Board of Governors of the Federal Reserve System, the Secretary of 
Agriculture, and the Secretary of Commerce, or their respective 
designees. An individual may be designated a member of the Board only if 
the individual is an officer of the United States pursuant to an 
appointment by the President, by and with the advice and consent of the 
Senate.



Sec. 2200.4  Authority of the Board.

    The Board is authorized to guarantee loans in accordance with the 
provisions of the Act and procedures, rules, and regulations established 
by the Board; to make the determinations authorized by the Act; and to 
take such other actions as are necessary to carry out its functions in 
accordance with the Act.



Sec. 2200.5  Offices.

    The principal offices of the Board are at the U.S. Department of 
Agriculture, Rural Utilities Service, Room 2919-S, Stop 1541; 1400 
Independence Ave., SW.; Washington, DC 20256-1590.



Sec. 2200.6  Meetings and actions of the Board.

    (a) Chair. At its initial meeting, the Board shall select a Chair by 
an affirmative vote of not less than three members of the Board.
    (b) Place and frequency. The Board meets, on the call of the Chair, 
in order to consider matters requiring action by the Board. Time and 
place for any such meeting shall be determined by the members of the 
Board.
    (c) Quorum and voting. Three voting members of the Board constitute 
a quorum for the transaction of business. All decisions and 
determinations of the Board shall be made by an affirmative vote of not 
less than three members of the Board. All votes on determinations of the 
Board required by the Act shall be recorded in the minutes. A Board 
member may request that any vote be recorded according to individual 
Board members.
    (d) Agenda of meetings. To the extent practicable, an agenda for 
each meeting shall be distributed to members of the Board at least two 
days in advance of the date of the meeting, together with copies of 
materials relevant to the agenda items.
    (e) Minutes. The Secretary shall keep minutes of each Board meeting 
and of action taken without a meeting, a draft of which is to be 
distributed to each member of the Board as soon as practicable after 
each meeting or action. To the extent practicable, the minutes of a 
Board meeting shall be corrected and approved at the next meeting of the 
Board.
    (f) Use of conference call communications equipment. Any member may 
participate in a meeting of the Board through the use of conference 
call, telephone or similar communications

[[Page 26]]

equipment, by means of which all persons participating in the meeting 
can simultaneously speak to and hear each other. Any member so 
participating in a meeting shall be deemed present for all purposes. 
Actions taken by the Board at meetings conducted through the use of such 
equipment, including the votes of each member, shall be recorded in the 
usual manner in the minutes of the meetings of the Board.
    (g) Actions between meetings. When, in the judgment of the Chair, 
circumstances occur making it desirable for the Board to consider action 
when it is not feasible to call a meeting, the relevant information and 
recommendations for action may be transmitted to the members by the 
Secretary and the voting members may communicate their votes to the 
Chair in writing (including an action signed in counterpart by each 
Board member), electronically, or orally (including telephone 
communication). Any action taken under this paragraph has the same 
effect as an action taken at a meeting. Any such action shall be 
recorded in the minutes.
    (h) Officers and staff of the Board. The Board shall appoint a 
Secretary and may appoint such other officers and staff as it deems 
appropriate, including an Executive Director and a Legal Counsel. An 
individual may hold more than one officer or staff position.
    (i) Delegations of authority. The Board may delegate authority, 
subject to such terms and conditions as the Board deems appropriate, to 
officers and staff to take certain actions not required by the Act to be 
taken by the Board. All delegations shall be made pursuant to 
resolutions of the Board and recorded in writing, whether in the minutes 
of a meeting or otherwise. Any action taken pursuant to such delegated 
authority has the effect of an action taken by the Board.



Sec. 2200.7  Officer and staff responsibilities.

    (a) Executive Director. The Executive Director advises and assists 
the Board in carrying out its responsibilities under the Act, provides 
general direction with respect to the administration of the Board's 
actions, directs the activities of the staff, and performs such other 
duties as the Board may require.
    (b) Legal Counsel. The Legal Counsel provides legal advice relating 
to the responsibilities of the Board and performs such other duties as 
the Board may require.
    (c) Secretary. The Secretary sends notice of all meetings, prepares 
minutes of all meetings, maintains a complete record of all votes and 
actions taken by the Board, has custody of all records of the Board, has 
authority to publish documents in the Federal Register upon approval of 
the Board and performs such other duties as the Board may require.
    (d) Other. The responsibilities of any other officer or staff shall 
be defined by the Board at the time of appointment of such position.



Sec. 2200.8  Ex parte communications.

    Communication with the Board shall be conducted through the staff of 
the Board. Oral or written communication, not on the public record, 
between the Board, or any member of the Board, and any party or parties 
interested in any matter pending before the Board concerning the 
substance of that matter is prohibited.



Sec. 2200.9  Amendments.

    The Board's rules may be adopted or amended, or new rules may be 
adopted, only by the affirmative vote of not less than three members of 
the Board. Authority to adopt or amend these rules may not be delegated.



Sec. 2200.10  [Reserved]

[[Page 27]]



               CHAPTER XXVI--OFFICE OF INSPECTOR GENERAL,






                        DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
2610            Organization, functions, and delegations of 
                    authority...............................          29
2620            Availability of information to the public...          32

[[Page 29]]



PART 2610--ORGANIZATION, FUNCTIONS, AND DELEGATIONS OF AUTHORITY--Table of Contents




Sec.
2610.1  General statement.
2610.2  Headquarters organization.
2610.3  Regional organization.
2610.4  Requests for service.
2610.5  Delegations of authority.

    Authority: 5 U.S.C. 301 and 552, Pub. L. 95-452, 5 U.S.C. App., and 
Pub. L. 97-98, 7 U.S.C. 2270.

    Source: 60 FR 52840, Oct. 11, 1995, unless otherwise noted.



Sec. 2610.1  General statement.

    (a) The Inspector General Act of 1978 as amended, Pub. L. 95-452, 5 
U.S.C. App., establishes an Office of Inspector General (OIG) in the 
U.S. Department of Agriculture (USDA) and transfers to it the functions, 
powers, and duties of offices referred to in the Department as the 
``Office of Investigation'' and the ``Office of Audit,'' previously 
assigned to the OIG created by the Secretary's Memoranda 1915 and 1727, 
dated March 23, 1977, and October 5, 1977, respectively. Under this Act, 
OIG is established as an independent and objective unit, headed by the 
Inspector General (IG), who is appointed by the President and reports to 
and is under the general supervision of the Secretary.
    (b) The mission of OIG is to provide policy direction; to conduct, 
supervise, and coordinate audits and investigations of USDA programs and 
operations to determine efficiency and effectiveness; to prevent and 
detect fraud and abuse in such programs and operations; and to keep the 
Secretary and the Congress informed of problems and deficiencies 
relative to the programs and operations.
    (c) The Secretary has made the following delegations of authority to 
the IG (7 CFR 2.33):
    (1) Advise the Secretary and General Officers in the planning, 
development, and execution of Department policies and programs.
    (2) Provide for the personal security of the Secretary and Deputy 
Secretary.
    (3) Serve as liaison official for the Department for all audits of 
USDA performed by the General Accounting Office.
    (4) In addition to the above delegations of authority, the IG, under 
the general supervision of the secretary, has specific duties, 
responsibilities, and authorities pursuant to the Act, including:
    (i) Conduct and supervise audits and investigations relating to 
programs and operations of the Department.
    (ii) Provide leadership, coordination, and policy recommendations to 
promote economy, efficiency, and effectiveness, and to prevent and 
detect fraud and abuse in the administration of the Department's program 
and operations.
    (iii) Keep the Secretary and the congress fully and currently 
informed about problems and deficiencies and the necessity for and 
progress of corrective actions in the administration of the Department's 
programs and operations.
    (iv) Make such investigations and reports relating to the 
administration of programs and operations of the Department as are in 
the judgment of the IG, necessary or desirable.
    (v) Review existing and proposed legislation and regulations and 
make recommendations to the Secretary and the Congress on the impact 
such laws or regulations will have on the economy and efficiency of 
program administration or in the prevention and detection of fraud and 
abuse in the programs and operations of the Department.
    (vi) Have access to all records, reports, audits, reviews, 
documents, papers, recommendations, or other material available to the 
Department which relate to programs and operations for which the IG has 
responsibility.
    (vii) Report expeditiously to the Attorney General any matter where 
there are reasonable grounds to believe there has been a violation of 
Federal criminal law.
    (viii) Issue subpoenas to other than Federal agencies for the 
production of information, documents, reports, answers, records, 
accounts, papers, and other data and documentary evidence necessary in 
the performance of functions assigned by the Act.
    (ix) Receive and investigate complaints or information from any 
Department employee concerning possible

[[Page 30]]

violations of laws, rules or regulations, or mismanagement, gross waste 
of funds, abuse of authority, or substantial and specific dangers to the 
public health and safety.
    (x) Select, appoint, and employ necessary officers and employees in 
OIG in accordance with laws and regulations governing the civil service, 
including an Assistant Inspector General for Auditing and an Assistant 
Inspector General for Investigations.
    (xi) Obtain services as authorized by Section 3109 of Title 5, 
United States Code.
    (xii) Enter into contracts and other arrangements for audits, 
inspections, studies, analyses, and other services with public agencies 
and private persons, and make such payments as may be necessary to carry 
out the provisions of the Act to the extent and in such amounts as may 
be provided in an appropriation act.
    (d) The IG, under the Agriculture and Food Act of 1981, Pub. L. 97-
98, 7 U.S.C. 2270, and pursuant to rules issued by the Secretary in 7 
CFR part 1a, has the authority to:
    (1) Designate employees of the Office of Inspector General who 
investigate alleged or suspected felony criminal violations of statutes 
administered by the Secretary of Agriculture or any agency of USDA, when 
engaged in the performance of official duties to:
    (i) Execute and serve a warrant for an arrest, for the search of 
premises, or the seizure of evidence when issued under authority of the 
United States upon probable cause to believe that such a violation has 
been committed;
    (ii) Make an arrest without a warrant for any such violation if such 
violation is committed or if the employee has probable cause to believe 
that such violation is being committed in his/her presence; and
    (iii) Carry a firearm.
    (2) Issue directives and take the actions prescribed by the 
Secretary's rules.



Sec. 2610.2  Headquarters organization.

    (a) The OIG has a headquarters office in Washington, DC, and 
regional offices throughout the United States. The headquarters office 
consists of the immediate office of the IG and three operational units.
    (b) Operational units. (1) The Assistant Inspector General for 
Policy Development and Resources Management (AIG/PD&RM) formulates OIG 
policies and procedures; develops, administers and directs comprehensive 
programs for the management, budget, financial, personnel, systems 
improvement, and information activities and operations of OIG; and is 
responsible for OIG automated date processing (ADP) and OIG information 
management systems. The staff maintains OIG's directives system; 
Departmental Regulations and Federal Register issuances; administers the 
Freedom of Information and Privacy Acts, which includes requests 
received from the Congress, other Federal agencies, intergovernmental 
organizations, the news media, and the public; and provides for the 
administration of an OIG EEO program, including affirmative action. The 
immediate office of the AIG/PD&RM and two divisions carry out these 
functions.
    (2) The Assistant Inspector General for Audit (AIG/A) carries out 
the OIG's domestic and foreign audit operations through a headquarters 
office, a Financial Management and ADP Audit Operations staff located in 
Kansas City, Missouri, and six regional offices shown in Sec. 2610.3(a). 
The staff provides a continual audit review of ADP security throughout 
USDA. Auditing officials conduct operational liaison on audit matters; 
schedule and conduct audits; release audit reports to management; follow 
agency action to assure that audit reports have been properly acted upon 
through review of Department management follow up system; monitor the 
quality of OIG audit reports; and coordinate activities with the 
Assistant inspector General (AIG) for Investigations. The staff also 
provides an integrated approach to fraud prevention and detection and 
management improvement in USDA programs and operations; reviews 
Department legislation and regulations through the involvement and 
cooperation of the Department's principal officers and program managers; 
coordinates analyses and reports on the conduct of fraud

[[Page 31]]

vulnerability assessments; and recommends policies and provides 
technical assistance for investigative and audit operations. The 
Auditing headquarters office consists of the immediate office of the 
AIG/A and four staff divisions.
    (3) The Assistant Inspector General for Investigations (AIG/I) 
carries out the OIG's domestic and foreign investigative operations 
through a headquarters office and the seven regional offices shown in 
Sec. 2610.3(b). Investigations officials conduct operational and 
intelligence liaison on investigative matters with the FBI, Secret 
Service, Internal Revenue Service (IRS), Interpol, and other Federal and 
State law enforcement organizations; determine the need for 
investigative action; conduct investigations; prepare factual reports of 
investigative findings; refer reports for appropriate administrative or 
legal action; followup on agency actions to assure that OIG 
investigative reports have been properly acted upon; monitor the quality 
of investigative reports; and coordinate activities with the AIG/A. The 
staff also conducts special investigations of major programs, 
operations, and high level officials; provides for the protection of the 
Secretary and Deputy Secretary; receives and processes employee 
complaints concerning possible violations of laws, rules, regulations or 
mismanagement. The Investigations headquarters office consists of the 
immediate office of the AIG/I and three staff divisions.



Sec. 2610.3  Regional organization.

    (a) Each Regional Inspector General for Audit (RIG/A) is responsible 
to the IG and to the AIG/A for supervising the performance of all OIG 
auditing activities relating to the Department's domestic and foreign 
programs and operations within an assigned geographic area. The 
addresses and telephone numbers of the six Audit Regional Offices and 
the territories served are as follows:

         Audit Region, Address, Telephone Number, and Territory

Northeast Region, ATTN: Suite 5D06, 4700 River Road, Unit 151, 
Riverdale, Maryland 20737-1237, (301) 734-8763; Connecticut, Delaware, 
District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New 
Jersey, New York, Pennsylvania, Puerto Rico, Rhode Island, Virgin 
Islands, Vermont, Virginia, and West Virginia.
Southeast Region, 401 W. Peachtree Street NW., Room 2328, Atlanta, 
Georgia 30365-3520, (404) 730-3210; Alabama, Florida, Georgia, Kentucky, 
Mississippi, North Carolina, South Carolina, and Tennessee.
Midwest Region, 111 N. Canal Street, Suite 1130, Chicago, Illinois 
60606-7295, (312) 353-1352; Illinois, Indiana, Michigan, Minnesota, 
Ohio, and Wisconsin.
Southwest Region, 101 South Main, Room 324, Temple, Texas 76501, (817) 
774-1430; Arkansas, Louisiana, New Mexico, Oklahoma, and Texas.
Great Plains Region, 9435 Holmes, Room 233, Kansas City, Missouri 64131, 
Mailing address: PO Box 293, Kansas City, Missouri 64141, (816) 926-
7667; Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, North Dakota, 
South Dakota, Wyoming, and Utah.
Western Region, 600 Harrison Street, Suite 225, San Francisco, 
California 94107, (415) 744-2851; Alaska, Arizona, California, Hawaii, 
Idaho, Nevada, Oregon, Territory of Guam, Trust Territories of the 
Pacific, and Washington.

    (b) Each RIG/I is responsible to the IG and to the AIG/I for 
supervising the performance of all OIG investigative activities relating 
to the Department's domestic and foreign programs and operations within 
an assigned geographic area. The addresses and telephone numbers of the 
seven Investigations Regional Offices and the territories served are as 
follows:

     Investigations Region, Address, Telephone Number, and Territory

North Atlantic Region, 26 Federal Plaza, Room 1409, New York, New York 
          10278, (212) 264-8400; Connecticut, Maine, Massachusetts, New 
          Hampshire, New Jersey, New York, Puerto Rico, Rhode Island, 
          Vermont, and Virgin Islands.
Northeast Region, ATTN: Suite 5D06, 4700 River Road, Unit 151, 
          Riverdale, Maryland 20737-1237, (301) 734-8850; Delaware, 
          District of Columbia, Maryland, Pennsylvania, Virginia, and 
          West Virginia.
Southeast Region, 401 W. Peachtree Street NW., Room 2329, Atlanta, 
          Georgia 30365-3520, (404) 730-2170; Alabama, Florida, Georgia, 
          Kentucky, Mississippi, North Carolina, South Carolina, and 
          Tennessee.
Midwest Region, 111 N. Canal Street, Suite 1130, Chicago, Illinois 
          60606-7295, (312) 353-1358; Illinois, Indiana, Michigan, 
          Minnesota, Ohio, and Wisconsin.
Southwest Region, 101 South Main, Room 311, Temple, Texas 76501, (817) 
          774-1351;

[[Page 32]]

          Arkansas, Louisiana, New Mexico, Oklahoma, and Texas.
Great Plains Region, 9435 Holmes, Room 210, Kansas City, Missouri 64131, 
          Mailing address: PO Box 293, Kansas City, Missouri 64141, 
          (816) 926-7606: Colorado, Iowa, Kansas, Missouri, Montana, 
          Nebraska, North Dakota, South Dakota, Wyoming, and Utah.
Western Region, 600 Harrison Street, Room 225, San Francisco, California 
          94107, (415) 744-2887; Alaska, Arizona, California, Hawaii, 
          Idaho, Nevada, Oregon, Territory of Guam, Trust Territories of 
          the Pacific, and Washington.



Sec. 2610.4  Requests for service.

    (a) Heads of USDA agencies will direct requests for audit or 
investigative service to the AIG/A, AIG/I, RIG/A, RIG/I, or to other OIG 
audit or investigation officials responsible for providing service of 
the type desired in the geographical area where service is desired.
    (b) Agency officials or other employees may, at any time, direct to 
the personal attention of the IG any audit or investigation matter that 
warrants such attention.
    (c) Other persons may address their communications regarding audit 
or investigative matters to: The Inspector General, U.S. Department of 
Agriculture, Ag Box 2301, Washington, DC 20250. Additionally, persons 
may call or write the hotline office at 202-690-1622, 1-800-424-9121, 
TDD 202-690-1202, or Office of Inspector General, PO Box 23399, 
Washington, DC 20026. Bribes involving USDA programs may be reported 
using the 24 hour bribery hotline number at 202 720-7257.



Sec. 2610.5  Delegations of authority.

    (a) AIG's listed in Sec. 2610.2; and RIG's listed in Sec. 2610.3, 
are authorized to take whatever actions are necessary to carry out their 
assigned functions. This authority may be redelegated.
    (b) The IG reserves the right to establish audit and investigation 
policies, program, procedures, and standards; to allocate appropriated 
funds; to determine audit and investigative jurisdiction; and to 
exercise any of the powers or functions or perform any of the duties 
referenced in the above delegation.



PART 2620--AVAILABILITY OF INFORMATION TO THE PUBLIC--Table of Contents




Sec.
2620.1  General statement.
2620.2  Public inspection and copying.
2620.3  Requests.
2620.4  Denials.
2620.5  Appeals.

    Authority: 5 U.S.C. 301 and 552; 5 U.S.C. App.

    Source: 60 FR 52842, Oct. 11, 1995, unless otherwise noted.



Sec. 2620.1  General statement.

    This part is issued in accordance with, and subject to, the 
regulations of the Secretary of Agriculture Sec. 1.1 through Sec. 1.23 
(and appendix A of subpart A of part 1) of this title, implementing the 
Freedom of Information Act, 5 U.S.C. 552, and governs the availability 
of records of the Office of Inspector General (OIG) to the public upon 
request.



Sec. 2620.2  Public inspection and copying.

    5 U.S.C. 522(a)(2) requires that certain materials be made available 
for public inspection and copying, and that a current index of these 
materials be published quarterly or otherwise made available. OIG does 
not maintain any materials within the scope of these requirements.



Sec. 2620.3  Requests.

    (a) Requests for OIG records shall be in writing in accordance with 
Sec. 1.6(a) of this title and addressed to the Assistant Inspector 
General for Policy Development and Resources Management (AIG/PD&RM), 
Office of Inspector General, U.S. Department of Agriculture, Ag Box 
2310, Washington, DC 20250. The above official is hereby delegated 
authority to make determinations regarding such requests in accordance 
with Sec. 1.3(a)(3) of this title.
    (b) Requests should be reasonably specific in identifying the record 
requested and should include the name, address, and telephone number of 
the requester.
    (c) Available records may be inspected and copied in the office of 
the AIG/PD&RM, from 8 a.m. to 4:30 p.m. local time on regular working 
days or may be obtained by mail. Copies will

[[Page 33]]

be provided upon payment of applicable fees, unless waived or reduced, 
in accordance with the Department's fee schedule as set forth in 
appendix A of subpart A of part 1 of this title.



Sec. 2620.4  Denials.

    If the AIG/PD&RM determines that a requested record is exempt from 
mandatory disclosure and that discretionary release would be improper, 
the AIG/PD&RM shall give written notice of denial in accordance with 
Sec. 1.8(a) of this title.



Sec. 2620.5  Appeals.

    The denial of a requested record may be appealed in accordance with 
Sec. 1.6(e) of this title. Appeals shall be addressed to the Inspector 
General, U.S. Department of Agriculture, Ag Box 2301, Washington, DC 
20250. The Inspector General will give prompt notice of the 
determination concerning an appeal in accordance with Sec. 1.8(d) of 
this title.

[[Page 35]]



CHAPTER XXVII--OFFICE OF INFORMATION RESOURCES MANAGEMENT, DEPARTMENT OF 
                               AGRICULTURE




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Part                                                                Page
2700            Organization and functions..................          37
2710            Availability of information to the public...          37

[[Page 37]]



PART 2700--ORGANIZATION AND FUNCTIONS--Table of Contents




Sec.
2700.1  General statement.
2700.2  Organization.
2700.3  Functions.

    Authority: 5 U.S.C. 301, 552; 7 CFR 2.81.

    Source: 47 FR 39128, Sept. 7, 1982, unless otherwise noted.



Sec. 2700.1  General statement.

    This part is issued in accordance with 5 U.S.C. 552(a) to provide 
guidance for the general public as to the organization and functions of 
the Office of Information Resources Management.



Sec. 2700.2  Organization.

    The Office of Information Resources Management (OIRM) was 
established on January 12, 1982. Delegations of authority to the 
Director, OIRM appear at 7 CFR 2.81. The organization is comprised of 
five headquarters divisions, an administrative staff and three computer 
centers to serve the Department. The organization is headed by the 
Director or, in the Director's absence, by the Deputy Director or, in 
the absence of both, by the Director's desginee.



Sec. 2700.3  Functions.

    (a) Director. Provides executive direction for OIRM. Develops and 
recommends Departmental information resources management principles, 
policies, and objectives; develops and disseminates Departmental 
information resources management standards, guidelines, rules, and 
regulations necessary to implement approved principles, policies, and 
programs; designs, develops, implements, and revises systems, processes, 
work methods, and techniques to improve the management of information 
resources and the operational effectiveness of the Department; provides 
telecommunications and automated data processing services to the 
Department's agencies and staff offices.
    (b) Deputy Director. Assists the Director and, in the absence of the 
Director, serves as the Acting Director.
    (c) Administrative Management Staff. Provides support for agency 
management regarding budget, accounting, personnel, and other 
administrative matters.
    (d) Planning Division. Defines, develops, guides, and administers 
the Department's long-range planning process for information resources.
    (e) Information Management Division. Develops policy, standards and 
guidelines for collection, protection, access, use and management of 
information.
    (f) Review and Evaluation Division. Reviews and evaluates 
information resources programs and activities of Department agencies and 
staff offices for conformance with plans, policies, and standards.
    (g) Agency Technical Services Division. Advises and consults with 
and assists Department agencies and staff offices on activities related 
to the development and implementation of automated information systems.
    (h) Operations and Telecommunications Division. Coordinates the 
development and implementation of programs for ADP and 
telecommunications resource planning within Departmental computer 
centers and the National Finance Center, and for the acquisition and use 
of Department-wide telecommunications facilities and services.
    (i) Departmental Computer Centers. The following centers provide ADP 
facilities and services to agencies and staff offices of the Department.
    (1) Washington Computer Center, 14th and Independence Ave., SW., Rm. 
S-107-South, Washington, DC 20250.
    (2) Fort Collins Computer Center, 3825 E. Mulberry Street (P.O. Box 
1206), Fort Collins, CO 80524.
    (3) Kansas City Computer Center, 8930 Ward Parkway (P.O. Box 205), 
Kansas City, MO 64141.



PART 2710--AVAILABILITY OF INFORMATION TO THE PUBLIC--Table of Contents




Sec.
2710.1  General statement.
2710.2  Public inspection and copying.
2710.3  Indexes.
2710.4  Initial request for records.
2710.5  Appeals.

Appendix A to Part 2710--List of Addresses

    Authority: 5 U.S.C. 301, 552; 7 CFR 1.1-1.16.

    Source: 47 FR 39129, Sept. 7, 1982, unless otherwise noted.

[[Page 38]]



Sec. 2710.1  General statement.

    This part is issued in accordance with 7 CFR 1.4 of the U.S. 
Department of Agriculture regulations governing the availability of 
records (7 CFR 1.1-1.16 and Appendix A) under the Freedom of Information 
Act (5 U.S.C. 552). The Department's regulations, as supplemented by the 
regulations in this part, provide guidance for any person wishing to 
request records from the Office of Information Resources Management 
(OIRM).



Sec. 2710.2  Public inspection and copying.

    (a) Background. 5 U.S.C. 552(a)(2) required that each agency make 
certain kinds of records available for public inspection and copying.
    (b) Procedure. Persons wishing to gain access to OIRM records should 
contact the Information Access & Disclosure Officer by writing to the 
address shown in 2710.4(b)(2).



Sec. 2710.3  Indexes.

    (a) Background. 5 U.S.C. 552(a)(2) also required that each agency 
maintain and make available for public inspection and copying current 
indexes providing identifying information for the public with regard to 
any records which are made available for public inspection and copying.
    (b) Procedure. Persons wishing to get an index may contact the 
division or center that maintains the records. Publication of these 
indexes as a separate document is unnecessary and impractical.



Sec. 2710.4  Initial request for records.

    (a) Background. The Information Access and Disclosure Officer is 
authorized to:
    (1) Grant or deny requests for OIRM records.
    (2) Make discretionary releases of OIRM records when it is 
determined that the public interests in disclosure outweigh the public 
and/or private ones in withholding.
    (3) Reduce or waive fees to be charged where determined to be 
appropriate.
    (b) Procedure. Persons wishing to request records from the Office of 
Information Resources Management may do so as follows:
    (1) How. Submit each initial request for OIRM records as prescribed 
in 7 CFR 1.3(a).
    (2) Where. Submit each initial request to the Information Access and 
Disclosure Officer, Office of Information Resources Management, USDA, 
14th and Independence Ave., SW., Room 407-W, Washington, DC 20250.



Sec. 2710.5  Appeals.

    Procedure. Any person whose initial request is denied in whole or in 
part may appeal that denial, in accordance with 7 CFR 1.3(e) and 1.7, to 
the Director, Office of Information Resources Management, by sending the 
appeal to the Information Access and Disclosure Officer, Office of 
Information Resources Management, USDA, 14th and Independence Ave., SW., 
Room 407-W, Washington, DC 20250. The Director, Office of Information 
Resources Management, will make the determination on the appeal.

               Appendix A to Part 2710--List of Addresses

                           Section 1. General

    This list provides the titles and mailing addresses of officials who 
have custody of OIRM records. This list also identifies the normal 
working hours, Monday through Friday, excluding holidays, during which 
public inspection and copying of certain kinds of records, and indexes 
to those records, is permitted.

                      Section 2. List of Addresses

Director, Office of Information Resources Management, 14th and 
Independence Ave., SW., Rm. 113-W, Washington, DC 20250; Hours: 8:30 
a.m.-5:00 p.m.
Chief, Planning Division, OIRM, 14th and Independence Ave., SW., Rm. 
446-W, Washington, DC 20250; Hours: 8:30 a.m.-5:00 p.m.
Chief, Review and Evaluation Division, OIRM, 14th and Independence Ave., 
SW., Rm. 442-W, Washington, DC 20250; Hours: 8:30 a.m.-5:00 p.m.
Chief, Agency Technical Services Division, OIRM, 14th and Independence 
Ave., SW., Rm. 416-W, Washington, DC 20250; Hours: 8:30 a.m.-5:00 p.m.
Chief, Operations and Telecommunications Division, OIRM, 14th and 
Independence Ave., SW., Rm. 419-W, Washington, DC 20250; Hours: 8:30 
a.m.-5:00 p.m.
Chief, Information Management Division, OIRM, 14th and Independence 
Ave., SW., Rm. 404-W, Washington, DC 20250; Hours: 8:30 a.m.-5:00 p.m.

[[Page 39]]

Chief, St. Louis Computer Center, OIRM, 1520 Market Street, Rm. 3441, 
St. Louis, MO 63101; Hours: 8:00 a.m.-4:40 p.m.
Director, Kansas City Computer Center, OIRM, 8930 Ward Parkway, (P.O. 
Box 205), Kansas City, MO 64141; Hours: 8:00 a.m.-4:45 p.m.
Director, Fort Collins Computer Center, OIRM, 3825 E. Mulberry Street, 
(P.O. Box 1206), Fort Collins, CO 80521; Hours: 8:00 a.m.-4:30 p.m.
Director, Washington Computer Center, OIRM, 14th and Independence Ave., 
SW., Rm. S-107-S, Washington, DC 20250; Hours: 8:30 a.m.-5:00 p.m.
Information Access and Disclosure Officer, OIRM, 14th and Independence 
Ave., SW., Rm. 407-W, Washington, DC 20250; Hours: 8:30 a.m.-5:00 p.m.

[[Page 41]]



                  CHAPTER XXVIII--OFFICE OF OPERATIONS,






                        DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
2810            Organization and functions--Office of 
                    Operations..............................          43
2811            Availability of information to the public...          43
2812            Department of Agriculture guidelines for the 
                    donation of excess research equipment 
                    under 15 U.S.C. 3710(i).................          45

[[Page 43]]



PART 2810--ORGANIZATION AND FUNCTIONS--OFFICE OF OPERATIONS--Table of Contents




Sec.
2810.1  General statement.
2810.2  Organization.
2810.3  Functions.

    Authority: 5 U.S.C. 301 and 552; 7 CFR 2.76.

    Source: 54 FR 52013, Dec. 20, 1989, unless otherwise noted.



Sec. 2810.1  General statement.

    This part is issued in accordance with 5 U.S.C. 552(a) to provide 
guidance for the general public as to Office of Operations (OO) 
organization and functions.



Sec. 2810.2  Organization.

    The Office of Operations (OO) was established January 12, 1982. 
Delegations of authority to the Director, OO, appear at 7 CFR 2.76. The 
organization is comprised of six divisions and one staff located at 
Department headquarters. Description of the functions of these 
organizational units are in the following section. The organization is 
headed by a Director.



Sec. 2810.3  Functions.

    (a) Director. Provides executive direction for OO. Develops and 
promulgates overall policies and provides general direction, leadership, 
oversight, and coordination of USDA management of procurement, real and 
personal property activities, mail and copier management. Provides 
executive services to the Office of the Secretary and operates 
activities providing consolidated USDA administrative functions and 
services.
    (b) Deputy Director. Assists the Director, and in the absence of the 
Director, serves as Acting Director.
    (c) Administrative Unit. Provides support for agency management 
regarding budget, accounting, personnel, and other administrative 
matters.
    (d) Executive Services Division. Provides executive services to the 
Office of the Secretary in travel arrangements, supplies, furnishings, 
communications, equipment, and records. Operates the central USDA DC 
imprest fund.
    (e) Facilities Management Division. Operates and maintains the USDA 
DC headquarters building complex, including headquarters parking. 
Oversees management and operation of USDA buildings nationwide, and 
provides DC area labor services.
    (f) Mail and Reproduction Management Division. Oversees USDA mail, 
copier, and duplicating programs. Operates DC area central activities in 
these areas.
    (g) Personal Property Management Division. Oversees USDA supply, 
motor vehicle, and personal property programs. Operates centralized 
warehouse and property rehabilitation facilities.
    (h) Procurement Division. Oversees USDA procurement programs. 
Operates centralized purchasing operations for ADP and Washington area 
activities.
    (i) Real Property Management Division. Oversees USDA real property 
management programs.



PART 2811--AVAILABILITY OF INFORMATION TO THE PUBLIC--Table of Contents




Sec.
2811.1  General statement.
2811.2  Public inspection and copying.
2811.3  Indexes.
2811.4  Initial requests for records.
2811.5  Appeals.
2811.6  Fee schedule.

Appendix A to Part 2811--List of Addresses

    Authority: 5 U.S.C. 301 and 552 (as amended); 7 CFR 1.3.

    Source: 54 FR 52014, Dec. 20, 1989, unless otherwise noted.



Sec. 2811.1  General statement.

    This part is issued in accordance with 7 CFR 1.3 of the Department 
of Agriculture regulations governing the availability of records (7 CFR 
1.1-1.23 and Appendix A) under the Freedom of Information Act (FOIA), 5 
U.S.C. 552. The Department's regulations, as supplemented by the 
regulations in this part, provide guidance for any person wishing to 
request records from Office of Operations.



Sec. 2811.2  Public inspection and copying.

    (a) Background. 5 U.S.C. 552(a)(2) requires that each agency 
maintain and make available for public inspection and copying certain 
kinds of records.

[[Page 44]]

    (b) Procedure. To gain access to OO records that are available for 
public inspection, contact the division that maintains them. See 
Appendix A, List of Addresses, for the location and hours of operation.



Sec. 2811.3  Indexes.

    (a) Background. 15 U.S.C. 552(a)(2) also requires that each agency 
maintain and make available for public inspection and copying current 
indexes provided identifying information for the public with regard to 
any records which are made available for public inspection and copying. 
OO does not maintain any materials within the scope of these 
requirements.



Sec. 2811.4  Initial requests for records.

    (a) Background. The head of each OO division, each OO contracting 
officer, each OO leasing officer, and the OO FOIA officer is authorized 
to:
    (1) Grant or deny requests for OO records.
    (2) Make discretionary release of OO records when it is determined 
that the public interest in disclosure outweighs the public and/or 
private ones in withholding.
    (3) Reduce or waive fees to be charged where determined to be 
appropriate.
    (4) Refer a request to the OO FOIA Officer for determination.
    (b) Procedures. Persons wishing to request records from the Office 
of Operations may do so as follows:
    (1) How. Submit each initial request for OO records as prescribed in 
7 CFR 1.6.
    (2) Where. Submit each initial request to the head of the unit that 
maintains the records. See Appendix A, List of Addresses. Contact the 
FOIA Officer for guidance as needed. Or, submit the request to the FOIA 
Officer for forwarding to the proper officials: FOIA Officer, Office of 
Operations, USDA, Room 134-W Administration Building, 14th & 
Independence Avenue SW., Washington, DC 20250.



Sec. 2811.5  Appeals.

    Procedure. Any person whose initial request is denied in whole or in 
part may appeal that denial, in accordance with 7 CFR 1.6(e) and 1.8, to 
the Director, Office of Operations, USDA, Room 113-W Administration 
Building, 14th & Independence Avenue SW., Washington, DC 20250.



Sec. 2811.6  Fee schedule.

    Department regulations provide for a schedule of reasonable standard 
charges for document search and duplication. See 7 CFR 1.2(b). Fees to 
be charged are set forth in 7 CFR part 1, subpart A, appendix A.

               Appendix A to Part 2811--List of Addresses

                           Section 1. General

    This list provides the titles and mailing address of officials who 
have custody of OO records. The normal working hours of these offices 
are 8:30 a.m. to 5:00 p.m., Monday through Friday, exclusing holidays, 
during which public inspection and copying of certain kinds of records 
is permitted.

                      Section 2. List of Addresses

    All of the following addresses are located at 14th Street and 
Independence Avenue, Washington, DC. Address mail as follows:

Director, Office of Operations, USDA, Room 113-W Administration 
Building, Washington, DC 20250.
FOIA Officer, Office of Operations, USDA, Room 134-W Administration 
Building, Washington, DC 20250.
Chief, Administrative Unit, Office of Operations, USDA, Room 134-W, 
Washington, DC 20250.
Chief, Executive Services Division, Office of Operations, USDA, Room 10-
A, Administration Building, Washington, DC 20250.
Chief, Facilities Management Division, Office of Operations, USDA, Room 
S-313 South Building, Washington, DC 20250.
Chief, Mail and Reproduction Management Division, Office of Operations, 
USDA, Room 1540 South Building, Washington, DC 20250.
Chief, Personal Property Management Division, Office of Operations, USDA 
Room 1524 South Building, Washington, DC 20250.
Chief, Procurement Division, Office of Operations, USDA, Room 1550 South 
Building, Washington, DC 20250.
Chief, Real Property Management Division, Office of Operations, USDA, 
Room 1566, South Building, Washington, DC 20250.

[[Page 45]]



PART 2812--DEPARTMENT OF AGRICULTURE GUIDELINES FOR THE DONATION OF EXCESS RESEARCH EQUIPMENT UNDER 15 U.S.C. 3710(i)--Table of Contents




Sec.
2812.1  Purpose.
2812.2  Eligibility.
2812.3  Definitions.
2812.4  Procedures.
2812.5  Restrictions.
2812.6  Title.
2812.7  Costs.
2812.8  Accountability and recordkeeping.
2812.9  Disposal.
2812.10  Liabilities and losses.

    Authority: 5 U.S.C. 301; E.O. 12999, 61 FR 17227, 3 CFR, 1997 Comp., 
p. 180.

    Source: 60 FR 34456, July 3, 1995, unless otherwise noted.



Sec. 2812.1  Purpose.

    This part sets forth the procedures to be utilized by USDA agencies 
and laboratories in the donation of excess research equipment to 
educational institutions and non-profit organizations for the conduct of 
technical and scientific education and research activities as authorized 
by 15 U.S.C. 3710(i). Title to excess research equipment donated 
pursuant to 15 U.S.C. 3710(i), shall pass to the donee.



Sec. 2812.2  Eligibility.

    Eligible organizations are educational institutions or non-profit 
organizations involved in the conduct of technical and scientific 
educational and research activities.



Sec. 2812.3  Definitions.

    (a) Cannibalization. The dismantling of equipment for parts to 
repair or enhance other equipment. The residual is reported for 
disposal. Cannibalization is only authorized if the property value is 
greater when cannibalized than retention in the original condition.
    (b) Community-based educational organization means nonprofit 
organizations that are engaged in collaborative projects with pre-
kindergarten through twelfth grade educational institutions or that have 
education as their primary focus. Such organizations shall qualify as 
nonprofit educational institutions for purposes of section 203(j) of the 
Federal Property and Administrative Services Act of 1949 (40 U.S.C. 
484(j)).
    (c) Educational institution means a public or private, non-profit 
educational institution, encompassing pre-kindergarten through twelfth 
grade and two- and four-year institutions of higher education, as well 
as public school districts.
    (d) Educationally useful Federal equipment means computers and 
related peripheral tools (e.g., printers, modems, routers, and servers), 
including telecommunications and research equipment, that are 
appropriate for use in pre-kindergarten, elementary, middle, or 
secondary school education. It shall also include computer software, 
where the transfer of licenses is permitted.
    (e) Excess personal property. Items of personal property no longer 
required by the controlling Federal agency.
    (f) Federal empowerment zone or enterprise community (EZ/EC) means a 
rural area designated by the Secretary of Agriculture under 7 CFR part 
25.
    (g) Non-profit organization means any corporation, trust 
association, cooperative, or other organization which:
    (1) Is operated primarily for scientific, educational, service, 
charitable, or similar purposes in the public interest;
    (2) Is not organized primarily for profit; and
    (3) Uses its net proceeds to maintain, improve, or expand its 
operations. For the purposes of this part, ``non-profit organizations'' 
may include utilities affiliated with institutions of higher education, 
or with state and local governments and federally recognized Indian 
tribes.
    (h) Research equipment. Federal property determined to be essential 
to conduct scientific or technical educational research.
    (i) Technical and scientific education and research activities. Non-
profit tax exempt public educational institutions or government 
sponsored research organizations which serve to conduct technical and 
scientific education and research.

[60 FR 34456, July 3, 1995, as amended at 65 FR 69857, Nov. 21, 2000]

[[Page 46]]



Sec. 2812.4  Procedures.

    (a) [Reserved]
    (b) Each agency head will designate in writing an authorized 
official to approve donations of excess property/equipment under this 
part.
    (c) After USDA screening has been accomplished, excess personal 
property targeted for donation under this part will be made available on 
a first-come, first-served basis. If there are competing requests, 
donations will be made to eligible recipients in the following priority 
order:
    (1) Educationally useful Federal equipment for pre-kindergarten 
through twelfth grade educational institutions and community-based 
educational organizations in rural EZ/EC communities;
    (2) Educationally useful Federal equipment for pre-kindergarten 
through twelfth grade educational institutions and community-based 
educational organizations not in rural EZ/EC areas;
    (3) All other eligible organizations.
    (d) Upon reporting property for excess screening, if the pertinent 
USDA agency has an eligible organization in mind for donation under this 
part, it shall enter ``P.L. 102-245'' in the note field. The property 
will remain in the excess system approximately 30 days, and if no USDA 
agency or cooperator requests it during the excess cycle, the 
Departmental Excess Personal Property Coordinator will send the agency a 
copy of the excess report stamped, ``DONATION AUTHORITY TO THE HOLDING 
AGENCY IN ACCORDANCE WITH P.L. 102-245.'' The holding USDA agency may 
then donate the excess property to the eligible organization.
    (e) Donations under this Part will be accomplished by preparing a 
Standard Form (SF) 122, ``Transfer Order-Excess Personal Property''.
    (f) The SF-122 should be signed by both an authorized official of 
the agency and the Agency Property Management Officer. The following 
information should also be provided.
    (1) Name and address of Donee Institution (Ship to)
    (2) Agency name and address (holding Agency)
    (3) Location of property
    (4) Shipping instructions (Donee contact person)
    (5) Complete description of property, including acquisition amount, 
serial no., condition code, quantity, and agency order no.
    (6) This statement needs to be added following property 
descriptions. ``The property requested hereon is certified to be used 
for the conduct of technical and scientific education and research 
activities. This donation is pursuant to the provisions of Pub. L. 102-
245.''
    (g) Once the excess personal property/equipment is physically 
received, the donee is required to immediately return a copy of the SF-
122 to the donating agency indicating receipt of requested items. 
Cancellations should be reported to DEPPC so the property can be 
reported to the General Services Administration (GSA).

    Note: The USDA agency shall send an informational copy of the 
transaction to GSA.

[60 FR 34456, July 3, 1995, as amended at 65 FR 69857, Nov. 21, 2000]



Sec. 2812.5  Restrictions.

    (a) The authorized official (see Sec. 2812.4(b)) will approve the 
donation of excess personal property/equipment in the following groups 
to educational institutions or nonprofit organizations for the conduct 
of technical and scientific educational and research activities.

                             Eligible Groups
------------------------------------------------------------------------
               FSC group                               Name
------------------------------------------------------------------------
19.....................................  Ships, Small Craft, Pontoons,
                                          and Floating Docks.
23.....................................  Vehicles, Trailers and Cycles.
24.....................................  Tractors.
37.....................................  Agricultural Machinery and
                                          Equipment.
43.....................................  Pumps, Compressors.
48.....................................  Valves.
58.....................................  Communication, Detection, and
                                          Coherent Radiation Equipment.
59.....................................  Electrical and Electronic
                                          Equipment Components.
65.....................................  Medical, Dental, and Veterinary
                                          Equipment and Supplies.
66.....................................  Instruments and Laboratory
                                          Equipment.
67.....................................  Photographic Equipment.
68.....................................  Chemicals and Chemical
                                          Products.
70.....................................  General Purpose Automatic Data
                                          Processing Equipment, Software
                                          Supplies, and Support
                                          Equipment.
74.....................................  Office Machines and Visible
                                          Record Equipment.
------------------------------------------------------------------------


[[Page 47]]

    Note: Requests for items in FSC Groups or Classes other than the 
above should be referred to the agency head for consideration and 
approval.
    (b) Excess personal property/equipment may be donated for 
cannibalization purposes, provided the donee submits a supporting 
statement which clearly indicates that cannibalizing the requested 
property for secondary use has greater potential benefit than 
utilization of the item in its existing form.



Sec. 2812.6  Title.

    Title to excess personal property/equipment donated under this Part 
will automatically pass to the donee once the sponsoring agency receives 
the SF-122 indicating that the donee has received the property.



Sec. 2812.7  Costs.

    Donated excess personal property/equipment is free of charge. 
However, the donee must pay all costs associated with packaging and 
transportation, unless the sponsoring agency has made other 
arrangements. The donee should specify the method of shipment.



Sec. 2812.8  Accountability and recordkeeping.

    USDA requires that property requested by a donee be placed into use 
by the donee within a year of receipt and used for at least 1 year 
thereafter. Donees must maintain accountable records for such property 
during this time period.



Sec. 2812.9  Disposal.

    When the property is no longer needed by the donee, it may be used 
in support of other Federal projects or sold and the proceeds used for 
technical and scientific education and research activities.



Sec. 2812.10  Liabilities and losses.

    USDA assumes no liability with respect to accidents, bodily injury, 
illness, or any other damages or loss related to excess personal 
property/equipment donated under this part. The donee is advised to 
insure or otherwise protect itself and others as appropriate.

[[Page 49]]



                     CHAPTER XXIX--OFFICE OF ENERGY,






                        DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
2900            Essential agricultural uses and volumetric 
                    requirements--Natural Gas Policy Act....          51
2901            Administrative procedures for adjustments of 
                    natural gas curtailment priority........          52

[[Page 51]]



PART 2900--ESSENTIAL AGRICULTURAL USES AND VOLUMETRIC REQUIREMENTS--NATURAL GAS POLICY ACT--Table of Contents




Sec.
2900.1  General.
2900.2  Definitions.
2900.3  Essential agricultural uses.
2900.4  Natural gas requirements.
2900.6  Effective date.

    Authority: Pub. L. 95-621, Nov. 9, 1978.

    Source: 44 FR 28786, May 17, 1979, unless otherwise noted.



Sec. 2900.1  General.

    Section 401(c) of the Natural Gas Policy Act of 1978 (NGPA) requires 
the Secretary of Agriculture to determine the essential uses of natural 
gas, and to certify to the Secretary of Energy and the Federal Energy 
Regulatory Commission (FERC) the natural gas requirements, expressed 
either as volumes or percentages of use, of persons, or classes thereof, 
for essential agricultural uses in order to meet requirements of full 
food and fiber production. This rule covers establishments performing 
functions classed as essential agricultural uses whose natural gas 
supplies are distributed through the interstate pipeline systems even 
though such establishments may receive such gas directly from an 
intrastate pipeline or local distribution company. The rule provides to 
the Secretary of Energy (for purposes of Section 401(a) of the NGPA) and 
to the Federal Energy Regulatory Commission the following 
certifications:
    (a) Essential agricultural uses of natural gas, expressed as classes 
of establishments that use gas for essential agricultural purposes; and
    (b) Essential agricultural current requirements of natural gas, 
expressed as percentages of use.



Sec. 2900.2  Definitions.

    (a) Full food and fiber production means the entire output of food 
and fiber produced for the domestic market, and for export, for building 
of reserves, and crops for soil building or conservation. This term also 
includes the processing of food and fiber into stable and storable 
products, and the maintenance of food quality after processing.
    (b) Establishment means an economic unit, generally at a single 
physical location where business is conducted or where service or 
industrial operations are performed (for example, a factory, mill, 
store, mine, farm, sales office, or warehouse). (Note: This is the same 
definition used in the Standard Industrial Classification Manual, 1972 
edition).
    (c) Essential Agricultural Use Establishment means any 
Establishment, or the portion of an Establishment, which performs (or 
has the capability to perform) activities specified in Sec. 2900.3.
    (d) Current Natural Gas Requirements means the amount of natural gas 
required by an Essential Agricultural Use Establishment to perform the 
activities devoted to full food and fiber production.

(Pub. L. 95-621, Nov. 8, 1979, 92 Stat. 3350, 15 U.S.C. 3301 et seq.)

[44 FR 28786, May 17, 1979, as amended at 46 FR 47216, Sept. 25, 1981]



Sec. 2900.3  Essential agricultural uses.

    For purposes of Section 401(c) of the NGPA the following classes or 
portions of classes are certified as essential agricultural uses in 
order to meet the requirements of full food and fiber production:

                       Essential Agricultural Uses

                Industry SIC No. and Industry Description

                    Food and Natural Fiber Production

    01  Agricultural Production--Crops
    02  Agricultural Production--Livestock Excluding 0272--Horses and 
Other Equines, and Nonfood Portions of 0279--Animal Specialties, Not 
Elsewhere Classified.
    0723  Crop Preparation Services for Market, Except Cotton Ginning 
(see fiber processing).
    4971  Irrigation Systems.

                  Fertilizer and Agricultural Chemicals

                    (Process and Feedstock Use Only)

    1474  Potash, Soda, and Borate Materials.
    1475  Phosphate Rock.
    1477  Sulfur.
    2819  Industrial Inorganic Chemicals, n.e.c. (Agricultural related 
only).
    2865  Cyclic Crudes and Cyclic Intermediates, Dyes and Organic 
Pigments (Agricutural related only).

[[Page 52]]

    2869  Industrial Organic Chemicals, n.e.c. (Agricutural related 
only).
    287  Agricultural Chemicals.
    2899  Chemicals and Chemical Preparations, n.e.c. (Salt--Feed grade 
only).
    3274  Lime (Agricultural lime only).

                 Food and Natural Fiber Processing-Food

    20  Food and Kindred Products Except 2047  Dog, Cat and Other Pet 
Food, and 2048  Prepared Feeds and Feed Ingredients for Animals and 
Fowls, Not Elsewhere Classified.
    2869  Industrial Organic Chemicals (Monosodium Glutamate, Food-grade 
Citric Acid and Food-grade Enzymes only).
    2899  Chemicals and Chemical Preparations, n.e.c. (Salt for food use 
only).

                         Animal Feeds, and Food

                    (Process and Feedstock Use Only)

    2047  Dog, Cat and Other Pet Food.
    2048  Prepared Feeds and Feed Ingredients for Animals and Fowls, Not 
Elsewhere Classified.

                              Natural Fiber

    0724  Cotton Ginning.
    2141  Tobacco Stemming and Redrying.
    2299  Textile Goods, n.e.c. (wool tops, combing and converting).
    3111  Leather Tanning and Finishing.

                Food Quality Maintenance--Food Packaging

    2641  Paper Coating and Glazing (food related only).
    2643  Bags, Except Textile (food related only).
    2645  Die Cut Paper and Paperboard (food related only).
    2646  Pressed and Molded Pulp Goods (food related only).
    2649  Converted Paper Products (food related only).
    2651  Folding Paperboard Boxes (food related only).
    2653  Corrugated and Solid Fiber Boxes (food related only).
    2654  Sanitary Food Containers.
    2655  Fiber Cans, Tubes, Drums, and Similar Products (food related 
only).
    3079  Miscellaneous Plastic Products (food related only).
    3221  Glass Containers (food related only).
    3411  Metal Cans (food related only).
    3412  Metal Shipping Barrels, Drums, Kegs, and Pails (food related 
only).
    3466  Metal Crowns and Closures (Food Related Only).
    3497  Metal Foil and Leaf (food related only).
    Petroleum wax, synthetic petroleum wax and polyethylene wax (food 
grade only) as food containers.

                       Marketing and Distribution

    4221  Farm Product Warehousing and Storage.
    4222  Refrigerated Warehousing.
    514  Groceries and Related Products.
    5153  Farm Product Raw Materials--Grain.
    54  Food Stores.

                            Energy Production

    (1) Agricultural production on set-aside acreage or acreage diverted 
from the production of a commodity (as provided under the Agricultural 
Act of 1949) to be devoted to the production of any commodity for 
conversion into alcohol or hydrocarbons for use as motor fuel or other 
fuels;
    (2) Sugar refining for production of alcohol; and
    (3) Distillation of fuel-grade alcohol from food grains and other 
biomass by facilities in existence on June 30, 1980 which do not have 
the installed capability to burn coal lawfully, for a period ending June 
29, 1985.

(Pub. L. 95-621, Nov. 8, 1978, 92 Stat. 3350; 15 U.S.C. 3301 et seq.)

[44 FR 28786, May 17, 1979, as amended at 45 FR 5298, Jan. 23, 1980; 45 
FR 45887, 45888, July 8, 1980; 45 FR 50550, July 30, 1980; 47 FR 25320, 
June 11, 1982; 48 FR 43670, Sept. 26, 1983; 49 FR 37733, Sept. 26, 1984]



Sec. 2900.4  Natural gas requirements.

    For purposes of Section 401(c), NGPA, the natural gas requirements 
for each Essential Agricultural Use Establishment, whether such 
Essential Agricultural Use Establishment is in existence on the 
effective date of this rule or comes into existence thereafter, are 
certified to be 100 percent of Current Natural Gas Requirements.



Sec. 2900.6  Effective date.

    This rule shall become effective on May 14, 1979.



PART 2901--ADMINISTRATIVE PROCEDURES FOR ADJUSTMENTS OF NATURAL GAS CURTAILMENT PRIORITY--Table of Contents




Sec.
2901.1  Purpose and scope.
2901.2  Definitions.
2901.3  Oral presentation.
2901.4  Interpretations.
2901.5  Modifications and rescissions.
2901.6  Exceptions and exemptions.
2901.7  Review of denials.
2901.8  Judicial review.
2901.9  Effective date.


[[Page 53]]


    Authority: Secs. 502, 507. Pub. L. 95-621, 92 Stat. 3397, 3405, Nov. 
9, 1978.

    Source: 44 FR 55803, Sept. 28, 1979, unless otherwise noted.



Sec. 2901.1  Purpose and scope.

    The purpose of this part 2901 is to provide procedures for the 
making of certain adjustments to the Secretary of Agriculture's 
Essential Agricultural Uses and Requirements regulations in accordance 
with section 502(c) of the Natural Gas Policy Act of 1978, in order to 
prevent special hardship, inequity, or an unfair distribution of 
burdens. The procedures in this part 2901 apply to any person seeking an 
interpretation of, modification of, rescission of, exception of, or 
exemption from the Essential Agricultural Uses and Requirements 
regulations in part 2900 of this chapter.



Sec. 2901.2  Definitions.

    (a) Person means any individual, firm, sole proprietorship, 
partnership, association, company, joint venture or corporation.
    (b) Director means the Director of the Office of Energy, U.S. 
Department of Agriculture.
    (c) Secretary means the Secretary of the U.S. Department of 
Agriculture.
    (d) Adjustment means an interpretation, modification, rescission of, 
exception to or exemption from the Essential Agricultural Uses and 
Requirements regulations, part 2900 of this chapter.
    (e) NGPA means the Natural Gas Policy Act of 1978, Pub. L. 95-621.
    (f) Petitioner means any person seeking an adjustment under this 
part 2901.



Sec. 2901.3  Oral presentation.

    Any person seeking an adjustment under this part 2901 shall be given 
an opportunity to make an oral presentation of data, views and arguments 
in support of the request for an adjustment, provided that a request to 
make an oral presentation is submitted in writing with the request for 
the adjustment. An official of the Department of Agriculture shall 
preside at such oral presentation.



Sec. 2901.4  Interpretations.

    (a) Request for an interpretation. (1) Any person seeking an 
interpretation of the Essential Agricultural Uses and Requirements 
regulations in part 2900 shall file a formal written request with the 
Director. The request should contain a full and complete statement of 
all relevant facts pertaining to the circumstances, act or transaction 
that is the subject of the request and to the action sought, and should 
state the special hardship, inequity, or unfair distribution of burdens 
that will be prevented by the interpretation sought and why the 
interpretation is consistent with the purposes of NGPA. The Director 
shall publish a notice in the Federal Register advising the public that 
a request for an interpretation has been received and that written 
comments will be accepted with respect thereto, if received within 20 
days of the notice. The Federal Register notice will provide that copies 
of the request for interpretation from which confidential information 
has been deleted in accordance with paragraph (a)(2) of this section may 
be obtained from the petitioner.
    (2) If the petitioner wishes to claim confidential treatment for any 
information contained in the request or other documents submitted under 
this part 2901, such person shall file together with the document a 
second copy of the document from which has been deleted the information 
for which such person wishes to claim confidential treatment. The 
petitioner shall indicate in the original document that it is 
confidential or contains confidential information and may file a 
statement specifying the justification for non-disclosure of the 
information for which non-disclosure is sought. The Director shall 
consider such requests, and subject to the Freedom of Information Act, 5 
U.S.C. 552 and other applicable laws and regulations, shall treat such 
information as confidential.
    (b) Investigations. The Director may initiate an investigation of 
any statement in a request and utilize in his evaluation any relevant 
facts obtained in such investigation. The Director may accept 
submissions from third persons relevant to any request for 
interpretation provided that the petitioner

[[Page 54]]

is afforded an opportunity to respond to all such submissions. In 
evaluating a request for interpretation, the Director may consider any 
other source of information.
    (c) Applicability. Any interpretation issued hereunder shall be 
issued on the basis of the information provided on the request, as 
supplemented by other information brought to the attention of the 
Director during the consideration of the request. The interpretation 
shall, therefore, depend for its authority on the accuracy of the 
factual statement and may be relied upon only to the extent that the 
facts of the actual situation correspond to those upon which the 
interpretation was based.
    (d) Issuance of an interpretation. Upon consideration of the request 
for interpretation and other relevant information received or obtained 
by the Director, the Director may issue a written interpretation. A copy 
of the written interpretation shall be provided to FERC and the 
Secretary of Energy. Notice of the issuance of the written 
interpretation shall be published in the Federal Register. The granting 
of a request for issuance of an interpretation shall be considered final 
agency action for purposes of judicial review under Sec. 2901.8.
    (e) Denial of an interpretation. An interpretation shall be 
considered denied for purpose of review of such denial under Sec. 2901.7 
only if:
    (1) The Director notifies the petitioner in writing that the request 
is denied and that an interpretation will not be issued; or
    (2) The Director does not respond to a request for an 
interpretation, by (i) issuing an interpretation, or (ii) giving notice 
of when an interpretation will be issued within 45 days of the date of 
receipt of the request, or within such extended time as the Director may 
prescribe by written notice within the 45-day period.
    (f) For purposes of this part 2901 the word interpretation shall not 
be deemed to include a simple clarification of an actual or purported 
ambiguity in part 2900. The Director reserves the right to determine 
whether a request involves simple clarification and shall advise the 
requester of his decision.



Sec. 2901.5  Modifications and rescissions.

    (a) Request for modification or rescission. (1) Any person seeking a 
modification or a rescission of the Essential Agricultural Uses and 
Requirements regulations of part 2900 shall file a formal written 
request with the Director. The request shall contain a full and complete 
statement of all relevant facts pertaining to the circumstance, act or 
transaction that is the subject of the request and to the action sought. 
The request should state the special hardship, inequity or unfair 
distribution of burdens that will be prevented by making the 
modification or rescission.
    (2) If the petitioner wishes to claim confidential treatment for any 
information contained in the request or other documents submitted under 
this part 2901, such person shall file together with the document a 
second copy of the document from which has been deleted the information 
for which such person wishes to claim confidential treatment. The 
petitioner shall indicate in the original document that it is 
confidential or contains confidential information and may file a 
statement specifying the justification for non-disclosure of the 
information for which non-disclosure is sought. The Director shall 
consider such requests, and subject to the Freedom of Information Act, 5 
U.S.C. 552 and other applicable laws and regulations, shall treat such 
information as confidential.
    (3) The request shall be filed as a petition for rulemaking and 
treated in accordance with the procedures, as applicable, of 7 CFR part 
1, subpart B.
    (b) Institution of rulemaking. Upon consideration of the request for 
modification or rescission and other relevant information received or 
obtained by the Director, the Director may institute rulemaking 
proceedings in accordance with the Administrative Procedures Act 5 
U.S.C. 551 et seq. and applicable regulations.
    (c) Denial of a modification or rescission. If the Director (1) 
denies the request for modification or rescission in writing by 
notifying the petitioner that he does not intend to institute rulemaking 
proceedings as proposed and stating the reasons therefor, or (2) does 
not respond to a request for a

[[Page 55]]

modification or rescission in accordance with paragraph (b) of this 
section or (3) notifies the petitioner in writing that the matter is 
under continuing consideration and that no decision can be made at that 
time because of the inadequacy of available information, changing 
circumstances or other reasons as set forth therein, within 45 days of 
the date of the receipt thereof, or within such extended time as the 
Director may prescribe by written notice within that 45-day period, the 
request shall be considered denied for the purpose of review of such 
denial under Sec. 2901.7.



Sec. 2901.6  Exceptions and exemptions.

    (a) Request for exception or exemption. (1) Any person seeking an 
exception or exemption from the Essential Agricultural Uses and 
Requirements regulations in part 2900 shall file a formal written 
request with the Director. The request shall contain a full and complete 
statement of all relevant facts pertaining to the circumstance, act, or 
transaction that is the subject of the request and to the action sought. 
The request should state the special hardship, inequity or unfair 
distribution of burdens that will be prevented by making the exception 
or exemption. The Director shall publish a notice in the Federal 
Register advising the public that a request for an exception or 
exemption has been received and that written comments will be accepted 
with respect thereto if received within 20 days of the notice. The 
Federal Register notice will provide that copies of the request from 
which confidential information has been deleted in accordance with 
paragraph (a)(2) of this section may be obtained from the petitioner. 
The Petitioner shall be afforded an opportunity to respond to such 
submissions.
    (2) If the petitioner wishes to claim confidential treatment for any 
information contained in the request or other documents submitted under 
this part 2901, such person shall file together with the document a 
second copy of the document from which has been deleted the information 
for which such person wishes to claim confidential treatment. The 
petitioner shall indicate in the original document that it is 
confidential or contains confidential information and may file a 
statement specifying the justification for non-disclosure of the 
information for which non-disclosure is sought. The Director shall 
consider such requests, and subject to the Freedom of Information Act, 5 
U.S.C. 552 and other applicable laws and regulations, shall treat such 
information as confidential.
    (b) Decision and order. Upon consideration of the request for an 
exception or exemption and other relevant information received or 
obtained during the proceedings, the Director shall issue an order 
granting or denying the request. The Director shall publish a notice in 
the Federal Register of the issuance of a decision and order on the 
request. The granting of a request for an exception or exemption shall 
be considered final agency action for purposes of judicial review under 
Sec. 2901.8.
    (c) Denial of an exception or exemption. A request for an exception 
or exemption shall be considered denied for purposes of review of such 
denial under Sec. 2901.7 only if:
    (1) The Director has notified the petitioner in writing that the 
request is denied under paragraph (b) of this section; or
    (2) The Director does not respond to a request for an exception or 
exemption by (i) granting the request for an exception or exemption 
under paragraph (b) of this section or (ii) giving notice of when a 
decision will be made within 45 days of the receipt of the request, or 
with such extended time as the Director may prescribe by written notice 
within the 45-day period.



Sec. 2901.7  Review of denials.

    (a) Request for review. (1) Any person aggrieved or adversely 
affected by a denial of a request for any interpretation under 
Sec. 2901.4 may request a review of the denial by the Secretary, within 
30 days from the date of the denial.
    (2) Any person aggrieved or adversely affected by a denial of a 
request for a modification or rescission under Sec. 2901.5, may request 
a review of the denial by the Secretary within 30 days from the date of 
the denial.
    (3) Any person aggrieved or adversely affected by a denial of a 
request for an exception or an exemption under

[[Page 56]]

Sec. 2901.6, may request a review of the denial by the Secretary within 
30 days from the date of the denial.
    (b) Procedures. Any request for review under Sec. 2901.7(a) shall be 
in writing and shall set forth the specific ground upon which the 
request is based. There is no final agency action for purposes of 
judicial review under Sec. 2901.8 until that request has been acted 
upon. If the request for review has not been acted upon within 30 days 
after it is received, the request shall be deemed to have been denied. 
That denial shall then constitute final agency action for the purpose of 
judicial review under Sec. 2901.8.



Sec. 2901.8  Judicial review.

    Any person aggrieved or adversely affected by a final agency action 
taken on a request for an adjustment under this section may obtain 
judicial review in accordance with section 506 of the Natural Gas Policy 
Act of 1978.



Sec. 2901.9  Effective date.

    This rule shall become effective on October 29, 1979.

[[Page 57]]



                         CHAPTER XXX--OFFICE OF






                      THE CHIEF FINANCIAL OFFICER,






                        DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3010

[Reserved]

3011            Availability of information to the public...          59
3015            Uniform Federal assistance regulations......          60
3016            Uniform administrative requirements for 
                    grants and cooperative agreements to 
                    State and local governments.............         110
3017            Governmentwide debarment and suspension 
                    (nonprocurement) and governmentwide 
                    requirements for drug-free workplace 
                    (grants)................................         138
3018            New restrictions on lobbying................         160
3019            Uniform administrative requirements for 
                    grants and agreements with institutions 
                    of higher education, hospitals, and 
                    other non-profit organizations..........         172
3052            Audits of States, local governments, and 
                    non-profit organizations................         199

[[Page 59]]



PART 3011--AVAILABILITY OF INFORMATION TO THE PUBLIC--Table of Contents




Sec.
3011.1  General statement.
3011.2  Public inspection and copying.
3011.3  Indexes.
3011.4  Initial requests for records.
3011.5  Appeals.
3011.6  Fee schedule.

    Authority: 5 U.S.C. 301 and 522; 7 CFR 1.3.

    Source: 54 FR 51869, Dec. 19, 1989, unless otherwise noted.



Sec. 3011.1  General statement.

    This part is issued in accordance with 7 CFR 1.3 of the Department 
of Agriculture regulations governing the availability of records (7 CFR 
1.1--1.23 and Appendix A) under the Freedom of Information Act (5 U.S.C. 
552, as amended). These regulations supplement the Department's 
regulations by providing guidance for any person wishing to request 
records from the Office of Finance and Management (OFM).



Sec. 3011.2  Public inspection and copying.

    (a) Background. 5 U.S.C. 552(a)(2) requires each agency to maintain 
and make available for public inspection and copying certain kinds of 
records.
    (b) Procedure. To gain access to OFM records that are available for 
public inspection, contact the Freedom of Information Act Officer by 
writing to the address shown in Sec. 3011.4(b) of this title.



Sec. 3011.3  Indexes.

    5 U.S.C. 552(a)(2) also requires that each agency maintain and make 
available for public inspection and copying current indexes providing 
identifying information for the public with regard to any records which 
are made available for public inspection and copying. OFM does not 
maintain any materials within the scope of these requirements.



Sec. 3011.4  Initial requests for records.

    (a) Background. The Freedom of Information Act Officer is authorized 
to:
    (1) Grant or deny requests for OFM records,
    (2) Make discretionary release of OFM records when the benefit to 
the public in releasing the document outweighs any harm likely to result 
from disclosure,
    (3) Reduce or waive fees to be charged where determined to be 
appropriate.
    (b) Procedures. This part provides the titles and mailing address of 
officials who are authorized to release records to the public. The 
normal working hours of these offices are 8:30 a.m. to 5:00 p.m., local 
time, Monday through Friday, excluding holidays, during which public 
inspection and copying of certain kinds of records is permitted. Persons 
wishing to request records from the Office of Finance and Management may 
do so by submitting each initial written request for OFM records to the 
appropriate OFM official shown below:
    (1) For records held at the Washington, DC Headquarters units, 
submit initial requests to the Freedom of Information Act Officer, 
Office of Finance and Management, USDA, 14th and Independence Ave., SW., 
Room 117-W, Administration Building, Washington, DC 20250-9000.
    (2) For records held at the National Finance Center in New Orleans, 
Louisiana, submit initial requests to the Freedom of Information Act 
Officer, National Finance Center, OFM, USDA, 13800 Old Gentilly Road, 
Building 350, (P.O. Box 60,000, New Orleans, LA 70160), New Orleans, 
Louisiana 70129.

If the requester is unable to determine the official to whom the request 
should be addressed, it should be submitted to the Headquarters Freedom 
of Information Act Officer who will refer such requests to the 
appropriate officials.



Sec. 3011.5  Appeals.

    Any person whose initial request is denied in whole or in part may 
appeal that denial, in accordance with 7 CFR 1.6(e) and 1.8, to the 
Director, Office of Finance and Management, USDA, Room 117-W, 
Administration Building, 14th and Independence Ave., Washington, DC 
20250-9000.



Sec. 3011.6  Fee schedule.

    Departmental regulations provide for a schedule of reasonable 
standard charges for document search and duplication. See 7 CFR 1.2(b). 
Fees to be charged are set forth in 7 CFR part 1, subpart A, Appendix A.

[[Page 60]]



PART 3015--UNIFORM FEDERAL ASSISTANCE REGULATIONS--Table of Contents




                           Subpart A--General

Sec.
3015.1  Purpose and scope of this part.
3015.2  Applicability.
3015.3  Conflicting policies and deviations.
3015.4  Special restrictive terms.

                      Subpart B--Cash Depositories

3015.10  Physical segregation and eligibility.
3015.11  Separate bank accounts.
3015.12  Moneys advanced to recipients.
3015.13  Minority and women-owned banks.

                    Subpart C--Bonding and Insurance

3015.15  General.
3015.16  Construction and facility improvement.
3015.17  Fidelity bonds.
3015.18  Source of bonds.

           Subpart D--Record Retention and Access Requirements

3015.20  Applicability.
3015.21  Retention period.
3015.22  Starting date of retention period.
3015.23  Microfilm.
3015.24  Access to records.
3015.25  Restrictions to public access.

        Subpart E--Waiver of ``Single'' State Agency Requirements

3015.30  Waiver of ``single'' State agency requirements.

                     Subpart F--Grant Related Income

3015.40  Scope.
3015.41  General program income.
3015.42  Proceeds from sale of real property and from sale of equipment 
          and supplies acquired for use.
3015.43  Royalties and other income earned from a copyrighted work.
3015.44  Royalties or equivalent income earned from patents or from 
          inventions.
3015.45  Other program income.
3015.46  Interest earned on advances of grant funds.

                   Subpart G--Cost-Sharing or Matching

3015.50  Scope.
3015.51  Acceptable contributions and costs.
3015.52  Qualifications and exceptions.
3015.53  Valuation of donated services.
3015.54  Valuation of donated supplies and loaned equipment or space.
3015.55  Valuation of donated equipment, buildings, and land.
3015.56  Appraisal of real property.

          Subpart H--Standards for Financial Management Systems

3015.60  Scope.
3015.61  Financial management standards.

Subpart I [Reserved]

               Subpart J--Financial Reporting Requirements

3015.80  Scope and applicability.
3015.81  General.
3015.82  Financial status report.
3015.83  Federal cash transactions report.
3015.84  Request for advance or reimbursement.
3015.85  Outlay report and request for reimbursement for construction 
          programs.

         Subpart K--Monitoring and Reporting Program Performance

3015.90  Scope.
3015.91  Monitoring by recipients.
3015.92  Performance reports.
3015.93  Significant developments.
3015.94  Site visits.
3015.95  Waivers, extensions and enforcement actions.

                     Subpart L--Payment Requirements

3015.100  Scope.
3015.101  General.
3015.102  Payment methods.
3015.103  Withholding payments.
3015.104  Requesting advances or reimbursements.
3015.105  Payments to subrecipients.

          Subpart M--Programmatic Changes and Budget Revisions

3015.110  Scope and applicability.
3015.111  Cost principles.
3015.112  Approval procedures.
3015.113  Programmatic changes.
3015.114  Budgets--general.
3015.115  Budget revisions.
3015.116  Construction and nonconstruction work under the same grant, 
          subgrant, or cooperative agreement.

   Subpart N--Grant and Subgrant Closeout, Suspension and Termination

3015.120  Closeout.
3015.121  Amounts payable to the Federal government.
3015.122  Violation of terms.
3015.123  Suspension.
3015.124  Termination.
3015.125  Applicability to subgrants.

Subparts O-P [Reserved]

[[Page 61]]

              Subpart Q--Application for Federal Assistance

3015.150  Scope and applicability.
3015.151  Authorized forms.
3015.152  Preapplication for Federal assistance.
3015.153  Notice of preapplication review action.
3015.154  Application for Federal assistance (nonconstruction programs).
3015.155  Application for Federal assistance (construction programs).
3015.156  Application for Federal assistance (short form).
3015.157  Authorized form for nongovernmental organizations.
3015.158  Competition in the awarding of discretionary grants and 
          cooperative agreements.

                           Subpart R--Property

3015.160  Scope and applicability.
3015.161  Additional requirements.
3015.162  Title to real property, equipment and supplies.
3015.163  Real property.
3015.164  Statutory exemptions for equipment and supplies.
3015.165  Rights to require transfer of equipment.
3015.166  Use of equipment.
3015.167  Replacement of equipment.
3015.168  Disposal of equipment.
3015.169  Equipment management requirements.
3015.170  Damage, loss, or theft of equipment.
3015.171  Unused supplies.
3015.172  Federal share of real property, equipment, and supplies.
3015.173  Using or returning the Federal share.
3015.174  Subrecipient's share.
3015.175  Intangible personal property.

                         Subpart S--Procurement

3015.180  Scope and applicability.
3015.181  Standards of conduct.
3015.182  Open and free competition.
3015.183  Access to contractor records.
3015.184  Equal employment opportunity.

                       Subpart T--Cost Principles

3015.190  Scope.
3015.191  Governments.
3015.192  Institutions of higher education.
3015.193  Other non-profit organizations.
3015.194  For-profit organizations.
3015.195  Subgrants and cost-type contracts.
3015.196  Costs allowable with approval.

                        Subpart U--Miscellaneous

3015.200  Acknowledgement of support on publications and audiovisuals.
3015.201  Use of consultants.
3015.202  Limits on total payments to the recipient.
3015.203  [Reserved]
3015.204  Federal Register publications.
3015.205  General provisions for grants and cooperative agreements with 
          institutions of higher education, other nonprofit 
          organizations, and hospitals.

    Subpart V--Intergovernmental Review of Department of Agriculture 
                         Programs and Activities

3015.300  Purpose.
3015.301  Definitions.
3015.302  Applicability.
3015.303  Secretary's general responsibilities.
3015.304  Federal interagency coordination.
3015.305  State selection of programs and activities.
3015.306  Communication with State and local elected officials.
3015.307  State comments on proposed Federal financial assistance and 
          direct Federal development.
3015.308  Processing comments.
3015.309  Accommodation of intergovernmental concerns.
3015.310  Interstate situations.
3015.311  Simplification, consolidation, or substitution of State plans.
3015.312  Waivers.

Appendix A to Part 3015--Definitions
Appendix B to Part 3015--OMB Circular A-128, ``Audits of State and Local 
          Governments''

    Authority: 5 U.S.C. 301; 31 U.S.C. 901-903; 7 CFR 2.28, unless 
otherwise noted.

    Source: 46 FR 55639, Nov. 10, 1981, unless otherwise noted.



                           Subpart A--General



Sec. 3015.1  Purpose and scope of this part.

    (a)(1) This part specifies the set of principles for determining 
allowable costs under USDA grants and cooperative agreements to State 
and local governments, universities, non-profit and for-profit 
organizations as set forth in OMB Circulars A-87, A-21, A-122, and 48 
CFR 31.2, respectively. This part also contains the general provisions 
that apply to all grants and cooperative agreements made by USDA.
    (2) Additionally, this part establishes intergovernmental review 
provisions

[[Page 62]]

required by Executive Order 12372 for any programs listed in the Federal 
Register as covered, and policy on competition in awarding discretionary 
grants and cooperative agreements.
    (3) Rules for grants and cooperative agreements to State and local 
governments are found in part 3016 of this chapter.
    (4) Rules for grants and cooperative agreements to institutions of 
higher education, hospitals, and other non-profit organizations are 
found in part 3019 of this chapter.
    (b) These rules supersede and take precedence over any individual 
USDA agency regulations and directives dealing with the administration 
of grants and cooperative agreements to the extent such regulations and 
directives are inconsistent with this part, unless such inconsistency is 
based on a statutory provision or an exception has been obtained from 
OMB. (See Sec. 3015.3.) Definitions for the terms used in this part are 
set forth in Appendix A. Definitions for the implementation of standard 
audit requirements for State and local governments and Indian Tribal 
governments are contained in Subpart I--Audits.
    (c) The purpose of this part is to simplify, standardize, and 
improve the administration of USDA grants and cooperative agreements.
    (d) Responsibility for developing and interpreting the material for 
this part and in keeping it up-to-date is delegated to the Office of the 
Chief Financial Officer.

[46 FR 55639, Nov. 10, 1981, as amended at 62 FR 45949, Aug. 29, 1997; 
65 FR 49479, Aug. 14, 2000]



Sec. 3015.2  Applicability.

    (a) Grants and cooperative agreements. This part applies to USDA 
grants and cooperative agreements. For each substantive provision in 
this part, either the words of the provision itself or other words in 
the same subpart tell whether the provision applies to subgrants. 
Exemptions to this part may be applicable to certain kinds of 
recipients. (See paragraph (d) of this section.)
    (b) Terminology applicable to this part. This part's substantive 
rules are the same for grants and cooperative agreements. Many of the 
rules are also the same for subgrants. Therefore, certain simplified 
terminology is used in the text. Specifically in all portions of this 
part:
    (1) Each provision that applies to grants also applies to 
cooperative agreements, even though the latter term does not appear in 
the provisions.
    (2) Each provision that applies to recipients of grants applies to 
recipients of cooperative agreements, even though the latter term does 
not appear in the provision.
    (3) The term recipient refers equally to recipients of grants and 
recipients of cooperative agreements.
    (4) The term awarding agency refers equally to a USDA agency that 
awards a grant and to one that awards a cooperative agreement.
    (5) The term subgrant refers equally to certain awards under grants 
and to the same kinds of awards under cooperative agreements.
    (c) Public institutions of higher education and hospitals. Grants, 
cooperative agreements and subgrants awarded to institutions of higher 
education and hospitals operated by a government are subject only to the 
provisions of this part that apply to non-governmental organizations.
    (d) Recipients to which this part does not automatically apply. This 
part does not automatically apply to the kinds of recipients listed 
below unless other conditions set forth in the grant, cooperative 
agreement, subgrant, or specific subpart in this part make all or 
specified portions apply:
    (1) Foreign governments or organizations,
    (2) International organizations, such as the United Nations,
    (3) Agencies or instrumentalities of the Federal government,
    (4) Individuals,
    (5) State and local governments, and
    (6) Institutions of higher education, hospitals and other non-profit 
organizations.
    (e) Collaborative arrangements. (1) Where permitted by the terms of 
the award, a recipient may enter into collaborative arrangements with 
other organizations to jointly carry out activities with grant or 
cooperative agreement funds. In this kind of situation,

[[Page 63]]

the arrangement between the recipient and each collaborating 
organization is subject to the rules in this part that apply to 
subgrants awarded by the recipients. (See the example shown in 
Sec. 3015.195.)
    (2) This paragraph (e) does not apply to arrangements where the 
organizations receive an award jointly. In this case, they are not a 
recipient and subrecipient but, as the award notice states, joint 
recipients.

[46 FR 55639, Nov. 10, 1981, as amended at 53 FR 8044, Mar. 11, 1988; 65 
FR 49480, Aug. 14, 2000]



Sec. 3015.3  Conflicting policies and deviations.

    (a) Statutory provisions. Federal statutes that apply to some USDA 
grant programs may contain provisions that conflict with this part. 
Those statutory provisions take precedence over this part.
    (b) Nonstatutory provisions. USDA awarding agencies occasionally 
develop grant provisions that are inconsistent with this part. USDA 
attempts to keep these provisions to a minimum by internal procedures 
that require these provisions to be justified to appropriate officials 
of USDA and OMB. If the conflicting provisions are of long-term and 
general applicability, O&F may require that the awarding agency (1) 
publish the conflicting provision as a notice in the Federal Register 
and (2) give the public an opportunity to comment before making the 
regulations final.
    (c) Nonstatutory provisions-subgrants. If a provision of a subgrant 
conflicts with this part, the recipient is considered as violating the 
provisions of the grant, unless the subgrant provision is authorized in 
writing, by the awarding agency.
    (d) OMB exceptions. In some cases, OMB grants exceptions from the 
requirements of the Circulars, when permissible under existing laws. In 
those instances where a program receives an exception to a particular 
provision of a Circular, the exception takes precedence over this part.



Sec. 3015.4  Special restrictive terms.

    (a) Occasionally an awarding agency, or a recipient awarding a 
subgrant, may find that a particular recipient:
    (1) Is financially unstable,
    (2) Has a history of poor performance, or
    (3) Has a management system that does not meet the standards in this 
part.

In these cases the awarding agency may impose special conditions that 
are more restrictive than otherwise permitted by this part. If so, the 
awarding agency must tell the recipient in writing why it is imposing 
the special conditions and what corrective action is needed.
    (b) At the time an awarding agency imposes a special grant condition 
under paragraph (a) of this section, the awarding agency, through O&F, 
shall notify OMB and other interested parties.
    (c) At the time a recipient imposes a special restrictive subgrant 
condition under paragraph (a) of this section, it must notify the 
awarding agency, giving full particulars. The awarding agency, through 
O&F, shall then notify OMB and other interested parties.
    (d) A special restrictive grant or subgrant condition under 
paragraph (a) of this section is considered consistent with this part.



                      Subpart B--Cash Depositories



Sec. 3015.10  Physical segregation and eligibility.

    Except as provided in Sec. 3015.11, awarding agencies shall not 
impose grant or subgrant conditions which:
    (a) Require the recipient to use a separate bank account for the 
deposit of grant or subgrant funds, or
    (b) Establish any eligibility requirements for banks or other 
financial institutions in which recipients deposit grant or subgrant 
funds.



Sec. 3015.11  Separate bank accounts.

    A separate bank account shall be required when applicable letter of 
credit agreements provide that funds will not be drawn until the 
recipient's checks are presented to the bank for payment.

[[Page 64]]



Sec. 3015.12  Moneys advanced to recipients.

    Any moneys advanced to recipients which are subject to the control 
or regulation of the United States or any of its officers, agents, or 
employees (public moneys as defined in Treasury Circular 176, as 
amended), must be deposited in a bank with Federal Deposit Insurance 
Corporation (FDIC) insurance coverage and the balance exceeding the FDIC 
coverage must be collaterally secured.



Sec. 3015.13  Minority and women-owned banks.

    Consistent with the national goal of expanding opportunities for 
minority business enterprises, recipients, and subrecipients are 
encouraged to use minority and women-owned banks. Upon request, awarding 
agencies will furnish a listing of minority and women-owned banks to 
recipients.



                    Subpart C--Bonding and Insurance



Sec. 3015.15  General.

    In administering grants, subgrants, and cooperative agreements, 
recipients shall observe their regular requirements and practices with 
respect to bonding and insurance. No additional bonding and insurance 
requirements, including fidelity bonds, shall be imposed by the 
provisions of the grant, subgrant, or cooperative agreement except as 
provided in Secs. 3015.16 through 3015.18.



Sec. 3015.16  Construction and facility improvement.

    (a) Scope. This section covers requirements for bid guarantees, 
performance bonds, and payment bonds when the recipients will contract 
or subcontract for construction or facility improvement (including 
alterations and renovations of real property) under a grant or subgrant.
    (b) Bids and contracts or subcontracts of $100,000 or less. Unless 
otherwise required by law, the recipients shall follow its own 
requirements and practices relating to bid guarantees, performance 
bonds, and payment bonds.
    (c) Bids and contracts or subcontracts exceeding $100,000. Unless 
otherwise required by law, the recipient may follow its own regular 
policy and requirements if the USDA awarding agency has decided that the 
Federal government's interest will be adequately protected. If this 
decision has not been made, the minimum requirements shall be as 
follows:
    (1) A bid guarantee from each bidder equivalent to 5 percent of the 
bid price;
    (2) A performance bond on the part of the contractor for 100 percent 
of the contract price; and
    (3) A payment bond on the part of the contractor for 100 percent of 
the contract price.



Sec. 3015.17  Fidelity bonds.

    (a) If the recipient is not a unit of government, the awarding 
agency may require the recipient to carry adequate fidelity bond 
coverage where the absence of coverage for the grant-supported activity 
is considered as created an unacceptable risk.
    (b) If the subrecipient is not a unit of government, the awarding 
agency or the recipient may require that the subrecipient carry adequate 
fidelity bond coverage where the absence of coverage for the subgrant-
supported activity is considered as creating an unacceptable risk.



Sec. 3015.18  Source of bonds.

    Any bonds required under Sec. 3015.16(c) (1) through (3) or 
Sec. 3015.17 shall be obtained from companies holding certificates of 
authority as acceptable sureties (31 CFR part 223). A list of these 
companies is published annually by the Department of the Treasury in its 
Circular 570.



           Subpart D--Record Retention and Access Requirements



Sec. 3015.20  Applicability.

    (a) This subpart applies to all financial records, supporting 
documents, statistical records and other records of recipients, which 
are:
    (1) Required to be maintained by the provisions of a USDA grant or 
cooperative agreement, or

[[Page 65]]

    (2) Otherwise reasonably considered as pertinent to a USDA grant or 
cooperative agreement.
    (b) This subpart does not apply to the records of contractors and 
subcontractors under grants, subgrants and cooperative agreements. For a 
requirement to place a provision concerning these records in certain 
kinds of contracts, see Subpart S of this part.



Sec. 3015.21  Retention period.

    (a) Except as provided in paragraphs (b) and (c) of this section, 
records shall be kept for 3 years from the starting date specified in 
Sec. 3015.22.
    (b) If any litigation, claim, negotiation, audit or other action 
involving the records has been started before the end of the 3-year 
period, the records shall be kept until all issues are resolved, or 
until the end of the regular 3-year period, whichever is later.
    (c) In order to avoid dual recordkeeping, awarding agencies may make 
special arrangements for recipients to keep any records which are 
continuously needed for joint use. The awarding agency shall request a 
recipient to transfer records to its custody when the awarding agency 
decides that the records possess long-term retention value. When the 
records are transferred to or maintained by the awarding agency the 3-
year retention requirement shall not apply to the recipient.
    (d) Records for nonexpendable property acquired in whole or in part, 
with Federal funds shall be retained for three years after its final 
disposition.



Sec. 3015.22  Starting date of retention period.

    (a) General. The retention period starts from the date of the 
submission of the final expenditure report or, where USDA grant support 
is continued or renewed at annual or other intervals, the 3-year 
retention period for the records of each funding period starts on the 
day the recipient submits to USDA its annual or final expenditure report 
for that period. If an expenditure report has been waived, the 3-year 
retention period starts on the day the report would have been due. 
Exceptions to this paragraph are contained in paragraphs (b) through (d) 
of this section.
    (b) Equipment records. The 3-year retention period for the equipment 
records required by Subpart R starts from the date of the equipment's 
disposition, replacement, or transfer at the direction of the awarding 
agency.
    (c) Records for income transactions after grant or subgrant support. 
(1) In cases where USDA requires that program income (as defined in 
Appendix A) be applied to costs incurred after expiration or termination 
of grant or subgrant support, the 3-year retention period for these cost 
records starts from the end of the recipient's fiscal year in which the 
costs are incurred.
    (2) Where USDA requires the disposition of copyright royalties or 
other program income earned after expiration or termination of grant or 
subgrant support, the 3-year retention period for those income records 
starts from the end of the recipient's fiscal year in which the income 
was earned. (See Subpart F, Sec. 3015.44.)
    (d) Indirect cost rate proposals, cost allocation plans, etc.--(1) 
Applicability. This paragraph applies to the following types of 
documents and their supporting records:
    (i) Indirect cost rate computations or proposals;
    (ii) Cost allocation plans; and
    (iii) 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).
    (2) If submitted for negotiation. If the Federal government requires 
submission of the proposal; plan, or other computation for negotiation 
of the rate chargeable for particular costs, then the 3-year retention 
period for the plan, proposal or other computation and the supporting 
records starts from the date of such submission.
    (3) If not submitted for negotiation. If the Federal government does 
not require submission of the proposal, plan, or other computation for 
negotiation of the rate chargeable for particular costs, then the 3-year 
retention period for the proposal, plan, or other computation and the 
supporting records starts from the end of the fiscal year covered by 
such proposal, plan, or other computation.

[[Page 66]]



Sec. 3015.23  Microfilm.

    Copies made by microfilming, photocopying, or similar methods may be 
substituted for the original records.



Sec. 3015.24  Access to records.

    (a) Records of recipients. USDA and the Comptroller General of the 
United States, or any of their authorized representatives, shall have 
the right of access to any books, documents, papers, or other records of 
the recipient which are pertinent in a specific USDA award in order to 
make audit, examination, excerpts, and transcripts.
    (b) Records of subrecipients. USDA and the Comptroller General of 
the United States, and the recipient, or any of their authorized 
representatives, shall have the right of access to any books, documents, 
papers, or other records of the subrecipient which are pertinent to a 
specific USDA grant or cooperative agreement, in order to make audit, 
examination, excerpts, and transcripts.
    (c) Expiration of right of access. The rights of access in this 
section shall not be limited to the required retention period but shall 
last as long as the records are kept.



Sec. 3015.25  Restrictions to public access.

    Unless required by law, no awarding agency shall impose grant or 
subgrant conditions which limit public access to records covered by this 
subpart, except when the awarding agency determines that such records 
must be kept confidential and would have been excepted from disclosure 
pursuant to USDA's ``Freedom of Information'' regulations if the records 
had belonged to USDA (7 CFR 1.1-1.16).



        Subpart E--Waiver of ``Single'' State Agency Requirements



Sec. 3015.30  Waiver of ``single'' State agency requirements.

    Section 204 of the Intergovernmental Cooperation Act of 1968 
authorizes Federal agencies to waive ``single'' State agency 
requirements on request of the Governor or other duly constituted State 
authorities.
    (a) Approval authority. The awarding agency has approval authority 
for waiver requests, and shall handle them as quickly as feasible. 
Approval should be given whenever possible.
    (b) Refusal procedures. When it is necessary to refuse a request for 
waiver of the ``single'' State agency requirements under section 204, 
the awarding agency shall, through O&F, advise OMB that the request 
cannot be granted. Such advice should indicate the reasons for the 
denial of the request. Notification, through O&F, to OMB shall occur 
prior to informing the State of the refusal.



                     Subpart F--Grant Related Income



Sec. 3015.40  Scope.

    This subpart contains policies and requirements related to program 
income and interest and other investment income earned on advances of 
grant funds. Appendix A defines the term ``program income.'' There are 
five categories of program income covered in this subpart. Each is 
treated in a separate section. The categories are:
    (a) General program income;
    (b) Proceeds from sale of real property and from sale of equipment 
and supplies acquired for use;
    (c) Royalties and other income earned from a copyrighted work;
    (d) Royalties or equivalent income earned from patents or 
inventions; and
    (e) Income after the period of grant or subgrant support not 
otherwise treated.



Sec. 3015.41  General program income.

    (a) Applicability. This section applies to ``general program 
income'' as defined in Appendix A.
    (b) Use. (1) General program income shall be retained by the 
recipient and used in accordance with one or a combination of the 
alternatives in paragraphs (c), (d), and (e) of this section, as 
follows: The alternative in paragraph (c) may always be used by 
recipients and must be used if neither of the other two alternatives is 
permitted by the provisions of the grant award. The alternatives in 
paragraph (d) or (e) of this section may be used only if expressly 
permitted by the provisions of

[[Page 67]]

the grant award. In specifying alternatives that may be used, the 
provisions of the grant award may distinguish between income earned by 
the recipient and income earned by subrecipients and between the 
sources, kinds, or amounts of income.
    (2) The provisions of a subgrant award may restrict the use of 
general program income earned by the subrecipient to only one or some of 
the alternatives permitted by the provisions of the grant, but the 
alternative in paragraph (c) of this section shall always be permitted.
    (c) Deduction alternative. (1) Under this alternative, the income is 
used for allowable costs of the project or program. If there is a cost-
sharing or matching requirement, costs supported by the income may not 
count toward satisfying that requirement. Therefore, the maximum 
percentage of Federal cost-sharing is applied to the net amount 
determined by deducting the income from total allowable costs and third 
party in-kind contributions. The income shall be used for current costs 
unless the awarding agency authorizes the income to be used in a later 
period.
    (2) To illustrate this alternative, assume a project in which the 
recipient incurs $100,000 of allowable costs and receives no third party 
in-kind contributions. If the recipient earns $10,000 in general program 
income and this alternative applies, that $10,000 must be deducted from 
the $100,000 before applying the maximum percentage of Federal cost-
sharing. If that percentage is 90 percent, the most that could be paid 
to the recipient would therefore be $81,000 (90 percent times $90,000).
    (d) Cost-sharing or matching alternative. (1) Under this 
alternative, the income is used for allowable costs of the project or 
program but, in this case, the costs supported by the income may count 
toward satisfying a cost-sharing or matching requirement. Therefore, the 
maximum percentage of Federal cost-sharing is applied to total allowable 
costs and third party in-kind contributions. The income shall be used 
for current costs unless the awarding agency authorizes its use in a 
later period.
    (2) To illustrate this alternative, assume the same situation as in 
paragraph (c)(2) of this section. Under this alternative, the 90 percent 
maximum percentage of Federal cost-sharing would be applied to the full 
$100,000, and $90,000 could therefore be paid to the recipient.
    (e) Additional costs alternative. Under this alternative, the income 
is used for costs which are in addition to the allowable costs of the 
project or program but which nevertheless further the objectives of the 
Federal statute under which the grant was made. Provided that the costs 
supported by the income further the broad objectives of that statute, 
they need not be of a kind that would be permissible as charges to 
Federal funds. Examples of purposes for which the income may be used 
are:
    (1) Expanding the project or program.
    (2) Continuing the project or program after grant or subgrant 
support ends.
    (3) Supporting other projects or programs that further the broad 
objectives of the statute.
    (4) Obtaining equipment or other assets needed for the project or 
program or for other activities that further the statute's objectives.



Sec. 3015.42  Proceeds from sale of real property and from sale of equipment and supplies acquired for use.

    The following kinds of program income shall be governed by Subpart R 
of this part:
    (a) Proceeds from the sale of real property purchased or constructed 
under a grant or subgrant.
    (b) Proceeds from the sale of equipment and supplies created or 
purchased under a grant or subgrant and intended primarily for use in 
the grant or subgrant-supported project or program rather than for sale 
or rental.



Sec. 3015.43  Royalties and other income earned from a copyrighted work.

    (a) This section applies to royalties, license fees, and other 
income earned by a recipient from a copyrighted work developed under the 
grant or subgrant. Income of that kind is covered by this section 
whether a third party or the recipient acts as the publisher, seller, 
exhibitor, or performer of the copyrighted work. In some cases the 
recipient incurs costs to earn the income but does not charge these 
costs to USDA

[[Page 68]]

grant funds, to required cost-sharing or matching funds, or to other 
program income. Costs of that kind may be deducted from the gross income 
in order to determine how much must be treated as program income.
    (b) The provisions of the grant award govern the disposition of 
income subject to this section. If the provisions of the grant award do 
not treat this kind of income, there are no USDA requirements governing 
its disposition. A recipient is not prohibited from imposing 
requirements of its own on the disposition of this kind of income which 
is earned by its subrecipients provided those requirements are in 
addition to, and not inconsistent with, any requirements imposed by the 
provisions of the grant award.



Sec. 3015.44  Royalties or equivalent income earned from patents or from inventions.

    Disposition of royalties or equivalent income earned on patents or 
inventions arising out of activities assisted by a grant or subgrant 
shall be governed by the provisions of the grant or subgrant agreement. 
If the agreement does not provide for the disposition of the royalties 
or equivalent income, the disposition shall be in accordance with the 
recipient's own policies.



Sec. 3015.45  Other program income.

    (a) This section applies to program income not treated elsewhere in 
this part which subsequently results from an activity supported by a 
grant or subgrant but which does not accrue until after the period of 
grant or subgrant support. An example is proceeds from the sale or 
rental of a residual inventory of merchandise created or purchased by a 
grant-supported workshop during the period of support.
    (b) The provisions of the grant award govern the disposition of 
income subject to this section. If the provisions do not treat this kind 
of income, there are no USDA requirements governing its disposition. A 
recipient may impose requirements of its own on the disposition of this 
kind of income which is earned by its subrecipients provided those 
requirements are in addition to and not inconsistent with any 
requirements imposed by the provisions of the grant award.



Sec. 3015.46  Interest earned on advances of grant funds.

    (a) Except when exempted by Federal statute (see paragraph (b) of 
this section for the principal exemption), recipients shall remit to the 
Federal government any interest or other investment income earned on 
advances of USDA grant funds. This includes any interest or investment 
income earned by subrecipients and cost-type contractors on advances to 
them that result from advances of USDA grant funds to the recipient. 
Unless the recipient receives other instructions from the responsible 
USDA awarding agency, the recipient shall remit the amount due by check 
or money order payable to the awarding agency. This requirement may not 
be administratively waived.
    (b) In accordance with the Intergovernmental Cooperation Act of 1968 
(42 U.S.C. 4213), States, as defined in the Act, shall not be 
accountable to the Federal government for interest or investment income 
earned by the State itself, or by its subrecipents, where this income is 
attributable to grants-in-aid, as defined in the Act.\1\
---------------------------------------------------------------------------

    \1\ ``State'' is defined in the Act to include any agency or 
instrumentality of a State, and the definition does not exclude a 
hospital or institution of higher education which is such an agency or 
instrumentality. ``Grant-in-aid'' is defined in the Act to exclude 
payments under research and development contracts or grants which are 
awarded directly and on similar terms to all qualifying organizations, 
whether public or private. (42 U.S.C. 4201)
---------------------------------------------------------------------------

    (c) Recipients are cautioned that they are subject to the provisions 
of Subpart L for minimizing the time between the transfer of advances 
and their disbursement. Those provisions apply even if there is no 
accountability to the Federal government for interest or other 
investment income earned on the advances.



                   Subpart G--Cost-Sharing or Matching



Sec. 3015.50  Scope.

    This subpart contains rules reflecting Federal requirements for 
cost-sharing

[[Page 69]]

or matching. These rules apply whether cost-sharing or matching is 
required by Federal statute, awarding agency regulations, or by other 
provisions established by the specific grant agreement.



Sec. 3015.51  Acceptable contributions and costs.

    A cost-sharing or a matching requirement may be satisfied after 
qualifications and exceptions are met in Sec. 3015.52 and by satisfying 
either or both of the following:
    (a) Allowable costs incurred by the recipient or by any subrecipient 
under the grant or subgrant. This includes allowable costs supported by 
non-Federal grants or by cash donations from non-Federal third parties. 
Allowable costs shall be determined in accordance with the cost 
principles set forth in Subpart T.
    (b) The value of third party in-kind contributions applicable to the 
same period when a cost-sharing or matching requirement applies.



Sec. 3015.52  Qualifications and exceptions.

    (a) Costs supported by other Federal grants. (1) A cost-sharing or a 
matching requirement shall not be met by costs supported by another 
Federal grant, except as provided by Federal statute. This exception 
however, does not apply to costs supported by general program income 
earned from a contract awarded under another Federal grant.
    (2) For the purpose of this part, funds provided under General or 
Countercyclical Revenue Sharing Programs (31 U.S.C. 1221 et seq. and 42 
U.S.C. 6721 et seq.) are not considered Federal grants. Therefore, 
allowable costs supported by these funds may be used to satisfy a cost-
sharing or a matching requirement.
    (b) Costs or contributions applied towards other Federal cost-
sharing requirements. Recipient costs or the value of third party in-
kind contributions shall not count towards satisfying a cost-sharing or 
matching requirement of a USDA grant if they are or will be counted 
towards satisfying a cost-sharing or matching requirement of another 
Federal grant, a Federal procurement contract, or any other award of 
Federal funds.
    (c) Costs financed by general program income. Costs financed by 
general program income as defined in Appendix A shall not count towards 
satisfying a cost-sharing or matching requirement of a USDA grant 
supporting the activity unless the provisions of the grant award 
expressly permit the income to be used for cost-sharing or matching 
purposes. (This is the alternative for use of general program income 
described in Sec. 3015.41).
    (d) Services or property financed by income earned by contractors. 
Contractors under a grant or subgrant may earn income from the 
activities carried out under the contract in addition to the amounts 
earned from the party awarding the contract. No costs of services or 
property supported by this income may count toward satisfying a cost-
sharing or matching requirement unless other provisions of the grant 
award expressly permit this kind of income to be used to meet the 
requirement.
    (e) Records. In order to count cost and third party in-kind 
contributions towards satisfying a cost-sharing or a matching 
requirement, there must be verification and accurate documentation from 
the records of recipients or cost-type contractors. These records shall 
show how the value placed on third party in-kind contributions was 
decided. Special standards and procedures for calculating these 
contributions are discussed in paragraph (f) of this section. Volunteer 
services, to the extent possible, shall be supported by the same pay 
procedures and rates employed by the organization when paying for 
similar work performed by its personnel.
    (f) Special standards for third party in-kind contributions--(1) 
Contributions to recipients or cost-type contractors. A third party in-
kind contribution to a recipient or cost-type contractor may count 
towards satisfying a cost-sharing or matching requirement only where, if 
the recipient or cost-type contractor were to pay for it, the payment 
would be an allowable cost.
    (2) Contributions to fixed-price contractors. A third party in-kind 
contribution to a fixed-price contractor may count

[[Page 70]]

towards satisfying a cost-sharing or matching requirement only if it 
results in:
    (i) An increase in the services or property provided under the 
contract (without additional cost to the recipient or subrecipient), or
    (ii) A cost savings to the recipient or subrecipient.



Sec. 3015.53  Valuation of donated services.

    (a) Volunteer services. Unpaid services provided to a recipient by 
an individual shall be valued at rates consistent with the rates 
normally paid for similar work in the recipient organization. If there 
is no similar work in the recipient organization, the rate of pay for 
volunteer services should be consistent with those regular rates paid 
for similar work in the same labor market. In either case, a reasonable 
amount for fringe benefits may be included in the valuation.
    (b) Employees of other organizations. When an employer, other than a 
recipient or cost-type contractor, furnishes the services of an employee 
without cost to perform the employee's normal line of work, the services 
shall be valued at the employee's regular rate of pay, exclusive of the 
employer's fringe benefits and overhead cost. If the services are in a 
different line of work, paragraph (a) of this section shall apply.



Sec. 3015.54  Valuation of donated supplies and loaned equipment or space.

    (a) If a third party donates supplies, the contributions shall not 
exceed the cost of the supplies to the donor or the market value of the 
supplies, at the time of the donation, whichever is less.
    (b) If a third party donates the use of equipment or space in a 
building but retains the title, the contribution shall be valued at the 
fair rental rate of the equipment or space.



Sec. 3015.55  Valuation of donated equipment, buildings, and land.

    When a third party donates equipment, buildings or land, and the 
title is given to the recipient, the treatment of this donated property 
shall depend upon the purpose of the grant or subgrant as follows:
    (a) Awards for capital expenditures. If the purpose of the grant or 
subgrant is to assist the recipient in acquiring property, such as 
equipment, buildings, and land, then the market value of that property 
at the time of donation may be counted as cost-sharing or matching.
    (b) Other awards. If the nature of the grant or subgrant is not for 
the purpose of acquiring property, the following rules shall apply:
    (1) If approval is obtained from the awarding agency, the market 
value at the time of donation of the 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 provisions of the USDA grant 
should require that the approval be obtained from the awarding agency as 
well as the recipient. 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.
    (2) If approval is not obtained under paragraph (b)(1) of this 
section, no amount shall be counted for donated land. Instead, only 
depreciation or use allowances may be counted for donated equipment and 
buildings and treated as costs incurred by the recipient. They are 
computed and allocated (usually as indirect costs) in accordance with 
the cost principles specified in Subpart T of this part. They will thus 
be handled 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.



Sec. 3015.56  Appraisal of real property.

    In some cases, 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 awarding agency must require that the 
market value or fair rental rate be set by an independent appraiser (or 
by a representative of the U.S. General Services Administration, if 
available) and that the value or rate be certified by a responsible 
official of the party to

[[Page 71]]

which the property or its use is donated. This requirement must also be 
imposed by the recipient on subgrants.



          Subpart H--Standards for Financial Management Systems



Sec. 3015.60  Scope.

    This subpart contains standards for financial management systems of 
recipients. No additional financial management standards or requirements 
shall be imposed by awarding agencies. Awarding agencies will, however, 
provide recipients with suggestions and assistance on establishing or 
improving financial management systems when such assistance is needed or 
requested.



Sec. 3015.61  Financial management standards.

    The following standards shall be met by recipients and subrecipients 
in managing their financial management system.
    (a) Financial reporting. Complete, accurate, and current disclosure 
of the financial results of each USDA sponsored project or program shall 
be made in accordance with the financial reporting requirements set 
forth in the grant or subgrant. When a USDA awarding agency requires 
reporting on an accrual basis, the recipient shall not be required to 
establish an accrual accounting system, but shall develop such accrual 
data for its reports on the basis of an analysis of the documentation on 
hand.
    (b) Accounting records. The source and application of funds shall be 
readily identified by the continuous maintenance of updated records. 
Records, as such, shall contain information pertaining to grant or 
subgrant awards, authorizations, obligations, unobligated balances, 
assets, outlays, and income. When the recipient is a governmental 
entity, the records shall also contain liabilities.
    (c) Internal control. Effective control over and accountability for 
all USDA grant or subgrant funds, real and personal property assets 
shall be maintained. Recipients shall adequately safeguard all such 
property and shall ensure that it is used solely for authorized 
purposes. In cases where projects are not 100 percent Federally funded, 
recipients must have effective internal controls to assure that 
expenditures financed with Federal funds are properly chargeable to the 
grant supported project.
    (d) Budgetary control. The actual and budgeted amounts for each 
grant or subgrant shall be compared. If appropriate, or required by the 
awarding agency, financial information shall be related to performance 
and unit cost data. When unit cost data is required, estimates based on 
available documentation may be accepted whenever possible.
    (e) Advance payments. There shall be specific procedures established 
to minimize the time elapsing between the advance of Federal grant or 
subgrant funds and their subsequent disbursement by the recipient. When 
advances are made by a letter of credit method, the recipients shall 
make drawdowns as close as possible to the time of making the 
disbursements. This same procedure shall be followed by recipients who 
advance cash to subrecipients to ensure that timely fiscal transactions 
and reporting requirements are conducted.
    (f) Allowable costs. Established procedures shall be used for 
determining the reasonableness, allowability, and allocability of costs 
in accordance with the cost principles prescribed by Subpart T of this 
part and the provisions of the grant award.
    (g) Source documentation. Accounting records shall be supported by 
source documentation. These documentations include, but are not limited 
to, cancelled checks, paid bills, payrolls, contract and subgrant award 
documents.
    (h) Audit resolution. A systematic method shall be employed by each 
recipient to assure timely and appropriate resolution of audit findings 
and recommendations.

Subpart I  [Reserved]



               Subpart J--Financial Reporting Requirements



Sec. 3015.80  Scope and applicability.

    (a) This subpart prescribes requirements and forms for recipients to 
report financial information to USDA

[[Page 72]]

and to request grant payments when a letter of credit is not used.
    (b) This subpart need not be applied by recipients in dealing with 
their subrecipients. Recipients are encouraged not to impose on 
subrecipients more burdensome requirements than USDA imposes on them.



Sec. 3015.81  General.

    (a) Except as provided in paragraphs (d) and (e) of this section, 
recipients shall use only the forms specified in Secs. 3015.82 through 
3015.85, and such other forms as may be authorized by OMB for:
    (1) Submitting grant financial reports to awarding agencies, or
    (2) Requesting grant payments when letters of credit or automatic 
prescheduled Treasury check advances are not used.
    (b) Recipients shall follow all applicable standard instructions 
issued by OMB for use in connection with the forms specified in 
Secs. 3015.82 through 3015.85. Awarding agencies may not issue 
substantive supplementary instructions that are inconsistent with this 
subpart or impose additional requirements on recipients without the 
approval of O&F and OMB. However, awarding agencies may shade out or 
instruct the recipient to disregard any line item that the awarding 
agency finds unnecessary for its decision-making purposes.
    (c) Recipients shall not be required to submit more than one 
original and two copies of the forms required under this subpart.
    (d) Awarding agencies may provide computer outputs to recipients to 
expedite or contribute to the accuracy of reporting. Awarding agencies 
may accept the required information from recipients in machine readable 
form or computer printouts instead of prescribed formats.
    (e) When an awarding agency determines that a recipient's accounting 
system does not meet the standards for financial management systems 
contained in Subpart H of this part, it may require more frequent 
financial reports or more detail (or both) upon written notice to the 
recipient (without regard to Sec. 3015.4) until such time as the 
standards are met.
    (f) Awarding agencies may waive any report required by this subpart, 
if not needed.
    (g) Awarding agencies may extend the due date for any financial 
report upon receiving a justified request from the recipient. The 
recipient should not wait until the due date if an extension is to be 
requested, but should submit the request as soon as the need becomes 
known. Failure by a recipient to submit a report by its due date may 
result in severe enforcement actions by USDA. These may include 
withholding of further grant payments, suspension or termination of the 
grant, etc. Therefore recipients are urged to submit reports on time.



Sec. 3015.82  Financial status report.

    (a) Form. Recipients shall use Standard Form 269, Financial Status 
Report, to report the status of funds for all nonconstruction projects 
or programs.
    (b) Accounting basis. Unless specified in the provisions of the 
grant or subgrant each recipient shall report program outlays and 
program income on the same accounting basis, i.e., cash or accrual, 
which it uses in its accounting system.
    (c) Frequency. The awarding agency may prescribe the frequency of 
the report for each project or program. However, the report shall not be 
required more frequently than quarterly except as provided in 
Secs. 3015.4, 3015.81(e), or by statute. If the awarding agency does not 
specify the frequency of the report, it shall be submitted annually. 
Upon expiration or termination of the grant or cooperative agreement, if 
a period of time remains not covered by a periodic report (i.e., a 
quarterly, semi-annual or annual report), a final report shall be 
required.
    (d) Due date. When reports are required on a quarterly or semiannual 
basis, they shall be due 30 days after the reporting period. When 
required on an annual basis, they shall be due 90 days after the end of 
the grant or agreement period. In addition, final reports as defined in 
Sec. 3015.82(c) shall be due 90 days after the expiration or termination 
of grant or agreement support, except in those instances where an 
extension has been granted.

[[Page 73]]

    (e) Final reports. (1) Final reports (i.e., the last report 
submitted) must not show any unpaid obligations.
    (2) If the recipient will still have unpaid obligations when the 
final report is due, the recipient shall submit a provisional final 
report (showing the unpaid obligations) by the due date, and a true 
final report when all obligations have been paid. When submitting a 
provisional final report, the recipient shall tell the awarding agency 
when it expects to submit a true final report.
    (3) As provided in Sec. 3015.81(f), awarding agencies may waive 
provisional final reports.



Sec. 3015.83  Federal cash transactions report.

    (a) Form. (1) For grants or cooperative agreements paid by letters 
of credit (or Treasury check advances) through any USDA payment office, 
the recipient shall submit to USDA a Standard Form 272, Federal Cash 
Transactions Report, and, when necessary, its continuation sheet, SF-
272a. Recipients under the Regional Disbursing Office (RDO) system shall 
not be required to submit a SF-272. For these recipients, awarding 
agencies shall use information contained in the Request for Payment to 
monitor recipient cash balances and to get disbursement information.
    (2) The SF-272 will be used by USDA to monitor cash advanced to 
recipients and to obtain disbursement or outlay information from 
recipients for each grant or cooperative agreement. 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 identical information is submitted.
    (b) Forecasts of Federal cash requirements. Awarding agencies may 
require that forecasts of Federal cash requirements be provided in the 
``Remarks'' section of the report.
    (c) Cash in hands of subrecipients or contractors. When considered 
necessary and feasible by the responsible USDA awarding agency, 
recipients may be required to:
    (1) Show in the ``Remarks'' section of the report the amount of cash 
advances exceeding three days needs in the hands of their subrecipients 
or contractors, and
    (2) Provide short narrative explanations or actions taken by the 
recipient to reduce such excess balances.
    (d) Frequency and due date. Recipients shall submit the report no 
later than 15 working days following the end of each quarter. However, 
the USDA payment office may require recipients receiving advances of one 
million dollars or more per year to submit a report within 15 working 
days following the end of each month. Awarding agencies may waive the 
requirement for submission of the SF-272 when monthly advances do not 
exceed $10,000 per recipient, provided that such advances are monitored 
through other forms contained in this subpart, or if, in the awarding 
agency's opinion, the recipient's accounting controls are adequate to 
minimize excessive Federal advances.



Sec. 3015.84  Request for advance or reimbursement.

    (a) Advance payments. Recipients of nonconstruction grants or 
cooperative agreements shall request Treasury check advance payments on 
Standard Form 270, Request for Advance or Reimbursement. This form is 
not used for letter of credit drawdowns or predetermined automatic 
advance payments.
    (b) Reimbursements. Recipients of nonconstruction grants or 
cooperative agreements shall request reimbursement on Standard Form 270, 
Request for Advance or Reimbursement (for reimbursement request under 
construction grants or cooperative agreements, see Sec. 3015.85).
    (c) The frequency for submitting payment requests on SF-270 is 
treated in Sec. 3015.104.



Sec. 3015.85  Outlay report and request for reimbursement for construction programs.

    (a) Construction grants paid by reimbursement method. (1) Requests 
for reimbursement under construction grants shall be submitted on 
Standard Form 271, Outlay Report and Request for Reimbursement for 
Construction Programs. Awarding agencies may, however, prescribe the 
Request for Advance or Reimbursement form specified in Sec. 3015.84 
instead of this form.

[[Page 74]]

    (2) The frequency for submitting reimbursement requests is treated 
in Sec. 3015.104.
    (b) Construction grants paid by letter of credit or Treasury check 
advance. (1) When a construction grant or a cooperative agreement is 
paid by letter of credit or Treasury check advances, the recipient shall 
report its outlays to the awarding agency using Standard Form 271, 
Outlay Report and Request for Reimbursement for Construction Programs. 
The awarding agency will provide any necessary special instructions. 
However, frequency and due date shall be governed by Sec. 3015.82 (c) 
and (d).
    (2) When a construction grant or cooperative agreement is paid by 
Treasury check advances based on periodic requests from the recipient, 
the advances shall be requested on the form specified in Sec. 3015.84.
    (3) The awarding agency may substitute the Financial Status Report 
specified in Sec. 3015.82 for the Outlay Report and Request for 
Reimbursement.
    (c) Accounting basis. The accounting basis for the Outlay Report and 
Request for Reimbursement for Construction Programs shall be governed by 
Sec. 3015.82(b).



         Subpart K--Monitoring and Reporting Program Performance



Sec. 3015.90  Scope.

    This subpart establishes procedures for monitoring and reporting 
program performance of recipients. These procedures place responsibility 
on recipients to manage the day-to-day operations of their grant and 
subgrant supported activities.



Sec. 3015.91  Monitoring by recipients.

    Recipients shall monitor the performance of grant and subgrant-
supported activities to assure that performance goals are being 
achieved. Recipient monitoring shall cover each program, function, or 
activity.



Sec. 3015.92  Performance reports.

    (a) Nonconstruction. The awarding agency shall, if it decides that 
performance information available from subsequent applications contains 
sufficient information to meet its programmatic needs, require the 
recipient to submit a performance report only upon expiration or 
termination of grant support. Unless waived by the awarding agency this 
report will be due on the same date as the final Financial Status Report 
(as provided in Sec. 3015.82 (d) and (e)).
    (1) Recipients shall submit annual peformance reports unless the 
awarding agency requires quarterly or semi-annual reports or unless 
covered under paragraph (a) of this section. 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 
shall be due 90 days after the expiration or termination of grant 
support. If a justified request is submitted by a recipient, the 
awarding agency may extend the due date for any performance report. 
Additionally, requirements for unnecessary performance reports may be 
waived by the awarding agency.
    (2) Performance reports shall contain, for each grant, brief 
information on the following:
    (i) A comparison of actual accomplishments to the goals established 
for the period. Where the output of the project can be readily expressed 
in numbers, 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 goals were not met.
    (iii) Additional pertinent information including, when appropriate, 
analysis and explanation of cost overruns or high unit costs.
    (3) Recipients shall not be required to submit more than the 
original and two copies of performance reports.
    (4) Recipients shall adhere to the standards in paragraph (a) of 
this section in prescribing performance reporting requirements for 
subrecipients.
    (b) Construction. For the most part, on-site technical inspections 
and certified percentage-of-completion data are relied on heavily by 
awarding agencies to monitor progress under construction grants and 
subgrants. The awarding agency shall require additional formal 
performance reports only when considered necessary, and never more 
frequently than quarterly.

[[Page 75]]



Sec. 3015.93  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 recipient shall inform the awarding agency 
as soon as the following types of conditions become known:
    (a) Problems, delays, or adverse conditions which will materially 
impair the ability to meet the objective of the award. This disclosure 
shall include a statement of the action taken, or contemplated, and any 
assistance needed to resolve the situation.
    (b) Favorable developments which enable meeting time schedules and 
goals sooner or at less cost than anticipated or producing more 
beneficial results than originally planned.



Sec. 3015.94  Site visits.

    The awarding agency shall make site visits as frequently as 
practicable to:
    (a) Review program accomplishments and manage control systems.
    (b) Provide such technical assistance as may be required.



Sec. 3015.95  Waivers, extensions and enforcement actions.

    (a) Reports from recipients. USDA may waive any performance report 
required by this subpart if not needed.
    (b) Reports from subrecipients. The recipient may waive any 
performance report from a subrecipient when not needed. The recipient 
may extend the due date for any performance report from a subrecipient 
if the recipient will still be able to meet its performance reporting 
obligations to the USDA awarding agency.



                     Subpart L--Payment Requirements



Sec. 3015.100  Scope.

    This subpart prescribes the basic standards and methods under which 
a USDA awarding agency will make grant payments to recipients, and 
recipients will make subgrant payments to their subrecipients.



Sec. 3015.101  General.

    Methods and procedures for making payments to recipients shall 
minimize the time elapsing between the transfer of funds and the 
recipient's disbursements.



Sec. 3015.102  Payment methods.

    (a) Non-construction. (1) Letters of credit will be used to pay USDA 
recipients when all the following conditions exist:
    (i) There is or will be a continuing relationship between the 
recipient and the USDA awarding agency for at least a 12 month period 
and the total amount of advances to be received within that period from 
the awarding agency is $120,000 or more per year.
    (ii) The recipient has established or demonstrated to the USDA 
awarding agency the willingness and ability to establish procedures that 
will minimize the time elapsing between the transfer of funds from the 
Treasury and their disbursement by the recipient.
    (iii) The recipient's financial management system meets the 
standards for fund control and accountability prescribed in Subpart H of 
this part.
    (2) Advances by Treasury check will be used, in accordance with 
Treasury Circular No. 1075, when the recipient does not meet the 
requirements in paragraph (a)(1)(i) of this section but does meet the 
requirements in paragraphs (a)(1) (ii) and (iii) of this section.
    (3) Reimbursement by Treasury check shall be the preferred method 
when the recipient does not meet the requirements specified in either 
paragraph (a)(1)(ii) or paragraph (a)(1)(iii) of this section. This 
method may also be used when USDA financial assistance makes up only a 
minor portion of the program and where the major portion of the program 
is accomplished through private financing or Federal loans.
    (b) Construction. (1) Reimbursement by Treasury check shall be the 
preferred method when the recipient does not meet the requirements 
specified in Sec. 3015.102(a)(1) (ii) or (iii), and may be used for any 
USDA construction grant unless USDA has entered into an agreement with 
the recipient to use a letter of credit for all USDA grants, including 
construction grants.

[[Page 76]]

    (2) When the reimbursement by Treasury check method is not used, 
Sec. 3015.102(a) (1) and (2) shall apply to the construction grants. 
Implementing procedures under Sec. 3015.102(a) (1) and (2) will be the 
same for construction grants as for nonconstruction grants awarded to 
the same recipient, insofar as possible.
    (3) USDA awarding agencies will not use the percentage-of-completion 
method to pay its construction grants. The recipient may use that method 
to pay its construction contractor, but if it does, USDA payments to the 
recipient will nevertheless be based on the recipient's actual rate of 
disbursements.



Sec. 3015.103  Withholding payments.

    (a) Unless otherwise required by Federal statute, payments for 
proper charges incurred by recipients will not be withheld at any time 
during the grant period unless (1) the recipient has failed to comply 
with the program objectives, grant award conditions, or Federal 
reporting requirements, or (2) the recipient is indebted to the United 
States and collection of the indebtedness will not impair accomplishment 
of the objectives of any grant program sponsored by the United States, 
or (3) the grant is suspended pursuant to Subpart N of this part.
    (b) Payments withheld for failure of a recipient to comply with 
reporting requirements, but without suspension of the grant, will be 
released to the recipient upon subsequent compliance. When a grant is 
suspended, payment adjustments will be made in accordance with Subpart N 
of this part. When a debt is to be collected, USDA awarding agencies may 
withhold payments or require appropriate accounting adjustments to 
recorded cash balances for which the recipient is accountable to the 
Federal government, in order to liquidate the indebtedness.



Sec. 3015.104  Requesting advances or reimbursements.

    (a) Advances. If advance payments are by Treasury check and are not 
prescheduled, the recipient shall submit its payment requests at least 
monthly. Less frequent requests are not permitted for they result in 
advances covering excessive periods of time. Recipient requests for 
advances shall not be made in excess of the Federal share of reasonable 
estimates of outlays for the month covered. These estimates shall be 
made on a cash basis, even if the recipient uses an accrual accounting 
system.
    (b) Reimbursements. If payments are made through reimbursement or by 
Treasury check:
    (1) Requests for reimbursements may be submitted monthly or more 
frequently if authorized to do so by the awarding agency. Ordinarily, 
payment will be made within 30 days after receipt of a proper request 
for reimbursement.
    (2) The recipient shall not request reimbursement for the Federal 
share of amounts withheld from contractors to ensure satisfactory 
completion of work until after it makes those payments.
    (c) Forms. The forms for requesting advances or reimbursements are 
identified in Subpart J of this part.



Sec. 3015.105  Payments to subrecipients.

    Recipients shall observe the requirements of this subpart in making 
(or withholding) payments to subrecipients, with the following 
exceptions:
    (a) Advance payment by Treasury check may be used instead of letter 
of credit;
    (b) The forms specified in Subpart J of this part for requesting 
advances and reimbursements are not required to be used by 
subrecipients; and
    (c) The reimbursement by check method may be used to pay any 
construction subgrant.



          Subpart M--Programmatic Changes and Budget Revisions



Sec. 3015.110  Scope and applicability.

    (a) Scope. This subpart deals with prior approval requirements for 
post-award programmatic changes and budget revisions by recipients.
    (b) Exemption of mandatory or formula grants. Sections 3015.113 
through 3015.115 do not apply to programmatic changes or budget 
revisions made by recipients under State plans or other grants which the 
awarding agency is

[[Page 77]]

required by law to award if the applicant meets all applicable 
requirements for entitlement.
    (c) Exemption of certain subgrants. Sections 3015.113 through 
3015.115 do not apply to subgrants from States to their local 
governments under a mandatory or formula grant, if the local government 
is not required to apply for the subgrant on a project basis. Generally, 
such exempt subgrants will occur under a State plan which provides for 
local administration of a State-wide program under State supervision.



Sec. 3015.111  Cost principles.

    (a) The cost principles prescribed by subpart T of this part require 
prior approval of certain types of costs. Except when waived, those 
prior approval requirements apply to all grants and subgrants, whether 
or not Secs. 3015.113 through 3015.115 apply.
    (b) Procedures for prior approvals required by the cost principles 
are in Sec. 3015.196. Procedures for prior approvals required by this 
subpart are in Sec. 3015.112.



Sec. 3015.112  Approval procedures.

    (a) For grants or cooperative agreements. When requesting a prior 
approval required by this subpart, recipients shall address their 
requests to the responsible official of the awarding agency. Approvals 
shall not be valid unless they are in writing and signed by either the 
responsible officer, the head of the awarding agency, or the head of the 
awarding agency's regional office.
    (b) For subgrants. Recipients shall be responsible for reviewing 
requests from their subrecipients for the approvals required by this 
subpart and for giving or denying the approval. A recipient shall not 
approve any action which is inconsistent with the purpose or terms of 
the Federal grant or cooperative agreement. If an action by a 
subrecipient will result in a change in the overall grant project or 
budget requiring approval from the awarding agency, the recipient shall 
obtain that approval before giving its approval to the subrecipient. 
Approvals shall not be valid unless they are in writing and signed by an 
authorized official of the recipient organization.
    (c) Timing. Within 30 days from the date of receipt of a request for 
approval, the approval authority shall review the request and notify the 
recipient of its decision. If the request for approval is still under 
consideration at the end of 30 days, the approval authority shall inform 
the recipient in writing as to when to expect the decision.



Sec. 3015.113  Programmatic changes.

    (a) Scope. This section contains requirements for prior approval of 
departures, other than budget revisions, from approved project plans. In 
addition to the requirements in this section, awarding agencies may 
require prior approval for other kinds of programmatic changes to an 
approved cooperative agreement, grant, or subgrant project.
    (b) Changes to project scope or objectives. The recipient shall 
obtain prior approval for any change to the scope or objectives of the 
approved project. (For construction projects, any material change in 
approved space utilization or functional layout shall be considered a 
change in scope).
    (c) Changes in key people. This section applies to grants, 
subgrants, and cooperative agreements for research. This section does 
not apply to other types of grants, subgrants, or cooperative agreements 
unless other terms of the award make it apply. The recipient shall 
obtain prior approval:
    (1) To continue the project during any continuous period of more 
than three months without the active direction of an approved project 
director or principal investigator;
    (2) For its selection of a replacement for the project director of 
principal investigator;
    (3) For its selection of a replacement for any other persons named 
and expressly designated as key project people in the grant, subgrant, 
or cooperative agreement award document; or
    (4) To permit the project director or principal investigator (or 
anyone covered by paragraph (c)(3) of this section) to devote 
substantially less effort to the project than was anticipated when the 
award was made.

[[Page 78]]

    (d) Transferring work and providing financial assistance to others. 
Recipients shall obtain prior approval for transferring to another party 
the actual performance of the substantive programmatic work, and for 
providing any form of financial assistance to another party.
    (e) Audiovisual activities. (1) Except to the extent explicitly 
included in the project plan approved at the time of award, using grant 
support for any of the following requires prior approval:
    (i) Producing an audiovisual.
    (ii) Buying ownership of any of the rights in the work embodied in 
the audiovisual. (This does not apply to merely buying a license in any 
of the rights. For the remainder of this section, buying ownership of 
the rights is referred to simply as buying or purchasing an 
audiovisual).
    (iii) Presenting or distributing to the general public an 
audiovisual that was produced or bought with grant support.
    (2) Prior approval is not required for:
    (i) Any audiovisual activity under a subgrant.
    (ii) Any audiovisual whose direct production or purchase cost to the 
recipient is $5,000 or less.
    (iii) The production or purchase of an audiovisual as a research 
instrument or for documenting experimentation or findings, if the 
audiovisual is not intended for presentation or distribution to the 
general public.
    (3) Following are examples of presentation or distribution of an 
audiovisual to the general public.
    (i) Broadcast on commercial, cable, or educational television, or 
radio.
    (ii) Showing in commercial motion picture theaters.
    (iii) Showing in public places such as airports, waiting rooms, bus 
or railroad depots, and vacation resorts.
    (iv) Showing to civic associations, schools (except when used as a 
teaching tool in a classroom setting), clubs, fraternal organizations, 
or similar lay groups.



Sec. 3015.114  Budgets--general.

    (a) Research and non-research project budgets. For research and non-
research projects which involve cost-sharing or matching, approved 
budgets shall ordinarily consist of a single set of figures covering 
total project cost (the sum of the awarding agency's share and the 
recipient's share). However, the awarding agency may specify that the 
recipient's share not be included in the approved budget. In no case, 
however, shall the approved budget be in the form of a separate set of 
figures for each share.
    (b) Subdivision by programmatic segments. Some grants, subgrants, 
and cooperative agreements contain two or more programmatic segments 
(such as discrete programs, projects, functions, or types of 
activities). In these cases, the awarding agency may require that the 
approved budget be subdivided to show the anticipated cost of each 
programmatic segment.



Sec. 3015.115  Budget revisions.

    (a) Nonconstruction projects. (1) Except as provided in paragraph 
(a)(2) of this section, the recipient of a grant, subgrant, or 
cooperative agreement having an approved budget shall obtain prior 
approval for any budget revision which will:
    (i) Involve transfer of amounts budgeted for indirect costs to 
absorb increases in direct costs, or
    (ii) Involve transfer of amounts previously budgeted for training 
allowances (direct payments to trainees), or
    (iii) Result in a need for the award of additional funds, e.g., an 
increase in the base upon which indirect costs are calculated which will 
increase allocable indirect costs and result in a claim for a 
supplementary award.
    (2) Any or all of the prior approval requirements in paragraph (a) 
of this section may be waived by the awarding agency.
    (3) Except as provided in Sec. 3015.116 other budget changes under 
nonconstruction grants do not require approval.
    (b) Construction projects. Unless provided otherwise by the terms of 
the grant, subgrant, or cooperative agreement, revisions to construction 
project budgets do not require approval.

[[Page 79]]



Sec. 3015.116  Construction and nonconstruction work under the same grant, subgrant, or cooperative agreement.

    When a grant, subgrant, or cooperative agreement provides support 
for both construction and nonconstruction work, the awarding agency may 
require prior approval for any fund or budget transfers between the two 
types of work.



   Subpart N--Grant and Subgrant Closeout, Suspension and Termination



Sec. 3015.120  Closeout.

    (a) Each grant or subgrant shall be closed out as soon as possible 
after expiration or notice of termination.
    (b) The following shall apply when closing out USDA grants:
    (1) Upon request from the recipient, any allowable reimbursable cost 
not covered by previous payments shall be promptly paid by USDA.
    (2) Any unobligated balance of cash advanced to the recipient shall 
be immediately refunded to the awarding agency or managed in accordance 
with USDA instructions.
    (3) Within a maximum period of 90 days following the date of 
expiration or termination of a grant, all financial performance and 
related reports required by the terms of the agreement shall be 
submitted to the awarding agency by the recipient. USDA reserves the 
option of extending the due date for any report and may waive any report 
that it considers to be unnecessary.
    (4) The provisions formally expressed and agreed to within the grant 
arrangement shall dictate the settlement of any upward or downward 
adjustments of the Federal share of costs.
    (c)(1) A grant closeout shall not affect the retention period for, 
or Federal rights of access to, grant records. (See Subpart D of this 
part).
    (2) The closeout of a grant does not affect the recipient's 
responsibilities regarding property under Subpart R of this part or with 
respect to any program income the recipient is still accountable for 
under Subpart F of this part.
    (3) Final audits (See Attachment L, Circular A-102 and Attachment K 
of Circular A-110) are not a required part of the grant or subgrant 
closeout procedures. Normally, a final audit should not be needed unless 
there are problems with a grant or subgrant that require audit 
attention. If a USDA agency considers a final audit to be necessary, it 
shall contact the OIG Region within which the recipient or subrecipient 
is located and inform OIG of the situation. OIG shall be responsible for 
assuring that necessary final audits are performed and for any necessary 
coodination with other Federal cognizant audit agencies, recipients or 
State and local auditors. Audits performed in accordance with Subpart I 
may serve as final audits providing such audits meet the needs of the 
requesting agency.
    (4) If a grant is closed out without audit, the awarding agency 
reserves the right to disallow and recover an appropriate amount after 
fully considering any recommended disallowances resulting from an audit 
which may be conducted later.



Sec. 3015.121  Amounts payable to the Federal government.

    The following outstanding sums for each grant shall be considered as 
a debt or debts owed by the recipient to the Federal government. They 
shall, if not paid upon demand, be subject to recovery by the awarding 
agency from the recipient or its successor or assignees by set off or 
other action provided by law:
    (a) Any grant funds paid to the recipient by the Federal government 
which exceed the amount the recipient is finally determined to be 
entitled to under the provisions of the grant award;
    (b) Any interest or other investment income earned on advances of 
grant funds which is due the Federal government;
    (c) Any royalties or other special classes of program income which, 
under the provisions of the grant award, are required to be returned to 
the Federal government;
    (d) Any amount the Federal government is entitled to under Subpart R 
of this part; and

[[Page 80]]

    (e) Under the provisions of the grant award, any other amounts 
finally determined to be due to the Federal government.



Sec. 3015.122  Violation of terms.

    (a) Whenever it is determined that the recipient has materially 
failed to comply with the provisons of the grant award, the awarding 
agency may suspend or terminate, in accordance with Secs. 3015.123 and 
3015.124, any grant in whole, or in part, at any time before the date of 
completion, or take such other remedies as may be legally available and 
appropriate.
    (b) A grant may be suspended or terminated in the current period for 
failure to submit a report still due from a prior period. This action is 
applicable when a project or program is supported over two or more 
funding periods.



Sec. 3015.123  Suspension.

    (a) When a recipient has materially failed to comply with the 
provisions prescribed in the grant agreement, the awarding agency may, 
after reasonable notice to the recipient, suspend the grant in whole or 
in part. A suspension notice shall be issued by the awarding agency 
stating the reasons for the suspension, any corrective action required 
of the recipient, and the effective date. Suspension may go into effect 
immediately if the awarding agency deems it necessary to protect its 
interest and if a delayed effective date would be unreasonable 
considering the awarding agency's responsibilities to protect the 
Federal government's interest. Suspension shall remain in effect until 
the recipient has taken corrective action satisfactory to the awarding 
agency, or given evidence that such corrective action will be taken, or 
until the awarding agency terminates the grant.
    (b) Unless specifically authorized by the awarding agency in the 
notice of suspension or subsequently expressed in an amendment to it, 
new obligations incurred by the recipient during the suspension period 
shall not be allowed. Necessary and otherwise allowable costs which the 
recipient could not reasonably avoid during the suspension period will 
be allowed, if they result from obligations properly incurred by the 
recipient before the effective date of the suspension and not in 
anticipation of suspension or termination. If the awarding agency 
approves, third party in-kind contributions applicable to the suspension 
period may be allowed in satisfaction of cost-sharing or matching 
requirements.
    (c) During the suspension period, appropriate adjustments to 
payments under the suspended grant will be made by not giving credit to 
the recipient for disbursements made in payment of unauthorized 
obligations incurred during the suspension period or by withholding 
subsequent payments.



Sec. 3015.124  Termination.

    (a) Termination for cause. The awarding agency may terminate any 
grant or other agreement in whole, or in part, at any time before the 
date of expiration, whenever it is determined that the recipient has 
materially failed to comply with the conditions of the agreement. The 
awarding agency shall promptly notify the recipient in writing of the 
determination and reasons for the termination, together with the 
effective date.
    (b) Termination by mutual agreement. Except as provided in paragraph 
(a) of this section, grants may be terminated in whole, or in part, only 
as follows:
    (1) When the awarding agency and recipient agree upon the 
termination conditions, including the effective date and, in the case of 
partial termination, the portion to be terminated.
    (2) By written notification by the recipient to the awarding agency 
setting forth the reasons for termination, the effective date, and in 
the case of partial termination, the portion to be terminated. In the 
case of a partial termination, if the awarding agency decides that the 
remaining portion of the grant will not accomplish the purposes for 
which the grant was made, the awarding agency may terminate the award in 
its entirety under either paragraph (a) or paragraph (b)(1) of this 
section.
    (c) Termination settlements. Upon termination of a grant, the 
recipient shall not incur any new obligations for the terminated portion 
of the agreement after the effective date, and shall cancel as many 
outstanding obligations as

[[Page 81]]

possible. The awarding agency, however, shall allow full credit to the 
recipient for the Federal share of the non-cancellable obligations 
properly incurred by the recipient prior to termination.



Sec. 3015.125  Applicability to subgrants.

    Recipient subgrants shall be subjected to the same standards 
regarding closeout, suspension, and termination of subgrants as 
prescribed in this subpart for awarding agencies.

Subparts O-P [Reserved]



              Subpart Q--Application for Federal Assistance



Sec. 3015.150  Scope and applicability.

    (a) This subpart prescribes forms and instructions to be used by 
governmental organizations (except hospitals, non-profit organizations, 
and institutions of higher education operated by a government) in 
applying to USDA for discretionary grants. This subpart is not 
applicable, however, to mandatory or formula grants or programs which do 
not require applicants to apply to USDA for funds on a project basis.
    (b) This subpart permits awarding agencies to prescribe the form of 
applications by nongovernmental organizations (including hospitals, non-
profit organizations and institutions of higher education operated by a 
government), but prescribes the use of a standard facesheet for certain 
of these applications.
    (c) This subpart applies only to applications for grants or 
cooperative agreements and is not required to be applied by recipients 
in dealing with applicants for subgrants. However, recipients are 
encouraged not to adopt more detailed or burdensome application 
requirements for subgrants.
    (d) This subpart also prescribes standards for competition to be 
used by USDA agencies in awarding discretionary cooperative agreements 
and grants. (This subpart is not applicable to cooperative agreements 
awarded pursuant to the provisions of sections 1472(b) and 1473C of the 
National Agricultural Research, Extension and Teaching Policy Act of 
1977, as amended.)

[46 FR 55639, Nov. 10, 1981, as amended at 51 FR 17172, May 9, 1986]



Sec. 3015.151  Authorized forms.

    (a) Sections 3015.152 through 3015.156 specify the forms that 
governmental organizations shall use to apply to USDA for a 
discretionary grant.
    (b) Governments need not submit more than the original and two 
copies of application forms. When less will suffice, the awarding agency 
shall notify potential applicants.
    (c) When a government agency amends a previously submitted 
application or applies for additional funding (such as a continuation or 
supplemental award) only the facesheet and any other affected pages are 
required to be submitted. Previously submitted pages whose information 
is still current may be resubmitted, but are not required to be 
resubmitted.



Sec. 3015.152  Preapplication for Federal assistance.

    (a) When a government submits a preapplication, it shall use the 
Preapplication for Federal Assistance form prescribed by Circular A-102. 
The purposes of these preapplications shall be to:
    (1) Establish communication between the potential applicant and the 
awarding agency;
    (2) Determine the potential applicant's eligibility;
    (3) Identify projects which have little or no chance for Federal 
funding before applicants incur significant costs for preparing an 
application.
    (b) Preapplication is always required if the potential applicant is 
a government and the proposed project (1) is for construction, land 
acquisition, or land development, and (2) would require more than 
$100,000 of Federal funding. If these conditions are not present, 
potential applicants need not submit preapplications unless required to 
do so by the awarding agency. Any government may submit a preapplication 
even when not required.

[[Page 82]]



Sec. 3015.153  Notice of preapplication review action.

    Awarding agencies shall inform governmental applicants of the 
results of their review of preapplications by using the Notice of 
Preapplication Review Action form prescribed by Circular A-102. If the 
review cannot be completed within 45 days, the awarding agency shall 
inform the applicant, in writing, when it will complete the review.



Sec. 3015.154  Application for Federal assistance (nonconstruction programs).

    Governments shall use the Application for Federal Assistance 
(Nonconstruction Programs) form prescribed by OMB Circular A-102 in 
applying for discretionary grants unless a form specified in 
Sec. 3015.155 or Sec. 3015.156 is to be used.



Sec. 3015.155  Application for Federal assistance (construction programs).

    Governments shall use the Application for Federal Assistance (for 
Construction Programs) form prescribed by Circular A-102 in applying for 
any grant whose purpose is solely or primarily construction, land 
acquisition, or land development.



Sec. 3015.156  Application for Federal assistance (short form).

    Governments shall use the Application for Federal Assistance (Short 
Form) form prescribed by Circular A-102 in applying for any single-
purpose, one-time grant of less than $10,000 not requiring Circular A-95 
clearinghouse review, an environmental impact statement, or the 
relocation of persons, businesses, or farms. Awarding agencies may, at 
their discretion, authorize or require this form for applications for 
larger amounts.



Sec. 3015.157  Authorized form for nongovernmental organizations.

    Nongovernmental organizations shall use application forms prescribed 
by the awarding agency. The facesheet of these applications shall be 
Standard Form 424.



Sec. 3015.158  Competition in the awarding of discretionary grants and cooperative agreements.

    (a) Standards for competition. Except as provided in paragraph (d) 
of this section, awarding agencies shall enter into discretionary grants 
and cooperative agreements only after competition. An awarding agency's 
competitive award process shall adhere to the following standards:
    (1) Potential applicants must be invited to submit proposals through 
publications such as the Federal Register, professional trade journals, 
agency or program handbooks, the Catalog of Federal Domestic Assistance, 
or any other appropriate means of solicitation. In so doing, awarding 
agencies should consider the broadest dissemination of project 
solicitations in order to reach the highest number of potential 
applicants.
    (2) Proposals are to be evaluated objectively by independent 
reviewers in accordance with written criteria set forth by the awarding 
agency. Reviewers should make written comments, as appropriate, on each 
application. Independent reviewers may be from the private sector, 
another agency, or within the awarding agency, as long as they do not 
include anyone who has approval authority for the applications being 
reviewed or anyone who might appear to have a conflict of interest in 
the role of reviewer of applications. A conflict of interest might arise 
when the reviewer or the reviewer's immediate family members have been 
associated with the applicant or applicant organization within the past 
two years as an owner, partner, officer, director, employee, or 
consultant; has any financial interest in the applicant or applicant 
organization; or is negotiating for, or has any arrangement, concerning 
prospective employment.
    (3) An unsolicited application, which is not unique and innovative, 
shall be competed under the project solicitation it comes closest to 
fitting. Awarding agency officials will determine the solicitation under 
which the application is to be evaluated. When the awarding agency 
official decides that the unsolicited application does not fall under a 
recent, current, or planned solicitation, a noncompetitive award

[[Page 83]]

may be made, if appropriate to do so under the criteria of this section. 
Otherwise, the application should be returned to the applicant.
    (b) Project solicitations. A project solicitation by the awarding 
agency shall include or reference the following, as appropriate:
    (1) A description of the eligible activities which the awarding 
agency proposes to support and the program priorities;
    (2) Eligible applicants;
    (3) The dates and amounts of funds expected to be available for 
awards;
    (4) Evaluation criteria and weights, if appropriate, assigned to 
each;
    (5) Methods for evaluating and ranking applications;
    (6) Name and address where proposals should be mailed and submission 
deadline(s);
    (7) Any required forms and how to obtain them;
    (8) Applicable cost principles and administrative requirements;
    (9) Type of funding instrument intended to be used (grant or 
cooperative agreement); and
    (10) The Catalog of Federal Domestic Assistance number and title.
    (c) Approval of applications. The final decision to award is at the 
discretion of the awarding/approving official in each agency. The 
awarding/approving official shall consider the ranking, comments, and 
recommendations from the independent review group, and any other 
pertinent information before deciding which applications to approve and 
their order of approval. Any appeals by applicants regarding the award 
decision shall be handled by the awarding agency using existing agency 
appeal procedures or good administrative practice and sound business 
judgment.
    (d) Exceptions. The awarding/approving official may make a 
determination in writing that competition is not deemed appropriate for 
a particular transaction. Such determination shall be limited to 
transactions where it can be adequately justified that a noncompetitive 
award is in the best interest of the Government and necessary to the 
accomplishment of the goals of the program. Reasons for considering 
noncompetitive awards may include, but are not necessarily limited to, 
the following:
    (1) Nonmonetary awards of property or services;
    (2) Awards of less than $75,000;
    (3) Awards to fund continuing work already started under a previous 
award;
    (4) Awards which cannot be delayed due to an emergency or a 
substantial danger to health or safety;
    (5) Awards when it is impracticable to secure competition; or
    (6) Awards to fund unique and innovative unsolicited applications.

[51 FR 17172, May 9, 1986]



                           Subpart R--Property



Sec. 3015.160  Scope and applicability.

    (a) Except as explained in paragraphs (c), (d), and (e) of this 
section, this subpart applies to real property, equipment (including 
ADP) and supplies whose acquisition is supported by a grant.
    (b) Also contained in this subpart are standards covering 
inventions, patents, and copyrights arising out of activities supported 
by a grant.
    (c) This subpart does not apply to:
    (1) Property for which only depreciation or use allowances are 
charged;
    (2) Property donated entirely as a third party in-kind contribution; 
or
    (3) Equipment or supplies acquired primarily for sale or rental, 
rather than for use.
    (d) This subpart applies to equipment or supplies acquired by a 
contractor under a grant or subgrant only if, by terms of the contract, 
title vests in the recipient or subrecipient.
    (e) For research grants that are subject to an institutional cost-
sharing agreement, real property, equipment, and supplies shall be 
subject to this subpart only if at least some part of the acquisition 
cost is supported as a direct cost by Federal grant funds.



Sec. 3015.161  Additional requirements.

    Provided they observe the requirements of this subpart, recipients 
may follow their own property management policies and procedures. Unless 
specifically required by Federal statutes or Executive Orders, awarding 
agencies

[[Page 84]]

may not impose on recipients property requirements (including property 
reporting requirements) not authorized by this subpart.



Sec. 3015.162  Title to real property, equipment and supplies.

    Subject to the obligations and conditions specified in this subpart, 
title to real property, equipment, and supplies acquired under a grant 
or subgrant shall vest, upon acquisition, in the recipient or 
subrecipient, respectively. In certain cases, money due the Federal 
government upon disposition of real property may be authorized to be 
used for allowable costs rather than paid to USDA. (See Sec. 3015.173.)



Sec. 3015.163  Real property.

    Except as stated otherwise by Federal statutes, real property 
applicable to this subpart shall be subject to the following 
requirements, in addition to any other requirements imposed by the 
provisions of the grant award:
    (a) Use. The property shall be used for the originally authorized 
purpose as long as needed for that purpose. When no longer so needed, 
the awarding agency may approve the use of the property for other 
purposes. These uses shall be limited to:
    (1) Projects or programs supported by other Federal grants or 
assistance agreements.
    (2) Activities not supported by other Federal grants or assistance 
agreements but having purposes consistent with those of the legislation 
under which the original grant was made.
    (b) Transfer of title. In accordance with paragraph (a) of this 
section, approval may be requested from the awarding agency to transfer 
title to an eligible third party for continued use for authorized 
purposes. If approval is permissible under Federal statutes, and is 
given, the terms of the transfer shall provide that the transferee shall 
assume all the rights and obligations of the transferor set forth in 
this subpart or in other terms of the grant or subgrant.
    (c) Disposition. When the real property is no longer to be used as 
provided in paragraphs (a) and (b) of this section, the disposition 
instructions of the awarding agency shall be followed. Those 
instructions will provide for one of the following alternatives:
    (1) The property shall be sold and the Federal government shall have 
a right to an amount computed by multiplying the Federal share of the 
property times the proceeds from sale (after deducting actual and 
reasonable selling and fix-up expenses, if any, from the sales 
proceeds). Proper sales procedures shall be followed which provide for 
competition to the extent practicable and result in the highest possible 
return.
    (2) The recipient shall have the option either of selling the 
property in accordance with paragraph (c)(1) of this section or of 
retaining title. If title is retained, the Federal government shall have 
a right to an amount computed by multiplying the market value of the 
property by the Federal share of the property.
    (3) The recipient shall transfer the title to either the Federal 
government or an eligible non-Federal party named by the awarding 
agency. The recipient shall be entitled to be paid an amount computed by 
multiplying the market value of the property by the non-Federal share of 
the property. In cases where the property belonged to a subrecipient, 
see Sec. 3015.172 for the subrecipient's share.



Sec. 3015.164  Statutory exemptions for equipment and supplies.

    (a) In certain circumstances some Federal statutes permit title to 
equipment or supplies acquired with grant funds to vest in the recipient 
without further obligation to the Federal government or on such terms 
and conditions set forth in the grant award, as deemed appropriate. The 
Federal Grant and Cooperative Agreement Act of 1977, Pub. L. 95-224, is 
an example of such a statute. It provides this authority for equipment 
and supplies purchased with the funds of grants (and Federal contracts 
and cooperative agreements) for the conduct of basic or applied 
scientific research at non-profit institutions of higher education or at 
non-profit organizations whose primary purpose is the conduct of 
scientific research.
    (b) If equipment is subject to a statute of the kind described in 
paragraph (a) of this section, it shall be exempt

[[Page 85]]

from the requirements in the remaining sections of this subpart. 
However, when an equipment item has a unit acquisition cost of $1,000 or 
more, it shall be subject to Sec. 3015.165 concerning rights to require 
transfer, and, while subject to such a right, to the rules on 
replacement in Sec. 3015.167.
    (c) If supplies are subject to a statute of the kind described in 
paragraph (a) of this section, they shall be exempt from all provisions 
of the remainder of this subpart which would otherwise apply.



Sec. 3015.165  Rights to require transfer of equipment.

    (a) USDA right. The awarding agency shall have the right to require 
the transfer of equipment (including title) for items of equipment 
having a unit cost of $1,000 or more to the Federal government or to an 
eligible non-Federal party named by the awarding agency. Normally, USDA 
agencies will only exercise this right if the project or program for 
which the equipment was acquired is transferred from one recipient to 
another. The following conditions shall govern this right:
    (1) The property shall be appropriately identified in the grant 
award.
    (2) In order for the awarding agency to exercise the right, 
disposition instructions must be issued no later than 120 days after the 
end of USDA grant support for the project or program for which the 
equipment was acquired. Furthermore:
    (i) If the equipment is eligible for the exemptions in Sec. 3015.164 
and ceases to be needed for the project or program for which it was 
acquired while the project or program is still being performed by the 
recipient, the disposition instructions must have been received by the 
recipient while the equipment was still needed for that project or 
program.
    (ii) If the equipment is not eligible for those exemptions, 
disposition instructions must have been received by the recipient before 
other permissible disposition of the equipment took place in accordance 
with Sec. 3015.168.
    (3) If the right is exercised, the recipient shall be entitled to be 
paid any reasonable, resulting shipping or storage costs incurred, plus 
an amount computed by multiplying the market value of the equipment by 
the non-Federal share of the equipment.
    (b) Right of parties awarding subgrants. A recipient may reserve for 
itself, when awarding a subgrant, rights similar to those found in 
paragraph (a) of this section which covers items of equipment having a 
unit acquisition cost of $1,000 or more which are acquired under that 
subgrant. Without the approval of the awarding agency, the right may be 
exercised only if the project or program for which the equipment was 
acquired is transferred to another subrecipient and only for the purpose 
of transferring the equipment to the new subrecipient for continued use 
in the project or program.
    (c) Equipment lists. If at any time an awarding agency is 
considering exercising its right to require transfer of equipment, it 
may require the recipient to furnish it with a list of all items of 
equipment that are subject to the right. As such, the awarding agency 
will decide which items, if any, should be transferred.



Sec. 3015.166  Use of equipment.

    (a) Basic rule. Whenever the equipment is not transferred under the 
provisions set forth in Sec. 3015.165, it shall be used by the recipient 
in the project or program for which it was acquired as long as needed, 
whether or not the project or program continues to be supported by 
Federal funds. When the equipment is no longer needed for the original 
project or program the recipient shall use the equipment, if needed, in 
other projects or programs currently or previously funded by the Federal 
government, in the following order of priority:
    (1) Projects or programs currently or previously funded by the same 
USDA awarding agency.
    (2) Projects or programs currently or previously funded by any USDA 
awarding agency.
    (3) Projects or programs currently or previously funded by other 
Federal agencies.
    (b) Shared use. When equipment is used less than full time in the 
original project or program, the recipient shall make it available for 
use in other

[[Page 86]]

projects or programs currently or previously funded by the Federal 
government. Provided, such other use will not interfere with the work on 
the original project or program. First preference for such use, however, 
shall be given to other projects or programs funded by the same USDA 
awarding agency.
    (c) Use by other recipients. When the recipient can no longer use 
the equipment as required by paragraph (a) of this section, it may 
voluntarily make the equipment available for use on projects or programs 
currently or previously funded by the Federal government which the 
recipient is supporting through subgrants or through non-Federal grants. 
A subrecipient may also voluntarily make the equipment available for use 
in projects or programs currently or previously funded by the Federal 
government which are being conducted or supported by the recipient.
    (d) Other uses. Unless the awarding agency provides otherwise, while 
equipment is being used as described in the preceding paragraphs of this 
section, it may also be used part-time for other purposes. The use as 
described in the previous paragraphs, however, shall be given priority 
over other uses.



Sec. 3015.167  Replacement of equipment.

    (a) If needed, equipment may be exchanged for replacement equipment. 
Replacement of equipment may be done either through trade-in or through 
sale and application of the proceeds to the acquisition cost of 
replacement equipment. In either case, the transaction must be one which 
a prudent person would make in like circumstances.
    (b) If an additional outlay to acquire the replacement equipment is 
charged as a direct cost to either Federal funds or required cost-
sharing or matching under a Federal award, the replacement equipment 
shall be subject to whatever property requirements or exemptions are 
applicable to that award. If the award is a grant from USDA, the full 
acquisition cost of the replacement equipment shall determine which 
provisions of this subpart apply.
    (c) For any replacement not covered by paragraph (b) of this 
section, the provisions of this subpart applicable to the equipment 
replaced shall carry over to the replacement equipment. None of the 
provisions of this subpart shall carry over if (1) the Federal share of 
the equipment replaced was 10 percent or less or (2) the product of that 
share times the amount received for trade-in or sale is $100 or less.



Sec. 3015.168  Disposal of equipment.

    When original or replacement equipment is no longer to be used in 
projects or programs currently or previously sponsored by the Federal 
government, disposal of the equipment shall be made as follows:
    (a) Equipment with a unit acquisition cost of less than $1,000 may 
be sold, retained or otherwise disposed of with no further obligation to 
the Federal government.
    (b) All other equipment may be retained or sold. The Federal 
government shall have a right to an amount calculated by multiplying the 
current market value or proceeds from sale by the Federal share of the 
equipment (see Sec. 3015.172). If part of the Federal share of the 
equipment came from an award under which the exemptions in Sec. 3015.164 
were applicable, the amount due shall be reduced pro rata. In any case, 
if the equipment is sold, $100 or 10 percent of the total sales 
proceeds, whichever is greater, may be deducted and retained from the 
amount otherwise due for selling and handling expenses. If the 
recipient's project or program for which or under which the equipment 
was acquired is still receiving grant support from the same Federal 
program and if the awarding agency approves, the net amount due may be 
used for allowable costs of that project or program. Otherwise, the net 
amount must be returned to the awarding agency by check or money order.



Sec. 3015.169  Equipment management requirements.

    Recipient procedures for managing equipment shall, as a minimum, 
meet the following requirements (including replacement equipment) until 
such actions as transfer, replacement or disposal takes place:
    (a) Property records shall be maintained accurately. (Subpart D of 
this

[[Page 87]]

part contains retention and access requirements for these records.) The 
records shall include for each item of equipment the following:
    (1) A description of the equipment including manufacturer's serial 
numbers.
    (2) An identification number, such as the manufacturer's serial 
number.
    (3) Identification of the grant under which the recipient acquired 
the equipment.
    (4) The information needed to calculate the Federal share of the 
equipment (see Sec. 3015.172).
    (5) Acquisition date and unit acquisition cost.
    (6) Location, use and condition of the equipment and the date the 
information was reported.
    (7) All pertinent information on the ultimate transfer, replacement, 
or disposal of the equipment.
    (b) Every two years, at a minimum, a physical inventory shall be 
conducted and the results reconciled with the property records to verify 
the existence, current utilization, and continued need for the 
equipment. Any discrepancies between quantities determined by the 
physical inspection and those shown in the accounting records shall be 
investigated to determine the causes of the differences.
    (c) In order to insure adequate safeguards to prevent loss, damage 
or theft of equipment, a control system shall be used. Any loss, damage 
or theft of equipment shall be investigated and fully documented. The 
awarding agency may require a report of the circumstances involving the 
loss, damage, or theft of equipment.
    (d) In order to keep the equipment in good condition, adequate 
maintenance procedures shall be implemented.
    (e) Where equipment is to be sold and the Federal government is to 
have a right to part or all of the proceeds, selling procedures shall be 
established which will provide for competition to the extent practicable 
and result in the highest possible return.



Sec. 3015.170  Damage, loss, or theft of equipment.

    (a) Applicability. This section applies to equipment with a unit 
acquisition cost of $1,000 or more that, before disposal (see 
Sec. 3015.168), is damaged beyond repair, lost, or stolen.
    (b) Recipient at fault--(1) Applicability. This paragraph applies 
if:
    (i) At the time of the damage, loss, or theft, the recipient does 
not have a control system in effect as required by Sec. 3015.169, and
    (ii) The damage, loss, or theft is not due to an act of God.
    (2) Equipment replaced. If the equipment is replaced, the 
replacement is governed by Sec. 3015.167. When that happens, the market 
value of the original equipment at the time it was damaged, lost, or 
stolen is used instead of the amount received for trade-in or sale.
    (3) Equipment not replaced. If the equipment is not replaced, the 
Federal government has a right to an amount calculated by multiplying 
the Federal share in the equipment by its market value at the time of 
damage, loss, or theft. The amount is reduced pro rata if part of the 
Federal share of the equipment comes from an award under which the 
exemption in Sec. 3015.164 applied.
    (4) Other remedies. The provisions in this paragraph (b) are in 
addition to other remedies available to the awarding agency if a 
recipient acquires equipment with grant support but fails to establish 
the control system required by Sec. 3015.169.
    (c) Recipient not at fault--(1) Applicability. This paragraph 
applies if:
    (i) At the time of the damage, loss, or theft, the recipient does 
have a control system in effect as required by Sec. 3015.169(c) or
    (ii) The damage, loss, or theft is due to an act of God.
    (2) Recipient not compensated. If the recipient is not compensated 
for the damage, loss, or theft, through insurance or some other means, 
there is no obligation to USDA for the equipment.
    (3) Recipient compensated. If the recipient is compensated for the 
damage, loss, or theft and replaces the equipment, Sec. 3015.167 applies 
to the replacement equipment. If the recipient is compensated but does 
not replace the equipment, Sec. 3015.168 applies as though the recipient 
had sold the equipment. (All of Sec. 3015.168 applies including the rule 
permitting the amount due the Federal government to be reduced by 10

[[Page 88]]

percent of the proceeds or $100, whichever is greater.) The amount 
received for trade-in or sale is considered the lesser of (i) the amount 
of compensation or (ii) the market value of the equipment at the time it 
was damaged, lost, or stolen.
    (d) Waivers. The awarding agency may waive in whole or in part any 
provision of this section.



Sec. 3015.171  Unused supplies.

    (a) If unused supplies exceeding $1,000 in total aggregate market 
value are left over upon termination or expiration of the grant or 
subgrant for which they were acquired and the supplies are not needed 
for any project or program currently or previously funded by the Federal 
government, the grant shall be credited by an amount computed by 
multiplying the Federal share of the supplies times the current market 
value or, if the supplies are sold, the proceeds from sale. If the 
supplies are sold, 10 percent of the proceeds may be deducted and 
retained from the credit, for selling and handling expenses.
    (b) For possible exemptions from this section, see Sec. 3015.164.



Sec. 3015.172  Federal share of real property, equipment, and supplies.

    This subpart contains principles necessary to determine the Federal 
(or non-Federal) share of real property, equipment or supplies.
    (a) General. (1) Except as explained in the following paragraphs of 
this section, the Federal share of the property shall be the same 
percentage as the Federal share of the acquiring party's total cost 
under the grant during the grant or subgrant year (or other funding 
period) to which the acquisition cost of the property was charged. For 
this purpose, ``costs under the grant'' means allowable costs which are 
either supported by the grant or counted toward satisfying a cost-
sharing or matching requirement of the grant.
    (2) If the property is acquired by a subrecipient, the Federal share 
of the subrecipient's costs under the grant and hence of the property 
shall be calculated by multiplying the Federal share of the recipient's 
costs by the latter's share of the subrecipient's costs. (For example, 
if the Federal share of the recipient's costs is 50 percent and the 
subgrant bears only 50 percent of a subrecipient's costs, then the 
Federal share of that subrecipient's costs (and of the property acquired 
by that subrecipient) is 25 percent.)
    (3) The provisions of some grant awards set different maximum 
percentages of Federal financial participation for different categories 
of costs. In these cases, for the purposes of this section, the costs in 
each category are considered as costs under a separate grant. If two 
categories have the same maximum percentage of Federal participation and 
costs in one category are permitted to count toward satisfying a cost-
sharing or matching requirement of the other, they are a single category 
for the purposes of this rule. Also, all categories with a 100 percent 
rate are considered a single category for the purposes of this rule.
    (b) Property acquired only partly under a grant. (1) Sometimes only 
a part of the acquisition cost of an item of property is supported as a 
direct cost by the grant or counted as a direct cost towards a cost-
sharing or matching requirement. Occasionally, the amount paid for the 
property is only a part of its value. The remainder is donated as an in-
kind contribution by the party that provided the property.
    (2) To determine the Federal share of such property, first calculate 
the Federal share of the acquiring party's total costs under the grant 
as explained in paragraph (a) of this section. Next multiply that share 
by the percentage of the property's acquisition cost (or its market 
value, if the item was partly donated) which was supported as a direct 
cost by the grant or counted as a direct cost towards a cost-sharing or 
matching requirement.
    (c) Replacement equipment. To calculate the Federal share of 
replacement equipment the following procedures shall be followed:
    (1) Step 1: Determine the Federal share (percentage) of the 
equipment replaced.
    (2) Step 2: Determine the percentage of the replacement equipment's 
costs that was covered by the amount received for trade-in or the sale 
proceeds from the equipment replaced.

[[Page 89]]

    (3) Step 3: Multiply the step 1 percentage by the step 2 percentage.
    (4) Step 4: If an additional outlay for the replacement equipment 
was charged as a direct cost either to USDA grant funds or to required 
cost-sharing or matching funds, calculate the Federal share attributable 
to that additional outlay as explained in paragraph (b)(2) of this 
section. Add that additional percentage to the step 3 percentage.



Sec. 3015.173  Using or returning the Federal share.

    (a) This section applies when, under Sec. 3015.163, 3015.168 or 
3015.170, the Federal government has a right to an amount of money upon 
disposal or loss, theft, or damage of property.
    (b) If the recipient's project or program for which the property was 
acquired is still receiving grant support from the same Federal program, 
the awarding agency may authorize use of the net money due for allowable 
costs of that project or program.
    (c) Otherwise, the net amount must be returned to the awarding 
agency by check or money order.



Sec. 3015.174  Subrecipient's share.

    Where this subpart requires a sharing of the market value or sale 
proceeds of property acquired under a subgrant, the non-Federal share 
shall be proportionally divided between the recipient and the 
subrecipient. The subrecipient shall be entitled to the amount it would 
have received or retained if the award to it had been made directly by 
the Federal government. The remainder of the non-Federal share shall 
belong to the recipient.



Sec. 3015.175  Intangible personal property.

    (a) Inventions and Patents. (1) If the recipient is a small business 
or nonprofit organization (including universities and other institutions 
of higher education), the allocation of rights in inventions produced 
under a grant or cooperative agreement shall be determined in accordance 
with the provisions of sections 200 through 206 of Pub. L. 96-517 (35 
U.S.C. 200-206) and OMB Circular A-124.
    (2) For all other recipients, the allocation of rights in inventions 
shall be determined in accordance with the ``Government Patent Policy'' 
(President's Memorandum for Heads of Executive Departments and Agencies, 
February 18, 1983) and OMB Circular A-124.
    (b) Copyrights--(1) Applicability. This section applies to the 
copyright in any original work of authorship prepared with grant 
support. Additionally, if ownership of a copyright or of any of the 
exclusive rights comprising a copyright are purchased with grant 
support, this section applies to the purchased copyright or rights.
    (2) Basic rules. (i) USDA reserves a royalty-free, nonexclusive, and 
irrevocable license to exercise, and to authorize others to exercise, 
the rights for Federal Government purposes. Subject to this license, the 
owner is free to exercise, preserve, or transfer all its rights. The 
recipient shall ensure that no agreement is entered into for 
transferring the rights which would conflict with the nonexclusive 
license of USDA.
    (ii) One way that USDA may exercise its nonexclusive license is to 
authorize exercise of the rights in another project or activity that 
receives or has received grant support from the Federal Government.
    (iii) A recipient awarding a subgrant is allowed to impose subgrant 
terms reserving a nonexclusive license for itself, similar to the one 
reserved by this section for USDA, with respect to any copyright or 
rights subject to this section that arise under the subgrant.

[48 FR 35875, Aug. 8, 1983]



                         Subpart S--Procurement



Sec. 3015.180  Scope and applicability.

    (a) This subpart contains information for complying with Attachment 
0, ``Procurement Standards'', of OMB Circulars A-102 and A-110. Circular 
A-102 covers grant and cooperative agreement programs with State and 
local governments and Indian Tribal governments. Circular A-110 covers 
grant and cooperative agreement programs with institutions of higher 
education, hospitals, and other nonprofit organizations. Copies of both 
Circulars may be obtained from O&F.

[[Page 90]]

    (b) This subpart applies to recipient procurements (by purchase, 
rental, or barter) of supplies, equipment, and services (including 
construction).
    (c) This subpart applies only to procurements that are supported in 
whole or in part by a grant or cooperative agreement.
    (d) This subpart does not apply to procurements of land, existing 
land improvements or structures, or any other existing real property.
    (e) The Attachment 0 of Circulars A-102 and A-110 apply to 
procurements under subgrants as well as grants.



Sec. 3015.181  Standards of conduct.

    (a) Recipients shall maintain a written code or standards of conduct 
governing the performance of their officers, employees or agents engaged 
in awarding and administering contracts supported by Federal funds:
    (1) No employee, officer or agent shall participate in the 
selection, award, or administration of contracts using Federal funds 
where to his knowledge, such employee, officer or agent or his immediate 
family, partners or organizations has a financial interest in, is 
negotiating with, or has any arrangements concerning prospective 
employment with the proposed contractor.
    (2) The recipient's officers, employees or agents shall neither 
solicit nor accept gratuities, favors, or anything of monetary value 
from contractors or proposed contractors.
    (3) Provisions shall be made for disciplinary actions against the 
recipient's officers, employees, or agents or by contractors or their 
agents violating the standards of conduct.
    (b) Awarding agencies may review the written standards of conduct to 
determine if they meet the minimum standards of Attachment 0 of OMB 
Circulars A-110 and A-102. Recipients will be notified of deficiencies 
and make corrective action.



Sec. 3015.182  Open and free competition.

    All procurement transactions, regardless of whether by sealed bids 
or by negotiation and without regard to dollar value shall be conducted 
in a manner that provides maximum open and free competition.



Sec. 3015.183  Access to contractor records.

    The Attachment 0 requires recipients to include in specified kinds 
of contracts a provision for access to the contractor's records by the 
recipient and the Federal government. The following applies to the 
provision:
    (a) The provision must require the contractor to place the same 
provision in any subcontract which would have to have the provision were 
it awarded by the recipient.
    (b) The provision must require retention of records for three years 
after final payment is made under the contract or subcontract and all 
pending matters are closed. The provision must also require that, if any 
audit, litigation, or other action involving the records is started 
before the end of the three year period, the records must be retained 
until all issues arising out of the action are resolved or until the end 
of the three year period, whichever is later.
    (c) In contracts and subcontracts under a subgrant, the provision 
must require that access to the records be provided to the recipient as 
well as the subrecipient and the Federal government.



Sec. 3015.184  Equal employment opportunity.

    (a) The Attachment 0 requires recipients to include in contracts in 
excess of $10,000 a provision requiring compliance with Executive Order 
11246, concerning equal employment opportunity as amended by Executive 
Order 11375, and as supplemented in Department of Labor regulations (41 
CFR Chapter 60).
    (b) If construction is to be assisted by a grant or subgrant, the 
Executive Order and the Department of Labor supplementing regulations 
apply, unless an exemption is granted by or under those regulations. 
Recipients shall observe all applicable requirements of the Order and 
regulations and include in their nonexempt construction contracts the 
specific clauses prescribed by 41 CFR 60-1.4(b) and, if applicable, 41 
CFR 60-4.3.

[[Page 91]]



                       Subpart T--Cost Principles



Sec. 3015.190  Scope.

    This subpart makes the allowable costs incurred by the recipient the 
maximum amount of money a recipient is entitled to receive from USDA. In 
addition, this subpart identifies the principles to be used in 
determining allowable costs. These cost principles shall apply to 
transactions and activities conducted under grants, subgrants, 
cooperative agreements, cost-type contracts and cost-type subcontracts 
under grants.
    (a) Allowable costs. Grant funds may be used only for allowable 
costs of the activities for which the grant was awarded. This means that 
the total amount of money that the recipient is entitled to receive from 
USDA may not exceed the allowable costs incurred by the recipient for 
those activities.
    (b) The following rules apply in computing maximum allowable costs:
    (1) Third party in-kind contributions. Because they are not 
allowable costs of the party that receives them, the value of third 
party in-kind contributions received may not be included in determining 
maximum allowable costs. However, as provided in Subpart G of this part, 
third party in-kind contributions may count towards satisfying a cost-
sharing or matching requirement of the Federal grant.
    (2) Costs supported by another grant. Allowable costs incurred by 
the recipient and supported by another Federal grant (or by a non-
Federal grant) awarded to the recipient may not be included in 
determining maximum allowable costs. The basic intent of this rule is to 
prevent double compensation. It does not, however, prevent proration of 
costs that are allowable under two or more awards.
    (3) Costs used to match another Federal grant. A cost that the 
recipient uses to meet a cost-sharing or matching requirement of one 
Federal grant may not count towards determining maximum allowable costs 
under another Federal grant, unless specifically authorized by a Federal 
statute.
    (4) Costs supported by general program income. A grant may not pay 
for a cost which is supported by general program income earned by the 
recipient or by a subrecipient under the grant. Therefore, these costs 
may not be included in determining maximum allowable costs.
    (5) Use of money due Federal government. In accordance with 
Sec. 3015.173, an awarding agency, under certain circumstances, may 
authorize a recipient to use certain money due the Federal government 
for allowable costs of the project or programs, instead of returning the 
money to the Federal Government. Costs supported by the money may not be 
included as part of the maximum allowable costs charged to USDA.
    (6) Subgrant and contract costs. The recipient's allowable costs 
include allowable outlays, if any, to its subrecipients and contractors. 
If the recipient pays a subrecipient more than the allowable costs 
incurred by the subrecipient, the excess is not an allowable cost of the 
recipient and may not be included as part of the maximum allowable costs 
charged to USDA. However, for cost-type contracts a reasonable fee or 
profit paid by the recipient to the contractor, in addition to the 
contractor's allowable costs, may be included in this maximum unless 
prohibited by the provisions of the grant award.



Sec. 3015.191  Governments.

    (a) OMB Circular No. A-87, and any subsequent amendments to this 
Circular published in the Federal Register by OMB, shall be used in 
determining the allowable costs of activities conducted by governments.
    (b) Additional amendments to the Circular, unless otherwise 
prescribed by OMB, shall go into effect at the start of a government's 
first fiscal year following the amendment's publication in the Federal 
Register.



Sec. 3015.192  Institutions of higher education.

    (a) OMB Circular No. A-21, including any amendments to the Circular 
published in the Federal Register by OMB, shall be used in determining 
the allowable costs of activities conducted by institutions of higher 
education (other than for-profit institutions).
    (b) Additional amendments to the Circular, unless otherwise 
prescribed by OMB, shall go into effect at the start of an institution's 
first fiscal

[[Page 92]]

year following the amendment's publication in the Federal Register.



Sec. 3015.193  Other non-profit organizations.

    (a) OMB Circular No. A-122, including any subsequent amendments to 
the Circulars published in the Federal Register by OMB, shall be used in 
determining the allowable costs of activities conducted by nonprofit 
organizations under grants, cooperative agreements, cost reimbursement 
contracts, and other contracts in which costs are used in pricing, 
administration, or settlement. It does not apply to colleges or 
universities which are covered by Circular A-21; State, local and 
federally recognized Indian Tribal governments which are covered by 
Circular A-87, or hospitals.
    (b) Future amendments to the Circular, unless otherwise prescribed 
by OMB, shall go into effect at the time the initial award is made to 
the recipient.



Sec. 3015.194  For-profit organizations.

    The principles to be used when determining the allowable costs of 
activities conducted by for-profit organizations are contained in the 
Federal Acquisition Regulation at 48 CFR Subpart 31.2. Exception: 
Independent research and development costs including any indirect costs 
allocable to them are unallowable. Independent research and development 
are defined in the Federal Acquisition Regulation at 48 CFR 31.205-18.

[60 FR 44124, Aug. 24, 1995]



Sec. 3015.195  Subgrants and cost-type contracts.

    USDA cost principles applicable to a cost-type contractor or a 
subrecipient will not necessarily be the same as those applicable to the 
recipient. For example, where a State government awards a subrecipient 
or cost-type contract to an institution of higher education, OMB 
Circular A-21 would apply to the costs incurred by the institution of 
higher education even though OMB Circular A-87 would apply to the costs 
incurred by the State.



Sec. 3015.196  Costs allowable with approval.

    Each set of cost principles specifically identifies certain costs 
that, in order to be allowable, must be approved by the awarding agency. 
Other costs do not require approval. The following procedures govern 
approval of these costs:
    (a) When costs are allocated in accordance with a government-wide 
cost allocation plan or when treated as indirect costs, acceptance of 
the costs as part of the indirect cost rate or cost allocation plan 
shall constitute approval.
    (b)(1) All direct costs must be approved in advance by the awarding 
agency.
    (2) When costs are specified in the budget, approval of the budget 
shall constitute approval of the cost.
    (3) Specific prior approval in writing from the awarding agency is 
required if the costs are not specified in the budget, or if there is no 
approved budget. For this purpose the prior approval procedures of 
Subpart M shall be followed, except that, for formula or mandatory 
grants, the awarding agency's written approval may be signed by any 
authorized official of the awarding agency.
    (c) The awarding agency may waive or conditionally waive the 
requirement for its approval of the costs. A waiver, as such, shall be 
applicable only to the requirement for approval. If it is determined, by 
audit or otherwise, that the costs do not meet other requirements or 
tests for allowability specified by the applicable cost principles, such 
as reasonableness and necessity, the costs may be disallowed.
    (d) In the case of subgrants and cost-type contracts, no approval 
shall be given which is inconsistent with the purpose or the provisions 
of the Federal grant.



                        Subpart U--Miscellaneous



Sec. 3015.200  Acknowledgement of support on publications and audiovisuals.

    (a) Definitions. Appendix A defines ``audiovisual,'' ``production of 
an audiovisual,'' and ``publication.''

[[Page 93]]

    (b) Publications. Recipients shall have an acknowledgement of 
awarding agency support placed on any publications written or published 
with grant support and, if feasible, on any publication reporting the 
results of, or describing, a grant-supported activity.
    (c) Audiovisuals. Recipients shall have an acknowledgement of 
awarding agency support placed on any audiovisual which is produced with 
grant support and which has a direct production cost to the recipient of 
over $5,000. Unless the other provisions of the grant award make it 
apply, this requirement does not apply to:
    (1) Audiovisuals produced under mandatory or formula grants or under 
subgrants.
    (2) Audiovisuals produced as research instruments or for documenting 
experimentation or findings and not intended for presentation or 
distribution to the general public.
    (d) Waivers. Awarding agencies may waive any requirement of this 
section.



Sec. 3015.201  Use of consultants.

    (a) Definition. Appendix A defines ``consultant.''
    (b) Applicability. This section applies only to the use of 
consultants whose fees are supported by a grant, subgrant, or cost-type 
contract.
    (c) Basic policy--(1) Prior approval. Awarding agencies shall not 
require prior approval for the use of consultants.
    (2) Exceptions. (i) In unusual cases, using a consultant may 
constitute a transfer of substantive programmatic work, which requires 
prior approval under discretionary grants.
    (ii) Consulting fees paid by an organization to its own employees 
require prior approval.
    (d) Use of an organization's own employees--(1) Faculty members of 
education institutions. Charges representing extra compensation (above 
base salary) paid by an educational institution to a salaried member of 
its faculty for consulting work are allowable only in unusual cases, and 
only if both of the following conditions exist:
    (i) The consultation is across departmental lines or involves a 
separate or remote operation; and
    (ii) The work performed by the consultant is in addition to his or 
her regular departmental load.
    (2) All other cases. In all other cases, consulting fees paid in 
addition to salary by recipients or cost-type contractors to people who 
are also their employees may be supported by a grant, subgrant, or cost-
type contract only in unusual cases, and only if all of the following 
three conditions exist:
    (i) The policies of the recipient or contractor permit such 
consulting fee payments to its own employees regardless of whether 
Federal grant funds are involved;
    (ii) The work involved is clearly outside the scope of the person's 
salaried employment; and
    (iii) It would be inappropriate or not feasible to compensate for 
the additional work by paying additional salary to the employee.
    (3) Requirement for approval. Consulting fees paid under this 
section must have a specific prior approval in writing from the Head of 
the recipient or contractor or from his or her designated 
representative. If the recipient or contractor is a government, the 
approval may be given by the Head (or a designated representative of the 
Head) of the government agency which is primarily responsible for 
administering or carrying out the project or program. If the designated 
representative is personally involved in the project or program under 
consideration, the approval may be given only by the Head. If the Head 
is personally involved in the project or program under consideration, 
prior approval from the awarding agency is required. Such prior approval 
must include a determination that the applicable requirements in 
paragraph (d) (1) or (2) of this section are present.
    (e) Documentation standards. (1) Charges for consulting payments 
must be supported in the records of the recipient or cost-type 
contractor by an invoice from the consultant and a copy of the written 
report (if a report is appropriate) or other documented evidence of the 
work performed from the consultant.
    (2) If any of the following information is not shown on the invoice 
and/or

[[Page 94]]

report from the consultant, the information must be shown in a 
memorandum or other document prepared by the recipient or contractor for 
its files, or noted in handwriting on the consultant's invoice by the 
recipient or contractor. The memorandum, other document, or handwritten 
notation must be signed by an official of the recipient or contractor 
and show:
    (i) The name of the consultant;
    (ii) The nature of the services provided (such as statistical 
analysis of data, participation on project advisory committee, or 
specified medical services to eligible beneficiaries);
    (iii) The relevance of the services to the project or program, if 
not apparent from the nature of the services; and
    (iv) Whichever of the following is applicable:
    (A) (If the fee was based on a rate per day or hours worked) the 
rate and the dates and/or hours worked;
    (B) (If the fee was based on a rate per unit of service provided, 
such as the number of patients examined by a physician) the rate, the 
number of units of service provided, and the beginning and ending dates 
of the overall period of service; or
    (C) (If the fee was determined on some other basis) the basis for 
determining the fee and the beginning and ending dates of the period in 
which services were provided.



Sec. 3015.202  Limits on total payments to the recipient.

    (a) This section summarizes the four most widely applicable limits 
on the total amount of money the recipient is entitled to receive from 
USDA as a result of a grant. It is permissible for the terms of a grant 
to provide one or more additional limits.
    (b) For each grant, the lowest of the applicable limits is the one 
that governs the final settlement upon expiration or termination of the 
grant.
    (c) The following two limits apply to every grant:
    (1) The amount of Federal funds authorized.
    (2) The Federal share of the allowable costs incurred by the 
recipient.
    (d) Grants that require a specified percentage of cost-sharing or 
matching are subject to the limit described in Subpart G.
    (e) For each budget period of an incrementally funded discretionary 
grant, the Federal share of that period's approved budget is a limit.



Sec. 3015.203  [Reserved]



Sec. 3015.204  Federal Register publications.

    (a) Program regulations. Most grant programs have program-specific 
regulations, which are published in the Federal Register and codified in 
the Code of Federal Regulations. In some cases the program-specific 
regulations are promulgated in the form of agency directives or manuals 
which may be obtained from the awarding agency.
    (b) Program announcements. For each program, the awarding agency may 
publish in the Federal Register one or more program announcements. 
Program announcements invite applications for one or more stated program 
objectives. They include at least the following information:
    (1) An estimate of how much money will be available for competing 
awards, and the expected size of the awards, broken down by subprogram 
or priority area when appropriate;
    (2) Who is eligible;
    (3) How to obtain application kits;
    (4) Where to submit applications; and
    (5) The deadline for submitting applications.
    (c) Cooperative agreements. If any or all of the awards are likely 
to be cooperative agreements rather than grants, the program 
announcement so states. In that case, if feasible, the program 
announcement also describes the anticipated substantial Federal 
involvement in performance. (This paragraph does not prevent the award 
of cooperative agreements under a program announcement that mentioned 
only grants. Nor does it prevent the award of grants under a program 
announcement that mentioned only cooperative agreements.)
    (d) Evaluation criteria. The awarding agency publishes its criteria 
for evaluating grant applications either in the program regulations or 
the program announcement. If the criteria are not all equal in 
importance, their relative

[[Page 95]]

weights are also published. The criteria cover at least the following 
factors (except where the nature of the eligible projects makes one or 
more of these factors irrelevant):
    (1) How well qualified the project's personnel will be;
    (2) The adequacy of the applicant's facilities and resources;
    (3) The adequacy of the project plan or methodology;
    (4) The cost-effectiveness of the project; and
    (5) How closely the project objectives fit the objectives for which 
applications were invited.
    (e) Funding priorities. If the awarding agency will give priority to 
one or more particular kinds of projects, the priority (and how it will 
be applied in deciding which applications to fund) is described in the 
program announcement.
    (f) Competing continuations vs. ``new'' projects. If the awarding 
agency will give a preference to competing continuation applications 
over applications for projects not already receiving support under the 
program, or vice versa, the preference is described in the program 
announcement.
    (g) Programs with few potential applicants. In some programs the 
number of potential applicants is relatively small. (For example, in 
some programs only the States are eligible.) In these situations the 
awarding agency may send a copy of the program announcement directly to 
every potential applicant instead of publishing it in the Federal 
Register.
    (h) Register--Other information which is available. In addition to 
the items specified above, each awarding Agency makes available to the 
public the following information and materials for each program:
    (1) A copy of, or reference to, the authorizing statutes for the 
program;
    (2) All guidelines of general applicability for administration of 
the program;
    (3) A description of the procedures the awarding agency will use for 
evaluating applications; and
    (4) Any other information that the awarding agency believes will be 
helpful.
    (i) Consulting with applicants. Each awarding agency publishes as 
much information as practicable to reduce the need for consultation by 
applicants. If the awarding agency does provide consultation, its staff 
members try to give consistent interpretations and fair treatment to all 
requestors.



Sec. 3015.205  General provisions for grants and cooperative agreements with institutions of higher education, other nonprofit organizations, and hospitals.

    (a) Scope. This section sets forth general provisions which apply, 
in whole or in part, to grants and cooperative agreements awarded by 
USDA to institutions of higher education, other nonprofit organizations, 
and hospitals. (General provisions applicable to grants and cooperative 
agreements with State and local governments are set forth in the Office 
of Management and Budget (OMB) Circular A-102, Attachment M and are made 
a condition of each grant or cooperative agreement awarded to such 
recipients). Any statutory provisions that apply to the particular 
agreement at hand, that are not included herein, shall be made a part of 
the award document. All administrative requirements contained in 
subparts A through U of 7 CFR part 3015 shall apply, as appropriate.
    (b) Assurances and compliance. It shall be a condition of every USDA 
grant or cooperative agreement awarded to institutions of higher 
education, other nonprofit organizations and hospitals that the 
recipient assure and certify compliance with the following general 
requirements to the extent applicable:
    (1) It will comply with the following provisions regarding the 
rights and welfare of human subjects:
    (i) The recipient organization is responsible for safeguarding the 
rights and welfare of any human subjects involved in research, 
development, and related activities supported by this agreement. The 
recipient organization may conduct research involving human subjects 
only as described in the proposal and as approved by the recipient 
organization's cognizant Institutional Review Board. Prior to conducting 
such research, the recipient organization shall obtain and document a 
legally sufficient informed consent from

[[Page 96]]

each human subject involved. No such informed consent shall include any 
exculpatory language through which the subject is made to waiver, or to 
appear to waiver, any of his or her legal rights, including any release 
of the recipient organization or its agents from liability for 
negligence.
    (ii) The recipient organization agrees to comply with U.S. 
Department of Health and Human Services' regulations regarding human 
subjects, appearing in 45 CFR part 46 (as amended).
    (iii) It will comply with USDA policy which is to assure that the 
risks do not outweigh either potential benefits to the subjects or the 
expected value of the knowledge sought.
    (iv) Selection of subjects or groups of subjects shall be made 
without regard to sex, race, color, religion, or national origin unless 
these characteristics are factors to be studied.
    (2) It will comply with the Animal Welfare Act, as amended, 7 U.S.C. 
2131, et seq., and the regulations promulgated thereunder by the 
Secretary of Agriculture (9 CFR, Subchapter A) pertaining to the care, 
handling, and treatment of warm-blooded animals held or used for 
research, teaching, or other activities supported by Federal funds. 
Recipient organizations may request registration of facilities and a 
current listing of licensed dealers from the Regional Office of the 
Animal and Plant Health Inspection Service (APHIS), USDA, for the Region 
in which their facility is located. The location of the appropriate 
APHIS Regional Office, as well as information concerning this 
requirement, may be obtained by contacting the Senior Staff Officer, 
Animal Care Staff, USDA/APHIS, Federal Center Building, Hyattsville, 
Maryland 20782.
    (3) It will assume primary responsibility for implementing proper 
conduct or recombinant DNA research and it will comply with the national 
Institute of Health Guidelines for Recombinant DNA Research, as revised.
    (4) It will comply with Section 5 of the International Air 
Transportation Fair Competitive Practices Act of 1974, 49 U.S.C. 1517, 
which requires:
    (i) Any air transportation to, from, between, or within a country, 
other than the U.S., of persons or property, the expense of which will 
be assisted by USDA funding, to be performed on a U.S.-flag carrier if 
service provided by such carrier is ``available.''
    (ii) For the purposes of this requirement:
    (A) Passenger or freight service by a certificated air carrier is 
considered ``available'' even though:
    (1) Comparable or a different kind of service by a noncertificated 
air carrier costs less; or
    (2) Service by a noncertificated air carrier can be paid for in 
excess foreign currency; or
    (3) Service by a noncertificated air carrier is preferred by the 
recipient organization contractor or traveler needing air 
transportation.
    (B) Passenger service by a certificated air carrier is considered to 
be ``unavailable'':
    (1) When the traveler, while enroute, has to wait six hours or more 
for an available U.S. carrier; or
    (2) When any flight by a U.S. carrier interrupted by a stop 
anticipated to be six hours or more for refueling, reloading repairs, 
etc., and no other flight by a U.S. carrier is available during the six-
hour period; or
    (3) When the flight by a U.S. carrier takes 12 or more hours longer 
than a foreign carrier.
    (5) It possesses legal authority to enter into the agreement; that a 
resolution, motion or similar action has been duly adopted or passed as 
an official act of its governing body, authorizing the acceptance of the 
agreement including all understandings and assurances contained therein 
and directing and authorizing the person identified as the official 
representative of the recipient organization to act in connection with 
the agreement and to provide such additional information as may be 
required.
    (6) It will comply with Title VI of the Civil Rights Act of 1964, 42 
U.S.C. 2000d, and in accordance with Title VI of that Act, no person in 
the United States shall, on the ground of race, color, or national 
origin, be excluded from participation in, be denied the benefits of, or 
be otherwise subjected to discrimination under any program or activity

[[Page 97]]

for which the recipient receives Federal financial assistance and will 
immediately take any measures necessary to effectuate this agreement.
    (7) It will establish safeguards to prohibit employees from using 
their positions for a purpose that is or gives the appearance of being 
motivated by a desire for private gain for themselves or others, 
particularly those with whom they have family, business, or other ties.
    (8) It will give USDA, the awarding agency or the Comptroller 
General, through any authorized representative, access to and the right 
to examine all records, books, papers or documents related to the award.
    (9) It will comply with all requirements imposed by the awarding 
agency concerning special requirements of law, program requirements, and 
other administrative requirements.
    (10) It will insure that the facilities under its ownership, lease 
or supervision which shall be utilized in the accomplishment of the 
project are not listed on the Environmental Protection Agency's (EPA) 
list of violating facilities and that it will notify the awarding agency 
of the receipt of any communication from the Director of the EPA, Office 
of Federal Activities, indicating that a facility to be utilized in the 
project is under consideration for listing by the EPA.
    (11) It will comply with the flood insurance purchase requirements 
of the National Flood Insurance Act of 1968, as amended, and the Flood 
Disaster Protection Act of 1973, 42 U.S.C. 4001-4127. Section 102(a) 
requires, on and after March 2, 1975, the purchase of flood insurance in 
communities where such insurance is available as a condition for 
construction or acquisition purposes for use in any area that has been 
identified by the Secretary of the Department of Housing and Urban 
Development as an area having special flood hazards.
    (12) It will assist the awarding agency in its compliance with 
Section 106 of the National Historic Preservation Act of 1966, 16 U.S.C. 
470, Executive Order 11593, and the Archaeological and Historic 
Preservation Act of 1974, 16 U.S.C. 496a-1, et. seq., by (i) consulting 
with the State Historic Preservation Officer on the conduct of 
investigations, as necessary, to identify properties listed in or 
eligible for inclusion in the National Register of Historic Places that 
are subject to adverse effects (see 36 CFR 800.8) by the activity, and 
notifying the awarding agency of the existence of any such properties, 
and by (ii) complying with all requirements established by the awarding 
agency to avoid or mitigate adverse effects upon such properties.
    (13) It will comply with Title IX of the Education Amendments of 
1972, 20 U.S.C. 1681, et. seq., which prohibits discrimination on the 
basis of sex in Federally assisted education programs.
    (14) It will comply with Section 504 of the Rehabilitation Act of 
1973, as amended, 29 U.S.C. 794. Section 504 provides that no otherwise 
qualified handicapped individual shall solely by reason of his handicap, 
be excluded from the participation in, be denied the benefits of, or be 
subjected to discrimination under any program or activity receiving 
Federal financial assistance.
    (15) It will comply with the Age Discrimination Act of 1975, 42 
U.S.C. 6101-6107, which prohibits unreasonable discrimination based on 
age, in programs or activities receiving Federal financial assistance.
    (16) It is in compliance with the Clean Air Act of 1970, 42 U.S.C. 
7401 et seq., which requires federally assisted activities to be in 
conformance with State (Clean Air) Implementation Plan.
    (17) It will establish safeguards to ensure that USDA funds are 
properly spent. In particular, except nonprofit organizations which are 
subject to the lobbying provisions of paragraph B.21. of OMB Circular A-
122, it will assure that funds are not used for partisan or political 
activity purposes.
    (c) USDA awarding agencies shall obtain the required assurances and 
certifications by including the following clause in each grant or 
cooperative agreement awarded to institutions of higher education, other 
nonprofit organizations and hospitals:

    As a condition of this grant or cooperative agreement, the recipient 
assures and certifies that it is in compliance with and will comply in 
the course of the agreement with all applicable laws, regulations, 
Executive

[[Page 98]]

Orders and other generally applicable requirements, including those set 
out in 7 CFR 3015.205(b), which hereby are incorporated in this 
agreement by reference, and such other statutory provisions as are 
specifically set forth herein.

[48 FR 27222, June 14, 1983, as amended at 49 FR 38534, Oct. 1, 1984]



    Subpart V--Intergovernmental Review of Department of Agriculture 
                         Programs and Activities

    Authority: E. O. 12372, July 14, 1982 (47 FR 30959), as amended Apr. 
8, 1983 (48 FR 15887): Sec. 401 of the Intergovernmental Cooperation Act 
of 1968, as amended (31 U.S.C. 6506); sec. 204 of the Demonstration 
Cities and Metropolitan Development Act of 1966, as amended (42 U.S.C. 
3334).

    Source: 48 FR 29112, June 24, 1983, unless otherwise noted.



Sec. 3015.300  Purpose.

    (a) The regulations in this part implement Executive Order 12372, 
``Intergovernmental Review of Federal Programs'', issued July 14, 1982, 
and amended on April 8, 1983. These regulations also implement 
applicable provisions of section 401 of the Intergovernmental 
Cooperation Act of 1968 and section 204 of the Demonstration Cities and 
Metropolitan Development Act of 1966.
    (b) These regulations are intended to foster an intergovernmental 
partnership and a strengthened Federalism by relying on State processes 
and on State, arewide, regional and local coordination for review of 
proposed Federal financial assistance and direct Federal development.
    (c) The regulations are intended to aid the internal management of 
the Department, and are not intended to create any right or benefit 
enforceable at law by a party against the Department or its officers.



Sec. 3015.301  Definitions.

    Department means the U.S. Department of Agriculture.
    Order means Executive Order 12372, issued July 14, 1982, and amended 
April 8, 1983, and titled Intergovernmental Review of Federal Programs.
    Secretary means the Secretary of the U.S. Department of Agriculture 
or an official or employee of the Department acting for the Secretary 
under a delegation of authority.
    State means any of the 50 states, the District of Columbia, the 
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana 
Islands, Guam, American Samoa, the U.S. Virgin Island, or the Trust 
Territory of the Pacific Islands.



Sec. 3015.302  Applicability.

    The Secretary publishes in the Federal Register a list of the 
Department's programs and activities that are subject to these 
regulations and identifies which of these are subject to the 
requirements of section 204 of the Demonstration Cities and Metropolitan 
Development Act.



Sec. 3015.303  Secretary's general responsibilities.

    (a) The Secretary provides opportunities for consultation by elected 
officials of those State and local governments that would provide the 
non-Federal funds for, or that would be directly affected by, proposed 
Federal financial assistance from, or direct Federal development by, the 
Department.
    (b) If a State adopts a process under the Order to review and 
coordinate proposed Federal financial assistance and direct Federal 
development, the Secretary, to the extent permitted by law:
    (1) Uses the State process to determine official views of State and 
local elected officials;
    (2) Communicates with State and local elected officials as early in 
a program planning cycle as is reasonably feasible to explain specific 
plans and actions;
    (3) Makes efforts to accommodate State and local elected officials' 
concerns with proposed Federal financial assistance and direct Federal 
development that are communicated through the State process;
    (4) Allows the States to simplify and consolidate existing Federally 
required State plan submissions;
    (5) Where State planning and budgeting systems are sufficient and 
where

[[Page 99]]

permitted by law, encourages the substitution of State plans for 
Federally required State plans;
    (6) Seeks the coordination of views of affected State and local 
elected officials in one State with those of another State when proposed 
Federal financial assistance or direct Federal development has an impact 
on interstate metropolitan urban centers or other interstate areas; and
    (7) Supports State and local governments by discouraging the 
reauthorization or creation of any planning organization which is 
Federally-funded, which has a limited purpose, and which is not 
adequately representative of, or accountable to, State or local elected 
officials.



Sec. 3015.304  Federal interagency coordination.

    The Secretary, to the extent practicable, consults with and seeks 
advice from all other substantially affected Federal departments and 
agencies in an effort to assure full coordination between such agencies 
and the Department regarding programs and activities covered under these 
regulations.



Sec. 3015.305  State selection of programs and activities.

    (a) A State may select any program or activity published in the 
Federal Register in accordance with Sec. 3015.302 of this subpart for 
intergovernmental review under these regulations. Each State, before 
selecting programs and activities, shall consult with local elected 
officials.
    (b) Each State that adopts a process shall notify the secretary of 
the Department's programs and activities selected for that process.
    (c) A State may notify the Secretary of changes in its selections at 
any time. For each change, the State shall submit to the Secretary an 
assurance that the State has consulted with elected local officials 
regarding the change. The Department may establish deadlines by which 
States are required to inform the Secretary of changes in their program 
selections.
    (d) The Secretary uses a State's process as soon as feasible, 
depending on individual programs and activities, after the Secretary is 
notified of its selections.



Sec. 3015.306  Communication with State and local elected officials.

    (a) The Secretary provides notice to directly affected State, 
areawide, regional, and local entities in a State of proposed Federal 
financial asssistance or direct Federal development if:
    (1) The State has not adopted a process under the Order; or
    (2) The assistance or development involves a program or an activity 
that is not covered under the State process.
    (b) This notice may be made by publication in the Federal Register 
or other appropriate means, which the Department in its discretion deems 
appropriate.
    (c) In order to facilitate communication with State and local 
officials the Secretary has established an office within the Department 
to receive all communications pertinent to this Order. All 
communications should be sent to the Office of Finance and Management, 
Room 143-W, Administration Building, Washington, DC 20250, Attention: 
E.O. 12372.



Sec. 3015.307  State comments on proposed Federal financial assistance and direct Federal development.

    (a) Except in unusual circumstances, the Secretary gives State 
processes or directly affected State, areawide, regional, and local 
officials and entities:
    (1) At least 30 days from the date established by the Secretary to 
comment on proposed Federal financial assistance in the form of 
noncompeting continuation awards; and
    (2) At least 60 days from the date established by the Secretary to 
comment on proposed direct Federal development or Federal financial 
assistance other than noncompeting continuation awards.
    (b) This section also applies to comments in cases in which the 
review, coordination and communication with the Department have been 
delegated.
    (c) Applicants for programs and activities subject to section 204 of 
the Demonstration Cities and Metropolitan Development Act shall allow 
areawide agencies a 60-day opportunity for review and comment.

[[Page 100]]



Sec. 3015.308  Processing comments.

    (a) The Secretary follows the procedures in Sec. 3015.309 if:
    (1) A State office or official is designated to act as a single 
point of contact between a State process and all Federal agencies; and
    (2) That office or official transmits a State process recommendation 
for a program selected under Sec. 3015.305.
    (b)(1) The single point of contact is not obligated to transmit 
comments form State, areawide, regional or local officials and entities 
where there is no State process recommendation.
    (2) If a State process recommendation is transmitted by a single 
point of contact, all comments from State, areawide, regional, and local 
officials and entities that differ from it must also be transmitted.
    (c) If a State has not established a process, or is unable to submit 
a State process recommendation, State, areawide, regional and local 
officials and entities may submit comments either to the applicant or to 
the Department.
    (d) If a program or activity is not selected by a State process, 
State, areawide, regional and local officials and entities may submit 
comments either to the applicant or to the Department. In addition, if a 
State process recommendation for a non-selected program or activity is 
transmitted to the Department by the single point of contact, the 
Secretary follows the procedures of Sec. 3015.309 of this subpart.
    (e) The Secretary considers comments which do not constitute a State 
process recommendation submitted under these regulations and for which 
the Secretary is not required to apply the procedures of Sec. 3015.309 
of this subpart, when such comments are provided by a single point of 
contact by the applicant, or directly to the Department by a commenting 
party.



Sec. 3015.309  Accommodation of intergovernmental concerns.

    (a) If a State process provides a State process recommendation to 
the Department through its single point of contact, the Secretary 
either--
    (1) Accepts the recommendations;
    (2) Reaches a mutually agreeable solution with the State process; or
    (3) Provides the single point of contact with a written explanation 
of the decision, as the Secretary in his or her discretion deems 
appropriate. The Secretary may also supplement the written explanation 
by also providing the explanation to the single point of contact by 
telephone, other telecommunication, or other means.
    (b) In any explanation under paragraph (a)(3) of this section, the 
Secretary informs the single point of contact that:
    (1) The Department will not implement its decision for at least ten 
days after the single point of contact receives the explanation; or
    (2) The Secretary has reviewed the decision and determined that, 
because of unusual circumstances, the waiting period of at least ten 
days is not feasible.
    (c) For purposes of computing the waiting period under paragraph 
(b)(1) of this section, a single point of contact is presumed to have 
received written notification five days after the date of mailing of 
such notification.



Sec. 3015.310  Interstate situations.

    (a) The Secretary is responsible for:
    (1) Identifying proposed Federal financial assistance and direct 
Federal development that have an impact on interstate areas;
    (2) Notifying appropriate officials in States which have adopted a 
process and which selected the Department's program or activity;
    (3) Making efforts to identify and notify the affected State, 
areawide, regional, and local officials and entities in those States 
that have not adopted a process under the Order or do not select the 
Department's program or activity; and
    (4) Responding, pursuant to Sec. 3015.309 of this subpart, if the 
Secretary receives a recommendation from a designated areawide agency 
transmitted by a single point of contact, in cases in which the review, 
coordination, and communication with the Department have been delegated.
    (b) The Secretary uses the procedures in Sec. 3015.309 if a State 
process provides a State process recommendation to the Department 
through a single point of contact.

[[Page 101]]



Sec. 3015.311  Simplification, consolidation, or substitution of State plans.

    (a) As used in this section:
    (1) Simplify means that a State may develop its own format, choose 
its own submission date, and select the planning period for a State 
plan.
    (2) Consolidate means that a State may meet statutory and regulatory 
requirements by combining two or more plans into one document and that 
the State can select the format, submission date, the planning period 
for the consolidated plan.
    (3) Substitute means that a State may use a plan or other document 
that it has developed for its own purposes to meet Federal requirements.
    (b) If not inconsistent with law, a State may decide to try to 
simplify, consolidate, or substitute Federally required State plans 
without prior approval by the Secretary.
    (c) The Secretary reviews each State plan a State has simplified, 
consolidated or substituted and accepts the plan only if its contents 
meet Federal requirements.



Sec. 3015.312  Waivers.

    In an emergency, the Secretary may waive any provision of these 
regulations.

                  Appendix A to Part 3015--Definitions

    Section I  ``Grant'' and ``Cooperative Agreement''

    (a) ``Grant'' unless qualified by ``non-Federal'' means an award by 
the Federal government of money, property instead of money, services, or 
anything of value, to the State or other recipient, with the following 
characteristics:
    (1) The principal purpose of the award is to accomplish a public 
purpose of support or stimulation authorized by Federal statute, rather 
than acquisition, by purchase, lease, or barter, of property or services 
for the direct benefit or use of the Federal government; and
    (2) At the time the award is made, no substantial involvement is 
anticipated between the executive agency, acting for the Federal 
government, and the State or local government or other recipient during 
performance of the contemplated activity.
    (b) ``Cooperative agreement'' has the same meaning as ``grant,'' 
except that, at the time a cooperative agreement is awarded, substantial 
involvement is anticipated between the executive agency, acting for the 
Federal government, and the State or local government or other recipient 
during performance of the contemplated activity.
    (c) ``Grants'' and ``cooperative agreements'' do not include 
technical assistance, which provides services instead of money; revenue 
sharing; loans; loan guarantees; capital contributions to loan funds; 
interest subsidies; insurance; or direct appropriations. (See the 
definition of ``Non-Federal grant'' in Section II of this appendix.)

    Section II  Other Definitions.

    ``Acquisition'' of property includes purchase, construction, or 
fabrication of property. It does not include rental of property or 
alterations and renovations of real property.
    ``Acquisition cost'' of an item of purchased equipment means the net 
invoice price of the equipment. It includes the cost of modifications, 
attachments, accessories, or auxiliary apparatus necessary to make the 
equipment useable 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 in or excluded from 
the unit acquisition cost in accordance with the regular accounting 
practices of the organization purchasing the equipment.
    If an item of equipment is acquired by trading in another item and 
paying an additional amount, ``acquisition cost'' means the amount 
received for trade-in plus the additional outlay. (See the definition of 
``amount received for trade-in.'')
    For purposes of the rules on equipment and supplies, ``acquisition 
cost'' of a copy of a work of authorship (such as a book, print of a 
motion picture, or tape of a television program) refers to the cost of 
fabricating or purchasing the individual copy, considered as a material 
object. It does not include the cost of developing, or acquiring rights 
to, the work embodied in the copy.
    ``Advance by Treasury check'' is a payment made by a Treasury check 
to a recipient of a grant or cooperative agreement, before payments are 
made by the recipient of the grant or cooperative agreement. Advances by 
Treasury check are based on either a periodic request from the recipient 
or a predetermined payment schedule.
    ``Amount received for trade-in'' of an item of equipment traded in 
for replacement equipment means the amount that would have been paid for 
the replacement equipment without a trade-in, minus the amount paid with 
the trade-in. The term refers to the actual difference, not necessarily 
the trade-in value, shown on an invoice. For example, suppose that a 
recipient can buy a new machine for $5,000 in cash. The recipient 
actually buys this machine by trading in a used machine and paying 
$3,000 in cash. In this case, the amount received for trade-in

[[Page 102]]

would be $2,000 ($5,000 minus $3,000) regardless of the trade-in 
allowance shown on the invoice.
    ``Approved budget'' means a budget (including any revised budget) 
which has been approved in writing by the awarding agency. (See the 
definition of ``budget.'')
    ``Audiovisual'' means a product containing visual imagery or sound 
or both. Examples of audiovisuals are motion pictures, live or 
prerecorded radio or television programs, slide shows, filmstrips, audio 
recordings, and multimedia presentations.
    ``Awarding agency'' means (1) for grants and cooperative agreements, 
the USDA agency making the award, and (2) for subgrants, the recipient.
    ``Bid guarantee'' means a firm commitment such as a bid bond, 
certified check, or other negotiable instrument, accompanying a bid as 
assurance that the bidder will, if its bid is accepted, execute the 
required contractual documents within the time specified.
    ``Budget'' means the recipient's financial expenditure plan approved 
by the awarding agency to carry out the purposes of the Federally-
supported project. The budget is comprised of both the Federal share and 
any non-Federal share of such plan and any subsequent authorized 
rebudgeting of funds.
    For those programs that do not involve Federal approval of the non-
Federal share of costs, such as research grants, the term ``budget'' 
means the financial expenditure plan approved by the awarding agency 
including any subsequent authorized rebudgeting of funds, for the use of 
Federal funds only. Any expenditures charged to an approved budget 
consisting of Federal and non-Federal shares are deemed to be supported 
by the grant in the same proportion as the percentage of Federal/non-
Federal participation in the overall budget.
    ``Budget period'' means the period specified in the grant or 
cooperative agreement during which Federal funds awarded are authorized 
to be expended, obligated, or firmly committed by the recipient for the 
purposes specified in the agreement.
    ``Closeout'' of a grant or cooperative agreement means the process 
by which an awarding agency determines that all applicable 
administrative actions and all required work of the grant or cooperative 
agreement have been completed by the recipient and the awarding agency.
    ``Consultant'' means a person who gives advice or services for a 
fee, but not as an employee. The term includes guest speakers when not 
acting as employees of the party that engages them. Note that in unusual 
cases it is possible for a person to be both an employee and a 
consultant at the same time. (See Sec. 3015.201.)
    ``Contract'' means a procurement contract awarded under a grant, 
cooperative agreement, or subgrant; and ``subcontract'' means a 
procurement subcontract under such a contract. Procurement contracts and 
subcontracts are ones which place the parties in a buyer-seller 
relationship, regardless of the label used by the parties to describe 
the relationship (e.g., purchase-of-service agreement). The terms 
``contract'' and ``subcontract'' do not include any agreements between 
organizational components of the same legal entity, even if one of the 
components provides property or services to or for the other. (See 
definitions of ``subgrant,'' ``cost-type contract,'' and ``fixed price 
contract.'')
    ``Cost-sharing'' and ``matching'' each mean the value of third party 
in-kind contributions plus that portion of the allowable costs of 
recipients not supported by the Federal Government. (The terms ``cost-
sharing'' and ``matching,'' in this part, are synonymous.)
    ``Cost-type contract'' means a contract or subcontract in which the 
contractor or subcontractor is paid on the basis of the costs it incurs. 
The term includes cost-plus-fixed-fee contracts and subcontracts. 
(However, the term does not include any subcontracts under a ``fixed-
price contract.'')
    ``Discretionary'' grants and cooperative agreements are ones which a 
Federal statute authorizes but does not require USDA to award.
    ``Equipment'' means an article of tangible personal property that 
has a useful life of more than two years and acquisition cost of $500 or 
more. Any recipient may use its own definition of equipment if its 
definition would at least include all items of equipment as defined 
here.
    ``Expenditure report'' means (1) for nonconstruction awards, the 
``Financial Status Report'' (or other equivalent report); (2) for 
construction awards, the ``Outlay Report and Request for Reimbursement 
for Construction Programs'' (or other equivalent report).
    ``Federal funds authorized'' means the total amount of Federal funds 
obligated by the Federal Government for use by the recipient. This 
amount is a limit on the total amount of money that the recipient is 
entitled to receive from the Federal Government as a result of the 
award. In addition to this limit, there are other limits. Refer to 
Sec. 3015.202 for a summary of these.
    ``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 or her 
through the Bureau of Indian Affairs.
    ``Fidelity bond'' means a bond indemnifying the recipient against 
losses resulting

[[Page 103]]

from the fraud or lack of integrity, honesty or fidelity of one or more 
employees, officers or other persons holding a position of trust.
    ``Fixed-price contract'' means any contract except a cost-type 
contract. The term includes firm-fixed price contracts. It also includes 
contracts under which the contractor is paid at a fixed rate per unit of 
service or unit of labor time. (See the definitions of ``contract'' and 
``cost-type contract.'')
    ``General program income'' means all program income except the 
special categories treated in Secs. 3015.43 through 3015.46. The term 
``general program income'' is limited to amounts that accrue to a 
recipient of grant or cooperative agreement during the period of 
Federally assisted support, or to a subrecipient during the period of 
sub-award support.
    ``Local government'' means a local unit of government including 
specifically, a county, municipality, city, town, township, local public 
authority, school district, special district, intra-state district, 
council of governments (whether or not incorporated as a nonprofit 
corporation under State law), sponsor or sponsoring local organization 
of a watershed project (as defined in 7 CFR 620.2, 40 FR 12472, March 
19, 1974), any other regional or interstate government entity, or any 
agency or instrumentality of a local government.
    ``Mandatory'' or ``formula'' grants and cooperative agreements are 
ones which a Federal statute requires USDA to award if the applicant 
meets specified conditions.
    ``Non-Federal grant'' means an award of financial assistance in the 
form of money which includes no Federal funds, and for which the 
recipient must account to the donor on an actual cost basis. The term 
does not include any award that would be excluded from the definitions 
of ``grant'' and ``cooperative agreement'' if it were made by the 
Federal government.
    ``Obligations'' means the amounts of orders placed, contracts and 
subgrants awarded, services received, and similar transactions during a 
given period, which will require payment during the same or future 
period.
    ``O&F'' means the Office of Operations and Finance, which is an 
organizational component in USDA reporting to the Assistant Secretary 
for Administration.
    ``OMB'' means the Office of Management and Budget in the Executive 
Office of the President.
    ``Outlays'' means charges made to the grant project or program. 
Outlays may be reported on a cash or accrual basis.
    ``Payment bond'' means a bond executed in connection with a 
contract, to assure payment as required by law of all persons supplying 
labor and materials in the execution of the work provided in the 
contract.
    ``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, instead of the recipient's rate of 
disbursements.
    ``Performance bond'' means a bond executed in connection with a 
contract to secure fulfillment of all the contractor's obligations under 
the contract.
    ``Personal property'' means property of any kind except real 
property. It may be tangible--having physical existence, or intangible--
having no physical existence, such as patents, inventions, and 
copyrights.
    ``Production of an audiovisual'' means any of the steps that lead to 
a finished audiovisual, including design, layout, script-writing, 
filming, editing, fabrication, sound recording, or taping. The term does 
not include the placing of captions for the hearing impaired on films or 
videotapes not originally produced for use with the hearing impaired.
    ``Program income'' means gross income earned by a recipient from 
activities supported by a grant or cooperative agreement. (See 
definition of ``supported by a grant or cooperative agreement.'') It 
includes but is not limited to income in the form of fees for services 
performed during the life of the grant, cooperative agreement, or 
subgrant, proceeds from sale of tangible personal or real property, 
usage or rental fees, and patent or copyright royalties. If income meets 
this definition, it shall be considered program income regardless of the 
method used to calculate the amount paid to the recipient whether, for 
example, by a cost-reimbursement method or fixed price arrangement. Nor 
will the income's classification as program income be affected by the 
fact that the recipient earns it from a procurement contract awarded to 
the recipient (1) by the Federal government or (2) by another recipient 
acting under another Federal grant, cooperative agreement, or subgrant.

The following are not considered program income:
    (1) ``Revenues'' raised by a government recipient under its 
governing powers, such as taxes, special assessments, levies, and fines. 
(However, the receipt and expenditure of these revenues shall be 
recorded as a part of the transactions of the Federally-assisted project 
or program when the revenues are specifically earmarked for the project 
in accordance with the terms of the grant, cooperative agreement, or 
subgrant.)
    (2) Tuition and related fees received by an institution of higher 
education for a regularly offered course taught by an employee 
performing under a grant, cooperative agreement, or subgrant.
    (3) Income earned by contractors or subcontractors.
    (4) Internal reimbursements or transfers of funds between 
organizational components of the same legal entity (e.g., between 
agencies of the same government).
    (5) Third party in-kind contributions.

[[Page 104]]

    (6) Gifts or financial assistance from another source, such as (i) a 
non-Federal grant, (ii) another Federal grant, and (iii) charitable 
contributions (whether or not for a restricted purpose), and
    (7) Interest or other investment income earned from investing 
advances of Federal cash. (This kind of income is treated in 
Sec. 3015.46.)
    ``Project period'' means the total time for which the recipient's 
project or program is approved for support including any extensions. 
Project periods may consist of one or more budget periods.
    ``Publication'' means a published book, periodical, pamphlet, 
brochure, flier, or similar item. It does not include any audiovisuals.
    ``Real property'' means land, land improvements, structures, and 
things attached to them so as to become a part of them. Movable 
machinery and other kinds of equipment are not real property. If a 
question comes up about whether certain property should be classified as 
real property, the law of the State or foreign country in which the 
property is located governs.
    ``Recipient'' means a State or local government, Federally 
recognized Indian Tribe, university, non-profit, for profit, or other 
organization that is a recipient of grants or cooperative agreements 
from a USDA agency.
    ``Replacement equipment'' means property acquired to take the place 
of other equipment. To qualify as replacement equipment, it must serve 
the same function as the equipment replaced and must be of the same 
nature or character, although not necessarily the same model, grade, or 
quality.
    ``State'' means any of the several States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, any territory, 
possession, or trust territory of the United States, or any agency or 
instrumentality of a State. The term does not include local governments.
    ``Subgrant'' means an award of money, or property instead of money, 
which:
    (1) Is made under a grant or cooperative agreement by the recipient 
of the grant or cooperative agreement; and
    (2) Is made principally to accomplish a purpose of support of 
stimulation rather than to establish a buyer-seller relationship between 
the two parties.
    Any award which meets that definition is a subgrant even if the 
parties to the award use some other label such as ``grant,'' 
``agreement,'' ``cooperative agreement,'' ``contract,'' ``allotment,'' 
or ``delegation agreement.'' Also, if the award meets that definition, 
it is a subgrant whether or not the awarding agency is expected to be 
substantially involved in its performance. However, the term 
``subgrant'' does not include any type of assistance which is excluded 
from the definitions of ``grant'' and ``cooperative agreement'' by 
Section I(c) of this Appendix.
    ``Supplies'' means all tangible personal property other than 
equipment.
    ``Supported by a grant or cooperative agreement,'' as applied to a 
cost or an activity, means that the cost or the cost of the activity is 
entirely or partly (1) treated as a direct cost under a grant, 
cooperative agreement, subgrant, or cost-type contract, and (2) either 
supported by Federal funds or counted towards a Federal cost-sharing or 
matching requirement.
    ``Suspension'' of an award means temporary withdrawal of the 
recipient's authority to obligate the funds awarded pending corrective 
action by the recipient or a decision to terminate the award.
    ``Termination'' of an award means permanent withdrawal of the 
recipient's authority to obligate previously awarded funds before that 
authority would otherwise expire. It also means the voluntary 
relinquishment of that authority by the recipient.
    ``Termination'' does not include:
    (a) Withdrawal of the unobligated balance upon expiration of award;
    (b) Refusal by the awarding agency to extend an award or to award 
additional funds (such as refusal to make a competing or noncompeting 
continuation, renewal, extension, or supplemental award);
    (c) Annulment, i.e., voiding of an award upon determination that the 
award was obtained fraudulently or was otherwise illegal or invalid from 
inception;
    (d) Withdrawal of surplus Federal funds from a discretionary grant 
or any analogous withdrawal of funds by a recipient from a subrecipient; 
or
    (e) Withdrawal from a mandatory or formula grant of surplus Federal 
funds authorized which the recipient will not obligate during the fiscal 
year, or any analogous withdrawal of funds by a recipient from a 
subrecipient.
    ``Terms'' of a grant, cooperative agreement, subgrant, or contract 
means all rights and duties created by the award, whether stated in 
statute, this part or other regulations, the award document itself, or 
any other document.
    ``Third party'' means, with respect to a grant or cooperative 
agreement, any entity except (1) the Federal government, (2) the 
recipient of the cooperative agreement, and (3) subrecipients under that 
grant or cooperative agreement. Note that contractors of recipients are 
third parties under this definition, although subrecipients are not.
    ``Third party in-kind contributions'' means property or services 
benefiting the federally assisted project or program which are 
contributed by third parties without charge. Note that the term does not 
include any costs incurred by the recipient or subrecipient.
    ``Unliquidated obligations,'' means, for financial reports prepared 
on a cash basis, the

[[Page 105]]

amount of obligations incurred by the recipient that has not been paid. 
For reports prepared on an accrued expenditure basis, they are the 
amount of obligations incurred by the recipient for which an outlay has 
not been recorded.
    ``Unobligated balance'' is the portion of Federal funds authorized 
which has not been obligated by the recipient. It is calculated by 
subtracting the Federal share of the recipient's cumulative obligations 
from the cumulative Federal funds authorized.

Appendix B to Part 3015--OMB Circular A-128, ``Audits of State and Local 
                              Governments''

                    Executive Office of the President

                     Office of Management and Budget

                           Circular No. A-128

                             April 12, 1984

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 State 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

[[Page 106]]

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, municipalitity, city, town, 
township, parish, local public authority, special district, school 
district, intrastate district, council of governments, and any other 
instrumentality of local government.
    j. Major Federal Assistance Program, as defined by Pub. L 98-502, is 
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.
    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 Audit 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.

[[Page 107]]

    (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 of other forms of independent 
oversight; the adequacy of the controls for ensuring compliance; the 
expectation of adherence or lack of adherence to the applicable laws and 
regulations; and the potential impact of adverse findings.
    (a) In making the test of transactions, the auditor shall determine 
whether:

--The amounts reported as expenditures were for allowable services, and
--The records show that those who received services or benefits were 
          eligible to receive them.

    (b) In addition to transaction testing, the auditor shall determine 
whether:

--Matching requirements, levels of effort and earmarking limitations 
          were met,
--Federal financial reports and claims for advances and reimbursements 
          contain information that is supported by the books and records 
          from which the basic financial statements have been prepared, 
          and
--Amounts claimed or used for matching were determined in accordance 
          with OMB Circular 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.

[[Page 108]]

    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.
    (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

[[Page 109]]

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 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 case-by-case basis by a case-by-
case basis by agreement among the agenices 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 appropropriate sanctions including:

--Withholding a percentage of assistance payments until the audit is 
          completed satisfactorily,
--Withholding or disallowing overhead costs, and
--Suspending the Federal assistance agreement until the audit is made.

    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 timeframes for the audit so as to encourage and facilitate 
participation by small audit firms and audit firms owned and controlled 
by socially and economically disadvantaged individuals.
    c. Consider in the contract process whether firms competing for 
large 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

[[Page 110]]

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 opinion of the agency, is 
failing to comply with the Circular.
    21. Regulations. Each Federal agency shall include the provisions of 
this Circular in its regulations implementing the Single Audit Act.
    22. Effective 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.

        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 assistance for all     Major
                          programs                             federal
------------------------------------------------------------  assistance
                                                               program
                                                              means any
          More than                    But less than           program
                                                                 that
                                                               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
------------------------------------------------------------------------


[50 FR 28763, July 16, 1985]



PART 3016--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS--Table of Contents




                           Subpart A--General

Sec.
3016.1  Purpose and scope of this part.
3016.2  Scope of subpart.
3016.3  Definitions.
3016.4  Applicability.
3016.5  Effect on other issuances.
3016.6  Additions and exceptions.

                    Subpart B--Pre-Award Requirements

3016.10  Forms for applying for grants.
3016.11  State plans.
3016.12  Special grant or subgrant conditions for ``high-risk'' 
          grantees.

                   Subpart C--Post-Award Requirements

                        Financial Administration

3016.20  Standards for financial management systems.
3016.21  Payment.
3016.22  Allowable costs.
3016.23  Period of availability of funds.
3016.24  Matching or cost sharing.
3016.25  Program income.
3016.26  Non-Federal audit.

                    Changes, Property, and Subawards

3016.30  Changes.
3016.31  Real property.
3016.32  Equipment.
3016.33  Supplies.
3016.34  Copyrights.
3016.35  Subawards to debarred and suspended parties.
3016.36  Procurement.
3016.37  Subgrants.

[[Page 111]]

              Reports, Records, Retention, and Enforcement

3016.40  Monitoring and reporting program performance.
3016.41  Financial reporting.
3016.42  Retention and access requirements for records.
3016.43  Enforcement.
3016.44  Termination for convenience.

                 Subpart D--After-the-Grant Requirements

3016.50  Closeout.
3016.51  Later disallowances and adjustments.
3016.52  Collection of amounts due.

                         Subpart E--Entitlement

3016.60  Special procurement provisions.
3016.61  Financial reporting.

    Authority: 5 U.S.C. 301; 31 U.S.C. 901-903; 7 CFR 2.28.

    Source: 53 FR 8044, 8087, Mar. 11, 1988, unless otherwise noted.

    Editorial Note: For additional information, see related documents 
published at 49 FR 24958, June 18, 1984, 52 FR 20178, May 29, 1987, and 
53 FR 8028, March 11, 1988.



                           Subpart A--General



Sec. 3016.1  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. 3016.2  Scope of subpart.

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



Sec. 3016.3  Definitions.

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

[[Page 112]]

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) mean charges made to the project or program. 
They may be reported on a cash or accrual basis. For reports prepared on 
a cash basis, outlays are the sum of actual cash disbursement for direct 
charges for goods and services, the amount of indirect expense incurred, 
the value of in-kind contributions applied, and the amount of cash 
advances and payments made to contractors and subgrantees. For reports 
prepared on an accrued expenditure basis, outlays are the sum of actual 
cash disbursements, the amount of indirect expense incurred, the value 
of inkind contributions applied, and the new increase (or decrease) in 
the amounts owed by the grantee for goods and other property received, 
for services performed by employees, contractors, subgrantees, 
subcontractors, and other payees, and other amounts becoming owed under 
programs for which no current services or performance are required, such 
as annuities, insurance claims, and other benefit payments.
    Percentage of completion method refers to a system under which 
payments are made for construction work according to the percentage of 
completion of the work, rather than to the grantee's cost incurred.
    Prior approval means documentation evidencing consent prior to 
incurring specific cost.

[[Page 113]]

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



Sec. 3016.4  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. 3016.6, or:
    (1) Grants and subgrants to State and local institutions of higher 
education or State and local hospitals.

[[Page 114]]

    (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) A grant for an experimental, pilot, or demonstration project 
that is also supported by a grant listed in paragraph (a)(3) of this 
section;
    (5) 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;
    (6) 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
    (7) Payments under the Veterans Administration's State Home Per Diem 
Program (38 U.S.C. 641(a)).
    (b) Entitlement programs. In USDA, the entitlement programs 
enumerated in this paragraph are subject to subparts A through D and the 
modifications in subpart E of this part.
    (1) Entitlement grants under the following programs authorized by 
The National School Lunch Act:
    (i) National School Lunch Program, General Assistance (section 4 of 
the Act),
    (ii) Commodity Assistance (section 6 of the Act),
    (iii) National School Lunch Program, Special Meal Assistance 
(section 11 of the Act),
    (iv) Summer Food Service Program for Children (section 13 of the 
Act), and
    (v) Child and Adult Care Food Program (section 17 of the Act);
    (2) Entitlement grants under the following programs authorized by 
The Child Nutrition Act of 1966:
    (i) Special Milk Program for Children (section 3 of the Act),
    (ii) School Breakfast Program (section 4 of the Act), and
    (iii) Entitlement grants for State Administrative Expense Funds 
(section 7 of the Act); and
    (3) Entitlement grants under the following programs authorized by 
the Food Stamp Act of 1977:
    (i) Food Distribution Program on Indian Reservations (section 4(b) 
of the Act), and
    (ii) State Administrative Expense Funds (section 16 of the Act).

[53 FR 8044, 8087, Mar. 11, 1988, as amended at 65 FR 49480, Aug. 14, 
2000]



Sec. 3016.5  Effect on other issuances.

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

[[Page 115]]

they are required by statute, or authorized in accordance with the 
exception provision in Sec. 3016.6.



Sec. 3016.6  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. 3016.10  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. 3016.11  State plans.

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

[[Page 116]]

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



Sec. 3016.12  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. 3016.20  Standards for financial management systems.

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

[[Page 117]]

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



Sec. 3016.21  Payment.

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

[[Page 118]]

Grantees and subgrantees shall disburse repayments to and interest 
earned on a revolving fund before requesting additional cash payments 
for the same activity.
    (2) Except as provided in paragraph (f)(1) of this section, grantees 
and subgrantees shall disburse program income, rebates, refunds, 
contract settlements, audit recoveries and interest earned on such funds 
before requesting additional cash payments.
    (g) Withholding payments. (1) Unless otherwise required by Federal 
statute, awarding agencies shall not withhold payments for proper 
charges incurred by grantees or subgrantees unless--
    (i) The grantee or subgrantee has failed to comply with grant award 
conditions or
    (ii) The grantee or subgrantee is indebted to the United States.
    (2) Cash withheld for failure to comply with grant award condition, 
but without suspension of the grant, shall be released to the grantee 
upon subsequent compliance. When a grant is suspended, payment 
adjustments will be made in accordance with Sec. 3016.43(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. 3016.22  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.
 an (1) institution of higher education,
 (2) hospital, or (3) organization named
 in OMB Circular A-122 as not subject to
 that circular.
Educational institutions..................  OMB Circular A-21.
For-profit organization other than 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. 3016.23  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 119]]

    (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. 3016.24  Matching or cost sharing.

    (a) Basic rule: Costs and contributions acceptable. With the 
qualifications and exceptions listed in paragraph (b) of this section, a 
matching or cost sharing requirement may be satisfied by either or both 
of the following:
    (1) Allowable costs incurred by the grantee, subgrantee or a cost-
type contractor under the assistance agreement. This includes allowable 
costs borne by non-Federal grants or by others cash donations from non-
Federal third parties.
    (2) The value of third party in-kind contributions applicable to the 
period to which the cost sharing or matching requirements applies.
    (b) Qualifications and exceptions--(1) Costs borne by other Federal 
grant agreements. Except as provided by Federal statute, a cost sharing 
or matching requirement may not be met by costs borne by another Federal 
grant. This prohibition does not apply to income earned by a grantee or 
subgrantee from a contract awarded under another Federal grant.
    (2) General revenue sharing. For the purpose of this section, 
general revenue sharing funds distributed under 31 U.S.C. 6702 are not 
considered Federal grant funds.
    (3) Cost or contributions counted towards other Federal costs-
sharing requirements. Neither costs nor the values of third party in-
kind contributions may count towards satisfying a cost sharing or 
matching requirement of a grant agreement if they have been or will be 
counted towards satisfying a cost sharing or matching requirement of 
another Federal grant agreement, a Federal procurement contract, or any 
other award of Federal funds.
    (4) Costs financed by program income. Costs financed by program 
income, as defined in Sec. 3016.25, shall not count towards satisfying a 
cost sharing or matching requirement unless they are expressly permitted 
in the terms of the assistance agreement. (This use of general program 
income is described in Sec. 3016.25(g).)
    (5) Services or property financed by income earned by contractors. 
Contractors under a grant may earn income from the activities carried 
out under the contract in addition to the amounts earned from the party 
awarding the contract. No costs of services or property supported by 
this income may count toward satisfying a cost sharing or matching 
requirement unless other provisions of the grant agreement expressly 
permit this kind of income to be used to meet the requirement.
    (6) Records. Costs and third party in-kind contributions counting 
towards satisfying a cost sharing or matching requirement must be 
verifiable from the records of grantees and subgrantee or cost-type 
contractors. These records must show how the value placed on third party 
in-kind contributions was derived. To the extent feasible, volunteer 
services will be supported by the same methods that the organization 
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 120]]

    (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. 3016.22, in the same way as depreciation or 
use allowances for purchased equipment and buildings. The amount of 
depreciation or use allowances for donated equipment and buildings is 
based on the property's market value at the time it was donated.
    (f) Valuation of grantee or subgrantee donated real property for 
construction/acquisition. If a grantee or subgrantee donates real 
property for a construction or facilities acquisition project, the 
current market value of that property may be counted as cost sharing or 
matching. If any part of the donated property was acquired with Federal

[[Page 121]]

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. 3016.25  Program income.

    (a) General. Grantees are encouraged to earn income to defray 
program costs. Program income includes income from fees for services 
performed, from the use or rental of real or personal property acquired 
with grant funds, from the sale of commodities or items fabricated under 
a grant agreement, and from payments of principal and interest on loans 
made with grant funds. Except as otherwise provided in regulations of 
the Federal agency, program income does not include interest on grant 
funds, rebates, credits, discounts, refunds, etc. and interest earned on 
any of them.
    (b) Definition of program income. Program income means gross income 
received by the grantee or subgrantee directly generated by a grant 
supported activity, or earned only as a result of the grant agreement 
during the grant period. ``During the grant period'' is the time between 
the effective date of the award and the ending date of the award 
reflected in the final financial report.
    (c) Cost of generating program income. If authorized by Federal 
regulations or the grant agreement, costs incident to the generation of 
program income may be deducted from gross income to determine program 
income.
    (d) Governmental revenues. Taxes, special assessments, levies, 
fines, and other such revenues raised by a grantee or subgrantee are not 
program income unless the revenues are specifically identified in the 
grant agreement or Federal agency regulations as program income.
    (e) Royalties. Income from royalties and license fees for 
copyrighted material, patents, and inventions developed by a grantee or 
subgrantee is program income only if the revenues are specifically 
identified in the grant agreement or Federal agency regulations as 
program income. (See Sec. 3016.34.)
    (f) Property. Proceeds from the sale of real property or equipment 
will be handled in accordance with the requirements of Secs. 3016.31 and 
3016.32.
    (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 122]]

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. 3016.26  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.
    (1) In USDA, revised OMB Circular A-133 is implemented in 7 CFR part 
3052, ``Audits of States, Local Governments, and Non-Profit 
Organizations.''
    (2) [Reserved]
    (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. 3016.36 
shall be followed.

[53 FR 8044, 8087, Mar. 11, 1988, as amended at 62 FR 45939, Aug. 29, 
1997]

                    Changes, Property, and Subawards



Sec. 3016.30  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. 3016.22) 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

[[Page 123]]

budget, whenever the awarding agency's share exceeds $100,000.
    (iii) Transfer of funds allotted for training allowances (i.e., from 
direct payments to trainees to other expense categories).
    (2) Construction projects. Grantees and subgrantees shall obtain 
prior written approval for any budget revision which would result in the 
need for additional funds.
    (3) Combined construction and nonconstruction projects. When a grant 
or subgrant provides funding for both construction and nonconstruction 
activities, the grantee or subgrantee must obtain prior written approval 
from the awarding agency before making any fund or budget transfer from 
nonconstruction to construction or vice versa.
    (d) Programmatic changes. Grantees or subgrantees must obtain the 
prior approval of the awarding agency whenever any of the following 
actions is anticipated:
    (1) Any revision of the scope or objectives of the project 
(regardless of whether there is an associated budget revision requiring 
prior approval).
    (2) Need to extend the period of availability of funds.
    (3) Changes in key persons in cases where specified in an 
application or a grant award. In research projects, a change in the 
project director or principal investigator shall always require approval 
unless waived by the awarding agency.
    (4) Under nonconstruction projects, contracting out, subgranting (if 
authorized by law) or otherwise obtaining the services of a third party 
to perform activities which are central to the purposes of the award. 
This approval requirement is in addition to the approval requirements of 
Sec. 3016.36 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 formal the grantee used 
in its application and shall be accompanied by a narrative justification 
for the proposed revision.
    (2) A request for a prior approval under the applicable Federal cost 
principles (see Sec. 3016.22) 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. 3016.31  Real property.

    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to real property acquired under a grant or subgrant 
will vest upon acquisition in the grantee or subgrantee respectively.
    (b) Use. Except as otherwise provided by Federal statutes, real 
property will be used for the originally authorized purposes as long as 
needed for that purposes, and the grantee or subgrantee shall not 
dispose of or encumber its title or other interests.
    (c) Disposition. When real property is no longer needed for the 
originally authorized purpose, the grantee or subgrantee will request 
disposition instructions from the awarding agency. The instructions will 
provide for one of the following alternatives:
    (1) Retention of title. Retain title after compensating the awarding 
agency. The amount paid to the awarding agency will be computed by 
applying the awarding agency's percentage of participation in the cost 
of the original purchase to the fair market value of the property. 
However, in those situations where a grantee or subgrantee is disposing 
of real property acquired

[[Page 124]]

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



Sec. 3016.32  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. 3016.25(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.

[[Page 125]]

    (5) If the grantee or subgrantee is authorized or required to sell 
the property, proper sales procedures must be established to ensure the 
highest possible return.
    (e) Disposition. When original or replacement equipment acquired 
under a grant or subgrant is no longer needed for the original project 
or program or for other activities currently or previously supported by 
a Federal agency, disposition of the equipment will be made as follows:
    (1) Items of equipment with a current per-unit fair market value of 
less than $5,000 may be retained, sold or otherwise disposed of with no 
further obligation to the awarding agency.
    (2) Items of equipment with a current per unit fair market value in 
excess of $5,000 may be retained or sold and the awarding agency shall 
have a right to an amount calculated by multiplying the current market 
value or proceeds from sale by the awarding agency's share of the 
equipment.
    (3) In cases where a grantee or subgrantee fails to take appropriate 
disposition actions, the awarding agency may direct the grantee or 
subgrantee to take excess and disposition actions.
    (f) Federal equipment. In the event a grantee or subgrantee is 
provided federally-owned equipment:
    (1) Title will remain vested in the Federal Government.
    (2) Grantees or subgrantees will manage the equipment in accordance 
with Federal agency rules and procedures, and submit an annual inventory 
listing.
    (3) When the equipment is no longer needed, the grantee or 
subgrantee will request disposition instructions from the Federal 
agency.
    (g) Right to transfer title. The Federal awarding agency may reserve 
the right to transfer title to the Federal Government or a third part 
named by the awarding agency when such a third party is otherwise 
eligible under existing statutes. Such transfers shall be subject to the 
following standards:
    (1) The property shall be identified in the grant or otherwise made 
known to the grantee in writing.
    (2) The Federal awarding agency shall issue disposition instruction 
within 120 calendar days after the end of the Federal support of the 
project for which it was acquired. If the Federal awarding agency fails 
to issue disposition instructions within the 120 calendar-day period the 
grantee shall follow Sec. 3016.32(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. 3016.33  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. 3016.34  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. 3016.35  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. 3016.36  Procurement.

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

[[Page 126]]

follow the same policies and procedures it uses for procurements from 
its non-Federal funds. The State will ensure that every purchase order 
or other contract includes any clauses required by Federal statutes and 
executive orders and their implementing regulations. Other grantees and 
subgrantees will follow paragraphs (b) through (i) in this section.
    (b) Procurement standards. (1) Grantees and subgrantees will use 
their own procurement procedures which reflect applicable State and 
local laws and regulations, provided that the procurements conform to 
applicable Federal law and the standards identified in this section.
    (2) Grantees and subgrantees will maintain a contract administration 
system which ensures that contractors perform in accordance with the 
terms, conditions, and specifications of their contracts or purchase 
orders.
    (3) Grantees and subgrantees will maintain a written code of 
standards of conduct governing the performance of their employees 
engaged in the award and administration of contracts. No employee, 
officer or agent of the grantee or subgrantee shall participate in 
selection, or in the award or administration of a contract supported by 
Federal funds if a conflict of interest, real or apparent, would be 
involved. Such a conflict would arise when:
    (i) The employee, officer or agent,
    (ii) Any member of his immediate family,
    (iii) His or her partner, or
    (iv) An organization which employs, or is about to employ, any of 
the above, has a financial or other interest in the firm selected for 
award. The grantee's or subgrantee's officers, employees or agents will 
neither solicit nor accept gratuities, favors or anything of monetary 
value from contractors, potential contractors, or parties to 
subagreements. Grantee and subgrantees may set minimum rules where the 
financial interest is not substantial or the gift is an unsolicited item 
of nominal intrinsic value. To the extent permitted by State or local 
law or regulations, such standards or conduct will provide for 
penalties, sanctions, or other disciplinary actions for violations of 
such standards by the grantee's and subgrantee's officers, employees, or 
agents, or by contractors or their agents. The awarding agency may in 
regulation provide additional prohibitions relative to real, apparent, 
or potential conflicts of interest.
    (4) Grantee and subgrantee procedures will provide for a review of 
proposed procurements to avoid purchase of unnecessary or duplicative 
items. Consideration should be given to consolidating or breaking out 
procurements to obtain a more economical purchase. Where appropriate, an 
analysis will be made of lease versus purchase alternatives, and any 
other appropriate analysis to determine the most economical approach.
    (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.

[[Page 127]]

    (10) Grantees and subgrantees will use time and material type 
contracts only--
    (i) After a determination that no other contract is suitable, and
    (ii) If the contract includes a ceiling price that the contractor 
exceeds at its own risk.
    (11) Grantees and subgrantees alone will be responsible, in 
accordance with good administrative practice and sound business 
judgment, for the settlement of all contractual and administrative 
issues arising out of procurements. These issues include, but are not 
limited to source evaluation, protests, disputes, and claims. These 
standards do not relieve the grantee or subgrantee of any contractual 
responsibilities under its contracts. Federal agencies will not 
substitute their judgment for that of the grantee or subgrantee unless 
the matter is primarily a Federal concern. Violations of law will be 
referred to the local, State, or Federal authority having proper 
jurisdiction.
    (12) Grantees and subgrantees will have protest procedures to handle 
and resolve disputes relating to their procurements and shall in all 
instances disclose information regarding the protest to the awarding 
agency. A protestor must exhaust all administrative remedies with the 
grantee and subgrantee before pursuing a protest with the Federal 
agency. Reviews of protests by the Federal agency will be limited to:
    (i) Violations of Federal law or regulations and the standards of 
this section (violations of State or local law will be under the 
jurisdiction of State or local authorities) and
    (ii) Violations of the grantee's or subgrantee's protest procedures 
for failure to review a complaint or protest. Protests received by the 
Federal agency other than those specified above will be referred to the 
grantee or subgrantee.
    (c) Competition. (1) All procurement transactions will be conducted 
in a manner providing full and open competition consistent with the 
standards of Sec. 3016.36. 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

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other salient requirements of a procurement. The specific features of 
the named brand which must be met by offerors shall be clearly stated; 
and
    (ii) Identify all requirements which the offerors must fulfill and 
all other factors to be used in evaluating bids or proposals.
    (4) Grantees and subgrantees will ensure that all prequalified lists 
of persons, firms, or products which are used in acquiring goods and 
services are current and include enough qualified sources to ensure 
maximum open and free competition. Also, grantees and subgrantees will 
not preclude potential bidders from qualifying during the solicitation 
period.
    (d) Methods of procurement to be followed. (1) Procurement by small 
purchase procedures. Small purchase procedures are those relatively 
simple and informal procurement methods for securing services, supplies, 
or other property that do not cost more than the simplified acquisition 
threshold fixed at 41 U.S.C. 403(11) (currently set at $100,000). If 
small purchase 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. 3016.36(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

[[Page 129]]

most qualified competitor is selected, subject to negotiation of fair 
and reasonable compensation. The method, where price is not used as a 
selection factor, can only be used in procurement of A/E professional 
services. It cannot be used to purchase other types of services though 
A/E firms are a potential source to perform the proposed effort.
    (4) Procurement by noncompetitive proposals is procurement through 
solicitation of a proposal from only one source, or after solicitation 
of a number of sources, competition is determined inadequate.
    (i) Procurement by noncompetitive proposals may be used only when 
the award of a contract is infeasible under small purchase procedures, 
sealed bids or competitive proposals and one of the following 
circumstances applies:
    (A) The item is available only from a single source;
    (B) The public exigency or emergency for the requirement will not 
permit a delay resulting from competitive solicitation;
    (C) The awarding agency authorizes noncompetitive proposals; or
    (D) After solicitation of a number of sources, competition is 
determined inadequate.
    (ii) Cost analysis, i.e., verifying the proposed cost data, the 
projections of the data, and the evaluation of the specific elements of 
costs and 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

[[Page 130]]

complexity of the work to be performed, the risk borne by the 
contractor, the contractor's investment, the amount of subcontracting, 
the quality of its record of past performance, and industry profit rates 
in the surrounding geographical area for similar work.
    (3) Costs or prices based on estimated costs for contracts under 
grants will be allowable only to the extent that costs incurred or cost 
estimates included in negotiated prices are consistent with Federal cost 
principles (see Sec. 3016.22). Grantees may reference their own cost 
principles that comply with the applicable Federal cost principles.
    (4) The cost plus a percentage of cost and percentage of 
construction cost methods of contracting shall not be used.
    (g) Awarding agency review. (1) Grantees and subgrantees must make 
available, upon request of the awarding agency, technical specifications 
on proposed procurements where the awarding agency believes such review 
is needed to ensure that the item and/or service specified is the one 
being proposed for purchase. This review generally will take place prior 
to the time the specification is incorporated into a solicitation 
document. However, if the grantee or subgrantee desires to have the 
review accomplished after a solicitation has been developed, the 
awarding agency may still review the specifications, with such review 
usually limited to the technical aspects of the proposed purchase.
    (2) Grantees and subgrantees must on request make available for 
awarding agency pre-award review procurement documents, such as requests 
for proposals or invitations for bids, independent cost estimates, etc. 
when:
    (i) A grantee's or subgrantee's procurement procedures or operation 
fails to comply with the procurement standards in this section; or
    (ii) The procurement is expected to exceed the simplified 
acquisition threshold and is to be awarded without competition or only 
one bid or offer is received in response to a solicitation; or
    (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,

[[Page 131]]

certified check, or other negotiable instrument accompanying a bid as 
assurance that the bidder will, upon acceptance of his bid, execute such 
contractual documents as may be required within the time specified.
    (2) A performance bond on the part of the contractor for 100 percent 
of the contract price. A ``performance bond'' is one executed in 
connection with a contract to secure fulfillment of all the contractor's 
obligations under such contract.
    (3) A payment bond on the part of the contractor for 100 percent of 
the contract price. A ``payment bond'' is one executed in connection 
with a contract to assure payment as required by law of all persons 
supplying labor and material in the execution of the work provided for 
in the contract.
    (i) Contract provisions. A grantee's and subgrantee's contracts must 
contain provisions in paragraph (i) of this section. Federal agencies 
are permitted to require changes, remedies, changed conditions, access 
and records retention, suspension of work, and other clauses approved by 
the Office of Federal Procurement Policy.
    (1) Administrative, contractual, or legal remedies in instances 
where contractors violate or breach contract terms, and provide for such 
sanctions and penalties as may be appropriate. (Contracts more than the 
simplified acquisition threshold)
    (2) Termination for cause and for convenience by the grantee or 
subgrantee including the manner by which it will be effected and the 
basis for settlement. (All contracts in excess of $10,000)
    (3) Compliance with Executive Order 11246 of September 24, 1965, 
entitled ``Equal Employment Opportunity,'' as amended by Executive Order 
11375 of October 13, 1967, and as supplemented in Department of Labor 
regulations (41 CFR 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

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Energy Policy and Conservation Act (Pub. L. 94-163, 89 Stat. 871).

[53 FR 8044, 8087, Mar. 11, 1988, as amended at 60 FR 19639, 19641, Apr. 
19, 1995]



Sec. 3016.37  Subgrants.

    (a) States. States shall follow state law and procedures when 
awarding and administering subgrants (whether on a cost reimbursement or 
fixed amount basis) of financial assistance to local and Indian tribal 
governments. States shall:
    (1) Ensure that every subgrant includes any clauses required by 
Federal statute and executive orders and their implementing regulations;
    (2) Ensure that subgrantees are aware of requirements imposed upon 
them by Federal statute and regulation;
    (3) Ensure that a provision for compliance with Sec. 3016.42 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 3016.10;
    (2) Section 3016.11;
    (3) The letter-of-credit procedures specified in Treasury 
Regulations at 31 CFR part 205, cited in Sec. 3016.21; and
    (4) Section 3016.50.

              Reports, Records, Retention, and Enforcement



Sec. 3016.40  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.

[[Page 133]]

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



Sec. 3016.41  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 decisionmaking purposes.
    (4) Grantees will not be required to submit more than the original 
and two copies of forms required under this part.
    (5) Federal agencies may provide computer outputs to grantees to 
expedite or contribute to the accuracy of reporting. Federal agencies 
may accept the required information from grantees in machine usable 
format or computer printouts instead of prescribed forms.
    (6) Federal agencies may waive any report required by this section 
if not needed.
    (7) Federal agencies may extend the due date of any financial report 
upon receiving a justified request from a grantee.
    (b) Financial Status Report--(1) Form. Grantees will use Standard 
Form 269 or 269A, Financial Status Report, to report the status of funds 
for all nonconstruction grants and for construction grants when required 
in accordance with paragraph Sec. 3016.41(e)(2)(iii) of this section.

[[Page 134]]

    (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 accural basis, 
the grantee shall not be required to convert its accounting system but 
shall develop such accrual information through and analysis of the 
documentation on hand.
    (3) Frequency. The Federal agency may prescribe the frequency of the 
report for each project or program. However, the report will not be 
required more frequently than quarterly. If the Federal agency does not 
specify the frequency of the report, it will be submitted annually. A 
final report will be required upon expiration or termination of grant 
support.
    (4) Due date. When reports are required on a quarterly or semiannual 
basis, they will be due 30 days after the reporting period. When 
required on an annual basis, they will be due 90 days after the grant 
year. Final reports will be due 90 days after the expiration or 
termination of grant support.
    (c) Federal Cash Transactions Report--(1) Form. (i) For grants paid 
by letter or credit, Treasury check advances or electronic transfer of 
funds, the grantee will submit the Standard Form 272, Federal Cash 
Transactions Report, and when necessary, its continuation sheet, 
Standard Form 272a, unless the terms of the award exempt the grantee 
from this requirement.
    (ii) These reports will be used by the Federal agency to monitor 
cash advanced to grantees and to obtain disbursement or outlay 
information for each grant from grantees. The format of the report may 
be adapted as appropriate when reporting is to be accomplished with the 
assistance of automatic data processing equipment provided that the 
information to be submitted is not changed in substance.
    (2) Forecasts of Federal cash requirements. Forecasts of Federal 
cash requirements may be required in the ``Remarks'' section of the 
report.
    (3) Cash in hands of subgrantees. When considered necessary and 
feasible by the Federal agency, grantees may be required to report the 
amount of cash advances in excess of three days' needs in the hands of 
their subgrantees or contractors and to provide short narrative 
explanations of actions taken by the grantee to reduce the excess 
balances.
    (4) Frequency and due date. Grantees must submit the report no later 
than 15 working days following the end of each quarter. However, where 
an advance either by letter of credit or electronic transfer of funds is 
authorized at an annualized rate of one million dollars or more, the 
Federal agency may require the report to be submitted within 15 working 
days following the end of each month.
    (d) Request for advance or reimbursement--(1) Advance payments. 
Requests for Treasury check advance payments will be submitted on 
Standard Form 270, Request for Advance or Reimbursement. (This form will 
not be used for drawdowns under a letter of credit, electronic funds 
transfer or when Treasury check advance payments are made to the grantee 
automatically on a predetermined basis.)
    (2) Reimbursements. Requests for reimbursement under nonconstruction 
grants will also be submitted on Standard Form 270. (For reimbursement 
requests under construction grants, see paragraph (e)(1) of this 
section.)
    (3) The frequency for submitting payment requests is treated in 
Sec. 3016.41(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. 3016.41(d), instead of this form.
    (ii) The frequency for submitting reimbursement requests is treated 
in Sec. 3016.41(b)(3).
    (2) Grants that support construction activities paid by letter of 
credit, electronic funds transfer or Treasury check advance.

[[Page 135]]

    (i) When a construction grant is paid by letter of credit, 
electronic funds transfer or Treasury check advances, the grantee will 
report its outlays to the Federal agency using Standard Form 271, Outlay 
Report and Request for Reimbursement for Construction Programs. The 
Federal agency will provide any necessary special instruction. However, 
frequency and due date shall be governed by Sec. 3016.41(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. 3016.41(d).
    (iii) The Federal agency may substitute the Financial Status Report 
specified in Sec. 3016.41(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. 3016.41(b)(2).



Sec. 3016.42  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. 3016.36(i)(10).
    (b) Length of retention period. (1) Except as otherwise provided, 
records must be retained for three years from the starting date 
specified in paragraph (c) of this section.
    (2) If any litigation, claim, negotiation, audit or other action 
involving the records has been started before the expiration of the 3-
year period, the records must be retained until completion of the action 
and resolution of all issues which arise from it, or until the end of 
the regular 3-year period, whichever is later.
    (3) To avoid duplicate recordkeeping, awarding agencies may make 
special arrangements with grantees and subgrantees to retain any records 
which are continuously needed for joint use. The awarding agency will 
request transfer of records to its custody when it determines that the 
records possess long-term retention value. When the records are 
transferred to or maintained by the Federal agency, the 3-year retention 
requirement is not applicable to the grantee or subgrantee.
    (c) Starting date of retention period--(1) General. When grant 
support is continued or renewed at annual or other intervals, the 
retention period for the records of each funding period starts on the 
day the grantee or subgrantee submits to the awarding agency its single 
or last expenditure report for that period. However, if grant support is 
continued or renewed quarterly, the retention period for each year's 
records starts on the day the grantee submits its expenditure report for 
the last quarter of the Federal fiscal year. In all other cases, the 
retention period starts on the day the grantee submits its final 
expenditure report. If an expenditure report has been waived, the 
retention period starts on the day the report would have been due.
    (2) Real property and equipment records. The retention period for 
real property and equipment records starts 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

[[Page 136]]

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



Sec. 3016.43  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. 3016.35).

[[Page 137]]



Sec. 3016.44  Termination for convenience.

    Except as provided in Sec. 3016.43 awards may be terminated in whole 
or in part only as follows:
    (a) By the awarding agency with the consent of the grantee or 
subgrantee in which case the two parties shall agree upon the 
termination conditions, including the effective date and in the case of 
partial termination, the portion to be terminated, or
    (b) By the grantee or subgrantee upon written notification to the 
awarding agency, setting forth the reasons for such termination, the 
effective date, and in the case of partial termination, the portion to 
be terminated. However, if, in the case of a partial termination, the 
awarding agency determines that the remaining portion of the award will 
not accomplish the purposes for which the award was made, the awarding 
agency may terminate the award in its entirety under either Sec. 3016.43 
or paragraph (a) of this section.



                 Subpart D--After-the-Grant Requirements



Sec. 3016.50  Closeout.

    (a) General. The Federal agency will close out the award when it 
determines that all applicable administrative actions and all required 
work of the grant has been completed.
    (b) Reports. Within 90 days after the expiration or termination of 
the grant, the grantee must submit all financial, performance, and other 
reports required as a condition of the grant. Upon request by the 
grantee, Federal agencies may extend this timeframe. These may include 
but are not limited to:
    (1) Final performance or progress report.
    (2) Financial Status Report (SF 269) or Outlay Report and Request 
for Reimbursement for Construction Programs (SF-271) (as applicable.)
    (3) Final request for payment (SF-270) (if applicable).
    (4) Invention disclosure (if applicable).
    (5) Federally-owned property report:

In accordance with Sec. 3016.32(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. 3016.51  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. 3016.42;
    (d) Property management requirements in Secs. 3016.31 and 3016.32; 
and
    (e) Audit requirements in Sec. 3016.26.



Sec. 3016.52  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 adminstrative offset against other requests for 
reimbursements,
    (2) Withholding advance payments otherwise due to the grantee, or
    (3) Other action permitted by law.
    (b) Except where otherwise provided by statutes or regulations, the 
Federal agency will charge interest on an overdue debt in accordance 
with the Federal Claims Collection Standards (4

[[Page 138]]

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

    Source: 65 FR 49480, Aug. 14, 2000, unless otherwise noted.



Sec. 3016.60  Special procurement provisions.

    (a) Notwithstanding Secs. 3016.36(a) and 3016.37(a), States 
conducting procurements under grants or subgrants under the USDA 
entitlement programs specified in Sec. 3016.4(b) may elect to follow 
either the State laws, policies, and procedures as authorized by 
Secs. 3016.36(a) and 3016.37(a), or the procurement standards for other 
governmental grantees and all governmental subgrantees in accordance 
with Sec. 3016.36(b) through (i). Regardless of the option selected, 
States shall ensure that paragraphs (b) and (c) of this section are 
followed
    (b) When conducting a procurement under the USDA entitlement 
programs specified in Sec. 3016.4(b) of this part, a grantee or 
subgrantee may enter into a contract with a party that has provided 
specification information to the grantee or subgrantee for the grantee's 
or subgrantee's use in developing contract specifications for conducting 
such a procurement. In order to ensure objective contractor performance 
and eliminate unfair competitive advantage, however, a person that 
develops or drafts specifications, requirements, statements of work, 
invitations for bids, requests for proposals, contract terms and 
conditions or other documents for use by a grantee or subgrantee in 
conducting a procurement under the USDA entitlement programs specified 
in Sec. 3016.4(b) shall be excluded from competing for such 
procurements. Such persons are ineligible for contract awards resulting 
from such procurements regardless of the procurement method used. 
However, prospective contractors may provide grantees or subgrantees 
with specification information related to a procurement and still 
compete for the procurement if the grantee or subgrantee, and not the 
prospective contractor, develops or drafts the specifications, 
requirements, statements of work, invitations for bid, and/or requests 
for proposals used to conduct the procurement.
    (c) Procurements under USDA entitlement programs specified in 
Sec. 3016.4(b) shall be conducted in a manner that prohibits the use of 
statutorily or administratively imposed in-State or local geographic 
preferences except as provided for in Sec. 3016.36(c)(2).



Sec. 3016.61  Financial reporting.

    The financial reporting provisions found in Sec. 3016.41 do not 
apply to any of the USDA entitlement programs listed in Sec. 3016.4(b) 
except the Food Distribution Program on Indian Reservations. The 
financial reporting requirements for these entitlement programs are 
found in the following program regulations:
    (a) For the National School Lunch Program, 7 CFR part 210;
    (b) For the Special Milk Program for Children, 7 CFR part 215;
    (c) For the School Breakfast Program, 7 CFR part 220;
    (d) For the Summer Food Service Program for Children, 7 CFR part 
225;
    (e) For the Child and Adult Care Food Program, 7 CFR part 226;
    (f) For State Administrative Expense Funds under section 7 of the 
Child Nutrition Act of 1966, 7 CFR part 235; and
    (g) For State Administrative Expenses under section 16 of the Food 
Stamp Act of 1977, 7 CFR part 277.



PART 3017--GOVERNMENTWIDE DEBARMENT AND SUSPENSION (NONPROCUREMENT) AND GOVERNMENTWIDE REQUIREMENTS FOR DRUG-FREE WORKPLACE (GRANTS)--Table of Contents




                           Subpart A--General

Sec.
3017.100  Purpose.
3017.105  Definitions.
3017.110  Coverage.
3017.115  Policy.

                       Subpart B--Effect of Action

3017.200  Debarment or suspension.
3017.205  Ineligible persons.
3017.210  Voluntary exclusion.
3017.215  Exception provision.

[[Page 139]]

3017.220  Continuation of covered transactions.
3017.225  Failure to adhere to restrictions.

                          Subpart C--Debarment

3017.300  General.
3017.305  Causes for debarment.
3017.310  Procedures.
3017.311  Investigation and referral.
3017.312  Notice of proposed debarment.
3017.313  Opportunity to contest proposed debarment.
3017.314  Debarring official's decision.
3017.315  Settlement and voluntary exclusion.
3017.320  Period of debarment.
3017.325  Scope of debarment.

                          Subpart D--Suspension

3017.400  General.
3017.405  Causes for suspension.
3017.410  Procedures.
3017.411  Notice of suspension.
3017.412  Opportunity to contest suspension.
3017.413  Suspending official's decision.
3017.415  Period of suspension.
3017.420  Scope of suspension.

       Subpart E--Responsibilities of GSA, Agency and Participants

3017.500  GSA responsibilities.
3017.505  USDA responsibilities.
3017.510  Participants' responsibilities.
3017.515  Appeal of debarment or suspension decisions.

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

3017.600  Purpose.
3017.605  Definitions.
3017.610  Coverage.
3017.615  Grounds for suspension of payments, suspension or termination 
          of grants, or suspension or debarment.
3017.620  Effect of violation.
3017.625  Exception provision.
3017.630  Certification requirements and procedures.
3017.635  Reporting of and employee sanctions for convictions of 
          criminal drug offenses.

Appendix A to Part 3017--Certification Regarding Debarment, Suspension, 
          and Other Responsibility Matters--Primary Covered Transactions
Appendix B to Part 3017--Certification Regarding Debarment, Suspension, 
          Ineligibility and Voluntary Exclusion--Lower Tier Covered 
          Transactions
Appendix C to Part 3017--Certification Regarding Drug-Free Workplace 
          Requirements

    Authority: 5 U.S.C. 301; 41 U.S.C. 701 et seq.; E.O. 12549, 51 FR 
6370, 3 CFR, 1986 Comp., p. 189.

    Source: 54 FR 4731, Jan. 30, 1989, unless otherwise noted.

    Cross Reference: See also Office of Management and Budget notices 
published at 55 FR 21679, May 25, 1990, and 60 FR 33036, June 26, 1995.



                           Subpart A--General



Sec. 3017.100  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. 3017.105), 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--

[[Page 140]]

    (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, 33043, June 26, 1995]



Sec. 3017.105  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 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.
    (1) A USDA agency, when used in the context of USDA internal 
procedures or requirements, is any organizational unit of the U.S. 
Department of Agriculture with authority delegated in 7 CFR part 2 to 
carry out primary covered transactions under USDA programs.
    (2) [Reserved]
    Appeals officer. Any administrative law judge of the Office of 
Administrative Law Judges, Department of Agriculture.
    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 1986 (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.
    (i) In USDA, the authority to act as a debarring official is not 
delegated below the agency head, except that in the case of the Forest 
Service, the Chief may redelegate the authority to act as a debarring 
official to the Deputy Chief or an Associate Deputy Chief for the 
National Forest System.
    (ii) [Reserved]
    (3) In USDA, each Under Secretary, Assistant Secretary, or agency 
head who has been delegated authority in part 2 of this title to carry 
out a covered transaction is authorized to act as a debarring official 
in connection with such covered transaction.
    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

[[Page 141]]

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.
    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.
    (2) [Reserved]
    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.
    (i) In USDA, the authority to act as a suspending official is not 
delegated below the agency head, except that in the case of the Forest 
Service, the Chief may redelegate the authority to act as a suspending 
official to the Deputy Chief or an Associate Deputy Chief for the 
National Forest System.

[[Page 142]]

    (ii) [Reserved]
    (3) In USDA, each Under Secretary, Assistant Secretary, or agency 
head who has been delegated authority in part 2 of this title to carry 
out a covered transaction is authorized to act as a suspending official 
in connection with such covered transaction.
    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.''
    USDA. U.S. Department of Agriculture.
    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.

[54 FR 4731, Jan. 30, 1989, as amended at 60 FR 33040, 33043, June 26, 
1995; 63 FR 27667, May 20, 1998]



Sec. 3017.110  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 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

[[Page 143]]

    (vii) Other transactions where the application of these regulations 
would be prohibited by law.
    (3) Department of Agriculture covered transactions. (i) With respect 
to paragraph (a)(1) of this section, for USDA's export and foreign 
assistance programs, covered transactions will include only primary 
covered transactions. Any lower tier transactions with respect to UDSA's 
export and foreign assistance programs will not be considered lower tier 
covered transactions for the purposes of this part. The export or 
substitution of Federal timber governed by the Forest Resources 
Conservation and Shortage Relief Act of 1990, 16 U.S.C. 620 et seq. (the 
``Export Act''), is specifically excluded from the coverage of this 
rule. The Export Act provides separate statutory authority to debar 
persons engaged in both primary covered transactions and lower tier 
transactions.
    (ii) With respect to paragraph (a)(1)(ii)(B) of this section, for 
USDA's domestic food assistance programs, only the initial such 
procurement contract and the first tier subcontract under that 
procurement contract shall be considered lower tier covered 
transactions.
    (iii) With respect to paragraph (a)(2) of this section, the 
following USDA transactions also are not covered: transactions under 
programs which provide statutory entitlements and make available loans 
to individuals and entities in their capacity as producers of 
agricultural commodities; transactions under conservation programs; 
transactions under warehouse licensing programs; the receipt of 
licenses, permits, certificates, and indemnification under regulatory 
programs conducted in the interest of public health and safety and 
animal and plant health and safety; the receipt of official grading and 
inspection services, animal damage control services, public health and 
safety inspection services, and animal and plant health and safety 
inspection services; if the person is a State or local government, the 
provision of official grading and inspection services, animal damage 
control services, public health and safety inspection services, animal 
and plant health and safety inspection services; and permits, licenses, 
exchanges and other acquisitions of real property, rights of way, and 
easements under natural resource management programs.
    (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. 3017.200, ``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. 3017.110(a). Sections 3017.325, ``Scope of 
debarment,'' and 3017.420, ``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.

[54 FR 4731, Jan. 30, 1989, as amended at 60 FR 33041, 33043, June 26, 
1995; 61 FR 250, Jan. 4, 1996]



Sec. 3017.115  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.

[[Page 144]]

    (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.
    (d) In any case in which an administrative exclusion is considered 
under an authority other than this part, USDA will initiate, where 
appropriate, a debarment or suspension action under this part for the 
protection of the entire Federal Government.

[54 FR 4731, Jan. 30, 1989, as amended at 61 FR 251, Jan. 4, 1996]



                       Subpart B--Effect of Action



Sec. 3017.200  Debarment or suspension.

    (a) Primary covered transactions. Except to the extent prohibited by 
law, persons who are debarred or suspended shall be excluded from 
primary covered transactions as either participants or principals 
throughout the Executive Branch of the Federal Government for the period 
of their debarment, 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. 3017.215.
    (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. 3017.110(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.
    (d) Department of Agriculture excepted transactions. With respect to 
paragraph (c) of this section, the following USDA transactions also are 
excepted: transactions under programs which provide statutory 
entitlements and make available loans to individuals and entities in 
their capacity as producers of agricultural commodities; transations 
under conservation programs; transactions under warehouse licensing 
programs; the receipt of licenses, permits, certificates, and 
indemnification under regulatory programs conducted in the interest of 
public health and safety and animal and plant health and safety; the 
receipt of official grading and inspection services, animal damage 
control services, public health and safety inspection services, and 
animal and plant health and safety inspection services; if the person is 
a State or local government, the provision of official grading and 
inspection services, animal damage control services, public health and 
safety inspection services, and animal and plant health and safety 
inspection services; and permits, licenses, exchanges, and other 
acquisitions of real property, rights of way, and easements

[[Page 145]]

under natural resource management programs.

[60 FR 33041, 33043, June 26, 1995, as amended at 61 FR 251, Jan. 4, 
1996]



Sec. 3017.205  Ineligible persons.

    Persons who are ineligible, as defined in Sec. 3017.105(i), are 
excluded in accordance with the applicable statutory, executive order, 
or regulatory authority.



Sec. 3017.210  Voluntary exclusion.

    Persons who accept voluntary exclusions under Sec. 3017.315 are 
excluded in accordance with the terms of their settlements. USDA shall, 
and participants may, contact the original action agency to ascertain 
the extent of the exclusion.



Sec. 3017.215  Exception provision.

    USDA 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. 3017.200. 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. 3017.505(a).

[60 FR 33041, 33043, June 26, 1995]



Sec. 3017.220  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 under 48 CFR part 9, subpart 
9.4, ineligible or voluntary excluded, except as provided in 
Sec. 3017.215.

[60 FR 33041, 33043, June 26, 1995]



Sec. 3017.225  Failure to adhere to restrictions.

    (a) Except as permitted under Sec. 3017.215 or Sec. 3017.220, 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, 33043, June 26, 1995]



                          Subpart C--Debarment



Sec. 3017.300  General.

    The debarring official may debar a person for any of the causes in 
Sec. 3017.305, using procedures established in Secs. 3017.310 through 
Sec. 3017.314. 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

[[Page 146]]

any mitigating factors shall be considered in making any debarment 
decision.



Sec. 3017.305  Causes for debarment.

    Debarment may be imposed in accordance with the provisions of 
Secs. 3017.300 through Sec. 3017.314 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 
March 1, 1989, the effective date of these regulations 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. 3017.215 or Sec. 3017.220;
    (3) Failure to pay a single substantial debt, or a number of 
outstanding debts (including disallowed costs and overpayments, but not 
including sums owed 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. 3017.315 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. 3017.615 of 
this part.
    (d) Any other cause of so serious or compelling a nature that it 
affects the present responsibility of a person.

[54 FR 4731, Jan. 30, 1989, as amended at 54 FR 4952, Jan. 31, 1989]



Sec. 3017.310  Procedures.

    USDA shall process debarment actions as informally as practicable, 
consistent with the principles of fundamental fairness, using the 
procedures in Secs. 3017.311 through 3017.314.



Sec. 3017.311  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.
    (a) The decision to utilize agency personnel, the Office of 
Inspector General (OIG), or other appropriate resources to conduct the 
investigation and develop the documentation required by paragraph (b) of 
this section is the responsibility of the agency possessing the 
information.
    (b) Basic documentation shall be developed that includes but is not 
limited to:
    (1) The name of the specific respondent(s) against whom the action 
is being proposed or taken;
    (2) The reason(s) for proposing the debarment;

[[Page 147]]

    (3) The specific cause(s) for debarment from Sec. 3017.305;
    (4) A short narrative stating the facts and/or describing other 
evidence supporting the reason(s) for the need to debar;
    (5) The recommended time period for the debarment;
    (6) The potential effect and/or consequences that the debarment will 
have on the respondent(s);
    (7) Copies of any relevant support documentation identified under 
this section.
    (c) The debarring official shall be responsible for deciding whether 
or not to proceed with the action.
    (d) The Office of the General Counsel (OGC) is responsible for:
    (1) Reviewing the documentation and notices for legal sufficiency, 
and
    (2) Providing any necessary coordination with the Department of 
Justice (DOJ).

[54 FR 4722 and 4731, Jan. 30, 1989, as amended at 54 FR 4732, Jan. 30, 
1989]



Sec. 3017.312  Notice of proposed debarment.

    A debarment proceeding shall be initiated by notice to the 
respondent advising:
    (a) That debarment is being considered;
    (1) Information on the specific debarment action proposed must be 
given.
    (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. 3017.305 for proposing 
debarment;
    (d) Of the provisions of Secs. 3017.311 through 3017.314, and any 
other USDA procedures, if applicable, governing debarment 
decisionmaking; and
    (e) Of the potential effect of a debarment.

In USDA, the notice to the respondent shall be signed by the debarring 
official and transmitted by certified mail, return receipt requested. 
OGC will be consulted on all proposed debarment actions prior to the 
notice being sent to the respondent.

[54 FR 4722 and 4731, Jan. 30, 1989, as amended at 54 FR 4732, Jan. 30, 
1989]



Sec. 3017.313  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. 3017.314  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.
    (1) In USDA debarment actions where respondent(s) fail(s) to timely 
provide any submission in opposition, the action will be considered 
decided.
    (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.

[[Page 148]]

    (2) The debarring official may refer disputed material facts to 
another official for findings of fact. The debarring official may reject 
any such findings, in whole or in part, only after specifically 
determining them to be arbitrary and capricious or clearly erroneous.
    (3) The debarring official's decision shall be made after the 
conclusion of the proceedings with respect to disputed facts.
    (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. 3017.215.
    (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.
    (3) In USDA, the notice to the respondent shall be in writing, 
signed by the debarring official, and transmitted by certified mail, 
return receipt requested. The OGC will be consulted on all debarment 
actions prior to the notice being sent to the respondent.

[54 FR 4722 and 4731, Jan. 30, 1989, as amended at 54 FR 4732, Jan. 30, 
1989]



Sec. 3017.315  Settlement and voluntary exclusion.

    (a) When in the best interest of the Government, USDA 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).



Sec. 3017.320  Period of debarment.

    (a) Debarment shall be for a period commensurate with the 
seriousness of the cause(s). If a suspension precedes a debarment, the 
suspension period shall be considered in determining the debarment 
period.
    (1) Debarment for causes other than those related to a violation of 
the requirements of Subpart F of this part generally should not exceed 
three years. Where circumstances warrant, a longer period of debarment 
may be imposed.
    (2) In the case of a debarment for a violation of the requirements 
of Subpart F of this part (see 3017.305(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 Secs. 3017.311 through 3017.314 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 or other causes for which the debarment was imposed; 
or

[[Page 149]]

    (5) Other reasons the debarring official deems appropriate.

[54 FR 4731, Jan. 30, 1989, as amended at 54 FR 4952, Jan. 31, 1989]



Sec. 3017.325  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.
    (2) The debarment action may include any affiliate of the 
participant that is specifically named and given notice of the proposed 
debarment and an opportunity to respond (see Secs. 3017.311 through 
3017.314).
    (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 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. 3017.400  General.

    (a) The suspending official may suspend a person from any of the 
causes in Sec. 3017.405 using procedures established in Secs. 3017.410 
through 3017.413.
    (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. 3017.405, 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. 3017.405  Causes for suspension.

    (a) Suspension may be imposed in accordance with the provisions of 
Secs. 3017.400 through 3017.413 upon adequate evidence:
    (1) To suspect the commission of an offense listed in 
Sec. 3017.305(a); or
    (2) That a cause for debarment under Sec. 3017.305 may exist.
    (b) Indictment shall constitute adequate evidence for purposes of 
suspension actions.



Sec. 3017.410  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.
    (1) The decision to utilize agency personnel, OIG or other 
appropriate resources to conduct the investigation

[[Page 150]]

and develop the documentation required by paragraph (a)(2) of this 
section is the responsibility of the agency possessing the information.
    (2) Basic documentation shall be developed that includes but is not 
limited to:
    (i) The name of the specific respondent(s) against whom the 
suspension is to be taken;
    (ii) The reason(s) for proposing the suspension;
    (iii) The specific cause(s) for suspension from Sec. 3017.405;
    (iv) A short narrative stating the facts and/or describing other 
evidence supporting the reason(s) for the suspension;
    (v) The recommended time period for the suspension;
    (vi) The potential effect and/or consequences that the suspension 
will have on the respondent(s);
    (vii) Copies of any relevant support documentation identified under 
this section.
    (3) The suspending official shall be responsible for deciding 
whether or not to proceed with the suspension.
    (4) OGC is responsible for:
    (i) Reviewing the documentation and notice for legal sufficiency, 
and
    (ii) Providing any necessary coordination with DOJ.
    (b) Decisionmaking process. USDA shall process suspension actions as 
informally as practicable, consistent with principles of fundamental 
fairness, using the procedures in Sec. 3017.411 through Sec. 3017.413.

[54 FR 4722 and 4731, Jan. 30, 1989, as amended at 54 FR 4732, Jan. 30, 
1989]



Sec. 3017.411  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. 3017.405 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. 3017.411 through Sec. 3017.413 and any 
other USDA procedures, if applicable, governing suspension 
decisionmaking; and
    (g) Of the effect of the suspension.

In USDA, the notice to the respondent shall be signed by the suspending 
official and transmitted by certified mail, return receipt requested. 
OGC will be consulted on all proposed suspension actions prior to the 
notice being sent to the respondent.

[54 FR 4722 and 4731, Jan. 30, 1989, as amended at 54 FR 4732, Jan. 30, 
1989]



Sec. 3017.412  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.
    (A) In USDA, such determination shall be made by the suspending 
official, after coordination with OGC.
    (B) In USDA, the suspending official shall continue the suspension 
only if he/she determines, after consultation with OGC, that there is 
enough evidence to proceed without using the

[[Page 151]]

facts that DOJ has advised would prejudice the contemplated legal 
proceedings. If there is not such evidence, the suspension shall be 
terminated immediately without prejudice.
    (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.

[54 FR 4722 and 4731, Jan. 30, 1989, as amended at 54 FR 4732, Jan. 30, 
1989]



Sec. 3017.413  Suspending official's decision.

    The suspending official may modify or terminate the suspension (for 
example, see Sec. 3017.320(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.
    (1) In USDA, the suspending official shall terminate the suspension 
immediately when additional proceedings to determine disputed facts have 
been denied on the basis of DOJ advice. The agency, however, reserves 
the right to proceed with the suspension when DOJ completes its legal 
proceedings or is satisfied that the suspension no longer will prejudice 
DOJ's proceedings.
    (2) In USDA suspension actions, where the respondent(s) fail(s) to 
timely provide any submission in opposition, the action will be 
considered decided.
    (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 
specificially determining them to be arbitrary or capricious or clearly 
erroneous.
    (c) Notice of suspending official's decision. Prompt written notice 
of the suspending official's decision shall be sent to the respondent.
    (1) In USDA, the notice to the respondent shall be signed by the 
suspending official and transmitted by certified mail, return receipt 
requested. OGC will be consulted on all proposed suspension actions 
prior to the notice being sent to the respondent. The notice shall 
include the following:
    (i) Reference to the previously issued notice of suspension;
    (ii) The reason(s) for the action taken in this notice.
    (iii) The effective date(s) of the suspension taken in this notice 
and, where appropriate, the period of the suspension;
    (iv) Advice that the suspension is effective for covered 
transactions throughout the executive branch of the Federal Government 
unless an agency head or a designee authorized by an agency head makes a 
determination referred to in Sec. 3017.215.
    (b) [Reserved]

[54 FR 4722 and 4731, Jan. 30, 1989, as amended at 54 FR 4732, Jan. 30, 
1989]



Sec. 3017.415  Period of suspension.

    (a) Suspension shall be for a temporary period pending the 
completion of an investigation or ensuring legal, debarment, or Program 
Fraud Civil

[[Page 152]]

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.
    (1) The suspending official shall notify OGC which will notify DOJ 
of the impending termination of a suspension.
    (2) [Reserved]

[54 FR 4722 and 4731, Jan. 30, 1989, as amended at 54 FR 4733, Jan. 30, 
1989]



Sec. 3017.420  Scope of suspension.

    The scope of a suspension is the same as the scope of a debarment 
(see Sec. 3017.325), except that the procedures of Secs. 3017.410 
through 3017.413 shall be used in imposing a suspension.



       Subpart E--Responsibilities of GSA, Agency and Participants



Sec. 3017.500  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. 3017.505  USDA responsibilities.

    (a) The agency shall provide GSA with current information concerning 
debarments, suspensions, determinations of ineligibility, and voluntary 
exclusions it has taken. Until February 18, 1989, the agency shall also 
provide GSA and OMB with information concerning all transactions in 
which USDA has granted exceptions under Sec. 3017.215 permitting 
participation by debarred, suspended, or voluntarily excluded persons.
    (b) Unless an alternative schedule is agreed to by GSA, the agency 
shall advise GSA of the information set forth in Sec. 3017.500(b) and of 
the exceptions granted under Sec. 3017.215 within five working days 
after taking such actions.
    (1) Each communication with GSA regarding additions, deletions, or 
changes to the Nonprocurement List shall be in writing.
    (2) [Reserved]
    (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. ).
    (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.
    (f) USDA agencies shall provide the Office of Finance and Management 
(OFM) with a copy of any information provided to GSA pursuant to this 
section.
    (g) USDA agencies shall notify GSA and OFM, in writing, of debarment 
or

[[Page 153]]

suspension decisions overturned on appeal under Sec. 3017.515.

[54 FR 4722 and 4731, Jan. 30, 1989, as amended at 54 FR 4733, Jan. 30, 
1989]



Sec. 3017.510  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 not required to, check the Nonprocurement List for its principals 
(Tel. ). 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 
(Tel. ).
    (c) Changed circumstances regarding certification. A participant 
shall provide immediate written notice to USDA 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 proposal.



Sec. 3017.515  Appeal of debarment or suspension decisions.

    (a) If a decision to debar or suspend is made by a debarring or 
suspending official under Sec. 3017.314 or Sec. 3017.413, the respondent 
may appeal the decision to the Office of Administrative Law Judges 
(OALJ) by filing the appeal, in writing, to the Hearing Clerk, OALJ, 
United States Department of Agriculture, Washington, DC 20250. The 
appeal must be filed within 30 days of receiving the decision and it 
must specify the basis of the appeal. The decision of a debarring or 
suspending official under Sec. 3017.314 or Sec. 3017.413 may be vacated 
by the assigned appeals officer if the officer determines that the 
decision is:
    (1) Not in accordance with law;
    (2) Not based on the applicable standard of evidence; or
    (3) Arbitrary and capricious and an abuse of discretion.
    (b) The appeals officer will base his/her decision solely upon the 
administrative record.
    (c) Within 90 days of the date the appeal is filed with USDA's OALJ 
Hearing Clerk, the appeals officer will notify, in writing, the 
respondent(s) and the debarring or suspending official, who took the 
action being appealed, of his/her decision in the appeal. The notice 
must specify the reason(s) for the decision made by the appeals officer.
    (d) The appeals officer's decision is final and is not appealable 
within USDA.

[54 FR 4733, Jan. 30, 1989]



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

    Source: 55 FR 21688, 21691, May 25, 1990, unless otherwise noted.



Sec. 3017.600  Purpose.

    (a) The purpose of this subpart is to carry out the Drug-Free 
Workplace Act of 1988 by requiring that--

[[Page 154]]

    (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. 3017.605  Definitions.

    (a) Except as amended in this section, the definitions of 
Sec. 3017.105 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 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-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

[[Page 155]]

determination from a State government that such State considers the 
instrumentality to be an agency of the State government.



Sec. 3017.610  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. 3017.615  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. 3017.630;
    (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 paragraphs (A)(a)-(g) and/or (B) of the 
certification (Alternate I to Appendix C) or
    (2) Such a number 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. 3017.620  Effect of violation.

    (a) In the event of a violation of this subpart as provided in 
Sec. 3017.615, and in accordance with applicable law, the 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. 3017.320(a)(2) of this 
part).



Sec. 3017.625  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. 3017.630  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.

[[Page 156]]

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



Sec. 3017.635  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

[[Page 157]]

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.

(Approved by the Office of Management and Budget under control number 
0991-0002)

Appendix A to Part 3017--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 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.

[[Page 158]]

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, 33043, June 26, 1995]

Appendix B to Part 3017--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, 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

[[Page 159]]

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, 33043, June 26, 1995]

  Appendix C to Part 3017--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 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;

[[Page 160]]

    (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 paragraph (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 paragraph (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 [squ] 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.

[55 FR 21690, 21691, May 25, 1990]



PART 3018--NEW RESTRICTIONS ON LOBBYING--Table of Contents




                           Subpart A--General

Sec.
3018.100  Conditions on use of funds.
3018.105  Definitions.
3018.110  Certification and disclosure.

                 Subpart B--Activities by Own Employees

3018.200  Agency and legislative liaison.
3018.205  Professional and technical services.
3018.210  Reporting.

            Subpart C--Activities by Other Than Own Employees

3018.300  Professional and technical services.

                  Subpart D--Penalties and Enforcement

3018.400  Penalties.
3018.405  Penalty procedures.
3018.410  Enforcement.

                          Subpart E--Exemptions

3018.500  Secretary of Defense.

                        Subpart F--Agency Reports

3018.600  Semi-annual compilation.
3018.605  Inspector General report.

Appendix A to Part 3018--Certification Regarding Lobbying
Appendix B to Part 3018--Disclosure Form to Report Lobbying

    Authority: Sec. 319, Pub. L. 101-121 (31 U.S.C. 1352); 5 U.S.C. 301.

    Source: 55 FR 6737 and 6746, Feb. 26, 1990.

[[Page 161]]


    Cross Reference: See also Office of Management and Budget notice 
published at 54 FR 52306, December 20, 1989.



                           Subpart A--General



Sec. 3018.100  Conditions on use of funds.

    (a) No appropriated funds may be expended by the recipient of a 
Federal contract, grant, loan, or cooperative ageement to pay any person 
for influencing or attempting to influence an officer or employee of any 
agency, a Member of Congress, an officer or employee of Congress, or an 
employee of a Member of Congress in connection with any of the following 
covered Federal actions: the awarding of any Federal contract, the 
making of any Federal grant, the making of any Federal loan, the 
entering into of any cooperative agreement, and the extension, 
continuation, renewal, amendment, or modification of any Federal 
contract, grant, loan, or cooperative agreement.
    (b) Each person who requests or receives from an agency a Federal 
contract, grant, loan, or cooperative agreement shall file with that 
agency a certification, set forth in Appendix A, that the person has not 
made, and will not make, any payment prohibited by paragraph (a) of this 
section.
    (c) Each person who requests or receives from an agency a Federal 
contract, grant, loan, or a cooperative agreement shall file with that 
agency a disclosure form, set forth in Appendix B, if such person has 
made or has agreed to make any payment using nonappropriated funds (to 
include profits from any covered Federal action), which would be 
prohibited under paragraph (a) of this section if paid for with 
appropriated funds.
    (d) Each person who requests or receives from an agency a commitment 
providing for the United States to insure or guarantee a loan shall file 
with that agency a statement, set forth in Appendix A, whether that 
person has made or has agreed to make any payment to influence or 
attempt to influence an officer or employee of any agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with that loan insurance or guarantee.
    (e) Each person who requests or receives from an agency a commitment 
providing for the United States to insure or guarantee a loan shall file 
with that agency a disclosure form, set forth in Appendix B, if that 
person has made or has agreed to make any payment to influence or 
attempt to influence an officer or employee of any agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with that loan insurance or guarantee.



Sec. 3018.105  Definitions.

    For purposes of this part:
    (a) Agency, as defined in 5 U.S.C. 552(f), includes Federal 
executive departments and agencies as well as independent regulatory 
commissions and Government corporations, as defined in 31 U.S.C. 
9101(1).
    (b) Covered Federal action means any of the following Federal 
actions:
    (1) The awarding of any Federal contract;
    (2) The making of any Federal grant;
    (3) The making of any Federal loan;
    (4) The entering into of any cooperative agreement; and,
    (5) The extension, continuation, renewal, amendment, or modification 
of any Federal contract, grant, loan, or cooperative agreement.

Covered Federal action does not include receiving from an agency a 
commitment providing for the United States to insure or guarantee a 
loan. Loan guarantees and loan insurance are addressed independently 
within this part.
    (c) Federal contract means an acquisition contract awarded by an 
agency, including those subject to the Federal Acquisition Regulation 
(FAR), and any other acquisition contract for real or personal property 
or services not subject to the FAR.
    (d) Federal cooperative agreement means a cooperative agreement 
entered into by an agency.
    (e) Federal grant means an award of financial assistance in the form 
of money, or property in lieu of money, by the Federal Government or a 
direct

[[Page 162]]

appropriation made by law to any person. 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, loan 
insurance, interest subsidies, insurance, or direct United States cash 
assistance to an individual.
    (f) Federal loan means a loan made by an agency. The term does not 
include loan guarantee or loan insurance.
    (g) Indian tribe and tribal organization have the meaning provided 
in section 4 of the Indian Self-Determination and Education Assistance 
Act (25 U.S.C. 450B). Alaskan Natives are included under the definitions 
of Indian tribes in that Act.
    (h) Influencing or attempting to influence means making, with the 
intent to influence, any communication to or appearance before an 
officer or employee or any agency, a Member of Congress, an officer or 
employee of Congress, or an employee of a Member of Congress in 
connection with any covered Federal action.
    (i) Loan guarantee and loan insurance means an agency's guarantee or 
insurance of a loan made by a person.
    (j) Local government means a unit of government in a State and, if 
chartered, established, or otherwise recognized by a State for the 
performance of a governmental duty, including a local public authority, 
a special district, an intrastate district, a council of governments, a 
sponsor group representative organization, and any other instrumentality 
of a local government.
    (k) Officer or employee of an agency includes the following 
individuals who are employed by an agency:
    (1) An individual who is appointed to a position in the Government 
under title 5, U.S. Code, including a position under a temporary 
appointment;
    (2) A member of the uniformed services as defined in section 101(3), 
title 37, U.S. Code;
    (3) A special Government employee as defined in section 202, title 
18, U.S. Code; and,
    (4) An individual who is a member of a Federal advisory committee, 
as defined by the Federal Advisory Committee Act, title 5, U.S. Code 
appendix 2.
    (l) Person means an individual, corporation, company, association, 
authority, firm, partnership, society, State, and local government, 
regardless of whether such entity is operated for profit or not for 
profit. This term excludes an Indian tribe, tribal organization, or any 
other Indian organization with respect to expenditures specifically 
permitted by other Federal law.
    (m) Reasonable compensation means, with respect to a regularly 
employed officer or employee of any person, compensation that is 
consistent with the normal compensation for such officer or employee for 
work that is not furnished to, not funded by, or not furnished in 
cooperation with the Federal Government.
    (n) Reasonable payment means, with respect to perfessional and other 
technical services, a payment in an amount that is consistent with the 
amount normally paid for such services in the private sector.
    (o) Recipient includes all contractors, subcontractors at any tier, 
and subgrantees at any tier of the recipient of funds received in 
connection with a Federal contract, grant, loan, or cooperative 
agreement. The term excludes an Indian tribe, tribal organization, or 
any other Indian organization with respect to expenditures specifically 
permitted by other Federal law.
    (p) Regularly employed means, with respect to an officer or employee 
of a person requesting or receiving a Federal contract, grant, loan, or 
cooperative agreement or a commitment providing for the United States to 
insure or guarantee a loan, an officer or employee who is employed by 
such person for at least 130 working days within one year immediately 
preceding the date of the submission that initiates agency consideration 
of such person for receipt of such contract, grant, loan, cooperative 
agreement, loan insurance commitment, or loan guarantee commitment. An 
officer or employee who is employed by such person for less than 130 
working days within one year immediately preceding the date of the 
submission that initiates agency consideration of such person shall be 
considered to be regularly employed as

[[Page 163]]

soon as he or she is employed by such person for 130 working days.
    (q) State means a State of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, a territory or possession of 
the United States, an agency or instrumentality of a State, and a multi-
State, regional, or interstate entity having governmental duties and 
powers.



Sec. 3018.110  Certification and disclosure.

    (a) Each person shall file a certification, and a disclosure form, 
if required, with each submission that initiates agency consideration of 
such person for:
    (1) Award of a Federal contract, grant, or cooperative agreement 
exceeding $100,000; or
    (2) An award of a Federal loan or a commitment providing for the 
United States to insure or guarantee a loan exceeding $150,000.
    (b) Each person shall file a certification, and a disclosure form, 
if required, upon receipt by such person of:
    (1) A Federal contract, grant, or cooperative agreement exceeding 
$100,000; or
    (2) A Federal loan or a commitment providing for the United States 
to insure or guarantee a loan exceeding $150,000,

Unless such person previously filed a certification, and a disclosure 
form, if required, under paragraph (a) of this section.
    (c) Each person shall file a disclosure form at the end of each 
calendar quarter in which there occurs any event that requires 
disclosure or that materially affects the accuracy of the information 
contained in any disclosure form previously filed by such person under 
paragraphs (a) or (b) of this section. An event that materially affects 
the accuracy of the information reported includes:
    (1) A cumulative increase of $25,000 or more in the amount paid or 
expected to be paid for influencing or attempting to influence a covered 
Federal action; or
    (2) A change in the person(s) or individual(s) influencing or 
attempting to influence a covered Federal action; or,
    (3) A change in the officer(s), employee(s), or Member(s) contacted 
to influence or attempt to influence a covered Federal action.
    (d) Any person who requests or receives from a person referred to in 
paragraphs (a) or (b) of this section:
    (1) A subcontract exceeding $100,000 at any tier under a Federal 
contract;
    (2) A subgrant, contract, or subcontract exceeding $100,000 at any 
tier under a Federal grant;
    (3) A contract or subcontract exceeding $100,000 at any tier under a 
Federal loan exceeding $150,000; or,
    (4) A contract or subcontract exceeding $100,000 at any tier under a 
Federal cooperative agreement,

Shall file a certification, and a disclosure form, if required, to the 
next tier above.
    (e) All disclosure forms, but not certifications, shall be forwarded 
from tier to tier until received by the person referred to in paragraphs 
(a) or (b) of this section. That person shall forward all disclosure 
forms to the agency.
    (f) Any certification or disclosure form filed under paragraph (e) 
of this section shall be treated as a material representation of fact 
upon which all receiving tiers shall rely. All liability arising from an 
erroneous representation shall be borne solely by the tier filing that 
representation and shall not be shared by any tier to which the 
erroneous representation is forwarded. Submitting an erroneous 
certification or disclosure constitutes a failure to file the required 
certification or disclosure, respectively. If a person fails to file a 
required certification or disclosure, the United States may pursue all 
available remedies, including those authorized by section 1352, title 
31, U.S. Code.
    (g) For awards and commitments in process prior to December 23, 
1989, but not made before that date, certifications shall be required at 
award or commitment, covering activities occurring between December 23, 
1989, and the date of award or commitment. However, for awards and 
commitments in process prior to the December 23, 1989 effective date of 
these provisions, but not made before December 23, 1989, disclosure 
forms shall not be required at time of award or commitment but shall be 
filed within 30 days.

[[Page 164]]

    (h) No reporting is required for an activity paid for with 
appropriated funds if that activity is allowable under either Subpart B 
or C.



                 Subpart B--Activities by Own Employees



Sec. 3018.200  Agency and legislative liaison.

    (a) The prohibition on the use of appropriated funds, in 
Sec. 3018.100 (a), does not apply in the case of a payment of reasonable 
compensation made to an officer or employee of a person requesting or 
receiving a Federal contract, grant, loan, or cooperative agreement if 
the payment is for agency and legislative liaison activities not 
directly related to a covered Federal action.
    (b) For purposes of paragraph (a) of this section, providing any 
information specifically requested by an agency or Congress is allowable 
at any time.
    (c) For purposes of paragraph (a) of this section, the following 
agency and legislative liaison activities are allowable at any time only 
where they are not related to a specific solicitation for any covered 
Federal action:
    (1) Discussing with an agency (including individual demonstrations) 
the qualities and characteristics of the person's products or services, 
conditions or terms of sale, and service capabilities; and,
    (2) Technical discussions and other activities regarding the 
application or adaptation of the person's products or services for an 
agency's use.
    (d) For purposes of paragraph (a) of this section, the following 
agencies and legislative liaison activities are allowable only where 
they are prior to formal solicitation of any covered Federal action:
    (1) Providing any information not specifically requested but 
necessary for an agency to make an informed decision about initiation of 
a covered Federal action;
    (2) Technical discussions regarding the preparation of an 
unsolicited proposal prior to its official submission; and,
    (3) Capability presentations by persons seeking awards from an 
agency pursuant to the provisions of the Small Business Act, as amended 
by Public Law 95-507 and other subsequent amendments.
    (e) Only those activities expressly authorized by this section are 
allowable under this section.



Sec. 3018.205  Professional and technical services.

    (a) The prohibition on the use of appropriated funds, in 
Sec. 3018.100 (a), does not apply in the case of a payment of reasonable 
compensation made to an officer or employee of a person requesting or 
receiving a Federal contract, grant, loan, or cooperative agreement or 
an extension, continuation, renewal, amendment, or modification of a 
Federal contract, grant, loan, or cooperative agreement if payment is 
for professional or technical services rendered directly in the 
preparation, submission, or negotiation of any bid, proposal, or 
application for that Federal contract, grant, loan, or cooperative 
agreement or for meeting requirements imposed by or pursuant to law as a 
condition for receiving that Federal contract, grant, loan, or 
cooperative agreement.
    (b) For purposes of paragraph (a) of this section, ``professional 
and technical services'' shall be limited to advice and analysis 
directly applying any professional or technical discipline. For example, 
drafting of a legal document accompanying a bid or proposal by a lawyer 
is allowable. Similarly, technical advice provided by an engineer on the 
performance or operational capability of a piece of equipment rendered 
directly in the negotiation of a contract is allowable. However, 
communications with the intent to influence made by a professional (such 
as a licensed lawyer) or a technical person (such as a licensed 
accountant) are not allowable under this section unless they provide 
advice and analysis directly applying their professional or technical 
expertise and unless the advice or analysis is rendered directly and 
solely in the preparation, submission or negotiation of a covered 
Federal action. Thus, for example, communications with the intent to 
influence made by a lawyer that do not provide legal advice or analysis 
directly and solely related to the legal aspects of

[[Page 165]]

his or her client's proposal, but generally advocate one proposal over 
another are not allowable under this section because the lawyer is not 
providing professional legal services. Similarly, communications with 
the intent to influence made by an engineer providing an engineering 
analysis prior to the preparation or submission of a bid or proposal are 
not allowable under this section since the engineer is providing 
technical services but not directly in the preparation, submission or 
negotiation of a covered Federal action.
    (c) Requirements imposed by or pursuant to law as a condition for 
receiving a covered Federal award include those required by law or 
regulation, or reasonably expected to be required by law or regulation, 
and any other requirements in the actual award documents.
    (d) Only those services expressly authorized by this section are 
allowable under this section.



Sec. 3018.210  Reporting.

    No reporting is required with respect to payments of reasonable 
compensation made to regularly employed officers or employees of a 
person.



            Subpart C--Activities by Other Than Own Employees



Sec. 3018.300  Professional and technical services.

    (a) The prohibition on the use of appropriated funds, in 
Sec. 3018.100 (a), does not apply in the case of any reasonable payment 
to a person, other than an officer or employee of a person requesting or 
receiving a covered Federal action, if the payment is for professional 
or technical services rendered directly in the preparation, submission, 
or negotiation of any bid, proposal, or application for that Federal 
contract, grant, loan, or cooperative agreement or for meeting 
requirements imposed by or pursuant to law as a condition for receiving 
that Federal contract, grant, loan, or cooperative agreement.
    (b) The reporting requirements in Sec. 3018.110 (a) and (b) 
regarding filing a disclosure form by each person, if required, shall 
not apply with respect to professional or technical services rendered 
directly in the preparation, submission, or negotiation of any 
commitment providing for the United States to insure or guarantee a 
loan.
    (c) For purposes of paragraph (a) of this section, ``professional 
and technical services'' shall be limited to advice and analysis 
directly applying any professional or technical discipline. For example, 
drafting or a legal document accompanying a bid or proposal by a lawyer 
is allowable. Similarly, technical advice provided by an engineer on the 
performance or operational capability of a piece of equipment rendered 
directly in the negotiation of a contract is allowable. However, 
communications with the intent to influence made by a professional (such 
as a licensed lawyer) or a technical person (such as a licensed 
accountant) are not allowable under this section unless they provide 
advice and analysis directly applying their professional or technical 
expertise and unless the advice or analysis is rendered directly and 
solely in the preparation, submission or negotiation of a covered 
Federal action. Thus, for example, communications with the intent to 
influence made by a lawyer that do not provide legal advice or analysis 
directly and solely related to the legal aspects of his or her client's 
proposal, but generally advocate one proposal over another are not 
allowable under this section because the lawyer is not providing 
professional legal services. Similarly, communications with the intent 
to influence made by an engineer providing an engineering analysis prior 
to the preparation or submission of a bid or proposal are not allowable 
under this section since the engineer is providing technical services 
but not directly in the preparation, submission or negotiation of a 
covered Federal action.
    (d) Requirements imposed by or pursuant to law as a condition for 
receiving a covered Federal award include those required by law or 
regulation, or reasonably expected to be required by law or regulation, 
and any other requirements in the actual award documents.

[[Page 166]]

    (e) Persons other than officers or employees of a person requesting 
or receiving a covered Federal action include consultants and trade 
associations.
    (f) Only those services expressly authorized by this section are 
allowable under this section.



                  Subpart D--Penalties and Enforcement



Sec. 3018.400  Penalties.

    (a) Any person who makes an expenditure prohibited herein shall be 
subject to a civil penalty of not less than $10,000 and not more than 
$100,000 for each such expenditure.
    (b) Any person who fails to file or amend the disclosure form (see 
Appendix B) to be filed or amended if required herein, shall be subject 
to a civil penalty of not less than $10,000 and not more than $100,000 
for each such failure.
    (c) A filing or amended filing on or after the date on which an 
administrative action for the imposition of a civil penalty is commenced 
does not prevent the imposition of such civil penalty for a failure 
occurring before that date. An administrative action is commenced with 
respect to a failure when an investigating official determines in 
writing to commence an investigation of an allegation of such failure.
    (d) In determining whether to impose a civil penalty, and the amount 
of any such penalty, by reason of a violation by any person, the agency 
shall consider the nature, circumstances, extent, and gravity of the 
violation, the effect on the ability of such person to continue in 
business, any prior violations by such person, the degree of culpability 
of such person, the ability of the person to pay the penalty, and such 
other matters as may be appropriate.
    (e) First offenders under paragraphs (a) or (b) of this section 
shall be subject to a civil penalty of $10,000, absent aggravating 
circumstances. Second and subsequent offenses by persons shall be 
subject to an appropriate civil penalty between $10,000 and $100,000, as 
determined by the agency head or his or her designee.
    (f) An imposition of a civil penalty under this section does not 
prevent the United States from seeking any other remedy that may apply 
to the same conduct that is the basis for the imposition of such civil 
penalty.



Sec. 3018.405  Penalty procedures.

    Agencies shall impose and collect civil penalties pursuant to the 
provisions of the Program Fraud and Civil Remedies Act, 31 U.S.C. 
sections 3803 (except subsection (c)), 3804, 3805, 3806, 3807, 3808, and 
3812, insofar as these provisions are not inconsistent with the 
requirements herein.



Sec. 3018.410  Enforcement.

    The head of each agency shall take such actions as are necessary to 
ensure that the provisions herein are vigorously implemented and 
enforced in that agency.



                          Subpart E--Exemptions



Sec. 3018.500  Secretary of Defense.

    (a) The Secretary of Defense may exempt, on a case-by-case basis, a 
covered Federal action from the prohibition whenever the Secretary 
determines, in writing, that such an exemption is in the national 
interest. The Secretary shall transmit a copy of each such written 
exemption to Congress immediately after making such a determination.
    (b) The Department of Defense may issue supplemental regulations to 
implement paragraph (a) of this section.



                        Subpart F--Agency Reports



Sec. 3018.600  Semi-annual compilation.

    (a) The head of each agency shall collect and compile the disclosure 
reports (see appendix B) and, on May 31 and November 30 of each year, 
submit to the Secretary of the Senate and the Clerk of the House of 
Representatives a report containing a compilation of the information 
contained in the disclosure reports received during the six-month period 
ending on March 31 or September 30, respectively, of that year.
    (b) The report, including the compilation, shall be available for 
public inspection 30 days after receipt of the report by the Secretary 
and the Clerk.

[[Page 167]]

    (c) Information that involves intelligence matters shall be reported 
only to the Select Committee on Intelligence of the Senate, the 
Permanent Select Committee on Intelligence of the House of 
Representatives, and the Committees on Appropriations of the Senate and 
the House of Representatives in accordance with procedures agreed to by 
such committees. Such information shall not be available for public 
inspection.
    (d) Information that is classified under Executive Order 12356 or 
any successor order shall be reported only to the Committee on Foreign 
Relations of the Senate and the Committee on Foreign Affairs of the 
House of Representatives or the Committees on Armed Services of the 
Senate and the House of Representatives (whichever such committees have 
jurisdiction of matters involving such information) and to the 
Committees on Appropriations of the Senate and the House of 
Representatives in accordance with procedures agreed to by such 
committees. Such information shall not be available for public 
inspection.
    (e) The first semi-annual compilation shall be submitted on May 31, 
1990, and shall contain a compilation of the disclosure reports received 
from December 23, 1989 to March 31, 1990.
    (f) Major agencies, designated by the Office of Management and 
Budget (OMB), are required to provide machine-readable compilations to 
the Secretary of the Senate and the Clerk of the House of 
Representatives no later than with the compilations due on May 31, 1991. 
OMB shall provide detailed specifications in a memorandum to these 
agencies.
    (g) Non-major agencies are requested to provide machine-readable 
compilations to the Secretary of the Senate and the Clerk of the House 
of Representatives.
    (h) Agencies shall keep the originals of all disclosure reports in 
the official files of the agency.



Sec. 3018.605  Inspector General report.

    (a) The Inspector General, or other official as specified in 
paragraph (b) of this section, of each agency shall prepare and submit 
to Congress each year, commencing with submission of the President's 
Budget in 1991, an evaluation of the compliance of that agency with, and 
the effectiveness of, the requirements herein. The evaluation may 
include any recommended changes that may be necessary to strengthen or 
improve the requirements.
    (b) In the case of an agency that does not have an Inspector 
General, the agency official comparable to an Inspector General shall 
prepare and submit the annual report, or, if there is no such comparable 
official, the head of the agency shall prepare and submit the annual 
report.
    (c) The annual report shall be submitted at the same time the agency 
submits its annual budget justifications to Congress.
    (d) The annual report shall include the following: All alleged 
violations relating to the agency's covered Federal actions during the 
year covered by the report, the actions taken by the head of the agency 
in the year covered by the report with respect to those alleged 
violations and alleged violations in previous years, and the amounts of 
civil penalties imposed by the agency in the year covered by the report.

        Appendix A to Part 3018--Certification Regarding Lobbying

 Certification for Contracts, Grants, Loans, and Cooperative Agreements

    The undersigned certifies, to the best of his or her knowledge and 
belief, that:
    (1) No Federal appropriated funds have been paid or will be paid, by 
or on behalf of the undersigned, to any person for influencing or 
attempting to influence an officer or employee of an agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with the awarding of any Federal contract, the 
making of any Federal grant, the making of any Federal loan, the 
entering into of any cooperative agreement, and the extension, 
continuation, renewal, amendment, or modification of any Federal 
contract, grant, loan, or cooperative agreement.
    (2) If any funds other than Federal appropriated funds have been 
paid or will be paid to any person for influencing or attempting to 
influence an officer or employee of any agency, a Member of Congress, an 
officer or employee of Congress, or an employee of a Member of Congress 
in connection with this Federal contract, grant, loan, or cooperative 
agreement, the undersigned shall complete

[[Page 168]]

and submit Standard Form-LLL, ``Disclosure Form to Report Lobbying,'' in 
accordance with its instructions.
    (3) The undersigned shall require that the language of this 
certification be included in the award documents for all subawards at 
all tiers (including subcontracts, subgrants, and contracts under 
grants, loans, and cooperative agreements) and that all subrecipients 
shall certify and disclose accordingly.
    This certification is a material representation of fact upon which 
reliance was placed when this transaction was made or entered into. 
Submission of this certification is a prerequisite for making or 
entering into this transaction imposed by section 1352, title 31, U.S. 
Code. Any person who fails to file the required certification shall be 
subject to a civil penalty of not less than $10,000 and not more than 
$100,000 for each such failure.

            Statement for Loan Guarantees and Loan Insurance

    The undersigned states, to the best of his or her knowledge and 
belief, that:
    If any funds have been paid or will be paid to any person for 
influencing or attempting to influence an officer or employee of any 
agency, a Member of Congress, an officer or employee of Congress, or an 
employee of a Member of Congress in connection with this commitment 
providing for the United States to insure or guarantee a loan, the 
undersigned shall complete and submit Standard Form-LLL, ``Disclosure 
Form to Report Lobbying,'' in accordance with its instructions.
    Submission of this statement is a prerequisite for making or 
entering into this transaction imposed by section 1352, title 31, U.S. 
Code. Any person who fails to file the required statement shall be 
subject to a civil penalty of not less than $10,000 and not more than 
$100,000 for each such failure.

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       Appendix B to Part 3018--Disclosure Form to Report Lobbying
[GRAPHIC] [TIFF OMITTED] TC13SE91.000


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[GRAPHIC] [TIFF OMITTED] TC13SE91.001


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[GRAPHIC] [TIFF OMITTED] TC13SE91.002


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PART 3019--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND AGREEMENTS WITH INSTITUTIONS OF HIGHER EDUCATION, HOSPITALS, AND OTHER NON-PROFIT ORGANIZATIONS--Table of Contents




                           Subpart A--General

Sec.
3019.1  Purpose.
3019.2  Definitions.
3019.3  Effect on other issuances.
3019.4  Deviations.
3019.5  Subawards.

                    Subpart B--Pre-Award Requirements

3019.10  Purpose.
3019.11  Pre-award policies.
3019.12  Forms for applying for Federal assistance.
3019.13  Debarment and suspension.
3019.14  Special award conditions.
3019.15  Metric system of measurement.
3019.16  Resource Conservation and Recovery Act.
3019.17  Certifications and representations.

                   Subpart C--Post-Award Requirements

                    Financial and Program Management

3019.20  Purpose of financial and program management.
3019.21  Standards for financial management systems.
3019.22  Payment.
3019.23  Cost sharing or matching.
3019.24  Program income.
3019.25  Revision of budget and program plans.
3019.26  Non-Federal audits.
3019.27  Allowable costs.
3019.28  Period of availability of funds.

                           Property Standards

3019.30  Purpose of property standards.
3019.31  Insurance coverage.
3019.32  Real property.
3019.33  Federally-owned and exempt property.
3019.34  Equipment.
3019.35  Supplies and other expendable property.
3019.36  Intangible property.
3019.37  Property trust relationship.

                          Procurement Standards

3019.40  Purpose of procurement standards.
3019.41  Recipient responsibilities.
3019.42  Codes of conduct.
3019.43  Competition.
3019.44  Procurement procedures.
3019.45  Cost and price analysis.
3019.46  Procurement records.
3019.47  Contract administration.
3019.48  Contract provisions.

                           Reports and Records

3019.50  Purpose of reports and records.
3019.51  Monitoring and reporting program performance.
3019.52  Financial reporting.
3019.53  Retention and access requirements for records.

                       Termination and Enforcement

3019.60  Purpose of termination and enforcement.
3019.61  Termination.
3019.62  Enforcement.

                 Subpart D--After-the-Award Requirements

3019.70  Purpose.
3019.71  Closeout procedures.
3019.72  Subsequent adjustments and continuing responsibilities.
3019.73  Collection of amounts due.

Appendix A to Part 3019--Contract Provisions

    Authority: 5 U.S.C. 301; 31 U.S.C. 901-903; 7 CFR 2.28.

    Source: 60 FR 44124, Aug. 24, 1995, unless otherwise noted.



                           Subpart A--General



Sec. 3019.1  Purpose.

    (a) This part establishes uniform administrative requirements for 
Federal grants and agreements awarded to institutions of higher 
education, hospitals, and other non-profit organizations. Federal 
awarding agencies shall not impose additional or inconsistent 
requirements, except as provided in Secs. 3019.4, and 3019.14 or unless 
specifically required by Federal statute or executive order. Non-profit 
organizations that implement Federal programs for the States are also 
subject to State requirements.
    (b) This part also applies specifically to the grants, agreements 
and subawards to institutions of higher education, hospitals, and other 
non-profit organizations that are awarded to carry out the following 
entitlement programs:
    (1) Entitlement grants under the following programs authorized by 
The Richard B. Russell National School Lunch Act:

[[Page 173]]

    (i) National School Lunch Program, General Assistance (section 4 of 
the Act),
    (ii) Commodity Assistance (section 6 of the Act),
    (iii) National School Lunch Program, Special Meal Assistance 
(section 11 of the Act),
    (iv) Summer Food Service Program for Children (section 13 of the 
Act), and
    (v) Child and Adult Care Food Program (section 17 of the Act).
    (2) Entitlement grants under the following programs authorized by 
The Child Nutrition Act of 1966:
    (i) Special Milk Program for Children (section 3 of the Act), and
    (ii) School Breakfast Program (section 4 of the Act).
    (3) Entitlement grants for State Administrative Expenses under The 
Food Stamp Act of 1977 (section 16 of the Act).

[60 FR 44124, Aug. 24, 1995, as amended at 65 FR 49480, Aug. 14, 2000]



Sec. 3019.2  Definitions.

    (a) Accrued expenditures means the charges incurred by the recipient 
during a given period requiring the provision of funds for:
    (1) Goods and other tangible property received;
    (2) Services performed by employees, contractors, subrecipients, and 
other payees; and
    (3) Other amounts becoming owed under programs for which no current 
services or performance is required.
    (b) Accrued income means the sum of:
    (1) Earnings during a given period from:
    (i) Services performed by the recipient, and
    (ii) Goods and other tangible property delivered to purchasers, and
    (2) Amounts becoming owed to the recipient for which no current 
services or performance is required by the recipient.
    (c) Acquisition cost of equipment means the net invoice price of the 
equipment, 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 recipient's regular accounting 
practices.
    (d) Advance means a payment made by Treasury check or other 
appropriate payment mechanism to a recipient upon its request either 
before outlays are made by the recipient or through the use of 
predetermined payment schedules.
    (e) Award means financial assistance that provides support or 
stimulation to accomplish a public purpose. Awards include grants and 
other agreements in the form of money or property in lieu of money, by 
the Federal Government to an eligible recipient. The term does not 
include: technical assistance, which provides services instead of money; 
other assistance in the form of loans, loan guarantees, interest 
subsidies, or insurance; direct payments of any kind to individuals; 
contracts which are required to be entered into and administered under 
procurement laws and regulations; and those agreements that are entered 
into under the authorities provided by sections 1472(b), 1473A, and 
1473C of the National Research Extension, and Teaching Policy Act of 
1977 (as amended by the Food Security Act (7 U.S.C. 3318, 3319a and 
3319c.) and subsequent authorizations.
    (f) Cash contributions means the recipient's cash outlay, including 
the outlay of money contributed to the recipient by third parties.
    (g) Closeout means the process by which a Federal awarding agency 
determines that all applicable administrative actions and all required 
work of the award have been completed by the recipient and Federal 
awarding agency.
    (h) Contract means a procurement contract under an award or 
subaward, and a procurement subcontract under a recipient's or 
subrecipient's contract.
    (i) Cost sharing or matching means that portion of project or 
program costs not borne by the Federal Government.
    (j) Date of completion means the date on which all work under an 
award is completed or the date on the award document, or any supplement 
or amendment thereto, on which Federal sponsorship ends.

[[Page 174]]

    (k) Disallowed costs means those charges to an award that the 
Federal awarding agency determines to be unallowable, in accordance with 
the applicable Federal cost principles or other terms and conditions 
contained in the award.
    (l) Equipment means tangible nonexpendable personal property 
including exempt property charged directly to the award having a useful 
life of more than one year and an acquisition cost of $5000 or more per 
unit. However, consistent with recipient policy, lower limits may be 
established.
    (m) Excess property means property under the control of any Federal 
awarding agency that, as determined by the head thereof, is no longer 
required for its needs or the discharge of its responsibilities.
    (n) Exempt property means tangible personal property acquired in 
whole or in part with Federal funds, where the Federal awarding agency 
has statutory authority to vest title in the recipient without further 
obligation to the Federal Government. An example of exempt property 
authority is contained in the Federal Grant and Cooperative Agreement 
Act (31 U.S.C. 6306), for property acquired under an award to conduct 
basic or applied research by a non-profit institution of higher 
education or non-profit organization whose principal purpose is 
conducting scientific research.
    (o) Federal awarding agency means the U.S. Department of Agriculture 
(USDA) or any subagency of the U.S. Department of Agriculture that 
provides an award to the recipient.
    (p) Federal funds authorized means the total amount of Federal funds 
obligated by the Federal Government for use by the recipient. This 
amount may include any authorized carryover of unobligated funds from 
prior funding periods when permitted by agency regulations or agency 
implementing instructions.
    (q) Federal share of real property, equipment, or supplies means 
that percentage of the property's acquisition costs and any improvement 
expenditures paid with Federal funds.
    (r) Funding period means the period of time when Federal funding is 
available for obligation by the recipient.
    (s) Intangible property and debt instruments means, but is not 
limited to, trademarks, copyrights, patents and patent applications and 
such property as loans, notes and other debt instruments, lease 
agreements, stock and other instruments of property ownership, whether 
considered tangible or intangible.
    (t) Obligations means the amounts of orders placed, contracts and 
grants awarded, services received and similar transactions during a 
given period that require payment by the recipient during the same or a 
future period.
    (u) Outlays or 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 cash disbursements for 
direct charges for goods and services, the amount of indirect expense 
charged, the value of third party in-kind contributions applied and the 
amount of cash advances and payments made to subrecipients. For reports 
prepared on an accrual basis, outlays are the sum of cash disbursements 
for direct charges for goods and services, the amount of indirect 
expense incurred, the value of in-kind contributions applied, and the 
net increase (or decrease) in the amounts owed by the recipient for 
goods and other property received, for services performed by employees, 
contractors, subrecipients and other payees and other amounts becoming 
owed under programs for which no current services or performance are 
required.
    (v) Personal property means property of any kind except real 
property. It may be tangible, having physical existence, or intangible, 
having no physical existence, such as copyrights, patents, or 
securities.
    (w) Prior approval means written approval by an authorized official 
evidencing prior consent.
    (x) Program income means gross income earned by the recipient that 
is directly generated by a supported activity or earned as a result of 
the award (see exclusions in Secs. 3019.24 (e) and (h)). Program income 
includes, but is not limited to, income from fees for services 
performed, the use or rental of real or personal property acquired under 
federally-funded projects, the sale of

[[Page 175]]

commodities or items fabricated under an award, license fees and 
royalties on patents and copyrights, and interest on loans made with 
award funds. Interest earned on advances of Federal funds is not program 
income. Except as otherwise provided in Federal awarding agency 
regulations or the terms and conditions of the award, program income 
does not include the receipt of principal on loans, rebates, credits, 
discounts, etc., or interest earned on any of them.
    (y) Project costs means all allowable costs, as set forth in the 
applicable Federal cost principles, incurred by a recipient and the 
value of the contributions made by third parties in accomplishing the 
objectives of the award during the project period.
    (z) Project period means the period established in the award 
document during which Federal sponsorship begins and ends.
    (aa) Property means, unless otherwise stated, real property, 
equipment, intangible property and debt instruments.
    (bb) Real property means land, including land improvements, 
structures and appurtenances thereto, but excludes movable machinery and 
equipment.
    (cc) Recipient means an organization receiving financial assistance 
directly from Federal awarding agencies to carry out a project or 
program. The term includes public and private institutions of higher 
education, public and private hospitals, and other quasi-public and 
private non-profit organizations such as, but not limited to, community 
action agencies, research institutes, educational associations, and 
health centers. The term may include commercial organizations, foreign 
or international organizations (such as agencies of the United Nations) 
which are recipients, subrecipients, or contractors or subcontractors of 
recipients or subrecipients at the discretion of the Federal awarding 
agency. The term does not include government-owned contractor-operated 
facilities or research centers providing continued support for mission-
oriented, large-scale programs that are government-owned or controlled, 
or are designated as federally-funded research and development centers.
    (dd) Research and development means all research activities, both 
basic and applied, and all development activities that are supported at 
universities, colleges, and other non-profit institutions. ``Research'' 
is defined as a systematic study directed toward fuller scientific 
knowledge or understanding of the subject studied. ``Development'' is 
the systematic use of knowledge and understanding gained from research 
directed toward the production of useful materials, devices, systems, or 
methods, including design and development of prototypes and processes. 
The term research also includes activities involving the training of 
individuals in research techniques where such activities utilize the 
same facilities as other research and development activities and where 
such activities are not included in the instruction function.
    (ee) Small awards means a grant or cooperative agreement not 
exceeding the small purchase threshold fixed at 41 U.S.C. 403(11) 
(currently $25,000).
    (ff) Subaward means an award of financial assistance in the form of 
money, or property in lieu of money, made under an award by a recipient 
to an eligible subrecipient or by a subrecipient to a lower tier 
subrecipient. The term includes financial assistance when provided by 
any legal agreement, even if the agreement is called a contract, but 
does not include procurement of goods and services nor does it include 
any form of assistance which is excluded from the definition of 
``award'' in paragraph (e) of this section.
    (gg) Subrecipient means the legal entity to which a subaward is made 
and which is accountable to the recipient for the use of the funds 
provided. The term may include foreign or international organizations 
(such as agencies of the United Nations) at the discretion of the 
Federal awarding agency.
    (hh) Supplies means all personal property excluding equipment, 
intangible property, and debt instruments as defined in this section, 
and inventions of a contractor conceived or first actually reduced to 
practice in the performance of work under a funding agreement (``subject 
inventions''), as defined in 37 CFR part 401, ``Rights to Inventions

[[Page 176]]

Made by Nonprofit Organizations and Small Business Firms Under 
Government Grants, Contracts, and Cooperative Agreements.''
    (ii) Suspension means an action by a Federal awarding agency that 
temporarily withdraws Federal sponsorship under an award, pending 
corrective action by the recipient or pending a decision to terminate 
the award by the Federal awarding agency. Suspension of an award is a 
separate action from suspension under Federal agency regulations 
implementing E.O.s 12549 and 12689, ``Debarment and Suspension.''
    (jj) Termination means the cancellation of Federal sponsorship, in 
whole or in part, under an agreement at any time prior to the date of 
completion.
    (kk) Third party in-kind contributions means the value of non-cash 
contributions provided by non-Federal third parties. Third party in-kind 
contributions may be in the form of real property, equipment, supplies 
and other expendable property, and the value of goods and services 
directly benefiting and specifically identifiable to the project or 
program.
    (ll) Unliquidated obligations, for financial reports prepared on a 
cash basis, means the amount of obligations incurred by the recipient 
that have not been paid. For reports prepared on an accrued expenditure 
basis, they represent the amount of obligations incurred by the 
recipient for which an outlay has not been recorded.
    (mm) Unobligated balance means the portion of the funds authorized 
by the Federal awarding agency that has not been obligated by the 
recipient and is determined by deducting the cumulative obligations from 
the cumulative funds authorized.
    (nn) Unrecovered indirect cost means the difference between the 
amount awarded and the amount which could have been awarded under the 
recipient's approved negotiated indirect cost rate.
    (oo) Working capital advance means a procedure where by funds are 
advanced to the recipient to cover its estimated disbursement needs for 
a given initial period.

[60 FR 44124, Aug. 24, 1995, as amended at 65 FR 49482, Aug. 14, 2000]



Sec. 3019.3  Effect on other issuances.

    For awards subject to this part, all administrative requirements of 
codified program regulations, program manuals, handbooks and other 
nonregulatory materials which are inconsistent with the requirements of 
this part shall be superseded, except to the extent they are required by 
statute, or authorized in accordance with the deviations provision in 
Sec. 3019.4.



Sec. 3019.4  Deviations.

    The Office of Management and Budget (OMB) may grant exceptions for 
classes of grants or recipients subject to the requirements of this part 
when exceptions are not prohibited by statute. However, in the interest 
of maximum uniformity, exceptions from the requirements of this part 
shall be permitted only in unusual circumstances. Federal awarding 
agencies may apply more restrictive requirements to a class of 
recipients when approved by OMB. Federal awarding agencies may apply 
less restrictive requirements when awarding small awards, except for 
those requirements which are statutory. Exceptions on a case-by-case 
basis may also be made by Federal awarding agencies.



Sec. 3019.5  Subawards.

    Unless sections of this part specifically exclude subrecipients from 
coverage, the provisions of this part shall be applied to subrecipients 
performing work under awards if such subrecipients are institutions of 
higher education, hospitals or other non-profit organizations. State and 
local government subrecipients are subject to the provisions of 
regulations implementing the grants management common rule, ``Uniform 
Administrative Requirements for Grants and Cooperative Agreements to 
State and Local Government,'' codified at 7 CFR part 3016.



                    Subpart B--Pre-Award Requirements



Sec. 3019.10  Purpose.

    Sections 3019.11 through 3019.17 prescribe forms and instructions 
and other pre-award matters to be used in applying for Federal awards.

[[Page 177]]



Sec. 3019.11  Pre-award policies.

    (a) Use of grants and cooperative agreements, and contracts. In each 
instance, the Federal awarding agency shall decide on the appropriate 
award instrument (i.e., grant, cooperative agreement, or contract). The 
Federal Grant and Cooperative Agreement Act (31 U.S.C. 6301-08) governs 
the use of grants, cooperative agreements and contracts. A grant or 
cooperative agreement shall be used only when the principal purpose of a 
transaction is to accomplish a public purpose of support or stimulation 
authorized by Federal statute. The statutory criterion for choosing 
between grants and cooperative agreements is that for the latter, 
``substantial involvement is expected between the executive agency and 
the State, local government, or other recipient when carrying out the 
activity contemplated in the agreement.'' Contracts shall be used when 
the principal purpose is acquisition of property or services for the 
direct benefit or use of the Federal Government.
    (b) Public notice and priority setting. Federal awarding agencies 
shall notify the public of its intended funding priorities for 
discretionary grant programs, unless funding priorities are established 
by Federal statute.



Sec. 3019.12  Forms for applying for Federal assistance.

    (a) Federal awarding agencies shall comply with the applicable 
report clearance requirements of 5 CFR part 1320, ``Controlling 
Paperwork Burdens on the Public,'' with regard to all forms used by the 
Federal awarding agency in place of or as a supplement to the Standard 
Form 424 (SF-424) series.
    (b) Applicants shall use the SF-424 series or those forms and 
instructions prescribed by the Federal awarding agency.
    (c) For Federal programs covered by E.O. 12372, ``Intergovernmental 
Review of Federal Programs,'' the applicant shall complete the 
appropriate sections of the SF-424 (Application for Federal Assistance) 
indicating whether the application was subject to review by the State 
Single Point of Contact (SPOC). The name and address of the SPOC for a 
particular State can be obtained from the Federal awarding agency or the 
Catalog of Federal Domestic Assistance. The SPOC shall advise the 
applicant whether the program for which application is made has been 
selected by that State for review. The U.S. Department of Agriculture 
procedures implementing E.O. 12372 are found at CFR part 3015.
    (d) Federal awarding agencies that do not use the SF-424 form should 
indicate whether the application is subject to review by the State under 
E.O. 12372.



Sec. 3019.13  Debarment and suspension.

    Federal awarding agencies and recipients shall comply with the 
nonprocurement debarment and suspension common rule implementing E.O.s 
12549 and 12669, ``Debarment and Suspension,'' codified at 7 CFR 3017. 
This common rule restricts subawards and contracts with certain parties 
that are debarred, suspended or otherwise excluded from or ineligible 
for participation in Federal assistance programs or activities.



Sec. 3019.14  Special award conditions.

    If an applicant or recipient.
    (a) Has a history of poor performance,
    (b) Is not financially stable,
    (c) Has a management system that does not meet the standards 
prescribed in this part,
    (d) Has not conformed to the terms and conditions of a previous 
award, or
    (e) Is not otherwise responsible,

Federal awarding agencies may impose additional requirements as needed, 
provided that such applicant or recipient is notified in writing as to: 
the nature of the additional requirements, the reason why the additional 
requirements are being imposed, the nature of the corrective action 
needed, the time allowed for completing the corrective actions, and the 
method for requesting reconsideration of the additional requirements 
imposed. Any special conditions shall be promptly removed once the 
conditions that prompted them have been corrected.



Sec. 3019.15  Metric system of measurement.

    The Metric Conversion Act, as amended by the Omnibus Trade and

[[Page 178]]

Competitiveness Act (15 U.S.C. 205) declares that the metric system is 
the preferred measurement system for U.S. trade and commerce. The Act 
requires each Federal agency to establish a date or dates in 
consultation with the Secretary of Commerce, when the metric system of 
measurement will be used in the agency's procurements, grants, and other 
business-related activities. Metric implementation may take longer where 
the use of the system is initially impractical or likely to cause 
significant inefficiencies in the accomplishment of federally-funded 
activities. Federal awarding agencies shall follow the provisions of 
E.O. 12770, ``Metric Usage in Federal Government Programs.''



Sec. 3019.16  Resource Conservation and Recovery Act.

    Under the Resource Conservation and Recovery Act (RCRA) (Pub. L. 94-
580 codified at 42 U.S.C. 6962), any State agency or agency of a 
political subdivision of a State which is using appropriated Federal 
funds must comply with section 6002. Section 6002 requires that 
preference be given in procurement programs to the purchase of specific 
products containing recycled materials identified in guidelines 
developed by the Environmental Protection Agency (EPA) (40 CFR parts 
247-254). Accordingly, State and local institutions of higher education, 
hospitals, and non-profit organizations that receive direct Federal 
awards or other Federal funds shall give preference in their procurement 
programs funded with Federal funds to the purchase of recycled products 
pursuant to the EPA guidelines.



Sec. 3019.17  Certifications and representations.

    Unless prohibited by statute or codified regulation, each Federal 
awarding agency is authorized and encouraged to allow recipients to 
submit certifications and representations required by statute, executive 
order, or regulation on an annual basis, if the recipients have ongoing 
and continuing relationships with the agency. Annual certifications and 
representations shall be signed by responsible officials with the 
authority to ensure recipients' compliance with the pertinent 
requirements.



                   Subpart C--Post-Award Requirements

                    Financial and Program Management



Sec. 3019.20  Purpose of financial and program management.

    Sections 3019.21 through 3019.28 prescribe standards for financial 
management systems, methods for making payments and rules for: 
satisfying cost sharing and matching requirements, accounting for 
program income, budget revision approvals, making audits, determining 
allowability of cost, and establishing fund availability.



Sec. 3019.21  Standards for financial management systems.

    (a) Federal awarding agencies shall require recipients to relate 
financial data to performance data and develop unit cost information 
whenever practical.
    (b) Recipients' financial management systems shall provide for the 
following.
    (1) Accurate, current and complete disclosure of the financial 
results of each federally-sponsored project or program in accordance 
with the reporting requirements set forth in Sec. 3019.52. If a Federal 
awarding agency requires reporting on an accrual basis from a recipient 
that maintains its records on other than an accrual basis, the recipient 
shall not be required to establish an accrual accounting system. These 
recipients may develop such accrual data for its reports on the basis of 
an analysis of the documentation on hand.
    (2) Records that identify adequately the source and application of 
funds for federally-sponsored activities. These records shall contain 
information pertaining to Federal awards, authorizations, obligations, 
unobligated balances, assets, outlays, income and interest.
    (3) Effective control over and accountability for all funds, 
property and other assets. Recipients shall adequately safeguard all 
such assets and assure they are used solely for authorized purposes.
    (4) Comparison of outlays with budget amounts for each award. 
Whenever

[[Page 179]]

appropriate, financial information should be related to performance and 
unit cost data.
    (5) Written procedures to minimize the time elapsing between the 
transfer of funds to the recipient from the U.S. Treasury and the 
issuance or redemption of checks, warrants or payments by other means 
for program purposes by the recipient. To the extent that the provisions 
of the Cash Management Improvement Act (CMIA) (Pub. L. 101-453) govern, 
payment methods of State agencies, instrumentalities, and fiscal agents 
shall be consistent with CMIA Treasury-State Agreements or the CMIA 
default procedures codified at 31 CFR part 205, ``Withdrawal of Cash 
From the Treasury for Advances Under Federal Grant and Other Programs.''
    (6) Written procedures for determining the reasonableness, 
allocability and allowability of costs in accordance with the provisions 
of the applicable Federal cost principles and the terms and conditions 
of the award.
    (7) Accounting records including cost accounting records that are 
supported by source documentation.
    (c) Where the Federal Government guarantees or insures the repayment 
of money borrowed by the recipient, the Federal USDA awarding agency, at 
its discretion, may require adequate bonding and insurance if the 
bonding and insurance requirements of the recipient are not deemed 
adequate to protect the interest of the Federal Government.
    (d) The Federal awarding agency may require adequate fidelity bond 
coverage where the recipient lacks sufficient coverage to protect the 
Federal Government's interest.
    (e) Where bonds are required in the situations described in 
paragraphs (c) and (d) of this section, the bonds shall be obtained from 
companies holding certificates of authority as acceptable sureties, as 
prescribed in 31 CFR part 223, ``Surety Companies Doing Business With 
the United States.''



Sec. 3019.22  Payment.

    (a) Payment methods shall minimize the time elapsing between the 
transfer of funds from the United States Treasury and the issuance or 
redemption of checks, warrants, or payment by other means by the 
recipients. Payment methods of State agencies or instrumentalities shall 
be consistent with Treasury-State CMIA agreements or default procedures 
codified at 31 CFR part 205.
    (b) Recipients are to be paid in advance, provided they maintain or 
demonstrate the willingness to maintain: written procedures that 
minimize the time elapsing between the transfer of funds and 
disbursement by the recipient, and financial management systems that 
meet the standards for fund control and accountability as established in 
Sec. 3019.21. Cash advances to a recipient organization shall be limited 
to the minimum amounts needed and be timed to be in accordance with the 
actual, immediate cash requirements of the recipient organization in 
carrying out the purpose of the approved program or project. The timing 
and amount of cash advances shall be as close as is administratively 
feasible to the actual disbursements by the recipient organization for 
direct program or project costs and the proportionate share of any 
allowable indirect costs.
    (c) Whenever possible, advances shall be consolidated to cover 
anticipated cash needs for all awards made by the Federal awarding 
agency to the recipient.
    (1) Advance payment mechanisms include, but are not limited to, 
Treasury check and electronic funds transfer.
    (2) Advance payment mechanisms are subject to 31 CFR part 205.
    (3) Recipients shall be authorized to submit requests for advances 
and reimbursements at least monthly when electronic fund transfers are 
not used.
    (d) Requests for Treasury check advance payment shall be submitted 
on SF-270, ``Request for Advance or Reimbursement,'' or other forms as 
may be authorized by OMB. This form is not to be used when Treasury 
check advance payments are made to the recipient automatically through 
the use of a predetermined payment schedule or if precluded by special 
Federal awarding agency instructions for electronic funds transfer.
    (e) Reimbursement is the preferred method when the requirements in 
paragraph (b) of this section cannot be met. Federal awarding agencies 
may also

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use this method on any construction agreement, or if the major portion 
of the construction project is accomplished through private market 
financing or Federal loans, and the Federal assistance constitutes a 
minor portion of the project.
    (1) When the reimbursement method is used, the Federal awarding 
agency shall make payment within 30 days after receipt of the billing, 
unless the billing is improper.
    (2) Recipients shall be authorized to submit request for 
reimbursement at least monthly when electronic funds transfers are not 
used.
    (f) If a recipient cannot meet the criteria for advance payments and 
the Federal awarding agency has determined that reimbursement is not 
feasible because the recipient lacks sufficient working capital, the 
Federal awarding agency may provide cash on a working capital advance 
basis. Under this procedure, the Federal awarding agency shall advance 
cash to the recipient to cover its estimated disbursement needs for an 
initial period generally geared to the awardee's disbursing cycle. 
Thereafter, the Federal awarding agency shall reimburse the recipient 
for its actual cash disbursements. The working capital advance method of 
payment shall not be used for recipients unwilling or unable to provide 
timely advances to their subrecipient to meet the subrecipient's actual 
cash disbursements.
    (g) To the extent available, recipients shall disburse funds from 
repayments to and interest earned on a revolving fund, program income, 
rebates, refunds, contract settlements, audit recoveries and interest 
earned on such funds before requesting additional cash payments.
    (h) Unless otherwise required by statute, Federal awarding agencies 
shall not withhold payments for proper charges made by recipients at any 
time during the project period unless paragraphs (h)(1) and (h)(2) of 
this section apply.
    (1) A recipient has failed to comply with the project objectives, 
the terms and conditions of the award, or Federal reporting 
requirements.
    (2) The recipient or subrecipient is delinquent in a debt to the 
Untied States as defined in OMB Circular A-129, ``Managing Federal 
Credit Programs.''
    (3) Under such conditions, the Federal awarding agency may, upon 
reasonable notice, inform the recipient that payments shall not be made 
for obligations incurred after a specified date until the conditions are 
corrected or the indebtedness to the Federal Government is liquidated.
    (i) Standards governing the use of banks and other institutions as 
depositories of funds advanced under awards are as follows.
    (1) Except for situations described in paragraph (i)(2) of this 
section, Federal awarding agencies shall not require separate depository 
accounts for funds provided to a recipient or establish any eligibility 
requirements for depositories for funds provided to a recipient. 
However, recipients must be able to account for the receipt, obligation 
and expenditure of funds.
    (2) Advances of Federal funds shall be deposited and maintained in 
insured accounts whenever possible.
    (j) Consistent with the national goal of expanding the opportunities 
for women-owned and minority-owned business enterprises, recipients 
shall be encouraged to use women-owned and minority-owned banks (a bank 
which is owned at least 50 percent by women or minority group members).
    (k) Recipients shall maintain advances of Federal funds in interest 
bearing accounts, unless paragraphs (k)(1), (k)(2) or (k)(3) of this 
section apply.
    (1) The recipient receives less than $120,000 in Federal awards per 
year.
    (2) The best reasonably available interest bearing account would not 
be expected to earn interest in excess of $250 per year on Federal cash 
balances.
    (3) The depository would require an average or minimum balance so 
high that it would not be feasible within the expected Federal and non-
Federal cash resources.
    (l) For those entities where CMIA and its implementing regulations 
do not apply, interest earned on Federal advances deposited in interest 
bearing accounts shall be remitted annually to Department of Health and 
Human

[[Page 181]]

Services, Payment Management System, P.O. Box 6021, Rockville, MD 20852. 
Interest amounts up to $250 per year may be retained by the recipient 
for administrative expense. In keeping with the Electronic Funds 
Transfer rules, (31 CFR Part 206), interest should be remitted to the 
HHS Payment Management System through an electronic medium such as the 
FEDWIRE Deposit system. Recipients which do not have this capability 
should use a check. State universities and hospitals shall comply with 
CMIA, as it pertains to interest. If an entity subject to CMIA uses its 
own funds to pay pre-award costs for discretionary awards without prior 
written approval from the Federal awarding agency, it waives its right 
to recover the interest under CMIA.
    (m) Except as noted elsewhere in this part, only the following forms 
shall be authorized for the recipients in requesting advances and 
reimbursements. Federal agencies shall not require more than an original 
and two copies of these forms.
    (1) SF-270, Request for Advance or Reimbursement. Each Federal 
awarding agency shall adopt the SF-270 as a standard form for all 
nonconstruction programs when electronic funds transfer or predetermined 
advance methods are not used. Federal awarding agencies, however, have 
the option of using this form for construction programs in lieu of the 
SF-271, ``Outlay Report and Request for Reimbursement for Construction 
Programs.''
    (2) SF-271, Outlay Report and Request for Reimbursement for 
Construction Programs. Each Federal awarding agency shall adopt the SF-
271 as the standard form to be used for requesting reimbursement for 
construction programs. However, a Federal awarding agency may substitute 
the SF-270 when the Federal awarding agency determines that it provides 
adequate information to meet Federal needs.



Sec. 3019.23  Cost sharing or matching.

    (a) All contributions, including cash and third party in-kind, shall 
be accepted as part of the recipient's cost sharing or matching when 
such contributions meet all of the following criteria.
    (1) Are verifiable from the recipient's records.
    (2) Are not included as contributions for any other federally-
assisted project or program.
    (3) Are necessary and reasonable for proper and efficient 
accomplishment of project or program objectives.
    (4) Are allowable under the applicable costs principles.
    (5) Are not paid by the Federal Government under another award, 
except where authorized by Federal statute to be used for cost sharing 
or matching.
    (6) Are provided for in the approved budget when required by the 
Federal awarding agency.
    (7) Conform to other provisions of this part, as applicable.
    (b) Unrecovered indirect costs may be included as part of cost 
sharing or matching only with the prior approval of the Federal awarding 
agency.
    (c) Values for recipient contributions of services and property 
shall be established in accordance with the applicable cost principles. 
If a Federal awarding agency authorizes recipients to donate buildings 
or land for construction/facilities acquisition projects or long-term 
use, the value of the donated property for cost sharing or matching 
shall be the lesser of paragraphs (c)(1) or (c)(2) of this section.
    (1) The certified value of the remaining life of the property 
recorded in the recipient's accounting records at the time of donation.
    (2) The current fair market value. However, when there is sufficient 
justification, the Federal awarding agency may approve the use of the 
current fair market value of the donated property, even if it exceeds 
the certified value at the time of donation to the project.
    (d) Volunteer services furnished by professional and technical 
personnel, consultants, and other skilled and unskilled labor may be 
counted as cost sharing or matching if the service is an integral and 
necessary part of an approved project or program. Rates for volunteer 
services shall be consistent with those paid for similar work in the 
recipient's organization. In those instances in which the required 
skills are not found in the recipient organization, rates shall be 
consistent with those

[[Page 182]]

paid for similar work in the labor market in which the recipient 
competes for the kind of services involved. In either case, paid fringe 
benefits that are reasonable, allowable, and allocable may be included 
in the valuation.
    (e) When an employer other than the recipient furnishes the services 
of an employee, these services shall be valued at the employee's regular 
rate of pay (plus an amount of fringe benefits that are reasonable, 
allowable, and allocable, but exclusive of overhead costs), provided 
these services are in the same skill for which the employee is normally 
paid.
    (f) Donated supplies may include such items as expendable equipment, 
office supplies, laboratory supplies or workshop and classroom supplies. 
Value assessed to donated supplies included in the cost sharing or 
matching share shall be reasonable and shall not exceed the fair market 
value of the property at the time of the donation.
    (g) The method used for determining cost sharing or matching for 
donated equipment, buildings and land for which title passes to the 
recipient may differ according to the purpose of the award, if 
paragraphs (g)(1) or (g)(2) of this section apply.
    (1) If the purpose of the award is to assist the recipient in the 
acquisition of equipment, buildings or land, the total value of the 
donated property may be claimed as cost sharing or matching.
    (2) If the purpose of the award is to support activities that 
require the use of equipment, buildings or land, normally only 
depreciation or use charges for equipment and buildings may be made. 
However, the full value of equipment or other capital assets and fair 
rental charges for land may be allowed, provided that the Federal 
awarding agency has approved the charges.
    (h) The value of donated property shall be determined in accordance 
with the usual accounting policies of the recipient, with the following 
qualifications.
    (1) The value of donated land and buildings shall not exceed its 
fair market value at the time of donation to the recipient as 
established by an independent appraiser (e.g., certified real property 
appraiser or General Services Administration representative) and 
certified by a responsible official of the recipient.
    (2) The value of donated equipment shall not exceed the fair market 
value of equipment of the same age and condition at the time of 
donation.
    (3) The value of donated space shall not exceed the fair rental 
value of comparable space as established by an independent appraisal of 
comparable space and facilities in a privately-owned building in the 
same locality.
    (4) The value of loaned equipment shall not exceed its fair rental 
value.
    (5) The following requirements pertain to the recipient's supporting 
records for in-kind contributions from third parties.
    (i) Volunteer services shall be documented and, to the extent 
feasible, supported by the same methods used by the recipient for its 
own employees.
    (ii) The basis for determining the valuation of personal service, 
material, equipment, buildings and land shall be documented.



Sec. 3019.24  Program income.

    (a) Federal awarding agencies shall apply the standards set forth in 
this section in requiring recipient organizations to account for program 
income related to projects financed in whole or in part with Federal 
funds.
    (b) Except as provided in paragraph (h) of this section, program 
income earned during the project period shall be retained by the 
recipient and, in accordance with Federal awarding agency regulations or 
the terms and conditions of the award, shall be used in one or more of 
the ways listed in the following.
    (1) Added to funds committed to the project by the Federal awarding 
agency and recipient and used to further eligible project or program 
objectives.
    (2) Used to finance the non-Federal share of the project or program.
    (3) Deducted from the total project or program allowable cost in 
determining the net allowable costs on which the Federal share of costs 
is based.
    (c) When an agency authorizes the disposition of program income as 
described in paragraphs (b)(1) or (b)(2) of this section, program income 
in excess of any limits stipulated shall be used in

[[Page 183]]

accordance with paragraph (b)(3) of this section.
    (d) In the event that the Federal awarding agency does not specify 
in its regulations or the terms and conditions of the award how program 
income is to be used, paragraph (b)(3) of this section shall apply 
automatically to all projects or programs except research. For awards 
that support research, paragraph (b)(1) of this section shall apply 
automatically unless the awarding agency indicates in the terms and 
conditions another alternative on the award or the recipient is subject 
to special award conditions, as indicated in Sec. 3019.14.
    (e) Unless Federal awarding agency regulations or the terms and 
conditions of the award provide otherwise, recipients shall have no 
obligation to the Federal Government regarding program income earned 
after the end of the project period.
    (f) If authorized by Federal awarding agency regulations or the 
terms and conditions of the award, costs incident to the generation of 
program income may be deducted from gross income to determine program 
income, provided these costs have not been charged to the award.
    (g) Proceeds from the sale of property shall be handled in 
accordance with the requirements of the Property Standards (See 
Secs. 3019.30 through 3019.37).
    (h) Unless Federal awarding agency regulations or the terms and 
condition of the award provide otherwise, recipients shall have no 
obligation to the Federal Government with respect to program income 
earned from license fees and royalties for copyrighted material, 
patents, patent applications, trademarks, and inventions produced under 
an award. However, Patent and Trademark Amendments (35 U.S.C. 18) apply 
to inventions made under an experimental, developmental, or research 
award.



Sec. 3019.25  Revision of budget and program plans.

    (a) The budget plan is the financial expression of the project or 
program as approved during the award process. It may include either the 
Federal and non-Federal share, or only the Federal share, depending upon 
Federal awarding agency requirements. It shall be related to performance 
for program evaluation purposes whenever appropriate.
    (b) Recipients are required to report deviations from budget and 
program plans, and request prior approvals for budget and program plan 
revisions, in accordance with this section.
    (c) For nonconstruction awards, recipients shall request prior 
approvals from Federal awarding agencies for one or more of the 
following program or budget related reasons.
    (1) Change in the scope or the objective of the project or program 
(even if there is no associated budget revision requiring prior written 
approval).
    (2) Change in a key person specified in the application or award 
document.
    (3) The absence for more than three months, or a 25 percent 
reduction in time devoted to the project, by the approved project 
director or principal investigator.
    (4) The need for additional Federal funding.
    (5) The transfer of amounts budgeted for indirect costs to absorb 
increases in direct costs, or vice versa, if approval is required by the 
Federal awarding agency.
    (6) The inclusion, unless waived by the Federal awarding agency, of 
costs that require prior approval in accordance with OMB Circular A-21, 
``Cost Principles for Institutions of Higher Education,'' OMB Circular 
A-122, ``Cost Principles for Non-Profit Organizations,'' or 45 CFR part 
74 Appendix E, ``Principles for Determining Costs Applicable to Research 
and Development under Grants and Contracts with Hospitals,'' or 48 CFR 
part 31, ``Contract Cost Principles and Procedures,'' as applicable.
    (7) The transfer of funds allotted for training allowances (direct 
payment to trainees) to other categories of expense.
    (8) Unless described in the application and funded in the approved 
awards, the subaward, transfer or contracting out of any work under an 
award. This provision does not apply to the purchase of supplies, 
material, equipment or general support services.

[[Page 184]]

    (d) No other prior approval requirements for specific items may be 
imposed unless a deviation has been approved by OMB.
    (e) Except for requirements listed in paragraphs (c)(1) and (c)(4) 
of this section, Federal awarding agencies are authorized, at their 
option, to waive cost-related and administrative prior written approvals 
required by this part and OMB Circulars A-21 and A-122. Such waivers may 
include authorizing recipients to do any one or more of the following.
    (1) Incur pre-award costs 90 calendar days prior to award or more 
than 90 calendar days with the prior approval of the Federal awarding 
agency. All pre-award costs are incurred at the recipient's risk (i.e., 
the Federal awarding agency is under no obligation to reimburse such 
costs if for any reason the recipient does not receive an award or if 
the award is less than anticipated and inadequate to cover such costs).
    (2) Initiate a one-time extension of the expiration date of the 
award of up to 12 months unless one or more of the following conditions 
apply. For one-time extensions, the recipient must notify the Federal 
awarding agency in writing with the supporting reasons and revised 
expiration date at least 10 days before the expiration date specified in 
the award. This one-time extension may not be exercised merely for the 
purpose of using unobligated balances.
    (i) The terms and conditions of award prohibit the extension.
    (ii) The extension requires additional Federal funds.
    (iii) The extension involves any change in the approved objectives 
or scope of the project.
    (3) Carry forward unobligated balances to subsequent funding 
periods.
    (4) For awards that support research, unless the Federal awarding 
agency provides otherwise in the award or in the agency's regulations, 
the prior approval requirements described in this paragraph (e) are 
automatically waived (i.e., recipients need not obtain such prior 
approvals) unless one of the conditions included in paragraph (e)(2) of 
this section applies.
    (f) The Federal awarding agency may, at its option, restrict the 
transfer of funds among direct cost categories or programs, functions 
and activities for awards in which the Federal share of the project 
exceeds $100,000 and the cumulative amount of such transfers exceeds or 
is expected to exceed 10 percent of the total budget as last approved by 
the Federal awarding agency. No Federal awarding agency shall permit a 
transfer that would cause any Federal appropriation or part thereof to 
be used for purposes other than those consistent with the original 
intent of the appropriation.
    (g) All other changes to nonconstruction budgets, except for the 
changes described in paragraph (j) of this section, do not require prior 
approval.
    (h) For construction awards, recipients shall request prior written 
approval promptly from Federal awarding agencies for budget revisions 
whenever paragraphs (h)(1), (h)(2) or (h)(3) of this section apply.
    (1) The revision results from changes in the scope or the objective 
of the project or program.
    (2) The need arises for additional Federal funds to complete the 
project.
    (3) A revision is desired which involves specific costs for which 
prior written approval requirements may be imposed consistent with 
applicable OMB cost principles listed in Sec. 3019.27.
    (i) No other prior approval requirements for specific items may be 
imposed unless a deviation has been approved by OMB.
    (j) When a Federal awarding agency makes an award that provides 
support for both construction and nonconstruction work, the Federal 
awarding agency may require the recipient to request prior approval from 
the Federal awarding agency before making any fund or budget transfers 
between the two types of work supported.
    (k) For both construction and nonconstruction awards, Federal 
awarding agencies shall require recipients to notify the Federal 
awarding agency in writing promptly whenever the amount of Federal 
authorized funds is expected to exceed the needs of the recipient for 
the project period by more than $5000 or five percent of the Federal 
award, whichever is greater. This notification shall not be required if 
an application

[[Page 185]]

for additional funding is submitted for a continuation award.
    (l) When requesting approval for budget revisions, recipients shall 
use the budget forms that were used in the application unless the 
Federal awarding agency indicates a letter of request suffices.
    (m) Within 30 calendar days from the date of receipt of the request 
for budget revisions, Federal awarding agencies shall review the request 
and notify the recipient whether the budget revisions have been 
approved. If the revision is still under consideration at the end of 30 
calendar days, the Federal awarding agency shall inform the recipient in 
writing of the date when the recipient may expect the decision.



Sec. 3019.26  Non-Federal audits.

    (a) Recipients and subrecipients that are institutions of higher 
education or other non-profit organizations (including hospitals) shall 
be subject to the audit requirements contained in 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.''
    (b) State and local governments shall be subject to the audit 
requirements contained in 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.''
    (c) For-profit hospitals not covered by the audit provisions of 
revised OMB Circular A-133 shall be subject to the audit requirements of 
the Federal awarding agencies.
    (d) Commercial organizations shall be subject to the audit 
requirements of the Federal awarding agency or the prime recipient as 
incorporated into the award document.
    (e) In USDA, revised OMB Circular A-133 is implemented in 7 CFR part 
3052, ``Audits of States, Local Governments, and Non-Profit 
Organizations.''

[60 FR 44124, Aug. 24, 1995, as amended at 62 FR 45939, Aug. 29, 1997]



Sec. 3019.27  Allowable costs.

    For each kind of recipient, there is a set of Federal principles for 
determining allowable costs. Allowability of costs shall be determined 
in accordance with the cost principles applicable to the entity 
incurring the costs. Thus, allowability of costs incurred by State, 
local or federally-recognized Indian tribal governments is determined in 
accordance with the provisions of OMB Circular A-87, ``Cost Principles 
for State and Local Governments.'' The allowability of costs incurred by 
non-profit organizations is determined in accordance with the provisions 
of OMB Circular A-122, ``Cost Principles for Non-Profit Organizations.'' 
The allowability of costs incurred by institutions of higher education 
is determined in accordance with the provisions of OMB Circular A-21, 
``Cost Principles for Educational Institutions.'' The allowability of 
costs incurred by hospitals is determined in accordance with the 
provisions of Appendix E of 45 CFR part 74, ``Principles for Determining 
Costs Applicable to Research and Development Under Grants and Contracts 
with Hospitals.'' The allowability of costs incurred by commercial 
organizations and those non-profit organizations listed in Attachment C 
to Circular A-122 is determined in accordance with the provisions of the 
Federal Acquisition Regulation (FAR) at 48 CFR part 31.



Sec. 3019.28  Period of availability of funds.

    Where a funding period is specified, a recipient may charge to the 
grant only allowable costs resulting from obligations incurred during 
the funding period and any pre-award costs authorized by the Federal 
awarding agency.

                           Property Standards



Sec. 3019.30  Purpose of property standards.

    Sections 3019.31 through 3019.37 set forth uniform standards 
governing management and disposition of property furnished by the 
Federal Government whose cost was charged to a project supported by a 
Federal award. Federal awarding agencies shall require recipients to 
observe these standards under awards and shall not impose additional 
requirements, unless specifically required by Federal statute. The 
recipient may use its own property management standards and procedures

[[Page 186]]

provided it observes the provisions of Secs. 3019.31 through 3019.37.



Sec. 3019.31  Insurance coverage.

    Recipients shall, at a minimum, provide the equivalent insurance 
coverage for real property and equipment acquired with Federal funds as 
provided to property owned by the recipient. Federally-owned property 
need not be insured unless required by the terms and conditions of the 
award.



Sec. 3019.32  Real property.

    Each Federal awarding agency shall prescribe requirements for 
recipients concerning the use and disposition of real property acquired 
in whole or in part under awards. Unless otherwise provided by statute, 
such requirements, at a minimum, shall contain the following.
    (a) Title to real property shall vest in the recipient subject to 
the condition that the recipient shall use the real property for the 
authorized purpose of the project as long as it is needed and shall not 
encumber the property without approval of the Federal awarding agency.
    (b) The recipient shall obtain written approval by the Federal 
awarding agency for the use of real property in other federally-
sponsored projects when the recipient determines that the property is no 
longer needed for the purpose of the original project. Use in other 
projects shall be limited to those under federally-sponsored projects 
(i.e., awards) or programs that have purposes consistent with those 
authorized for support by the Federal awarding agency.
    (c) When the real property is no longer needed as provided in 
paragraphs (a) and (b), the recipient shall request disposition 
instructions from the Federal awarding agency or its successor Federal 
awarding agency. The Federal awarding agency shall observe one or more 
of the following disposition instructions.
    (1) The recipient may be permitted to retain title without further 
obligation to the Federal Government after it compensates the Federal 
Government for that percentage of the current fair market value of the 
property attributable to the Federal participation in the project.
    (2) The recipient may be directed to sell the property under 
guidelines provided by the Federal awarding agency and pay the Federal 
Government for that percentage of the current fair market value of the 
property attributable to the Federal participation in the project (after 
deducting actual and reasonable selling and fix-up expenses, if any, 
from the sales proceeds). When the recipient is authorized or required 
to sell the property, proper sales procedures shall be established that 
provide for competition to the extent practicable and result in the 
highest possible return.
    (3) The recipient may be directed to transfer title to the property 
to the Federal Government or to an eligible third party provided that, 
in such cases, the recipient shall be entitled to compensation for its 
attributable percentage of the current fair market value of the 
property.



Sec. 3019.33  Federally-owned and exempt property.

    (a) Federally-owned property. (1) Title to federally-owned property 
remains vested in the Federal Government. Recipients shall submit 
annually an inventory listing of federally-owned property in their 
custody to the Federal awarding agency. Upon completion of the award or 
when the property is no longer needed, the recipient shall report the 
property to the Federal awarding agency for further Federal agency 
utilization.
    (2) If the Federal awarding agency has no further need for the 
property, it shall be declared excess and reported to the General 
Services Administration, unless the Federal awarding agency has 
statutory authority to dispose of the property by alternative methods 
(e.g., the authority provided by the Federal Technology Transfer Act (15 
U.S.C. 3710(I)) to donate research equipment to educational and non-
profit organizations in accordance with E.O. 12821, ``Improving 
Mathematics and Science Education in Support of the National Education 
Goals''). Appropriate instructions shall be issued to the recipient by 
the Federal awarding agency.

[[Page 187]]

    (b) Exempt property. When statutory authority exists, the Federal 
awarding agency has the option to vest title to property acquired with 
Federal funds in the recipient without further obligation to the Federal 
Government and under conditions the Federal awarding agency considers 
appropriate. Such property is ``exempt property.'' Should a Federal 
awarding agency not establish conditions, title to exempt property upon 
acquisition shall vest in the recipient without further obligation to 
the Federal Government.



Sec. 3019.34  Equipment.

    (a) Title to equipment acquired by a recipient with Federal funds 
shall vest in the recipient, subject to conditions of this section.
    (b) The recipient shall not use equipment acquired with Federal 
funds to provide services to non-Federal outside organizations for a fee 
that is less than private companies charge for equivalent services, 
unless specifically authorized by Federal statute, for as long as the 
Federal Government retains an interest in the equipment.
    (c) The recipient shall use the equipment in the project or program 
for which it was acquired as long as needed, whether or not the project 
or program continues to be supported by Federal funds and shall not 
encumber the property without approval of the Federal awarding agency. 
When no longer needed for the original project or program, the recipient 
shall use the equipment in connection with its other federally-sponsored 
activities, in the following order of priority:
    (1) Activities sponsored by the Federal awarding agency which funded 
the original project, then
    (2) Activities sponsored by other Federal awarding agencies.
    (d) During the time that equipment is used on the project or program 
for which it was acquired, the recipient shall make it available for use 
on other projects or programs if such other use will not interfere with 
the work on the project or program for which the equipment was 
originally acquired. First preference for such other use shall be given 
to other projects or programs sponsored by the Federal awarding agency 
that financed the equipment; second preference shall be given to 
projects or programs sponsored by other Federal awarding agencies. If 
the equipment is owned by the Federal Government, use on other 
activities not sponsored by the Federal Government shall be permissible 
if authorized by the Federal awarding agency. User charges shall be 
treated as program income.
    (e) When acquiring replacement equipment, the recipient may use the 
equipment to be replaced as trade-in or sell the equipment and use the 
proceeds to offset the costs of the replacement equipment subject to the 
approval of the Federal awarding agency.
    (f) The recipient's property management standards for equipment 
acquired with Federal funds and federally-owned equipment shall include 
all of the following.
    (1) Equipment records shall be maintained accurately and shall 
include the following information.
    (i) A description of the equipment.
    (ii) Manufacturer's serial number, model number, Federal stock 
number, national stock number, or other identification number.
    (iii) Source of the equipment, including the award number.
    (iv) Whether title vests in the recipient or the Federal Government.
    (v) Acquisition date (or date received, if the equipment was 
furnished by the Federal Government) and cost.
    (vi) Information from which one can calculate the percentage of 
Federal participation in the cost of the equipment (not applicable to 
equipment furnished by the Federal Government).
    (vii) Location and condition of the equipment and the date the 
information was reported.
    (viii) Unit acquisition cost.
    (ix) Ultimate disposition data, including date of disposal and sales 
price or the method used to determine current fair market value where a 
recipient compensates the Federal awarding agency for its share.
    (2) Equipment owned by the Federal Government shall be identified to 
indicate Federal ownership.
    (3) A physical inventory of equipment shall be taken and the results 
reconciled with the equipment records at

[[Page 188]]

least once every two years. Any differences between quantities 
determined by the physical inspection and those shown in the accounting 
records shall be investigated to determine the causes of the difference. 
The recipient shall, in connection with the inventory, verify the 
existence, current utilization, and continued need for the equipment.
    (4) A control system shall be in effect to ensure adequate 
safeguards to prevent loss, damage, or theft of the equipment. Any loss, 
damage, or theft of equipment shall be investigated and fully 
documented; if the equipment was owned by the Federal Government, the 
recipient shall promptly notify the Federal awarding agency.
    (5) Adequate maintenance procedures shall be implemented to keep the 
equipment in good condition.
    (6) Where the recipient is authorized or required to sell the 
equipment, proper sales procedures shall be established which provide 
for competition to the extent practicable and result in the highest 
possible return.
    (g) When the recipient no longer needs the equipment, the equipment 
may be used for other activities in accordance with the following 
standards. For equipment with a current per unit fair market value of 
$5000 or more, the recipient may retain the equipment for other uses 
provided that compensation is made to the original Federal awarding 
agency or its successor. The amount of compensation shall be computed by 
applying the percentage of Federal participation in the cost of the 
original project or program to the current fair market value of the 
equipment. If the recipient has no need for the equipment, the recipient 
shall request disposition instructions from the Federal awarding agency. 
The Federal awarding agency shall determine whether the equipment can be 
used to meet the agency's requirements. If no requirement exists within 
that agency, the availability of the equipment shall be reported to the 
General Services Administration by the Federal awarding agency to 
determine whether a requirement for the equipment exists in other 
Federal agencies. The Federal awarding agency shall issue instructions 
to the recipient no later than 120 calendar days after the recipient's 
request and the following procedures shall govern.
    (1) If so instructed or if disposition instructions are not issued 
within 120 calendar days after the recipient's request, the recipient 
shall sell the equipment and reimburse the Federal awarding agency an 
amount computed by applying to the sales proceeds the percentage of 
Federal participation in the cost of the original project or program. 
However, the recipient shall be permitted to deduct and retain from the 
Federal share $500 or ten percent of the proceeds, whichever is less, 
for the recipient's selling and handling expenses.
    (2) If the recipient is instructed to ship the equipment elsewhere, 
the recipient shall be reimbursed by the Federal Government by an amount 
which is computed by applying the percentage of the recipient's 
participation in the cost of the original project or program to the 
current fair market value of the equipment, plus any reasonable shipping 
or interim storage costs incurred.
    (3) If the recipient is instructed to otherwise dispose of the 
equipment, the recipient shall be reimbursed by the Federal awarding 
agency for such costs incurred in its disposition.
    (4) The Federal awarding agency may reserve the right to transfer 
the title to the Federal Government or to a third party named by the 
Federal Government when such third party is otherwise eligible under 
existing statutes. Such transfer shall be subject to the following 
standards.
    (i) The equipment shall be appropriately identified in the award or 
otherwise made known to the recipient in writing.
    (ii) The Federal awarding agency shall issue disposition 
instructions within 120 calendar days after receipt of a final 
inventory. The final inventory shall list all equipment acquired with 
grant funds and federally-owned equipment. If the Federal awarding 
agency fails to issue disposition instructions within the 120 calendar 
day period, the recipient shall apply the standards of this section, as 
appropriate.
    (iii) When the Federal awarding agency exercises its right to take 
title,

[[Page 189]]

the equipment shall be subject to the provisions for federally-owned 
equipment.



Sec. 3019.35  Supplies and other expendable property.

    (a) Title to supplies and other expendable property shall vest in 
the recipient upon acquisition. If there is a residual inventory of 
unused supplies exceeding $5000 in total aggregate value upon 
termination or completion of the project or program and the supplies are 
not needed for any other federally-sponsored project or program, the 
recipient shall retain the supplies for use on non-Federal sponsored 
activities or sell them, but shall, in either case, compensate the 
Federal Government for its share. The amount of compensation shall be 
computed in the same manner as for equipment.
    (b) The recipient shall not use supplies acquired with Federal funds 
to provide services to non-Federal outside organizations for a fee that 
is less than private companies charge for equivalent services, unless 
specifically authorized by Federal statute as long as the Federal 
Government retains an interest in the supplies.



Sec. 3019.36  Intangible property.

    (a) The recipient may copyright any work that is subject to 
copyright and was developed, or for which ownership was purchased, under 
an award. The Federal awarding agency(ies) reserve a royalty-free, 
nonexclusive and irrevocable right to reproduce, publish, or otherwise 
use the work for Federal purposes, and to authorize others to do so.
    (b) Recipients are subject to applicable regulations governing 
patents and inventions, including government-wide regulations issued by 
the Department of Commerce at 37 CFR part 401, ``Rights to Inventions 
Made by Nonprofit Organizations and Small Business Firms Under 
Government Grants, Contracts and Cooperative Agreements.''
    (c) The Federal Government has the right to:
    (1) Obtain, reproduce, publish or otherwise use the data first 
produced under an award; and
    (2) Authorize others to receive, reproduce, publish, or otherwise 
use such data for Federal purposes.
    (d) (1) In addition, in response to a Freedom of Information Act 
(FOIA) request for research data relating to published research findings 
produced under an award that were used by the Federal Government in 
developing an agency action that has the force and effect of law, the 
Federal awarding agency shall request, and the recipient shall provide, 
within a reasonable time, the research data so that they can be made 
available to the public through the procedures established under the 
FOIA. If the Federal awarding agency obtains the research data solely in 
response to a FOIA request, the agency may charge the requester a 
reasonable fee equaling the full incremental cost of obtaining the 
research data. This fee should reflect costs incurred by the agency, the 
recipient, and applicable subrecipients. This fee is in addition to any 
fees the agency may assess under the FOIA (5 U.S.C. 552(a)(4)(A)).
    (2) The following definitions apply for purposes of this paragraph 
(d):
    (i) Research data is defined as the recorded factual material 
commonly accepted in the scientific community as necessary to validate 
research findings, but not any of the following: preliminary analyses, 
drafts of scientific papers, plans for future research, peer reviews, or 
communications with colleagues. This ``recorded'' material excludes 
physical objects (e.g., laboratory samples). Research data also do not 
include:
    (A) Trade secrets, commercial information, materials necessary to be 
held confidential by a researcher until they are published, or similar 
information which is protected under law; and
    (B) Personnel and medical information and similar information the 
disclosure of which would constitute a clearly unwarranted invasion of 
personal privacy, such as information that could be used to identify a 
particular person in a research study.
    (ii) Published is defined as either when:
    (A) Research findings are published in a peer-reviewed scientific or 
technical journal; or

[[Page 190]]

    (B) A Federal agency publicly and officially cites the research 
findings in support of an agency action that has the force and effect of 
law.
    (iii) Used by the Federal Government in developing an agency action 
that has the force and effect of law is defined as when an agency 
publicly and officially cites the research findings in support of an 
agency action that has the force and effect of law.
    (e) Title to intangible property and debt instruments acquired under 
an award or subaward vests upon acquisition in the recipient. The 
recipient shall use that property for the originally-authorized purpose, 
and the recipient shall not encumber the property without approval of 
the Federal awarding agency. When no longer needed for the originally 
authorized purpose, disposition of the intangible property shall occur 
in accordance with the provisions of Sec. 3019.34(g).

[60 FR 44124, Aug. 24, 1995, as amended at 65 FR 14407, 14408, Mar. 16, 
2000]



Sec. 3019.37  Property trust relationship.

    Real property, equipment, intangible property and debt instruments 
that are acquired or improved with Federal funds shall be held in trust 
by the recipient as trustee for the beneficiaries of the project or 
program under which the property was acquired or improved. Agencies may 
require recipients to record liens or other appropriate notices of 
record to indicate that personal or real property has been acquired or 
improved with Federal funds and that use and disposition conditions 
apply to the property.

                          Procurement Standards



Sec. 3019.40  Purpose of procurement standards.

    Sections 3019.41 through 3019.48 set forth standards for use by 
recipients in establishing procedures for the procurement of supplies 
and other expendable property, equipment, real property and other 
services with Federal funds. These standards are furnished to ensure 
that such materials and services are obtained in an effective manner and 
in compliance with the provisions of applicable Federal statutes and 
executive orders. No additional procurement standards or requirements 
shall be imposed by the Federal awarding agencies upon recipients, 
unless specifically required by Federal statute or executive order or 
approved by OMB.



Sec. 3019.41  Recipient responsibilities.

    The standards contained in this section do not relieve the recipient 
of the contractual responsibilities arising under its contract(s). The 
recipient is the responsible authority, without recourse to the Federal 
awarding agency, regarding the settlement and satisfaction of all 
contractual and administrative issues arising out of procurements 
entered into in support of an award or other agreement. This includes 
disputes, claims, protests of award, source evaluation or other matters 
of a contractual nature. Matters concerning violation of statute are to 
be referred to such Federal, State or local authority as may have proper 
jurisdiction.



Sec. 3019.42  Codes of conduct.

    The recipient shall maintain written standards of conduct governing 
the performance of its employees engaged in the award and administration 
of contracts. No employee, officer, or agent shall participate in the 
selection, award, or administration of a contract supported by Federal 
funds if a real or apparent conflict of interest would be involved. Such 
a conflict would arise when the employee, officer, or agent, any member 
of his or her immediate family, his or her partner, or an organization 
which employs or is about to employ any of the parties indicated herein, 
has a financial or other interest in the firm selected for an award. The 
officers, employees, and agents of the recipient shall neither solicit 
nor accept gratuities, favors, or anything of monetary value from 
contractors, or parties to subagreements. However, recipients may set 
standards for situations in which the financial interest is not 
substantial or the gift is an unsolicited item of nominal value. The 
standards of conduct shall provide for disciplinary actions to be 
applied for violations of such standards by officers, employees, or 
agents of the recipient.

[[Page 191]]



Sec. 3019.43  Competition.

    All procurement transactions shall be conducted in a manner to 
provide, to the maximum extent practical, open and free competition. The 
recipient shall be alert to organizational conflicts of interests as 
well as noncompetitive practices among contractors that may restrict or 
eliminate competition or otherwise restrain trade. In order to ensure 
objective contractor performance and eliminate unfair competitive 
advantage, contractors that develop or draft specifications, 
requirements, statements of work, invitations for bids and/or requests 
for proposals shall be excluded from competing for such procurements. 
Awards shall be made to the bidder or offeror whose bid or offer is 
responsive to the solicitation and is most advantageous to the 
recipient, price, quality and other factors considered. Solicitations 
shall clearly set forth all requirements that the bidder or offeror 
shall fulfill in order for the bid or offer to be evaluated by the 
recipient. Any and all bids or offers may be rejected when it is in the 
recipient's interest to do so.



Sec. 3019.44  Procurement procedures.

    (a) All recipients shall establish written procurement procedures. 
These procedures shall provide for, at a minimum, that paragraphs 
(a)(1), (a)(2), and (a)(3) of this section apply.
    (1) Recipients avoid purchasing unnecessary items.
    (2) Where appropriate, an analysis is made of lease and purchase 
alternatives to determine which would be the most economical and 
practical procurement for the Federal Government.
    (3) Solicitations for goods and services provide for all of the 
following:
    (i) A clear and accurate description of the technical requirements 
for the material, product or service to be procured. In competitive 
procurements, such a description shall not contain features which unduly 
restrict competition.
    (ii) Requirements which the bidder/offeror must fulfill and all 
other factors to be used in evaluating bids or proposals.
    (iii) A description, whenever practicable, of technical requirements 
in terms of functions to be performed or performance required, including 
the range of acceptable characteristics or minimum acceptable standards.
    (iv) The specific features of ``brand name or equal'' descriptions 
that bidders are required to meet when such items are included in the 
solicitation.
    (v) The acceptance, to the extent practicable and economically 
feasible, of products and services dimensioned in the metric system of 
measurement.
    (vi) Preference, to the extent practicable and economically 
feasible, for products and services that conserve natural resources and 
protect the environment and are energy efficient.
    (b) Positive efforts shall be made by recipients to utilize small 
businesses, minority-owned firms, and women's business enterprises, 
whenever possible. Recipients of Federal awards shall take all of the 
following steps to further this goal.
    (1) Ensure that small businesses, minority-owned firms, and women's 
business enterprises are used to the fullest extent practicable.
    (2) Make information on forthcoming opportunities available and 
arrange time frames for purchases and contracts to encourage and 
facilitate participation by small businesses, minority-owned firms, and 
women's business enterprises.
    (3) Consider in the contract process whether firms competing for 
larger contracts intend to subcontract with small businesses, minority-
owned firms, and women's business enterprises.
    (4) Encourage contracting with consortiums of small businesses, 
minority-owned firms and women's business enterprises when a contract is 
too large for one of these firms to handle individually.
    (5) Use the services and assistance, as appropriate, of such 
organizations as the Small Business Administration and the Department of 
Commerce's Minority Business Development Agency in the solicitation and 
utilization of small businesses, minority-owned firms and women's 
business enterprises.
    (c) The type of procuring instruments used (e.g., fixed price 
contracts, cost reimbursable contracts, purchase orders, and incentive 
contracts) shall be determined by the recipient but shall

[[Page 192]]

be appropriate for the particular procurement and for promoting the best 
interest of the program or project involved. The ``cost-plus-a-
percentage-of-cost'' or ``percentage of construction cost'' methods of 
contracting shall not be used.
    (d) Contracts shall be made only with responsible contractors who 
possess the potential ability to perform successfully under the term and 
conditions of the proposed procurement. Consideration shall be given to 
such matters as contractor integrity, record of past performance, 
financial and technical resources or accessibility to other necessary 
resources. In certain circumstances, contracts with certain parties are 
restricted by agencies' implementation of E.O.s 12549 and 12689, 
``Debarment and Suspension.''
    (e) Recipients shall, on request, make available for the Federal 
awarding agency, pre-award review and procurement documents, such as 
request for proposals or invitations for bids, independent cost 
estimates, etc., when any of the following conditions apply.
    (1) A recipient's procurement procedures or operation fails to 
comply with the procurement standards in the Federal awarding agency's 
implementation of this part.
    (2) The procurement is expected to exceed the small purchase 
threshold fixed at 41 U.S.C. 403(11) (currently $25,000) and is to be 
awarded without competition or only one bid or offer is received in 
response to a solicitation.
    (3) The procurement, which is expected to exceed the small purchase 
threshold, specifies a ``brand name'' product.
    (4) The proposed award over the small purchase threshold is to be 
awarded to other than the apparent low bidder under a sealed bid 
procurement.
    (5) A proposed contract modification changes the scope of a contract 
or increases the contract amount by more than the amount of the small 
purchase threshold.



Sec. 3019.45  Cost and price analysis.

    Some form of cost or price analysis shall be made and documented in 
the procurement files in connection with every procurement action. Price 
analysis may be accomplished in various ways, including the comparison 
of price quotations submitted, market prices and similar indicia, 
together with discounts. Cost analysis is the review and evaluation of 
each element of cost to determine reasonableness, allocability and 
allowability.



Sec. 3019.46  Procurement records.

    Procurement records and files for purchases in excess of the small 
purchase threshold shall include the following at a minimum:
    (a) Basis for contractor selection,
    (b) Justification for lack of competition bids or offers are not 
obtained, and
    (c) Basis for award cost or price.



Sec. 3019.47  Contract administration.

    A system for contract administration shall be maintained to ensure 
contractor conformance with the terms, conditions and specifications of 
the contract and to ensure adequate and timely follow up of all 
purchases. Recipients shall evaluate contractor performance and 
document, as appropriate, whether contractors have met the terms, 
conditions and specifications of the contract.



Sec. 3019.48  Contract provisions.

    The recipient shall include, in addition to provisions to define a 
sound and complete agreement, the following provisions in all contracts. 
The following provisions shall also be applied to subcontracts.
    (a) Contracts in excess of the small purchase threshold shall 
contain contractual provisions or conditions that allow for 
administrative, contractual, or legal remedies in instances in which a 
contractor violates or breaches the contract terms, and provide for such 
remedial actions as may be appropriate.
    (b) All contracts in excess of the small purchase threshold shall 
contain suitable provisions for termination by the recipient, including 
the manner by which termination shall be effected and the basis for 
settlement. In addition, such contracts shall describe conditions under 
which the contract may be terminated for default as well as conditions 
where the contract may be

[[Page 193]]

terminated because of circumstances beyond the control of the 
contractor.
    (c) Except as otherwise required by statute, an award that requires 
the contracting (or subcontracting) for construction or facility 
improvements shall provide for the recipient to follow its own 
requirements relating to bid guarantees, performance bonds, and payment 
bonds unless the construction contract or subcontract exceeds $100,00. 
For those contracts or subcontracts exceeding $100,000, the Federal 
awarding agency may accept the bonding policy and requirements of the 
recipient, provided the Federal awarding agency has made a determination 
that the Federal Government'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 shall, upon acceptance 
of his bid, execute such contractual documents as may be required within 
the time specified.
    (2) A performance bond on the part of the contractor for 100 percent 
of the contract price. A ``performance bond'' is one executed in 
connection with a contract to secure fulfillment of all the contractor's 
obligations under such contract.
    (3) A payment bond on the part of the contractor for 100 percent of 
the contract price. A ``payment bond'' is one executed in connection 
with a contract to assure payment as required by statute of all persons 
supplying labor and material in the execution of the work provided for 
in the contract.
    (4) Where bonds are required in the situations described herein, the 
bonds shall be obtained from companies holding certificates of authority 
as acceptable sureties pursuant to 31 CFR part 223, ``Surety Companies 
Doing Business with the United States.''
    (d) All negotiated contracts (except those for less than the small 
purchase threshold) awarded by recipients shall include a provision to 
the effect that the recipient, the Federal awarding agency, the 
Comptroller General of the United States, or any of their duly 
authorized representatives, shall have access to any books, documents, 
papers and records of the contractor which are directly pertinent to a 
specific program for the purpose of making audits, examinations, 
excerpts and transcriptions.
    (e) All contracts, including small purchases, awarded by recipients 
and their contractors shall contain the procurement provisions of 
Appendix A to this part, as applicable.

                           Reports and Records



Sec. 3019.50  Purpose of reports and records.

    Sections 3019.51 through 3019.53 set forth the procedures for 
monitoring and reporting on the recipient's financial and program 
performance and the necessary standard reporting forms. They also set 
forth record retention requirements.



Sec. 3019.51  Monitoring and reporting program performance.

    (a) Recipients are responsible for managing and monitoring each 
project, program, subaward, function or activity supported by the award. 
Recipients shall monitor subawards to ensure subrecipients have met the 
audit requirements as delineated in Section 3019.26.
    (b) The Federal awarding agency shall prescribe the frequency with 
which the performance reports shall be submitted. Except as provided in 
paragraph (f) of this section, performance reports shall not be required 
more frequently than quarterly or, less frequently than annually. Annual 
reports shall be due 90 calendar days after the grant year; quarterly or 
semi-annual reports shall be due 30 days after the reporting period. The 
Federal awarding agency may require annual reports before the 
anniversary dates of multiple years awards in lieu of these 
requirements. The final performance reports are due 90 calendar days 
after the expiration or termination of the award.
    (c) If inappropriate, a final technical or performance report shall 
not be required after completion of the project.
    (d) When required, performance reports shall generally contain, for 
each

[[Page 194]]

award, brief information on each of the following.
    (1) A comparison of actual accomplishments with the goals and 
objectives established for the period, the findings of the investigator, 
or both. Whenever appropriate and the output of programs or projects can 
be readily quantified, such quantitative data should be related to cost 
data for computation of unit costs.
    (2) Reasons why established goals were not met, if appropriate.
    (3) Other pertinent information including, when appropriate, 
analysis and explanation of cost overruns or high unit costs.
    (e) Recipients shall not be required to submit more than the 
original and two copies of performance reports.
    (f) Recipients shall immediately notify the Federal awarding agency 
of developments that have a significant impact on the award-supported 
activities. Also, notification shall be given in the case of problems, 
delays, or adverse conditions which materially impair the ability to 
meet the objectives of the award. This notification shall include a 
statement of the action taken or contemplated, and any assistance needed 
to resolve the situation.
    (g) Federal awarding agencies may make site visits, as needed.
    (h) Federal awarding agencies shall comply with clearance 
requirements of 5 CFR part 1320 when requesting performance data from 
recipients.



Sec. 3019.52  Financial reporting.

    (a) The following forms or such other forms as may be approved by 
OMB are authorized for obtaining financial information from recipients.
    (1) SF-269 or SF-269A, Financial Status Report.
    (i) Each Federal awarding agency shall require recipients to use the 
SF-269 or SF-269A to report the status of funds for all nonconstruction 
projects or programs. A Federal awarding agency may, however, have the 
option of not requiring the SF-269 or SF-269A when the SF-270, Request 
for Advance or Reimbursement, or SF-272, Report of Federal Cash 
Transactions, is determined to provided adequate information to meet its 
needs, except that a final SF-269 or SF-269A shall be required at the 
completion of the project when the SF-270 is used only for advances.
    (ii) The Federal awarding agency shall prescribe whether the report 
shall be on a cash or accrual basis. If the Federal awarding agency 
requires accrual information and the recipient's accounting records are 
not normally kept on the accrual basis, the recipient shall not be 
required to convert its accounting system, but shall develop such 
accrual information through best estimates based on an analysis of the 
documentation on hand.
    (iii) The Federal awarding agency shall determine the frequency of 
the Financial Status Report for each project or program, considering the 
size and complexity of the particular project or program. However, the 
report shall not be required more frequently than quarterly or less 
frequently than annually. A final report shall be required at the 
completion of the agreement.
    (iv) The Federal awarding agency shall require recipients to submit 
the SF-269 or SF-269A (an original and no more than two copies no later 
than 30 days after the end of each specified reporting period for 
quarterly and semi-

annual reports, and 90 calendar days for annual and final reports. 
Extensions of reporting due dates may be approved by the Federal 
awarding agency upon request of the recipient.
    (2) SF-272, Report of Federal Cash Transactions.
    (i) When funds are advanced to recipients the Federal awarding 
agency shall require each recipient to submit the SF-272 and, when 
necessary, its continuation sheet, SF-272a. The Federal awarding agency 
shall use this report to monitor cash advanced to recipients and to 
obtain disbursement information for each agreement with the recipients.
    (ii) Federal awarding agencies may require forecasts of Federal cash 
requirements in the ``Remarks'' section of the report.
    (iii) When practical and deemed necessary, Federal awarding agencies 
may require recipients to report in the ``Remarks'' section the amount 
of cash advances received in excess of three days. Recipients shall 
provide short

[[Page 195]]

narrative explanations of actions taken to reduce the excess balances.
    (iv) Recipients shall be required to submit not more than the 
original and two copies of the SF-272 15 calendar days following the end 
of each quarter. The Federal awarding agencies may require a monthly 
report from those recipients receiving advances totaling $1 million or 
more per year.
    (v) Federal awarding agencies may waive the requirement for 
submission of the SF-272 for any one of the following reasons:
    (A) When monthly advances do not exceed $25,000 per recipient, 
provided that such advances are monitored through other forms contained 
in this section;
    (B) If, in the Federal awarding agency's opinion, the recipient's 
accounting controls are adequate to minimize excessive Federal advances; 
or
    (C) When the electronic payment mechanisms provide adequate data.
    (b) When the Federal awarding agency needs additional information or 
more frequent reports, the following shall be observed.
    (1) When additional information is needed to comply with legislative 
requirements, Federal awarding agencies shall issue instructions to 
require recipients to submit such information under the ``Remarks'' 
section of the reports.
    (2) When a Federal awarding agency determines that a recipient's 
accounting system does not meet the standards in Sec. 3019.21, 
additional pertinent information to further monitor awards may be 
obtained upon written notice to the recipient until such time as the 
system is brought up to standard. The Federal awarding agency, in 
obtaining this information, shall comply with report clearance 
requirements of 5 CFR part 1320.
    (3) Federal awarding agencies are encouraged to shade out any line 
item on any report if not necessary.
    (4) Federal awarding agencies may accept the identical information 
from the recipients in machine readable format or computer printouts or 
electronic outputs in lieu of prescribed formats.
    (5) Federal awarding agencies may provide computer or electronic 
outputs to recipients when such expedites or contributes to the accuracy 
of reporting.



Sec. 3019.53  Retention and access requirements for records.

    (a) This section sets forth requirements for record retention and 
access to records for awards to recipients. Federal awarding agencies 
shall not impose any other record retention or access requirements upon 
recipients.
    (b) Financial records, supporting documents, statistical records, 
and all other records pertinent to an award shall be retained for a 
period of three years from the date of submission of the final 
expenditure report or, for awards that are renewed quarterly or 
annually, from the date of the submission of the quarterly or annual 
financial report, as authorized by the Federal awarding agency. The only 
exceptions are the following.
    (1) If any litigation, claim, or audit is started before the 
expiration of the 3-year period, the records shall be retained until all 
litigation, claims or audit findings involving the records have been 
resolved and final action taken.
    (2) Records for real property and equipment acquired with Federal 
funds shall be retained for 3 years after final disposition.
    (3) When records are transferred to or maintained by the Federal 
awarding agency, the 3-year retention requirement is not applicable to 
the recipient.
    (4) Indirect cost rate proposals, cost allocations plans, etc. as 
specified in paragraph (g) of this section.
    (c) Copies of original records may be substituted for the original 
records if authorized by the Federal awarding agency.
    (d) The Federal awarding agency shall request transfer of certain 
records to its custody from recipients when it determines that the 
records possess long term retention value. However, in order to avoid 
duplicate recordkeeping, a Federal awarding agency may make arrangements 
for recipients to retain any records that are continuously needed for 
joint use.
    (e) The Federal awarding agency, the Inspector General, Comptroller 
General of the United States, or any of

[[Page 196]]

their duly authorized representatives, have the right of timely and 
unrestricted access to any books, documents, papers, or other records of 
recipients that are pertinent to the awards, in order to make audits, 
examinations, excerpts, transcripts and copies of such documents. This 
right also includes timely and reasonable access to a recipient's 
personnel for the purpose of interview and discussion related to such 
documents. The rights of access in this paragraph are not limited to the 
required retention period, but shall last as long as records are 
retained.
    (f) Unless required by statute, no Federal awarding agency shall 
place restrictions on receipts that limit public access to the records 
of recipients that are pertinent to an award, except when the Federal 
awarding agency can demonstrate that such records shall be kept 
confidential and would have been exempted from disclosure pursuant to 
the Freedom of Information Act (5 U.S.C. 552) if the records had 
belonged to the Federal awarding agency.
    (g) Indirect cost rate proposals, cost allocations plans, etc. 
Paragraphs (g)(1) and (g)(2) of this section apply 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).
    (1) If submitted for negotiation. If the recipient submits to the 
Federal awarding agency or the subrecipient submits to the recipient the 
proposal, plan, or other computation to form the basis for negotiation 
of the rate, then the 3-year retention period for its supporting records 
starts on the date of such submission.
    (2) If not submitted for negotiation. If the recipient is not 
required to submit to the Federal awarding agency or the subrecipient is 
not required to submit to the recipient the proposal, plan, or other 
computation for negotiation purposes, then the 3-year retention period 
for the proposal, plan, or other computation and its supporting records 
starts at the end of the fiscal year (or other accounting period) 
covered by the proposal, plan, or other computation.

                       Termination and Enforcement



Sec. 3019.60  Purpose of termination and enforcement.

    Sections 3019.61 and 3019.62 set forth uniform suspension, 
termination and enforcement procedures.



Sec. 3019.61  Termination.

    (a) Awards may be terminated in whole or in part only if paragraphs 
(a)(1), (a)(2) or (a)(3) of this section apply.
    (1) By the Federal awarding agency, if a recipient materially fails 
to comply with the terms and conditions of an award.
    (2) By the Federal awarding agency with the consent of the 
recipient, in which case the two parties shall agree upon the 
termination conditions, including the effective date and, in the case of 
partial termination, the portion to be terminated.
    (3) By the recipient upon sending to the Federal awarding agency 
written notification setting forth the reasons for such termination, the 
effective date, and, in the case of partial termination, the portion to 
be terminated. However, if the Federal awarding agency determines in the 
case of partial termination that the reduced or modified portion of the 
grant will not accomplish the purposes for which the grant was made, it 
may terminate the grant in its entirety under either paragraphs (a)(1) 
or (2) of this section.
    (b) If costs are allowed under an award, the responsibilities of the 
recipient referred to in Sec. 3019.71(a), including those for property 
management as applicable, shall be considered in the termination of the 
award, and provision shall be made for continuing responsibilities of 
the recipient after termination, as appropriate.



Sec. 3019.62  Enforcement.

    (a) Remedies for noncompliance. If a recipient materially fails to 
comply with the terms and conditions of an award, whether stated in a 
Federal statute, regulation, assurance, application, or notice of award, 
the Federal awarding

[[Page 197]]

agency may, in addition to imposing any of the special conditions 
outlined in Sec. 3019.14, 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 recipient or more severe enforcement action by the 
Federal awarding agency.
    (2) Disallow (that is, deny both use of funds and any applicable 
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.
    (4) Withhold further awards for the project or program.
    (5) Take other remedies that may be legally available.
    (b) Hearings and appeals. In taking an enforcement action, the 
awarding agency shall provide the recipient an opportunity for hearing, 
appeal, or other administrative proceeding to which the recipient is 
entitled under any statute or regulation applicable to the action 
involved.
    (c) Effects of suspension and termination. Costs of a recipient 
resulting from obligations incurred by the recipient during a suspension 
or after termination of an award are not allowable unless the awarding 
agency expressly authorizes them in the notice of suspension of 
termination or subsequently. Other recipient costs during suspension or 
after termination which are necessary and not reasonably avoidable are 
allowable if paragraphs (c)(1) and (c)(2) of this section apply.
    (1) The costs result from obligations which were properly incurred 
by the recipient before the effective date of suspension or termination, 
are not in anticipation of it, and in the case of a termination, are 
noncancellable.
    (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 a recipient from being subject to debarment 
and suspension under E.O.s 12549 and 12689 and the Federal awarding 
agency implementing regulations (see Sec. 3019.13).



                 Subpart D--After-the-Award Requirements



Sec. 3019.70  Purpose.

    Sections 3019.71 through 3019.73 contain closeout procedures and 
other procedures for subsequent disallowances and adjustments.



Sec. 3019.71  Closeout procedures.

    (a) Recipients shall submit, within 90 calendar days after the date 
of completion of the award, all financial, performance, and other 
reports as required by the terms and conditions of the award. The 
Federal awarding agency may approve extensions when requested by the 
recipient.
    (b) Unless the Federal awarding agency authorizes an extension, a 
recipient shall liquidate all obligations incurred under the award not 
later than 90 calendar days after the funding period or the date of 
completion as specified in the terms and conditions of the award or in 
agency implementing instructions.
    (c) The Federal awarding agency shall make prompt payments to a 
recipient for allowable reimbursable costs under the award being closed 
out.
    (d) The recipient shall promptly refund any balances of unobligated 
cash that the Federal awarding agency has advanced or paid and that is 
not authorized to be retained by the recipient for use in other 
projects. OMB Circular A-129 governs unreturned amounts that become 
delinquent debts.
    (e) When authorized by the terms and conditions of the award, the 
Federal awarding agency shall make a settlement for any upward or 
downward adjustments to the Federal share of costs after closeout 
reports are received.
    (f) The recipient shall account for any real and personal property 
acquired with Federal funds or received from the Federal Government in 
accordance with Secs. 3019.31 through 3019.37.
    (g) In the event a final audit has not been performed prior to the 
closeout of an award, the Federal awarding agency

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shall retain the right to recover an appropriate amount after fully 
considering the recommendations on disallowed costs resulting from the 
final audit.



Sec. 3019.72  Subsequent adjustments and continuing responsibilities.

    (a) The closeout of an award does not affect any of the following.
    (1) The right of the Federal awarding agency to disallow costs and 
recover funds on the basis of a later audit or other review.
    (2) The obligation of the recipient to return any funds due as a 
result of later refunds, corrections, or other transactions.
    (3) Audit requirements in Sec. 3019.26.
    (4) Property management requirements in Secs. 3019.31 through 
3019.37.
    (5) Records retention as required in Sec. 3019.53.
    (b) After closeout of an award, a relationship created under an 
award may be modified or ended in whole or in part with the consent of 
the Federal awarding agency and the recipient, provided the 
responsibilities of the recipient referred to in Sec. 3019.73(a), 
including those for property management as applicable, are considered 
and provisions made for continuing responsibilities of the recipient, as 
appropriate.



Sec. 3019.73  Collection of amounts due.

    (a) Any funds paid to a recipient in excess of the amount to which 
the recipient is finally determined to be entitled under the terms and 
conditions of the award constitute a debt to the Federal Government. If 
not paid within a reasonable period after the demand for payment, the 
Federal awarding agency may reduce the debt by:
    (1) Making an administrative offset against other requests for 
reimbursements.
    (2) Withholding advance payments otherwise due to the recipient.
    (3) Taking other action permitted by statute.
    (b) Except as otherwise provided by law, the Federal awarding agency 
shall charge interest on an overdue debt in accordance with 4 CFR 
Chapter II, ``Federal Claims Collection Standards.''

              Appendix A to Part 3019--Contract Provisions

    All contracts, awarded by a recipient including small purchases, 
shall contain the following provisions as applicable:
    1. Equal Employment Opportunity--All contracts shall contain a 
provision requiring compliance with E.O. 11246, ``Equal Employment 
Opportunity,'' as amended by E.O. 11375, ``Amending Executive Order 
11246 Relating to Equal Employment Opportunity,'' and as supplemented by 
regulations at 41 CFR part 60, ``Office of Federal Contract Compliance 
Programs, Equal Employment Opportunity, Department of Labor.''
    2. Copeland ``Anti-Kickback'' Act (18 U.S.C. 874 and 40 U.S.C. 
276c)--All contracts and subgrants in excess of $2000 for construction 
or repair awarded by recipients and subrecipients shall include a 
provision for compliance with the Copeland ``Anti-Kickback'' Act (18 
U.S.C. 874), as supplemented by Department of Labor regulations (29 CFR 
part 3, ``Contractors and Subcontractors on Public Building or Public 
Work Financed in Whole or in Part by Loans or Grants from the United 
States''). The Act provides that each contractor or subrecipient shall 
be prohibited from inducing, by any means, any person employed in the 
construction, completion, or repair of public work, to give up any part 
of the compensation to which he is otherwise entitled. The recipient 
shall report all suspected or reported violations to the Federal 
awarding agency.
    3. Davis-Bacon Act, as amended (40 U.S.C. 276a to a-7)--When 
required by Federal program legislation, all construction contracts 
awarded by the recipients and subrecipients of more than $2000 shall 
include a provision for compliance with the Davis-Bacon Act (40 U.S.C. 
276a to a-7) and as supplemented by Department of Labor regulations (29 
CFR part 5, ``Labor Standards Provisions Applicable to Contracts 
Governing Federally Financed and Assisted Construction''). Under this 
Act, contractors shall be required to pay wages to laborers and 
mechanics at a rate not less than the minimum wages specified in a wage 
determination made by the Secretary of Labor. In addition, contractors 
shall be required to pay wages not less than once a week. The recipient 
shall place a copy of the current prevailing wage determination issued 
by the Department of Labor in each solicitation and the award of a 
contract shall be conditioned upon the acceptance of the wage 
determination. The recipient shall report all suspected or reported 
violations to the Federal awarding agency.
    4. Contract Work Hours and Safety Standards Act (40 U.S.C. 327-333)-
-Where applicable, all contracts awarded by recipients in excess of 
$2000 for construction contracts and in excess of $2500 for other 
contracts that involve the employment of mechanics or laborers

[[Page 199]]

shall include a provision for compliance with Sections 102 and 107 of 
the Contract Work Hours and Safety Standards Act (40 U.S.C. 327-333), as 
supplemented by Department of Labor regulations (29 CFR part 5). Under 
Section 102 of the Act, each contractor shall be required to compute the 
wages of every mechanic and laborer on the basis of a standard work week 
of 40 hours. Work in excess of the standard work week is permissible 
provided that the worker is compensated at a rate of not less than 1\1/
2\ times the basic rate of pay for all hours worked in excess of 40 
hours in the work week. Section 107 of the Act is applicable to 
construction work and provides that no laborer or mechanic shall be 
required to work in surroundings or under working conditions which are 
unsanitary, hazardous or dangerous. These requirements do not apply to 
the purchases of supplies or materials or articles ordinarily available 
on the open market, or contracts for transportation or transmission of 
intelligence.
    5. Rights to Inventions Made Under a Contract or Agreement--
Contracts or agreements for the performance of experimental, 
developmental, or research work shall provide for the rights of the 
Federal Government and the recipient in any resulting invention in 
accordance with 37 CFR part 401, ``Rights to Inventions Made by 
Nonprofit Organizations and Small Business Firms Under Government 
Grants, Contracts and Cooperative Agreements,'' and any implementing 
regulations issued by the awarding agency.
    6. Clean Air Act (42 U.S.C. 7401 et. seq.) and the Federal Water 
Pollution Control Act (33 U.S.C. 1251 et seq.), as amended--Contracts 
and subgrants of amounts in excess of $100,000 shall contain a provision 
that requires the recipient to agree to comply with all applicable 
standards, orders or regulations issued pursuant to the Clean Air Act 
(42 U.S.C. 7401 et seq.) and the Federal Water Pollution Control Act as 
amended (33 U.S.C. 1251 et seq.). Violations shall be reported to the 
Federal awarding agency and the Regional Office of the Environmental 
Protection Agency (EPA).
    7. Byrd Anti-Lobbying Amendment (31 U.S.C. 1352)--Contractors who 
apply or bid for an award of $100,000 or more shall file the required 
certification. Each tier certifies to the tier above that it will not 
and has not used Federal appropriated funds to pay any person or 
organization for influencing or attempting to influence an officer or 
employee of any agency, a member of Congress, officer or employee of 
Congress, or an employee of a member of Congress in connection with 
obtaining any Federal contract, grant or any other award covered by 31 
U.S.C. 1352. Each tier shall also disclose any lobbying with non-Federal 
funds that takes place in connection with obtaining any Federal award. 
Such disclosures are forwarded from tier to tier up to the recipient.
    8. Debarment and Suspension (E.O.s 12549 and 12689)--All parties 
doing business with the Department of Agriculture should consult the 
Department's regulations for debarment and suspension found at 7 CFR 
3017. No contract shall be made to parties listed on the General 
Services Administration's List of Parties Excluded from Federal 
Procurement or Nonprocurement Programs in accordance with E.O.s 12549 
and 12689, ``Debarment and Suspension.'' This list contains the names of 
parties debarred, suspended, or otherwise excluded by agencies, and 
contractors declared ineligible under statutory or regulatory authority 
other than E.O. 12549. Contractors with awards that exceed the small 
purchase threshold shall provide the required certification regarding 
its exclusion status and that of its principal employees.



PART 3052--AUDITS OF STATES, LOCAL GOVERNMENTS, AND NON-PROFIT ORGANIZATIONS--Table of Contents




                           Subpart A--General

Sec.
3052.100  Purpose.
3052.105  Definitions.

                            Subpart B--Audits

3052.200  Audit requirements.
3052.205  Basis for determining Federal awards expended.
3052.210  Subrecipient and vendor determinations.
3052.215  Relation to other audit requirements.
3052.220  Frequency of audits.
3052.225  Sanctions.
3052.230  Audit costs.
3052.235  Program-specific audits.

                           Subpart C--Auditees

3052.300  Auditee responsibilities.
3052.305  Auditor selection.
3052.310  Financial statements.
3052.315  Audit findings follow-up.
3052.320  Report submission.

          Subpart D--Federal Agencies and Pass-Through Entities

3052.400  Responsibilities.
3052.405  Management decision.

                           Subpart E--Auditors

3052.500  Scope of audit.
3052.505  Audit reporting.
3052.510  Audit findings.
3052.515  Audit working papers.
3052.520  Major program determination.
3052.525  Criteria for Federal program risk.
3052.530  Criteria for a low-risk auditee.


[[Page 200]]


    Authority: 5 U.S.C. 301

    Source: 62 FR 45949, Aug. 29, 1997, unless otherwise noted.



                           Subpart A--General



Sec. 3052.100  Purpose.

    This part sets forth standards for obtaining consistency and 
uniformity among Federal agencies for the audit of non-Federal entities 
expending Federal awards.



Sec. 3052.105  Definitions.

    Audit finding means deficiencies which the auditor is required by 
Sec. 3052.510(a) to report in the schedule of findings and questioned 
costs.
    Auditee means any non-Federal entity that expends Federal awards 
which must be audited under this part.
    Auditor means an auditor, that is a public accountant or a Federal, 
State or local government audit organization, which meets the general 
standards specified in generally accepted government auditing standards 
(GAGAS). The term auditor does not include internal auditors of non-
profit organizations.
    CFDA number means the number assigned to a Federal program in the 
Catalog of Federal Domestic Assistance (CFDA).
    Cluster of programs means a grouping of closely related programs 
that share common compliance requirements. The types of clusters of 
programs are research and development (R&D), student financial aid 
(SFA), and other clusters. ``Other clusters'' are as defined by the 
Office of Management and Budget (OMB) in the compliance supplement or as 
designated by a State for Federal awards the State provides to its 
subrecipients that meet the definition of a cluster of programs. When 
designating an ``other cluster,'' a State shall identify the Federal 
awards included in the cluster and advise the subrecipients of 
compliance requirements applicable to the cluster, consistent with 
Sec. 3052.400(d)(1) and Sec. 3052.400(d)(2), respectively. A cluster of 
programs shall be considered as one program for determining major 
programs, as described in Sec. 3052.520, and, with the exception of R&D 
as described in Sec. 3052.200(c), whether a program-specific audit may 
be elected.
    Cognizant agency for audit means the Federal agency designated to 
carry out the responsibilities described in Sec. 3052.400(a).
    Compliance supplement refers to the Circular A-133 Compliance 
Supplement, included as Appendix B to Circular A-133, or such documents 
as OMB or its designee may issue to replace it. This document is 
available from the Government Printing Office, Superintendent of 
Documents, Washington, DC 20402-9325.
    Corrective action means action taken by the auditee that:
    (1) Corrects identified deficiencies;
    (2) Produces recommended improvements; or
    (3) Demonstrates that audit findings are either invalid or do not 
warrant auditee action.
    Federal agency has the same meaning as the term agency in Section 
551(1) of title 5, United States Code.
    Federal award means Federal financial assistance and Federal cost-
reimbursement contracts that non-Federal entities receive directly from 
Federal awarding agencies or indirectly from pass-through entities. It 
does not include procurement contracts, under grants or contracts, used 
to buy goods or services from vendors. Any audits of such vendors shall 
be covered by the terms and conditions of the contract. Contracts to 
operate Federal Government owned, contractor operated facilities (GOCOs) 
are excluded from the requirements of this part.
    Federal awarding agency means the Federal agency that provides an 
award directly to the recipient.
    Federal financial assistance means assistance that non-Federal 
entities receive or administer in the form of grants, loans, loan 
guarantees, property (including donated surplus property), cooperative 
agreements, interest subsidies, insurance, food commodities, direct 
appropriations, and other assistance, but does not include amounts 
received as reimbursement for services rendered to individuals as 
described in Sec. 3052.205(h) and Sec. 3052.205(i).
    Federal program means:

[[Page 201]]

    (1) All Federal awards to a non-Federal entity assigned a single 
number in the CFDA.
    (2) When no CFDA number is assigned, all Federal awards from the 
same agency made for the same purpose should be combined and considered 
one program.
    (3) Notwithstanding paragraphs (1) and (2) of this definition, a 
cluster of programs. The types of clusters of programs are:
    (i) Research and development (R&D);
    (ii) Student financial aid (SFA); and
    (iii) ``Other clusters,'' as described in the definition of cluster 
of programs in this section.
    GAGAS means generally accepted government auditing standards issued 
by the Comptroller General of the United States, which are applicable to 
financial audits.
    Generally accepted accounting principles has the meaning specified 
in generally accepted auditing standards issued by the American 
Institute of Certified Public Accountants (AICPA).
    Indian tribe means any Indian tribe, band, nation, or other 
organized group or community, including any Alaskan Native village or 
regional or village corporation (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.
    Internal control means a process, effected by an entity's management 
and other personnel, designed to provide reasonable assurance regarding 
the achievement of objectives in the following categories:
    (1) Effectiveness and efficiency of operations;
    (2) Reliability of financial reporting; and
    (3) Compliance with applicable laws and regulations.
    Internal control pertaining to the compliance requirements for 
Federal programs (Internal control over Federal programs) means a 
process--effected by an entity's management and other personnel--
designed to provide reasonable assurance regarding the achievement of 
the following objectives for Federal programs:
    (1) Transactions are properly recorded and accounted for to:
    (i) Permit the preparation of reliable financial statements and 
Federal reports;
    (ii) Maintain accountability over assets; and
    (iii) Demonstrate compliance with laws, regulations, and other 
compliance requirements;
    (2) Transactions are executed in compliance with:
    (i) Laws, regulations, and the provisions of contracts or grant 
agreements that could have a direct and material effect on a Federal 
program; and
    (ii) Any other laws and regulations that are identified in the 
compliance supplement; and
    (3) Funds, property, and other assets are safeguarded against loss 
from unauthorized use or disposition.
    Loan means a Federal loan or loan guarantee received or administered 
by a non-Federal entity.
    Local government means any unit of local government within a State, 
including a county, borough, municipality, city, town, township, parish, 
local public authority, special district, school district, intrastate 
district, council of governments, and any other instrumentality of local 
government.
    Major program means a Federal program determined by the auditor to 
be a major program in accordance with Sec. 3052.520 or a program 
identified as a major program by a Federal agency or pass-through entity 
in accordance with Sec. 3052.215(c).
    Management decision means the evaluation by the Federal awarding 
agency or pass-through entity of the audit findings and corrective 
action plan and the issuance of a written decision as to what corrective 
action is necessary.
    Non-Federal entity means a State, local government, or non-profit 
organization.
    Non-profit organization means:
    (1) any corporation, trust, association, cooperative, or other 
organization that:
    (i) Is operated primarily for scientific, educational, service, 
charitable, or similar purposes in the public interest;
    (ii) Is not organized primarily for profit; and

[[Page 202]]

    (iii) Uses its net proceeds to maintain, improve, or expand its 
operations; and
    (2) The term non-profit organization includes non-profit 
institutions of higher education and hospitals.
    OMB means the Executive Office of the President, Office of 
Management and Budget.
    Oversight agency for audit means the Federal awarding agency that 
provides the predominant amount of direct funding to a recipient not 
assigned a cognizant agency for audit. When there is no direct funding, 
the Federal agency with the predominant indirect funding shall assume 
the oversight responsibilities. The duties of the oversight agency for 
audit are described in Sec. 3052.400(b).
    Pass-through entity means a non-Federal entity that provides a 
Federal award to a subrecipient to carry out a Federal program.
    Program-specific audit means an audit of one Federal program as 
provided for in Sec. 3052.200(c) and Sec. 3052.235.
    Questioned cost means a cost that is questioned by the auditor 
because of an audit finding:
    (1) Which resulted from a violation or possible violation of a 
provision of a law, regulation, contract, grant, cooperative agreement, 
or other agreement or document governing the use of Federal funds, 
including funds used to match Federal funds;
    (2) Where the costs, at the time of the audit, are not supported by 
adequate documentation; or
    (3) Where the costs incurred appear unreasonable and do not reflect 
the actions a prudent person would take in the circumstances.
    Recipient means a non-Federal entity that expends Federal awards 
received directly from a Federal awarding agency to carry out a Federal 
program.
    Research and development (R&D) means all research activities, both 
basic and applied, and all development activities that are performed by 
a non-Federal entity. Research is defined as a systematic study directed 
toward fuller scientific knowledge or understanding of the subject 
studied. The term research also includes activities involving the 
training of individuals in research techniques where such activities 
utilize the same facilities as other research and development activities 
and where such activities are not included in the instruction function. 
Development is the systematic use of knowledge and understanding gained 
from research directed toward the production of useful materials, 
devices, systems, or methods, including design and development of 
prototypes and processes.
    Single audit means an audit which includes both the entity's 
financial statements and the Federal awards as described in 
Sec. 3052.500.
    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, 
any multi-State, regional, or interstate entity which has governmental 
functions, and any Indian tribe as defined in this section.
    Student Financial Aid (SFA) includes those programs of general 
student assistance, such as those authorized by Title IV of the Higher 
Education Act of 1965, as amended, (20 U.S.C. 1070 et seq.) which is 
administered by the U.S. Department of Education, and similar programs 
provided by other Federal agencies. It does not include programs which 
provide fellowships or similar Federal awards to students on a 
competitive basis, or for specified studies or research.
    Subrecipient means a non-Federal entity that expends Federal awards 
received from a pass-through entity to carry out a Federal program, but 
does not include an individual that is a beneficiary of such a program. 
A subrecipient may also be a recipient of other Federal awards directly 
from a Federal awarding agency. Guidance on distinguishing between a 
subrecipient and a vendor is provided in Sec. 3052.210.
    Types of compliance requirements refers to the types of compliance 
requirements listed in the compliance supplement. Examples include: 
activities allowed or unallowed; allowable costs/cost principles; cash 
management; eligibility; matching, level of effort, earmarking; and, 
reporting.

[[Page 203]]

    Vendor means a dealer, distributor, merchant, or other seller 
providing goods or services that are required for the conduct of a 
Federal program. These goods or services may be for an organization's 
own use or for the use of beneficiaries of the Federal program. 
Additional guidance on distinguishing between a subrecipient and a 
vendor is provided in Sec. 3052.210.



                            Subpart B--Audits



Sec. 3052.200  Audit requirements.

    (a) Audit required. Non-Federal entities that expend $300,000 or 
more in a year in Federal awards shall have a single or program-specific 
audit conducted for that year in accordance with the provisions of this 
part. Guidance on determining Federal awards expended is provided in 
Sec. 3052.205.
    (b) Single audit. Non-Federal entities that expend $300,000 or more 
in a year in Federal awards shall have a single audit conducted in 
accordance with Sec. 3052.500 except when they elect to have a program-
specific audit conducted in accordance with paragraph (c) of this 
section.
    (c) Program-specific audit election. When an auditee expends Federal 
awards under only one Federal program (excluding R&D) and the Federal 
program's laws, regulations, or grant agreements do not require a 
financial statement audit of the auditee, the auditee may elect to have 
a program-specific audit conducted in accordance with Sec. 3052.235. A 
program-specific audit may not be elected for R&D unless all of the 
Federal awards expended were received from the same Federal agency, or 
the same Federal agency and the same pass-through entity, and that 
Federal agency, or pass-through entity in the case of a subrecipient, 
approves in advance a program-specific audit.
    (d) Exemption when Federal awards expended are less than $300,000. 
Non-Federal entities that expend less than $300,000 a year in Federal 
awards are exempt from Federal audit requirements for that year, except 
as noted in Sec. 3052.215(a), but records must be available for review 
or audit by appropriate officials of the Federal agency, pass-through 
entity, and General Accounting Office (GAO).
    (e) Federally Funded Research and Development Centers (FFRDC). 
Management of an auditee that owns or operates a FFRDC may elect to 
treat the FFRDC as a separate entity for purposes of this part.



Sec. 3052.205  Basis for determining Federal awards expended.

    (a) Determining Federal awards expended. The determination of when 
an award is expended should be based on when the activity related to the 
award occurs. Generally, the activity pertains to events that require 
the non-Federal entity to comply with laws, regulations, and the 
provisions of contracts or grant agreements, such as: expenditure/
expense transactions associated with grants, cost-reimbursement 
contracts, cooperative agreements, and direct appropriations; the 
disbursement of funds passed through to subrecipients; the use of loan 
proceeds under loan and loan guarantee programs; the receipt of 
property; the receipt of surplus property; the receipt or use of program 
income; the distribution or consumption of food commodities; the 
disbursement of amounts entitling the non-Federal entity to an interest 
subsidy; and, the period when insurance is in force.
    (b) Loan and loan guarantees (loans). Since the Federal Government 
is at risk for loans until the debt is repaid, the following guidelines 
shall be used to calculate the value of Federal awards expended under 
loan programs, except as noted in paragraphs (c) and (d) of this 
section:
    (1) Value of new loans made or received during the fiscal year; plus
    (2) Balance of loans from previous years for which the Federal 
Government imposes continuing compliance requirements; plus
    (3) Any interest subsidy, cash, or administrative cost allowance 
received.
    (c) Loan and loan guarantees (loans) at institutions of higher 
education. When loans are made to students of an institution of higher 
education but the institution does not make the loans, then only the 
value of loans made during the year shall be considered Federal awards 
expended in that year. The balance of loans for previous years is not 
included as Federal awards expended

[[Page 204]]

because the lender accounts for the prior balances.
    (d) Prior loan and loan guarantees (loans). Loans, the proceeds of 
which were received and expended in prior-years, are not considered 
Federal awards expended under this part when the laws, regulations, and 
the provisions of contracts or grant agreements pertaining to such loans 
impose no continuing compliance requirements other than to repay the 
loans.
    (e) Endowment funds. The cumulative balance of Federal awards for 
endowment funds which are federally restricted are considered awards 
expended in each year in which the funds are still restricted.
    (f) Free rent. Free rent received by itself is not considered a 
Federal award expended under this part. However, free rent received as 
part of an award to carry out a Federal program shall be included in 
determining Federal awards expended and subject to audit under this 
part.
    (g) Valuing non-cash assistance. Federal non-cash assistance, such 
as free rent, food stamps, food commodities, donated property, or 
donated surplus property, shall be valued at fair market value at the 
time of receipt or the assessed value provided by the Federal agency.
    (h) Medicare. Medicare payments to a non-Federal entity for 
providing patient care services to Medicare eligible individuals are not 
considered Federal awards expended under this part.
    (i) Medicaid. Medicaid payments to a subrecipient for providing 
patient care services to Medicaid eligible individuals are not 
considered Federal awards expended under this part unless a State 
requires the funds to be treated as Federal awards expended because 
reimbursement is on a cost-reimbursement basis.
    (j) Certain loans provided by the National Credit Union 
Administration. For purposes of this part, loans made from the National 
Credit Union Share Insurance Fund and the Central Liquidity Facility 
that are funded by contributions from insured institutions are not 
considered Federal awards expended.



Sec. 3052.210  Subrecipient and vendor determinations.

    (a) General. An auditee may be a recipient, a subrecipient, and a 
vendor. Federal awards expended as a recipient or a subrecipient would 
be subject to audit under this part. The payments received for goods or 
services provided as a vendor would not be considered Federal awards. 
The guidance in paragraphs (b) and (c) of this section should be 
considered in determining whether payments constitute a Federal award or 
a payment for goods and services.
    (b) Federal award. Characteristics indicative of a Federal award 
received by a subrecipient are when the organization:
    (1) Determines who is eligible to receive what Federal financial 
assistance;
    (2) Has its performance measured against whether the objectives of 
the Federal program are met;
    (3) Has responsibility for programmatic decision making;
    (4) Has responsibility for adherence to applicable Federal program 
compliance requirements; and
    (5) Uses the Federal funds to carry out a program of the 
organization as compared to providing goods or services for a program of 
the pass-through entity.
    (c) Payment for goods and services. Characteristics indicative of a 
payment for goods and services received by a vendor are when the 
organization:
    (1) Provides the goods and services within normal business 
operations;
    (2) Provides similar goods or services to many different purchasers;
    (3) Operates in a competitive environment;
    (4) Provides goods or services that are ancillary to the operation 
of the Federal program; and
    (5) Is not subject to compliance requirements of the Federal 
program.
    (d) Use of judgment in making determination. There may be unusual 
circumstances or exceptions to the listed characteristics. In making the 
determination of whether a subrecipient or vendor relationship exists, 
the substance of the relationship is more important than the form of the 
agreement. It is not expected that all of the characteristics will be 
present and

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judgment should be used in determining whether an entity is a 
subrecipient or vendor.
    (e) For-profit subrecipient. Since this part does not apply to for-
profit subrecipients, the pass-through entity is responsible for 
establishing requirements, as necessary, to ensure compliance by for-
profit subrecipients. The contract with the for-profit subrecipient 
should describe applicable compliance requirements and the for-profit 
subrecipient's compliance responsibility. Methods to ensure compliance 
for Federal awards made to for-profit subrecipients may include pre-
award audits, monitoring during the contract, and post-award audits.
    (f) Compliance responsibility for vendors. In most cases, the 
auditee's compliance responsibility for vendors is only to ensure that 
the procurement, receipt, and payment for goods and services comply with 
laws, regulations, and the provisions of contracts or grant agreements. 
Program compliance requirements normally do not pass through to vendors. 
However, the auditee is responsible for ensuring compliance for vendor 
transactions which are structured such that the vendor is responsible 
for program compliance or the vendor's records must be reviewed to 
determine program compliance. Also, when these vendor transactions 
relate to a major program, the scope of the audit shall include 
determining whether these transactions are in compliance with laws, 
regulations, and the provisions of contracts or grant agreements.



Sec. 3052.215  Relation to other audit requirements.

    (a) Audit under this part in lieu of other audits. An audit made in 
accordance with this part shall be in lieu of any financial audit 
required under individual Federal awards. To the extent this audit meets 
a Federal agency's needs, it shall rely upon and use such audits. The 
provisions of this part neither limit the authority of Federal agencies, 
including their Inspectors General, or GAO to conduct or arrange for 
additional audits (e.g., financial audits, performance audits, 
evaluations, inspections, or reviews) nor authorize any auditee to 
constrain Federal agencies from carrying out additional audits. Any 
additional audits shall be planned and performed in such a way as to 
build upon work performed by other auditors.
    (b) Federal agency to pay for additional audits. A Federal agency 
that conducts or contracts for additional audits shall, consistent with 
other applicable laws and regulations, arrange for funding the full cost 
of such additional audits.
    (c) Request for a program to be audited as a major program. A 
Federal agency may request an auditee to have a particular Federal 
program audited as a major program in lieu of the Federal agency 
conducting or arranging for the additional audits. To allow for 
planning, such requests should be made at least 180 days prior to the 
end of the fiscal year to be audited. The auditee, after consultation 
with its auditor, should promptly respond to such request by informing 
the Federal agency whether the program would otherwise be audited as a 
major program using the risk-based audit approach described in 
Sec. 3052.520 and, if not, the estimated incremental cost. The Federal 
agency shall then promptly confirm to the auditee whether it wants the 
program audited as a major program. If the program is to be audited as a 
major program based upon this Federal agency request, and the Federal 
agency agrees to pay the full incremental costs, then the auditee shall 
have the program audited as a major program. A pass-through entity may 
use the provisions of this paragraph for a subrecipient.



Sec. 3052.220  Frequency of audits.

    Except for the provisions for biennial audits provided in paragraphs 
(a) and (b) of this section, audits required by this part shall be 
performed annually. Any biennial audit shall cover both years within the 
biennial period.
    (a) A State or local government that is required by constitution or 
statute, in effect on January 1, 1987, to undergo its audits less 
frequently than annually, is permitted to undergo its audits pursuant to 
this part biennially. This requirement must still be in effect for the 
biennial period under audit.

[[Page 206]]

    (b) Any non-profit organization that had biennial audits for all 
biennial periods ending between July 1, 1992, and January 1, 1995, is 
permitted to undergo its audits pursuant to this part biennially.



Sec. 3052.225  Sanctions.

    No audit costs may be charged to Federal awards when audits required 
by this part have not been made or have been made but not in accordance 
with this part. In cases of continued inability or unwillingness to have 
an audit conducted in accordance with this part, Federal agencies and 
pass-through entities shall take appropriate action using sanctions such 
as:
    (a) Withholding a percentage of Federal awards until the audit is 
completed satisfactorily;
    (b) Withholding or disallowing overhead costs;
    (c) Suspending Federal awards until the audit is conducted; or
    (d) Terminating the Federal award.



Sec. 3052.230  Audit costs.

    (a) Allowable costs. Unless prohibited by law, the cost of audits 
made in accordance with the provisions of this part are allowable 
charges to Federal awards. The charges may be considered a direct cost 
or an allocated indirect cost, as determined in accordance with the 
provisions of applicable OMB cost principles circulars, the Federal 
Acquisition Regulation (FAR) (48 CFR parts 30 and 31), or other 
applicable cost principles or regulations.
    (b) Unallowable costs. A non-Federal entity shall not charge the 
following to a Federal award:
    (1) The cost of any audit under the Single Audit Act Amendments of 
1996 (31 U.S.C. 7501 et seq.) not conducted in accordance with this 
part.
    (2) The cost of auditing a non-Federal entity which has Federal 
awards expended of less than $300,000 per year and is thereby exempted 
under Sec. 3052.200(d) from having an audit conducted under this part. 
However, this does not prohibit a pass-through entity from charging 
Federal awards for the cost of limited scope audits to monitor its 
subrecipients in accordance with Sec. 3052.400(d)(3), provided the 
subrecipient does not have a single audit. For purposes of this part, 
limited scope audits only include agreed-upon procedures engagements 
conducted in accordance with either the AICPA's generally accepted 
auditing standards or attestation standards, that are paid for and 
arranged by a pass-through entity and address only one or more of the 
following types of compliance requirements: activities allowed or 
unallowed; allowable costs/cost principles; eligibility; matching, level 
of effort, earmarking; and, reporting.



Sec. 3052.235  Program-specific audits.

    (a) Program-specific audit guide available. In many cases, a 
program-specific audit guide will be available to provide specific 
guidance to the auditor with respect to internal control, compliance 
requirements, suggested audit procedures, and audit reporting 
requirements. The auditor should contact the Office of Inspector General 
of the Federal agency to determine whether such a guide is available. 
When a current program-specific audit guide is available, the auditor 
shall follow GAGAS and the guide when performing a program-specific 
audit.
    (b) Program-specific audit guide not available. (1) When a program-
specific audit guide is not available, the auditee and auditor shall 
have basically the same responsibilities for the Federal program as they 
would have for an audit of a major program in a single audit.
    (2) The auditee shall prepare the financial statement(s) for the 
Federal program that includes, at a minimum, a schedule of expenditures 
of Federal awards for the program and notes that describe the 
significant accounting policies used in preparing the schedule, a 
summary schedule of prior audit findings consistent with the 
requirements of Sec. 3052.315(b), and a corrective action plan 
consistent with the requirements of Sec. 3052.315(c).
    (3) The auditor shall:
    (i) Perform an audit of the financial statement(s) for the Federal 
program in accordance with GAGAS;
    (ii) Obtain an understanding of internal control and perform tests 
of internal control over the Federal program consistent with the 
requirements of Sec. 3052.500(c) for a major program;

[[Page 207]]

    (iii) Perform procedures to determine whether the auditee has 
complied with laws, regulations, and the provisions of contracts or 
grant agreements that could have a direct and material effect on the 
Federal program consistent with the requirements of Sec. 3052.500(d) for 
a major program; and
    (iv) Follow up on prior audit findings, perform procedures to assess 
the reasonableness of the summary schedule of prior audit findings 
prepared by the auditee, and report, as a current year audit finding, 
when the auditor concludes that the summary schedule of prior audit 
findings materially misrepresents the status of any prior audit finding 
in accordance with the requirements of Sec. 3052.500(e).
    (4) The auditor's report(s) may be in the form of either combined or 
separate reports and may be organized differently from the manner 
presented in this section. The auditor's report(s) shall state that the 
audit was conducted in accordance with this part and include the 
following:
    (i) An opinion (or disclaimer of opinion) as to whether the 
financial statement(s) of the Federal program is presented fairly in all 
material respects in conformity with the stated accounting policies;
    (ii) A report on internal control related to the Federal program, 
which shall describe the scope of testing of internal control and the 
results of the tests;
    (iii) A report on compliance which includes an opinion (or 
disclaimer of opinion) as to whether the auditee complied with laws, 
regulations, and the provisions of contracts or grant agreements which 
could have a direct and material effect on the Federal program; and
    (iv) A schedule of findings and questioned costs for the Federal 
program that includes a summary of the auditor's results relative to the 
Federal program in a format consistent with Sec. 3052.505(d)(1) and 
findings and questioned costs consistent with the requirements of 
Sec. 3052.505(d)(3).
    (c) Report submission for program-specific audits. (1) The audit 
shall be completed and the reporting required by paragraph (c)(2) or 
(c)(3) of this section submitted within the earlier of 30 days after 
receipt of the auditor's report(s), or nine months after the end of the 
audit period, unless a longer period is agreed to in advance by the 
Federal agency that provided the funding or a different period is 
specified in a program-specific audit guide. (However, for fiscal years 
beginning on or before June 30, 1988, the audit shall be completed and 
the required reporting shall be submitted within the earlier of 30 days 
after receipt of the auditor's report(s), or 13 months after the end of 
the audit period, unless a different period is specified in a program-
specific audit guide.) Unless restricted by law or regulation, the 
auditee shall make report copies available for public inspection.
    (2) When a program-specific audit guide is available, the auditee 
shall submit to the Federal clearinghouse designated by OMB the data 
collection form prepared in accordance with Sec. 3052.320(b), as 
applicable to a program-specific audit, and the reporting required by 
the program-specific audit guide to be retained as an archival copy. 
Also, the auditee shall submit to the Federal awarding agency or pass-
through entity the reporting required by the program-specific audit 
guide.
    (3) When a program-specific audit guide is not available, the 
reporting package for a program-specific audit shall consist of the 
financial statement(s) of the Federal program, a summary schedule of 
prior audit findings, and a corrective action plan as described in 
paragraph (b)(2) of this section, and the auditor's report(s) described 
in paragraph (b)(4) of this section. The data collection form prepared 
in accordance with Sec. 3052.320(b), as applicable to a program-specific 
audit, and one copy of this reporting package shall be submitted to the 
Federal clearinghouse designated by OMB to be retained as an archival 
copy. Also, when the schedule of findings and questioned costs disclosed 
audit findings or the summary schedule of prior audit findings reported 
the status of any audit findings, the auditee shall submit one copy of 
the reporting package to the Federal clearinghouse on behalf of the 
Federal awarding agency, or directly to the pass-through entity in the

[[Page 208]]

case of a subrecipient. Instead of submitting the reporting package to 
the pass-through entity, when a subrecipient is not required to submit a 
reporting package to the pass-through entity, the subrecipient shall 
provide written notification to the pass-through entity, consistent with 
the requirements of Sec. 3052.320(e)(2). A subrecipient may submit a 
copy of the reporting package to the pass-through entity to comply with 
this notification requirement.
    (d) Other sections of this part may apply. Program-specific audits 
are subject to Sec. 3052.100 through Sec. 3052.215(b), Sec. 3052.220 
through Sec. 3052.230, Sec. 3052.300 through Sec. 3052.305, 
Sec. 3052.315, Sec. 3052.320(f) through Sec. 3052.320(j), Sec. 3052.400 
through Sec. 3052.405, Sec. 3052.510 through Sec. 3052.515, and other 
referenced provisions of this part unless contrary to the provisions of 
this section, a program-specific audit guide, or program laws and 
regulations.



                           Subpart C--Auditees



Sec. 3052.300  Auditee responsibilities.

    The auditee shall:
    (a) Identify, in its accounts, all Federal awards received and 
expended and the Federal programs under which they were received. 
Federal program and award identification shall include, as applicable, 
the CFDA title and number, award number and year, name of the Federal 
agency, and name of the pass-through entity.
    (b) Maintain internal control over Federal programs that provides 
reasonable assurance that the auditee is managing Federal awards in 
compliance with laws, regulations, and the provisions of contracts or 
grant agreements that could have a material effect on each of its 
Federal programs.
    (c) Comply with laws, regulations, and the provisions of contracts 
or grant agreements related to each of its Federal programs.
    (d) Prepare appropriate financial statements, including the schedule 
of expenditures of Federal awards in accordance with Sec. 3052.310.
    (e) Ensure that the audits required by this part are properly 
performed and submitted when due. When extensions to the report 
submission due date required by Sec. 3052.320(a) are granted by the 
cognizant or oversight agency for audit, promptly notify the Federal 
clearinghouse designated by OMB and each pass-through entity providing 
Federal awards of the extension.
    (f) Follow up and take corrective action on audit findings, 
including preparation of a summary schedule of prior audit findings and 
a corrective action plan in accordance with Sec. 3052.315(b) and 
Sec. 3052.315(c), respectively.



Sec. 3052.305  Auditor selection.

    (a) Auditor procurement. In procuring audit services, auditees shall 
follow the procurement standards prescribed by the Grants Management 
Common Rule (hereinafter referred to as the ``A-102 Common Rule'') 7 CFR 
Part 3016, Circular A-110, ``Uniform Administrative Requirements for 
Grants and Agreements with Institutions of Higher Education, Hospitals 
and Other Non-Profit Organizations,'' or the FAR (48 CFR part 42), as 
applicable (OMB Circulars are available from the Office of 
Administration, Publications Office, Room 2200, New Executive Office 
Building, Washington, DC 20503). Whenever possible, auditees shall make 
positive efforts to utilize small businesses, minority-owned firms, and 
women's business enterprises, in procuring audit services as stated in 
the A-102 Common Rule, OMB Circular A-110, or the FAR (48 CFR part 42), 
as applicable. In requesting proposals for audit services, the 
objectives and scope of the audit should be made clear. Factors to be 
considered in evaluating each proposal for audit services include the 
responsiveness to the request for proposal, relevant experience, 
availability of staff with professional qualifications and technical 
abilities, the results of external quality control reviews, and price.
    (b) Restriction on auditor preparing indirect cost proposals. An 
auditor who prepares the indirect cost proposal or cost allocation plan 
may not also be selected to perform the audit required by this part when 
the indirect costs recovered by the auditee during the prior year 
exceeded $1 million. This restriction applies to the base year used in 
the preparation of the indirect cost proposal or cost allocation plan 
and

[[Page 209]]

any subsequent years in which the resulting indirect cost agreement or 
cost allocation plan is used to recover costs. To minimize any 
disruption in existing contracts for audit services, this paragraph 
applies to audits of fiscal years beginning after June 30, 1998.
    (c) Use of Federal auditors. Federal auditors may perform all or 
part of the work required under this part if they comply fully with the 
requirements of this part.



Sec. 3052.310  Financial statements.

    (a) Financial statements. The auditee shall prepare financial 
statements that reflect its financial position, results of operations or 
changes in net assets, and, where appropriate, cash flows for the fiscal 
year audited. The financial statements shall be for the same 
organizational unit and fiscal year that is chosen to meet the 
requirements of this part. However, organization-wide financial 
statements may also include departments, agencies, and other 
organizational units that have separate audits in accordance with 
Sec. 3052.500(a) and prepare separate financial statements.
    (b) Schedule of expenditures of Federal awards. The auditee shall 
also prepare a schedule of expenditures of Federal awards for the period 
covered by the auditee's financial statements. While not required, the 
auditee may choose to provide information requested by Federal awarding 
agencies and pass-through entities to make the schedule easier to use. 
For example, when a Federal program has multiple award years, the 
auditee may list the amount of Federal awards expended for each award 
year separately. At a minimum, the schedule shall:
    (1) List individual Federal programs by Federal agency. For Federal 
programs included in a cluster of programs, list individual Federal 
programs within a cluster of programs. For R&D, total Federal awards 
expended shall be shown either by individual award or by Federal agency 
and major subdivision within the Federal agency. For example, the 
National Institutes of Health is a major subdivision in the Department 
of Health and Human Services.
    (2) For Federal awards received as a subrecipient, the name of the 
pass-through entity and identifying number assigned by the pass-through 
entity shall be included.
    (3) Provide total Federal awards expended for each individual 
Federal program and the CFDA number or other identifying number when the 
CFDA information is not available.
    (4) Include notes that describe the significant accounting policies 
used in preparing the schedule.
    (5) To the extent practical, pass-through entities should identify 
in the schedule the total amount provided to subrecipients from each 
Federal program.
    (6) Include, in either the schedule or a note to the schedule, the 
value of the Federal awards expended in the form of non-cash assistance, 
the amount of insurance in effect during the year, and loans or loan 
guarantees outstanding at year end. While not required, it is preferable 
to present this information in the schedule.



Sec. 3052.315  Audit findings follow-up.

    (a) General. The auditee is responsible for follow-up and corrective 
action on all audit findings. As part of this responsibility, the 
auditee shall prepare a summary schedule of prior audit findings. The 
auditee shall also prepare a corrective action plan for current year 
audit findings. The summary schedule of prior audit findings and the 
corrective action plan shall include the reference numbers the auditor 
assigns to audit findings under Sec. 3052.510(c). Since the summary 
schedule may include audit findings from multiple years, it shall 
include the fiscal year in which the finding initially occurred.
    (b) Summary schedule of prior audit findings. The summary schedule 
of prior audit findings shall report the status of all audit findings 
included in the prior audit's schedule of findings and questioned costs 
relative to Federal awards. The summary schedule shall also include 
audit findings reported in the prior audit's summary schedule of prior 
audit findings except audit findings listed as corrected in accordance 
with paragraph (b)(1) of this section, or no longer valid or not 
warranting further action in accordance with paragraph (b)(4) of this 
section.

[[Page 210]]

    (1) When audit findings were fully corrected, the summary schedule 
need only list the audit findings and state that corrective action was 
taken.
    (2) When audit findings were not corrected or were only partially 
corrected, the summary schedule shall describe the planned corrective 
action as well as any partial corrective action taken.
    (3) When corrective action taken is significantly different from 
corrective action previously reported in a corrective action plan or in 
the Federal agency's or pass-through entity's management decision, the 
summary schedule shall provide an explanation.
    (4) When the auditee believes the audit findings are no longer valid 
or do not warrant further action, the reasons for this position shall be 
described in the summary schedule. A valid reason for considering an 
audit finding as not warranting further action is that all of the 
following have occurred:
    (i) Two years have passed since the audit report in which the 
finding occurred was submitted to the Federal clearinghouse;
    (ii) The Federal agency or pass-through entity is not currently 
following up with the auditee on the audit finding; and
    (iii) A management decision was not issued.
    (c) Corrective action plan. At the completion of the audit, the 
auditee shall prepare a corrective action plan to address each audit 
finding included in the current year auditor's reports. The corrective 
action plan shall provide the name(s) of the contact person(s) 
responsible for corrective action, the corrective action planned, and 
the anticipated completion date. If the auditee does not agree with the 
audit findings or believes corrective action is not required, then the 
corrective action plan shall include an explanation and specific 
reasons.



Sec. 3052.320  Report submission.

    (a) General. The audit shall be completed and the data collection 
form described in paragraph (b) of this section and reporting package 
described in paragraph (c) of this section shall be submitted within the 
earlier of 30 days after receipt of the auditor's report(s), or nine 
months after the end of the audit period, unless a longer period is 
agreed to in advance by the cognizant or oversight agency for audit. 
(However, for fiscal years beginning on or before June 30, 1998, the 
audit shall be completed and the data collection form and reporting 
package shall be submitted within the earlier of 30 days after receipt 
of the auditor's report(s), or 13 months after the end of the audit 
period.) Unless restricted by law or regulation, the auditee shall make 
copies available for public inspection.
    (b) Data collection. (1) The auditee shall submit a data collection 
form which states whether the audit was completed in accordance with 
this part and provides information about the auditee, its Federal 
programs, and the results of the audit. The form shall be approved by 
OMB, available from the Federal clearinghouse designated by OMB, and 
include data elements similar to those presented in this paragraph. A 
senior level representative of the auditee (e.g., State controller, 
director of finance, chief executive officer, or chief financial 
officer) shall sign a statement to be included as part of the form 
certifying that: the auditee complied with the requirements of this 
part, the form was prepared in accordance with this part (and the 
instructions accompanying the form), and the information included in the 
form, in its entirety, are accurate and complete.
    (2) The data collection form shall include the following data 
elements:
    (i) The type of report the auditor issued on the financial 
statements of the auditee (i.e., unqualified opinion, qualified opinion, 
adverse opinion, or disclaimer of opinion).
    (ii) Where applicable, a statement that reportable conditions in 
internal control were disclosed by the audit of the financial statements 
and whether any such conditions were material weaknesses.
    (iii) A statement as to whether the audit disclosed any 
noncompliance which is material to the financial statements of the 
auditee.
    (iv) Where applicable, a statement that reportable conditions in 
internal control over major programs were disclosed by the audit and 
whether any such conditions were material weaknesses.

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    (v) The type of report the auditor issued on compliance for major 
programs (i.e., unqualified opinion, qualified opinion, adverse opinion, 
or disclaimer of opinion).
    (vi) A list of the Federal awarding agencies which will receive a 
copy of the reporting package pursuant to Sec. 3052.320(d)(2) of OMB 
Circular A-133.
    (vii) A yes or no statement as to whether the auditee qualified as a 
low-risk auditee under Sec. 3052.530 of OMB Circular A-133.
    (viii) The dollar threshold used to distinguish between Type A and 
Type B programs as defined in Sec. 3052.520(b) of OMB Circular A-133.
    (ix) The Catalog of Federal Domestic Assistance (CFDA) number for 
each Federal program, as applicable.
    (x) The name of each Federal program and identification of each 
major program. Individual programs within a cluster of programs should 
be listed in the same level of detail as they are listed in the schedule 
of expenditures of Federal awards.
    (xi) The amount of expenditures in the schedule of expenditures of 
Federal awards associated with each Federal program.
    (xii) For each Federal program, a yes or no statement as to whether 
there are audit findings in each of the following types of compliance 
requirements and the total amount of any questioned costs:
    (A) Activities allowed or unallowed.
    (B) Allowable costs/cost principles.
    (C) Cash management.
    (D) Davis-Bacon Act.
    (E) Eligibility.
    (F) Equipment and real property management.
    (G) Matching, level of effort, earmarking.
    (H) Period of availability of Federal funds.
    (I) Procurement and suspension and debarment.
    (J) Program income.
    (K) Real property acquisition and relocation assistance.
    (L) Reporting.
    (M) Subrecipient monitoring.
    (N) Special tests and provisions.
    (xiii) Auditee Name, Employer Identification Number(s), Name and 
Title of Certifying Official, Telephone Number, Signature, and Date.
    (xiv) Auditor Name, Name and Title of Contact Person, Auditor 
Address, Auditor Telephone Number, Signature, and Date.
    (xv) Whether the auditee has either a cognizant or oversight agency 
for audit.
    (xvi) The name of the cognizant or oversight agency for audit 
determined in accordance with Sec. 3052.400(a) and Sec. 3052.400(b), 
respectively.
    (3) Using the information included in the reporting package 
described in paragraph (c) of this section, the auditor shall complete 
the applicable sections of the form. The auditor shall sign a statement 
to be included as part of the data collection form that indicates, at a 
minimum, the source of the information included in the form, the 
auditor's responsibility for the information, that the form is not a 
substitute for the reporting package described in paragraph (c) of this 
section, and that the content of the form is limited to the data 
elements prescribed by OMB.
    (c) Reporting package. The reporting package shall include the:
    (1) Financial statements and schedule of expenditures of Federal 
awards discussed in Sec. 3052.310(a) and Sec. 3052.310(b), respectively;
    (2) Summary schedule of prior audit findings discussed in 
Sec. 3052.315(b);
    (3) Auditor's report(s) discussed in Sec. 3052.505; and
    (4) Corrective action plan discussed in Sec. 3052.315(c).
    (d) Submission to clearinghouse. All auditees shall submit to the 
Federal clearinghouse designated by OMB the data collection form 
described in paragraph (b) of this section and one copy of the reporting 
package described in paragraph (c) of this section for:
    (1) The Federal clearinghouse to retain as an archival copy; and
    (2) Each Federal awarding agency when the schedule of findings and 
questioned costs disclosed audit findings relating to Federal awards 
that the Federal awarding agency provided directly or the summary 
schedule of prior audit findings reported the status of any audit 
findings relating to Federal

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awards that the Federal awarding agency provided directly.
    (e) Additional submission by subrecipients. (1) In addition to the 
requirements discussed in paragraph (d) of this section, auditees that 
are also subrecipients shall submit to each pass-through entity one copy 
of the reporting package described in paragraph (c) of this section for 
each pass-through entity when the schedule of findings and questioned 
costs disclosed audit findings relating to Federal awards that the pass-
through entity provided or the summary schedule of prior audit findings 
reported the status of any audit findings relating to Federal awards 
that the pass-through entity provided.
    (2) Instead of submitting the reporting package to a pass-through 
entity, when a subrecipient is not required to submit a reporting 
package to a pass-through entity pursuant to paragraph (e)(1) of this 
section, the subrecipient shall provide written notification to the 
pass-through entity that: an audit of the subrecipient was conducted in 
accordance with this part (including the period covered by the audit and 
the name, amount, and CFDA number of the Federal award(s) provided by 
the pass-through entity); the schedule of findings and questioned costs 
disclosed no audit findings relating to the Federal award(s) that the 
pass-through entity provided; and, the summary schedule of prior audit 
findings did not report on the status of any audit findings relating to 
the Federal award(s) that the pass-through entity provided. A 
subrecipient may submit a copy of the reporting package described in 
paragraph (c) of this section to a pass-through entity to comply with 
this notification requirement.
    (f) Requests for report copies. In response to requests by a Federal 
agency or pass-through entity, auditees shall submit the appropriate 
copies of the reporting package described in paragraph (c) of this 
section and, if requested, a copy of any management letters issued by 
the auditor.
    (g) Report retention requirements. Auditees shall keep one copy of 
the data collection form described in paragraph (b) of this section and 
one copy of the reporting package described in paragraph (c) of this 
section on file for three years from the date of submission to the 
Federal clearinghouse designated by OMB. Pass-through entities shall 
keep subrecipients' submissions on file for three years from date of 
receipt.
    (h) Clearinghouse responsibilities. The Federal clearinghouse 
designated by OMB shall distribute the reporting packages received in 
accordance with paragraph (d)(2) of this section and Sec. 3052.235(c)(3) 
to applicable Federal awarding agencies, maintain a data base of 
completed audits, provide appropriate information to Federal agencies, 
and follow up with known auditees which have not submitted the required 
data collection forms and reporting packages.
    (i) Clearinghouse address. The address of the Federal clearinghouse 
currently designated by OMB is Federal Audit Clearinghouse, Bureau of 
the Census, 1201 E. 10th Street, Jeffersonville, IN 47132.
    (j) Electronic filing. Nothing in this part shall preclude 
electronic submissions to the Federal clearinghouse in such manner as 
may be approved by OMB. With OMB approval, the Federal clearinghouse may 
pilot test methods of electronic submissions.



          Subpart D--Federal Agencies and Pass-Through Entities



Sec. 3052.400  Responsibilities.

    (a) Cognizant agency for audit responsibilities. Recipients 
expending more than $25 million a year in Federal awards shall have a 
cognizant agency for audit. The designated cognizant agency for audit 
shall be the Federal awarding agency that provides the predominant 
amount of direct funding to a recipient unless OMB makes a specific 
cognizant agency for audit assignment. To provide for continuity of 
cognizance, the determination of the predominant amount of direct 
funding shall be based upon direct Federal awards expended in the 
recipient's fiscal years ending in 1995, 2000, 2005, and every fifth 
year thereafter. For example, audit cognizance for periods ending in 
1997 through 2000 will be determined based on Federal awards expended in 
1995. (However, for States and local

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governments that expend more than $25 million a year in Federal awards 
and have previously assigned cognizant agencies for audit, the 
requirements of this paragraph are not effective until fiscal years 
beginning after June 30, 2000.) Notwithstanding the manner in which 
audit cognizance is determined, a Federal awarding agency with 
cognizance for an auditee may reassign cognizance to another Federal 
awarding agency which provides substantial direct funding and agrees to 
be the cognizant agency for audit. Within 30 days after any 
reassignment, both the old and the new cognizant agency for audit shall 
notify the auditee, and, if known, the auditor of the reassignment. The 
cognizant agency for audit shall:
    (1) Provide technical audit advice and liaison to auditees and 
auditors.
    (2) Consider auditee requests for extensions to the report 
submission due date required by Sec. 3052.320(a). The cognizant agency 
for audit may grant extensions for good cause.
    (3) Obtain or conduct quality control reviews of selected audits 
made by non-Federal auditors, 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 direct reporting by the auditee 
or its auditor of irregularities or illegal acts, as required by GAGAS 
or laws and regulations.
    (5) Advise the auditor and, where appropriate, the auditee of any 
deficiencies found in the audits when the deficiencies require 
corrective action by the auditor. When advised of deficiencies, the 
auditee shall work with the auditor to take corrective action. If 
corrective action is not taken, the cognizant agency for audit shall 
notify the auditor, the auditee, and applicable Federal awarding 
agencies and pass-through entities of the facts and make recommendations 
for follow-up action. Major inadequacies or repetitive substandard 
performance by auditors shall be referred to appropriate State licensing 
agencies and professional bodies for disciplinary action.
    (6) Coordinate, to the extent practical, audits or reviews made by 
or for Federal agencies that are in addition to the audits made pursuant 
to this part, so that the additional audits or reviews build upon audits 
performed in accordance with this part.
    (7) Coordinate a management decision for audit findings that affect 
the Federal programs of more than one agency.
    (8) Coordinate the audit work and reporting responsibilities among 
auditors to achieve the most cost-effective audit.
    (9) For biennial audits permitted under Sec. 3052.220, consider 
auditee requests to qualify as a low-risk auditee under 
Sec. 3052.530(a).
    (b) Oversight agency for audit responsibilities. An auditee which 
does not have a designated cognizant agency for audit will be under the 
general oversight of the Federal agency determined in accordance with 
Sec. 3052.105. The oversight agency for audit:
    (1) Shall provide technical advice to auditees and auditors as 
requested.
    (2) May assume all or some of the responsibilities normally 
performed by a cognizant agency for audit.
    (c) Federal awarding agency responsibilities. The Federal awarding 
agency shall perform the following for the Federal awards it makes:
    (1) Identify Federal awards made by informing each recipient of the 
CFDA title and number, award name and number, award year, and if the 
award is for R&D. When some of this information is not available, the 
Federal agency shall provide information necessary to clearly describe 
the Federal award.
    (2) Advise recipients of requirements imposed on them by Federal 
laws, regulations, and the provisions of contracts or grant agreements.
    (3) Ensure that audits are completed and reports are received in a 
timely manner and in accordance with the requirements of this part.
    (4) Provide technical advice and counsel to auditees and auditors as 
requested.
    (5) Issue a management decision on audit findings within six months 
after receipt of the audit report and ensure that the recipient takes 
appropriate and timely corrective action.
    (6) Assign a person responsible for providing annual updates of the 
compliance supplement to OMB.

[[Page 214]]

    (d) Pass-through entity responsibilities. A pass-through entity 
shall perform the following for the Federal awards it makes:
    (1) Identify Federal awards made by informing each subrecipient of 
CFDA title and number, award name and number, award year, if the award 
is R&D, and name of Federal agency. When some of this information is not 
available, the pass-through entity shall provide the best information 
available to describe the Federal award.
    (2) Advise subrecipients of requirements imposed on them by Federal 
laws, regulations, and the provisions of contracts or grant agreements 
as well as any supplemental requirements imposed by the pass-through 
entity.
    (3) Monitor the activities of subrecipients as necessary to ensure 
that Federal awards are used for authorized purposes in compliance with 
laws, regulations, and the provisions of contracts or grant agreements 
and that performance goals are achieved.
    (4) Ensure that subrecipients expending $300,000 or more in Federal 
awards during the subrecipient's fiscal year have met the audit 
requirements of this part for that fiscal year.
    (5) Issue a management decision on audit findings within six months 
after receipt of the subrecipient's audit report and ensure that the 
subrecipient takes appropriate and timely corrective action.
    (6) Consider whether subrecipient audits necessitate adjustment of 
the pass-through entity's own records.
    (7) Require each subrecipient to permit the pass-through entity and 
auditors to have access to the records and financial statements as 
necessary for the pass-through entity to comply with this part.



Sec. 3052.405  Management decision.

    (a) General. The management decision shall clearly state whether or 
not the audit finding is sustained, the reasons for the decision, and 
the expected auditee action to repay disallowed costs, make financial 
adjustments, or take other action. If the auditee has not completed 
corrective action, a timetable for follow-up should be given. Prior to 
issuing the management decision, the Federal agency or pass-through 
entity may request additional information or documentation from the 
auditee, including a request for auditor assurance related to the 
documentation, as a way of mitigating disallowed costs. The management 
decision should describe any appeal process available to the auditee.
    (b) Federal agency. As provided in Sec. 3052.400(a)(7), the 
cognizant agency for audit shall be responsible for coordinating a 
management decision for audit findings that affect the programs of more 
than one Federal agency. As provided in Sec. 3052.400(c)(5), a Federal 
awarding agency is responsible for issuing a management decision for 
findings that relate to Federal awards it makes to recipients. Alternate 
arrangements may be made on a case-by-case basis by agreement among the 
Federal agencies concerned.
    (c) Pass-through entity. As provided in Sec. 3052.400(d)(5), the 
pass-through entity shall be responsible for making the management 
decision for audit findings that relate to Federal awards it makes to 
subrecipients.
    (d) Time requirements. The entity responsible for making the 
management decision shall do so within six months of receipt of the 
audit report. Corrective action should be initiated within six months 
after receipt of the audit report and proceed as rapidly as possible.
    (e) Reference numbers. Management decisions shall include the 
reference numbers the auditor assigned to each audit finding in 
accordance with Sec. 3052.510(c).



                           Subpart E--Auditors



Sec. 3052.500  Scope of audit.

    (a) General. The audit shall be conducted in accordance with GAGAS. 
The audit shall cover the entire operations of the auditee; or, at the 
option of the auditee, such audit shall include a series of audits that 
cover departments, agencies, and other organizational units which 
expended or otherwise administered Federal awards during such fiscal 
year, provided that each such audit shall encompass the financial 
statements and schedule of expenditures of Federal awards for each such

[[Page 215]]

department, agency, and other organizational unit, which shall be 
considered to be a non-Federal entity. The financial statements and 
schedule of expenditures of Federal awards shall be for the same fiscal 
year.
    (b) Financial statements. The auditor shall determine whether the 
financial statements of the auditee are presented fairly in all material 
respects in conformity with generally accepted accounting principles. 
The auditor shall also determine whether the schedule of expenditures of 
Federal awards is presented fairly in all material respects in relation 
to the auditee's financial statements taken as a whole.
    (c) Internal control. (1) In addition to the requirements of GAGAS, 
the auditor shall perform procedures to obtain an understanding of 
internal control over Federal programs sufficient to plan the audit to 
support a low assessed level of control risk for major programs.
    (2) Except as provided in paragraph (c)(3) of this section, the 
auditor shall:
    (i) Plan the testing of internal control over major programs to 
support a low assessed level of control risk for the assertions relevant 
to the compliance requirements for each major program; and
    (ii) Perform testing of internal control as planned in paragraph 
(c)(2)(i) of this section.
    (3) When internal control over some or all of the compliance 
requirements for a major program are likely to be ineffective in 
preventing or detecting noncompliance, the planning and performing of 
testing described in paragraph (c)(2) of this section are not required 
for those compliance requirements. However, the auditor shall report a 
reportable condition (including whether any such condition is a material 
weakness) in accordance with Sec. 3052.510, assess the related control 
risk at the maximum, and consider whether additional compliance tests 
are required because of ineffective internal control.
    (d) Compliance. (1) In addition to the requirements of GAGAS, the 
auditor shall determine whether the auditee has complied with laws, 
regulations, and the provisions of contracts or grant agreements that 
may have a direct and material effect on each of its major programs.
    (2) The principal compliance requirements applicable to most Federal 
programs and the compliance requirements of the largest Federal programs 
are included in the compliance supplement.
    (3) For the compliance requirements related to Federal programs 
contained in the compliance supplement, an audit of these compliance 
requirements will meet the requirements of this part. Where there have 
been changes to the compliance requirements and the changes are not 
reflected in the compliance supplement, the auditor shall determine the 
current compliance requirements and modify the audit procedures 
accordingly. For those Federal programs not covered in the compliance 
supplement, the auditor should use the types of compliance requirements 
contained in the compliance supplement as guidance for identifying the 
types of compliance requirements to test, and determine the requirements 
governing the Federal program by reviewing the provisions of contracts 
and grant agreements and the laws and regulations referred to in such 
contracts and grant agreements.
    (4) The compliance testing shall include tests of transactions and 
such other auditing procedures necessary to provide the auditor 
sufficient evidence to support an opinion on compliance.
    (e) Audit follow-up. The auditor shall follow-up on prior audit 
findings, perform procedures to assess the reasonableness of the summary 
schedule of prior audit findings prepared by the auditee in accordance 
with Sec. 3052.315(b), and report, as a current year audit finding, when 
the auditor concludes that the summary schedule of prior audit findings 
materially misrepresents the status of any prior audit finding. The 
auditor shall perform audit follow-up procedures regardless of whether a 
prior audit finding relates to a major program in the current year.
    (f) Data collection form. As required in Sec. 3052.320(b)(3), the 
auditor shall complete and sign specified sections of the data 
collection form.

[[Page 216]]



Sec. 3052.505  Audit reporting.

    The auditor's report(s) may be in the form of either combined or 
separate reports and may be organized differently from the manner 
presented in this section. The auditor's report(s) shall state that the 
audit was conducted in accordance with this part and include the 
following:
    (a) An opinion (or disclaimer of opinion) as to whether the 
financial statements are presented fairly in all material respects in 
conformity with generally accepted accounting principles and an opinion 
(or disclaimer of opinion) as to whether the schedule of expenditures of 
Federal awards is presented fairly in all material respects in relation 
to the financial statements taken as a whole.
    (b) A report on internal control related to the financial statements 
and major programs. This report shall describe the scope of testing of 
internal control and the results of the tests, and, where applicable, 
refer to the separate schedule of findings and questioned costs 
described in paragraph (d) of this section.
    (c) A report on compliance with laws, regulations, and the 
provisions of contracts or grant agreements, noncompliance with which 
could have a material effect on the financial statements. This report 
shall also include an opinion (or disclaimer of opinion) as to whether 
the auditee complied with laws, regulations, and the provisions of 
contracts or grant agreements which could have a direct and material 
effect on each major program, and, where applicable, refer to the 
separate schedule of findings and questioned costs described in 
paragraph (d) of this section.
    (d) A schedule of findings and questioned costs which shall include 
the following three components:
    (1) A summary of the auditor's results which shall include:
    (i) The type of report the auditor issued on the financial 
statements of the auditee (i.e., unqualified opinion, qualified opinion, 
adverse opinion, or disclaimer of opinion);
    (ii) Where applicable, a statement that reportable conditions in 
internal control were disclosed by the audit of the financial statements 
and whether any such conditions were material weaknesses;
    (iii) A statement as to whether the audit disclosed any 
noncompliance which is material to the financial statements of the 
auditee;
    (iv) Where applicable, a statement that reportable conditions in 
internal control over major programs were disclosed by the audit and 
whether any such conditions were material weaknesses;
    (v) The type of report the auditor issued on compliance for major 
programs (i.e., unqualified opinion, qualified opinion, adverse opinion, 
or disclaimer of opinion);
    (vi) A statement as to whether the audit disclosed any audit 
findings which the auditor is required to report under Sec. 3052.510(a);
    (vii) An identification of major programs;
    (viii) The dollar threshold used to distinguish between Type A and 
Type B programs, as described in Sec. 3052.520(b); and
    (ix) A statement as to whether the auditee qualified as a low-risk 
auditee under Sec. 3052.530.
    (2) Findings relating to the financial statements which are required 
to be reported in accordance with GAGAS.
    (3) Findings and questioned costs for Federal awards which shall 
include audit findings as defined in Sec. 3052.510(a).
    (i) Audit findings (e.g., internal control findings, compliance 
findings, questioned costs, or fraud) which relate to the same issue 
should be presented as a single audit finding. Where practical, audit 
findings should be organized by Federal agency or pass-through entity.
    (ii) Audit findings which relate to both the financial statements 
and Federal awards, as reported under paragraphs (d)(2) and (d)(3) of 
this section, respectively, should be reported in both sections of the 
schedule. However, the reporting in one section of the schedule may be 
in summary form with a reference to a detailed reporting in the other 
section of the schedule.



Sec. 3052.510  Audit findings.

    (a) Audit findings reported. The auditor shall report the following 
as audit

[[Page 217]]

findings in a schedule of findings and questioned costs:
    (1) Reportable conditions in internal control over major programs. 
The auditor's determination of whether a deficiency in internal control 
is a reportable condition for the purpose of reporting an audit finding 
is in relation to a type of compliance requirement for a major program 
or an audit objective identified in the compliance supplement. The 
auditor shall identify reportable conditions which are individually or 
cumulatively material weaknesses.
    (2) Material noncompliance with the provisions of laws, regulations, 
contracts, or grant agreements related to a major program. The auditor's 
determination of whether a noncompliance with the provisions of laws, 
regulations, contracts, or grant agreements is material for the purpose 
of reporting an audit finding is in relation to a type of compliance 
requirement for a major program or an audit objective identified in the 
compliance supplement.
    (3) Known questioned costs which are greater than $10,000 for a type 
of compliance requirement for a major program. Known questioned costs 
are those specifically identified by the auditor. In evaluating the 
effect of questioned costs on the opinion on compliance, the auditor 
considers the best estimate of total costs questioned (likely questioned 
costs), not just the questioned costs specifically identified (known 
questioned costs). The auditor shall also report known questioned costs 
when likely questioned costs are greater than $10,000 for a type of 
compliance requirement for a major program. In reporting questioned 
costs, the auditor shall include information to provide proper 
perspective for judging the prevalence and consequences of the 
questioned costs.
    (4) Known questioned costs which are greater than $10,000 for a 
Federal program which is not audited as a major program. Except for 
audit follow-up, the auditor is not required under this part to perform 
audit procedures for such a Federal program; therefore, the auditor will 
normally not find questioned costs for a program which is not audited as 
a major program. However, if the auditor does become aware of questioned 
costs for a Federal program which is not audited as a major program 
(e.g., as part of audit follow-up or other audit procedures) and the 
known questioned costs are greater than $10,000, then the auditor shall 
report this as an audit finding.
    (5) The circumstances concerning why the auditor's report on 
compliance for major programs is other than an unqualified opinion, 
unless such circumstances are otherwise reported as audit findings in 
the schedule of findings and questioned costs for Federal awards.
    (6) Known fraud affecting a Federal award, unless such fraud is 
otherwise reported as an audit finding in the schedule of findings and 
questioned costs for Federal awards. This paragraph does not require the 
auditor to make an additional reporting when the auditor confirms that 
the fraud was reported outside of the auditor's reports under the direct 
reporting requirements of GAGAS.
    (7) Instances where the results of audit follow-up procedures 
disclosed that the summary schedule of prior audit findings prepared by 
the auditee in accordance with Sec. 3052.315(b) materially misrepresents 
the status of any prior audit finding.
    (b) Audit finding detail. Audit findings shall be presented in 
sufficient detail for the auditee to prepare a corrective action plan 
and take corrective action and for Federal agencies and pass-through 
entities to arrive at a management decision. The following specific 
information shall be included, as applicable, in audit findings:
    (1) Federal program and specific Federal award identification 
including the CFDA title and number, Federal award number and year, name 
of Federal agency, and name of the applicable pass-through entity. When 
information, such as the CFDA title and number or Federal award number, 
is not available, the auditor shall provide the best information 
available to describe the Federal award.
    (2) The criteria or specific requirement upon which the audit 
finding is based, including statutory, regulatory, or other citation.

[[Page 218]]

    (3) The condition found, including facts that support the deficiency 
identified in the audit finding.
    (4) Identification of questioned costs and how they were computed.
    (5) Information to provide proper perspective for judging the 
prevalence and consequences of the audit findings, such as whether the 
audit findings represent an isolated instance or a systemic problem. 
Where appropriate, instances identified shall be related to the universe 
and the number of cases examined and be quantified in terms of dollar 
value.
    (6) The possible asserted effect to provide sufficient information 
to the auditee and Federal agency, or pass-through entity in the case of 
a subrecipient, to permit them to determine the cause and effect to 
facilitate prompt and proper corrective action.
    (7) Recommendations to prevent future occurrences of the deficiency 
identified in the audit finding.
    (8) Views of responsible officials of the auditee when there is 
disagreement with the audit findings, to the extent practical.
    (c) Reference numbers. Each audit finding in the schedule of 
findings and questioned costs shall include a reference number to allow 
for easy referencing of the audit findings during follow-up.



Sec. 3052.515  Audit working papers.

    (a) Retention of working papers. The auditor shall retain working 
papers and reports for a minimum of three years after the date of 
issuance of the auditor's report(s) to the auditee, unless the auditor 
is notified in writing by the cognizant agency for audit, oversight 
agency for audit, or pass-through entity to extend the retention period. 
When the auditor is aware that the Federal awarding agency, pass-through 
entity, or auditee is contesting an audit finding, the auditor shall 
contact the parties contesting the audit finding for guidance prior to 
destruction of the working papers and reports.
    (b) Access to working papers. Audit working papers shall be made 
available upon request to the cognizant or oversight agency for audit or 
its designee, a Federal agency providing direct or indirect funding, or 
GAO at the completion of the audit, as part of a quality review, to 
resolve audit findings, or to carry out oversight responsibilities 
consistent with the purposes of this part. Access to working papers 
includes the right of Federal agencies to obtain copies of working 
papers, as is reasonable and necessary.



Sec. 3052.520  Major program determination.

    (a) General. The auditor shall use a risk-based approach to 
determine which Federal programs are major programs. This risk-based 
approach shall include consideration of: Current and prior audit 
experience, oversight by Federal agencies and pass-through entities, and 
the inherent risk of the Federal program. The process in paragraphs (b) 
through (I) of this section shall be followed.
    (b) Step 1. (1) The auditor shall identify the larger Federal 
programs, which shall be labeled Type A programs. Type A programs are 
defined as Federal programs with Federal awards expended during the 
audit period exceeding the larger of:
    (i) $300,000 or three percent (.03) of total Federal awards expended 
in the case of an auditee for which total Federal awards expended equal 
or exceed $300,000 but are less than or equal to $100 million.
    (ii) $3 million or three-tenths of one percent (.003) of total 
Federal awards expended in the case of an auditee for which total 
Federal awards expended exceed $100 million but are less than or equal 
to $10 billion.
    (iii) $30 million or 15 hundredths of one percent (.0015) of total 
Federal awards expended in the case of an auditee for which total 
Federal awards expended exceed $10 billion.
    (2) Federal programs not labeled Type A under paragraph (b)(1) of 
this section shall be labeled Type B programs.
    (3) The inclusion of large loan and loan guarantees (loans) should 
not result in the exclusion of other programs as Type A programs. When a 
Federal program providing loans significantly affects the number or size 
of Type A programs, the auditor shall consider

[[Page 219]]

this Federal program as a Type A program and exclude its values in 
determining other Type A programs.
    (4) For biennial audits permitted under Sec. 3052.220, the 
determination of Type A and Type B programs shall be based upon the 
Federal awards expended during the two-year period.
    (c) Step 2. (1) The auditor shall identify Type A programs which are 
low-risk. For a Type A program to be considered low-risk, it shall have 
been audited as a major program in at least one of the two most recent 
audit periods (in the most recent audit period in the case of a biennial 
audit), and, in the most recent audit period, it shall have had no audit 
findings under Sec. 3052.510(a). However, the auditor may use judgment 
and consider that audit findings from questioned costs under 
Sec. 3052.510(a)(3) and Sec. 3052.510(a)(4), fraud under 
Sec. 3052.510(a)(6), and audit follow-up for the summary schedule of 
prior audit findings under Sec. 3052.510(a)(7) do not preclude the Type 
A program from being low-risk. The auditor shall consider: the criteria 
in Sec. 3052.525(c), Sec. 3052.525(d)(1), Sec. 3052.525(d)(2), and 
Sec. 3052.525(d)(3); the results of audit follow-up; whether any changes 
in personnel or systems affecting a Type A program have significantly 
increased risk; and apply professional judgment in determining whether a 
Type A program is low-risk.
    (2) Notwithstanding paragraph (c)(1) of this section, OMB may 
approve a Federal awarding agency's request that a Type A program at 
certain recipients may not be considered low-risk. For example, it may 
be necessary for a large Type A program to be audited as major each year 
at particular recipients to allow the Federal agency to comply with the 
Government Management Reform Act of 1994 (31 U.S.C. 3515). The Federal 
agency shall notify the recipient and, if known, the auditor at least 
180 days prior to the end of the fiscal year to be audited of OMB's 
approval.
    (d) Step 3. (1) The auditor shall identify Type B programs which are 
high-risk using professional judgment and the criteria in Sec. 3052.525. 
However, should the auditor select Option 2 under Step 4 (paragraph 
(e)(2)(i)(B) of this section), the auditor is not required to identify 
more high-risk Type B programs than the number of low-risk Type A 
programs. Except for known reportable conditions in internal control or 
compliance problems as discussed in Sec. 3052.525(b)(1), 
Sec. 3052.525(b)(2), and Sec. 3052.525(c)(1), a single criteria in 
Sec. 3052.525 would seldom cause a Type B program to be considered high-
risk.
    (2) The auditor is not expected to perform risk assessments on 
relatively small Federal programs. Therefore, the auditor is only 
required to perform risk assessments on Type B programs that exceed the 
larger of:
    (i) $100,000 or three-tenths of one percent (.003) of total Federal 
awards expended when the auditee has less than or equal to $100 million 
in total Federal awards expended.
    (ii) $300,000 or three-hundredths of one percent (.0003) of total 
Federal awards expended when the auditee has more than $100 million in 
total Federal awards expended.
    (e) Step 4. At a minimum, the auditor shall audit all of the 
following as major programs:
    (1) All Type A programs, except the auditor may exclude any Type A 
programs identified as low-risk under Step 2 (paragraph (c)(1) of this 
section).
    (2)(i) High-risk Type B programs as identified under either of the 
following two options:
    (A) Option 1. At least one half of the Type B programs identified as 
high-risk under Step 3 (paragraph (d) of this section), except this 
paragraph (e)(2)(i)(A) does not require the auditor to audit more high-
risk Type B programs than the number of low-risk Type A programs 
identified as low-risk under Step 2.
    (B) Option 2. One high-risk Type B program for each Type A program 
identified as low-risk under Step 2.
    (ii) When identifying which high-risk Type B programs to audit as 
major under either Option 1 or 2 in paragraph (e)(2)(i) (A) or (B), the 
auditor is encouraged to use an approach which provides an opportunity 
for different high-risk Type B programs to be audited as major over a 
period of time.
    (3) Such additional programs as may be necessary to comply with the 
percentage of coverage rule discussed in

[[Page 220]]

paragraph (f) of this section. This paragraph (e)(3) may require the 
auditor to audit more programs as major than the number of Type A 
programs.
    (f) Percentage of coverage rule. The auditor shall audit as major 
programs Federal programs with Federal awards expended that, in the 
aggregate, encompass at least 50 percent of total Federal awards 
expended. If the auditee meets the criteria in Sec. 3052.530 for a low-
risk auditee, the auditor need only audit as major programs Federal 
programs with Federal awards expended that, in the aggregate, encompass 
at least 25 percent of total Federal awards expended.
    (g) Documentation of risk. The auditor shall document in the working 
papers the risk analysis process used in determining major programs.
    (h) Auditor's judgment. When the major program determination was 
performed and documented in accordance with this part, the auditor's 
judgment in applying the risk-based approach to determine major programs 
shall be presumed correct. Challenges by Federal agencies and pass-
through entities shall only be for clearly improper use of the guidance 
in this part. However, Federal agencies and pass-through entities may 
provide auditors guidance about the risk of a particular Federal program 
and the auditor shall consider this guidance in determining major 
programs in audits not yet completed.
    (i) Deviation from use of risk criteria. For first-year audits, the 
auditor may elect to determine major programs as all Type A programs 
plus any Type B programs as necessary to meet the percentage of coverage 
rule discussed in paragraph (f) of this section. Under this option, the 
auditor would not be required to perform the procedures discussed in 
paragraphs (c), (d), and (e) of this section.
    (1) A first-year audit is the first year the entity is audited under 
this part or the first year of a change of auditors.
    (2) To ensure that a frequent change of auditors would not preclude 
audit of high-risk Type B programs, this election for first-year audits 
may not be used by an auditee more than once in every three years.



Sec. 3052.525  Criteria for Federal program risk.

    (a) General. The auditor's determination should be based on an 
overall evaluation of the risk of noncompliance occurring which could be 
material to the Federal program. The auditor shall use auditor judgment 
and consider criteria, such as described in paragraphs (b), (c), and (d) 
of this section, to identify risk in Federal programs. Also, as part of 
the risk analysis, the auditor may wish to discuss a particular Federal 
program with auditee management and the Federal agency or pass-through 
entity.
    (b) Current and prior audit experience. (1) Weaknesses in internal 
control over Federal programs would indicate higher risk. Consideration 
should be given to the control environment over Federal programs and 
such factors as the expectation of management's adherence to applicable 
laws and regulations and the provisions of contracts and grant 
agreements and the competence and experience of personnel who administer 
the Federal programs.
    (i) A Federal program administered under multiple internal control 
structures may have higher risk. When assessing risk in a large single 
audit, the auditor shall consider whether weaknesses are isolated in a 
single operating unit (e.g., one college campus) or pervasive throughout 
the entity.
    (ii) When significant parts of a Federal program are passed through 
to subrecipients, a weak system for monitoring subrecipients would 
indicate higher risk.
    (iii) The extent to which computer processing is used to administer 
Federal programs, as well as the complexity of that processing, should 
be considered by the auditor in assessing risk. New and recently 
modified computer systems may also indicate risk.
    (2) Prior audit findings would indicate higher risk, particularly 
when the situations identified in the audit findings could have a 
significant impact on a Federal program or have not been corrected.
    (3) Federal programs not recently audited as major programs may be 
of higher risk than Federal programs recently audited as major programs 
without audit findings.

[[Page 221]]

    (c) Oversight exercised by Federal agencies and pass-through 
entities. (1) Oversight exercised by Federal agencies or pass-through 
entities could indicate risk. For example, recent monitoring or other 
reviews performed by an oversight entity which disclosed no significant 
problems would indicate lower risk. However, monitoring which disclosed 
significant problems would indicate higher risk.
    (2) Federal agencies, with the concurrence of OMB, may identify 
Federal programs which are higher risk. OMB plans to provide this 
identification in the compliance supplement.
    (d) Inherent risk of the Federal program. (1) The nature of a 
Federal program may indicate risk. Consideration should be given to the 
complexity of the program and the extent to which the Federal program 
contracts for goods and services. For example, Federal programs that 
disburse funds through third party contracts or have eligibility 
criteria may be of higher risk. Federal programs primarily involving 
staff payroll costs may have a high-risk for time and effort reporting, 
but otherwise be at low-risk.
    (2) The phase of a Federal program in its life cycle at the Federal 
agency may indicate risk. For example, a new Federal program with new or 
interim regulations may have higher risk than an established program 
with time-tested regulations. Also, significant changes in Federal 
programs, laws, regulations, or the provisions of contracts or grant 
agreements may increase risk.
    (3) The phase of a Federal program in its life cycle at the auditee 
may indicate risk. For example, during the first and last years that an 
auditee participates in a Federal program, the risk may be higher due to 
start-up or closeout of program activities and staff.
    (4) Type B programs with larger Federal awards expended would be of 
higher risk than programs with substantially smaller Federal awards 
expended.



Sec. 3052.530  Criteria for a low-risk auditee.

    An auditee which meets all of the following conditions for each of 
the preceding two years (or, in the case of biennial audits, preceding 
two audit periods) shall qualify as a low-risk auditee and be eligible 
for reduced audit coverage in accordance with Sec. 3052.520:
    (a) Single audits were performed on an annual basis in accordance 
with the provisions of this part. A non-Federal entity that has biennial 
audits does not qualify as a low-risk auditee, unless agreed to in 
advance by the cognizant or oversight agency for audit.
    (b) The auditor's opinions on the financial statements and the 
schedule of expenditures of Federal awards were unqualified. However, 
the cognizant or oversight agency for audit may judge that an opinion 
qualification does not affect the management of Federal awards and 
provide a waiver.
    (c) There were no deficiencies in internal control which were 
identified as material weaknesses under the requirements of GAGAS. 
However, the cognizant or oversight agency for audit may judge that any 
identified material weaknesses do not affect the management of Federal 
awards and provide a waiver.
    (d) None of the Federal programs had audit findings from any of the 
following in either of the preceding two years (or, in the case of 
biennial audits, preceding two audit periods) in which they were 
classified as Type A programs:
    (1) Internal control deficiencies which were identified as material 
weaknesses;
    (2) Noncompliance with the provisions of laws, regulations, 
contracts, or grant agreements which have a material effect on the Type 
A program; or
    (3) Known or likely questioned costs that exceed five percent of the 
total Federal awards expended for a Type A program during the year.

[[Page 223]]



CHAPTER XXXI--OFFICE OF ENVIRONMENTAL QUALITY, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3100            Cultural and environmental quality..........         225

[[Page 225]]



PART 3100--CULTURAL AND ENVIRONMENTAL QUALITY--Table of Contents




Subparts A-B [Reserved]

   Subpart C--Enhancement, Protection, and Management of the Cultural 
                               Environment

Sec.
3100.40  Purpose.
3100.41  Authorities.
3100.42  Definitions.
3100.43  Policy.
3100.44  Implementation.
3100.45  Direction to agencies.
3100.46  Responsibilities of the Department of Agriculture.

Subparts A-B [Reserved]



   Subpart C--Enhancement, Protection, and Management of the Cultural 
                               Environment

    Authority: Sec. 106, National Historic Preservation Act, as amended 
(16 U.S.C. 470f); National Environmental Policy Act, as amended (42 
U.S.C. 4321 et seq.); E.O. 11593, 36 FR 8921, May 13, 1971.

    Source: 44 FR 66181, Nov. 19, 1979, unless otherwise noted.



Sec. 3100.40  Purpose.

    (a) This subpart establishes USDA policy regarding the enhancement, 
protection, and management of the cultural environment.
    (b) This subpart establishes procedures for implementing Executive 
Order 11593, and regulations promulgated by the Advisory Council on 
Historic Preservation (ACHP) ``Protection of Historical and Cultural 
Properties'' in 36 CFR part 800 as required by Sec. 800.10 of those 
regulations.
    (c) Direction is provided to the agencies of USDA for protection of 
the cultural environment.



Sec. 3100.41  Authorities.

    These regulations are based upon and implement the following laws, 
regulations, and Presidential directives:
    (a) Antiquities Act of 1906 (Pub. L. 59-209; 34 Stat. 225; 16 U.S.C. 
431 et seq.) which provides for the protection of historic or 
prehistoric remains or any object of antiquity on Federal lands; 
establishes criminal sanctions for unauthorized destruction or 
appropriation of antiquities; and authorizes scientific investigation of 
antiquities on Federal lands, subject to permit and regulations. 
Paleontological resources also are considered to fall within the 
authority of this Act.
    (b) Historic Sites Act of 1935 (Pub. L. 74-292; 49 Stat. 666; 16 
U.S.C. 461 et seq.) which authorizes the establishment of National 
Historic Sites and otherwise authorizes the preservation of properties 
of national historical or archeological significance; authorizes the 
designation of National Historic Landmarks; establishes criminal 
sanctions for violation of regulations pursuant to the Act; authorizes 
interagency, intergovernmental, and interdisciplinary efforts for the 
preservation of cultural resources; and other provisions.
    (c) Reservoir Salvage Act of 1960 (Pub. L. 86-521; 74 Stat. 220; 16 
U.S.C. 469-469c.) which provides for the recovery and preservation of 
historical and archeological data, including relics and specimens, that 
might be lost or destroyed as a result of the construction of dams, 
reservoirs, and attendant facilities and activities.
    (d) The National Historic Preservation Act of 1966 as amended (16 
U.S.C. 470), which establishes positive national policy for the 
preservation of the cultural environment, and sets forth a mandate for 
protection in section 106. The purpose of section 106 is to protect 
properties on or eligible for the National Register of Historic Places 
through review and comment by the ACHP of Federal undertakings that 
affect such properties. Properties are listed on the National Register 
or declared eligible for listing by the Secretary of the Interior. As 
developed through the ACHP's regulations, section 106 establishes a 
public interest process in which the Federal agency proposing an 
undertaking, the State Historic Preservation Officer, the ACHP, 
interested organizations and individuals participate. The process is 
designed to insure that properties, impacts on them, and effects to them 
are identified, and that alternatives to avoid or mitigate an adverse 
effect on property eligible for the National Register are adequately 
considered in the planning process.
    (e) The National Environmental Policy Act of 1969 (NEPA) (Pub. L. 
91-190; 83

[[Page 226]]

Stat. 852; 42 U.S.C. 4321 et seq.) which declares that it is the policy 
of the Federal Government to preserve important historic, cultural, and 
natural aspects of our national heritage. Compliance with NEPA requires 
consideration of all environmental concerns during project planning and 
execution.
    (f) Executive Order 11593, ``Protection and Enhancement of the 
Cultural Environment'', which gives the Federal Government the 
responsibility for stewardship of our nation's heritage resources and 
charges Federal agencies with the task of inventorying historic and 
prehistoric sites on their lands. E.O. 11593 also charges agencies with 
the task of identifying and nominating all historic properties under 
their jurisdiction, and exercising caution to insure that they are not 
transferred, sold, demolished, or substantially altered.
    (g) Historical and Archeological Data Preservation Act of 1974. 
(Pub. L. 93-291; 88 Stat. 174.) which amends the Reservoir Salvage Act 
of 1960 to extend its provisions beyond the construction of dams to any 
alteration of the terrain caused as a result of any Federal construction 
project or federally licensed activity or program. In addition, the Act 
provides a mechanism for funding the protection of historical and 
archeological data.
    (h) Presidential memorandum of July 12, 1978, ``Environmental 
Quality and Water Resource Management'' which directs the ACHP to 
publish final regulations, implementing section 106 of the National 
Historic Preservation Act (NHPA), and further directs each agency with 
water and related land resources responsibilities to publish procedures 
implementing those regulations.
    (i) 36 CFR part 800, ``Protection of Historic and Cultural 
Properties'' which establishes procedures for the implementation of 
section 106 of the NHPA, and directs publication of agency implementing 
procedures.
    (j) Land use policy of the USDA (Secretary's Memorandum No. 1827 
Revised, with Supplement) which establishes a commitment by the 
Department to the preservation of farms, rural communities, and rural 
landscapes.
    (k) Public Buildings Cooperative Use Act of 1976 (40 U.S.C. 611) and 
Executive Order 12072 (Federal Space Management). The Act encourages 
adaptive use of historic buildings as administrative facilities for 
Federal agencies and activities; the Executive Order directs Federal 
agencies to locate administrative and other facilities in central 
business districts.
    (l) American Indian Religious Freedom Act of 1978 (42 U.S.C. 1996) 
which declares it to be the policy of the United States to protect and 
preserve for American Indians their inherent right of freedom to 
believe, express, and exercise the traditional religions of the American 
Indian, Eskimo, Aleut, and Native Hawaiians.



Sec. 3100.42  Definitions.

    All definitions are those which appear in 36 CFR part 800. In 
addition, the following apply in this rule:
    Cultural resources (heritage resources) are the remains or records 
of districts, sites, structures, buildings, networks, neighborhoods, 
objects, and events from the past. They may be historic, prehistoric, 
archeological, or architectural in nature. Cultural resources are an 
irreplaceable and nonrenewable aspect of our national heritage.
    Cultural environment is that portion of the environment which 
includes reminders of the rich historic and prehistoric past of our 
nation.



Sec. 3100.43  Policy.

    (a) The nonrenewable cultural environment of our country constitutes 
a valuable and treasured portion of the national heritage of the 
American people. The Department of Agriculture is committed to the 
management--identification, protection, preservation, interpretation, 
evaluation and nomination--of our prehistoric and historic cultural 
resources for the benefit of all people of this and future generations.
    (b) The Department supports the cultural resource goals expressed in 
Federal legislation. Executive orders, and regulations.
    (c) The Department supports the preservation and protection of 
farms, rural landscapes, and rural communities.
    (d) The Department is committed to consideration of the needs of 
American

[[Page 227]]

Indians, Eskimo, Aleut, and Native Hawaiians in the practice of their 
traditional religions.
    (e) The Department will aggressively implement these policies to 
meet goals for the positive management of the cultural environment.



Sec. 3100.44  Implementation.

    (a) It is the intent of the Department to carry out its program of 
management of the cultural environment in the most effective and 
efficient manner possible. Implementation must consider natural resource 
utilization, must exemplify good government, and must constitute a 
noninflationary approach which makes the best use of tax dollars.
    (b) The commitment to cultural resource protection is vital. That 
commitment will be balanced with the multiple departmental goals of food 
and fiber production, environmental protection, natural resource and 
energy conservation, and rural development. It is essential that all of 
these be managed to reduce conflicts between programs. Positive 
management of the cultural environment can contribute to achieving 
better land use, protection of rural communities and farm lands, 
conservation of energy, and more efficient use of resources.
    (c) In reaching decisions, the long-term needs of society and the 
irreversible nature of an action must be considered. The Department must 
act to preserve future options; loss of important cultural resources 
must be avoided except in the face of overriding national interest where 
there are no reasonable alternatives.
    (d) To assure the protection of Native American religious practices, 
traditional religious leaders and other native leaders (or their 
representatives) should be consulted about potential conflict areas in 
the management of the cultural environment and the means to reduce or 
eliminate such conflicts.



Sec. 3100.45  Direction to agencies.

    (a) Each agency of the Department shall consult with OEQ to 
determine whether its programs and activities may affect the cultural 
environment. Then, if needed, the agency, in consultation with the OEQ, 
shall develop its own specific procedures for implementing section 106 
of the National Historic Preservation Act, Executive Order 11593, the 
regulations of the ACHP (36 CFR part 800), the American Indian Religious 
Freedom Act of 1978 and other relevant legislation and regulations in 
accordance with the agency's programs, mission and authorities. Such 
implementing procedures shall be published as proposed and final 
procedures in the Federal Register, and must be consistent with the 
requirements of 36 CFR part 800 and this subpart. Where applicable, each 
agency's procedures must contain mechanisms to insure:
    (1) Compliance with section 106 of NHPA and mitigation of adverse 
effects to cultural properties on or eligible for the National Register 
of Historic Places;
    (2) Clear definition of the kind and variety of sites and properties 
which should be managed;
    (3) Development of a long-term program of management of the cultural 
environment on lands administered by USDA as well as direction for 
project-specific protection;
    (4) Identification of all properties listed on or eligible for 
listing in the National Register that may be affected directly or 
indirectly by a proposed activity;
    (5) Location, identification and nomination to the Register of all 
sites, buildings, objects, districts, neighborhoods, and networks under 
its management which appear to qualify (in compliance with E.O. 11593);
    (6) The exercise of caution to assure that properties managed by 
USDA which may qualify for nomination are not transferred, sold, 
demolished, or substantially altered;
    (7) Early consultation with, and involvement of, the State Historic 
Preservation Officer(s), the ACHP, Native American traditional religious 
leaders and appropriate tribal leaders, and others with appropriate 
interests or expertise;
    (8) Early notification to insure substantive and meaningful 
involvement by the public in the agency's decisionmaking process as it 
relates to the cultural environment;

[[Page 228]]

    (9) Identification and consideration of alternatives to a proposed 
undertaking that would mitigate or minimize adverse effects to a 
property identified under paragraph (a)(4) of this section;
    (10) Funding of mitigation measures where required to minimize the 
potential for adverse effects on the cultural environment. Funds for 
mitigation shall be available and shall be spent when needed during the 
life of the project to mitigate the expected loss; and
    (11) Development of plans to provide for the management, protection, 
maintenance and/or restoration of Register sites under its management.
    (b) Each agency of the Department which conducts programs or 
activities that may have an effect on the cultural environment shall 
recruit, place, develop, or otherwise have available, professional 
expertise in anthropology, archeology, history, historic preservation, 
historic architecture, and/or cultural resource management (depending 
upon specific need). Such arrangements may include internal hiring, 
Intergovernmental Personnel Act assignments, memoranda of agreement with 
other agencies or Departments, or other mechanisms which insure a 
professionally directed program. Agencies should use Department of the 
Interior professional standards (36 CFR 61.5) as guidelines to insure 
Departmentwide competence and consistency.
    (c) Compliance with cultural resource legislation is the 
responsibility of each individual agency. Consideration of cultural 
resource values must begin during the earliest planning stages of any 
undertaking.
    (d) Agency heads shall insure that cultural resource management 
activities meet professional standards as promulgated by the Department 
of the Interior (e.g., 36 CFR parts 60, 63, 66, 1208).
    (e) Cultural resource review requirements and compliance with 
section 106 of NHPA and Executive Order 11593 shall be integrated and 
run concurrently, rather than consecutively, with the other 
environmental considerations under NEPA regulations. As such, direct and 
indirect impacts on cultural resources must be addressed in the 
environmental assessment for every agency undertaking. In meeting these 
requirements, agencies shall be guided by regulations implementing the 
procedural provisions of NEPA (40 CFR parts 1500-1508) and Department of 
Agriculture regulations (7 CFR part 3100, subpart B).
    (f) Each agency shall work closely with the appropriate State 
Historic Preservation Officer(s) in their preparation of State plans, 
determination of inventory needs, and collection of data relevant to 
general plans or specific undertakings in carrying out mutual cultural 
resource responsibilities.
    (g) Each agency shall, to the maximum extent possible, use existing 
historic structures for administrative purposes in compliance with 
Public Buildings Cooperative Use Act of 1976 and Executive Order 12072, 
``Federal Space Management''.
    (h) Each agency should consult with Native American traditional 
religious leaders or their representatives and other native leaders in 
the development and implementation of cultural resource programs which 
may affect their religious customs and practices.



Sec. 3100.46  Responsibilities of the Department of Agriculture.

    (a) Within the Department, the responsibility for the protection of 
the cultural environment is assigned to the Office of Environmental 
Quality (OEQ). The Office is responsible for reviewing the development 
and implementation of agency procedures and insuring Departmental 
commitment to cultural resource goals.
    (b) The Director of the OEQ is the Secretary's Designee to the ACHP.
    (c) In order to carry out cultural resource responsibilities, there 
will be professional expertise within the OEQ to advise agencies, aid 
the Department in meeting its cultural resource management goals, and to 
insure that all Departmental and agency undertakings comply with 
applicable cultural resource protection legislation and regulations.
    (d) The OEQ will be involved in individual compliance cases only 
where resolution cannot be reached at the agency level. Prior to the 
decision to refer a matter to the full Council of the

[[Page 229]]

ACHP, the OEQ will review the case and make recommendations to the 
Secretary regarding the position of the Department. The agency also will 
consult with the OEQ before reaching a final decision in response to the 
Council's comments. Copies of correspondence relevant to compliance with 
Section 106 shall be made available to OEQ.

[[Page 231]]



CHAPTER XXXII--OFFICE OF PROCUREMENT AND PROPERTY MANAGEMENT, DEPARTMENT 
                             OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3200            Department of Agriculture guidelines for the 
                    acquisition and transfer of excess 
                    personal property.......................         233
3201-3299

  [Reserved]

[[Page 233]]



PART 3200--DEPARTMENT OF AGRICULTURE GUIDELINES FOR THE ACQUISITION AND TRANSFER OF EXCESS PERSONAL PROPERTY--Table of Contents




Sec.
3200.1  Purpose.
3200.2  Eligibility.
3200.3  Definitions.
3200.4  Procedures.
3200.5  Dollar limitation.
3200.6  Restrictions.
3200.7  Title.
3200.8  Costs.
3200.9  Accountability and record keeping.
3200.10  Disposal.
3200.11  Liabilities and losses.

    Authority: 5 U.S.C. 301; 7 U.S.C. 2206a.

    Source: 63 FR 57234, Oct. 27, 1998, unless otherwise noted.



Sec. 3200.1  Purpose.

    This Part sets forth the procedures to be utilized by Department of 
Agriculture (USDA) in the acquisition and transfer of excess property to 
the 1890 Land Grant Institutions (including Tuskegee University), 1994 
Land Grant Institutions, and the Hispanic-Serving Institutions in 
support of research, educational, technical, and scientific activities 
or for related programs as authorized by 7 U.S.C. 2206a. Title to the 
personal property shall pass to the institution.



Sec. 3200.2  Eligibility.

    Institutions that are eligible to receive Federal excess personal 
property pursuant to the provisions of this part are the 1890 Land Grant 
Institutions (including Tuskegee University), 1994 Land Grant 
Institutions, and the Hispanic-Serving Institutions conducting research, 
educational, technical, and scientific activities or related programs.



Sec. 3200.3  Definitions.

    (a) 1890 Land grant institutions--any college or university eligible 
to receive funds under the Act of August 30, 1890 (7 U.S.C. 321 
et.seq.), including Tuskegee University.
    (b) 1994 Land grant institutions--any of the tribal colleges or 
universities as defined in section 532 of the Equity in Educational 
Land-Grant Status Act of 1994 (7 U.S.C. 301 note).
    (c) Hispanic-serving institutions--institutions of higher education 
as defined in section 316(b) of the Higher Education Act of 1965 (20 
U.S.C. 1059c (b)).
    (d) Property management officer--is an authorized USDA or 
institution official responsible for property management.
    (e) Screener--is an individual designated by an eligible institution 
and authorized by the General Services Administration (GSA) to visit 
property sites for the purpose of inspecting personal property intended 
for use by the institution.
    (f) Excess personal property--is any personal property under the 
control of a Federal agency that is no longer needed.
    (g) Cannibalization--is the dismantling of equipment for parts to 
repair or enhance other equipment.



Sec. 3200.4  Procedures.

    (a) To receive information concerning the availability of Federal 
excess personal property, an eligible institution's property management 
officer may contact their regional GSA, Area Utilization Officer. All 
property management officers of eligible institutions will be placed on 
the USDA mailing list for information on the availability of property. 
USDA excess property will first be screened by USDA agencies through the 
Departmental Excess Personal Property Coordinator (DEPPC) using the 
PMIS/PROP system.
    (b) Excess property selected by screeners of eligible institutions 
should be inspected whenever possible, or the holding agency should be 
contacted to verify the condition of the items, because interpretation 
of condition codes varies among Federal agencies.
    (c) If the condition of the item is acceptable, the institution 
should ``freeze'' (reserve) items by calling the appropriate GSA office 
or USDA Departmental Excess Personal Property Coordinator (DEPPC). Since 
GSA may have several ``freezes'' on a piece of equipment, it is critical 
that the paperwork be submitted as soon as possible. Further, while 
transfers of excess personal property normally will be approved by GSA 
on a first-come-first-serve basis, consideration will be given

[[Page 234]]

to such factors as national defense requirements, emergency needs, 
preclusion of new procurement, energy conservation, equitable 
distribution, and retention of title in the Government.
    (d) Eligible institutions may submit property requests by mail or 
fax on a Standard Form 122, ``Transfer Order Excess Personal Property,'' 
with a written justification statement (submitted by the recipient) 
explaining how the property will be used for research, educational, 
technical, or scientific activity or for related programs.
    (e) The SF-122 should be signed by the eligible institution's 
property management officer or authorized designee.
    (1) The following information should also be provided:
    (i) Date prepared.
    (ii) GSA/DEPPC address.
    (iii) Ordering Agency and address.
    (iv) Holding Agency and address.
    (v) Name and address of Institution.
    (vi) Location of property.
    (vii) Shipping instruction (including institution contact person and 
phone number).
    (viii) Complete description of property including original 
acquisition cost, serial number, condition code, and quantity.
    (2) This statement needs to be added following the property 
description but does not serve as a justification statement:

    The property requested hereon is certified to be used in support of 
research, educational, technical, and scientific activities or for 
related programs. This transfer is requested pursuant to the provisions 
of section 923 of Pub. L. 104-127 (7 U.S.C. 2206a).

    (f) The SF-122 should be forwarded to USDA for approval and 
signature by an authorized USDA official. As confirmation of approval, 
the eligible institution's property management officer will receive a 
stamped copy of the SF-122. If the request is disapproved, it will be 
returned to the property management officer of the eligible institution 
with an appropriate explanation. All USDA approved SF-122's will be 
forwarded to DEPPC or the appropriate GSA office for final approval.
    (g) Once the excess personal property is physically received, the 
institution is required to immediately return a copy of the SF-122 to 
USDA indicating receipt of requested items. Cancellations should also be 
reported to USDA.

    Note: USDA shall send an informational copy of all SF-122's 
transactions to GSA.



Sec. 3200.5  Dollar limitation.

    There is no dollar limitation on excess personal property obtained 
under these procedures.



Sec. 3200.6  Restrictions.

    (a) The authorized USDA official will approve the transfer of excess 
personal property in the following groups for the 1890 Land Grant 
Institutions (including Tuskegee University), 1994 Land Grant 
Institutions and the Hispanic-Serving Institutions in support of 
research, educational, technical, and scientific activities or for 
related programs:

                   Eligible Federal Supply Code Groups
------------------------------------------------------------------------
              FSC group                              Name
------------------------------------------------------------------------
12..................................  Fire Control Equipment.
19..................................  Ships, Small Crafts, Pontoons, and
                                       Floating Docks.
22..................................  Railway Equipment.
23..................................  Vehicles, Motor Vehicles, Trailers
                                       and Cycles.
24..................................  Tractors.
26..................................  Tires and Tubes.
28..................................  Engines, Turbines and Components.
29..................................  Engine Accessories.
30..................................  Mechanical Power Transmission
                                       Equipment.
31..................................  Bearings.
32..................................  Woodworking Machinery and
                                       Equipment.
34..................................  Metal Working Machinery.
35..................................  Service and Trade Equipment.
36..................................  Special Industry Machinery.
37..................................  Agricultural Machinery and
                                       Equipment.
38..................................  Construction, Mining, Excavating,
                                       and Highway Maintenance
                                       Equipment.
39..................................  Material Handling Equipment.
40..................................  Rope, Cable, Chain, and Fittings.
41..................................  Refrigeration, Air Conditioning
                                       and Air Circulating Equipment.
42..................................  Fire Fighting, Rescue, and Safety
                                       Equipment.
43..................................  Pumps, Compressors.
44..................................  Furnace, Steam Plant, and Drying.
45..................................  Plumbing, Heating, and Sanitation
                                       Equipment; and Nuclear Reactors.
46..................................  Water Purification and Sewage
                                       Treatment Equipment.
47..................................  Pipe, Tubing, Hose, and Fittings.
49..................................  Maintenance and Repair Shop
                                       Equipment.
51..................................  Hand Tools.
52..................................  Measuring Tools.
53..................................  Hardware and Abrasives.
54..................................  Prefabricated Structures and
                                       Scaffolding.
55..................................  Lumber, Millwork, Plywood, and
                                       Veneer.
56..................................  Construction and Building
                                       Materials.

[[Page 235]]

 
58..................................  Communication, Detection, and
                                       Coherent Radiation Equipment.
59..................................  Electrical and Electronic
                                       Equipment Components.
60..................................  Fiber Optics Materials,
                                       Components, Assemblies, and
                                       Accessories.
61..................................  Electric Wire, and Power and
                                       Distribution Equipment.
62..................................  Lighting Fixtures and Lamps.
63..................................  Alarm, Signal, and Security
                                       Detection Systems.
65..................................  Medical, Dental, and Veterinary
                                       Equipment and Supplies.
66..................................  Instruments and Laboratory
                                       Equipment.
67..................................  Photographic Equipment.
69..................................  Training Aids and Devices.
70..................................  General Purposes Automatic Data
                                       Processing Equipment (Including
                                       Firmware) Software, and Support
                                       Equipment.
71..................................  Furniture.
72..................................  Household and Commercial
                                       Furnishings and Appliances.
73..................................  Food Preparation and Serving
                                       Equipment.
74..................................  Office Machines, Text Processing
                                       Systems and Visible Record
                                       Equipment.
75..................................  Office Supplies and Devices.
76..................................  Books, Maps, and Other
                                       Publications.
77..................................  Musical Instruments, Phonographs,
                                       and Home-type Radios.
78..................................  Recreational and Athletic
                                       Equipment.
79..................................  Cleaning Equipment and Supplies.
80..................................  Brushes, Paints, Sealers, and
                                       Adhesives.
81..................................  Containers, Packaging and Packing
                                       Supplies.
83..................................  Textiles, Leather, Furs, Apparel
                                       and Shoe Findings, Tents, and
                                       Flags.
84..................................  Clothing, Individual Equipment and
                                       Insignia.
85..................................  Toiletries.
87..................................  Agricultural Supplies.
88..................................  Live Animals.
91..................................  Fuels, Lubricants, Oils and Waxes.
93..................................  Nonmetallic Fabricated Materials.
94..................................  Nonmetallic Crude Materials.
95..................................  Metal Bars, Sheets, and Shapes.
96..................................  Ores, Minerals and their Primary
                                       Products.
99..................................  Miscellaneous.
------------------------------------------------------------------------

    Note to paragraph (a): Requests for items in Federal Supply Code 
Groups other than those listed in this paragraph shall be referred to 
the Director of OPPM for consideration and approval.

    (b) Excess personal property may be transferred for the purpose of 
cannibalization, provided the eligible institution submits a supporting 
statement which clearly indicates that cannibalizing the requested 
property for secondary use has greater benefit than utilization of the 
item in its existing form.
    (c) Use of the procedures in this part for the purpose of 
stockpiling of excess personal property for future cannibalization is 
prohibited. Transfer requests for the purpose of cannibalization will be 
considered, but are normally subordinate to requests for complete items.



Sec. 3200.7  Title.

    Title to excess personal property obtained under Part 3200 will 
automatically pass to the 1890 Land Grant Institutions (including 
Tuskegee University), 1994 Land Grant Institutions, and the Hispanic-
Serving Institutions once USDA receives the SF-122 indicating that the 
institution has received the property. Note: When competing Federal 
claims are made for particular items of excess personal property held by 
agencies other than USDA, with or without payment of reimbursement, GSA 
will give preference to the Federal agency that will retain title in the 
Government.



Sec. 3200.8  Costs.

    Excess personal property obtained under this part is provided free 
of charge. However, the institution must pay all costs associated with 
packaging and transportation. The institution should specify the method 
of shipment on the SF-122.



Sec. 3200.9  Accountability and record keeping.

    USDA requires that Federal excess personal property received by an 
eligible institution pursuant to this part shall be placed into use for 
a research, educational, technical, or scientific activity, or for a 
related purpose, within 1 year of receipt of the property, and used for 
such purpose for at least 1 year thereafter. The institution's property 
management officer must establish and maintain accountable records 
identifying the property's location, description, utilization and value. 
To ensure that the excess personal property is being used for its 
intended purpose under this part, compliance reviews will be conducted 
by an authorized representative of USDA. The review will include site 
visit inspections of the property and the accountability and record 
keeping systems.

[[Page 236]]



Sec. 3200.10  Disposal.

    When the property is no longer needed by the institution, it may be 
used in support of other Federal projects or sold, and the proceeds used 
for research, educational, technical, and scientific activities, or for 
related programs of the recipient institution.



Sec. 3200.11  Liabilities and losses.

    USDA assumes no liability with respect to accidents, bodily injury, 
illness, or any other damages or loss related to excess personal 
property transferred under this part.

                       PARTS 3201-3299 [RESERVED]

[[Page 237]]



   CHAPTER XXXIII--OFFICE OF TRANSPORTATION, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3300            Agreement on the international carriage of 
                    perishable foodstuffs and on the special 
                    equipment to be used for such carriage 
                    (ATP); inspection, testing, and 
                    certification of special equipment......         239
3305

[Reserved]

[[Page 239]]



    PART 3300--AGREEMENT ON THE INTERNATIONAL CARRIAGE OF PERISHABLE FOODSTUFFS AND ON THE SPECIAL EQUIPMENT TO BE USED FOR SUCH CARRIAGE (ATP); INSPECTION, 
TESTING, AND CERTIFICATION OF SPECIAL EQUIPMENT--Table of Contents




                         Subpart A--Introduction

Sec.
3300.1  Scope of authority and purpose.
3300.4  Definitions.

             Subpart B--Procedures for Testing of Equipment

3300.7  General.
3300.10  Measurement of the K-coefficient of an insulated body.
3300.13  Determination of the efficiency of the thermal appliances as 
          installed in the insulated body.

                 Subpart C--Approval of Testing Stations

3300.16  General.
3300.19  Application for approval.
3300.22  Response to application for approval.
3300.25  Application for renewal of approval.
3300.28  Response to application for renewal of approval.
3300.31  Termination of approval.

 Subpart D--Procedures for Separate Testing of Mechanical Refrigerating 
                               Appliances

3300.34  General.
3300.37  Testing of a mechanical refrigerating appliance.

               Subpart E--Approval of Testing Laboratories

3300.40  General.
3300.43  Application for approval.
3300.46  Response to application for approval.
3300.49  Application for renewal of approval.
3300.52  Response to application for renewal of approval.
3300.55  Termination of approval.

                Subpart F--Certification of New Equipment

3300.58  General.
3300.61  Testing and verification requirements.
3300.64  Application for certificate for new equipment produced or 
          assembled in the United States or in a foreign country which 
          is not a contracting party to the ATP.
3300.67  Application for certificate for new equipment produced or 
          assembled in a foreign country which is a contracting party to 
          the ATP.
3300.70  Issuance of certificate.
3300.73  Period of validity of certificates.

            Subpart G--Certification of Equipment in Service

3300.76  General.
3300.79  Application for certificate.
3300.82  Issuance of certificate.
3300.85  Period of validity of certificates.

                       Subpart H--Other Provisions

3300.88  Fees for U.S. ATP certificates.
3300.91  List of approved testing stations, approved testing 
          laboratories, and fees for certificates.
3300.94  Appeals.

    Authority: Sec. 4, Pub. L. 97-325, International Carriage of 
Perishable Foodstuffs Act (7 U.S.C. 4403).

    Source: 51 FR 33879, Sept. 24, 1986, unless otherwise noted.



                         Subpart A--Introduction



Sec. 3300.1  Scope of authority and purpose.

    The International Carriage of Perishable Foodstuffs Act assigns to 
the Secretary of Agriculture the responsibility for implementation of 
the Agreement on the International Carriage of Perishable Foodstuffs and 
on the Special Equipment to be Used for Such Carriage (ATP). The purpose 
of this rule is to establish procedures for the inspection, testing, and 
certification of insulated, refrigerated, mechanically refrigerated, and 
heated transport equipment in accordance with the Act and the standards 
specified in the Agreement. In the process, the intent is to utilize 
existing industry organizations and facilities for testing and 
inspection of equipment. The Secretary is the sole authority to issue 
certificates of compliance.



Sec. 3300.4  Definitions.

    Administrator means the Administrator, Office of Transportation, 
U.S. Department of Agriculture, whose address is: 1405 Auditors 
Building, 201 14th Street, SW., Washington, DC 20250.

[[Page 240]]

    ATP means the Agreement on the International Carriage of Perishable 
Foodstuffs and on the Special Equipment to be Used for Such Carriage 
(ATP), and the annexes and appendices thereto, done at Geneva, September 
1, 1970, under the auspices of the Economic Commission for Europe, and 
any subsequent amendments thereto.\1\
---------------------------------------------------------------------------

    \1\ A copy of the agreement can be obtained by request to the ATP 
Manager, Office of Transportation, U.S. Department of Agriculture, 1405 
Auditors Building, 201 14th Street, SW., Washington, DC 20250.
---------------------------------------------------------------------------

    ATP manager means the person designated by the Administrator to 
manage the program established by this rule, whose address is: ATP 
Manager, Office of Transportation, U.S Department of Agriculture, 1405 
Auditors Building, 201 14th Street, SW., Washington, DC 20250.
    Contracting party means a country which is signatory to the ATP.
    Domestic owner means an organization incorporated or chartered under 
the laws of, and with principal office in, the United States, and to 
which one of the following applies:
    (a) The organization owns and operates the equipment directly.
    (b) The organization owns and operates the equipment through a 
wholly owned subsidiary in a foreign country.
    (c) The organization is a lessee or bailee of the equipment, and a 
written lease or bailment provides that the organization is responsible 
for any inspection, testing, and certification of the equipment with 
respect to the ATP rule.
    Equipment means the special transport equipment that meets the 
definitions and standards set forth in ATP, Annex 1, including, but not 
limited to, railcars, trucks, trailers, semitrailers, and intermodal 
freight containers that have an insulated body only, or an insulated 
body equipped with a refrigerating, mechanically refrigerating, or 
heating appliance.
    Equipment manufacturer means an organization which producers or 
assembles the complete unit of equipment, that is, the insulated body 
with the thermal appliance installed.
    Foreign owner means an organization registered under the laws of, or 
with principal office in, a country outside the United States, and which 
owns or operates the equipment.
    Foreign-ATP certificate means a certificate issued by a foreign 
country which is a contracting party to the ATP, attesting that the 
equipment listed in the certificate complies with pertinent standards in 
the ATP.
    Identical mechanical refrigerating appliance means an appliance 
which is of the same model number and design as the reference mechanical 
refrigerating appliance.
    Insulated body means the six-sided structural component of 
equipment, consisting of insulated doors, sidewalls, roof, floor, and 
endwall, inside which perishable foodstuffs are carried.
    International carriage means transportation of perishable foodstuffs 
if such foodstuffs are loaded in equipment or the equipment containing 
them is loaded onto a rail or road vehicle, in the territory of any 
country and such foodstuffs are, or the equipment containing them is, 
unloaded in the territory of another country that is a contracting 
party, where such transportation is by:
    (a) Rail,
    (b) Road,
    (c) Any combination of rail and road, or
    (d) Any sea crossing of less than one hundred and fifty kilometers, 
if preceded or followed by one or more land journeys as referred to in 
clauses (a), (b), and (c) of this definition, and the perishable 
foodstuffs are shipped in the same equipment used for such land journeys 
without transloading of such foodstuffs.

In the case of any transportation that involves one or more sea 
crossings other than as specified in clause (d) of this definition, each 
land journey shall be considered separately.
    New equipment means equipment produced or assembled on or after the 
effective date of this rule.
    Perishable foodstuffs means the quick deep-frozen and frozen food 
products listed in Annex 2, and the chilled food products listed in 
Annex 3 to the ATP.
    Reference equipment means a unit of equipment which has passed a 
test in an approved testing station, and can thereby serve as a basis 
for certification of related serially-produced equipment.

[[Page 241]]

    Reference insulated body means an insulated body which has passed a 
test in an approved testing station for measurement of the K-coefficient 
of the body, and can thereby serve as the basis for approval of 
serially-produced bodies in the case in which the body and the 
mechanical refrigerating appliance of the equipment are tested 
separately.
    Reference mechanical refrigerating appliance means an appliance 
which has passed a test in an approved testing laboratory, and can 
thereby serve as the basis for approval of identical mechanical 
refrigerating appliances in the case in which the appliance and the 
insulated body of the equipment are tested separately.
    Serially-produced bodies means insulated bodies which meet the 
definition in ATP, Annex 1 Appendix 1, paragraph 2(c)(i).
    Serially-produced equipment means equipment of a specific type 
(container, semi-trailer, trailer, truck, or container), which meets the 
definition in ATP, Annex 1, Appendix 1, paragraphs 2(c), (i), (ii), 
(iii), and (iv).
    Thermal appliance means the refrigerating, mechanical refrigerating, 
or heating appliance which is installed in the insulated body of the 
equipment.
    United States means the fifty States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, Guam, American 
Samoa, the Virgin Islands of the United States, the Commonwealth of the 
Northern Mariana Islands, and any other territory or possession of the 
United States.
    U.S. ATP certificate means a certificate issued by the U.S. 
Department of Agriculture, attesting that the equipment listed in the 
certificate complies with pertinent standards in the ATP.
    U.S. ATP testing laboratory means a facility in the United States 
which has been approved by the Administrator to conduct tests of 
mechanical refrigerating appliances.
    U.S. ATP testing station means a facility in the United States which 
has been approved by the Administrator to conduct tests of equipment.



             Subpart B--Procedures for Testing of Equipment



Sec. 3300.7  General.

    Testing of equipment according to the ATP is basically done in two 
phases:
    (a) Measurement of the insulating capacity, that is, the K-
coefficient, of the insulated body.
    (b) Determination of the efficiency of the thermal appliance as 
installed in the insulated body. In the case of mechanically 
refrigerated equipment, the mechanical refrigerating appliance may be 
tested separate from the body.



Sec. 3300.10  Measurement of the K-coefficient of an insulated body.

    The K-coefficient shall be measured according to the procedures in 
ATP, Annex 1, Appendix 2, paragraphs 1-28, and the following shall 
apply:
    (a) The internal heating method shall be used.
    (b) In ATP, Annex 1, Appendix 2, paragraph 8, last line, ``about +20 
 deg.C for the mean temperature of the walls of the body shall be 
interpreted to mean between +19  deg.C (+66  deg.F) and 21  deg.C (+70 
deg.F).
    (c) A report of each test shall be completed on a form corresponding 
to the pertinent test report model prescribed in ATP, Annex 1, Appendix 
2. Report forms may be obtained by a request to the ATP manager.



Sec. 3300.13  Determination of the efficiency of the thermal appliances as installed in the insulated body.

    In determining the efficiency of a thermal appliance with respect to 
maintaining a prescribed temperature inside the body, the procedures in 
ATP, Annex 1, Appendix 2, paragraphs 31-40 and 43-47 shall be used. A 
report of each test shall be completed on a form corresponding to the 
pertinent test report model prescribed in ATP, Annex 1, Appendix 2. 
Report forms may be obtained by a request to the ATP manager.

[[Page 242]]



                 Subpart C--Approval of Testing Stations



Sec. 3300.16  General.

    Any public or private organization incorporated or chartered under 
the laws of, and with principal office in, the United States may apply 
to have one or more of its facilities in the United States designated as 
a U.S. ATP testing station.



Sec. 3300.19  Application for approval.

    An application by an officer of the organization shall be submitted 
to the Administrator for each facility for which approval is sought. 
Copies of the Form, Application for Approval as a U.S. ATP Testing 
Station, may be obtained by a request to the ATP manager. The following 
information must be supplied in the application:
    (a) A statement that the organization is incorporated or chartered 
under the laws of, and that it has its principal office in, the United 
States, including the name, address, and telephone number of the 
principal office.
    (b) The address and telephone number of the testing station, and 
name and title of person in charge of the station.
    (c) A summary of experience at the facility which would indicate the 
capability to conduct tests of equipment according to Supart B of this 
rule.
    (d) A general description of the station, including drawings on 
letter size (8 \1/2\ x 11 inches) paper to show the floor plan and 
cross-sections of the test chamber, basic dimensions, location of heat 
exchangers and instruments, and any other pertinent information.
    (e) An indication of which of the following types of equipment, as 
defined in ATP, Annex 1, that the station is capable of testing: 
intermodal freight containers, semi-trailers, trailers, railcars, and 
trucks.
    (f) A statement that the ATP manager or other representative of the 
Administrator may, before a decision is made concerning the application, 
observe a test at the station of a Class ``C'' mechanically refrigerated 
container or semi-trailer, with Class ``C'' being defined as in ATP, 
Annex 1, paragraph 3.
    (g) A statement that the station will be open to public use, that 
is, to manufacturers and owners of equipment which may apply to have 
equipment tested.
    (h) A statement that the fees to be charged by the organization for 
testing will be reasonable with respect to costs involved, and that such 
fees will be payable directly to the organization by those who seek 
testing of their equipment.
    (i) A statement that the station will maintain records of basic data 
developed in each test conducted under this rule, such records to be 
available for review by the ATP manager or other representative of the 
Administrator upon request. The record for each test shall be maintained 
for a period of three years.
    (j) A statement that the organization will advise the ATP manager as 
soon as practicable of its intent to conduct a test under this rule and 
that it will, as soon as possible, advise when a firm test date has been 
set so that the ATP manager or other representative of the Administrator 
may observe the test.
    (k) A statement that the organization will send to the ATP manager a 
copy of each test report for equipment tested at the station according 
to this rule, within 30 days after completion of the test.
    (l) A statement that, should any significant change occur in the 
facility with respect to structure or test equipment as a result of 
redesign or other cause during the period of approval, the organization 
will so advise the ATP manager within 30 days after such change.
    (m) Any other pertinent information.



Sec. 3300.22  Response to application for approval.

    The Administrator will, within 30 days of receipt of the application 
and any relevant information required, advise the applicant whether or 
not the facility is approved as a testing station. Approval is for a 5-
year period.



Sec. 3300.25  Application for renewal of approval.

    If an organization wishes to have an approval renewed at the end of 
a 5-year

[[Page 243]]

period, it shall submit a request for renewal to the Administrator 90 
days before expiration of the existing approval. The request for renewal 
shall contain the same type of information as required in the original 
application, that is, the information called for in Sec. 3300.19 of 
subpart C.



Sec. 3300.28  Response to application for renewal of approval.

    The Administrator will, within 30 days of receipt of application and 
any relevant information required, advise the applicant whether or not 
approval is renewed. A renewal is good for 5 years.



Sec. 3300.31  Termination of approval.

    An approved testing station may at any time withdraw as an approved 
testing station by written notice to the Administrator. Similarly, the 
Administrator may suspend or terminate for cause the approved status of 
a testing station by written notice to the organization, setting forth 
the reasons for such action. Examples of causes for suspension or 
termination of approval of a testing station would be a change in 
equipment or operations at the station which would render the station 
incapable of performing tests according to the standards in the ATP, or 
noncompliance of the station with pertinent portions of this rule.



 Subpart D--Procedures for Separate Testing of Mechanical Refrigerating 
                               Appliances



Sec. 3300.34  General.

    ATP, Annex 1, Appendix 2, paragraph 41, provides that approval of 
mechanically refrigerated equipment may be done on the basis of separate 
testing of the mechanical refrigerating appliance.



Sec. 3300.37  Testing of a mechanical refrigerating appliance.

    For separate testing of a mechanical refrigerating appliance, the 
following shall pertain:
    (a) The calibrated-box method shall be used, as set forth in ARI 
Standard 1110, Standard for Mechanical Refrigeration Units, of the Air-
Conditioning and Refrigeration Institute.
    (b) The appliance shall be rated according to the class, or classes, 
of service for which the appliance is intended, with classes being 
defined as in ATP, Annex 1, paragraph 3.
    (c) A report of each test shall be completed on a form corresponding 
to the pertinent test report model prescribed in ATP, Annex 1, Appendix 
2. Report forms may be obtained by a request to the ATP manager.



               Subpart E--Approval of Testing Laboratories



Sec. 3300.40  General.

    Any public or private organization incorporated or chartered under 
the laws of, and with principal office in, the United States may apply 
to have one or more of its facilities in the United States designated as 
a U.S. ATP testing laboratory.



Sec. 3300.43  Application for approval.

    An application by an officer of the organization shall be submitted 
to the Administrator for each facility for which approval is sought. 
Copies of the Form, Application for Approval as a U.S. ATP Testing 
Laboratory, may be obtained by a request to the ATP manager. The 
following information must be supplied in the application:
    (a) A statement that the organization is incorporated or chartered 
under the laws of, and that it has its principal office in, the United 
States, including the address and telephone number of the principal 
office.
    (b) The address and telephone number of the testing laboratory, and 
name and title of person in charge of the laboratory.
    (c) A summary of the experience at the facility which would indicate 
a capability to conduct tests of mechanical refrigerating appliances 
according to subpart D of this rule.
    (d) A general description of the laboratory, including drawings on 
letter size (8\1/2\ x 11 inches) paper to show the floor plan and cross-
section of the test chamber, basic dimensions, location of heat 
exchangers and instruments, and any other pertinent information.
    (e) A statement that the ATP manager or other representative of the 
Administrator may, before a decision is

[[Page 244]]

made concerning the application, observe a test at the laboratory of a 
mechanical refrigerating appliance for a Class ``C'' mechanically 
refrigerated container or trailer, with Class ``C'' as defined in ATP, 
Annex 1, paragraph 3.
    (f) A statement that the laboratory will maintain records of basic 
data developed in each test conducted under this rule, such records to 
be available for review by the ATP manager or other representative of 
the Administrator, upon request. The record for each test shall be 
maintained for a period of three years.
    (g) A statement that the organization will advise the ATP manager as 
soon as practicable of its intent to conduct a test under this rule and 
that it will, as soon as possible, advise when a firm test has been set 
so that the ATP manager or other representative of the Administrator may 
observe the test.
    (h) A statement that the organization will send to the ATP manager a 
copy of each test report for an appliance tested at the laboratory 
according to this rule, within 30 days after completion of the test.
    (i) A statement that, should any significant change occur in the 
facility with respect to structure or test equipment as a result of 
redesign or other cause during the period of approval, the organization 
will so advise the ATP manager within 30 days after such change.
    (j) Any other pertinent information.



Sec. 3300.46  Response to application for approval.

    The Administrator will, within 30 days of receipt of an application 
and any relevant information required, advise the applicant whether or 
not the facility is approved as a testing laboratory. Approval is for a 
5-year period from date of approval.



Sec. 3300.49  Application for renewal of approval.

    If an organization wishes to have an approval renewed at the end of 
a 5-year period, it shall submit a request for renewal to the 
Administrator 90 days before expiration of the existing approval. The 
request for renewal shall contain the same type of information as 
required in the original application, that is, the information called 
for in Sec. 3300.43 of subpart E.



Sec. 3300.52  Response to application for renewal of approval.

    The Administrator will, within 30 days of receipt of application and 
any relevant information required, advise the applicant whether or not 
approval is renewed. A renewal extends the period of approval for 5 
years.



Sec. 3300.55  Termination of approval.

    An approved testing laboratory may at any time withdraw as an 
approved testing laboratory by written notice to the Administrator. 
Similarly, the Administrator may suspend or terminate for cause the 
approved status of a testing laboratory by written notice to the 
organization, setting forth the reasons for such action. Examples of 
causes for suspension or termination of approval would be a change in 
equipment or operations at the laboratory which would render it 
incapable of performing tests according to the standards in the ATP, or 
noncompliance of the laboratory with pertinent portions of this rule.



                Subpart F--Certification of New Equipment



Sec. 3300.58  General.

    The following shall apply for certification of new equipment:
    (a) Domestic owners are eligible to receive U.S. ATP certificates 
for equipment produced or assembled in the United States or in a foreign 
country.
    (b) Foreign owners are eligible to receive U.S. ATP certificates 
only for equipment produced or assembled in the United States.
    (c) For equipment manufactured (i.e., produced or assembled) in the 
United States:
    (1) When the complete unit of equipment is tested, the test shall be 
performed in a U.S. ATP testing station.
    (2) When the mechanical refrigerating appliance and the insulated 
body are tested separately, such tests shall be performed in approved 
testing facilities in the United States or in test facilities located 
in, and approved by, a foreign country which is a Contracting Party.

[[Page 245]]

    (d) For equipment manufactured in a foreign country which is a 
Contracting Party, a domestic owner may receive a U.S. ATP certiticate 
in exchange for the Foreign-ATP certificate issued by the country of 
manufacture.
    (e) For equipment manufactured in a foreign country which is not a 
Contracting Party, tests shall be performed in approved testing 
facilities in the United States or in facilities located in and approved 
by a foreign country which is a Contracting Party.
    (f) In accordance with ATP, Annex 1, Appendix 1, paragraphs 2(a) and 
(d), the validity of a test report for a reference equipment shall 
expire at the end of a period of 3 years or at the end of the 
manufacture of 1,000 units of serially-produced equipment, whichever 
occurs first.
    (g) The validity of a test report for a reference mechanical 
refrigerating appliance shall expire at the end of a period of three 
years, or at the end of the manufacture of 1,000 identical mechanical 
refrigerating appliances, whichever occurs first.
    (h) The validity of a test report for a reference insulated body 
shall expire at the end of a period of three years, or at the end of the 
manufacture of 1,000 serially-produced bodies, whichever occurs first.
    (i) Serially-produced equipment shall be produced or assembled by 
the same manufacturer and at the same manufacturing plant as the 
reference equipment.
    (j) Identical mechanical refrigerating appliances shall be 
manufactured by the same manufacturer and at the same manufacturing 
plant as the reference mechanical refrigerating appliance.
    (k) Serially-produced bodies shall be manufactured by the same 
manufacturer and at the same manufacturing plant as the reference 
insulated body.
    (l) Equipment manufacturers shall notify the ATP manager 30 days 
before start of manufacture so that the ATP manager or other 
representative of the Administrator may observe the manufacturing 
operation.
    (m) Owners who receive a U.S. ATP certificate have the 
responsibility to manitain the equipment in good repair and operating 
condition with the understanding that the certificate is valid only so 
long as:
    (1) The insulated body and the thermal appliance are maintained in 
good condition;
    (2) No material alteration is made to the thermal appliance which 
decreases its refrigerating capacity, and;
    (3) If the thermal appliance is replaced, it is replaced by an 
appliance of equal or greater refrigerating capacity.



Sec. 3300.61  Testing and verification requirements.

    In accordance with ATP, Annex 1, Appendix 1, paragraphs 1, 1(a), 
2(a), 2(b), 2(c) and 3, and Appendix 2, paragraph 41, certification of 
new equipment is based upon the following:
    (a) For a unit of equipment, a test of the equipment in an approved 
testing station.
    (b) For serially-produced equipment:
    (1) A test of one unit of equipment in an approved testing station, 
such unit to serve as the reference equipment.
    (2) Verification that production of other units of equipment is in 
conformity with the reference equipment.
    (c) For mechanically refrigerated equipment, certification may be 
based upon a separate test of the mechanical refrigerating appliance and 
a separate test of the insulated body.



Sec. 3300.64  Application for certificate for new equipment produced or assembled in the United States or in a foreign country which is not a contracting party 
          to the ATP.

    Application for certification shall be submitted to the ATP manager 
by an officer in the organization of the owner of the equipment. In the 
case of equipment manufactured in the United States, application may be 
made by an officer in the organization of the equipment manufacturer, 
acting on behalf of the owner. Copies of the Form, Application for U.S. 
ATP Certificate for New Equipment Produced or Assembled in the United 
States or in a Foreign Country Which is not a Contracting Party to the 
ATP, may be obtained by a request to the ATP manager. The following 
information must be supplied in the application:
    (a) A statement whether the owner is a domestic owner or a foreign 
owner, with the name, address and telephone

[[Page 246]]

number of its principal office, and the name and title of person to 
contact.
    (b) If the operator of the equipment is different from the owner, 
the name and address of the operator.
    (c) Type of equipment (intermodal freight container, semi-trailer, 
trailer, railcar, or truck).
    (d) Total number of units of equipment.
    (e) Definition and distinguishing mark of the equipment for which 
certification is sought, referring to ATP, Annex 1, paragraph 3 and 
Appendix 4.
    (f) Name, address, and telephone number of the principal office of 
the equipment manufacturer, and name and title of the person to contact.
    (g) Name and address of the plant at which the equipment was 
manufactured.
    (h) In the case of a unit of equipment (i.e., the insulated body 
with its mechanical refrigerating appliance installed) that has been 
tested to serve as the reference equipment for serially-produced 
equipment:
    (1) The original or certified true copy of the test report for the 
reference equipment.
    (2) For the serially-produced equipment:
    (i) The manufacturer's make and model number for the equipment, 
including a brief description of the equipment and enclosure of any 
brochure on the equipment which might be available.
    (ii) The basis upon which the equipment meets the definition of 
serially-produced equipment, with respect to the reference equipment.
    (iii) A statement that the equipment was manufactured at the same 
plant at which the reference equipment was manufactured.
    (iv) A statement that production of the equipment was in conformity 
with the reference equipment.
    (i) In the case where the mechanical refrigerating appliance and the 
insulated body have been tested separately:
    (1) For the reference mechanical refrigerating appliance:
    (i) The original or certified true copy of the test report.
    (ii) From the test report, the effective refrigerating capacity, W, 
in watts, of the appliance at an outside temperature of +30  deg.C and 
the inside temperature (see ATP, Annex 1, paragraph 3 and Appendix 4) 
for the class of equipment for which certification is sought. ``W'' must 
be equal to, or greater than, the increased heat transfer rate, 
Hi, for the reference insulated body. See paragraph (3)(iii) 
below.
    (2) For the identical mechanical refrigerating appliances:
    (i) Name and address of the plant at which the identical appliances 
and reference appliance were manufactured.
    (ii) The manufacturer's make, model number, and a brief description 
of the appliances with enclosure of any brochure on the appliances which 
might be available.
    (iii) A statement that the appliances meet the definition of 
identical mechanical refrigerating appliances.
    (3) For the reference insulated body:
    (i) The original or certified true copy of the test report.
    (ii) The total heat transfer rate of the body, 
Ht=SxKx[Delta] T, in watts, where: ``S'' is the mean surface 
area of the body, from the test report; ``K'' is the heat transfer 
coefficient of the body, from the test report; and, ``[Delta] T'' is the 
difference in degrees Kelvin between an outside temperature of +30 
deg.C and the inside temperature for the class of equipment for which 
certification is sought.
    (iii) The increased beat transfer rate, Hi, obtained by 
multiplying the total heat transfer rate Ht, by the factor of 
1.75.
    (4) For the serially-produced insulated bodies:
    (i) Name and address of the plant at which the serially-produced 
bodies and reference body were manufactured.
    (ii) The manufacturer's make, model number, and a brief description 
of the bodies, with any brochure on the bodies which might be available.
    (iii) The basis upon which the bodies meet the definition of 
serially-produced bodies, with respect to the reference insulated body.
    (iv) A statement that production of the bodies was in conformity 
with the reference insulated body.
    (j) Information on the equipment after manufacture:

[[Page 247]]

    (1) A statement that each mechanical refrigerating appliance, after 
it was installed in the body, was operated and thoroughly checked and 
that each appliance functioned properly.
    (2) A statement that each body and each appliance has affixed to it 
a manufacturer's plate or other means of identification which shows the 
items of information required by ATP, Annex 1, paragraph 6.
    (3) A statement that each unit of equipment, before it is put into 
service, will have affixed to it a certification plate and 
distinguishing mark as specified in ATP, Annex 1, Appendix 1, paragraphs 
4 and 5, and Appendixes 3 and 4.
    (4) A list showing, for each unit of equipment, the serial number of 
the body and the corresponding owner's equipment identification number.



Sec. 3300.67  Application for certificate for new equipment produced or assembled in a foreign country which is a contracting party to the ATP.

    An application for certification of equipment shall be submitted to 
the ATP manager by an officer in the organization of the owner of the 
equipment. Copies of the Form, Application for U.S. ATP Certificate for 
New Equipment Produced or Assembled in a Foreign Country Which is a 
Contracting Party, may be obtained by a request to the ATP manager. The 
following information must be submitted in the application:
    (a) A statement that the owner is a domestic owner, with the name, 
address and telephone number of its principal office, and the name and 
title of the person to contact.
    (b) If the operator of the equipment is different from the owner, 
the name and address of the operator.
    (c) The type of equipment (intermodal freight container, trailer, 
semi-trailer, railcar, or truck.)
    (d) Total number of units of equipment.
    (e) Definition of the equipment for which certification is sought, 
referring to ATP, Annex 1, paragraph 3, and Appendix 4.
    (f) Name, address, and telephone number of the manufacturer of the 
equipment, and the name and title of the person to contact.
    (g) The manufacturer's make and model number for the equipment, 
including a brief description of the equipment and any brochure on the 
equipment which might be available.
    (h) The original or certified true copy of the test report for the 
reference equipment.
    (i) The original or certified true copy of the Foreign-ATP 
certificate issued for the equipment.
    (j) A statement that each unit of equipment, before it is put into 
service, will have affixed to it a certification plate and 
distinguishing mark as specified in ATP, Annex 1, Appendix 1, paragraphs 
4 and 5, and Appendixes 3 and 4.
    (k) A list showing, for each unit of equipment, the serial number of 
the body and the corresponding owner's equipment identification number.



Sec. 3300.70  Issuance of certificate.

    The ATP manager will evaluate the documents received and, for 
equipment deemed qualified, will issue a U.S. ATP certificate to the 
applicant within 30 days of the receipt of an application and any 
relevant information required. The certificate will be in the format 
prescribed in ATP, Annex 1, Appendix 3. For equipment deemed not 
qualified, the applicant will be advised of the reasons for non-
qualification within 30 days of the receipt of an application and any 
relevant information required.



Sec. 3300.73  Period of validity of certificates.

    In accordance with ATP, Annex 1, Appendix 1, paragraphs 1(a) and 
1(b), certificates issued for new equipment are valid for a period of 6 
years from date of issue.



            Subpart G--Certification of Equipment in Service



Sec. 3300.76  General.

    Only domestic owners are eligible to receive U.S. ATP certificates 
for equipment in service, with certification based upon the following:
    (a) For equipment which has not previously been certified:
    (1) For each unit of equipment, a test in a U.S. ATP testing station 
or in a testing station located in and approved by a country which is a 
Contracting

[[Page 248]]

Party, to measure the K-coefficient of the insulated body and the 
efficiency of the thermal appliance in accordance with Sec. 3300.10 and 
Sec. 3300.13 of this rule.
    (2) If the equipment consists of serially-produced equipment 
manufactured by a particular equipment manufacturer, and belonging to 
one owner, certification may be based upon the following:
    (i) A test of 1 percent of the units of equipment as prescribed in 
preceding paragraph (a)(1) of this section, the units tested to serve as 
reference equipment.
    (ii) An inspection of each unit of equipment, using the procedures 
set forth in ATP, Annex 1, Appendix 2, paragraphs 29 and 49. The 
inspections shall be performed by one of the following, at the choice of 
the owner:
    (A) Persons in the owner's organization whom the owner deems 
qualified to perform inspections, or;
    (B) By an independent inspection agency which the owner deems 
competent to perform inspections. Fees charged by such inspection agency 
shall be payable directly to the agency by the owner.
    (iii) A report of each inspection shall be completed on a form 
corresponding to the pertinent test report model in ATP, Annex 1, 
Appendix 2. Report forms may be obtained by a request to the ATP 
manager.
    (b) For renewal of a U.S. ATP certificate which is nearing its 
expiration date, any of the following three procedures:
    (1) For each unit of equipment, a test as prescribed in preceding 
paragraph (a)(1) of this section, or;
    (2) If the equipment is serially-produced by a particular 
manufacturer and belongs to one owner, test and inspection of the 
equipment according to the procedures prescribed in preceding paragraphs 
(a)(2)(i), (ii), and (iii) of this section, or;
    (3) An inspection of each unit of equipment as prescribed in 
paragraphs (a)(2)(ii) and (iii) of this section.
    (c) For equipment which is currently certified according to a U.S. 
ATP certificate, and which has been transferred from one domestic owner 
to another, the new owner may obtain a U.S. ATP certificate by 
submitting the original or certified true copy of the certificate issued 
to the previous owner, and by performing an inspection and submitting an 
inspection report for each unit of equipment.
    (d) For equipment which is currently certified according to a 
Foreign-ATP certificate, and which has been transferred from a foreign 
owner to a domestic owner, the domestic owner may obtain a U.S. ATP 
certificate by submitting the original or certified true copy of the 
test report for the reference equipment and the original or certified 
true copy of the foreign certificate, and by performing an inspection 
and submitting an inspection report for each unit of equipment.
    (e) Owners who receive a U.S. ATP certificate have the 
responsibility to maintain equipment in good repair and operating 
condition with the understanding that the certificate is valid only so 
long as:
    (1) The insulated body and the thermal appliance are maintained in 
good condition;
    (2) No material alteration is made to the thermal appliance which 
decreases its refrigeration capacity, and;
    (3) If the thermal appliance is replaced, it is replaced by an 
appliance of equal or greater refrigerating capacity.



Sec. 3300.79  Application for certificate.

    An application shall be submitted to the ATP manager by an officer 
in the organization of the owner of the equipment. Copies of the Form, 
Application for U.S. ATP Certificate for Equipment in Service, may be 
obtained by a request to the ATP manager. The following information is 
requested in the application:
    (a) A statement that the owner is a domestic owner, with the name, 
address, and telephone number of its principal office, and name and 
title of person to contact.
    (b) If the operator of the equipment is different from the owner, 
the name and address of the operator.
    (c) The type of equipment (intermodal freight container, trailer, 
semi-trailer, railcar, or truck).
    (d) The total number of units of equipment.

[[Page 249]]

    (e) The definition of the equipment for which certification is 
sought, referring to ATP, Annex 1, paragraph 3 and Appendix 4.
    (f) For equipment which has not been previously certified, one of 
the following:
    (1) For each unit of equipment, the original or certified true copy 
of the test report, or;
    (2) If the equipment is serially-produced by one manufacturer:
    (i) Name of manufacturer.
    (ii) The original or certified true copy of the test report(s) of 1 
percent of the equipment which was tested to serve as reference 
equipment.
    (iii) A report of inspection for each unit of equipment.
    (g) For renewal of a U.S. ATP Certificate which is nearing its 
expiration date:
    (1) The original or certified true copy of that certificate, and;
    (2) One of the following, (i) (ii), or (iii):
    (i) For each unit of equipment, the original or certified true copy 
of the test report.
    (ii) If the equipment is serially-produced by one manufacturer:
    (A) Name of manufacturer.
    (B) The original or certified true copy of the test report(s) of 1 
percent of the equipment which was tested to serve as reference 
equipment.
    (C) A report of inspection from each unit of equipment.
    (iii) A report of inspection for each unit of equipment.
    (h) For equipment which is currently certified according to a U.S. 
ATP certificate, and which has been transferred from one domestic owner 
to another:
    (1) The original or certified true copy of that certificate.
    (2) A report of inspection for each unit of equipment.
    (i) For equipment which is currently certified according to a 
Foreign-ATP certificate, and which has been transferred from a foreign 
owner to a domestic owner:
    (1) The original or certified true copy of the test report for the 
reference equipment.
    (2) The original or certified true copy of the Foreign-ATP 
certificate.
    (3) A report of inspection for each unit of equipment.
    (j) A statement that each unit of equipment has, or will have, 
affixed to it a certification plate and distinguishing mark as 
prescribed in ATP, Annex 1, Appendix 1, paragraphs 4 and 5, and 
Appendices 3 and 4.
    (k) A list showing, for each unit of equipment, the serial number of 
the body and the corresponding owner's equipment identification number.



Sec. 3300.82  Issuance of certificate.

    The ATP manager will evaluate documents received and, for equipment 
deemed qualified, will issue a U.S. ATP certificate to the applicant 
within 30 days of receipt of the application and any relevant 
information required. The certificate will be in the format prescribed 
in ATP, Annex 1, Appendix 3. For equipment deemed not qualified, the 
applicant will be advised of reasons for non-qualification within 30 
days of receipt of an application and any relevant information required.



Sec. 3300.85  Period of validity of certificates.

    In accordance with ATP, Annex 1, Appendix 1, paragraphs 1(b), and 
Appendix 2, paragraphs 29(c) and 49(b) and (d), considered in 
combination, certificates will be valid for periods as follows:
    (a) For equipment which passes a test, 6 years.
    (b) For serially-produced equipment of which 1 percent have passed a 
test, and all units have been inspected and passed such inspection, 6 
years.
    (c) For renewal of a U.S. ATP certificate which is nearing its 
expiration date, where the equipment has passed an inspection but has 
not been tested, 3 years.
    (d) For equipment currently certified according to a U.S. ATP 
certificate, where the equipment has been transferred from one domestic 
owner to another and the equipment has passed an inspection, 3 years or 
the date of expiration of the current U.S. ATP certificate, whichever 
gives the later expiration date on the new U.S. ATP certificate.

[[Page 250]]

    (e) For equipment currently certified according to a Foreign-ATP 
certificate, where the equipment has been transferred from a foreign 
owner to a domestic owner and the equipment has passed an inspection, 3 
years or the date of expiration of the foreign certificate, whichever 
gives the later expiration date on the newly issued U.S. ATP 
certificate.



                       Subpart H--Other Provisions



Sec. 3300.88  Fees for U.S. ATP certificates.

    The fee schedule for issuance of U.S. ATP certificates by the U.S. 
Department of Agriculture will be calculated according to the criteria 
in Circular A-25 \2\, issued by the Office of Management and Budget. 
Fees may be revised as required on an annual basis.
---------------------------------------------------------------------------

    \2\ A copy of Circular A-25 can be obtained by a request to the 
Office of Management and Budget (OMB), 17th Street and Pennsylvania 
Avenue, NW., Washington, DC 20503.
---------------------------------------------------------------------------



Sec. 3300.91  List of approved testing stations, approved testing laboratories, and fees for certificates.

    A current list of U.S. ATP testing stations, U.S. ATP testing 
laboratories, and fees for issuance of U.S. ATP certificates may be 
obtained by request to the ATP manager.



Sec. 3300.94  Appeals.

    Any organization aggrieved by an action in connection with this rule 
may obtain a review of such action by submitting pertinent information 
by letter to the Administrator. The decision of the Administrator is the 
final agency action.

                          PART 3305 [RESERVED]

[[Page 251]]



  CHAPTER XXXIV--COOPERATIVE STATE RESEARCH, EDUCATION, AND EXTENSION 
                   SERVICE, DEPARTMENT OF AGRICULTURE




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


  Editorial Note: Nomenclature changes to chapter XXXIV appear at 59 FR 
68073, Dec. 30, 1994.
Part                                                                Page
3400            Special Research Grants Program.............         253
3401            Rangeland Research Grants Program...........         263
3402            Food and Agricultural Sciences National 
                    Needs Graduate Fellowship Grants Program         273
3403            Small Business Innovation Research Grants 
                    Program.................................         283
3404            Public information..........................         293
3405            Higher Education Challenge Grants Program...         294
3406            1890 Institution Capacity Building Grants 
                    Program.................................         310
3407            Implementation of National Environmental 
                    Policy Act..............................         340
3411            National Research Initiative Competitive 
                    Grants Program..........................         345
3415            Biotechnology Risk Assessment Research 
                    Grants Program..........................         357
3418            Stakeholder input requirements for 
                    recipients of agricultural research, 
                    education, and extension formula funds..         368
3419            Matching funds requirement for agricultural 
                    research and extension formula funds at 
                    1890 land-grant institutions, including 
                    Tuskegee University, and at 1862 land-
                    grant institutions in insular areas.....         370

[[Page 253]]



PART 3400--SPECIAL RESEARCH GRANTS PROGRAM--Table of Contents




                           Subpart A--General

Sec.
3400.1  Applicability of regulations.
3400.2  Definitions.
3400.3  Eligibility requirements.
3400.4  How to apply for a grant.
3400.5  Evaluation and disposition of applications.
3400.6  Grant awards.
3400.7  Use of funds; changes.
3400.8  Other Federal statutes and regulations that apply.
3400.9  Other conditions.

    Subpart B--Scientific Peer Review of Research Grant Applications

3400.10  Establishment and operation of peer review groups.
3400.11  Composition of peer review groups.
3400.12  Conflicts of interest.
3400.13  Availability of information.
3400.14  Proposal review.
3400.15  Review criteria.

          Subpart C--Peer and Merit Review Arranged by Grantees

3400.20  Grantee review prior to award.
3400.21  Scientific peer review for research activities.
3400.22  Merit review for education and extension activities.

                        Subpart D--Annual Reports

3400.23  Annual reports.

    Authority: 7 U.S.C. 450i(c).

    Source: 56 FR 58147, Nov 15, 1991, unless otherwise noted.



                           Subpart A--General



Sec. 3400.1  Applicability of regulations.

    (a) The regulations of this part apply to special research grants 
awarded under the authority of subsection (c) of the Competitive, 
Special, and Facilities Research Grant Act, as amended (7 U.S.C. 450i 
(c)), to facilitate or expand promising breakthroughs in areas of the 
food and agricultural sciences of importance to the United States. 
Subparts A and B, excepting this section, apply only to special research 
grants awarded under subsection (c)(1)(A). Subpart C, Peer and Merit 
Review Arranged by Grantees, and Subpart D, Annual Reports, apply to all 
grants awarded under subsection (c).
    (b) Each year the Administrator of CSREES shall determine and 
announce through publication of a Notice in such publications as the 
Federal Register, professional trade journals, agency or program 
handbooks, the Catalog of Federal Domestic Assistance, or any other 
appropriate means, research program areas for which proposals will be 
solicited competitively, to the extent that funds are available.
    (c) The regulations of this part do not apply to research, extension 
or education grants awarded by the Department of Agriculture under any 
other authority.

[64 FR 34103, June 24, 1999]



Sec. 3400.2  Definitions.

    As used in this part:
    (a) Administrator means the Administrator of the Cooperative State 
Research, Education, and Extension Service (CSREES) and any other 
officer or employee of the Department of Agriculture to whom the 
authority involved may be delegated.
    (b) Department means the Department of Agriculture.
    (c) Principal investigator means a single individual designated by 
the grantee in the grant application and approved by the Administrator 
who is responsible for the scientific and technical direction of the 
project.
    (d) Grantee means the entity designated in the grant award document 
as the responsible legal entity to whom a grant is awarded under this 
part.
    (e) Research project grant means the award by the Administrator of 
funds to a grantee to assist in meeting the costs of conducting, for the 
benefit of the public, an identified project which is intended and 
designed to establish, discover, elucidate, or confirm information or 
the underlying mechanisms relating to a research program area identified 
in the annual solicitation of applications.
    (f) Project means the particular activity within the scope of one or 
more of the research program areas identified in the annual solicitation 
of applications, which is supported by a grant award under this part.

[[Page 254]]

    (g) Project period means the total length of time that is approved 
by the Administrator for conducting the research project as outlined in 
an approved grant application.
    (h) Budget period means the interval of time (usually 12 months) 
into which the project period is divided for budgetary and reporting 
purposes.
    (i) Awarding official means the Administrator and any other officer 
or employee of the Department to whom the authority to issue or modify 
research project grant instruments has been delegated.
    (j) Peer review group means an assembled group of experts or 
consultants qualified by training and experience in particular 
scientific or technical fields to give expert advice, in accordance with 
the provisions of this part, on the scientific and technical merit of 
grant applications in those fields.
    (k) Ad hoc reviewers means experts or consultants qualified by 
training and experience in particular scientific or technical fields to 
render special expert advice, whose written evaluations of grant 
applications are designed to complement the expertise of the peer review 
group, in accordance with the provisions of this part, on the scientific 
or technical merit of grant applications in those fields.
    (l) Research means any systematic study directed toward new or 
fuller knowledge and understanding of the subject studied.
    (m) Methodology means the project approach to be followed and the 
resources needed to carry out the project.



Sec. 3400.3  Eligibility requirements.

    (a) Except where otherwise prohibited by law, any State agricultural 
experiment station, all colleges and universities, other research 
institutions and organizations, Federal agencies, private organizations 
or corporations, and individuals, shall be eligible to apply for and to 
receive a special research project grant under this part, provided that 
the applicant qualifies as a responsible grantee under the criteria set 
forth in paragraph (b) of this section.
    (b) To qualify as responsible, an applicant must meet the following 
standards as they relate to a particular project:
    (1) Have adequate financial resources for performance, the necessary 
experience, organizational and technical qualifications, and facilities, 
or a firm commitment, arrangement, or ability to obtain such (including 
proposed subagreements);
    (2) Be able to comply with the proposed or required completion 
schedule for the project;
    (3) Have a satisfactory record of integrity, judgment, and 
performance, including, in particular, any prior performance under 
grants and contracts from the Federal Government;
    (4) Have an adequate financial management system and audit procedure 
which provides efficient and effective accountability and control of all 
property, funds, and other assets; and
    (5) Be otherwise qualified and eligible to receive a research 
project grant under applicable laws and regulations.
    (c) Any applicant who is determined to be not responsible will be 
notified in writing of such findings and the basis therefor.



Sec. 3400.4  How to apply for a grant.

    (a) A request for proposals will be prepared and announced through 
publications such as the Federal Register, professional trade journals, 
agency or program handbooks, the Catalog of Federal Domestic Assistance, 
or any other appropriate means of solicitation, as early as practicable 
each fiscal year. It will contain information sufficient to enable all 
eligible applicants to prepare special research grant proposals and will 
be as complete as possible with respect to:
    (1) Descriptions of specific research program areas which the 
Department proposes to support during the fiscal year involved, 
including anticipated funds to be awarded;
    (2) Deadline dates for having proposal packages postmarked;
    (3) Name and address where proposals should be mailed;
    (4) Number of copies to be submitted;
    (5) Forms required to be used when submitting proposals; and
    (6) Special requirements.
    (b) Grant Application Kit. A Grant Application Kit will be made 
available to

[[Page 255]]

any potential grant applicant who requests a copy. This kit contains 
required forms, certifications, and instructions applicable to the 
submission of grant proposals.
    (c) Format for research grant proposals. Unless otherwise stated in 
the specific program solicitation, the following applies:
    (1) Grant Application. All research grant proposals submitted by 
eligible applicants should contain a Grant Application form, which must 
be signed by the proposing principal investigator(s) and endorsed by the 
cognizant authorized organizational representative who possesses the 
necessary authority to commit the applicant's time and other relevant 
resources.
    (2) Title of Project. The title of the project must be brief (80-
character maximum), yet represent the major thrust of the research. This 
title will be used to provide information to the Congress and other 
interested parties who may be unfamiliar with scientific terms; 
therefore, highly technical words or phraseology should be avoided where 
possible. In addition, phrases such as ``investigation of'' or 
``research on'' should not be used.
    (3) Objectives. Clear, concise, complete, enumerated, and logically 
arranged statement(s) of the specific aims of the research must be 
included in all proposals.
    (4) Procedures. The procedures or methodology to be applied to the 
proposed research plan should be explicitly stated. This section should 
include but not necessarily be limited to:
    (i) A description of the proposed investigations and/or experiments 
in the sequence in which it is planned to carry them out;
    (ii) Techniques to be employed, including their feasibility;
    (iii) Kinds of results expected;
    (iv) Means by which data will be analyzed or interpreted;
    (v) Pitfalls which might be encountered; and
    (vi) Limitations to proposed procedures.
    (5) Justification. This section should describe:
    (i) The importance of the problem to the needs of the Department and 
to the Nation, including estimates of the magnitude of the problem.
    (ii) The importance of starting the work during the current fiscal 
year, and
    (iii) Reasons for having the work performed by the proposing 
organization.
    (6) Literature review. A summary of pertinent publications with 
emphasis on their relationship to the research should be provided and 
should include all important and recent publications. The citations 
should be accurate, complete, written in acceptable journal format, and 
be appended to the proposal.
    (7) Current research. The relevancy of the proposed research to 
ongoing and, as yet, unpublished research of both the applicant and any 
other institutions should be described.
    (8) Facilities and equipment. All facilities, including 
laboratories, which are available for use or assignment to the proposed 
research project during the requested period of support, should be 
reported and described. Any materials, procedures, situations, or 
activities, whether or not directly related to a particular phase of the 
proposed research, and which may be hazardous to personnel, must be 
fully explained, along with an outline of precautions to be exercised. 
All items of major instrumentation available for use or assignment to 
the proposed research project during the requested period of support 
should be itemized. In addition, items of nonexpendable equipment needed 
to conduct and bring the proposed project to a successful conclusion 
should be listed.
    (9) Collaborative arrangements. If the proposed project requires 
collaboration with other research scientists, corporations, 
organizations, agencies, or entities, such collaboration must be fully 
explained and justified. Evidence should be provided to assure peer 
reviewers that the collaborators involved agree with the arrangements. 
It should be specifically indicated whether or not such collaborative 
arrangements have the potential for any conflict(s) of interest. 
Proposals which indicate collaborative involvement must state which 
proposer is to receive any resulting grant award, since only one 
eligible applicant, as provided in Sec. 3400.3 of this

[[Page 256]]

part, may be the recipient of a research project grant under one 
proposal.
    (10) Research timetable. The applicant should outline all important 
research phases as a function of time, year by year.
    (11) Personnel support. All personnel who will be involved in the 
research effort must be clearly identified. For each scientist involved, 
the following should be included:
    (i) An estimate of the time commitments necessary;
    (ii) Vitae of the principal investigator(s), senior associate(s), 
and other professional personnel to assist reviewers in evaluating the 
competence and experience of the project staff. This section should 
include curricula vitae of all key persons who will work on the proposed 
research project, whether or not Federal funds are sought for their 
support. The vitae are to be no more than two pages each in length, 
excluding publications listings; and
    (iii) A chronological listing of the most representative 
publications during the past five years shall be provided for each 
professional project member for whom a curriculum vitae appears under 
this section. Authors should be listed in the same order as they appear 
on each paper cited, along with the title and complete reference as 
these usually appear in journals.
    (12) Budget. A detailed budget is required for each year of 
requested support. In addition, a summary budget is required detailing 
requested support for the overall project period. A copy of the form 
which must be used for this purpose, along with instructions for 
completion, is included in the Grant Application Kit identified under 
Sec. 3400.4(b) of this part and may be reproduced as needed by 
applicants. Funds may be requested under any of the categories listed, 
provided that the item or service for which support is requested is 
allowable under applicable Federal cost principles and can be identified 
as necessary for successful conduct of the proposed research project. No 
funds will be awarded for the renovation or refurbishment of research 
spaces; purchases or installation of fixed equipment in such spaces; or 
for the planning, repair, rehabilitation, acquisition, or construction 
of a building or facility. All research project grants awarded under 
this part shall be issued without regard to matching funds or cost 
sharing.
    (13) Research involving special considerations. A number of 
situations encountered in the conduct of research require special 
information and supporting documentation before funding can be approved 
for the project. If such situations are anticipated, the proposal must 
so indicate. It is expected that a significant number of special 
research grant proposals will involve the following:
    (i) Recombinant DNA molecules. All key personnel identified in a 
proposal and all endorsing officials of a proposed performing entity are 
required to comply with the guidelines established by the National 
Institutes of Health entitled, ``Guidelines for Research Involving 
Recombinant DNA Molecules,'' as revised. The Grant Application Kit, 
identified above in Sec. 3400.4(b), contains forms which are suitable 
for such certification of compliance.
    (ii) Human subjects at risk. Responsibility for safeguarding the 
rights and welfare of human subjects used in any research project 
supported with grant funds provided by the Department rests with the 
performing entity. Regulations have been issued by the Department under 
7 CFR Part 1c, Protection of Human Subjects. In the event that a project 
involving human subjects at risk is recommended for award, the applicant 
will be required to submit a statement certifying that the research plan 
has been reviewed and approved by the Institutional Review Board at the 
proposing organization or institution. The Grant Application Kit, 
identified above in Sec. 3400.4(b), contains forms which are suitable 
for such certification.
    (iii) Laboratory animal care. The responsibility for the humane care 
and treatment of any laboratory animal, which has the same meaning as 
``animal'' in section 2(g) of the Animal Welfare Act of 1966, as amended 
(7 U.S.C. 2132(g)), used in any research project supported with Special 
Research Grants Program funds rests with the performing organization. In 
this regard, all key personnel identified in a proposal and all 
endorsing officials of

[[Page 257]]

the proposed performing entity are required to comply with applicable 
provisions of the Animal Welfare Act of 1966, as amended (7 U.S.C. 2131 
et. seq.) and the regulation promulgated thereunder by the Secretary of 
Agriculture in 9 CFR parts 1, 2, 3, and 4. In the event that a project 
involving the use of a laboratory animal is recommended for award, the 
applicant will be required to submit a statement certifying such 
compliance. The Grant Application Kit, identified above in 
Sec. 3400.4(b), contains forms which are suitable of such certification.
    (14) Current and pending support. All proposals must list any other 
current public or private research support, in addition to the proposed 
project, to which key personnel listed in the proposal under 
consideration have committed portions of their time, whether or not 
salary support for the person(s) involved is included in the budgets of 
the various projects. This section must also contain analogous 
information for all projects underway and for pending research proposals 
which are currently being considered by, or which will be submitted in 
the near future to, other possible sponsors, including other 
Departmental programs or agencies. Concurrent submission of identical or 
similar projects to other possible sponsors will not prejudice its 
review or evaluation by the Administrator or experts or consultants 
engaged by the Administrator for this purpose. The Grant Application 
Kit, identified above in Sec. 3400.4(b), contains a form which is 
suitable for listing current and pending support.
    (15) Additions to project description. Each project description is 
expected by the Administrator, members of peer review groups, and the 
relevant program staff to be complete in itself. However, in those 
instances in which the inclusion of additional information is necessary, 
the number of copies submitted should match the number of copies of the 
application requested in the annual solicitation of proposals as 
indicated in Sec. 3400.4(a)(4). Each set of such materials must be 
identified with the title of the research project as it appears in the 
Grant Application and the name(s) of the principal investigator(s). 
Examples of additional materials may include photographs which do not 
reproduce well, reprints, and other pertinent materials which are deemed 
to be unsuitable for inclusion in the proposal.
    (16) Organizational management information. Specific management 
information relating to an applicant shall be submitted on a one-time 
basis prior to the award of a research project grant identified under 
this part if such information has not been provided previously under 
this or another program for which the sponsoring agency is responsible. 
Copies of forms recommended for use in fulfilling the requirements 
contained in this section will be provided by the agency specified in 
this part once a research project grant has been recommended for 
funding.



Sec. 3400.5  Evaluation and disposition of applications.

    (a) Evaluation. All proposals received from eligible applicants in 
accordance with eligible research problem or program areas and deadlines 
established in the applicable request for proposals shall be evaluated 
by the Administrator through such officers, employees, and others as the 
Administrator determines are uniquely qualified in the areas of research 
represented by particular projects. To assist in equitably and 
objectively evaluating proposals and to obtain the best possible balance 
of viewpoints, the Administrator shall solicit the advice of peer 
scientists, ad hoc reviewers, or others who are recognized specialists 
in the research program areas covered by the applications received and 
whose general roles are defined in Secs. 3400.2(j) and 3400.2(k). 
Specific evaluations will be based upon the criteria established in 
subpart B Sec. 3400.15, unless CSREES determines that different criteria 
are necessary for the proper evaluation of proposals in one or more 
specific program areas, and announces such criteria and their relative 
importance in the annual program solicitation. The overriding purpose of 
such evaluations is to provide information upon which the Administrator 
can make informed judgments in selecting proposals for ultimate support. 
Incomplete, unclear, or poorly organized applications will work to the 
detriment of applicants during

[[Page 258]]

the peer evaluation process. To ensure a comprehensive evaluation, all 
applications should be written with the care and thoroughness accorded 
papers for publication.
    (b) Disposition. On the basis of the Administrator's evaluation of 
an application in accordance with paragraph (a) of this section, the 
Administrator will
    (1) Approve support using currently available funds,
    (2) Defer support due to lack of funds or a need for further 
evaluations, or
    (3) Disapprove support for the proposed project in whole or in part.

With respect to approved projects, the Administrator will determine the 
project period (subject to extension as provided in Sec. 3400.7(c)) 
during which the project may be supported. Any deferral or disapproval 
of an application will not preclude its reconsideration or a 
reapplication during subsequent fiscal years.



Sec. 3400.6  Grant awards.

    (a) General. Within the limit of funds available for such purpose, 
the awarding official shall make research project grants to those 
responsible, eligible applicants whose proposals are judged most 
meritorious in the announced program areas under the evaluation criteria 
and procedures set forth in this part. The date specified by the 
Administrator as the beginning of the project period shall be no later 
than September 30 of the Federal fiscal year in which the project is 
approved for support and funds are appropriated for such purpose, unless 
otherwise permitted by law. All funds granted under this part shall be 
expended solely for the purpose for which the funds are granted in 
accordance with the approved application and budget, the regulations of 
this part, the terms and conditions of the award, the applicable Federal 
cost principles, and the Department's ``Uniform Federal Assistance 
Regulations'' (part 3015 of this title).
    (b) Grant award document and notice of grant award--(1) Grant award 
document. The grant award document shall include at a minimum the 
following:
    (i) Legal name and address of performing organization or institution 
to whom the Administrator has awarded a special research project grant 
under the terms of this part;
    (ii) Title of project;
    (iii) Name(s) and address(es) of principal investigator(s) chosen to 
direct and control approved activities;
    (iv) Identifying grant number assigned by the Department;
    (v) Project period, which specifies how long the Department intends 
to support the effort without requiring recompetition for funds;
    (vi) Total amount of Departmental financial assistance approved by 
the Administrator during the project period;
    (vii) Legal authority(ies) under which the research project grant is 
awarded to accomplish the purpose of the law;
    (viii) Approved budget plan for categorizing allocable project funds 
to accomplish the stated purpose of the research project grant award; 
and
    (ix) Other information or provisions deemed necessary by the 
Department to carry out its granting activities or to accomplish the 
purpose of a particular research project grant.
    (2) Notice of grant award. The notice of grant award, in the form of 
a letter, will be prepared and will provide pertinent instructions or 
information to the grantee that is not included in the grant award 
document.
    (c) Categories of grant instruments. The major categories of grant 
instruments shall be as follows:
    (1) Standard grant. This is a grant instrument by which the 
Department agrees to support a specified level of research effort for a 
predetermined project period without the announced intention of 
providing additional support at a future date. This type of research 
project grant is approved on the basis of peer review and recommendation 
and is funded for the entire project period at the time of award.
    (2) Renewal grant. This is a document by which the Department agrees 
to provide additional funding under a standard grant as specified in 
paragraph (c)(1) of this section for a project period beyond that 
approved in an original or amended award, provided that the cumulative 
period does not exceed the statutory limitation. When a renewal 
application is submitted, it should include a summary of progress

[[Page 259]]

to date under the previous grant instrument. Such a renewal shall be 
based upon new application, de novo peer review and staff evaluation, 
new recommendation and approval, and a new award instrument.
    (3) Continuation grant. This is a grant instrument by which the 
Department agrees to support a specified level of effort for a 
predetermined period of time with a statement of intention to provide 
additional support at a future date, provided that performance has been 
satisfactory, appropriations are available for this purpose, and 
continued support would be in the best interests of the Federal 
Government and the public. It involves a long-term research project that 
is considered by peer reviewers and Departmental officers to have an 
unusually high degree of scientific merit, the results of which are 
expected to have a significant impact on the food and agricultural 
sciences, and it supports the efforts of experienced scientists with 
records of outstanding research accomplishments. This kind of document 
will normally be awarded for an initial one-year period and any 
subsequent continuation research project grants will also be awarded in 
one-year increments. The award of a continuation research project grant 
to fund an initial or succeeding budget period does not constitute an 
obligation to fund any subsequent budget period. A grantee must submit a 
separate application for continued support for each subsequent fiscal 
year. Requests for such continued support must be submitted in duplicate 
at least three months prior to the expiration date of the budget period 
currently being funded. Such requests must include: an interim progress 
report detailing all work performed to date; a Grant Application; a 
proposed budget for the ensuing period, including an estimate of funds 
anticipated to remain unobligated at the end of the current budget 
period; and current information regarding other extramural support for 
senior personnel. Decisions regarding continued support and the actual 
funding levels of such support in future years will usually be made 
administratively after consideration of such factors as the grantee's 
progress and management practices and within the context of available 
funds. Since initial peer reviews were based upon the full term and 
scope of the original special research grant application, additional 
evaluations of this type generally are not required prior to successive 
years' support. However, in unusual cases (e.g., when the nature of the 
project or key personnel change or when the amount of future support 
requested substantially exceeds the grant application originally 
reviewed and approved), additional reviews may be required prior to 
approving continued funding.
    (4) Supplemental grant. This is an instrument by which the 
Department agrees to provide small amounts of additional funding under a 
standard, renewal, or continuation grant as specified in paragraphs 
(c)(1), (c)(2), and (c)(3) of this section and may involve a short-term 
(usually six months or less) extension of the project period beyond that 
approved in an original or amended award, but in no case may the 
cumulative period of the project, including short term extensions, 
exceed the statutory time limitation. A supplement is awarded only if 
required to assure adequate completion of the original scope of work and 
if there is sufficient justification of need to warrant such action. A 
request of this nature normally does not require additional peer review.
    (d) Obligation of the Federal Government. Neither the approval of 
any application nor the award of any research project grant shall commit 
or obligate the United States in any way to make any renewal, 
supplemental, continuation, or other award with respect to any approved 
application or portion of an approved application.



Sec. 3400.7  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The grantee may not 
delegate or transfer in whole or in part, to another person, 
institution, or organization the responsibility for use or expenditure 
of grant funds.
    (b) Change in project plans. (1) The permissible changes by the 
grantee, principal investigator(s), or other key project personnel in 
the approved research project grant shall be limited to changes in 
methodology, techniques, or

[[Page 260]]

other aspects of the project to expedite achievement of the projects' 
approved goals. If the grantee or the principal investigator(s) is 
uncertain as to whether a change complies with this provision, the 
question must be referred to the Administrator for a final 
determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
the grantee and approved in writing by the Department prior to effecting 
such changes. In no event shall requests for such changes be approved 
which are outside the scope of the original approved project.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
grantee and approved in writing by the Department prior to effecting 
such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the grantee and 
approved in writing by the Department prior to effecting such changes, 
except as may be allowed in the terms and conditions of the grant award.
    (c) Changes in project period. The project period determined 
pursuant to Sec. 3400.5(b) may be extended by the Administrator without 
additional financial support for such additional period(s) as the 
Administrator determines may be necessary to complete or fulfill the 
purposes of an approved project. Any extension, when combined with the 
originally approved or amended project period shall not exceed three (3) 
years (the limitation established by statute) and shall be further 
conditioned upon prior request by the grantee and approval in writing by 
the Department, unless prescribed otherwise in the terms and conditions 
of a grant award.
    (d) Changes in approved budget. The terms and conditions of a grant 
will prescribe circumstances under which written Departmental approval 
will be requested and obtained prior to instituting changes in an 
approved budget.

[56 FR 58147, Nov 15, 1991, as amended at 64 FR 34103, June 24, 1999]



Sec. 3400.8  Other Federal statutes and regulations that apply.

    Several other Federal statutes and/or regulations apply to grant 
proposals considered for review or to research project grants awarded 
under this part. These include but are not limited to:

7 CFR Part 1c--USDA implementation of the Federal Policy for the 
Protection of Human Subjects.
7 CFR 1.1--USDA implementation of Freedom of Information Act.
7 CFR Part 3--USDA implementation of OMB Circular A-129 regarding debt 
collection.
7. CFR Part 15, Subpart A--USDA implementation of Title VI of the Civil 
Rights Act of 1964.
7 CFR Part 3015--USDA Uniform Federal Assistance Regulations, 
implementing OMB directives (i.e., Circular Nos. A-110, A-21, and A-122) 
and incorporating provisions of 31 U.S.C. 6301-6308 (formerly, the 
Federal Grant and Cooperative Agreement Act of 1977, Pub. L. 95-224), as 
well as general policy requirements applicable to recipients of 
Departmental financial assistance.
7 CFR Part 3016--USDA Uniform Administrative Requirements for Grants and 
Cooperative Agreements to State and Local Governments, implementing OMB 
directives (i.e., Circular Nos. A-102 and A-87).
7 CFR Part 3017, as amended--USDA implementation of Governmentwide 
Debarment and Suspension (Nonprocurement) and Governmentwide 
Requirements for Drug-Free Workplace (Grants).
7 CFR Part 3018--USDA implementation of New Restrictions on Lobbying. 
Imposes new prohibitions and requirements for disclosure and 
certification related to lobbying on recipients of Federal contracts, 
grants, cooperative agreements, and loans.
7 CFR Part 3407--CSREES procedures to implement the National 
Environmental Policy Act.
29 U.S.C. 794, section 504--Rehabilitation Act of 1973, and 7 CFR part 
15B (USDA implementation of statute), prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs.
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).



Sec. 3400.9  Other conditions.

    The Administrator may, with respect to any research project grant or 
to any class of awards, impose additional conditions prior to or at the 
time of any

[[Page 261]]

award when, in the Administrator's judgment, such conditions are 
necessary to assure or protect advancement of the approved project, the 
interests of the public, or the conservation of grant funds.



    Subpart B--Scientific Peer Review of Research Grant Applications



Sec. 3400.10  Establishment and operation of peer review groups.

    Subject to Sec. 3400.5, the Administrator will adopt procedures for 
the conduct of peer reviews and the formulation of recommendations under 
Sec. 3400.14.



Sec. 3400.11  Composition of peer review groups.

    (a) Peer review group members will be selected based upon their 
training and experience in relevant scientific or technical fields, 
taking into account the following factors:
    (1) The level of formal scientific or technical education by the 
individual;
    (2) The extent to which the individual has engaged in relevant 
research, the capacities in which the individual has done so (e.g., 
principal investigator, assistant), and the quality of such research;
    (3) Professional recognition as reflected by awards and other honors 
received from scientific and professional organizations outside of the 
Department;
    (4) The need of the group to include within its membership experts 
from various areas of specialization within relevant scientific or 
technical fields;
    (5) The need of the group to include within its membership experts 
from a variety of organizational types (e.g., universities, industry, 
private consultant(s)) and geographic locations; and
    (6) The need of the group to maintain a balanced membership, e.g., 
minority and female representation and an equitable age distribution.
    (b) [Reserved]



Sec. 3400.12  Conflicts of interest.

    Members of peer review groups covered by this part are subject to 
relevant provisions contained in Title 18 of the United States Code 
relating to criminal activity, Department regulations governing employee 
responsibilities and conduct (part O of this title), and Executive Order 
11222, as amended.



Sec. 3400.13  Availability of information.

    Information regarding the peer review process will be made available 
to the extent permitted under the Freedom of Information Act (5 U.S.C. 
552), the Privacy Act (5 U.S.C. 552a), and implementing Departmental 
regulations (part 1 of this title).



Sec. 3400.14  Proposal review.

    (a) All research grant applications will be acknowledged. Prior to 
technical examination, a preliminary review will be made for 
responsiveness to the request for proposals (e.g., relationship of 
application to research program area). Proposals which do not fall 
within the guidelines as stated in the annual request for proposals will 
be eliminated from competition and will be returned to the applicant. 
Proposals whose budgets exceed the maximum allowable amount for a 
particular program area as announced in the request for proposals may be 
considered as lying outside the guidelines.
    (b) All applications will be carefully reviewed by the 
Administrator, qualified officers or employees of the Department, the 
respective peer review group, and ad hoc reviewers, as required. Written 
comments will be solicited from ad hoc reviewers when required, and 
individual written comments and in-depth discussions will be provided by 
peer review group members prior to recommending applications for 
funding. Applications will be ranked and support levels recommended 
within the limitation of total available funding for each research 
program area as announced in the applicable request for proposals.
    (c) No awarding official will make a research project grant based 
upon an application covered by this part unless the application has been 
reviewed by a peer review group and/or ad hoc reviewers in accordance 
with the provisions of this part and said reviewers have made 
recommendations concerning the scientific merit of such application.
    (d) Except to the extent otherwise provided by law, such 
recommendations are advisory only and are not

[[Page 262]]

binding on program officers or on the awarding official.



Sec. 3400.15  Review criteria.

    (a) Subject to the varying conditions and needs of States, Federal 
funded agricultural research supported under these provisions shall be 
designed to, among other things, accomplish one or more of the following 
purposes:
    (1) Continue to satisfy human food and fiber needs;
    (2) Enhance the long-term viability and competitiveness of the food 
production and agricultural system of the United States within the 
global economy;
    (3) Expand economic opportunities in rural America and enhance the 
quality of life for farmers, rural citizens, and society as a whole;
    (4) Improve the productivity of the American agricultural system and 
develop new agricultural crops and new uses for agricultural 
commodities;
    (5) Develop information and systems to enhance the environment and 
the natural resource base upon which a sustainable agricultural economy 
depends; or
    (6) Enhance human health.

In carrying out its review under Sec. 3400.14, the peer review group 
will use the following form upon which the evaluation criteria to be 
used are enumerated, unless pursuant to Sec. 3400.5(a), different 
evaluation criteria are specified in the annual solicitation of 
proposals for a particular program.

                         Peer Panel Scoring Form

Proposal Identification No._____________________________________________

Institution and Project Title___________________________________________

                          I. Basic Requirement:

    Proposal falls within guidelines? ---------- Yes ---------- No. If 
no, explain why proposal does not meet guidelines under comment section 
of this form.

                         II. Selection Criteria:

------------------------------------------------------------------------
                                                       Score X
                                       Score   Weight   weight  Comments
                                       1-10    factor   factor
------------------------------------------------------------------------
1. Overall scientific and technical   ......       10  .......  ........
 quality of proposal................
2. Scientific and technical quality   ......       10  .......  ........
 of the approach....................
3. Relevance and importance of        ......        6  .......  ........
 proposed research to solution of
 specific areas of inquiry..........
4. Feasibility of attaining           ......        5  .......  ........
 objectives; adequacy of
 professional training and
 experience, facilities and
 equipment..........................
------------------------------------------------------------------------

Score___________________________________________________________________

Summary Comments________________________________________________________

    (b) Proposals satisfactorily meeting the guidelines will be 
evaluated and scored by the peer review panel for each criterion 
utilizing a scale of 1 through 10. A score of one (1) will be considered 
low and a score of ten (10) will be considered high for each selection 
criterion. A weighted factor is used for each criterion.



          Subpart C--Peer and Merit Review Arranged by Grantees

    Source: 64 FR 34104, June 24, 1999, unless otherwise noted.



Sec. 3400.20  Grantee review prior to award.

    (a) Review requirement. Prior to the award of a standard or 
continuation grant by CSREES, any proposed project shall have undergone 
a review arranged by the grantee as specified in this subpart. For 
research projects, such review must be a scientific peer review 
conducted in accordance with Sec. 3400.21. For education and extension 
projects, such review must be a merit review conducted in accordance 
with Sec. 3400.22.
    (b) Credible and independent. Review arranged by the grantee must 
provide for a credible and independent assessment of the proposed 
project. A credible review is one that provides an appraisal of 
technical quality and relevance sufficient for an organizational 
representative to make an informed judgment as to whether the proposal 
is appropriate for submission for Federal support. To provide for an 
independent review, such review may include USDA employees, but should 
not be conducted solely by USDA employees.

[[Page 263]]

    (c) Notice of completion and retention of records. A notice of 
completion of review shall be conveyed in writing to CSREES either as 
part of the submitted proposal or prior to the issuance of an award, at 
the option of CSREES. The written notice constitutes certification by 
the applicant that a review in compliance with these regulations has 
occurred. Applicants are not required to submit results of the review to 
CSREES; however, proper documentation of the review process and results 
should be retained by the applicant.
    (d) Renewal and supplemental grants. Review by the grantee is not 
automatically required for renewal or supplemental grants as defined in 
Sec. 3400.6. A subsequent grant award will require a new review if, 
according to CSREES, either the funded project has changed 
significantly, other scientific discoveries have affected the project, 
or the need for the project has changed. Note that a new review is 
necessary when applying for another standard or continuation grant after 
expiration of the grant term.



Sec. 3400.21  Scientific peer review for research activities.

    Scientific peer review is an evaluation of a proposed project for 
technical quality and relevance to regional or national goals performed 
by experts with the scientific knowledge and technical skills to conduct 
the proposed research work. Peer reviewers may be selected from an 
applicant organization or from outside the organization, but shall not 
include principals, collaborators or others involved in the preparation 
of the application under review.



Sec. 3400.22  Merit review for education and extension activities.

    Merit review is an evaluation of a proposed project or elements of a 
proposed program whereby the technical quality and relevance to regional 
or national goals are assessed. The merit review shall be performed by 
peers and other individuals with expertise appropriate to evaluate the 
proposed project. Merit reviewers may not include principals, 
collaborators or others involved in the preparation of the application 
under review.



                        Subpart D--Annual Reports



Sec. 3400.23  Annual reports.

    (a) Reporting requirement. The recipient shall submit an annual 
report describing the results of the research, extension, or education 
activity and the merit of the results.
    (b) Report type and content. Unless otherwise stipulated, grant 
recipients will have met the reporting requirement under this subpart by 
complying with the reporting requirements as set forth in the terms and 
conditions of the grant at the time of award.

[64 FR 34104, June 24, 1999]



PART 3401--RANGELAND RESEARCH GRANTS PROGRAM--Table of Contents




                           Subpart A--General

Sec.
3401.1   Applicability of regulations of this part.
3401.2   Definitions.
3401.3   Eligibility requirements.
3401.4   Matching funds requirement.
3401.5   Indirect costs and tuition remission costs.
3401.6   How to apply for a grant.
3401.7   Evaluation and disposition of applications.
3401.8   Grant awards.
3401.9   Use of funds; changes.
3401.10  Other Federal statutes and regulations that apply.
3401.11  Other conditions.

 Subpart B--Scientific Peer Review of Research Applications for Funding

3401.12  Establishment and operation of peer review groups.
3401.13  Composition of peer review groups.
3401.14  Conflicts of interest.
3401.15  Availability of information.
3401.16  Proposal review.
3401.17  Review criteria.

    Authority: Section 1470 of the National Agricultural Research, 
Extension and Teaching Policy Act of 1977 (7 U.S.C. 3316).

    Source: 61 FR 27753, May 31, 1996, unless otherwise noted.



                           Subpart A--General



Sec. 3401.1  Applicability of regulations of this part.

    (a) The regulations of this part apply to rangeland research grants 
awarded

[[Page 264]]

under the authority of section 1480 of the National Agricultural 
Research, Extension, and Teaching Policy Act of 1977, as amended (7 
U.S.C. 3333) to land-grant colleges and universities, State agricultural 
experiment stations, and colleges, universities, and Federal 
laboratories having a demonstrable capacity in rangeland research, as 
determined by the Secretary, to carry out rangeland research. The 
Administrator of the Cooperative State Research, Education, and 
Extension Service (CSREES) shall determine and announce, through 
publication each year of a Notice in the Federal Register, professional 
trade journals, agency or program handbooks, the catalog of Federal 
Domestic Assistance or any other appropriate means, research program 
areas for which proposals will be solicited, to the extent that funds 
are available.
    (b) The regulations of this part do not apply to research grants 
awarded by the Department of Agriculture under any other authority.



Sec. 3401.2  Definitions.

    As used in this part:
    (a) Administrator means the Administrator of CSREES and any other 
officer or employee of the Department of Agriculture to whom the 
authority involved may be delegated.
    (b) Department means the Department of Agriculture.
    (c) Principal investigator means a single individual designated by 
the grantee in the application for funding and approved by the 
Administrator who is responsible for the scientific and technical 
direction of the project.
    (d) Grantee means the entity designated in the grant award document 
as the responsible legal entity to whom a grant is awarded under this 
part.
    (e) Research project grant means the award by the Administrator of 
funds to a grantee to assist in meeting the costs of conducting, for the 
benefit of the public, an identified project which is intended and 
designed to establish, discover, elucidate, or confirm information or 
the underlying mechanisms relating to a research program area identified 
in the annual solicitation of applications.
    (f) Project means the particular activity within the scope of one or 
more of the research program areas identified in the annual solicitation 
of applications, which is supported by a grant award under this part.
    (g) Project period means the total length of time that is approved 
by the Administrator for conducting the research project as outlined in 
an approved application for funding.
    (h) Budget period means the interval of time (usually 12 months) 
into which the project period is divided for budgetary and reporting 
purposes.
    (i) Awarding official means the Administrator and any other officer 
or employee of the Department to whom the authority to issue or modify 
research project grant instruments has been delegated.
    (j) Peer review group means an assembled group of experts or 
consultants qualified by training or experience in particular scientific 
or technical fields to give expert advice, in accordance with the 
provisions of this part, on the scientific and technical merit of 
applications for funding in those fields.
    (k) Ad hoc reviewers means experts or consultants qualified by 
training or experience in particular scientific or technical fields to 
render special expert advice, whose written evaluations of applications 
for funding are designed to complement the expertise of the peer review 
group, in accordance with the provisions of this part, on the scientific 
or technical merit of applications for Funding in those fields.
    (l) Research means any systematic study directed toward new or 
fuller knowledge and understanding of the subject studied.
    (m) Methodology means the project approach to be followed and the 
resources needed to carry out the project.



Sec. 3401.3  Eligibility requirements.

    (a) Except where otherwise prohibited by law, any land-grant college 
and university, State agricultural experiment station, and college, 
university, and Federal laboratory having a demonstrable capacity in 
rangeland research, as determined by the Secretary, shall be eligible to 
apply for and to receive a project grant under

[[Page 265]]

this part, provided that the applicant qualifies as a responsible 
grantee under the criteria set forth in paragraph (b) of this section.
    (b) To qualify as responsible, an applicant must meet the following 
standards as they relate to a particular project:
    (1) Have adequate financial resources for performance, the necessary 
experience, organizational and technical qualifications, and facilities, 
or a firm commitment, arrangement, or ability to obtain such (including 
proposed subagreements);
    (2) Be able to comply with the proposed or required completion 
schedule for the project;
    (3) Have a satisfactory record of integrity, judgment, and 
performance, including, in particular, any prior performance under 
grants and contracts from the Federal government;
    (4) Have an adequate financial management system and audit procedure 
which provides efficient and effective accountability and control of all 
property, funds, and other assets; and
    (5) Be otherwise qualified and eligible to receive a research 
project grant under applicable laws and regulations.
    (c) Any applicant who is determined to be not responsible will be 
notified in writing of such findings and the basis therefor.



Sec. 3401.4  Matching funds requirement.

    In accordance with section 1480 of the National Agricultural 
Research, Extension, and Teaching Policy Act of 1977, as amended (7 
U.S.C. 3333), except in the case of Federal laboratories, each grant 
recipient must match the Federal funds expended on a research project 
based on a formula of 50 percent Federal and 50 percent non-Federal 
funding.



Sec. 3401.5  Indirect costs and tuition remission costs.

    Pursuant to section 1473 of the National Agricultural Research, 
Extension, and Teaching Policy Act of 1977, as amended (7 U.S.C. 3319), 
funds made available under this program to recipients other than Federal 
laboratories shall not be subject to reduction for indirect costs or 
tuition remission costs. Since indirect costs and tuition remission 
costs, except in the case of Federal laboratories, are not allowable 
costs for purposes of this program, such costs may not be used to 
satisfy the matching requirement set forth in Sec. 3401.4.



Sec. 3401.6  How to apply for a grant.

    (a) General. After consultation with the Rangeland Research Advisory 
Board, established pursuant to section 1482 of the National Agricultural 
Research, Extension, and Teaching Policy Act of 1977, as amended (7 
U.S.C. 3335), a request for proposals will be prepared and announced 
through publications such as the Federal Register, professional trade 
journals, agency or program handbooks, the Catalog of Federal Domestic 
Assistance, or any other appropriate means of solicitation, as early as 
practicable each fiscal year. It will contain information sufficient to 
enable all eligible applicants to prepare rangeland research grant 
proposals and will be as complete as possible with respect to:
    (1) Descriptions of specific research program areas which the 
Department proposes to support during the fiscal year involved, 
including anticipated funds to be awarded;
    (2) Deadline dates for having proposal packages postmarked;
    (3) Name and address where proposals should be mailed;
    (4) Number of copies to be submitted;
    (5) Forms required to be used when submitting proposals; and
    (6) Special requirements.
    (b) Application kit. An Application Kit will be made available to 
any potential grant applicant who requests a copy. This kit contains 
required forms, certifications, and instructions applicable to the 
submission of grant proposals.
    (c) Format for research grant proposals. Unless otherwise stated in 
the specific program solicitation, the following format applies:
    (1) Application for funding. All research grant proposals submitted 
by eligible applicants should contain an Application for Funding form, 
which must

[[Page 266]]

be signed by the proposing principal investigator(s) and endorsed by the 
cognizant authorized organizational representative who possesses the 
necessary authority to commit the applicant's time and other relevant 
resources.
    (2) Title of project. The title of the project must be brief (80-
character maximum), yet represent the major thrust of the research. This 
title will be used to provide information to the Congress and other 
interested parties who may be unfamiliar with scientific terms; 
therefore, highly technical words or phraseology should be avoided where 
possible. In addition, phrases such as ``investigation of'' or 
``research on'' should not be used.
    (3) Objectives. Clear, concise, complete, enumerated, and logically 
arranged statement(s) of the specific aims of the research must be 
included in all proposals.
    (4) Procedures. The procedures of methodology to be applied to the 
proposed research plan should be stated explicitly. This section should 
include but not necessarily be limited to:
    (i) A description of the proposed investigations and/or experiments 
in the sequence in which it is planned to carry them out;
    (ii) Techniques to be employed, including their feasibility;
    (iii) Kinds of results expected;
    (iv) Means by which data will be analyzed or interpreted;
    (v) Pitfalls which might be encountered; and
    (vi) Limitations to proposed procedures.
    (5) Justification. This section of the grant proposal should 
describe:
    (i) The importance of the problem to the needs of the Department and 
to the Nation, including estimates of the magnitude of the problem;
    (ii) The importance of starting the work during the current fiscal 
year; and
    (iii) Reasons for having the work performed by the proposing 
organization.
    (6) Literature review. A summary of pertinent publications with 
emphasis on their relationship to the research should be provided and 
should include all important and recent publications. The citations 
should be accurate, complete, written in acceptable journal format, and 
be appended to the proposal.
    (7) Current research. The relevancy of the proposed research to 
ongoing and, as yet, unpublished research of both the applicant and any 
other institutions should be described.
    (8) Facilities and equipment. All facilities, including 
laboratories, that are available for use or assignment to the proposed 
research project during the requested period of support, should be 
reported and described. Any materials, procedures, situations, or 
activities, whether or nor directly related to a particular phase of the 
proposed research, and which may be hazardous to personnel, must be 
explained fully, along with an outline of precautions to be exercised. 
All items of major instrumentation available for use or assignment to 
the proposed research project during the requested period of support 
should be itemized. In addition, items of nonexpendable equipment needed 
to conduct and bring the proposed project to a successful conclusion 
should be listed.
    (9) Collaborative arrangements. If the proposed project requires 
collaboration with other research scientists, corporations, 
organizations, agencies, or entities, such collaboration must be 
explained fully and justified. Evidence should be provided to assure 
peer reviewers that the collaborators involved agree with the 
arrangements. It should be specifically indicated whether or not such 
collaborative arrangements have the potential for any conflict(s) of 
interest. Proposals which indicate collaborative involvements must state 
which applicant is to receive any resulting grant award, since only one 
eligible applicant, as provided in Sec. 3401.3 may be the recipient of a 
research project grant under one proposal.
    (10) Research timetable. The applicant should outline all important 
research phases as a function of time, year by year.
    (11) Personnel support. All personnel who will be involved in the 
research effort must be identified clearly. For each scientist involved, 
the following should be included:
    (i) An estimate of the time commitments necessary;

[[Page 267]]

    (ii) Vitae of the principal investigator(s), senior associate(s), 
and other professional personnel to assist reviewers in evaluating the 
competence and experience of the project staff. This section should 
include curricula vitae of all key persons who will work on the proposed 
research project, whether or not Federal funds are sought for their 
support. The vitae are to be no more than two pages each in length, 
excluding publication listings; and
    (iii) A chronological listing of the most representative 
publications during the past five years shall be provided for each 
professional project member of whom a curriculum vitae appears under 
this section. Authors should be listed in the same order as they appear 
on each paper cited, along with the title and complete reference as 
these usually appear in journals.
    (12) Budget. A detailed budget is required for each year of 
requested support. In addition, a summary budget is required detailing 
requested support for the overall project period. A copy of the form 
which must be used for this purpose, along with instructions for 
completion, is included in the Application Kit identified under 
Sec. 3401.6(b) and may be reproduced as needed by applicants. Funds may 
be requested under any of the categories listed, provided that the item 
or service for which support is requested is allowable under applicable 
Federal cost principles and can be identified as necessary for 
successful conduct of the proposed research project. As stated in 
Sec. 3401.4 each grant recipient must match the Federal funds expended 
on a research project based on a formula of 50 percent Federal and 50 
percent non-Federal funding. As stated in Sec. 3401.5, indirect costs 
and tuition remission costs are not allowable costs for purposes of this 
program and , thus, may not be used to satisfy the matching requirement 
set forth in Sec. 3401.4.
    (13) Research involving special considerations. A number of 
situations encountered in the conduct of research require special 
information and supporting documentation before funding can be approved 
for the project. If such situations are anticipated, the proposal must 
so indicate. It is expected that a significant number of rangeland grant 
proposals will involve the following:
    (i) Recombinant DNA molecules. All key personnel identified in a 
proposal and all endorsing officials of a proposed performing entity are 
required to comply with the guidelines establishing by the National 
Institutes of Health entitled, ``Guidelines for Research Involving 
Recombinant DNA Molecules,'' as revised. The Application Kit, identified 
above in Sec. 3401.6(b), contains a form which is suitable for such 
certification of compliance. In the event a project involving 
recombinant DNA and RNA molecules results in a grant award, the 
Institutional Biosafety Committee must approve the research before 
CSREES funds will be released.
    (ii) Human subjects at risk. Responsibility for safeguarding the 
rights and welfare of human subjects used in any research project 
supported with grant funds provided by the Department rests with the 
performing entity. Regulations have been issued by the Department under 
7 CFR part 1c, Protection of Human Subjects. In the event that a project 
involving human subjects at risk is recommended for award, the applicant 
will be required to submit a statement certifying that the research plan 
has been reviewed and approved by the Institutional Review Board at the 
proposing organization or institution. The Application Kit, identified 
above in Sec. 3401.6(b), contains a form which is suitable for such 
certification. In the event a project involving human subjects results 
in a grant award, funds will be released only after the Institutional 
Committee has approved the project.
    (iii) Laboratory animal care. The responsibility for the humane care 
and treatment of any laboratory animal, which has the same meaning as 
``animal'' in section 2(g) of the Animal Welfare Act of 1966, as amended 
(7 U.S.C. 2132(g)), used in any research project supported with 
Rangeland Research Grant Program funds rests with the performing 
organization. In this regard, all key personnel identified in a proposal 
and all endorsing officials of the proposed performing entity are 
required to comply with the applicable provisions of the Animal Welfare 
Act of 1966, as amended (7 U.S.C. 2131 et seq.)

[[Page 268]]

and the regulations promulgated thereunder by the Secretary of 
Agriculture in 9 CFR parts 1, 2, 3, and 4. In the event that a project 
involving the use of a laboratory animal is recommended for award, the 
applicant will be required to submit a statement certifying such 
compliance. The Application Kit, identified above in Sec. 3401.6(b), 
contains a form which is suitable for such certification. In the event a 
project involving the use of living vertebrate animals results in a 
grant award, funds will be released only after the Institutional Animal 
Care and Use Committee has approved the project.
    (14) Current and pending support. All proposals must list any other 
current public or private research support, in addition to the proposed 
project, to which key personnel listed in the proposal under 
consideration have committed portions of their time, whether or not 
salary support for the person(s) involved is included in the budgets of 
the various projects. This section must also contain analogous 
information for all projects underway and for pending research proposals 
which are currently being considered by, or which will be submitted in 
the near future to, other possible sponsors, including other 
Departmental programs or agencies. Concurrent submission of identical or 
similar projects to other possible sponsors will not prejudice its 
review or evaluation by the Administrator or experts or consultants 
engaged by the Administrator for this purpose. The Application Kit, 
identified above in Sec. 3401.6(b), contains a form which is suitable 
for listing current and pending support.
    (15) Additions to project description. Each project description is 
expected by the Administrator, members of peer review groups, and the 
relevant program staff to be complete in itself. However, in those 
instances in which the inclusion of additional information is necessary, 
the number of copies submitted should match the number of copies of the 
application requested in the annual solicitation of proposals as 
indicated in Sec. 3401.6(a)(4). Each set of such materials must be 
identified with the title of the research project as it appears in the 
Application for Funding and the name(s) of the principal 
investigator(s). Examples of additional materials may include 
photographs which do not reproduce well, reprints, and other pertinent 
materials which are deemed to be unsuitable for inclusion in the 
proposal.
    (16) National Environmental Policy Act. As outlined in CSREES's 
implementing regulations of the National Environmental Policy Act of 
1969 (NEPA) at 7 CFR part 3407, environmental data or documentation for 
the proposed project is to be provided to CSREES in order to assist 
CSREES in carrying out its responsibilities under NEPA. These 
responsibilities include determining whether the project requires an 
Environmental Assessment or an Environmental Impact Statement or whether 
it can be excluded from this requirement on the basis of several 
categorical exclusions listed in 7 CFR part 3407. In this regard, the 
applicant should review the categories defined for exclusion to 
ascertain whether the proposed project may fall within one or more of 
the exclusions, and should indicate if it does so on the National 
Environmental Policy Act Exclusions Form (Form CSREES--1234) provided in 
the Application Kit. Even though the applicant considers that a proposed 
project may fall within a categorical exclusion, CSREES may determine 
that an Environmental Assessment or an Environmental Impact Statement is 
necessary for a proposed project should substantial controversy on 
environmental grounds exist or if other extraordinary conditions or 
circumstances are present that may cause such activity to have a 
significant environmental effect.
    (17) Organizational management information. Specific management 
information relating to an applicant shall be submitted on an one-time 
basis prior to the award of a research project grant identified under 
this part if such information has not been provided previously under 
this or another program for which the sponsoring agency is responsible. 
Copies of forms recommended for use in fulfilling the requirements 
contained in this section will be provided by the agency specified in 
this part once a research project grant has been recommended for 
funding.

[[Page 269]]



Sec. 3401.7  Evaluation and disposition of applications.

    (a) Evaluation. All proposals received from eligible applicants in 
accordance with eligible research problem or program areas and deadlines 
established in the applicable request for proposals shall be evaluated 
by the Administrator through such officers, employees, and others as the 
Administrator determines are particularly qualified in the areas of 
research represented by particular projects. To assist in equitably and 
objectively evaluating proposals and to obtain the best possible balance 
of viewpoints, the Administrator may solicit the advice of peer 
scientists, ad hoc reviewers, or others who are recognized specialists 
in the research program areas covered by the applications received. 
Specific evaluations will be based upon the criteria established in 
subpart B of this part, Sec. 3401.17, unless CSREES determines that 
different criteria are necessary for the proper evaluation of proposals 
in one or more specific program areas, and announces such criteria and 
their relative importance in the annual program solicitation. The 
overriding purpose of such evaluations is to provide information upon 
which the Administrator can make informed judgments in selecting 
proposals for ultimate support. Incomplete, unclear, or poorly organized 
applications will work to the detriment of applicants during the peer 
evaluation process. To ensure a comprehensive evaluation, all 
applications should be written with the care and thoroughness accorded 
papers for publication.
    (b) Disposition. On the basis of the Administrator's evaluation of 
an application in accordance with paragraph (a) of this section, the 
Administrator will approve using currently available funds, defer 
support due to lack of funds or a need for further evaluations, or 
disapprove support for the proposed project in whole or in part. With 
respect to approved projects, the Administrator will determine the 
project period (subject to extension as provided in Sec. 3401.9(c)) 
during which the project may be supported. Any deferral or disapproval 
of an application will not preclude its reconsideration or a 
reapplication during subsequent fiscal years.



Sec. 3401.8  Grant awards.

    (a) General. Within the limit of funds available for such purpose, 
the awarding official shall make research project grants to those 
responsible, eligible applicants whose proposals are judged most 
meritorious in the announced program areas under the evaluation criteria 
and procedures set forth in this part. The date specified by the 
Administrator as the beginning of the project period shall be no later 
than September 30 of the Federal fiscal year in which the project is 
approved for support and funds are appropriated for such purpose, unless 
otherwise permitted by law. All funds granted under this part shall be 
expended solely for the purpose for which the funds are granted in 
accordance with the approved application and budget, the regulations of 
this part, the terms and conditions of the award, the applicable Federal 
cost principles, and the Department's ``Uniform Federal Assistance 
Regulations'' (parts 3015 and 3019 of this title).
    (b) Grant award document and notice of grant award--(1) Grant award 
documents. The grant award document shall include at a minimum the 
following:
    (i) Legal name and address of performing organization or institution 
to whom the Administrator has awarded a rangeland research project grant 
under the terms of this part;
    (ii) Title of project;
    (iii) Name(s) and address(es) of principal investigator(s) chosen to 
direct and control approved activities;
    (iv) Identifying grant number assigned by the Department;
    (v) Project period, which specifies how long the Department intends 
to support the effort without requiring recompetition for funds;
    (vi) Total amount of Departmental financial assistance approved by 
the Administrator during the project period;
    (vii) Legal authority(ies) under which the research project grant is 
awarded to accomplish the purpose of the law;
    (viii) Approved budget plan for categorizing allocable project funds 
to accomplish the stated purpose of the research project grant award; 
and

[[Page 270]]

    (ix) Other information or provisions deemed necessary by the 
Department to carry out its granting activities or to accomplish the 
purpose of a particular research project grant.
    (2) Notice of grant award. The notice of grant award, in the form of 
a letter, will be prepared and will provide pertinent instructions or 
information to the grantee that is not included in the grant award 
document.
    (c) Categories of grant instruments. The major categories of grant 
instruments by which the Department may provide support are as follows:
    (1) Standard grant. This is a grant instrument by which the 
Department agrees to support a specified level of research effort for a 
predetermined project period without the announced intention of 
providing additional support at a future date. This type of research 
project grant is approved on the basis of peer review and recommendation 
and is funded for the entire project period at the time of award.
    (2) Renewal grant. This is a document by which the Department agrees 
to provide additional funding under a standard grant as specified in 
paragraph (c)(1) of this section for a project period beyond that 
approved in an original or amended award, provided that the cumulative 
period does not exceed the statutory limitation. When a renewal 
application is submitted, it should include a summary of progress to 
date under the previous grant instrument. Such a renewal shall be based 
upon new application, de novo peer review and staff evaluation, new 
recommendation and approval, and a new award instrument.
    (3) Continuation grant. This is a grant instrument by which the 
Department agrees to support a specified level of effort for a 
predetermined period of time with a statement of intention to provide 
additional support at a future date, provided that performance has been 
satisfactory, appropriations are available for this purpose, and 
continued support would be in the best interests of the Federal 
government and the public. It involves a long-term research project that 
is considered by peer reviewers and Departmental officers to have an 
unusually high degree of scientific merit, the results of which are 
expected to have a significant impact on the productivity of the 
Nation's rangelands, and it supports the efforts of experienced 
scientists with records of outstanding research accomplishments. This 
kind of document normally will be awarded for an initial one-year period 
and any subsequent continuation research project grants also will be 
awarded in one-year increments, but in no case may the cumulative period 
of the project exceed the statutory limit. The award of a continuation 
research project grant to fund an initial or succeeding budget period 
does not constitute an obligation to fund any subsequent budget period. 
A grantee must submit a separate application for continued support for 
each subsequent fiscal year. Requests for such continued support must be 
submitted in duplicate at least three months prior to the expiration 
date of the budget period currently being funded. Such requests must 
include: an interim progress report detailing all work performed to 
date; an Application for Funding; a proposed budget for the enuring 
period, including an estimate of funds anticipated to remain unobligated 
at the end of the current budget period; and current information 
regarding other extramural support for senior personnel. Decisions 
regarding continued support and the actual funding levels of such 
support in future years usually will be made administratively after 
consideration of such factors as the grantee's progress and management 
practices and within the context of available funds. Since initial peer 
reviews were based upon the full term and scope of the original 
rangeland research application for funding, additional evaluations of 
this type generally are not required prior to successive years' support. 
However, in unusual cases (e.g., when the nature of the project or key 
personnel change or when the amount of future support requested 
substantially exceeds the application for funding originally reviewed 
and approved), additional reviews may be required prior to approval of 
continued funding.
    (4) Supplemental grant. This is an instrument by which the 
Department

[[Page 271]]

agrees to provide small amounts of additional funding under a standard, 
renewal, or continuation grant as specified in paragraphs (c)(1), 
(c)(2), and (c)(3) of this section and may involve a short-term (usually 
six months or less) extension of the project period beyond that approved 
in an original or amended award, but in no case may the cumulative 
period of the project, including short term extensions, exceed the 
statutory time limitation. A supplement is awarded only if required to 
assure adequate completion of the original scope of work and if there is 
sufficient justification of need to warrant such action. A request of 
this nature normally does not require additional peer review.
    (d) Obligation of the Federal government. Neither the approval of 
any application nor the award of any research project grant shall commit 
or obligate the United States in any way to make any renewal, 
supplemental, continuation, or other award with respect to any approved 
application or portion of an approved application.



Sec. 3401.9  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The grantee may not 
delegate or transfer in whole or in part, to another person, 
institution, or organization the responsibility for use or expenditure 
of grant funds.
    (b) Change in project plans. (1) The permissible changes by the 
grantee, principal investigator(s), or other key project personnel in 
the approved research project grant shall be limited to changes in 
methodology, techniques, or other aspects of the project to expedite 
achievement of the projects' approved goals. If the grantee or the 
principal investigator(s) is uncertain as to whether a change complies 
with this provision, the question shall be referred to the Administrator 
for a final determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
the grantee and approved in writing by the Department prior to effecting 
such changes. In no event shall requests for such changes be approved 
which are outside the scope of the original approved project.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
grantee and approved in writing by the Department prior to effecting 
such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the grantee and 
approved in writing by the Department prior to effecting such changes, 
except as may be allowed in the terms and conditions of a grant award.
    (c) Changes in project period. The project period determined 
pursuant to Sec. 3401.7(b) may be extended by the Administrator without 
additional financial support, for such additional period(s) as the 
Administrator determines may be necessary to complete, or fulfill the 
purposes of, an approved project. Any extension, when combined with the 
originally approved or amended project period, shall be conditioned upon 
prior request by the grantee and approval in writing by the Department, 
unless prescribed otherwise in the terms and conditions of a grant 
award.
    (d) Changes in approved budget. The terms and conditions of a grant 
will prescribe circumstances under which written Departmental approval 
will be requested and obtained prior to instituting changes in an 
approved budget.



Sec. 3401.10  Other Federal statutes and regulations that apply.

    Several other Federal statutes and/or regulations apply to grant 
proposals considered for review or to research project grants awarded 
under this part. These include but are not limited to:

7 CFR Part 1c--USDA implementation of the Federal Policy for the 
Protection of Human Subjects;
7 CFR Part 1.1--USDA implementation of Freedom of Information Act:
7 CFR Part 3--USDA implementation of OMB Circular A-129 regarding debt 
collection;
7 CFR Part 15, Subpart A--USDA implementation of Title VI of the Civil 
Rights Act of 1964;
7 CFR Part 3015--USDA Uniform Federal Assistance Regulations, 
implementing OMB directives (i.e., Circular Nos. A-110, A-21, and A-122) 
and incorporating provisions of

[[Page 272]]

31 U.S.C. 6301-6308 (formerly, the Federal Grant and Cooperative 
Agreement Act of 1977), as well as general policy requirements 
applicable to recipients of Departmental financial assistance;
7 CFR Part 3017, as amended--USDA implementation of Governmentwide 
Debarment and Suspension (Nonprocurement) and Governmentwide 
Requirements for Drug-Free Workplace (Grants);
7 CFR Part 3018--USDA implementation of New Restrictions on Lobbying. 
Imposes new prohibitions and requirements for disclosure and 
certification related to lobbying on recipients of Federal contracts, 
grants, cooperative agreements, and loans;
7 CFR Part 3019--USDA Uniform Administrative Requirements for Grants and 
Agreements with Institutions of Higher Education, Hospitals, and Other 
Non-profit Organizations;
7 CFR Part 3051--Audits of Institutions of Higher Education and Other 
Nonprofit Institutions;
7 CFR Part 3407--CSREES procedures to implement the National 
Environmental Policy Act;
29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR Part 
15B (USDA implementation of statute)--prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs; and
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).



Sec. 3401.11  Other conditions.

    The Administrator may, with respect to any research project grant or 
to any class of awards, impose additional conditions prior to or at the 
time of any award when, in the Administrator's judgment, such conditions 
are necessary to assure or protect advancement of the approved project, 
the interests of the public, or the conservation of grant funds.



 Subpart B--Scientific Peer Review of Research Applications for Funding



Sec. 3401.12  Establishment and operation of peer review groups.

    Subject to Sec. 3401.7, the Administrator will adopt procedures for 
the conduct of peer reviews and the formulation of recommendations under 
Sec. 3401.16.



Sec. 3401.13  Composition of peer review groups.

    Peer review group members will be selected based upon their training 
or experience in relevant scientific or technical fields, taking into 
account the following factors:
    (a) The level of formal scientific or technical education by the 
individual;
    (b) The extent to which the individual has engaged in relevant 
research, the capacities in which the individual has done so (e.g., 
principal investigator, assistant), and the quality of such research;
    (c) Professional recognition as reflected by awards and other honors 
received from scientific and professional organizations outside of the 
Department;
    (d) The need of the group to include within its membership experts 
from various areas of specialization within relevant scientific or 
technical fields;
    (e) The need of the group to include within its membership experts 
from a variety of organizational types (e.g., universities, industry, 
private consultant(s)) and geographic locations; and
    (f) The need of the group to maintain a balanced membership, e.g., 
minority and female representation and an equitable age distribution.



Sec. 3401.14  Conflicts of interest.

    Members of peer review groups covered by this part are subject to 
relevant provisions contained in Title 18 of the United States Code 
relating to criminal activity, Department regulations governing employee 
responsibilities and conduct (part 0 of this title), and Executive Order 
11222 (3 CFR, 1964-1965 Comp., p. 306), as amended.



Sec. 3401.15  Availability of information.

    Information regarding the peer review process will be made available 
to the extent permitted under the Freedom of Information Act (5 U.S.C. 
552), the Privacy Act (5 U.S.C. 552a.), and implementing Departmental 
regulations (part 1 of this title).



Sec. 3401.16  Proposal review.

    (a) All research Applications for Funding will be acknowledged. 
Prior to technical examination, a preliminary review will be made for 
responsiveness

[[Page 273]]

to the request for proposals (e.g., relationship of application to 
research program area). Proposals that do not fall within the guidelines 
as stated in the annual request for proposals will be eliminated from 
competition and will be returned to the applicant. Proposals whose 
budgets exceed the maximum allowable amount for a particular program 
area as announced in the request for proposals may be considered as 
lying outside the guidelines.
    (b) All applications will be reviewed carefully by the 
Administrator, qualified officers or employees of the Department, the 
respective merit review panel, and ad hoc reviewers, as required. 
Written comments will be solicited from ad hoc reviewers, when required, 
and individual written comments and in-depth discussions will be 
provided by peer review group members prior to recommending applications 
for funding. Applications will be ranked and support levels recommended 
within the limitation of total available funding for each research 
program area as announced in the applicable request for proposals.
    (c) Except to the extent otherwise provided by law, such 
recommendations are advisory only and are not binding on program 
officers or on the awarding official.



Sec. 3401.17  Review criteria.

    (a) Federally funded research supported under these provisions shall 
be designed to, among other things, accomplish one or more of the 
following purposes:
    (1) Improve management of rangelands as an integrated system and/or 
watershed;
    (2) Remedy unstable or unsatisfactory rangeland conditions;
    (3) Increase revegetation and/or rehabilitation of rangelands;
    (4) Examine the health of rangelands; and
    (5) Define economic parameters associated with rangelands.
    (b) In carrying out its review under Sec. 3401.16, the peer review 
panel will use the following form upon which the evaluation criteria to 
be used are enumerated, unless, pursuant to Sec. 3401.7(a), different 
evaluation criteria are specified in the annual solicitation of 
proposals for a particular program:

                         Peer Panel Scoring Form

Proposal Identification No._____________________________________________

Institution and Project Title___________________________________________

                          I. Basic Requirement:

    Proposal falls within guidelines? ---------- Yes ---------- No. If 
no, explain why proposal does not meet guidelines under comment section 
of this form.

                         II. Selection Criteria:

------------------------------------------------------------------------
                                                       Score X
                                       Score   Weight   weight  Comments
                                       1-10    factor   factor
------------------------------------------------------------------------
1. Overall scientific and technical   ......       10  .......  ........
 quality of proposal................
2. Scientific and technical quality   ......       10  .......  ........
 of the approach....................
3. Relevance and importance of        ......        6  .......  ........
 proposed research to solution of
 specific areas of inquiry..........
4. Feasibility of attaining           ......        5  .......  ........
 objectives; adequacy of
 professional training and
 experience, facilities and
 equipment..........................
------------------------------------------------------------------------

Score___________________________________________________________________

Summary Comments________________________________________________________

    (c) Proposals satisfactorily meeting the guidelines will be 
evaluated and scored by the peer review panel for each criterion 
utilizing a scale of 1 through 10. A score of one (1) will be considered 
low and a score of ten (10) will be considered high for each selection 
criterion. A weighted factor is used for each criterion.



PART 3402--FOOD AND AGRICULTURAL SCIENCES NATIONAL NEEDS GRADUATE FELLOWSHIP GRANTS PROGRAM--Table of Contents




                     Subpart A--General Introduction

Sec.
3402.1  Applicability of regulations.
3402.2  Definitions.
3402.3  Institutional eligibility.

                     Subpart B--Program Description

3402.4  Food and agricultural sciences areas targeted for national needs 
          graduate fellowship grants support.

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3402.5  Overview of National Needs Graduate Fellowship Grants Program.
3402.6  Fellowship appointments.
3402.7  Fellowship activities.
3402.8  Financial provisions.

                  Subpart C--Preparation of a Proposal

3402.9  Application package.
3402.10  Proposal cover page.
3402.11  National need summary.
3402.12  National need narrative.
3402.13  Budget.
3402.14  Faculty vitae.
3402.15  Appendix.

                   Subpart D--Submission of a Proposal

3402.16  Intent to submit a proposal.
3402.17  Where to submit a proposal.

                Subpart E--Proposal Review and Evaluation

3402.18  Proposal review.
3402.19  Evaluation criteria.

                  Subpart F--Supplementary Information

3402.20  Terms and conditions of grant awards.
3402.21  Grant awards.
3402.22  Other Federal statutes and regulations that apply.
3402.23  Confidential aspects of proposals and awards.
3402.24  Access to peer review information.
3402.25  Documentation of progress on funded projects.
3402.26  Evaluation of program.

    Authority: 7 U.S.C. 3316.

    Source: 59 FR 68073, Dec. 30, 1994, unless otherwise noted.



                     Subpart A--General Introduction



Sec. 3402.1  Applicability of regulations.

    (a) The regulations of this part apply to competitive grants awarded 
under the provisions of section 1417(b)(6) of the National Agricultural 
Research, Extension and Teaching Policy Act of 1977, as amended, 7 
U.S.C. 3152(b)(6). This statute designates the U.S. Department of 
Agriculture (USDA) as the lead Federal agency for agricultural research, 
extension, and teaching in the food and agricultural sciences. It 
authorizes the Secretary of Agriculture, who has delegated the authority 
to the Cooperative State Research, Education, and Extension Service 
(CSREES), to make competitive grants to land-grant colleges and 
universities, colleges and universities having significant minority 
enrollments and a demonstrable capacity to carry out the teaching of 
food and agricultural sciences, and to other colleges and universities 
having a demonstrable capacity to carry out the teaching of food and 
agricultural sciences, to administer and conduct graduate fellowship 
programs to help meet the Nation's needs for development of scientific 
and professional expertise in the food and agricultural sciences. The 
fellowships are intended to encourage outstanding students to pursue and 
complete graduate degrees in the areas of food and agricultural sciences 
designated by CSREES through the Office of Higher Education Programs 
(HEP) as national needs.
    (b) The regulations of this part do not apply to grants awarded by 
the Department of Agriculture under any other authority.



Sec. 3402.2  Definitions.

    As used in this part:
    Citizen or national of the United States means
    (1) A citizen or native resident of a State; or,
    (2) A person defined in the Immigration and Nationality Act, 8 
U.S.C. 1101(a)(22), who, though not a citizen of the United States, owes 
permanent allegiance to the United States.
    College and university means an educational institution in any State 
which
    (1) Admits as regular students only persons having a certificate of 
graduation from a school providing secondary education, or the 
recognized equivalent of such a certificate,
    (2) Is legally authorized within such State to provide a program of 
education beyond secondary education,
    (3) Provides an educational program for which a bachelor's degree or 
any other higher degree is awarded,
    (4) Is a public or other nonprofit institution, and
    (5) Is accredited by a nationally recognized accrediting agency or 
association.
    Food and agricultural sciences means basic, applied, and 
developmental research, extension, and teaching activities in the food, 
agricultural, renewable natural resources, forestry, and

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physical and social sciences in the broadest sense of these terms 
including but not limited to research, extension and teaching activities 
concerned with the production, processing, marketing, distribution, 
conservation, consumption, research, and development of food and 
agriculturally related products and services, inclusive of programs in 
agriculture, natural resources, aquaculture, forestry, veterinary 
medicine, home economics, rural development, and closely allied fields.
    Graduate degree means a Master's or doctoral degree.
    State means any one of the fifty States, the Commonwealth of Puerto 
Rico, Guam, American Samoa, the Commonwealth of the Northern Marianas, 
the Trust Territory of the Pacific Islands, the Virgin Islands of the 
United States, and the District of Columbia.
    Teaching activities means formal classroom instruction, laboratory 
instruction, and practicum experience specific to the food and 
agricultural sciences and matters relating thereto conducted by colleges 
and universities offering baccalaureate or higher degrees.



Sec. 3402.3  Institutional eligibility.

    Proposals may be submitted by land-grant colleges and universities, 
by colleges and universities having significant minority enrollments and 
a demonstrable capacity to carry out the teaching of food and 
agricultural sciences, and by other colleges and universities having a 
demonstrable capacity to carry out the teaching of food and agricultural 
sciences. All applicants should be institutions that confer a graduate 
degree in at least one area of the food and agricultural sciences 
targeted for national needs fellowships, that have a significant ongoing 
commitment to the food and agricultural sciences generally, and that 
have a significant ongoing commitment to the specific subject area for 
which a grant application is made. It is the objective to award grants 
to colleges and universities which have notable teaching and research 
competencies in the food and agricultural sciences. The grants are 
specifically intended to support fellowship programs that encourage 
outstanding students to pursue and complete a graduate degree at such 
institutions in an area of the food and agricultural sciences for which 
there is a national need for the development of scientific and 
professional expertise. Therefore, institutions which currently have 
excellent programs of graduate study and research in the food and 
agricultural sciences dealing with targeted national needs are 
particularly encouraged to apply.



                     Subpart B--Program Description



Sec. 3402.4  Food and agricultural sciences areas targeted for national needs graduate fellowship grants support.

    Areas of the food and agricultural sciences appropriate for 
fellowship grant applications are those in which developing shortages of 
expertise have been determined and targeted by HEP for national needs 
fellowship grant support. When funds are available and HEP determines 
that a new competition is warranted, the specific areas and funds per 
area will be identified in a Federal Register notice announcing the 
program and soliciting program applications.



Sec. 3402.5  Overview of National Needs Graduate Fellowship Grants Program.

    (a) The program will provide funds for a limited number of grants to 
support fixed graduate student stipends and fixed cost-of-education 
institutional allowances. These grants will be awarded competitively to 
eligible institutions. In order to encourage the development of special 
activities that are expected to contribute to Fellows' advanced degree 
objectives, the program will also provide competitive, special 
international study or thesis/dissertation research travel allowances 
for a limited number of USDA Graduate Fellows.
    (b) Based on the amount of funds appropriated in any fiscal year, 
HEP will determine:
    (1) Whether new competitions for graduate fellowships and/or special 
international study or thesis/dissertation research travel allowances 
will be held during that fiscal year;

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    (2) The graduate degree level(s) to be supported--Master's and/or 
doctoral;
    (3) The proportion of appropriations to be targeted for the 
fellowship stipends for each respective graduate degree level supported;
    (4) The proportion of appropriations to be targeted for the cost-of-
education institutional allowances for each respective graduate degree 
level supported;
    (5) The proportion of appropriations to be targeted for the special 
international study or thesis/dissertation research travel allowances 
for each respective graduate degree level supported;
    (6) The allowable stipend amount for each respective graduate degree 
level supported, the cost-of-education institutional allowance for each 
respective graduate degree level supported, and the maximum funds 
available for each special international study or thesis/dissertation 
research travel allowance for each respective graduate degree level 
supported; and
    (7) The maximum total funds that may be awarded to an institution 
under the program in a given fiscal year.
    (c) HEP will also determine:
    (1) The maximum number of national needs areas for which funding may 
be requested in a single proposal;
    (2) The degree levels for which funding may be requested in a single 
proposal;
    (3) The minimum and maximum number of fellowships for which an 
institution may apply in a single proposal; and
    (4) The limits on the total number of proposals that can be 
submitted by an institution, college, school, or other administrative 
unit.
    (d) All of these determinations will be published as a part of the 
program announcement in the Federal Register.
    (e) For each USDA Graduate Fellow who desires to be considered for a 
special international study or thesis/dissertation research travel 
allowance, the project director must apply to HEP for a supplemental 
grant in accordance with instructions published in the program 
announcement in the Federal Register. Each application must include an 
``Application for Funding'' (Form CSRS-661) and a ``Budget'' (Form CSRS-
55).
    (1) To provide HEP with sufficient information upon which to 
evaluate the merits of the requests for a special international study or 
thesis/dissertation research travel allowance, each application for a 
supplemental grant must contain a narrative which provides the 
following:
    (i) The specific destination(s) and duration of the travel;
    (ii) The specific study or thesis/dissertation research activities 
in which the Fellow will be engaged;
    (iii) How the international experience will contribute to the 
Fellow's program of study;
    (iv) A budget narrative specifying and justifying the dollar amount 
requested for the travel;
    (v) Summary credentials of the faculty or other professionals with 
whom the Fellow will be working during the international experience 
(summary credentials must not exceed three pages per person; ``Summary 
Vita--Teaching Proposal'' (Form CSRS-708) may be used for this purpose);
    (vi) A letter from the dean of the Fellow's college or equivalent 
administrative unit supporting the Fellow's travel request and 
certifying that the travel experience will not jeopardize the Fellow's 
satisfactory programs toward degree completion; and
    (vii) A letter from the fellowship grant project director certifying 
the Fellow's eligibility, the accuracy of the Fellow's travel request, 
and the relevance of the travel to the Fellow's advanced degree 
objectives.
    (2) The narrative portion of the application must not exceed 10 
pages, excluding the summary vita/vitae.
    (f) All complete requests will be evaluated by professional staff 
from USDA or other Federal agencies, as appropriate. Evaluation criteria 
will be published in the program announcement in the Federal Register. 
Awards will be made to the extent possible based on availability of 
funds.
    (g) Any current fellow with sufficient time to complete the 
international experience before the termination date of

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the grant under which he/she is supported is eligible for a special 
international study or thesis/dissertation research travel allowance. 
Before the international study or thesis/dissertation research travel 
may commence, a Fellow must have completed one academic year of full-
time study, as defined by the institution, under the fellowship 
appointment and arrangements must have been formalized for the Fellow to 
study and/or conduct research in the foreign location(s).



Sec. 3402.6  Fellowship appointments.

    (a)(1) Fellows must be identified and fellowships must be awarded 
within 15 months of the effective date of a grant. Institutions failing 
to meet this deadline will be required to refund monies associated with 
any unawarded fellowship(s). Fellowship appointments may be held only by 
persons who enroll and pursue full-time study in a graduate degree 
program in the national need area and at the degree level supported by 
the grant.
    (2) In addition, fellows:
    (i) must be newly recruited;
    (ii) must not have been enrolled previously in the academic program 
at the same degree level;
    (iii) must be citizens of nationals of the United States as 
determined in accordance with Federal law; and
    (iv) must have strong interest, as judged by the institution, in 
pursuing a degree in a targeted national need area and in preparing for 
a career as a food or agricultural scientist or professional.
    (3) It will be the responsibility of the grantee institution to 
award fellowships to students of superior academic ability.
    (4) A doctoral Fellow who maintains satisfactory progress in his or 
her course of study is eligible for support for a maximum of 36 months 
within a 45-month period. Master's level Fellows, maintaining 
satisfactory progress, are eligible for support for a maximum of 24 
months during a 33-month period. However, it is the intent of this 
program that Fellows pursue full-time uninterrupted study or thesis/
dissertation research, including time spent pursuing USDA-funded special 
international study or thesis/dissertation research activities. For 
Fellows requiring additional time to complete a degree, it is expected 
that the institution will endeavor to continue supporting individuals 
originally appointed to fellowships through such other institutional 
means as teaching assistantships and research assistantships. For 
Fellows who complete the program of study early (less than 24 hours for 
Master's degree or 36 months for doctoral degree), the institution must 
refund any unexpended monies to the granting agency.
    (b) Within the framework of the regulations in this part, all 
decisions with respect to the appointment of Fellows will be made by the 
institution. However, institutions are urged to take maximum advantage 
of opportunities for awarding fellowships to members of underrepresented 
groups at the graduate level in the food and agricultural sciences, 
particularly minorities and women. Throughout a Fellow's tenure, the 
institution should satisfy itself that the Fellow is making satisfactory 
academic progress, and carrying out, or planning to carry out, national 
needs related research. If an institution finds it necessary to 
terminate support of a Fellow for insufficient academic progress or by 
decision on the part of the Fellow, the Fellow becomes ineligible for 
future assistance under the program. If a Fellow finds it necessary to 
interrupt his or her program of study because of health, personal 
reasons, outside employment, or acceptance of an assistantship, the 
institution must reserve the funds for the purpose of allowing the 
Fellow to resume funded study any time within a 9-month period. However, 
a Fellow who finds it necessary to interrupt his or her program of study 
more than one time cannot exceed a total of 9 months' cumulative leave 
status without forfeiting eligibility. For fellowships terminated 
because of insufficient academic progress, a decision on the part of the 
Fellow, or reserved due to an interrupted program of study but not 
resumed within the required time period, unexpended monies must be 
refunded. Institutions may not use unexpended monies associated with a 
terminated fellowship to recruit and support a ``replacement'' Fellow.

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    (c) Only Fellows enrolled in Master's programs of study may be 
supported under a Master's fellowship grant. Only Fellows enrolled in 
doctoral programs of study may be supported under a doctoral fellowship 
grant.



Sec. 3402.7  Fellowship activities.

    A Fellow must be enrolled as a full-time graduate student, as 
defined by the institution, at all times during the tenure of the 
fellowship in the national need area and at the degree level supported 
by the grant. This includes the time used for special international 
study or thesis/dissertation research if the international travel is 
funded through a special international study or thesis/dissertation 
research travel allowance under this grant program. However, the normal 
requirement of formal registration during part of this tenure may be 
waived if permitted by the policy of the fellowship institution, 
provided that the fellow is making satisfactory progress toward degree 
completion and remains engaged in appropriate full-time fellowship 
activities such as thesis/dissertation research. Fellows in academic 
institutions are not entitled to vacations as such. They are entitled to 
the short normal student holidays observed by the institution. The time 
between academic semesters or quarters is to be utilized as an active 
part of the grant period. During the period of support, a Fellow may not 
accept employment by the institution or any other agency. However, a 
grant supporting research costs of the Fellow is acceptable, exclusive 
of salary or wages and fringe benefits for the Fellow.



Sec. 3402.8  Financial provisions.

    The basis fellowship stipend, cost-of-education institutional 
allowance, and special international study or thesis/dissertation 
research travel allowance that may be paid from grant funds will be 
determined by HEP contingent upon appropriations. The amount of the 
stipend, cost-of-education institution allowance, and special 
international study or thesis/dissertation research travel allowance 
will be cited in the program announcement in the Federal Register. An 
institution may elect to apply the cost-of-education institutional 
allowance to a Fellow's tuition and fees; however, such is not required. 
The allowance also may be used by an institution to defray other program 
expenses (e.g., recruitment, travel, publications, or salaries of 
project personnel). Tuition and fees are the responsibility of the 
Fellow unless an institution elects to use its cost-of-education 
institutional allowance for this purpose or elects to pay such costs out 
of other non-USDA monies. No dependency allowances are provided for 
Fellows. Stipend payments and special international study or thesis/
dissertation research travel allowances will be made to Fellows by the 
institution, according to standard institutional procedures for 
fellowships and assistantships.



                  Subpart C--Preparation of a Proposal



Sec. 3402.9  Application package.

    An application package will be made available to any potential grant 
applicant upon request. This package will include all necessary forms 
and instructions to apply for a grant under this program. The package 
also includes the regulatory provisions applicable to the program.



Sec. 3402.10  Proposal cover page.

    The Proposal Cover Page, Form CSRS 701, must be completed in its 
entirety including all authorizing signatures. One copy of each grant 
application must contain the original pen-and-ink signature of:
    (a) The Project Director(s);
    (b) The Authorized Certifying Representative for the college or 
equivalent administrative unit; and
    (c) The Authorized Certifying Representative for the institution.



Sec. 3402.11  National need summary.

    Using the National Need Summary, Form CSRS-702, applicants must 
summarize the proposed graduate program of study and the academic and 
research strengths of the institution in the national need area for 
which funding is requested. To the extent possible, applicants should 
emphasize the uniqueness of the proposed graduate program

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of study. The summary should not include any reference to the specific 
number of fellowships requested. The information on the summary page 
will be used in assigning the most appropriate panelists to review a 
proposal. If a proposal is supported, this page may be used in program 
publications.



Sec. 3402.12  National need narrative.

    A narrative for the national need area should be written in five 
sections limited to no more than 20 pages, and preceded by a table of 
contents. The table of contents is not considered part of the 20-page 
limitation. The narrative should be typed on one side of the page only, 
using a font no smaller than 12 point, and double-spaced. The five 
sections to be included in the narrative are as follows:

    Sec. 1. In this section, applicants should establish clearly that 
the proposed program of study and research will result in the 
development of outstanding expertise in the national need area for which 
funding is requested and will do so in a reasonable period of time. 
Applicants should present a detailed description of the proposed 
graduate program of study and research. This section of the narrative 
should contain, but need not be limited to, the following components:
    (a) The plan should specifically address the course work which 
Fellows will be required to take rather than the overall spectrum of 
departmental offerings. Identify courses, summarize content, and discuss 
sequencing. Explain how course work will relate to Fellows' research.
    (b) Identify and describe areas of research that Fellows will be 
encouraged to engage in via a thesis or dissertation.
    (c) Discuss graduate program examination requirements, such as a 
proficiency or qualifying examination, a comprehensive examination, and 
an oral examination.
    (d) Include a projected timetable for completing the proposed 
graduate program of study and research.
    (e) If admission to a proposed doctoral program does not require a 
Master's degree, discuss how institutional procedures allow for the 
bypass of a Master's degree.
    Sec. 2. In this section, applicants should highlight thoroughly any 
special features of the graduate program such as the extent to which it 
will involve an inter-disciplinary, multi-disciplinary, or cross-
disciplinary approach resulting in the development of expertise 
transcending a single discipline. Applicants should also discuss any 
other special features such as development of an unusual collateral 
specialization in a related discipline, experiential learning 
opportunities such as practicums or internships, unique mentoring 
programs, seminars, or a multi-university collaborative approach.
    Sec. 3. In this section, applicants should substantiate clearly the 
institution's position that it presently provides a major, productive, 
and recognized program of graduate study and research at the level(s) of 
study in the area of national need in which selected Fellows would be 
engaged. Applicants should include evidence of the quality of existing 
academic attributes and resources of the institution such as teaching 
and research faculty, instructional and research instrumentation and 
facilities, library resources, computing resources, and other such 
indicators of academic quality. Also, applicants should discuss the 
extent to which graduate students have access to such institutional 
resources.
    Sec. 4. In this section, applicants should document thoroughly the 
institution's plans and procedures for managing fellowship appointments. 
Applicants should explain in-depth the plan for recruiting academically 
outstanding Fellows and procedures for selecting Fellows of superior 
quality who appear to be highly motivated to prepare for and pursue a 
career as a food or agricultural scientist or professional. In addition, 
applicants should cite specific plans for advising and guiding Fellows 
through a program of study, as well as any special programs or 
activities that will be offered to enrich the Fellows' graduate study. 
Particular attention should be given to the plans and procedures for 
recruiting and retaining members of underrepresented groups.
    Sec. 5. In this section, applicants should include important 
supplementary summary data for the institution relevant to the national 
need area for which funding is requested. Examples of appropriate data 
are indices of student quality, enrollments and degrees awarded for 
recent years, placement of graduates, facilities, faculty research 
support, and publications of previous graduate students. To the extent 
possible, applicants should present the supplementary summary data in 
tabular form.



Sec. 3402.13  Budget.

    Applicants must prepare the Proposal Budget, Form CSRS-703, 
identifying all costs associated with the proposal. Instructions for 
completing the ``Proposal Budget'' are provided on the form. Pagination 
for the budget page should be continuous following the national need 
narrative and so indicated in the table of contents.

[[Page 280]]



Sec. 3402.14  Faculty vitae.

    This section should include a Summary Vita, Form CSRS-708, for each 
faculty member contributing significantly to institutional competence at 
the level of graduate study for the national area addressed in the 
proposal. Applicants should arrange the faculty vitae with the project 
director(s) first, followed by the remaining faculty, in alphabetical 
order. Pagination for the faculty vitae should be continuous following 
the budget page and so indicated in the table of contents.



Sec. 3402.15  Appendix.

    Any additional supporting information deemed essential for 
clarifying and/or strengthening the proposal should be included in an 
Appendix and referenced in the national need narrative. To the extent 
possible, applicants should present supporting information included in 
the Appendix in tabular form. Pagination for the Appendix should be 
continuous following the faculty vitae and so indicated in the table of 
contents.



                   Subpart D--Submission of a Proposal



Sec. 3402.16  Intent to submit a proposal.

    To assist HEP in preparing for review of fellowship proposals, 
institutions planning to submit proposals for fellowships may be 
requested to complete and return an Intent to Submit a Proposal form 
(Form CSRS-706). When required, applicants should complete and return 
one form for each proposal they anticipate submitting. Sending this form 
does not commit an institution to any course of action. The program 
announcement published in the Federal Register will delineate if, when, 
and where the Intent to Submit a Proposal Forms should be sent.



Sec. 3402.17  Where to submit a proposal.

    The program announcement published in the Federal Register will 
delineate the date for submission of proposals and the number of 
proposal copies required to apply for a grant. In addition, the program 
announcement will provide the address to which the proposal, its 
accompanying duplicate copies, and the institution's latest graduate 
catalog should be mailed.



                Subpart E--Proposal Review and Evaluation



Sec. 3402.18  Proposal review.

    The proposal evaluation process includes both USDA internal staff 
review and merit evaluation by panels of scientists, educators, 
industrialists, and Government officials who are highly qualified to 
render expert advice in the targeted areas. The goal of the process of 
selection and structuring of evaluation panels is to provide optimum 
expertise and objective judgment in the evaluation of proposals specific 
to a particular area of national need.



Sec. 3402.19  Evaluation criteria.

    Proposals addressing a particular national need area at a particular 
degree level will be evaluated in competition with other proposals 
addressing the same national need area at the same degree level. Both 
USDA internal staff and the panelists will evaluate proposals primarily 
on the basis of the following criteria:

------------------------------------------------------------------------
              Evaluation criterion                        Weight
------------------------------------------------------------------------
a. The degree to which the proposal establishes  30 points.
 clearly that the proposed program of graduate
 study will result in the development of
 outstanding scientific/professional expertise
 related to the national need area and will do
 so in a reasonable period of time.
b. The degree to which the proposal highlights   10 points.
 thoroughly any special features such as an
 inter-disciplinary, multi-disciplinary, or
 cross-disciplinary approach, an unusual
 collateral specialization in a related
 discipline, experiential learning
 opportunities, unique mentoring programs,
 seminars, or a multi-university collaborative
 approach.
c. The degree to which the proposal              20 points.
 substantiates clearly that the institution's
 faculty, facilities and equipment,
 instructional support resources, and other
 academic attributes are excellent for
 providing outstanding graduate study and
 research at the forefront of science and
 technology related to the chosen area of
 national need.
d. The degree to which the institution's plans   20 points.
 and procedures for recruiting and selecting
 academically outstanding Fellows and for
 advising and guiding Fellows through a program
 of study reflect excellence as documented in
 the proposal.

[[Page 281]]

 
e. The degree to which supplementary summary     10 points.
 data substantiate program quality in the
 targeted national need area.
f. The quality of the proposal as reflected by   10 points.
 its substantive content, organization,
 clarity, and accuracy.
------------------------------------------------------------------------

    Additional or amended evaluation criteria and new point weightings 
may be cited in the program announcement published in the Federal 
Register.



                  Subpart F--Supplementary Information



Sec. 3402.20  Terms and conditions of grant awards.

    Within the limit of funds available for such purpose, the awarding 
official shall make project grants to those responsible, eligible 
applicants whose proposals are judged most meritorious in the announced 
program areas under the evaluation criteria and procedures set forth in 
this part. The beginning of the project period shall be no later than 
September 30 of the Federal fiscal year in which the project is approved 
for support. All funds granted under this part shall be expended solely 
for the purpose for which the funds are granted in accordance with the 
approved application and budget, the regulations of this part, the terms 
and conditions of the award, the applicable Federal cost principles, and 
the Department's Uniform Federal Assistance Regulations (7 CFR Part 
3015).



Sec. 3402.21  Grant awards.

    (a) The grant award document shall include, at a minimum, the 
following:
    (1) Legal name and address of performing organization.
    (2) Title of project.
    (3) Name(s) and address(es) of Project Director(s).
    (4) Identifying grant number assigned by the Department.
    (5) Project period, which specifies how long the Department intends 
to support the effort without requiring reapplication for funds.
    (6) Total amount of Federal financial assistance approved during the 
project period.
    (7) Legal authority under which the grant is awarded.
    (8) Approved budget plan for categorizing allocable project funds to 
accomplish the stated purpose of the grant award.
    (9) Other information or provisions deemed necessary by the 
Department to carry out its granting activities or to accomplish the 
purpose of this particular project grant.
    (b) The notice of grant award, in the form of a letter, will provide 
pertinent instructions and information to the grantee that are not 
included in the grant award document described above.
    (c) The major types of grant instruments shall be as follows:
    (1) New grant. This is a grant instrument by which HEP agrees to 
support a specified number of graduate Fellows at a specific institution 
via funds for fixed graduate student stipends and fixed cost-of-
education institutional allowances. This type of grant is approved on 
the basis of peer review recommendation.
    (2) Supplemental grant. This is an instrument by which HEP agrees to 
provide additional funding under a new grant as specified in paragraph 
(c)(1) of this section to provide special international study or thesis/
dissertation research travel allowances for graduate Fellows. This type 
of grant will not require additional peer review.



Sec. 3402.22  Other Federal statutes and regulations that apply.

    Several other Federal regulations or statutes apply to project 
grants awarded under this part. These include but are not limited to:

7 CFR Part 1.1--USDA implementation of the Freedom of Information Act.
7 CFR Part 3--USDA implementation of OMB Circular No. A-129 regarding 
debt collection.
7 CFR Part 15, Subpart A--USDA implementation of Title IV of the Civil 
Rights Act of 1964.
7 CFR Part 3015--USDA Uniform Federal Assistance Regulations, as 
amended, implementing OMB directives (i.e., Circular Nos. A-110 and A-
21), as well as general policy

[[Page 282]]

requirements applicable to recipients of Departmental financial 
assistance.
7 CFR Part 3017, as amended--USDA implementation of Governmentwide 
Debarment and Suspension (Nonprocurement) and Governmentwide 
Requirements for Drug-Free Workplace (Grants), as amended.
7 CFR Part 3018--USDA implementation of New Restrictions on Lobbying. 
Imposes new prohibitions and requirements for disclosure and 
certification related to lobbying on recipients of Federal contracts, 
grants, cooperative agreements, and loans.
7 CFR Part 3051--USDA implementation of OMB Circular No. A-133 regarding 
audits of institutions of higher education and other nonprofit 
institutions.
7 CFR Part 3407--CSREES implementation of the National Environmental 
Policy Act.
29 U.S.C. 794, Section 504--Rehabilitation Act of 1973, and 7 CFR Part 
15b (USDA implementation of statute), prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs.
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR Part 401).



Sec. 3402.23  Confidential aspects of proposals and awards.

    When a proposal results in a grant, it becomes a part of the record 
of the Agency's transactions, available to the public upon specific 
request. Information that the Agency and the grantee mutually agree to 
be of a privileged nature will be held in confidence to the extent 
permitted by law. Therefore, any information that the applicant wishes 
to have considered as privileged should be clearly marked as such and 
sent in a separate statement, two copies of which should accompany the 
proposal. The original copy of a proposal that does not result in a 
grant will be retained by the Agency for a period of one year. Other 
copies will be destroyed. Such a proposal will be released only with the 
consent of the applicant or to the extent required by law. A proposal 
may be withdrawn at any time prior to the final action thereon.



Sec. 3402.24  Access to peer review information.

    After final decisions have been announced, HEP will, upon request, 
inform the project director of the reasons for its decision on a 
proposal. Verbatim copies of summary reviews, not including the identity 
of the reviewers, will be made available to respective project directors 
upon specific request.



Sec. 3402.25  Documentation of progress on funded projects.

    (a) A Fellowship Appointment Documentation form (Form CSRS-707) is 
included in the application package. Upon request by HEP, project 
directors awarded grants under the program will be required to complete 
and submit this form. Follow-up progress reports will focus on assessing 
continuing progress of Fellows through their graduate programs of study 
(including activities supported by any special international study or 
thesis/dissertation research allowance) and on institution adherence to 
program guidelines.
    (b) A Graduate Fellow Exit Report (Form CSRS-709) is included in the 
application package. This form should be completed and submitted to HEP 
by the project director for each Fellow supported by a grant as soon as 
a Fellow either: graduates; is officially terminated from the fellowship 
or the academic program due to unsatisfactory academic progress; or 
voluntarily withdraws from the fellowship or the academic program. If a 
Fellow has not completed all degree requirements at the end of the five-
year grant duration, HEP may request a preliminary exit report. In such 
a case, a final exit report will be required at a later date. When a 
final exit report for each Fellow supported by a grant has been accepted 
by USDA, the grantee institution will have satisfied the requirement of 
a final performance report for the grant. Additional follow-up reports 
to track the Fellows' career patterns may be requested.
    (c) A Final Report must be completed and returned within 90 days 
after the expiration date of the project. The Final Report must be 
submitted to the program contact person and must contain proper data and 
information as specified in the ``Special Terms and Conditions'' of the 
award. Generally, the Final Report should include a summary of: 
recruitment strategies that were effective; successful mentoring 
procedures or activities; enrichment

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activities the fellows were afforded; barriers faced in recruiting and 
graduating fellows; and the impact of the fellowship grant on the 
overall quality of the educational programs of the institution.



Sec. 3402.26  Evaluation of program.

    Grantees should be aware that HEP may, as a part of its own program 
evaluation activities, carry out in-depth evaluations of assisted 
activities through independent third parties. Thus, grantees should be 
prepared to cooperate with evaluators retained by HEP to analyze both 
the institutional context and the impact of any supported project.



PART 3403--SMALL BUSINESS INNOVATION RESEARCH GRANTS PROGRAM--Table of Contents




                     Subpart A--General Information

Sec.
3403.1  Applicability of regulations.
3403.2  Definitions.
3403.3  Eligibility requirements.

                     Subpart B--Program Description

3403.4  Three-phase program.

           Subpart C--Preparation and Submission of Proposals

3403.5  Requests for proposals.
3403.6  General content of proposals.
3403.7  Proposal format for phase I applications.
3403.8  Proposal format for phase II applications.
3403.9  Submission of proposals.

                Subpart D--Proposal Review and Evaluation

3403.10  Proposal review
3403.11  Availability of information.

                  Subpart E--Supplementary Information

3403.12  Terms and conditions of grant awards.
3403.13  Notice of grant awards.
3403.14  Use of funds; changes.
3403.15  Other Federal statutes and regulations that apply.
3403.16  Other conditions.

    Authority: 15 U.S.C. 638.

    Source: 62 FR 26168, May 12, 1997, unless otherwise noted.



                     Subpart A--General Information



Sec. 3403.1  Applicability of regulations.

    (a) The regulations of this part apply to small business innovation 
research grants awarded under the general authority of section 630 of 
the Act making appropriations for Agriculture, Rural Development, and 
Related Agencies' programs for fiscal year ending September 30, 1987, 
and for other purposes, as made applicable by section 101(a) of Public 
Law 99-591, 100 Stat. 3341, and the provisions of the Small Business 
Innovation Development Act of 1982, as amended (15 U.S.C. 638). The 
Small Business Innovation Development Act of 1982, as amended, mandates 
that each Federal agency with an annual extramural budget for research 
or research and development in excess of $100 million participate in a 
Small Business Innovation Research (SBIR) program by reserving a 
statutory percentage of its annual extramural budget for award to small 
business concerns for research or research and development in order to 
stimulate technological innovation, use small business to meet Federal 
research and development needs, increase private sector 
commercialization of innovations derived from Federal research and 
development, and foster and encourage the participation of socially and 
economically disadvantaged small business concerns and women-owned small 
business concerns in technological innovation. The U.S. Department of 
Agriculture (USDA) will participate in this program through the issuance 
of competitive research grants which will be administered by the Office 
of Competitive Research Grants and Awards Management, Cooperative State 
Research, Education, and Extension Service (CSREES).
    (b) The regulations of this part do not apply to research grants 
awarded by the Department of Agriculture under any other authority.



Sec. 3403.2  Definitions.

    As used in this part:
    Ad hoc reviewers means experts or consultants, qualified by training 
and experience in particular scientific or technical fields to render 
expert advice on the scientific or technical merit of

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grant applications in those fields, who review on an individual basis 
one or several of the eligible proposals submitted to this program in 
their area of expertise and who submit to the Department written 
evaluations of such proposals.
    Awarding official means any officer or employee of the Department 
who has the authority to issue or modify research project grant 
instruments on behalf of the Department.
    Budget period means the interval of time into which the project 
period is divided for budgetary and reporting purposes.
    Commercialization means the process of developing markets and 
producing and delivering products or services for sale (whether by the 
originating party or by others); as used here, commercialization 
includes both government and commercial markets.
    Department means the Department of Agriculture.
    Funding agreement is any contract, grant, or cooperative agreement 
entered into between any Federal agency and any small business concern 
for the performance of experimental, developmental, or research work 
funded in whole or in part by the Federal Government.
    Grantee means the small business concern designated in the grant 
award document as the responsible legal entity to whom a grant is 
awarded under this part.
    Peer review group means experts or consultants, qualified by 
training and experience in particular scientific or technical fields to 
give expert advice on the scientific and technical merit of grant 
applications in those fields, who assemble as a group to discuss and 
evaluate all of the eligible proposals submitted to this program in 
their area of expertise.
    Principal investigator means a single individual designated by the 
grantee in the grant application and approved by the Department who is 
responsible for the scientific or technical direction of the project. 
Therefore, the individual should have a scientific and technical 
background.
    Program solicitation is a formal request for proposals whereby an 
agency notifies the small business community of its research or research 
and development needs and interests in selected areas and invites 
proposals from small business concerns in response to those needs.
    Project means the particular activity within the scope of one of the 
research topic areas identified in the annual solicitation of 
applications, which is supported by a grant award under this part.
    Project period means the total length of time that is approved by 
the Department for conducting the research project as outlined in an 
approved grant application.
    Research or research and development (R&D) means any activity which 
is:
    (1) A systematic, intensive study directed toward greater knowledge 
or understanding of the subject studied;
    (2) A systematic study directed specifically toward applying new 
knowledge to meet a recognized need; or
    (3) A systematic application of knowledge toward the production of 
useful materials, devices, and systems or methods, including design, 
development, and improvement of prototypes and new processes to meet 
specific requirements.
    Research project grant means the award by the Department of funds to 
a grantee to assist in meeting the costs of conducting for the benefit 
of the public an identified project which is intended and designed to 
establish, discover, elucidate, or confirm information or the underlying 
mechanisms relating to a research topic area identified in the annual 
solicitation of applications.
    Small business concern means a concern which at the time of award of 
phase I and phase II funding agreements meets the following criteria:
    (1) Is organized for profit, independently owned or operated, is not 
dominant in the field in which it is proposing, has its principal place 
of business located in the United States, has a number of employees not 
exceeding 500 (full-time, part-time, temporary, or other) in all 
affiliated concerns owned or controlled by a single parent concern, and 
meets the other regulatory requirements outlined in 13 CFR Part 121. 
Business concerns, other than licensed investment companies, or State

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development companies qualifying under the Small Business Investment Act 
of 1958, 15 U.S.C. 661, et seq., are affiliates of one another when 
directly or indirectly one concern controls or has the power to control 
the other or third parties (or party) control or have the power to 
control both. Control can be exercised through common ownership, common 
management, and contractual relationships. The term ``affiliates'' is 
defined in greater detail in 13 CFR 121.401(a) through (m). The term 
``number of employees'' is defined in 13 CFR 121.407. Business concerns 
include, but are not limited to, any individual, partnership, 
corporation, joint venture, association, or cooperative.
    (2) Is at least 51 percent owned, or in the case of a publicly owned 
business at least 51 percent of its voting stock is owned, by United 
States citizens or lawfully admitted permanent resident aliens.
    Socially and economically disadvantaged individual is a member of 
any of the following groups: Black Americans, Hispanic Americans, Native 
Americans, Asian-Pacific Americans, Subcontinent Asian Americans, other 
groups designated from time to time by the Small Business Administration 
(SBA) to be socially disadvantaged, or any other individual found to be 
socially and economically disadvantaged by the SBA pursuant to section 
8(a) of the Small Business Act, 15 U.S.C. 637(a).
    Socially and economically disadvantaged small business concern is 
one that is:
    (1) At least 51 percent owned by
    (i) An Indian tribe or a native Hawaiian organization, or
    (ii) One or more socially and economically disadvantaged 
individuals; and
    (2) Whose management and daily business operations are controlled by 
one or more socially and economically disadvantaged individuals.
    Subcontract is any agreement, other than one involving an employer-
employee relationship, entered into by a Federal Government funding 
agreement awardee requesting supplies or services required solely for 
the performance of the funding agreement.
    United States means the fifty States, the territories and 
possessions of the United States, the Commonwealth of Puerto Rico, the 
Trust Territory of the Pacific Islands, and the District of Columbia.
    Women-owned small business concern means a small business concern 
that is at least 51 percent owned by a woman or women who also control 
and operate it. ``Control'' as used in this context means exercising the 
power to make policy decisions. ``Operate'' as used in this context 
means being actively involved in the day-to-day management of the 
concern.



Sec. 3403.3  Eligibility requirements.

    (a) Eligibility of organization. (1) Each organization submitting a 
proposal must qualify as a small business concern for research purposes, 
as defined in Sec. 3403.2. Joint ventures and limited partnerships are 
eligible to apply for and to receive research grants under this program, 
provided that the entity created qualifies as a small business concern 
in accordance with section 2(3) of the Small Business Act (15 U.S.C. 
632) and as defined in Sec. 3403.2. For both phase I and phase II the 
research must be performed in the United States.
    (2) A minimum of two-thirds of the research or analytical work, as 
determined by budget expenditures, must be performed by the proposing 
organization under phase I grants. For phase II awards, a minimum of 
one-half of the research or analytical effort must be conducted by the 
proposing organization. The space used by the SBIR awardee to conduct 
the research must be space over which it has exclusive control for the 
period of the grant.
    (b) Eligibility of principal investigator. (1) It is strongly 
suggested that the individual responsible for the scientific or 
technical direction of the project be designated as the principal 
investigator. In addition, the primary employment of the principal 
investigator must be with the proposing small business concern at the 
time of award and during the conduct of the proposed research. Primary 
employment means that more than one-half of the principal investigator's 
time is spent in the employ of the small business concern. Primary 
employment with the small

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business applicant precludes full-time employment with another 
organization.
    (2) If the proposed principal investigator is employed by another 
organization (e.g., university or another company) at the time of 
submission of the application, documentation must be submitted with the 
proposal from the principal investigator's current employer verifying 
that, in the event of an SBIR award, he/she will become a less-than 
half-time employee of such organization and will remain so for the 
duration of the SBIR project.



                     Subpart B--Program Description



Sec. 3403.4  Three-phase program.

    The Small Business Innovation Research Grants Program will be 
carried out in three separate phases described in this section. The 
first two phases are designed to assist USDA in meeting its research and 
development objectives and will be supported with SBIR funds. The 
purpose of the third phase is to pursue the commercial applications or 
objectives of the research carried out in phases I and II through the 
use of private or Federal non-SBIR funds.
    (a) Phase I is the initial stage in which the scientific and 
technical merit and feasibility of an idea related to one of the 
research areas described in the program solicitation is evaluated, 
normally for a period not to exceed 6 months. In special cases, however, 
where a proposed research project requires more than 6 months to 
complete, a longer grant period may be considered. A proposer of a phase 
I project with an anticipated duration beyond 6 months should specify 
the length and duration in the proposal at the time of its submission to 
USDA in order for it to be considered at the time of award. (See 
Sec. 3403.14(c) for changes in project period subsequent to award).
    (b) Phase II is the principal research or research and development 
effort in which the results from Phase I are expanded upon and further 
pursued, normally for a period not to exceed 24 months. Only those small 
businesses previously receiving phase I awards are eligible to submit 
phase II proposals. For each phase I project funded the awardee may 
apply for a phase II award only once. Phase I awardees who for valid 
reasons cannot apply for phase II support in the next fiscal year 
funding cycle may apply for support not later than the second fiscal 
year funding cycle.
    (c) Phase III is to stimulate technological innovation and the 
national return on investment from research through the pursuit of 
commercial objectives resulting from the work supported by SBIR funding 
carried out in phases I and II. This portion of the project is performed 
by the small business concern and privately funded or Federally funded 
by a non-SBIR source through the use of a follow-on funding commitment. 
A follow-on funding commitment is an agreement between the small 
business concern and a provider of follow-on capital for a specified 
amount of funds to be made available to the small business concern for 
further development of their effort upon achieving certain mutually 
agreed upon technical objectives during phase II.



           Subpart C--Preparation and Submission of Proposals



Sec. 3403.5  Requests for proposals.

    (a) Phase I. A program solicitation requesting phase I proposals 
will be prepared each fiscal year in which funds are made available for 
this purpose. The solicitation will contain information sufficient to 
enable eligible applicants to prepare grant proposals and will include 
descriptions of specific research topic areas which the Department will 
support during the fiscal year involved, forms to be completed and 
submitted with proposals, and special requirements. A notice will be 
published in the Federal Register informing the public of the 
availability of the program solicitation.
    (b) Phase II. For each fiscal year in which funds are made available 
for this purpose, the Department will send a letter requesting phase II 
proposals from the phase I grantees eligible to apply for phase II 
funding in that fiscal year. The letter will be accompanied by the 
solicitation which contains information sufficient to enable eligible 
applicants to prepare grant proposals and

[[Page 287]]

includes forms to be submitted with proposals as well as special 
requirements.



Sec. 3403.6  General content of proposals.

    (a) The proposed research must be responsive to one of the USDA 
program interests stated in the research topic descriptions of the 
program solicitation.
    (b) Proposals must cover only scientific/technological research 
activities. A small business concern must not propose product 
development, technical assistance, demonstration projects, classified 
research, or patent applications. Many of the research projects 
supported by the SBIR program lead to the development of new products 
based upon the research results obtained during the project. However, 
projects that seek funding solely for product development where no 
research is involved, i.e. the funds are needed to permit the 
development of a project based on previously completed research, will 
not be accepted. Literature surveys should be conducted prior to 
preparing proposals for submission and must not be proposed as a part of 
the SBIR phase I or phase II effort. Proposals principally for the 
development of proven concepts toward commercialization or for market 
research should not be submitted since such efforts are considered the 
responsibility of the private sector and therefore are not supported by 
USDA.
    (c) A proposal must be limited to only one topic. The same proposal 
may not be submitted under more than one topic. However, an organization 
may submit separate proposals on the same topic. Where similar research 
is discussed under more than one topic, the proposer should choose that 
topic whose description appears most relevant to the proposer's research 
concept. Duplicate proposals will be returned to the applicant without 
review.
    (d) The limitation on the length of phase I and phase II proposals, 
text instructions, and the formatting instructions will be identified in 
the annual solicitation.



Sec. 3403.7  Proposal format for phase I applications.

    (a) The following items relate to phase I applications. Further 
instructions or descriptions for these items as well as any additional 
items to be included will be provided in the annual solicitation, as 
necessary.
    (1) Proposal cover sheet. Photocopy and complete Form CSREES-667 in 
the program solicitation. The original of the proposal cover sheet must 
at a minimum contain the pen-and-ink signatures of the proposed 
principal investigator(s) and the authorized organizational official.
    (2) Project summary. Photocopy and complete Form CSREES-668 in the 
program solicitation. The technical abstract should include a brief 
description of the problem or opportunity, project objectives, and a 
description of the effort. Anticipated results and potential commercial 
applications of the proposed research also should be summarized in the 
space provided. Keywords, to be provided in the last block on the page, 
should characterize the most important aspects of the project. The 
project summary of successful proposals may be published by USDA and, 
therefore, should not contain proprietary information.
    (3) Technical content. The main body of the proposal should include:
    (i) Identification and significance of the problem or opportunity.
    (ii) Background and rationale.
    (iii) Relationship with future research or research and development.
    (iv) Phase I technical objectives.
    (v) Phase I work plan.
    (vi) Related research or research and development.
    (4) Key personnel and bibliography. Identify key personnel involved 
in the effort, including information on their directly related education 
and experience.
    (5) Facilities and equipment. Describe the types, location, and 
availability of instrumentation and physical facilities necessary to 
carry out the work proposed. Items of equipment to be purchased must be 
fully justified under this section.
    (6) Consultants. Involvement of university or other consultants in 
the

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planning and research stages of the project is permitted and may be 
particularly helpful to small firms which have not previously received 
Federal research awards. If such involvement is intended, it should be 
described in detail.
    (7) Potential post application. Briefly describe:
    (i) Whether and by what means the proposed research appears to have 
potential commercial application;
    (ii) Whether and by what means the proposed research appears to have 
potential use by the Federal Government; and
    (iii) Whether and by what means the proposed research will satisfy 
the public interest.
    (8) Current and pending support. If a proposal, substantially the 
same as the one being submitted, has been previously funded or is 
currently funded, pending, or about to be submitted to another Federal 
agency or to USDA in a separate action, the proposer must provide the 
following information:
    (i) Name and address of the agency(s) to which a proposal was 
submitted, or will be submitted, or from which an award is expected or 
has been received.
    (ii) Date of actual or anticipated proposal submission or date of 
award, as appropriate.
    (iii) Title of proposal or award, identifying number assigned by the 
agency involved, and the date of program solicitation under which the 
proposal was submitted or the award was received.
    (iv) Applicable research topic area for each proposal submitted or 
award received.
    (v) Title of research project.
    (vi) Name and title of principal investigator for each proposal 
submitted or award received. USDA will not make awards that duplicate 
research funded (or to be funded) by other Federal agencies.
    (9) Cost breakdown on proposal budget. Photocopy and complete the 
budget form in the program solicitation only for the phase under which 
you are currently applying. (An applicant for phase I funding should not 
submit both phase I and II budgets.)
    (10) Research involving special considerations. If the proposed 
research will involve recombinant DNA molecules, human subjects at risk, 
or laboratory animal care, the proposal must so indicate and include an 
assurance statement (Form CSREES-662) as the last page of the proposal. 
The original of the assurance statement must at a minimum contain the 
pen-and-ink signature of the authorized organizational official. In 
order to complete the assurance statement, the proposer may be required 
to have the research plan reviewed and approved by an appropriate 
``Institutional Review Board'' (IRB) prior to commencing actual 
substantive work. If an IRB review is required, USDA will not release 
funds for an award until proper documentation of the IRB approval is 
submitted to and accepted by USDA. It is suggested that proposers 
contact local universities, colleges, or nonprofit research 
organizations which have established such reviewing mechanisms to have 
this service performed.
    (11) Proprietary information. (i) If a proposal contains proprietary 
information that constitutes a trade secret, proprietary commercial or 
financial information, confidential personal information, or data 
affecting the national security, it will be treated in confidence to the 
extent permitted by law, provided the information is clearly marked by 
the proposer with the term ``confidential proprietary information'' and 
provided the following legend appears in the designated area at the 
bottom of the proposal cover sheet (Form CSREES-667):

    The following pages (specify) contain proprietary information which 
(name of proposing organization) requests not be released to persons 
outside the Government, except for purposes of evaluation.

    (ii) USDA by law is required to make the final decision as to 
whether the information is required to be kept in confidence. 
Information contained in unsuccessful proposals will remain the property 
of the proposer. However, USDA will retain for one year one file copy of 
all proposals received; extra copies will be destroyed. Public release 
of information for any proposal submitted will be subject to existing 
statutory and regulatory requirements. Any proposal which is funded will 
be considered an integral part of the

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award and normally will be made available to the public upon request 
except for designated proprietary information that is determined by USDA 
to be proprietary information.
    (iii) The inclusion of proprietary information is discouraged unless 
it is necessary for the proper evaluation of the proposal. If 
proprietary information is to be included, it should be limited, set 
apart from other text on a separate page, and keyed to the text by 
numbers. It should be confined to a few critical technical items which, 
if disclosed, could jeopardize the obtaining of foreign or domestic 
patents. Trade secrets, salaries, or other information which could 
jeopardize commercial competitiveness should be similarly keyed and 
presented on a separate page. Proposals or reports which attempt to 
restrict dissemination of large amounts of information may be found 
unacceptable by USDA. Any other legend than that listed in paragraph 
(a)(11)(i) of this section may be unacceptable to USDA and may 
constitute grounds for return of the proposal without further 
consideration. Without assuming any liability for inadvertent 
disclosure, USDA will limit dissemination of such information to its 
employees and, where necessary for the evaluation of the proposal, to 
outside reviewers on a confidential basis.
    (12) Rights in data developed under SBIR funding agreement. The SBIR 
legislation provides for ``retention of rights in data generated in the 
performance of the contract by the small business concern.''
    (i) The legislative history clarifies that the intent of the statute 
is to provide authority for the participating agency to protect 
technical data generated under the funding agreement, and to refrain 
from disclosing such data to competitors of the small business concern 
or from using the information to produce future technical procurement 
specifications that could harm the small business concern that 
discovered and developed the innovation until the small business concern 
has a reasonable chance to seek patent protection, if appropriate.
    (ii) Therefore, except for program evaluation, participating 
agencies shall protect such technical data for a period of not less than 
4 years from the completion of the project from which the data were 
generated unless the agencies obtain permission to disclose such data 
from the contractor or grantee. The government shall retain a royalty-
free license for government use of any technical data delivered under an 
SBIR funding agreement whether patented or not.
    (13) Organizational management information. Before the award of an 
SBIR funding agreement, USDA requires the submission of certain 
organizational management, personnel and financial information to assure 
the responsibility of the proposer. This information is not required 
unless a project is recommended for funding, and then it is submitted on 
a one-time basis only. However, new information should be submitted if a 
small business concern has undergone significant changes in 
organization, personnel, finance, or policies including those relating 
to civil rights.
    (b) [Reserved]



Sec. 3403.8  Proposal format for phase II applications.

    (a) The following items relate to phase II applications. Further 
instructions or descriptions for these items as well as any additional 
items to be included will be identified in the annual solicitation, as 
necessary.
    (1) Proposal cover sheet. Follow instructions found in 
Sec. 3403.7(a)(1).
    (2) Project summary. Follow instructions found in Sec. 3403.7(a)(2).
    (3) Phase I results. The proposal should contain an extensive 
section that lists the phase I objectives and makes detailed 
presentation of the phase I results. This section should establish the 
degree to which phase I objectives were met and feasibility of the 
proposed research project was established.
    (4) Proposal. Since phase II is the principal research and 
development effort, proposals should be more comprehensive than those 
submitted under phase I. However, the outline contained in 
Sec. 3403.7(a)(3) should be followed, tailoring the information 
requested to the phase II project.

[[Page 290]]

    (5) Cost breakdown on proposal budget. For phase II, a detailed 
budget is required for each year of requested support. In addition, a 
summary budget is required detailing the requested support for the 
overall project period.
    (6) Organizational management information. Each phase II awardee 
will be asked to submit an updated statement of financial condition 
(such as the latest audit report, financial statements or balance 
sheet).
    (7) Follow-on funding commitment. If the proposer has obtained a 
contingent commitment for phase III follow-on funding, it should be 
forwarded with the phase II application.
    (8) Documentation of multiple phase II awards. (i) An applicant that 
submits a proposal for a funding agreement for phase I and has received 
more than 15 phase II awards during the preceding 5 fiscal years, must 
document the extent to which it was able to secure phase III funding to 
develop concepts resulting from previous phase II awards. This 
documentation should include the name of the awarding agency, date of 
award, funding agreement number, topic or subtopic title, amount and 
date of phase II funding and commercialization status for each phase II 
award.
    (ii) USDA shall collect and retain the information submitted under 
paragraph (a)(8)(i) of this section at least until the General 
Accounting Office submits the report required under section 106 of the 
Small Business Research and Development Enhancement Act of 1992.
    (b) [Reserved]



Sec. 3403.9  Submission of proposals.

    The program solicitation for phase I proposals and the letter 
requesting phase II proposals will provide the deadline date for 
submitting proposals, the number of copies to be submitted, and the 
address where proposals should be mailed or delivered.



                Subpart D--Proposal Review and Evaluation



Sec. 3403.10  Proposal review.

    (a) All research grant applications will be acknowledged.
    (b) Phase I and phase II proposals will be judged competitively in a 
two-stage process, based primarily upon scientific or technical merit. 
First, each proposal will be screened by USDA scientists to ensure that 
it is responsive to stated requirements contained in the program 
solicitation. Proposals found to be responsive will be technically 
evaluated by peer scientists knowledgeable in the appropriate scientific 
field using the criteria identified in the annual solicitation, as 
appropriate. Proposals found to be nonresponsive will be returned to the 
proposing firm without review.
    (c) Both internal and external peer reviewers may be used during the 
technical evaluation stage of this process. Selections will be made from 
among recognized specialists who are uniquely qualified by training and 
experience in their respective fields to render expert advice on the 
merit of proposals received. It is anticipated that such experts will 
include those located in universities, Government, and non-profit 
research organizations. If possible, USDA intends that peer review 
groups shall be balanced with minority and female representation and 
with an equitable age distribution.
    (d) Technical reviewers will base their conclusions and 
recommendations on information contained in the phase I or phase II 
proposal. It cannot be assumed that reviewers are acquainted with any 
experiments referred to within a proposal, with key individuals, or with 
the firm itself. Therefore, the proposal should be self-contained and 
written with the care and thoroughness accorded papers for publication.
    (e) Final decisions will be made by USDA based upon the ratings 
assigned by reviewers and consideration of other factors, including the 
potential commercial application, possible duplication of other 
research, any critical USDA requirements, and budget limitation. In 
addition, the follow-on funding commitment will be a consideration for 
phase II proposals. In the event that two or more phase II proposals are 
of approximately equal technical merit, the follow-on funding commitment 
for continued development in

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phase III will be an important consideration. The value of the 
commitment will depend upon the degree of commitment made by non-Federal 
investors, with the maximum value resulting from a signed agreement with 
reasonable terms for an amount at least equal to the funding requested 
from USDA in phase II.



Sec. 3403.11  Availability of information.

    Information regarding the peer review process will be made available 
to the extent permitted under the Freedom of Information Act (5 U.S.C. 
552), the Privacy Act (5 U.S.C. 552a), the SBIR Policy Directive, and 
implementing Departmental and other Federal regulations. Implementing 
Departmental regulations are found at 7 CFR part 1.



                  Subpart E--Supplementary Information



Sec. 3403.12  Terms and conditions of grant awards.

    Within the limit of funds available for such purpose, the awarding 
official shall make research project grants to those responsible, 
eligible applicants whose proposals are judged most meritorious in the 
announced program areas under the evaluation criteria and procedures set 
forth in the annual solicitation. The beginning of the project period 
shall be no later than September 30 of the Federal fiscal year in which 
the project is approved for support. All funds granted under this part 
shall be expended solely for the purpose for which the funds are granted 
in accordance with the approved application and budget, the regulations 
of this part, the terms and conditions of the award, the Federal 
Acquisition Regulation (48 CFR part 31), and the Department's Uniform 
Federal Assistance Regulations (7 CFR part 3015).



Sec. 3403.13   Notice of grant awards.

    (a) The grant award document shall include, at a minimum, the 
following:
    (1) Legal name and address of performing organization.
    (2) Title of project.
    (3) Name(s) and address(es) of the Principal Investigator(s).
    (4) Identifying grant number assigned by the Department.
    (5) Project period, which specifies how long the Department intends 
to support the effort.
    (6) Total amount of Federal financial assistance approved for the 
project period.
    (7) Legal authorities under which the grant is awarded.
    (8) Approved budget plan for categorizing project funds to 
accomplish the stated purpose of the grant award.
    (9) Other information or provisions deemed necessary by the 
Department to carry out its granting activities or to accomplish the 
purpose of a particular research project grant.
    (b) The notice of grant award, in the form of a letter, will provide 
pertinent instructions and information to the grantee which are not 
included in the grant award document described in paragraph (a) of this 
section.



Sec. 3403.14  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The grantee may not in 
whole or in part delegate or transfer to another person, institution, or 
organization the responsibility for use or expenditure of grant funds.
    (b) Change in project plans. (1) The permissible changes by the 
grantee, principal investigator(s), or other key project personnel in 
the approved research project grant shall be limited to changes in 
methodology, techniques, or other aspects of the project to expedite 
achievement of the project's approved goals. If the grantee and/or the 
principal investigator(s) are uncertain as to whether a change complies 
with this paragraph, the question must be referred to the Authorized 
Departmental Officer (ADO) for a final determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
the grantee and approved in writing by the ADO prior to effecting such 
changes. In no event shall requests for such changes be approved which 
are outside the scope of the original approved project.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
grantee and

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approved in writing by the ADO prior to effecting such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the grantee and 
approved in writing by the ADO prior to effecting such transfers.
    (c) Changes in project period. The project period may be extended by 
the ADO to complete or fulfill the purposes of an approved project 
provided Federal funds remain. The extension shall be conditioned upon a 
prior request by the grantee and approval in writing by the ADO. In such 
cases the extension will not normally exceed 12 months, the phase I 
award will still be limited to the approved award amount, and the 
submission of a Phase II proposal will be delayed by one year. The 
extension allows the grantee to continue expending the remaining Federal 
funds for the intended purpose over the extension period. In instances 
where no Federal funds remain, it is unnecessary to approve an extension 
since the purpose of the extension is to continue using Federal funds. 
The grantee may opt to continue the Phase I project after the grant's 
termination and closeout, however, the grantee would have to do so 
without additional Federal funds. In the latter case, no communication 
with USDA is necessary. However, the maximum delay for submission of a 
Phase II proposal remains as specified in Sec. 3403.4(b).
    (d) Changes in approved budget. Changes in an approved budget shall 
be requested by the grantee and approved in writing by the ADO prior to 
instituting such changes if the revision will:
    (1) Involve transfers of amounts budgeted for indirect costs to 
absorb an increase in direct costs;
    (2) Involve transfers of amounts budgeted for direct costs to 
accommodate changes in indirect cost rates negotiated during a budget 
period and not approved when a grant was awarded;
    (3) Result in a need or claim for the award of additional funds; or
    (4) Involve transfers or expenditures of amounts requiring prior 
approval as set forth in the Departmental regulations or in the grant 
award.



Sec. 3403.15  Other Federal statutes and regulations that apply.

    Several other Federal statutes and/or regulations apply to grant 
proposals considered for review or to research project grants awarded 
under this part. These include but are not limited to:

7 CFR Part 1--USDA implementation of Freedom of Information Act.
7 CFR Part 1c--USDA implementation of the Federal Policy for the 
Protection of Human Subjects;
7 CFR Part 3--USDA implementation of OMB Circular A-129, Managing 
Federal Credit Programs.
7 CFR Part 15, Subpart A--USDA implementation of Title VI of the Civil 
Rights Act of 1964, as amended.
7 CFR Part 3015--USDA Uniform Federal Assistance Regulations, 
implementing OMB directives where applicable (i.e., Circular Nos. A-102, 
A-110, A-87, A-21, and A-122) and incorporating the Federal Grant and 
Cooperative Agreement Act of 1977, Pub. L. 95-224), as well as general 
policy requirements applicable to recipients of Departmental financial 
assistance.
7 CFR Part 3017, as amended--USDA implementation of Governmentwide 
Debarment and Suspension (Nonprocurement) and Governmentwide 
Requirements for Drug-free Workplace (Grants), as amended.
7 CFR Part 3018--USDA implementation of New Restrictions on Lobbying. 
Imposes new prohibitions and requirements for disclosure and 
certification related to lobbying on recipients of Federal contracts, 
grants, cooperative agreements, and loans.
7 CFR Part 3407--CSREES procedures to implement the National 
Environmental Policy Act;
9 CFR Parts 1, 2, 3, and 4--USDA implementation of the Act of August 24, 
1966, Public Law 89-544, as amended (commonly known as the Laboratory 
Animal Welfare Act).
48 CFR Part 31--Contract Cost Principles and Procedures of the Federal 
Acquisition Regulation.
29 U.S.C. 794, section 504--Rehabiliation Act of 1973, and 7 CFR Part 
15B (USDA implementation of statute), prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs.
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR Part 401).

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Sec. 3403.16  Other conditions.

    The Department may, with respect to any research project grant, 
impose additional conditions prior to or at the time of any award when, 
in the Department's judgment, such conditions are necessary to assure or 
protect advancement of the approved project, the interests of the 
public, or the conservation of grant funds.



PART 3404--PUBLIC INFORMATION--Table of Contents




Sec.
3404.1  General statement.
3404.2  Public inspection, copying, and indexing.
3404.3  Requests for records.
3404.4  Multitrack processing.
3404.5  Denials.
3404.6  Appeals.

    Authority: 5 U.S.C. 301, 552; 7 CFR part 1, subpart A and appendix A 
thereto.

    Source: 66 FR 57842, Nov. 19, 2001, unless otherwise noted.



Sec. 3404.1  General statement.

    This part is issued in accordance with the regulations of the 
Secretary of Agriculture in part 1, subpart A of this title and appendix 
A thereto, implementing the Freedom of Information Act (FOIA) (5 U.S.C. 
552). The Secretary's regulations, as implemented by the regulations in 
this part, govern the availability of records of the Cooperative State 
Research, Education, and Extension Service (CSREES) to the public.



Sec. 3404.2  Public inspection, copying, and indexing.

    5 U.S.C. 552(a)(2) requires that certain materials be made available 
for public inspection and copying and that a current index of these 
materials be published quarterly or otherwise be made available. Members 
of the public may request access to such materials maintained by CSREES 
at the following office: Information Staff, ARS, REE, USDA, Room 1-2248, 
Mail Stop 5128, 5601 Sunnyside Avenue, Beltsville, MD 20705-5128; 
Telephone (301) 504-1640 or (301) 504-1655; TTY-VOICE (301) 504-1743. 
Office hours are 8 a.m. to 4:30 p.m. Information maintained in our 
electronic reading room can be accessed at http://www.ars.usda.gov/is/
foia/#Electronic.



Sec. 3404.3  Requests for records.

    Requests for records of CSREES under 5 U.S.C. 552(a)(3) shall be 
made in accordance with Sec. 1.5 of this title and submitted to the FOIA 
Coordinator, Information Staff, ARS, REE, USDA, Room 1-2248, Mail Stop 
5128, 5601 Sunnyside Avenue, Beltsville, MD 20705-5128; Telephone (301) 
504-1640 or (301) 504-1655; TTY-VOICE (301) 504-1743; Facsimile (301) 
504-1648; e-mail [email protected] or [email protected]. The 
FOIA Coordinator is delegated authority to make determinations regarding 
such requests in accordance with Sec. 1.3(c) of this title.



Sec. 3404.4  Multitrack processing.

    (a) When CSREES has a significant number of requests, the nature of 
which precludes a determination within 20 working days, the requests may 
be processed in a multitrack processing system, based on the date of 
receipt, the amount of work and time involved in processing the request, 
and whether the request qualifies for expedited processing.
    (b) CSREES may establish as many processing tracks as appropriate; 
processing within each track shall be based on a first-in, first-out 
concept, and rank-ordered by the date of receipt of the request.
    (c) A requester whose request does not qualify for the fastest track 
may be given an opportunity to limit the scope of the request in order 
to qualify for the fastest track. This multitrack processing system does 
not lessen agency responsibility to exercise due diligence in processing 
requests in the most expeditious manner possible.
    (d) CSREES shall process requests in each track on a ``first-in, 
first-out'' basis, unless there are unusual circumstances as set forth 
in Sec. 1.16 of this title, or the requester is entitled to expedited 
processing as set forth in Sec. 1.9 of this title.



Sec. 3404.5  Denials.

    If the FOIA Coordinator determines that a requested record is exempt 
from

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mandatory disclosure and that discretionary release would be improper, 
the FOIA Coordinator shall give written notice of denial in accordance 
with Sec. 1.7(a) of this title.



Sec. 3404.6  Appeals.

    Any person whose request is denied shall have the right to appeal 
such denial. Appeals shall be made in accordance with Sec. 1.14 of this 
title and should be addressed as follows: Administrator, CSREES, U.S. 
Department of Agriculture, Washington, DC 20250.



PART 3405--HIGHER EDUCATION CHALLENGE GRANTS PROGRAM--Table of Contents




                     Subpart A--General Information

Sec.
3405.1  Applicability of regulations.
3405.2  Definitions.
3405.3  Institutional eligibility.

                     Subpart B--Program Description

3405.4  Purpose of the program.
3405.5  Matching funds.
3405.6  Scope of program.
3405.7  Joint project proposals.
3405.8  Complementary project proposals.
3405.9  Use of funds for facilities.

                  Subpart C--Preparation of a Proposal

3405.10  Program application materials.
3405.11  Content of a proposal.

                   Subpart D--Submission of a Proposal

3405.12  Intent to submit a proposal.
3405.13  When and where to submit a proposal.

                Subpart E--Proposal Review and Evaluation

3405.14  Proposal review.
3405.15  Evaluation criteria.

                  Subpart F--Supplementary Information

3405.16  Access to peer review information.
3405.17  Grant awards.
3405.18  Use of funds; changes.
3405.19  Monitoring progress of funded projects.
3405.20  Other Federal statutes and regulations that apply.
3405.21  Confidential aspects of proposals and awards.
3405.22  Evaluation of program.

    Authority: Sec. 1470, National Agricultural Research, Extension, and 
Teaching Policy Act of 1977, as amended (7 U.S.C. 3316).

    Source: 62 FR 39317, July 22, 1997, unless otherwise noted.



                     Subpart A--General Information



Sec. 3405.1  Applicability of regulations.

    (a) The regulations of this part only apply to competitive Higher 
Education Challenge Grants awarded under the provisions of section 
1417(b)(1) of the National Agricultural Research, Extension, and 
Teaching Policy Act of 1977, as amended (NARETPA)(7 U.S.C. 3152(b)(1)), 
to strengthen institutional capacities, including curriculum, faculty, 
scientific instrumentation, instruction delivery systems, and student 
recruitment and retention. Section 1405 of NARETPA (7 U.S.C. 3121) 
designates the U.S. Department of Agriculture (USDA) as the lead Federal 
agency for agricultural research, extension, and teaching in the food 
and agricultural sciences. Section 1417 of NARETPA (7 U.S.C. 3152) 
authorizes the Secretary of Agriculture, who has delegated the authority 
to the Administrator of the Cooperative State Research, Education, and 
Extension Service (CSREES), to make competitive grants to land-grant 
colleges and universities, to colleges and universities having 
significant minority enrollments and a demonstrable capacity to carry 
out the teaching of food and agricultural sciences, and to other 
colleges and universities having a demonstrable capacity to carry out 
the teaching of food and agricultural sciences, for a period not to 
exceed 5 years, to administer and conduct programs to respond to 
identified State, regional, national, or international educational needs 
in the food and agricultural sciences.
    (b) To the extent that funds are available, each year CSREES will 
publish a Federal Register notice announcing the program and soliciting 
grant applications.
    (c)(1) Based on the amount of funds appropriated in any fiscal year, 
CSREES will determine and cite in the program announcement:
    (i) The targeted need area(s) to be supported or, if the entire 
scope of a particular targeted need area is not to

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be supported, the specific special interest(s) within that targeted need 
area to be supported;
    (ii) The degree level(s) to be supported;
    (iii) The maximum project period a proposal may request;
    (iv) The maximum amount of funds that may be requested by an 
institution under a regular, complementary, or joint project proposal; 
and
    (v) The maximum total funds that may be awarded to an institution 
under the program in a given fiscal year, including how funds awarded 
for complementary and for joint project proposals will be counted toward 
the institutional maximum.
    (2) The program announcement will also specify the deadline date for 
proposal submission, the number of copies of each proposal that must be 
submitted, the address to which a proposal must be submitted, and 
whether or not Form CSREES-711, ``Intent to Submit a Proposal,'' is 
requested.
    (d)(1) If it is deemed by CSREES that, for a given fiscal year, 
additional determinations are necessary, each, as relevant, will be 
stated in the program announcement. Such determinations may include:
    (i) Limits on the subject matter/emphasis areas to be supported;
    (ii) The maximum number of proposals that may be submitted on behalf 
of the same school, college, or equivalent administrative unit within an 
institution;
    (iii) The maximum total number of proposals that may be submitted by 
an institution;
    (iv) The minimum project period a proposal may request;
    (v) The minimum amount of funds that may be requested by an 
institution under a regular, complementary, or joint project proposal;
    (vi) The proportion of the appropriation reserved for, or available 
to, regular, complementary, and joint project proposals;
    (vii) The proportion of the appropriation reserved for, or available 
to, projects in each announced targeted need area;
    (viii) The proportion of the appropriation reserved for, or 
available to, each subject matter/emphasis area;
    (ix) The maximum number of grants that may be awarded to an 
institution under the program in a given fiscal year; and
    (x) Limits on the use of grant funds for travel or to purchase 
equipment, if any.
    (2) The program announcement also will contain any other limitations 
deemed necessary by CSREES for proper conduct of the program in the 
applicable year.
    (e) The regulations of this part do not apply to grants awarded by 
the Department of Agriculture under any other authority.



Sec. 3405.2  Definitions.

    As used in this part:
    (a) Authorized departmental officer means the Secretary or any 
employee of the Department who has the authority to issue or modify 
grant instruments on behalf of the Secretary.
    (b) Authorized organizational representative means the president of 
the institution or the official, designated by the president of the 
institution, who has the authority to commit the resources of the 
institution.
    (c) Budget period means the interval of time (usually 12 months) 
into which the project period is divided for budgetary and reporting 
purposes.
    (d) Cash contributions means the applicant's cash outlay, including 
the outlay of money contributed to the applicant by non-Federal third 
parties.
    (e) Citizen or national of the United States means:
    (1) A citizen or native resident of a State; or,
    (2) A person defined in the Immigration and Nationality Act, 8 
U.S.C. 1101(a)(22), who, though not a citizen of the United States, owes 
permanent allegiance to the United States.
    (f) College or University means an educational institution in any 
State which:
    (1) Admits as regular students only persons having a certificate of 
graduation from a school providing secondary education, or the 
recognized equivalent of such a certificate;
    (2) Is legally authorized within such State to provide a program of 
education beyond secondary education;

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    (3) Provides an educational program for which a baccalaureate degree 
or any other higher degree is awarded;
    (4) Is a public or other nonprofit institution; and
    (5) Is accredited by a nationally recognized accrediting agency or 
association.
    (g) Complementary project proposal means a proposal for a project 
which involves coordination with one or more other projects for which 
funding was awarded under this program in a previous fiscal year, or for 
which funding is requested under this program in the current fiscal 
year.
    (h) Department or USDA means the United States Department of 
Agriculture.
    (i) Eligible institution means a land-grant or other U.S. college or 
university offering a baccalaureate or first professional degree in at 
least one discipline or area of the food and agricultural sciences. The 
definition includes a research foundation maintained by an eligible 
college or university.
    (j) Eligible participant means, for purposes of Sec. 3405.6(b), 
Faculty Preparation and Enhancement for Teaching, and Sec. 3405.6(f), 
Student Recruitment and Retention, an individual who: Is a citizen or 
national of the United States, as defined in Sec. 3405.2(e); or is a 
citizen of the Federated States of Micronesia, the Republic of the 
Marshall Islands, or the Republic of Palau. Where eligibility is claimed 
under Sec. 3405.2(e)(2), documentary evidence from the Immigration and 
Naturalization Service as to such eligibility must be made available to 
CSREES upon request.
    (k) Food and agricultural sciences means basic, applied, and 
developmental research, extension, and teaching activities in the food, 
agricultural, renewable natural resources, forestry, and physical and 
social sciences, in the broadest sense of these terms, including but not 
limited to, activities concerned with the production, processing, 
marketing, distribution, conservation, consumption, research, and 
development of food and agriculturally related products and services, 
and inclusive of programs in agriculture, natural resources, 
aquaculture, forestry, veterinary medicine, home economics, rural 
development, and closely allied disciplines.
    (l) Grantee means the eligible institution designated in the grant 
award document as the responsible legal entity to which a grant is 
awarded.
    (m) Joint project proposal means a proposal for a project, which 
will involve the applicant institution and two or more other colleges, 
universities, community colleges, junior colleges, or other 
institutions, each of which will assume a major role in the conduct of 
the proposed project, and for which the applicant institution will 
transfer at least one-half of the awarded funds to the other 
institutions participating in the project. Only the applicant 
institution must meet the definition of ``eligible institution'' as 
specified in Sec. 3405.2(i); the other institutions participating in a 
joint project proposal are not required to meet the definition of 
``eligible institution'' as specified in Sec. 3405.2(i), nor required to 
meet the definition of ``college'' or ``university'' as specified in 
Sec. 3405.2(f).
    (n) Land-grant colleges and universities means those institutions 
eligible to receive funds under the Act of July 2, 1862 (12 Stat. 503-
505, as amended; 7 U.S.C. 301-305, 307 and 308), or the Act of August 
30, 1890 (26 Stat. 417-419, as amended; 7 U.S.C. 321-326 and 328), 
including Tuskegee University.
    (o) Matching or Cost-sharing means that portion of project costs not 
borne by the Federal Government, including the value of in-kind 
contributions.
    (p) Peer review panel means a group of experts or consultants, 
qualified by training and experience in particular fields of science, 
education, or technology to give expert advice on the merit of grant 
applications in such fields, who evaluate eligible proposals submitted 
to this program in their personal area(s) of expertise.
    (q) Prior approval means written approval evidencing prior consent 
by an authorized departmental officer as defined in Sec. 3405.2(a) of 
this part.
    (r) Project means the particular activity within the scope of one or 
more of the targeted areas supported by a grant awarded under this 
program.
    (s) Project director means the single individual designated by the 
grantee in the grant application and approved by

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the Secretary who is responsible for the direction and management of the 
project.
    (t) Project period means the period, as stated in the award document 
and modifications thereto, if any, during which Federal sponsorship 
begins and ends.
    (u) Secretary means the Secretary of Agriculture and any other 
officer or employee of the Department of Agriculture to whom the 
authority involved may be delegated.
    (v) State means any one of the fifty States, the Commonwealth of 
Puerto Rico, Guam, American Samoa, the Commonwealth of the Northern 
Marianas, the Virgin Islands of the United States, and the District of 
Columbia.
    (w) Teaching means formal classroom instruction, laboratory 
instruction, and practicum experience in the food and agricultural 
sciences and matters related thereto (such as faculty development, 
student recruitment and services, curriculum development, instructional 
materials and equipment, and innovative teaching methodologies) 
conducted by colleges and universities offering baccalaureate or higher 
degrees.
    (x) Third party in-kind contributions means non-cash contributions 
of property or services provided by non-Federal third parties, including 
real property, equipment, supplies and other expendable property, 
directly benefiting and specifically identifiable to a funded project or 
program.
    (y) United States means the several States, the territories and 
possessions of the United States, the Commonwealth of Puerto Rico, Guam, 
American Samoa, the Commonwealth of the Northern Marianas, the Virgin 
Islands of the United States, and the District of Columbia.



Sec. 3405.3  Institutional eligibility.

    Proposals may be submitted by land-grant and other U.S. colleges and 
universities offering a baccalaureate or first professional degree in at 
least one discipline or area of the food and agricultural sciences. Each 
applicant must have a demonstrable capacity for, and a significant 
ongoing commitment to, the teaching of food and agricultural sciences 
generally and to the specific need and/or subject area(s) for which a 
grant is requested. Awards may be made only to eligible institutions as 
defined in Sec. 3405.2(i).



                     Subpart B--Program Description



Sec. 3405.4  Purpose of the program.

    The Department of Agriculture is designated as the lead Federal 
agency for higher education in the food and agricultural sciences. In 
this context, CSREES has specific responsibility to initiate and support 
projects to strengthen college and university teaching programs in the 
food and agricultural sciences. One national initiative for carrying out 
this responsibility is the competitive Higher Education Challenge Grants 
Program. A primary goal of the program is to attract and ensure a 
continual flow of outstanding students into food and agricultural 
sciences higher education programs and to provide them with an education 
of the highest quality available anywhere in the world and which 
reflects the unique needs of the Nation. It is designed to stimulate and 
enable colleges and universities to provide the quality of education 
necessary to produce baccalaureate or higher degree level graduates 
capable of strengthening the Nation's food and agricultural scientific 
and professional work force. It is intended that projects supported by 
the program will:
    (a) Address a State, regional, national, or international 
educational need;
    (b) Involve a creative or nontraditional approach toward addressing 
that need which can serve as a model to others;
    (c) Encourage and facilitate better working relationships in the 
university science and education community, as well as between 
universities and the private sector, to enhance program quality and 
supplement available resources; and
    (d) Result in benefits which will likely transcend the project 
duration and USDA support.



Sec. 3405.5  Matching funds.

    Each application must provide for matching support from a non-
Federal

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source. CSREES will cite in the program announcement the required 
percentage of institutional cost sharing.



Sec. 3405.6  Scope of program.

    This program supports projects related to strengthening 
undergraduate or graduate teaching programs as specified in the annual 
program announcement. Only proposals addressing one or more of the 
specific targeted need areas(s) identified in the program announcement 
will be funded. Proposals may focus on any subject matter area(s) in the 
food and agricultural sciences unless limited by determinations as 
specified in the annual program announcement. A proposal may address a 
single targeted need area or multiple targeted need areas, and may be 
focused on a single subject matter area or multiple subject matter 
areas, in any combination (e.g., curriculum development in horticulture; 
curriculum development, faculty enhancement, and student experiential 
learning in animal science; faculty enhancement in food science and 
agribusiness management; or instruction delivery systems and student 
experiential learning in plant science, horticulture, and entomology). 
Targeted need areas will consist of one or more of the following:
    (a) Curricula design and materials development. (1) The purpose of 
this initiative is to promote new and improved curricula and materials 
to increase the quality of, and continuously renew, the Nation's 
academic programs in the food and agricultural sciences. The overall 
objective is to stimulate the development and facilitate the use of 
exemplary education models and materials that incorporate the most 
recent advances in subject matter, research on teaching and learning 
theory, and instructional technology. Proposals may emphasize: the 
development of courses of study, degree programs, and instructional 
materials; the use of new approaches to the study of traditional 
subjects; or the introduction of new subjects, or new applications of 
knowledge, pertaining to the food and agricultural sciences.
    (2) Examples include, but are not limited to, curricula and 
materials that promote:
    (i) Raising the level of scholastic achievement of the Nation's 
graduates in the food and agricultural sciences.
    (ii) Addressing the special needs of particular groups of students, 
such as minorities, gifted and talented, or those with educational 
backgrounds that warrant enrichment.
    (iii) Using alternative instructional strategies or methodologies, 
including computer-assisted instruction or simulation modeling, media 
programs that reach large audiences efficiently and effectively, 
activities that provide hands-on learning experiences, and educational 
programs that extend learning beyond the classroom.
    (iv) Using sound pedagogy, particularly with regard to recent 
research on how to motivate students to learn, retain, apply, and 
transfer knowledge, skills, and competencies.
    (v) Building student competencies to integrate and synthesize 
knowledge from several disciplines.
    (b) Faculty preparation and enhancement for teaching. (1) The 
purpose of this initiative is to advance faculty development in the 
areas of teaching competency, subject matter expertise, or student 
recruitment and advising skills. Teachers are central to education. They 
serve as models, motivators, and mentors--the catalysts of the learning 
process. Moreover, teachers are agents for developing, replicating, and 
exchanging effective teaching materials and methods. For these reasons, 
education can be strengthened only when teachers are adequately 
prepared, highly motivated, and appropriately recognized and rewarded.
    (2) Each faculty recipient of support for developmental activities 
under Sec. 3405.6(b) must be an ``eligible participant'' as defined in 
Sec. 3405.2(j) of this part.
    (3) Examples of developmental activities include, but are not 
limited to, those which enable teaching faculty to:
    (i) Gain experience with recent developments or innovative 
technology relevant to their teaching responsibilities.
    (ii) Work under the guidance and direction of experts who have 
substantial expertise in an area related to the developmental goals of 
the project.

[[Page 299]]

    (iii) Work with scientists or professionals in government, industry, 
or other colleges or universities to learn new applications in a field.
    (iv) Obtain personal experience working with new ideas and 
techniques.
    (v) Expand competence with new methods of information delivery, such 
as computer-assisted or televised instruction.
    (vi) Increase understanding of the special needs of non-traditional 
students or students from groups that are underrepresented in the food 
and agricultural sciences workforce.
    (c) Instruction delivery systems. (1) The purpose of this initiative 
is to encourage the use of alternative methods of delivering instruction 
to enhance the quality, effectiveness, and cost efficiency of teaching 
programs. The importance of this initiative is evidenced by advances in 
educational research which have substantiated the theory that 
differences in the learning styles of students often require alternative 
instructional methodologies. Also, the rising costs of higher education 
strongly suggest that colleges and universities undertake more efforts 
of a collaborative nature in order to deliver instruction which 
maximizes program quality and reduces unnecessary duplication. At the 
same time, advancements in knowledge and technology continue to 
introduce new subject matter areas which warrant consideration and 
implementation of innovative instruction techniques, methodologies, and 
delivery systems.
    (2) Examples include, but are not limited to:
    (i) Use of computers.
    (ii) Teleconferencing.
    (iii) Networking via satellite communications.
    (iv) Regionalization of academic programs.
    (v) Mobile classrooms and laboratories.
    (vi) Individualized learning centers.
    (vii) Symposia, forums, regional or national workshops, etc.
    (d) Scientific instrumentation for teaching. (1) The purpose of this 
initiative is to provide students in science-oriented courses the 
necessary experience with suitable, up-to-date equipment in order to 
involve them in work central to scientific understanding and progress. 
This program initiative will support the acquisition of instructional 
laboratory and classroom equipment to assure the achievement and 
maintenance of outstanding food and agricultural sciences higher 
education programs. A proposal may request support for acquiring new, 
state-of-the-art instructional scientific equipment, upgrading existing 
equipment, or replacing non-functional or clearly obsolete equipment.
    (2) Examples include, but are not limited to:
    (i) Rental or purchase of modern instruments to improve student 
learning experiences in courses, laboratories, and field work.
    (ii) Development of new ways of using instrumentation to extend 
instructional capabilities.
    (iii) Establishment of equipment-sharing capability via consortia or 
centers that develop innovative opportunities, such as mobile 
laboratories or satellite access to industry or government laboratories.
    (e) Student experiential learning. (1) The purpose of this 
initiative is to further the development of student scientific and 
professional competencies through experiential learning programs which 
provide students with opportunities to solve complex problems in the 
context of real-world situations. Effective experiential learning is 
essential in preparing future graduates to advance knowledge and 
technology, enhance quality of life, conserve resources, and revitalize 
the Nation's economic competitiveness. Such experiential learning 
opportunities are most effective when they serve to advance decision-
making and communication skills as well as technological expertise.
    (2) Examples include, but are not limited to, projects which:
    (i) Provide opportunities for students to participate in research 
projects, either as a part of an ongoing research project or in a 
project designed especially for this program.
    (ii) Provide opportunities for students to complete apprenticeships, 
internships, or similar participatory learning experiences.

[[Page 300]]

    (iii) Expand and enrich courses which are of a practicum nature.
    (iv) Provide career mentoring experiences that link students with 
outstanding professionals.
    (f) Student recruitment and retention. (1) The purpose of this 
initiative is to strengthen student recruitment and retention programs 
in order to promote the future strength of the Nation's scientific and 
professional work force. The Nation's economic competitiveness and 
quality of life rest upon the availability of a cadre of outstanding 
research scientists, university faculty, and other professionals in the 
food and agricultural sciences. A substantial need exists to supplement 
efforts to attract increased numbers of academically outstanding 
students to prepare for careers as food and agricultural scientists and 
professionals. It is particularly important to augment the racial, 
ethnic, and gender diversity of the student body in order to promote a 
robust exchange of ideas and a more effective use of the full breadth of 
the Nation's intellectual resources.
    (2) Each student recipient of monetary support for education costs 
or developmental purposes under Sec. 3405.6(f) must be enrolled at an 
eligible institution and meet the requirement of an ``eligible 
participant'' as defined in Sec. 3405.2(j) of this part.
    (3) Examples include, but are not limited to:
    (i) Special outreach programs for elementary and secondary students 
as well as parents, counselors, and the general public to broaden 
awareness of the extensive nature and diversity of career opportunities 
for graduates in the food and agricultural sciences.
    (ii) Special activities and materials to establish more effective 
linkages with high school science classes.
    (iii) Unique or innovative student recruitment activities, 
materials, and personnel.
    (iv) Special retention programs to assure student progression 
through and completion of an educational program.
    (v) Development and dissemination of stimulating career information 
materials.
    (vi) Use of regional or national media to promote food and 
agricultural sciences higher education.
    (vii) Providing financial incentives to enable and encourage 
students to pursue and complete an undergraduate or graduate degree in 
an area of the food and agricultural sciences.
    (viii) Special recruitment programs to increase the participation of 
students from non-traditional or underrepresented groups in courses of 
study in the food and agricultural sciences.



Sec. 3405.7  Joint project proposals.

    Applicants are encouraged to submit joint project proposals as 
defined in Sec. 3405.2(m), which address regional or national problems 
and which will result overall in strengthening higher education in the 
food and agricultural sciences. The goals of such joint initiatives 
should include maximizing the use of limited resources by generating a 
critical mass of expertise and activity focused on a targeted need 
area(s), increasing cost-effectiveness through achieving economies of 
scale, strengthening the scope and quality of a project's impact, and 
promoting coalition building likely to transcend the project's lifetime 
and lead to future ventures.



Sec. 3405.8  Complementary project proposals.

    Institutions may submit proposals that are complementary in nature 
as defined in Sec. 3405.2(g). Such complementary project proposals may 
be submitted by the same or by different eligible institutions.



Sec. 3405.9  Use of funds for facilities.

    Under the Higher Education Challenge Grants Program, the use of 
grant funds to plan, acquire, or construct a building or facility is not 
allowed. With prior approval, in accordance with the cost principles set 
forth in OMB Circular No. A-21, some grant funds may be used for minor 
alterations, renovations, or repairs deemed necessary to retrofit 
existing teaching spaces in order to carry out a funded project. 
However, requests to use grant funds for such purposes must demonstrate 
that the alterations, renovations, or repairs are incidental to the 
major purpose for which a grant is made.

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                  Subpart C--Preparation of a Proposal



Sec. 3405.10  Program application materials.

    Program application materials in an application package will be made 
available to eligible institutions upon request. These materials include 
the program announcement, the administrative provisions for the program, 
and the forms needed to prepare and submit grant applications under the 
program.



Sec. 3405.11  Content of a proposal.

    (a) Proposal cover page. (1) Form CSREES-712, ``Higher Education 
Proposal Cover Page,'' must be completed in its entirety. Note that 
providing a Social Security Number is voluntary, but is an integral part 
of the CSREES information system and will assist in the processing of 
the proposal.
    (2) One copy of the Form CSREES-712 must contain the pen-and-ink 
signatures of the Project Director(s) and authorized organizational 
representative for the applicant institution.
    (3) The title of the project shown on the ``Higher Education 
Proposal Cover Page'' must be brief (80-character maximum) yet represent 
the major thrust of the project. This information will be used by the 
Department to provide information to the Congress and other interested 
parties.
    (4) In block 7. of Form CSREES-712, enter ``Higher Education 
Challenge Grants Program.''
    (5) In block 8.a. of Form CSREES-712, enter ``Teaching.'' In block 
8.b. identify the code for the targeted need area(s) as found on the 
reverse of the form. If a proposal focuses on multiple targeted need 
areas, enter each code associated with the project and place an asterisk 
(*) immediately following the code for the primary targeted need area. 
In block 8.c. identify the major area(s) of emphasis as found on the 
reverse of the form. If a proposal focuses on multiple areas of 
emphasis, enter each code associated with the project. This information 
will be used by program staff for the proper assignment of proposals to 
peer reviewers.
    (6) In block 9. of Form CSREES-712, indicate if the proposal is a 
complementary project proposal or a joint project proposal as defined in 
Sec. 3405.2(g) and Sec. 3405.2(m), respectively, of this part. If it is 
not a complementary project proposal or a joint project proposal, 
identify it as a regular project proposal.
    (7) In block 13. of Form CSREES-712, indicate if the proposal is a 
new, first-time submission or if the proposal is a resubmission of a 
proposal that has been submitted to, but not funded under, the Higher 
Education Challenge Grants Program in a previous competition.
    (b) Table of contents. For ease in locating information, each 
proposal must contain a detailed table of contents just after the 
Proposal Cover Page. The Table of Contents should include page numbers 
for each component of the proposal. Pagination should begin immediately 
following the Table of Contents.
    (c) Project summary. (1) A Project Summary should immediately follow 
the Table of Contents. The information provided in the Project Summary 
may be used by the program staff for a variety of purposes, including 
the proper assignment of proposals to peer reviewers and providing 
information to peer reviewers prior to the peer panel meeting. The name 
of the institution, the targeted need area(s), and the title of the 
proposal must be identified exactly as shown on the ``Higher Education 
Proposal Cover Page.''
    (2) If the proposal is a complementary project proposal, as defined 
in Sec. 3405.2(g) of this part, indicate such and identify the other 
complementary project(s) by citing the name of the submitting 
institution, the title of the project, the project director, and the 
grant number (if funded in a previous year) exactly as shown on the 
cover page of the complementary project so that appropriate 
consideration can be given to the interrelatedness of the proposals in 
the evaluation process.
    (3) If the proposal is a joint project proposal, as defined in 
Sec. 3405.2(m) of this part, indicate such and identify the other 
participating institutions and the key faculty member or other 
individual responsible for coordinating the project at each institution.

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    (4) The Project Summary should be a concise description of the 
proposed activity suitable for publication by the Department to inform 
the general public about awards under the program. The text must not 
exceed one page, single-spaced. The Project Summary should be a self-
contained description of the activity which would result if the proposal 
is funded by USDA. It should include: The objectives of the project; a 
synopsis of the plan of operation; a description of how the project will 
strengthen higher education in the food and agricultural sciences in the 
United States; and the plans for disseminating project results. The 
Project Summary should be written so that a technically literate reader 
can evaluate the use of Federal funds in support of the project.
    (d) Resubmission of a proposal--(1) Resubmission of previously 
unfunded proposals. If a proposal has been submitted previously, but was 
not funded, such should be indicated in block 13. on Form CSREES-712, 
``Higher Education Proposal Cover Page,'' and the following information 
should be included in the proposal: The fiscal year(s) in which the 
proposal was submitted previously; a summary of the peer reviewers' 
comments; and how these comments have been addressed in the current 
proposal, including the page numbers in the current proposal where the 
peer reviewers' comments have been addressed. This information may be 
provided as a section of the proposal following the Project Summary and 
preceding the proposal narrative or it may be placed in the Appendix 
(see Sec. 3405.11(i)). In either case, the location of this information 
should be indicated in the Table of Contents. Further, when possible, 
the information should be presented in tabular format. Applicants who 
choose to resubmit proposals that were previously submitted, but not 
funded, should note that resubmitted proposals must compete equally with 
newly submitted proposals. Submitting a proposal that has been revised 
based on a previous peer review panel's critique of the proposal does 
not guarantee the success of the resubmitted proposal.
    (2) Resubmission of previously funded proposals. The Higher 
Education Challenge Grants Program is not designed to support activities 
that essentially are repetitive in nature over multiple grant awards. 
Project directors who have had their projects funded previously are 
discouraged from resubmitting relatively identical proposals for further 
funding. Proposals that are sequential continuations or new stages of 
previously funded Challenge Grants Program projects must compete with 
first-time proposals. Therefore, project directors should thoroughly 
demonstrate how the project proposed in the current application expands 
substantially upon a previously funded project (i.e., demonstrate how 
the new project will advance the former project to the next level of 
attainment or will achieve expanded goals). The proposal must also show 
the degree to which the new phase promotes innovativeness and creativity 
beyond the scope of the previously funded project.
    (e) Narrative of a proposal. The narrative portion of the proposal 
is limited to 20 pages in length. The one-page Project Summary is not 
included in the 20-page limitation. The narrative must be typed on one 
side of the page only, using a font no smaller than 12 point, and 
double-spaced. All margins must be at least one inch. All pages 
following the Table of Contents must be paginated. It should be noted 
that peer reviewers will not be required to read beyond 20 pages of the 
narrative to evaluate the proposal. The narrative should contain the 
following sections:
    (1) Potential for advancing the quality of education--(i) Impact. 
(A) Identify the targeted need area(s).
    (B) Clearly state the specific instructional problem or opportunity 
to be addressed.
    (C) Describe how and by whom the focus and scope of the project were 
determined. Summarize the body of knowledge which substantiates the need 
for the proposed project.
    (D) Describe ongoing or recently completed significant activities 
related to the proposed project for which previous funding was received 
under this program.
    (E) Discuss how the project will be of value at the State, regional, 
national, or international level(s).

[[Page 303]]

    (F) Discuss how the benefits to be derived from the project will 
transcend the applicant institution or the grant period. Also discuss 
the probabilities of the project being adapted by other institutions. 
For example, can the project serve as a model for others?
    (ii) Continuation plans. Discuss the likelihood of, or plans for, 
continuation or expansion of the project beyond USDA support. For 
example, does the institution's long-range budget or academic plan 
provide for the realistic continuation or expansion of the initiative 
undertaken by this project after the end of the grant period, are plans 
for eventual self-support built into the project, are plans being made 
to institutionalize the program if it meets with success, and are there 
indications of other continuing non-Federal support?
    (iii) Innovation. Describe the degree to which the proposal reflects 
an innovative or non-traditional approach to solving a higher education 
problem or strengthening the quality of higher education in the food and 
agricultural sciences.
    (iv) Products and results. Explain the expected products and results 
and their potential impact on strengthening food and agricultural 
sciences higher education in the United States.
    (2) Overall approach and cooperative linkages--(i) Proposed 
approach--(A) Objectives. Cite and discuss the specific objectives to be 
accomplished under the project.
    (B) Plan of operation. (1) Describe procedures for accomplishing the 
objectives of the project.
    (2) Describe plans for management of the project to ensure its 
proper and efficient administration.
    (3) Describe the way in which resources and personnel will be used 
to conduct the project.
    (C) Timetable. Provide a timetable for conducting the project. 
Identify all important project milestones and dates as they relate to 
project start-up, execution, evaluation, dissemination, and close-out.
    (ii) Evaluation plans. (A) Provide a plan for evaluating the 
accomplishment of stated objectives during the conduct of the project. 
Indicate the criteria, and corresponding weight of each, to be used in 
the evaluation process, describe any data to be collected and analyzed, 
and explain the methodology that will be used to determine the extent to 
which the needs underlying the project are met.
    (B) Provide a plan for evaluating the effectiveness of the end 
results upon conclusion of the project. Include the same kinds of 
information requested in Sec. 3405.11(e)(2)(ii)(A).
    (iii) Dissemination plans. Discuss plans to disseminate project 
results and products. Identify target audiences and explain methods of 
communication.
    (iv) Partnerships and collaborative efforts. (A) Explain how the 
project will maximize partnership ventures and collaborative efforts to 
strengthen food and agricultural sciences higher education (e.g., 
involvement of faculty in related disciplines at the same institution, 
joint projects with other colleges or universities, or cooperative 
activities with business or industry). Also explain how it will 
stimulate academia, the States, or the private sector to join with the 
Federal partner in enhancing food and agricultural sciences higher 
education.
    (B) Provide evidence, via letters from the parties involved, that 
arrangements necessary for collaborative partnerships or joint 
initiatives have been discussed and realistically can be expected to 
come to fruition, or actually have been finalized contingent on an award 
under this program. Letters must be signed by an official who has the 
authority to commit the resources of the organization. Such letters 
should be referenced in the plan of operation, but the actual letters 
should be included in the Appendix section of the proposal. Any 
potential conflict(s) of interest that might result from the proposed 
collaborative arrangements must be discussed in detail.
    (3) Institutional commitment and resources--(i) Institutional 
commitment. Discuss the institution's commitment to the project. For 
example, substantiate that the institution attributes a high priority to 
the project, discuss how the project will contribute to the achievement 
of the institution's long-term (five-to ten-year) goals, explain

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how the project will help satisfy the institution's high-priority 
objectives, or show how this project is linked to and supported by the 
institution's strategic plan.
    (ii) Institutional resources. Document the commitment of 
institutional resources to the project, and show that the institutional 
resources to be made available to the project, when combined with the 
support requested from USDA, will be adequate to carry out the 
activities of the project. Discuss institutional facilities, equipment, 
computer services, and other appropriate resources available to the 
project.
    (f) Key personnel. A Form CSREES-708, ``Summary Vita--Teaching 
Proposal,'' should be included for each key person associated with the 
project.
    (g) Budget and cost-effectiveness--(1) Budget form. (i) Prepare Form 
CSREES-713, ``Higher Education Budget,'' in accordance with instructions 
provided with the form. Proposals may request support for a period to be 
identified in each year's program announcement. A budget form is 
required for each year of requested support. In addition, a summary 
budget is required detailing the requested total support for the overall 
project period. Form CSREES-713 may be reproduced as needed by 
proposers. Funds may be requested under any of the categories listed on 
the form, provided that the item or service for which support is 
requested is allowable under the authorizing legislation, the applicable 
Federal cost principles, and these administrative provisions, and can be 
justified as necessary for the successful conduct of the proposed 
project.
    (ii) The approved negotiated instruction rate or the rate allowed by 
law should be used when computing indirect costs. If a reduced rate of 
indirect costs is voluntarily requested from USDA, the remaining 
allowable indirect costs may be used as matching funds.
    (2) Matching funds. When documenting matching contributions, use the 
following guidelines:
    (i) When preparing the column of Form CSREES-713 entitled 
``Applicant Contributions To Matching Funds,'' only those costs to be 
contributed by the applicant for the purposes of matching should be 
shown. The total amount of this column should be indicated in item M.
    (ii) In item N of Form CSREES-713, show a total dollar amount for 
Cash Contributions from both the applicant and any third parties; also 
show a total dollar amount (based on current fair market value) for Non-
cash Contributions from both the applicant and any third parties.
    (iii) To be counted toward the matching requirements stated in 
Sec. 3405.5 of this part, proposals must include written verification of 
any actual commitments of matching support (including both cash and non-
cash contributions) from third parties. Written verification means--
    (A) For any third party cash contributions, a separate pledge 
agreement for each donation, signed by the authorized organizational 
representative(s) of the donor organization and the applicant 
institution, which must include:
    (1) The name, address, and telephone number of the donor;
    (2) The name of the applicant institution;
    (3) The title of the project for which the donation is made;
    (4) The dollar amount of the cash donation; and
    (5) A statement that the donor will pay the cash contribution during 
the grant period; and
    (B) For any third party non-cash contributions, a separate pledge 
agreement for each contribution, signed by the authorized organizational 
representative(s) of the donor organization and the applicant 
institution, which must include:
    (1) The name, address, and telephone number of the donor;
    (2) The name of the applicant institution;
    (3) The title of the project for which the donation is made;
    (4) A good faith estimate of the current fair market value of the 
non-cash contribution; and
    (5) A statement that the donor will make the contribution during the 
grant period.
    (iv) All pledge agreements referenced in Sec. 3405.11(g)(2)(iii) (A) 
and (B) must be

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placed in the proposal immediately following Form CSREES-713. The 
sources and amounts of all matching support from outside the applicant 
institution should be summarized in the Budget Narrative section of the 
proposal.
    (v) Applicants should refer to OMB Circulars A-110, ``Uniform 
Administrative Requirements for Grants and Agreements With Institutions 
of Higher Education, Hospitals and Other Non-profit Organizations,'' and 
A-21, ``Cost Principles for Educational Institutions,'' for further 
guidance and other requirements relating to matching and allowable 
costs.
    (3) Chart on shared budget for joint project proposal. For a joint 
project proposal, a plan must be provided indicating how funds will be 
distributed to the participating institutions. The budget section of a 
joint project proposal should include a chart indicating: The names of 
the participating institutions; the amount of funds to be disbursed to 
those institutions; and the way in which such funds will be used in 
accordance with items A through L of Form CSREES-713, ``Higher Education 
Budget.'' If a proposal is not for a joint project, such a chart is not 
required.
    (4) Budget narrative. (i) Discuss how the budget specifically 
supports the proposed project activities. Explain how such budget items 
as professional or technical staff, travel, equipment, etc., are 
essential to achieving project objectives.
    (ii) Justify that the total budget, including funds requested from 
USDA and any matching support provided, will be adequate to carry out 
the activities of the project. Provide a summary of sources and amounts 
of all third party matching support.
    (iii) Justify the project's cost-effectiveness. Show how the project 
maximizes the use of limited resources, optimizes educational value for 
the dollar, achieves economies of scale, or leverages additional funds. 
For example, discuss how the project has the potential to generate a 
critical mass of expertise and activity focused on a targeted need area, 
or to promote coalition building that could lead to future ventures.
    (iv) Include the percentage of time key personnel will work on the 
project, both during the academic year and summer. When salaries of 
university personnel will be paid by a combination of USDA and 
institutional funds, the total compensation must not exceed the faculty 
member's regular annual compensation. In addition, the total commitment 
of time devoted to the project, when combined with time for teaching and 
research duties, other sponsored agreements, and other employment 
obligations to the institution, must not exceed 100 percent of the 
normal workload for which the employee is compensated, in accordance 
with established university policies and applicable Federal cost 
principles.
    (v) If the proposal addresses more than one targeted need area 
(e.g., student experiential learning and instruction delivery systems), 
estimate the proportion of the funds requested from USDA that will 
support each respective targeted need area.
    (h) Current and pending support. Each applicant must complete Form 
CSREES-663, ``Current and Pending Support,'' identifying any other 
current public- or private-sponsored projects, in addition to the 
proposed project, to which key personnel listed in the proposal under 
consideration have committed portions of their time, whether or not 
salary support for the person(s) involved is included in the budgets of 
the various projects. This information should also be provided for any 
pending proposals which are currently being considered by, or which will 
be submitted in the near future to other possible sponsors, including 
other USDA programs or agencies. Concurrent submission of identical or 
similar projects to other possible sponsors will not prejudice the 
review or evaluation of a project under this program.
    (i) Appendix. Each project narrative is expected to be complete in 
itself and to meet the 20-page limitation. Inclusion of material in an 
Appendix should not be used to circumvent the 20-page limitation of the 
proposal narrative. However, in those instances where inclusion of 
supplemental information is necessary to guarantee the peer review 
panel's complete understanding of a proposal or to illustrate the 
integrity of the design or a main thesis of the

[[Page 306]]

proposal, such information may be included in an Appendix. Examples of 
supplemental material are photographs, journal reprints, brochures and 
other pertinent materials which are deemed to be illustrative of major 
points in the narrative but unsuitable for inclusion in the proposal 
narrative itself. Information on previously submitted proposals may also 
be presented in the Appendix (refer to Sec. 3405.11(d)). When possible, 
information in the Appendix should be presented in tabular format. A 
complete set of the Appendix material must be attached to each copy of 
the grant application submitted. The Appendix must be identified with 
the title of the project as it appears on Form CSREES-712 of the 
proposal and the name(s) of the project director(s). The Appendix must 
be referenced in the proposal narrative.



                   Subpart D--Submission of a Proposal



Sec. 3405.12  Intent to submit a proposal.

    To assist CSREES in preparing for the review of proposals, 
institutions planning to submit proposals may be requested to complete 
Form CSREES-711, ``Intent to Submit a Proposal,'' provided in the 
application package. CSREES will determine each year if Intent to Submit 
a Proposal forms will be requested and provide such information in the 
program announcement. If Intent to Submit a Proposal forms are required, 
one form should be completed and returned for each proposal an 
institution anticipates submitting. Submitting this form does not commit 
an institution to any course of action, nor does failure to send this 
form prohibit an institution from submitting a proposal.



Sec. 3405.13  When and where to submit a proposal.

    The program announcement will provide the deadline date for 
submitting a proposal, the number of copies of each proposal that must 
be submitted, and the address to which proposals must be submitted.



                Subpart E--Proposal Review and Evaluation



Sec. 3405.14  Proposal review.

    The proposal evaluation process includes both internal staff review 
and merit evaluation by peer review panels comprised of scientists, 
educators, business representatives, and Government officials. Peer 
review panels will be selected and structured to provide optimum 
expertise and objective judgment in the evaluation of proposals.



Sec. 3405.15  Evaluation criteria.

    The maximum score a proposal can receive is 200 points. Unless 
otherwise stated in the annual solicitation published in the Federal 
Register, the peer review panel will consider the following criteria and 
weights to evaluate proposals submitted:

------------------------------------------------------------------------
              Evaluation Criterion                        Weight
------------------------------------------------------------------------
(a) Potential for advancing the quality of
 education:
    This criterion is used to assess the
     likelihood that the project will have a
     substantial impact upon and advance the
     quality of food and agricultural sciences
     higher education by strengthening
     institutional capacities through promoting
     education reform to meet clearly
     delineated needs.
        (1) Impact--Does the project address a   20 points.
         targeted need area(s)? Is the problem
         or opportunity clearly documented?
         Does the project address a State,
         regional, national, or international
         problem or opportunity? Will the
         benefits to be derived from the
         project transcend the applicant
         institution and/or the grant period?
         Is it probable that other institutions
         will adapt this project for their own
         use? Can the project serve as a model
         for others?.
        (2) Continuation plans--Are there plans  10 points.
         for continuation or expansion of the
         project beyond USDA support? Are there
         indications of external, non-Federal
         support? Are there realistic plans for
         making the project self-supporting?.
        (3) Innovation--Are significant aspects  20 points.
         of the project based on an innovative
         or a non-traditional approach toward
         solving a higher education problem or
         strengthening the quality of higher
         education in the food and agricultural
         sciences? If successful, is the
         project likely to lead to education
         reform?.
        (4) Products and results--Are the        20 points.
         expected products and results of the
         project clearly explained? Do they
         have the potential to strengthen food
         and agricultural sciences higher
         education? Are the products likely to
         be of high quality? Will the project
         contribute to a better understanding
         of or improvement in the quality,
         distribution, effectiveness, or
         racial, ethnic, or gender diversity of
         the Nation's food and agricultural
         scientific and professional expertise
         base?.
(b) Overall approach and cooperative linkages:

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    This criterion relates to the soundness of
     the proposed approach and the quality of
     the partnerships likely to evolve as a
     result of the project.
        (1) Proposed approach--Do the            20 points.
         objectives and plan of operation
         appear to be sound and appropriate
         relative to the targeted need area(s)
         and the impact anticipated? Are the
         procedures managerially,
         educationally, and/or scientifically
         sound? Is the overall plan integrated
         with or does it expand upon other
         major efforts to improve the quality
         of food and agricultural sciences
         higher education? Does the timetable
         appear to be readily achievable?.
        (2) Evaluation--Are the evaluation       10 points.
         plans adequate and reasonable? Do they
         allow for continuous and/or frequent
         feedback during the life of the
         project? Are the individuals involved
         in project evaluation skilled in
         evaluation strategies and procedures?
         Can they provide an objective
         evaluation? Do evaluation plans
         facilitate the measurement of project
         progress and outcomes?.
        (3) Dissemination--Does the proposed     10 points.
         project include clearly outlined and
         realistic mechanisms that will lead to
         widespread dissemination of project
         results, including national electronic
         communication systems, publications,
         presentations at professional
         conferences, and/or use by faculty
         development or research/teaching
         skills workshops.
        (4) Partnerships and collaborative       20 points.
         efforts--Will the project expand
         partnership ventures among disciplines
         at a university, between colleges and
         universities, or with the private
         sector? Will the project lead to long-
         term relationships or cooperative
         partnerships that are likely to
         enhance program quality or supplement
         resources available to food and
         agricultural sciences higher
         education?.
(c) Institutional commitment and resources:
    This criterion relates to the institution's
     commitment to the project and the adequacy
     of institutional resources available to
     carry out the project.
        (1) Institutional commitment--Is there   10 points.
         evidence to substantiate that the
         institution attributes a high-priority
         to the project, that the project is
         linked to the achievement of the
         institution's long-term goals, that it
         will help satisfy the institution's
         high-priority objectives, or that the
         project is supported by the
         institution's strategic plans?.
        (2) Institutional resources--Will the    10 points.
         project have adequate support to carry
         out the proposed activities? Will the
         project have reasonable access to
         needed resources such as instructional
         instrumentation, facilities, computer
         services, library and other
         instruction support resources?.
(d) Key personnel:                               20 points.
    This criterion relates to the number and
     qualifications of the key persons who will
     carry out the project. Are designated
     project personnel qualified to carry out a
     successful project? Are there sufficient
     numbers of personnel associated with the
     project to achieve the stated objectives
     and the anticipated outcomes?
(e) Budget and cost-effectiveness:
    This criterion relates to the extent to
     which the total budget adequately supports
     the project and is cost-effective.
        (1) Budget--Is the budget request        10 points.
         justifiable? Are costs reasonable and
         necessary? Will the total budget be
         adequate to carry out project
         activities? Are the source(s) and
         amount(s) of non-Federal matching
         support clearly identified and
         appropriately documented? For a joint
         project proposal, is the shared budget
         explained clearly and in sufficient
         detail?.
        (2) Cost-effectiveness--Is the proposed  10 points.
         project cost-effective? Does it
         demonstrate a creative use of limited
         resources, maximize educational value
         per dollar of USDA support, achieve
         economies of scale, leverage
         additional funds or have the potential
         to do so, focus expertise and activity
         on a targeted need area, or promote
         coalition building for current or
         future ventures?.
(f) Overall quality of proposal:                 10 points.
    This criterion relates to the degree to
     which the proposal complies with the
     application guidelines and is of high
     quality. Is the proposal enhanced by its
     adherence to instructions (table of
     contents, organization, pagination, margin
     and font size, the 20-page limitation,
     appendices, etc.); accuracy of forms;
     clarity of budget narrative; well prepared
     vitae for all key personnel associated
     with the project; and presentation (are
     ideas effectively presented, clearly
     articulated, and thoroughly explained,
     etc.)?
------------------------------------------------------------------------



                  Subpart F--Supplementary Information



Sec. 3405.16  Access to peer review information.

    After final decisions have been announced, CSREES will, upon 
request, inform the project director of the reasons for its decision on 
a proposal. Verbatim copies of summary reviews, not including the 
identity of the peer reviewers, will be made available to respective 
project directors upon specific request.



Sec. 3405.17  Grant awards.

    (a) General. Within the limit of funds available for such purpose, 
the authorized departmental officer shall make project grants to those 
responsible, eligible applicants whose proposals are judged most 
meritorious in the announced targeted need areas under the evaluation 
criteria and procedures set forth in this part. The beginning of the 
project period shall be no later than September 30 of the Federal fiscal 
year in which the project is approved for support. All funds granted 
under this

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part shall be expended solely for the purpose for which the funds are 
granted in accordance with the approved application and budget, the 
regulations of this part, the terms and conditions of the award, the 
applicable Federal cost principles, and the Department's Uniform 
Administrative Requirements for Grants and Agreements With Institutions 
of Higher Education, Hospitals, and Other Non-Profit Organizations (7 
CFR part 3019).
    (b) Organizational management information. Specific management 
information relating to a proposing institution shall be submitted on a 
one-time basis prior to the award of a project grant identified under 
this part if such information has not been provided previously under 
this or another program for which the sponsoring agency is responsible. 
Copies of the forms used to fulfill this requirement will be sent to the 
proposing institution by the sponsoring agency as part of the pre-award 
process.
    (c) Notice of grant award. The grant award document shall include at 
a minimum the following:
    (1) Legal name and address of performing organization.
    (2) Title of project.
    (3) Name(s) and address(es) of project director(s).
    (4) Identifying grant number assigned by the Department.
    (5) Project period, which specifies how long the Department intends 
to support the effort without requiring reapplication for funds.
    (6) Total amount of Federal financial assistance approved during the 
project period.
    (7) Legal authority(ies) under which the grant is awarded.
    (8) Approved budget plan for categorizing allocable project funds to 
accomplish the stated purpose of the grant award.
    (9) Other information or provisions deemed necessary by the 
Department to carry out its granting activities or to accomplish the 
purpose of this particular project grant.
    (d) Obligation of the Federal Government. Neither the approval of 
any application nor the award of any project grant shall legally commit 
or obligate CSREES or the United States to provide further support of a 
project or any portion thereof.



Sec. 3405.18  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The grantee may not in 
whole or in part delegate or transfer to another person, institution, or 
organization the responsibility for use or expenditure of grant funds.
    (b) Change in project plans. (1) The permissible changes by the 
grantee, project director(s), or other key project personnel in the 
approved project grant shall be limited to changes in methodology, 
techniques, or other aspects of the project to expedite achievement of 
the project's approved goals. If the grantee or the project director(s) 
are uncertain as to whether a change complies with this provision, the 
question must be referred to the Department for a final determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
the grantee and approved in writing by the authorized departmental 
officer prior to effecting such changes. In no event shall requests for 
such changes be approved that are outside the scope of the approved 
project.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
grantee and approved in writing by the authorized departmental officer 
prior to effecting such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the grantee and 
approved in writing by the authorized departmental officer prior to 
effecting such transfers.
    (c) Changes in project period. The project period may be extended by 
the authorized departmental officer without additional financial support 
for such additional period(s) as the authorized departmental officer 
determines may be necessary to complete or fulfill the purposes of an 
approved project. However, due to statutory restriction, no grant may be 
extended beyond five years from the original start date of

[[Page 309]]

the grant, or pre-award date, if applicable. Grant extensions shall be 
conditioned upon prior request by the grantee and approval in writing by 
the authorized departmental officer, unless prescribed otherwise in the 
terms and conditions of a grant.
    (d) Changes in approved budget. Changes in an approved budget shall 
be requested by the grantee and approved in writing by the authorized 
departmental officer prior to instituting such changes if the revision 
will:
    (1) Involve transfers of amounts budgeted for indirect costs to 
absorb an increase in direct costs;
    (2) Involve transfers of amounts budgeted for direct costs to 
accommodate changes in indirect cost rates negotiated during a budget 
period and not approved when a grant was awarded; or
    (3) Involve transfers or expenditures of amounts requiring prior 
approval as set forth in the applicable Federal cost principles, 
Departmental regulations, or in the grant award.



Sec. 3405.19  Monitoring progress of funded projects.

    (a) During the tenure of a grant, project directors must attend at 
least one national project directors meeting, if offered, in Washington, 
DC or any other announced location. The purpose of the meeting will be 
to discuss project and grant management opportunities for collaborative 
efforts, future directions for education reform, and opportunities to 
enhance dissemination of exemplary end products/results.
    (b) An Annual Performance Report must be submitted to the USDA 
program contact person within 90 days after the completion of the first 
year of the project and annually thereafter during the life of the 
grant. Generally, the Annual Performance Reports should include a 
summary of the overall progress toward project objectives, current 
problems or unusual developments, the next year's activities, and any 
other information that is pertinent to the ongoing project or which may 
be specified in the terms and conditions of the award.
    (c) A Final Performance Report must be submitted to the USDA program 
contact person within 90 days after the expiration date of the project. 
The expiration date is specified in the award documents and 
modifications thereto, if any. Generally, the Final Performance Report 
should be a summary of the completed project, including: A review of 
project objectives and accomplishments; a description of any products 
and outcomes resulting from the project; activities undertaken to 
disseminate products and outcomes; partnerships and collaborative 
ventures that resulted from the project; future initiatives that are 
planned as a result of the project; the impact of the project on the 
project director(s), the institution, and the food and agricultural 
sciences higher education system; and data on project personnel and 
beneficiaries. The Final Performance Report should be accompanied by 
samples or copies of any products or publications resulting from or 
developed by the project. The Final Performance Report must also contain 
any other information which may be specified in the terms and conditions 
of the award.



Sec. 3405.20  Other Federal statutes and regulations that apply.

    Several other Federal statutes and regulations apply to grant 
proposals considered for review and to project grants awarded under this 
part. These include but are not limited to:

7 CFR Part 1, Subpart A--USDA implementation of Freedom of Information 
Act.
7 CFR Part 3--USDA implementation of OMB Circular No. A-129 regarding 
debt collection.
7 CFR Part 15, Subpart A--USDA implementation of Title VI of the Civil 
Rights Act of 1964, as amended.
7 CFR Part 3015--USDA Uniform Federal Assistance Regulations, 
implementing OMB directives (i.e., Circular Nos. A-21 and A-122) and 
incorporating provisions of 31 U.S.C. 6301-6308 (formerly the Federal 
Grant and Cooperative Agreement Act of 1977, Pub. L. 95-224), as well as 
general policy requirements applicable to recipients of Departmental 
financial assistance.
7 CFR Part 3017, as amended--Governmentwide Debarment and Suspension 
(Nonprocurement); Governmentwide Requirements for Drug-Free Workplace 
(Grants), implementing Executive Order 12549 on debarment and suspension 
and the Drug-Free Workplace Act of 1988 (41 U.S.C. 701).
7 CFR Part 3018--Restrictions on Lobbying, prohibiting the use of 
appropriated funds

[[Page 310]]

to influence Congress or a Federal agency in connection with the making 
of any Federal grant and other Federal contracting and financial 
transactions.
7 CFR Part 3019--USDA implementation of OMB Circular A-110, Uniform 
Administrative Requirements for Grants and Agreements With Institutions 
of Higher Education, Hospitals, and Other Nonprofit Organizations.
7 CFR Part 3051--USDA implementation of OMB Circular No. A-133 regarding 
audits of institutions of higher education and other nonprofit 
institutions.
29 U.S.C. 794, section 504--Rehabilitation Act of 1973, and 7 CFR part 
15B (USDA implementation of statute), prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs.
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).



Sec. 3405.21  Confidential aspects of proposals and awards.

    When a proposal results in a grant, it becomes a part of the record 
of the Agency's transactions, available to the public upon specific 
request. Information that the Secretary determines to be of a privileged 
nature will be held in confidence to the extent permitted by law. 
Therefore, any information that the applicant wishes to have considered 
as privileged should be clearly marked as such and sent in a separate 
statement, two copies of which should accompany the proposal. The 
original copy of a proposal that does not result in a grant will be 
retained by the Agency for a period of one year. Other copies will be 
destroyed. Such a proposal will be released only with the consent of the 
applicant or to the extent required by law. A proposal may be withdrawn 
at any time prior to the final action thereon.



Sec. 3405.22  Evaluation of program.

    Grantees should be aware that CSREES may, as a part of its own 
program evaluation activities, carry out in-depth evaluations of 
assisted activities. Thus, grantees should be prepared to cooperate with 
CSREES personnel, or persons retained by CSREES, evaluating the 
institutional context and the impact of any supported project. Grantees 
may be asked to provide general information on any students and faculty 
supported, in whole or in part, by a grant awarded under this program; 
information that may be requested includes, but is not limited to, 
standardized academic achievement test scores, grade point average, 
academic standing, career patterns, age, race/ethnicity, gender, 
citizenship, and disability.



PART 3406--1890 INSTITUTION CAPACITY BUILDING GRANTS PROGRAM--Table of Contents




                     Subpart A--General Information

Sec.
3406.1  Applicability of regulations.
3406.2  Definitions.
3406.3  Institutional eligibility.

                     Subpart B--Program Description

3406.4  Purpose of the program.
3406.5  Matching support.
3406.6  USDA agency cooperator requirement.
3406.7  General scope of program.
3406.8  Joint project proposals.
3406.9  Complementary project proposals.
3406.10  Use of funds for facilities.

              Subpart C--Preparation of a Teaching Proposal

3406.11  Scope of a teaching proposal.
3406.12  Program application materials--teaching.
3406.13  Content of a teaching proposal.

         Subpart D--Review and Evaluation of a Teaching Proposal

3406.14  Proposal review--teaching.
3406.15  Evaluation criteria for teaching proposals.

              Subpart E--Preparation of a Research Proposal

3406.16  Scope of a research proposal.
3406.17  Program application materials--research.
3406.18  Content of a research proposal.

         Subpart F--Review and Evaluation of a Research Proposal

3406.19  Proposal review--research.
3406.20  Evaluation criteria for research proposals.

[[Page 311]]

        Subpart G--Submission of a Teaching or Research Proposal

3406.21  Intent to submit a proposal.
3406.22  When and where to submit a proposal.

                  Subpart H--Supplementary Information

3406.23  Access to peer review information.
3406.24  Grant awards.
3406.25  Use of funds; changes.
3406.26  Monitoring progress of funded projects.
3406.27  Other Federal statutes and regulations that apply.
3406.28  Confidential aspects of proposals and awards.
3406.29  Evaluation of program.

    Authority: Sec. 1470, National Agricultural Research, Extension, and 
Teaching Policy Act of 1977, as amended (7 U.S.C. 3316).

    Source: 62 FR 39331, July 22, 1997, unless otherwise noted.



                     Subpart A--General Information



Sec. 3406.1  Applicability of regulations.

    (a) The regulations of this part apply only to capacity building 
grants awarded to the 1890 land-grant institutions and Tuskegee 
University under the provisions of section 1417(b)(4) of the National 
Agricultural Research, Extension, and Teaching Policy Act of 1977, as 
amended (NARETPA) (7 U.S.C. 3152(b)(4)) and pursuant to annual 
appropriations made available specifically for an 1890 capacity building 
program. Section 1417(b)(4) authorizes the Secretary of Agriculture, who 
has delegated the authority to the Administrator of the Cooperative 
State Research, Education, and Extension Service (CSREES), to make 
competitive grants to land-grant colleges and universities, to colleges 
and universities having significant minority enrollments and a 
demonstrable capacity to carry out the teaching of food and agricultural 
sciences, and to other colleges and universities having a demonstrable 
capacity to carry out the teaching of food and agricultural sciences, 
for a period not to exceed 5 years, to design and implement food and 
agricultural programs to build teaching and research capacity at 
colleges and universities having significant minority enrollments. Based 
on and subject to the express provisions of the annual appropriations 
act, only 1890 land-grant institutions and Tuskegee University are 
eligible for this grants program.
    (b) To the extent that funds are available, each year CSREES will 
publish a Federal Register notice announcing the program and soliciting 
grant applications.
    (c)(1) Based on the amount of funds appropriated in any fiscal year, 
CSREES will determine and cite in the program announcement:
    (i) The program area(s) to be supported (teaching, research, or 
both);
    (ii) The proportion of the appropriation reserved for, or available 
to, teaching projects and research projects;
    (iii) The targeted need area(s) in teaching and in research to be 
supported;
    (iv) The degree level(s) to be supported;
    (v) The maximum project period a proposal may request;
    (vi) The maximum amount of funds that may be requested by an 
institution under a regular, complementary, or joint project proposal; 
and
    (vii) The maximum total funds that may be awarded to an institution 
under the program in a given fiscal year, including how funds awarded 
for complementary and for joint projects will be counted toward the 
institutional maximum.
    (2) The program announcement will also specify the deadline date for 
proposal submission, the number of copies of each proposal that must be 
submitted, the address to which a proposal must be submitted, and 
whether or not Form CSREES-711, ``Intent to Submit a Proposal,'' is 
requested.
    (d)(1) If it is deemed by CSREES that, for a given fiscal year, 
additional determinations are necessary, each, as relevant, will be 
stated in the program announcement. Such determinations may include:
    (i) Limits on the subject matter/emphasis areas to be supported;
    (ii) The maximum number of proposals that may be submitted on behalf 
of the same school, college, or equivalent administrative unit within an 
institution;

[[Page 312]]

    (iii) The maximum total number of proposals that may be submitted by 
an institution;
    (iv) The maximum number of proposals that may be submitted by an 
individual in any one targeted need area;
    (v) The minimum project period a proposal may request;
    (vi) The minimum amount of funds that may be requested by an 
institution under a regular, complementary, or joint project proposal;
    (vii) The proportion of the appropriation reserved for, or available 
to, regular, complementary, and joint project proposals;
    (viii) The proportion of the appropriation reserved for, or 
available to, projects in each announced targeted need area;
    (ix) The proportion of the appropriation reserved for, or available 
to, each subject matter/emphasis area;
    (x) The maximum number of grants that may be awarded to an 
institution under the program in a given fiscal year, including how 
grants awarded for complementary and joint projects will be counted 
toward the institutional maximum; and
    (xi) Limits on the use of grant funds for travel or to purchase 
equipment, if any.
    (2) The program announcement also will contain any other limitations 
deemed necessary by CSREES for proper conduct of the program in the 
applicable year.
    (e) The regulations of this part prescribe that this is a 
competitive program; it is possible that an institution may not receive 
any grant awards in a particular year.
    (f) The regulations of this part do not apply to grants for other 
purposes awarded by the Department of Agriculture under section 1417 of 
the National Agricultural Research, Extension, and Teaching Policy Act 
of 1977, as amended (7 U.S.C. 3152) or any other authority.



Sec. 3406.2  Definitions.

    As used in this part:
    Authorized departmental officer means the Secretary or any employee 
of the Department who has the authority to issue or modify grant 
instruments on behalf of the Secretary.
    Authorized organizational representative means the president of the 
1890 Institution or the official, designated by the president of the 
institution, who has the authority to commit the resources of the 
institution.
    Budget period means the interval of time (usually 12 months) into 
which the project period is divided for budgetary and reporting 
purposes.
    Cash contributions means the applicant's cash outlay, including the 
outlay of money contributed to the applicant by non-Federal third 
parties.
    Citizen or national of the United States means:
    (1) A citizen or native resident of a State; or,
    (2) a person defined in the Immigration and Nationality Act, 8 
U.S.C. 1101(a)(22), who, though not a citizen of the United States, owes 
permanent allegiance to the United States.
    College or University means an educational institution in any State 
which:
    (1) Admits as regular students only persons having a certificate of 
graduation from a school providing secondary education, or the 
recognized equivalent of such a certificate;
    (2) Is legally authorized within such State to provide a program of 
education beyond secondary education;
    (3) Provides an educational program for which a baccalaureate degree 
or any other higher degree is awarded;
    (4) Is a public or other nonprofit institution; and
    (5) Is accredited by a nationally recognized accrediting agency or 
association.
    Complementary project proposal means a proposal for a project which 
involves coordination with one or more other projects for which funding 
was awarded under this program in a previous fiscal year, or for which 
funding is requested under this program in the current fiscal year.
    Cost-sharing or Matching means that portion of project costs not 
borne by the Federal Government, including the value of in-kind 
contributions.
    Department or USDA means the United States Department of 
Agriculture.
    1890 Institution or 1890 land-grant institution or 1890 colleges and 
universities

[[Page 313]]

means one of those institutions eligible to receive funds under the Act 
of August 30, 1890 (26 Stat. 417-419, as amended; 7 U.S.C. 321-326 and 
328), or a research foundation maintained by such institution, that are 
the intended recipients of funds under programs established in Subtitle 
G of the National Agricultural Research, Extension, and Teaching Policy 
Act of 1977, as amended (7 U.S.C. 3221 et seq.), including Tuskegee 
University.
    Eligible participant means, for purposes of Sec. 3406.11(b), Faculty 
Preparation and Enhancement for Teaching, and Sec. 3406.11(f), Student 
Recruitment and Retention, an individual who:
    (1) Is a citizen or national of the United States, as defined in 
this section; or
    (2) Is a citizen of the Federated States of Micronesia, the Republic 
of the Marshall Islands, or the Republic of Palau. Where eligibility is 
claimed under paragraph (2) of the definition of ``citizen or national 
of the United States'' as specified in this section, documentary 
evidence from the Immigration and Naturalization Service as to such 
eligibility must be made available to CSREES upon request.
    Food and agricultural sciences means basic, applied, and 
developmental research, extension, and teaching activities in the food, 
agricultural, renewable natural resources, forestry, and physical and 
social sciences, in the broadest sense of these terms, including but not 
limited to, activities concerned with the production, processing, 
marketing, distribution, conservation, consumption, research, and 
development of food and agriculturally related products and services, 
and inclusive of programs in agriculture, natural resources, 
aquaculture, forestry, veterinary medicine, home economics, rural 
development, and closely allied disciplines.
    Grantee means the 1890 Institution designated in the grant award 
document as the responsible legal entity to which a grant is awarded.
    Joint project proposal means a proposal for a project, which will 
involve the applicant 1890 Institution and two or more other colleges, 
universities, community colleges, junior colleges, or other 
institutions, each of which will assume a major role in the conduct of 
the proposed project, and for which the applicant institution will 
transfer at least one-half of the awarded funds to the other 
institutions participating in the project. Only the applicant 
institution must meet the definition of ``1890 Institution'' as 
specified in this section; the other institutions participating in a 
joint project proposal are not required to meet the definition of ``1890 
Institution'' as specified in this section, nor required to meet the 
definition of ``college'' or ``university'' as specified in this 
section.
    Peer review panel means a group of experts or consultants, qualified 
by training and experience in particular fields of science, education, 
or technology to give expert advice on the merit of grant applications 
in such fields, who evaluate eligible proposals submitted to this 
program in their personal area(s) of expertise.
    Principal investigator/project director means the single individual 
designated by the grantee in the grant application and approved by the 
Secretary who is responsible for the direction and management of the 
project.
    Prior approval means written approval evidencing prior consent by an 
``authorized departmental officer'' as defined in this section.
    Project means the particular teaching or research activity within 
the scope of one or more of the targeted areas supported by a grant 
awarded under this program.
    Project period means the period, as stated in the award document and 
modifications thereto, if any, during which Federal sponsorship begins 
and ends.
    Research means any systematic inquiry directed toward new or fuller 
knowledge and understanding of the subject studied.
    Research capacity means the quality and depth of an institution's 
research infrastructure as evidenced by its: faculty expertise in the 
natural or social sciences, scientific and technical resources, research 
environment, library resources, and organizational structures and reward 
systems for attracting and retaining first-rate research faculty or 
students at the graduate and post-doctorate levels.

[[Page 314]]

    Research project grant means a grant in support of a project that 
addresses one or more of the targeted need areas or specific subject 
matter/emphasis areas identified in the annual program announcement 
related to strengthening research programs including, but not limited 
to, such initiatives as: Studies and experimentation in food and 
agricultural sciences, centralized research support systems, technology 
delivery systems, and other creative projects designed to provide needed 
enhancement of the Nation's food and agricultural research system.
    Secretary means the Secretary of Agriculture and any other officer 
or employee of the Department of Agriculture to whom the authority 
involved may be delegated.
    State means any one of the fifty States, the Commonwealth of Puerto 
Rico, Guam, American Samoa, the Commonwealth of the Northern Marianas, 
the Virgin Islands of the United States, and the District of Columbia.
    Teaching means formal classroom instruction, laboratory instruction, 
and practicum experience in the food and agricultural sciences and 
matters related thereto (such as faculty development, student 
recruitment and services, curriculum development, instructional 
materials and equipment, and innovative teaching methodologies) 
conducted by colleges and universities offering baccalaureate or higher 
degrees.
    Teaching capacity means the quality and depth of an institution's 
academic programs infrastructure as evidenced by its: Curriculum, 
teaching faculty, instructional delivery systems, student experiential 
learning opportunities, scientific instrumentation for teaching, library 
resources, academic standing and racial, ethnic, or gender diversity of 
its faculty and student body as well as faculty and student recruitment 
and retention programs provided by a college or university in order to 
achieve maximum results in the development of scientific and 
professional expertise for the Nation's food and agricultural system.
    Teaching project grant means a grant in support of a project that 
addresses one or more of the targeted need areas or specific subject 
matter/emphasis areas identified in the annual program announcement 
related to strengthening teaching programs including, but not limited 
to, such initiatives as: Curricula design and materials development, 
faculty preparation and enhancement for teaching, instruction delivery 
systems, scientific instrumentation for teaching, student experiential 
learning, and student recruitment and retention.
    Third party in-kind contributions means non-cash contributions of 
property or services provided by non-Federal third parties, including 
real property, equipment, supplies and other expendable property, 
directly benefiting and specifically identifiable to a funded project or 
program.
    USDA agency cooperator means any agency or office of the Department 
which has reviewed and endorsed an applicant's request for support, and 
indicates a willingness to make available non-monetary resources or 
technical assistance throughout the life of a project to ensure the 
accomplishment of the objectives of a grant awarded under this program.



Sec. 3406.3  Institutional eligibility.

    Proposals may be submitted by any of the 16 historically black 1890 
land-grant institutions and Tuskegee University. The 1890 land-grant 
institutions are: Alabama A&M University; University of Arkansas--Pine 
Bluff; Delaware State University; Florida A&M University; Fort Valley 
State College; Kentucky State University; Southern University and A&M 
College; University of Maryland--Eastern Shore; Alcorn State University; 
Lincoln University; North Carolina A&T State University; Langston 
University; South Carolina State University; Tennessee State University; 
Prairie View A&M University; and Virginia State University. An 
institution eligible to receive an award under this program includes a 
research foundation maintained by an 1890 land-grant institution or 
Tuskegee University.

[[Page 315]]



                     Subpart B--Program Description



Sec. 3406.4  Purpose of the program.

    (a) The Department of Agriculture and the Nation depend upon sound 
programs in the food and agricultural sciences at the Nation's colleges 
and universities to produce well trained professionals for careers in 
the food and agricultural sciences. The capacity of institutions to 
offer suitable programs in the food and agricultural sciences to meet 
the Nation's need for a well trained work force in the food and 
agricultural sciences is a proper concern for the Department.
    (b) Historically, the Department has had a close relationship with 
the 1890 colleges and universities, including Tuskegee University. 
Through its role as administrator of the Second Morrill Act, the 
Department has borne the responsibility for helping these institutions 
develop to their fullest potential in order to meet the needs of 
students and the needs of the Nation.
    (c) The institutional capacity building grants program is intended 
to stimulate development of quality education and research programs at 
these institutions in order that they may better assist the Department, 
on behalf of the Nation, in its mission of providing a professional work 
force in the food and agricultural sciences.
    (d) This program is designed specifically to build the institutional 
teaching and research capacities of the 1890 land-grant institutions 
through cooperative programs with Federal and non-Federal entities. The 
program is competitive among the 1890 Institutions and encourages 
matching funds on the part of the States, private organizations, and 
other non-Federal entities to encourage expanded linkages with 1890 
Institutions as performers of research and education, and as developers 
of scientific and professional talent for the United States food and 
agricultural system. In addition, through this program, CSREES will 
strive to increase the overall pool of qualified job applicants from 
underrepresented groups in order to make significant progress toward 
achieving the objectives of work force diversity within the Federal 
Government, particularly the U.S. Department of Agriculture.



Sec. 3406.5  Matching support.

    The Department strongly encourages and may require non-Federal 
matching support for this program. In the annual program solicitation, 
CSREES will announce any incentives that may be offered to applicants 
for committing their own institutional resources or securing third party 
contributions in support of capacity building projects. CSREES may also 
announce any required fixed dollar amount or percentage of institutional 
cost sharing, if applicable.



Sec. 3406.6  USDA agency cooperator requirement.

    (a) Each application must provide documentation that at least one 
USDA agency or office has agreed to cooperate with the applicant 
institution on the proposed project. The documentation should describe 
the expected benefits of the partnership venture for the USDA agency and 
for the 1890 Institution, and describe the partnership effort between 
USDA and the 1890 Institution in regard to the proposed project. Such 
USDA agency cooperation may include, but is not limited to, assisting 
the applicant institution with proposal development, identifying 
possible sources of matching funds, securing resources, implementing 
funded projects, providing technical assistance and expertise throughout 
the life of the project, participating in project evaluation, and 
disseminating project results.
    (b) The designated CSREES agency contact can provide suggestions to 
institutions seeking to secure a USDA agency cooperator on a particular 
proposal.
    (c) USDA 1890 Liaison Officers, and other USDA employees serving on 
the campuses of the 1890 colleges and universities, may assist with 
proposal development and project execution to satisfy the cooperator 
requirement, in whole or in part, but may not serve as project directors 
or principal investigators.
    (d) Any USDA office responsible for administering a competitive or 
formula grants program specifically targeted to 1890 Institutions may 
not be a cooperator for this program.

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Sec. 3406.7  General scope of program.

    This program supports both teaching project grants and research 
project grants. Such grants are intended to strengthen the teaching and 
research capabilities of applicant institutions. Each 1890 Institution 
may submit one or more grant applications for either category of grants 
(as allowed by the annual program notice). However, each application 
must be limited to either a teaching project grant proposal or a 
research project grant proposal.



Sec. 3406.8  Joint project proposals.

    Applicants are encouraged to submit joint project proposals as 
defined in Sec. 3406.2, which address regional or national problems and 
which will result overall in strengthening the 1890 university system. 
The goals of such joint initiatives should include maximizing the use of 
limited resources by generating a critical mass of expertise and 
activity focused on a targeted need area(s), increasing cost-
effectiveness through achieving economies of scale, strengthening the 
scope and quality of a project's impact, and promoting coalition 
building likely to transcend the project's lifetime and lead to future 
ventures.



Sec. 3406.9  Complementary project proposals.

    Institutions may submit proposals that are complementary in nature 
as defined in Sec. 3406.2. Such complementary project proposals may be 
submitted by the same or by different eligible institutions.



Sec. 3406.10  Use of funds for facilities.

    Under the 1890 Institution Capacity Building Grants Program, the use 
of grant funds to plan, acquire, or construct a building or facility is 
not allowed. With prior approval, in accordance with the cost principles 
set forth in OMB Circular No. A-21, some grant funds may be used for 
minor alterations, renovations, or repairs deemed necessary to retrofit 
existing teaching or research spaces in order to carry out a funded 
project. However, requests to use grant funds for such purposes must 
demonstrate that the alterations, renovations, or repairs are incidental 
to the major purpose for which a grant is made.



              Subpart C--Preparation of a Teaching Proposal



Sec. 3406.11  Scope of a teaching proposal.

    The teaching component of the program will support the targeted need 
area(s) related to strengthening teaching programs as specified in the 
annual program announcement. Proposals may focus on any subject matter 
area(s) in the food and agricultural sciences unless limited by 
determinations as specified in the annual program announcement. A 
proposal may address a single targeted need area or multiple targeted 
need areas, and may be focused on a single subject matter area or 
multiple subject matter areas, in any combination (e.g., curriculum 
development in horticulture; curriculum development, faculty 
enhancement, and student experiential learning in animal science; 
faculty enhancement in food science and agribusiness management; or 
instruction delivery systems and student experiential learning in plant 
science, horticulture, and entomology). Applicants are also encouraged 
to include a library enhancement component related to the teaching 
project in their proposals. A proposal may be directed toward the 
undergraduate or graduate level of study as specified in the annual 
program announcement. Targeted need areas for teaching programs will 
consist of one or more of the following:
    (a) Curricula design and materials development. (1) The purpose of 
this need area is to promote new and improved curricula and materials to 
increase the quality of, and continuously renew, the Nation's academic 
programs in the food and agricultural sciences. The overall objective is 
to stimulate the development and facilitate the use of exemplary 
education models and materials that incorporate the most recent advances 
in subject matter, research on teaching and learning theory, and 
instructional technology. Proposals may emphasize: The development of 
courses of study, degree programs, and instructional materials; the use 
of new approaches to the study of traditional subjects; or the 
introduction of new

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subjects, or new applications of knowledge, pertaining to the food and 
agricultural sciences.
    (2) Examples include, but are not limited to, curricula and 
materials that promote:
    (i) Raising the level of scholastic achievement of the Nation's 
graduates in the food and agricultural sciences.
    (ii) Addressing the special needs of particular groups of students, 
such as minorities, gifted and talented, or those with educational 
backgrounds that warrant enrichment.
    (iii) Using alternative instructional strategies or methodologies, 
including computer-assisted instruction or simulation modeling, media 
programs that reach large audiences efficiently and effectively, 
activities that provide hands-on learning experiences, and educational 
programs that extend learning beyond the classroom.
    (iv) Using sound pedagogy, particularly with regard to recent 
research on how to motivate students to learn, retain, apply, and 
transfer knowledge, skills, and competencies.
    (v) Building student competencies to integrate and synthesize 
knowledge from several disciplines.
    (b) Faculty preparation and enhancement for teaching. (1) The 
purpose of this need area is to advance faculty development in the areas 
of teaching competency, subject matter expertise, or student recruitment 
and advising skills. Teachers are central to education. They serve as 
models, motivators, and mentors--the catalysts of the learning process. 
Moreover, teachers are agents for developing, replicating, and 
exchanging effective teaching materials and methods. For these reasons, 
education can be strengthened only when teachers are adequately 
prepared, highly motivated, and appropriately recognized and rewarded.
    (2) Each faculty recipient of support for developmental activities 
under Sec. 3406.11(b) must be an ``eligible participant'' as defined in 
Sec. 3406.2 of this part.
    (3) Examples of developmental activities include, but are not 
limited to, those which enable teaching faculty to:
    (i) Gain experience with recent developments or innovative 
technology relevant to their teaching responsibilities.
    (ii) Work under the guidance and direction of experts who have 
substantial expertise in an area related to the developmental goals of 
the project.
    (iii) Work with scientists or professionals in government, industry, 
or other colleges or universities to learn new applications in a field.
    (iv) Obtain personal experience working with new ideas and 
techniques.
    (v) Expand competence with new methods of information delivery, such 
as computer-assisted or televised instruction.
    (c) Instruction delivery systems. (1) The purpose of this need area 
is to encourage the use of alternative methods of delivering instruction 
to enhance the quality, effectiveness, and cost efficiency of teaching 
programs. The importance of this initiative is evidenced by advances in 
educational research which have substantiated the theory that 
differences in the learning styles of students often require alternative 
instructional methodologies. Also, the rising costs of higher education 
strongly suggest that colleges and universities undertake more efforts 
of a collaborative nature in order to deliver instruction which 
maximizes program quality and reduces unnecessary duplication. At the 
same time, advancements in knowledge and technology continue to 
introduce new subject matter areas which warrant consideration and 
implementation of innovative instruction techniques, methodologies, and 
delivery systems.
    (2) Examples include, but are not limited to:
    (i) Use of computers.
    (ii) Teleconferencing.
    (iii) Networking via satellite communications.
    (iv) Regionalization of academic programs.
    (v) Mobile classrooms and laboratories.
    (vi) Individualized learning centers.
    (vii) Symposia, forums, regional or national workshops, etc.
    (d) Scientific Instrumentation for teaching. (1) The purpose of this 
need area is to provide students in science-oriented courses the 
necessary experience with suitable, up-to-date equipment in order

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to involve them in work central to scientific understanding and 
progress. This program initiative will support the acquisition of 
instructional laboratory and classroom equipment to assure the 
achievement and maintenance of outstanding food and agricultural 
sciences higher education programs. A proposal may request support for 
acquiring new, state-of-the-art instructional scientific equipment, 
upgrading existing equipment, or replacing non-functional or clearly 
obsolete equipment.
    (2) Examples include, but are not limited to:
    (i) Rental or purchase of modern instruments to improve student 
learning experiences in courses, laboratories, and field work.
    (ii) Development of new ways of using instrumentation to extend 
instructional capabilities.
    (iii) Establishment of equipment-sharing capability via consortia or 
centers that develop innovative opportunities, such as mobile 
laboratories or satellite access to industry or government laboratories.
    (e) Student experiential learning. (1) The purpose of this need area 
is to further the development of student scientific and professional 
competencies through experiential learning programs which provide 
students with opportunities to solve complex problems in the context of 
real-world situations. Effective experiential learning is essential in 
preparing future graduates to advance knowledge and technology, enhance 
quality of life, conserve resources, and revitalize the Nation's 
economic competitiveness. Such experiential learning opportunities are 
most effective when they serve to advance decision-making and 
communication skills as well as technological expertise.
    (2) Examples include, but are not limited to, projects which:
    (i) Provide opportunities for students to participate in research 
projects, either as a part of an ongoing research project or in a 
project designed especially for this program.
    (ii) Provide opportunities for students to complete apprenticeships, 
internships, or similar participatory learning experiences.
    (iii) Expand and enrich courses which are of a practicum nature.
    (iv) Provide career mentoring experiences that link students with 
outstanding professionals.
    (f) Student recruitment and retention. (1) The purpose of this need 
area is to strengthen student recruitment and retention programs in 
order to promote the future strength of the Nation's scientific and 
professional work force. The Nation's economic competitiveness and 
quality of life rest upon the availability of a cadre of outstanding 
research scientists, university faculty, and other professionals in the 
food and agricultural sciences. A substantial need exists to supplement 
efforts to attract increased numbers of academically outstanding 
students to prepare for careers as food and agricultural scientists and 
professionals. It is particularly important to augment the racial, 
ethnic, and gender diversity of the student body in order to promote a 
robust exchange of ideas and a more effective use of the full breadth of 
the Nation's intellectual resources.
    (2) Each student recipient of monetary support for education costs 
or developmental purposes under Sec. 3406.11(f) must be enrolled at an 
eligible institution and meet the requirement of an ``eligible 
participant'' as defined in Sec. 3406.2 of this part.
    (3) Examples include, but are not limited to:
    (i) Special outreach programs for elementary and secondary students 
as well as parents, counselors, and the general public to broaden 
awareness of the extensive nature and diversity of career opportunities 
for graduates in the food and agricultural sciences.
    (ii) Special activities and materials to establish more effective 
linkages with high school science classes.
    (iii) Unique or innovative student recruitment activities, 
materials, and personnel.
    (iv) Special retention programs to assure student progression 
through and completion of an educational program.
    (v) Development and dissemination of stimulating career information 
materials.
    (vi) Use of regional or national media to promote food and 
agricultural sciences higher education.

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    (vii) Providing financial incentives to enable and encourage 
students to pursue and complete an undergraduate or graduate degree in 
an area of the food and agricultural sciences.



Sec. 3406.12  Program application materials--teaching.

    Program application materials in an application package will be made 
available to eligible institutions upon request. These materials include 
the program announcement, the administrative provisions for the program, 
and the forms needed to prepare and submit teaching grant applications 
under the program.



Sec. 3406.13  Content of a teaching proposal.

    (a) Proposal cover page. (1) Form CSREES-712, ``Higher Education 
Proposal Cover Page,'' must be completed in its entirety. Note that 
providing a Social Security Number is voluntary, but is an integral part 
of the CSREES information system and will assist in the processing of 
the proposal.
    (2) One copy of the Form CSREES-712 must contain the pen-and-ink 
signatures of the project director(s) and authorized organizational 
representative for the applicant institution.
    (3) The title of the teaching project shown on the ``Higher 
Education Proposal Cover Page'' must be brief (80-character maximum) yet 
represent the major thrust of the project. This information will be used 
by the Department to provide information to the Congress and other 
interested parties.
    (4) In block 7. of Form CSREES-712, enter ``1890 Institution 
Capacity Building Grants Program.''
    (5) In block 8.a. of Form CSREES-712, enter ``Teaching.'' In block 
8.b. identify the code for the targeted need area(s) as found on the 
reverse of the form. If a proposal focuses on multiple targeted need 
areas, enter each code associated with the project. In block 8.c. 
identify the major area(s) of emphasis as found on the reverse of the 
form. If a proposal focuses on multiple areas of emphasis, enter each 
code associated with the project; however, limit the selection to three 
areas. This information will be used by program staff for the proper 
assignment of proposals to reviewers.
    (6) In block 9. of Form CSREES-712, indicate if the proposal is a 
complementary project proposal or a joint project proposal as defined in 
Sec. 3406.2 of this part. If it is not a complementary project proposal 
or a joint project proposal, identify it as a regular project proposal.
    (7) In block 13. of Form CSREES-712, indicate if the proposal is a 
new, first-time submission or if the proposal is a resubmission of a 
proposal that has been submitted to, but not funded under, the 1890 
Institution Capacity Building Grants Program in a previous competition.
    (b) Table of contents. For ease in locating information, each 
proposal must contain a detailed table of contents just after the 
Proposal Cover Page. The Table of Contents should include page numbers 
for each component of the proposal. Pagination should begin immediately 
following the summary documentation of USDA agency cooperation.
    (c) USDA agency cooperator. To be considered for funding, each 
proposal must include documentation of cooperation with at least one 
USDA agency or office. If multiple agencies are involved as cooperators, 
documentation must be included from each agency. When documenting 
cooperative arrangements, the following guidelines should be used:
    (1) A summary of the cooperative arrangements must immediately 
follow the Table of Contents. This summary should:
    (i) Bear the signatures of the Agency Head (or his/her designated 
authorized representative) and the university project director;
    (ii) Indicate the agency's willingness to commit support for the 
project;
    (iii) Identify the person(s) at the USDA agency who will serve as 
the liaison or technical contact for the project;
    (iv) Describe the degree and nature of the USDA agency's involvement 
in the proposed project, as outlined in Sec. 3406.6(a) of this part, 
including its role in:
    (A) Identifying the need for the project;
    (B) Developing a conceptual approach;

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    (C) Assisting with project design;
    (D) Identifying and securing needed agency or other resources (e.g., 
personnel, grants/contracts; in-kind support, etc.);
    (E) Developing the project budget;
    (F) Promoting partnerships with other institutions to carry out the 
project;
    (G) Helping the institution launch and manage the project;
    (H) Providing technical assistance and expertise;
    (I) Providing consultation through site visits, E-mail, conference 
calls, and faxes;
    (J) Participating in project evaluation and dissemination of final 
project results; and
    (K) Seeking other innovative ways to ensure the success of the 
project and advance the needs of the institution or the agency; and
    (v) Describe the expected benefits of the partnership venture for 
the USDA agency and for the 1890 Institution.
    (2) A detailed discussion of these partnership arrangements should 
be provided in the narrative portion of the proposal, as outlined in 
paragraph (f)(2)(iv)(C) of this section.
    (3) Additional documentation, including letters of support or 
cooperation, may be provided in the Appendix.
    (d) Project summary. (1) A Project Summary should immediately follow 
the summary documentation of USDA agency cooperation section. The 
information provided in the Project Summary will be used by the program 
staff for a variety of purposes, including the proper assignment of 
proposals to reviewers and providing information to reviewers prior to 
the peer panel meeting. The name of the institution, the targeted need 
area(s), and the title of the proposal must be identified exactly as 
shown on the ``Higher Education Proposal Cover Page.''
    (2) If the proposal is a complementary project proposal, as defined 
in Sec. 3406.2 of this part, indicate such and identify the other 
complementary project(s) by citing the name of the submitting 
institution, the title of the project, the project director, and the 
grant number (if funded in a previous year) exactly as shown on the 
cover page of the complementary project so that appropriate 
consideration can be given to the interrelatedness of the proposals in 
the evaluation process.
    (3) If the proposal is a joint project proposal, as defined in 
Sec. 3406.2 of this part, indicate such and identify the other 
participating institutions and the key faculty member or other 
individual responsible for coordinating the project at each institution.
    (4) The Project Summary should be a concise description of the 
proposed activity suitable for publication by the Department to inform 
the general public about awards under the program. The text must not 
exceed one page, single-spaced. The Project Summary should be a self-
contained description of the activity which would result if the proposal 
is funded by USDA. It should include: The objectives of the project; a 
synopsis of the plan of operation; a statement of how the project will 
enhance the teaching capacity of the institution; a description of how 
the project will strengthen higher education in the food and 
agricultural sciences in the United States; a description of the 
partnership efforts between, and the expected benefits for, the USDA 
agency cooperator(s) and the 1890 Institution; and the plans for 
disseminating project results. The Project Summary should be written so 
that a technically literate reader can evaluate the use of Federal funds 
in support of the project.
    (e) Resubmission of a proposal--(1) Resubmission of previously 
unfunded proposals. (i) If a proposal has been submitted previously, but 
was not funded, such should be indicated in block 13. on Form CSREES-
712, ``Higher Education Proposal Cover Page,'' and the following 
information should be included in the proposal:
    (A) The fiscal year(s) in which the proposal was submitted 
previously;
    (B) A summary of the peer reviewers' comments; and
    (C) How these comments have been addressed in the current proposal, 
including the page numbers in the current proposal where the peer 
reviewers' comments have been addressed.
    (ii) This information may be provided as a section of the proposal 
following the Project Summary and preceding the proposal narrative or it 
may be

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placed in the Appendix (see paragraph (j) of this section). In either 
case, the location of this information should be indicated in the Table 
of Contents, and the fact that the proposal is a resubmitted proposal 
should be stated in the proposal narrative. Further, when possible, the 
information should be presented in tabular format. Applicants who choose 
to resubmit proposals that were previously submitted, but not funded, 
should note that resubmitted proposals must compete equally with newly 
submitted proposals. Submitting a proposal that has been revised based 
on a previous peer review panel's critique of the proposal does not 
guarantee the success of the resubmitted proposal.
    (2) Resubmission of previously funded proposals. Recognizing that 
capacity building is a long-term ongoing process, the 1890 Institution 
Capacity Building Grants Program is interested in funding subsequent 
phases of previously funded projects in order to build institutional 
capacity, and institutions are encouraged to build on a theme over 
several grant awards. However, proposals that are sequential 
continuations or new stages of previously funded Capacity Building 
Grants must compete with first-time proposals. Therefore, project 
directors should thoroughly demonstrate how the project proposed in the 
current application expands substantially upon a previously funded 
project (i.e., demonstrate how the new project will advance the former 
project to the next level of attainment or will achieve expanded goals). 
The proposal must also show the degree to which the new phase promotes 
innovativeness and creativity beyond the scope of the previously funded 
project. Please note that the 1890 Institution Capacity Building Grants 
Program is not designed to support activities that are essentially 
repetitive in nature over multiple grant awards. Project directors who 
have had their projects funded previously are discouraged from 
resubmitting relatively identical proposals for further funding.
    (f) Narrative of a teaching proposal. The narrative portion of the 
proposal is limited to 20 pages in length. The one-page Project Summary 
is not included in the 20-page limitation. The narrative must be typed 
on one side of the page only, using a font no smaller than 12 point, and 
double-spaced. All margins must be at least one inch. All pages 
following the summary documentation of USDA agency cooperation must be 
paginated. It should be noted that peer reviewers will not be required 
to read beyond 20 pages of the narrative to evaluate the proposal. The 
narrative should contain the following sections:
    (1) Potential for advancing the quality of education--(i) Impact. 
(A) Identify the targeted need area(s).
    (B) Clearly state the specific instructional problem or opportunity 
to be addressed.
    (C) Describe how and by whom the focus and scope of the project were 
determined. Summarize the body of knowledge which substantiates the need 
for the proposed project.
    (D) Describe ongoing or recently completed significant activities 
related to the proposed project for which previous funding was received 
under this program.
    (E) Discuss how the project will be of value at the State, regional, 
national, or international level(s).
    (F) Discuss how the benefits to be derived from the project will 
transcend the proposing institution or the grant period. Also discuss 
the probabilities of its adaptation by other institutions. For example, 
can the project serve as a model for others?
    (ii) Continuation plans. Discuss the likelihood of, or plans for, 
continuation or expansion of the project beyond USDA support. For 
example, does the institution's long-range budget or academic plan 
provide for the realistic continuation or expansion of the initiative 
undertaken by this project after the end of the grant period, are plans 
for eventual self-support built into the project, are plans being made 
to institutionalize the program if it meets with success, and are there 
indications of other continuing non-Federal support?
    (iii) Innovation. Describe the degree to which the proposal reflects 
an innovative or non-traditional approach to solving a higher education 
problem or strengthening the quality of higher

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education in the food and agricultural sciences.
    (iv) Products and results. Explain the kinds of results and products 
expected and their impact on strengthening food and agricultural 
sciences higher education in the United States, including attracting 
academically outstanding students and increasing the ethnic, racial, and 
gender diversity of the Nation's food and agricultural scientific and 
professional expertise base.
    (2) Overall approach and cooperative linkages--(i) Proposed 
approach--(A) Objectives. Cite and discuss the specific objectives to be 
accomplished under the project.
    (B) Plan of operation. (1) Describe procedures for accomplishing the 
objectives of the project.
    (2) Describe plans for management of the project to enhance its 
proper and efficient administration.
    (3) Describe the way in which resources and personnel will be used 
to conduct the project.
    (C) Timetable. Provide a timetable for conducting the project. 
Identify all important project milestones and dates as they relate to 
project start-up, execution, dissemination, evaluation, and close-out.
    (ii) Evaluation plans. (A) Provide a plan for evaluating the 
accomplishment of stated objectives during the conduct of the project. 
Indicate the criteria, and corresponding weight of each, to be used in 
the evaluation process, describe any data to be collected and analyzed, 
and explain the methodology that will be used to determine the extent to 
which the needs underlying the project are met.
    (B) Provide a plan for evaluating the effectiveness of the end 
results upon conclusion of the project. Include the same kinds of 
information requested in paragraph (f) (2)(ii)(A) of this section.
    (iii) Dissemination plans. Discuss plans to disseminate project 
results and products. Identify target audiences and explain methods of 
communication.
    (iv) Partnerships and collaborative efforts. (A) Explain how the 
project will maximize partnership ventures and collaborative efforts to 
strengthen food and agricultural sciences higher education (e.g., 
involvement of faculty in related disciplines at the same institution, 
joint projects with other colleges or universities, or cooperative 
activities with business or industry). Also explain how it will 
stimulate academia, the States, or the private sector to join with the 
Federal partner in enhancing food and agricultural sciences higher 
education.
    (B) Provide evidence, via letters from the parties involved, that 
arrangements necessary for collaborative partnerships or joint 
initiatives have been discussed and realistically can be expected to 
come to fruition, or actually have been finalized contingent on an award 
under this program. Letters must be signed by an official who has the 
authority to commit the resources of the organization. Such letters 
should be referenced in the plan of operation, but the actual letters 
should be included in the Appendix section of the proposal. Any 
potential conflict(s) of interest that might result from the proposed 
collaborative arrangements must be discussed in detail. Proposals which 
indicate joint projects with other institutions must state which 
proposer is to receive any resulting grant award, since only one 
submitting institution can be the recipient of a project grant under one 
proposal.
    (C) Explain how the project will create a new or enhance an existing 
partnership between the USDA agency cooperator(s) and the 1890 
Institution(s). This section should expand upon the summary information 
provided in the documentation of USDA agency cooperation section, as 
outlined in paragraph (c)(1) of this section. This is particularly 
important because the focal point of attention in the peer review 
process is the proposal narrative. Therefore, a comprehensive discussion 
of the partnership effort between USDA and the 1890 Institution should 
be provided.
    (3) Institutional capacity building--(i) Institutional enhancement. 
Explain how the proposed project will strengthen the teaching capacity, 
as defined in Sec. 3406.2 of this part, of the applicant institution 
and, if applicable, any other institutions assuming a major role in the 
conduct of the project. For example, describe how the proposed project

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is intended to strengthen the institution's academic infrastructure by 
expanding the current faculty's expertise base, advancing the scholarly 
quality of the institution's academic programs, enriching the racial, 
ethnic, or gender diversity of the student body, helping the institution 
establish itself as a center of excellence in a particular field of 
education, helping the institution maintain or acquire state-of-the-art 
scientific instrumentation or library collections for teaching, or 
enabling the institution to provide more meaningful student experiential 
learning opportunities.
    (ii) Institutional commitment. (A) Discuss the institution's 
commitment to the project and its successful completion. Provide, as 
relevant, appropriate documentation in the Appendix. Substantiate that 
the institution attributes a high priority to the project.
    (B) Discuss how the project will contribute to the achievement of 
the institution's long-term (five- to ten-year) goals and how the 
project will help satisfy the institution's high-priority objectives. 
Show how this project is linked to and supported by the institution's 
strategic plan.
    (C) Discuss the commitment of institutional resources to the 
project. Show that the institutional resources to be made available to 
the project will be adequate, when combined with the support requested 
from USDA, to carry out the activities of the project and represent a 
sound commitment by the institution. Discuss institutional facilities, 
equipment, computer services, and other appropriate resources available 
to the project.
    (g) Key personnel. A Form CSREES-708, ``Summary Vita--Teaching 
Proposal,'' should be included for each key person associated with the 
project.
    (h) Budget and cost-effectiveness--(1) Budget form. (i) Prepare Form 
CSREES-713, ``Higher Education Budget,'' in accordance with instructions 
provided with the form. Proposals may request support for a period to be 
identified in each year's program announcement. A budget form is 
required for each year of requested support. In addition, a summary 
budget is required detailing the requested total support for the overall 
project period. Form CSREES-713 may be reproduced as needed by 
proposers. Funds may be requested under any of the categories listed on 
the form, provided that the item or service for which support is 
requested is allowable under the authorizing legislation, the applicable 
Federal cost principles, the administrative provisions in this part, and 
can be justified as necessary for the successful conduct of the proposed 
project.
    (ii) The approved negotiated instruction rate or the maximum rate 
allowed by law should be used when computing indirect costs. If a 
reduced rate of indirect costs is voluntarily requested from USDA, the 
remaining allowable indirect costs may be used as matching funds.
    (2) Matching funds. When documenting matching contributions, use the 
following guidelines:
    (i) When preparing the column entitled ``Applicant Contributions To 
Matching Funds'' of Form CSREES-713, only those costs to be contributed 
by the applicant for the purposes of matching should be shown. The total 
amount of this column should be indicated in item M.
    (ii) In item N of Form CSREES-713, show a total dollar amount for 
Cash Contributions from both the applicant and any third parties; also 
show a total dollar amount (based on current fair market value) for Non-
cash Contributions from both the applicant and any third parties.
    (iii) To qualify for any incentive benefits stemming from matching 
support or to satisfy any cost sharing requirements, proposals must 
include written verification of any actual commitments of matching 
support (including both cash and non-cash contributions) from third 
parties. Written verification means--
    (A) For any third party cash contributions, a separate pledge 
agreement for each donation, signed by the authorized organizational 
representative(s) of the donor organization (or by the donor if the gift 
is from an individual) and the applicant institution, which must 
include:
    (1) The name, address, and telephone number of the donor;
    (2) The name of the applicant institution;

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    (3) The title of the project for which the donation is made;
    (4) The dollar amount of the cash donation; and
    (5) A statement that the donor will pay the cash contribution during 
the grant period; and
    (B) For any third party non-cash contributions, a separate pledge 
agreement for each contribution, signed by the authorized organizational 
representative(s) of the donor organization (or by the donor if the gift 
is from an individual) and the applicant institution, which must 
include:
    (1) The name, address, and telephone number of the donor;
    (2) The name of the applicant institution;
    (3) The title of the project for which the donation is made;
    (4) A good faith estimate of the current fair market value of the 
non-cash contribution; and
    (5) A statement that the donor will make the contribution during the 
grant period.
    (iv) All pledge agreements must be placed in the proposal 
immediately following Form CSREES-713. The sources and amounts of all 
matching support from outside the applicant institution should be 
summarized in the Budget Narrative section of the proposal.
    (v) Applicants should refer to OMB Circulars A-110, ``Uniform 
Administrative Requirements for Grants and Agreements With Institutions 
of Higher Education, Hospitals and Other Non-profit Organizations,'' and 
A-21, ``Cost Principles for Educational Institutions,'' for further 
guidance and other requirements relating to matching and allowable 
costs.
    (3) Chart on shared budget for joint project proposal. (i) For a 
joint project proposal, a plan must be provided indicating how funds 
will be distributed to the participating institutions. The budget 
section of a joint project proposal should include a chart indicating:
    (A) The names of the participating institutions;
    (B) the amount of funds to be disbursed to those institutions; and
    (C) the way in which such funds will be used in accordance with 
items A through L of Form CSREES-713, ``Higher Education Budget.''
    (ii) If a proposal is not for a joint project, such a chart is not 
required.
    (4) Budget narrative. (i) Discuss how the budget specifically 
supports the proposed project activities. Explain how each budget item 
(such as salaries and wages for professional and technical staff, 
student stipends/scholarships, travel, equipment, etc.) is essential to 
achieving project objectives.
    (ii) Justify that the total budget, including funds requested from 
USDA and any matching support provided, will be adequate to carry out 
the activities of the project. Provide a summary of sources and amounts 
of all third party matching support.
    (iii) Justify the project's cost-effectiveness. Show how the project 
maximizes the use of limited resources, optimizes educational value for 
the dollar, achieves economies of scale, or leverages additional funds. 
For example, discuss how the project has the potential to generate a 
critical mass of expertise and activity focused on a targeted need area 
or promote coalition building that could lead to future ventures.
    (iv) Include the percentage of time key personnel will work on the 
project, both during the academic year and summer. When salaries of 
university project personnel will be paid by a combination of USDA and 
institutional funds, the total compensation must not exceed the faculty 
member's regular annual compensation. In addition, the total commitment 
of time devoted to the project, when combined with time for teaching and 
research duties, other sponsored agreements, and other employment 
obligations to the institution, must not exceed 100 percent of the 
normal workload for which the employee is compensated, in accordance 
with established university policies and applicable Federal cost 
principles.
    (v) If the proposal addresses more than one targeted need area 
(e.g., student experiential learning and instruction delivery systems), 
estimate the proportion of the funds requested from USDA that will 
support each respective targeted need area.
    (i) Current and pending support. Each applicant must complete Form 
CSREES-663, ``Current and Pending

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Support,'' identifying any other current public- or private-sponsored 
projects, in addition to the proposed project, to which key personnel 
listed in the proposal under consideration have committed portions of 
their time, whether or not salary support for the person(s) involved is 
included in the budgets of the various projects. This information should 
also be provided for any pending proposals which are currently being 
considered by, or which will be submitted in the near future to, other 
possible sponsors, including other USDA programs or agencies. Concurrent 
submission of identical or similar projects to other possible sponsors 
will not prejudice the review or evaluation of a project under this 
program.
    (j) Appendix. Each project narrative is expected to be complete in 
itself and to meet the 20-page limitation. Inclusion of material in an 
Appendix should not be used to circumvent the 20-page limitation of the 
proposal narrative. However, in those instances where inclusion of 
supplemental information is necessary to guarantee the peer review 
panel's complete understanding of a proposal or to illustrate the 
integrity of the design or a main thesis of the proposal, such 
information may be included in an Appendix. Examples of supplemental 
material are photographs, journal reprints, brochures and other 
pertinent materials which are deemed to be illustrative of major points 
in the narrative but unsuitable for inclusion in the proposal narrative 
itself. Information on previously submitted proposals may also be 
presented in the Appendix (refer to paragraph(e) of this section). When 
possible, information in the Appendix should be presented in tabular 
format. A complete set of the Appendix material must be attached to each 
copy of the grant application submitted. The Appendix must be identified 
with the title of the project as it appears on Form CSREES-712 of the 
proposal and the name(s) of the project director(s). The Appendix must 
be referenced in the proposal narrative.



         Subpart D--Review and Evaluation of a Teaching Proposal



Sec. 3406.14  Proposal review--teaching.

    The proposal evaluation process includes both internal staff review 
and merit evaluation by peer review panels comprised of scientists, 
educators, business representatives, and Government officials who are 
highly qualified to render expert advice in the areas supported. Peer 
review panels will be selected and structured to provide optimum 
expertise and objective judgment in the evaluation of proposals.



Sec. 3406.15  Evaluation criteria for teaching proposals.

    The maximum score a teaching proposal can receive is 150 points. 
Unless otherwise stated in the annual solicitation published in the 
Federal Register, the peer review panel will consider the following 
criteria and weights to evaluate proposals submitted:

------------------------------------------------------------------------
              Evaluation criterion                        Weight
------------------------------------------------------------------------
(a) Potential for advancing the quality of
 education:
    This criterion is used to assess the
     likelihood that the project will have a
     substantial impact upon and advance the
     quality of food and agricultural sciences
     higher education by strengthening
     institutional capacities through promoting
     education reform to meet clearly
     delineated needs.
        (1) Impact--Does the project address a   15 points.
         targeted need area(s)? Is the problem
         or opportunity clearly documented?
         Does the project address a State,
         regional, national, or international
         problem or opportunity? Will the
         benefits to be derived from the
         project transcend the applicant
         institution or the grant period? Is it
         probable that other institutions will
         adapt this project for their own use?
         Can the project serve as a model for
         others?
        (2) Continuation plans--Are there plans  10 points.
         for continuation or expansion of the
         project beyond USDA support with the
         use of institutional funds? Are there
         indications of external, non-Federal
         support? Are there realistic plans for
         making the project self-supporting?
        (3) Innovation--Are significant aspects  10 points.
         of the project based on an innovative
         or a non-traditional approach toward
         solving a higher education problem or
         strengthening the quality of higher
         education in the food and agricultural
         sciences? If successful, is the
         project likely to lead to education
         reform?

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        (4) Products and results--Are the        15 points.
         expected products and results of the
         project clearly defined and likely to
         be of high quality? Will project
         results be of an unusual or unique
         nature? Will the project contribute to
         a better understanding of or an
         improvement in the quality,
         distribution, or effectiveness of the
         Nation's food and agricultural
         scientific and professional expertise
         base, such as increasing the
         participation of women and minorities?
(b) Overall approach and cooperative linkages:
    This criterion relates to the soundness of
     the proposed approach and the quality of
     the partnerships likely to evolve as a
     result of the project.
        (1) Proposed approach--Do the            15 points.
         objectives and plan of operation
         appear to be sound and appropriate
         relative to the targeted need area(s)
         and the impact anticipated? Are the
         procedures managerially,
         educationally, and scientifically
         sound? Is the overall plan integrated
         with or does it expand upon other
         major efforts to improve the quality
         of food and agricultural sciences
         higher education? Does the timetable
         appear to be readily achievable?
        (2) Evaluation--Are the evaluation       5 points.
         plans adequate and reasonable? Do they
         allow for continuous or frequent
         feedback during the life of the
         project? Are the individuals involved
         in project evaluation skilled in
         evaluation strategies and procedures?
         Can they provide an objective
         evaluation? Do evaluation plans
         facilitate the measurement of project
         progress and outcomes?
        (3) Dissemination--Does the proposed     5 points.
         project include clearly outlined and
         realistic mechanisms that will lead to
         widespread dissemination of project
         results, including national electronic
         communication systems, publications,
         presentations at professional
         conferences, or use by faculty
         development or research/teaching
         skills workshops?
        (4) Partnerships and collaborative       15 points.
         efforts--Does the project have
         significant potential for advancing
         cooperative ventures between the
         applicant institution and a USDA
         agency? Does the project workplan
         include an effective role for the
         cooperating USDA agency(s)? Will the
         project expand partnership ventures
         among disciplines at a university,
         between colleges and universities, or
         with the private sector? Will the
         project lead to long-term
         relationships or cooperative
         partnerships that are likely to
         enhance program quality or supplement
         resources available to food and
         agricultural sciences higher
         education?
(c) Institutional capacity building:
    This criterion relates to the degree to
     which the project will strengthen the
     teaching capacity of the applicant
     institution. In the case of a joint
     project proposal, it relates to the degree
     to which the project will strengthen the
     teaching capacity of the applicant
     institution and that of any other
     institution assuming a major role in the
     conduct of the project.
        (1) Institutional enhancement--Will the  15 points.
         project help the institution to:
         Expand the current faculty's expertise
         base; attract, hire, and retain
         outstanding teaching faculty; advance
         and strengthen the scholarly quality
         of the institution's academic
         programs; enrich the racial, ethnic,
         or gender diversity of the faculty and
         student body; recruit students with
         higher grade point averages, higher
         standardized test scores, and those
         who are more committed to graduation;
         become a center of excellence in a
         particular field of education and
         bring it greater academic recognition;
         attract outside resources for academic
         programs; maintain or acquire state-of-
         the-art scientific instrumentation or
         library collections for teaching; or
         provide more meaningful student
         experiential learning opportunities?
        (2) Institutional commitment--Is there   15 points.
         evidence to substantiate that the
         institution attributes a high-priority
         to the project, that the project is
         linked to the achievement of the
         institution's long-term goals, that it
         will help satisfy the institution's
         high-priority objectives, or that the
         project is supported by the
         institution's strategic plans? Will
         the project have reasonable access to
         needed resources such as instructional
         instrumentation, facilities, computer
         services, library and other
         instruction support resources?
(d) Personnel Resources: This criterion relates  10 points.
 to the number and qualifications of the key
 persons who will carry out the project. Are
 designated project personnel qualified to
 carry out a successful project? Are there
 sufficient numbers of personnel associated
 with the project to achieve the stated
 objectives and the anticipated outcomes?
(e) Budget and cost-effectiveness:
    This criterion relates to the extent to
     which the total budget adequately supports
     the project and is cost-effective.
        (1) Budget--Is the budget request        10 points.
         justifiable? Are costs reasonable and
         necessary? Will the total budget be
         adequate to carry out project
         activities? Are the source(s) and
         amount(s) of non-Federal matching
         support clearly identified and
         appropriately documented? For a joint
         project proposal, is the shared budget
         explained clearly and in sufficient
         detail?
        (2) Cost-effectiveness--Is the proposed  5 points.
         project cost-effective? Does it
         demonstrate a creative use of limited
         resources, maximize educational value
         per dollar of USDA support, achieve
         economies of scale, leverage
         additional funds or have the potential
         to do so, focus expertise and activity
         on a targeted need area, or promote
         coalition building for current or
         future ventures?
(f) Overall quality of proposal: This criterion  5 points.
 relates to the degree to which the proposal
 complies with the application guidelines and
 is of high quality. Is the proposal enhanced
 by its adherence to instructions (table of
 contents, organization, pagination, margin and
 font size, the 20-page limitation, appendices,
 etc.); accuracy of forms; clarity of budget
 narrative; well prepared vitae for all key
 personnel associated with the project; and
 presentation (are ideas effectively presented,
 clearly articulated, and thoroughly explained,
 etc.)?
------------------------------------------------------------------------


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              Subpart E--Preparation of a Research Proposal



Sec. 3406.16  Scope of a research proposal.

    The research component of the program will support projects that 
address high-priority research initiatives in areas such as those 
illustrated in this section where there is a present or anticipated need 
for increased knowledge or capabilities or in which it is feasible for 
applicants to develop programs recognized for their excellence. 
Applicants are also encouraged to include in their proposals a library 
enhancement component related to the initiative(s) for which they have 
prepared their proposals.
    (a) Studies and experimentation in food and agricultural sciences. 
(1) The purpose of this initiative is to advance the body of knowledge 
in those basic and applied natural and social sciences that comprise the 
food and agricultural sciences.
    (2) Examples include, but are not limited to:
    (i) Conduct plant or animal breeding programs to develop better 
crops, forests, or livestock (e.g., more disease resistant, more 
productive, yielding higher quality products).
    (ii) Conceive, design, and evaluate new bioprocessing techniques for 
eliminating undesirable constituents from or adding desirable ones to 
food products.
    (iii) Propose and evaluate ways to enhance utilization of the 
capabilities and resources of food and agricultural institutions to 
promote rural development (e.g., exploitation of new technologies by 
small rural businesses).
    (iv) Identify control factors influencing consumer demand for 
agricultural products.
    (v) Analyze social, economic, and physiological aspects of 
nutrition, housing, and life-style choices, and of community strategies 
for meeting the changing needs of different population groups.
    (vi) Other high-priority areas such as human nutrition, sustainable 
agriculture, biotechnology, agribusiness management and marketing, and 
aquaculture.
    (b) Centralized research support systems. (1) The purpose of this 
initiative is to establish centralized support systems to meet national 
needs or serve regions or clientele that cannot otherwise afford or have 
ready access to the support in question, or to provide such support more 
economically thereby freeing up resources for other research uses.
    (2) Examples include, but are not limited to:
    (i) Storage, maintenance, characterization, evaluation and 
enhancement of germplasm for use by animal and plant breeders, including 
those using the techniques of biotechnology.
    (ii) Computerized data banks of important scientific information 
(e.g., epidemiological, demographic, nutrition, weather, economic, crop 
yields, etc.).
    (iii) Expert service centers for sophisticated and highly 
specialized methodologies (e.g., evaluation of organoleptic and 
nutritional quality of foods, toxicology, taxonomic identifications, 
consumer preferences, demographics, etc.).
    (c) Technology delivery systems. (1) The purpose of this initiative 
is to promote innovations and improvements in the delivery of benefits 
of food and agricultural sciences to producers and consumers, 
particularly those who are currently disproportionately low in receipt 
of such benefits.
    (2) Examples include, but are not limited to:
    (i) Computer-based decision support systems to assist small-scale 
farmers to take advantage of relevant technologies, programs, policies, 
etc.
    (ii) Efficacious delivery systems for nutrition information or for 
resource management assistance for low-income families and individuals.
    (d) Other creative proposals. The purpose of this initiative is to 
encourage other creative proposals, outside the areas previously 
outlined, that are designed to provide needed enhancement of the 
Nation's food and agricultural research system.

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Sec. 3406.17  Program application materials--research.

    Program application materials in an application package will be made 
available to eligible institutions upon request. These materials include 
the program announcement, the administrative provisions for the program, 
and the forms needed to prepare and submit research grant applications 
under the program.



Sec. 3406.18  Content of a research proposal.

    (a) Proposal cover page. (1) Form CSREES-712, ``Higher Education 
Proposal Cover Page,'' must be completed in its entirety. Note that 
providing a Social Security Number is voluntary, but is an integral part 
of the CSREES information system and will assist in the processing of 
the proposal.
    (2) One copy of Form CSREES-712 must contain the pen-and-ink 
signatures of the principal investigator(s) and Authorized 
Organizational Representative for the applicant institution.
    (3) The title of the research project shown on the ``Higher 
Education Proposal Cover Page'' must be brief (80-character maximum) yet 
represent the major thrust of the project. This information will be used 
by the Department to provide information to the Congress and other 
interested parties.
    (4) In block 7. of Form CSREES-712, enter ``Capacity Building Grants 
Program.''
    (5) In block 8.a. of Form CSREES-712, enter ``Research.'' In block 
8.b. identify the code of the targeted need area(s) as found on the 
reverse of the form. If a proposal focuses on multiple targeted need 
areas, enter each code associated with the project. In block 8.c. 
identify the major area(s) of emphasis as found on the reverse of the 
form. If a proposal focuses on multiple areas of emphasis, enter each 
code associated with the project; however, please limit your selection 
to three areas. This information will be used by the program staff for 
the proper assignment of proposals to reviewers.
    (6) In block 9. of Form CSREES-712, indicate if the proposal is a 
complementary project proposal or joint project proposal as defined in 
Sec. 3406.2 of this part. If it is not a complementary project proposal 
or a joint project proposal, identify it as a regular proposal.
    (7) In block 13. of Form CSREES-712, indicate if the proposal is a 
new, first-time submission or if the proposal is a resubmission of a 
proposal that has been submitted to, but not funded under the 1890 
Institution Capacity Building Grants Program in a previous competition.
    (b) Table of contents. For ease of locating information, each 
proposal must contain a detailed table of contents just after the 
Proposal Cover Page. The Table of Contents should include page numbers 
for each component of the proposal. Pagination should begin immediately 
following the summary documentation of USDA agency cooperation.
    (c) USDA agency cooperator. To be considered for funding, each 
proposal must include documentation of cooperation with at least one 
USDA agency or office. If multiple agencies are involved as cooperators, 
documentation must be included from each agency. When documenting 
cooperative arrangements, the following guidelines should be used:
    (1) A summary of the cooperative arrangements must immediately 
follow the Table of Contents. This summary should:
    (i) Bear the signatures of the Agency Head (or his/her designated 
authorized representative) and the university project director;
    (ii) Indicate the agency's willingness to commit support for the 
project;
    (iii) Identify the person(s) at the USDA agency who will serve as 
the liaison or technical contact for the project;
    (iv) Describe the degree and nature of the USDA agency's involvement 
in the proposed project, as outlined in Sec. 3406.6(a) of this part, 
including its role in:
    (A) Identifying the need for the project;
    (B) Developing a conceptual approach;
    (C) Assisting with project design;
    (D) Identifying and securing needed agency or other resources (e.g., 
personnel, grants/contracts; in-kind support, etc.);

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    (E) Developing the project budget;
    (F) Promoting partnerships with other institutions to carry out the 
project;
    (G) Helping the institution launch and manage the project;
    (H) Providing technical assistance and expertise;
    (I) Providing consultation through site visits, E-mail, conference 
calls, and faxes;
    (J) Participating in project evaluation and dissemination of final 
project results; and
    (K) Seeking other innovative ways to ensure the success of the 
project and advance the needs of the institution or the agency; and
    (v) Describe the expected benefits of the partnership venture for 
the USDA agency and for the 1890 Institution.
    (2) A detailed discussion of these partnership arrangements should 
be provided in the narrative portion of the proposal, as outlined in 
paragraph (f)(2)(iv)(C) of this section.
    (3) Additional documentation, including letters of support or 
cooperation, may be provided in the Appendix.
    (d) Project summary. (1) A Project Summary should immediately follow 
the summary documentation of USDA agency cooperation. The information 
provided in the Project Summary will be used by the program staff for a 
variety of purposes, including the proper assignment of proposals to 
peer reviewers and providing information to peer reviewers prior to the 
peer panel meeting. The name of the institution, the targeted need 
area(s), and the title of the proposal must be identified exactly as 
shown on the ``Higher Education Proposal Cover Page.''
    (2) If the proposal is a complementary project proposal, as defined 
in Sec. 3406.2 of this part, clearly state this fact and identify the 
other complementary project(s) by citing the name of the submitting 
institution, the title of the project, the principal investigator, and 
the grant number (if funded in a previous year) exactly as shown on the 
cover page of the complementary project so that appropriate 
consideration can be given to the interrelatedness of the proposals in 
the evaluation process.
    (3) If the proposal is a joint project proposal, as defined in 
Sec. 3406.2 of this part, indicate such and identify the other 
participating institutions and the key person responsible for 
coordinating the project at each institution.
    (4) The Project Summary should be a concise description of the 
proposed activity suitable for publication by the Department to inform 
the general public about awards under the program. The text should not 
exceed one page, single-spaced. The Project Summary should be a self-
contained description of the activity which would result if the proposal 
is funded by USDA. It should include: The objective of the project, a 
synopsis of the plan of operation, a statement of how the project will 
enhance the research capacity of the institution, a description of how 
the project will enhance research in the food and agricultural sciences, 
and a description of the partnership efforts between, and the expected 
benefits for, the USDA agency cooperator(s) and the 1890 Institution and 
the plans for disseminating project results. The Project Summary should 
be written so that a technically literate reader can evaluate the use of 
Federal funds in support of the project.
    (e) Resubmission of a proposal--(1) Resubmission of previously 
unfunded proposals. (i) If the proposal has been submitted previously, 
but was not funded, such should be indicated in block 13. on Form 
CSREES-712, ``Higher Education Proposal Cover Page,'' and the following 
information should be included in the proposal:
    (A) The fiscal year(s) in which the proposal was submitted 
previously;
    (B) A summary of the peer reviewers' comments; and
    (C) How these comments have been addressed in the current proposal, 
including the page numbers in the current proposal where the peer 
reviewers' comments have been addressed.
    (ii) This information may be provided as a section of the proposal 
following the Project Summary and preceding the proposal narrative or it 
may be placed in the Appendix (see paragraph (j) of this section). In 
either case, the location of this information should be indicated in the 
Table of Contents, and

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the fact that the proposal is a resubmitted proposal should be stated in 
the proposal narrative. Further, when possible, the information should 
be presented in a tabular format. Applicants who choose to resubmit 
proposals that were previously submitted, but not funded, should note 
that resubmitted proposals must compete equally with newly submitted 
proposals. Submitting a proposal that has been revised based on a 
previous peer review panel's critique of the proposal does not guarantee 
the success of the resubmitted proposal.
    (2) Resubmission of previously funded proposals. Recognizing that 
capacity building is a long-term ongoing process, the 1890 Institution 
Capacity Building Grants Program is interested in funding subsequent 
phases of previously funded projects in order to build institutional 
capacity, and institutions are encouraged to build on a theme over 
several grant awards. However, proposals that are sequential 
continuations or new stages of previously funded Capacity Building 
Grants must compete with first-time proposals. Therefore, principal 
investigators should thoroughly demonstrate how the project proposed in 
the current application expands substantially upon a previously funded 
project (i.e., demonstrate how the new project will advance the former 
project to the next level of attainment or will achieve expanded goals). 
The proposal must also show the degree to which the new phase promotes 
innovativeness and creativity beyond the scope of the previously funded 
project. Please note that the 1890 Institution Capacity Building Grants 
Program is not designed to support activities that are essentially 
repetitive in nature over multiple grant awards. Principal investigators 
who have had their projects funded previously are discouraged from 
resubmitting relatively identical proposals for future funding.
    (f) Narrative of a research proposal. The narrative portion of the 
proposal is limited to 20 pages in length. The one-page Project Summary 
is not included in the 20-page limitation. The narrative must be typed 
on one side of the page only, using a font no smaller than 12 point, and 
double-spaced. All margins must be at least one inch. All pages 
following the summary documentation of USDA agency cooperation must be 
paginated. It should be noted that peer reviewers will not be required 
to read beyond 20 pages of the narrative to evaluate the proposal. The 
narrative should contain the following sections:
    (1) Significance of the problem--(i) Impact--(A) Identification of 
the problem or opportunity. Clearly identify the specific problem or 
opportunity to be addressed and present any research questions or 
hypotheses to be examined.
    (B) Rationale. Provide a rationale for the proposed approach to the 
problem or opportunity and indicate the part that the proposed project 
will play in advancing food and agricultural research and knowledge. 
Discuss how the project will be of value and importance at the State, 
regional, national, or international level(s). Also discuss how the 
benefits to be derived from the project will transcend the proposing 
institution or the grant period.
    (C) Literature review. Include a comprehensive summary of the 
pertinent scientific literature. Citations may be footnoted to a 
bibliography in the Appendix. Citations should be accurate, complete, 
and adhere to an acceptable journal format. Explain how such knowledge 
(or previous findings) is related to the proposed project.
    (D) Current research and related activities. Describe the relevancy 
of the proposed project to current research or significant research 
support activities at the proposing institution and any other 
institution participating in the project, including research which may 
be as yet unpublished.
    (ii) Continuation plans. Discuss the likelihood or plans for 
continuation or expansion of the project beyond USDA support. Discuss, 
as applicable, how the institution's long-range budget, and 
administrative and academic plans, provide for the realistic 
continuation or expansion of the line of research or research support 
activity undertaken by this project after the end of the grant period. 
For example, are there plans for securing non-Federal support for the 
project? Is there any potential for income from patents, technology

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transfer or university-business enterprises resulting from the project? 
Also discuss the probabilities of the proposed activity or line of 
inquiry being pursued by researchers at other institutions.
    (iii) Innovation. Describe the degree to which the proposal reflects 
an innovative or non-traditional approach to a food and agricultural 
research initiative.
    (iv) Products and results. Explain the kinds of products and results 
expected and their impact on strengthening food and agricultural 
sciences higher education in the United States, including attracting 
academically outstanding students or increasing the ethnic, racial, and 
gender diversity of the Nation's food and agricultural scientific and 
professional expertise base.
    (2) Overall approach and cooperative linkages--(i) Approach--(A) 
Objectives. Cite and discuss the specific objectives to be accomplished 
under the project.
    (B) Plan of operation. The procedures or methodologies to be applied 
to the proposed project should be explicitly stated. This section should 
include, but not necessarily be limited to a description of:
    (1) The proposed investigations, experiments, or research support 
enhancements in the sequence in which they will be carried out.
    (2) Procedures and techniques to be employed, including their 
feasibility.
    (3) Means by which data will be collected and analyzed.
    (4) Pitfalls that might be encountered.
    (5) Limitations to proposed procedures.
    (C) Timetable. Provide a timetable for execution of the project. 
Identify all important research milestones and dates as they relate to 
project start-up, execution, dissemination, evaluation, and close-out.
    (ii) Evaluation plans. (A) Provide a plan for evaluating the 
accomplishment of stated objectives during the conduct of the project. 
Indicate the criteria, and corresponding weight of each, to be used in 
the evaluation process, describe any performance data to be collected 
and analyzed, and explain the methodologies that will be used to 
determine the extent to which the needs underlying the project are being 
met.
    (B) Provide a plan for evaluating the effectiveness of the end 
results upon conclusion of the project. Include the same kinds of 
information requested in paragraph (f)(2)(ii)(A) of this section.
    (iii) Dissemination plans. Provide plans for disseminating project 
results and products including the possibilities for publications. 
Identify target audiences and explain methods of communication.
    (iv) Partnerships and collaborative efforts. (A) Explain how the 
project will maximize partnership ventures and collaborative efforts to 
strengthen food and agricultural sciences higher education (e.g., 
involvement of faculty in related disciplines at the same institution, 
joint projects with other colleges or universities, or cooperative 
activities with business or industry). Also explain how it will 
stimulate academia, the States, or the private sector to join with the 
Federal partner in enhancing food and agricultural sciences higher 
education.
    (B) Provide evidence, via letters from the parties involved, that 
arrangements necessary for collaborative partnerships or joint 
initiatives have been discussed and realistically can be expected to 
come to fruition, or actually have been finalized contingent on an award 
under this program. Letters must be signed by an official who has the 
authority to commit the resources of the organization. Such letters 
should be referenced in the plan of operation, but the actual letters 
should be included in the Appendix section of the proposal. Any 
potential conflict(s) of interest that might result from the proposed 
collaborative arrangements must be discussed in detail. Proposals which 
indicate joint projects with other institutions must state which 
proposer is to receive any resulting grant award, since only one 
submitting institution can be the recipient of a project grant under one 
proposal.
    (C) Explain how the project will create a new or enhance an existing 
partnership between the USDA agency cooperator(s) and the 1890 
Institution(s). This section should expand upon the summary information 
provided in the

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documentation of USDA agency cooperation section, as outlined in 
paragraph (c)(1) of this section. This is particularly important because 
the focal point of attention in the peer review process is the proposal 
narrative. Therefore, a comprehensive discussion of the partnership 
effort between USDA and the 1890 Institution should be provided.
    (3) Institutional capacity building--(i) Institutional enhancement. 
Explain how the proposed project will strengthen the research capacity, 
as defined in Sec. 3406.2 of this part, of the applicant institution 
and, if applicable, any other institutions assuming a major role in the 
conduct of the project. For example, describe how the proposed project 
is intended to strengthen the institution's research infrastructure by 
advancing the expertise of the current faculty in the natural or social 
sciences; providing a better research environment, state-of-the-art 
equipment, or supplies; enhancing library collections; or enabling the 
institution to provide efficacious organizational structures and reward 
systems to attract and retain first-rate research faculty and students--
particularly those from underrepresented groups.
    (ii) Institutional commitment. (A) Discuss the institution's 
commitment to the project and its successful completion. Provide, as 
relevant, appropriate documentation in the Appendix. Substantiate that 
the institution attributes a high priority to the project.
    (B) Discuss how the project will contribute to the achievement of 
the institution's long-term (five- to ten-year) goals and how the 
project will help satisfy the institution's high-priority objectives. 
Show how this project is linked to and supported by the institution's 
strategic plan.
    (C) Discuss the commitment of institutional resources to the 
project. Show that the institutional resources to be made available to 
the project will be adequate, when combined with the support requested 
from USDA, to carry out the activities of the project and represent a 
sound commitment by the institution. Discuss institutional facilities, 
equipment, computer services, and other appropriate resources available 
to the project.
    (g) Key personnel. A Form CSREES-710, ``Summary Vita--Research 
Proposal,'' should be included for each key person associated with the 
project.
    (h) Budget and cost-effectiveness--(1) Budget form. (i) Prepare Form 
CSREES-713, ``Higher Education Budget,'' in accordance with instructions 
provided with the form. Proposals may request support for a period to be 
identified in each year's program announcement. A budget form is 
required for each year of requested support. In addition, a summary 
budget is required detailing the requested total support for the overall 
project period. Form CSREES-713 may be reproduced as needed by 
proposers. Funds may be requested under any of the categories listed on 
the form, provided that the item or service for which support is 
requested is allowable under the authorizing legislation, the applicable 
Federal cost principles, the administrative provisions in this part, and 
can be justified as necessary for the successful conduct of the proposed 
project.
    (ii) The approved negotiated research rate or the maximum rate 
allowed by law should be used when computing indirect costs. If a 
reduced rate of indirect costs is voluntarily requested from USDA, the 
remaining allowable indirect costs may be used as matching funds. In the 
event that a proposal reflects an incorrect indirect cost rate and is 
recommended for funding, the correct rate will be applied to the 
approved budget in the grant award.
    (2) Matching funds. When documenting matching contributions, use the 
following guidelines:
    (i) When preparing the column entitled ``Applicant Contributions To 
Matching Funds'' of Form CSREES-713, only those costs to be contributed 
by the applicant for the purposes of matching should be shown. The total 
amount of this column should be indicated in item M.
    (ii) In item N of Form CSREES-713, show a total dollar amount for 
Cash Contributions from both the applicant and any third parties; also 
show a total dollar amount (based on current fair market value) for Non-
cash Contributions from both the applicant and any third parties.

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    (iii) To qualify for any incentive benefits stemming from matching 
support or to satisfy any cost sharing requirements, proposals must 
include written verification of any actual commitments of matching 
support (including both cash and non-cash contributions) from third 
parties. Written verification means--
    (A) For any third party cash contributions, a separate pledge 
agreement for each donation, signed by the authorized organizational 
representative(s) of the donor organization (or by the donor if the gift 
is from an individual) and the applicant institution, which must 
include:
    (1) The name, address, and telephone number of the donor;
    (2) The name of the applicant institution;
    (3) The title of the project for which the donation is made;
    (4) The dollar amount of the cash donation; and
    (5) A statement that the donor will pay the cash contribution during 
the grant period; and
    (B) For any third party non-cash contributions, a separate pledge 
agreement for each contribution, signed by the authorized organizational 
representative(s) of the donor organization (or by the donor if the gift 
is from an individual) and the applicant institution, which must 
include:
    (1) The name, address, and telephone number of the donor;
    (2) The name of the applicant institution;
    (3) The title of the project for which the donation is made;
    (4) A good faith estimate of the current fair market value of the 
non-cash contribution; and
    (5) A statement that the donor will make the contribution during the 
grant period.
    (iv) All pledge agreements must be placed in the proposal 
immediately following Form CSREES-713. The sources and amounts of all 
matching support from outside the applicant institution should be 
summarized in the Budget Narrative section of the proposal.
    (v) Applicants should refer to OMB Circulars A-110, ``Uniform 
Administrative Requirements for Grants and Agreements With Institutions 
of Higher Education, Hospitals and Other Non-profit Organizations,'' and 
A-21, ``Cost Principles for Educational Institutions,'' for further 
guidance and other requirements relating to matching and allowable 
costs.
    (3) Chart on shared budget for joint project proposal. (i) For a 
joint project proposal, a plan must be provided indicating how funds 
will be distributed to the participating institutions. The budget 
section of a joint project proposal should include a chart indicating:
    (A) The names of the participating institutions;
    (B) the amount of funds to be disbursed to those institutions; and
    (C) the way in which such funds will be used in accordance with 
items A through L of Form CSREES-713, ``Higher Education Budget.''
    (ii) If a proposal is not for a joint project, such a chart is not 
required.
    (4) Budget narrative. (i) Discuss how the budget specifically 
supports the proposed project activities. Explain how each budget item 
(such as salaries and wages for professional and technical staff, 
student workers, travel, equipment, etc.) is essential to achieving 
project objectives.
    (ii) Justify that the total budget, including funds requested from 
USDA and any matching support provided, will be adequate to carry out 
the activities of the project. Provide a summary of sources and amounts 
of all third party matching support.
    (iii) Justify the project's cost-effectiveness. Show how the project 
maximizes the use of limited resources, optimizes research value for the 
dollar, achieves economies of scale, or leverages additional funds. For 
example, discuss how the project has the potential to generate a 
critical mass of expertise and activity focused on a high-priority 
research initiative(s) or promote coalition building that could lead to 
future ventures.
    (iv) Include the percentage of time key personnel will work on the 
project, both during the academic year and summer. When salaries of 
university project personnel will be paid by a combination of USDA and 
institutional funds, the total compensation must not exceed the faculty 
member's regular annual compensation. In addition, the

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total commitment of time devoted to the project, when combined with time 
for teaching and research duties, other sponsored agreements, and other 
employment obligations to the institution, must not exceed 100 percent 
of the normal workload for which the employee is compensated, in 
accordance with established university policies and applicable Federal 
cost principles.
    (v) If the proposal addresses more than one targeted need area, 
estimate the proportion of the funds requested from USDA that will 
support each respective targeted need area.
    (i) Current and pending support. Each applicant must complete Form 
CSREES-663, ``Current and Pending Support,'' identifying any other 
current public- or private-sponsored projects, in addition to the 
proposed project, to which key personnel listed in the proposal under 
consideration have committed portions of their time, whether or not 
salary support for the person(s) involved is included in the budgets of 
the various projects. This information should also be provided for any 
pending proposals which are currently being considered by, or which will 
be submitted in the near future to, other possible sponsors, including 
other USDA programs or agencies. Concurrent submission of identical or 
similar projects to other possible sponsors will not prejudice the 
review or evaluation of a project under this program.
    (j) Appendix. Each project narrative is expected to be complete in 
itself and to meet the 20-page limitation. Inclusion of material in the 
Appendix should not be used to circumvent the 20-page limitation of the 
proposal narrative. However, in those instances where inclusion of 
supplemental information is necessary to guarantee the peer review 
panel's complete understanding of a proposal or to illustrate the 
integrity of the design or a main thesis of the proposal, such 
information may be included in the Appendix. Examples of supplemental 
material are photographs, journal reprints, brochures and other 
pertinent materials which are deemed to be illustrative of major points 
in the narrative but unsuitable for inclusion in the proposal narrative 
itself. Information on previously submitted proposals may also be 
presented in the Appendix (refer to paragraph (e) of this section). When 
possible, information in the Appendix should be presented in tabular 
format. A complete set of the Appendix material must be attached to each 
copy of the grant application submitted. The Appendix must be identified 
with the title of the project as it appears on Form CSREES-712 of the 
proposal and the name(s) of the principal investigator(s). The Appendix 
must be referenced in the proposal narrative.
    (k) Special considerations. A number of situations encountered in 
the conduct of research require special information or supporting 
documentation before funding can be approved for the project. If such 
situations are anticipated, proposals must so indicate via completion of 
Form CSREES-662, ``Assurance Statement(s).'' It is expected that some 
applications submitted in response to these guidelines will involve the 
following:
    (1) Recombinant DNA research. All key personnel identified in the 
proposal and all endorsing officials of the proposing organization are 
required to comply with the guidelines established by the National 
Institutes of Health entitled ``Guidelines for Research Involving 
Recombinant DNA Molecules,'' as revised. All applicants proposing to use 
recombinant DNA techniques must so indicate by checking the appropriate 
box on Form CSREES-712, ``Higher Education Proposal Cover Page,'' and by 
completing the applicable section of Form CSREES-662. In the event a 
project involving recombinant DNA or RNA molecules results in a grant 
award, the Institutional Biosafety Committee of the proposing 
institution must approve the research plan before CSREES will release 
grant funds.
    (2) Protection of human subjects. Responsibility for safeguarding 
the rights and welfare of human subjects used in any grant project 
supported with funds provided by CSREES rests with the performing 
organization. Guidance on this is contained in Department of Agriculture 
regulations under 7 CFR part 1c. All applicants who propose to use human 
subjects for experimental purposes must indicate their intention by 
checking the appropriate block on

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Form CSREES-712, ``Higher Education Proposal Cover Page,'' and by 
completing the appropriate portion of Form CSREES-662. In the event a 
project involving human subjects results in a grant award, the 
Institutional Review Board of the proposing institution must approve the 
research plan before CSREES will release grant funds.
    (3) Laboratory animal care. Responsibility for the humane care and 
treatment of laboratory animals used in any grant project supported with 
funds provided by CSREES rests with the performing organization. All key 
project personnel and all endorsing officials of the proposing 
organization are required to comply with the Animal Welfare Act of 1966, 
as amended (7 U.S.C. 2131 et seq.), and the regulations promulgated 
thereunder by the Secretary of Agriculture in 9 CFR parts 1, 2, 3, and 4 
pertaining to the care, handling, and treatment of laboratory animals. 
All applicants proposing a project which involves the use of laboratory 
animals must indicate their intention by checking the appropriate block 
on Form CSREES-712, ``Higher Education Proposal Cover Page,'' and by 
completing the appropriate portion of Form CSREES-662. In the event a 
project involving the use of living vertebrate animals results in a 
grant award, the Institutional Animal Care and Use Committee of the 
proposing institution must approve the research plan before CSREES will 
release grant funds.
    (l) Compliance with the National Environmental Policy Act (NEPA). As 
outlined in 7 CFR Part 3407 (the Cooperative State Research, Education, 
and Extension Service regulations implementing NEPA), the environmental 
data for any proposed project is to be provided to CSREES so that CSREES 
may determine whether any further action is needed. In some cases, 
however, the preparation of environmental data may not be required. 
Certain categories of actions are excluded from the requirements of 
NEPA.
    (1) NEPA determination. In order for CSREES to determine whether any 
further action is needed with respect to NEPA, pertinent information 
regarding the possible environmental impacts of a particular project is 
necessary; therefore, Form CSREES-1234, ``NEPA Exclusions Form,''ust be 
included in the proposal indicating whether the applicant is of the 
opinion that the project falls within a categorical exclusion and the 
reasons therefor. If it is the applicant's opinion that the proposed 
project falls within the categorical exclusions, the specific exclusion 
must be identified. Form CSREES-1234 and any supporting documentation 
should be placed at the end of the proposal and identified in the Table 
of Contents.
    (2) Exceptions to categorical exclusions. Even though a project may 
fall within the categorical exclusions, CSREES may determine that an 
Environmental Assessment or an Environmental Impact Statement is 
necessary for an activity, if substantial controversy on environmental 
grounds exists or if other extraordinary conditions or circumstances are 
present which may cause such activity to have a significant 
environmental effect.



         Subpart F--Review and Evaluation of a Research Proposal



Sec. 3406.19  Proposal review--research.

    The proposal evaluation process includes both internal staff review 
and merit evaluation by peer review panels comprised of scientists, 
educators, business representatives, and Government officials who are 
highly qualified to render expert advice in the areas supported. Peer 
review panels will be selected and structured to provide optimum 
expertise and objective judgment in the evaluation of proposals.



Sec. 3406.20  Evaluation criteria for research proposals.

    The maximum score a research proposal can receive is 150 points. 
Unless otherwise stated in the annual solicitation published in the 
Federal Register, the peer review panel will consider the following 
criteria and weights to evaluate proposals submitted:

------------------------------------------------------------------------
              Evaluation criterion                        Weight
------------------------------------------------------------------------
(a) Significance of the problem:

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    This criterion is used to assess the
     likelihood that the project will advance
     or have a substantial impact upon the body
     of knowledge constituting the natural and
     social sciences undergirding the
     agricultural, natural resources, and food
     systems.
        (1) Impact--Is the problem or            15 points.
         opportunity to be addressed by the
         proposed project clearly identified,
         outlined, and delineated? Are research
         questions or hypotheses precisely
         stated? Is the project likely to
         further advance food and agricultural
         research and knowledge? Does the
         project have potential for augmenting
         the food and agricultural scientific
         knowledge base? Does the project
         address a State, regional, national,
         or international problem(s)? Will the
         benefits to be derived from the
         project transcend the applicant
         institution or the grant period?
        (2) Continuation plans--Are there plans  10 points.
         for continuation or expansion of the
         project beyond USDA support? Are there
         plans for continuing this line of
         research or research support activity
         with the use of institutional funds
         after the end of the grant? Are there
         indications of external, non-Federal
         support? Are there realistic plans for
         making the project self-supporting?
         What is the potential for royalty or
         patent income, technology transfer or
         university-business enterprises? What
         are the probabilities of the proposed
         activity or line of inquiry being
         pursued by researchers at other
         institutions?
        (3) Innovation--Are significant aspects  10 points.
         of the project based on an innovative
         or a non-traditional approach? Does
         the project reflect creative thinking?
         To what degree does the venture
         reflect a unique approach that is new
         to the applicant institution or new to
         the entire field of study?
        (4) Products and results--Are the        15 points.
         expected products and results of the
         project clearly outlined and likely to
         be of high quality? Will project
         results be of an unusual or unique
         nature? Will the project contribute to
         a better understanding of or an
         improvement in the quality,
         distribution, or effectiveness of the
         Nation's food and agricultural
         scientific and professional expertise
         base, such as increasing the
         participation of women and minorities?
(b) Overall approach and cooperative linkages:
    This criterion relates to the soundness of
     the proposed approach and the quality of
     the partnerships likely to evolve as a
     result of the project.
        (1) Proposed approach--Do the            5 points.
         objectives and plan of operation
         appear to be sound and appropriate
         relative to the proposed initiative(s)
         and the impact anticipated? Is the
         proposed sequence of work appropriate?
         Does the proposed approach reflect
         sound knowledge of current theory and
         practice and awareness of previous or
         ongoing related research? If the
         proposed project is a continuation of
         a current line of study or currently
         funded project, does the proposal
         include sufficient preliminary data
         from the previous research or research
         support activity? Does the proposed
         project flow logically from the
         findings of the previous stage of
         study? Are the procedures
         scientifically and managerially sound?
         Are potential pitfalls and limitations
         clearly identified? Are contingency
         plans delineated? Does the timetable
         appear to be readily achievable?
        (2) Evaluation--Are the evaluation       5 points
         plans adequate and reasonable? Do they
         allow for continuous or frequent
         feedback during the life of the
         project? Are the individuals involved
         in project evaluation skilled in
         evaluation strategies and procedures?
         Can they provide an objective
         evaluation? Do evaluation plans
         facilitate the measurement of project
         progress and outcomes?
        (3) Dissemination--Does the proposed     5 points.
         project include clearly outlined and
         realistic mechanisms that will lead to
         widespread dissemination of project
         results, including national electronic
         communication systems, publications
         and presentations at professional
         society meetings?
        (4) Partnerships and collaborative       15 points.
         efforts--Does the project have
         significant potential for advancing
         cooperative ventures between the
         applicant institution and a USDA
         agency? Does the project workplan
         include an effective role for the
         cooperating USDA agency(s)? Will the
         project encourage and facilitate
         better working relationships in the
         university science community, as well
         as between universities and the public
         or private sector? Does the project
         encourage appropriate multi-
         disciplinary collaboration? Will the
         project lead to long-term
         relationships or cooperative
         partnerships that are likely to
         enhance research quality or supplement
         available resources?
(c) Institutional capacity building:
    This criterion relates to the degree to
     which the project will strengthen the
     research capacity of the applicant
     institution. In the case of a joint
     project proposal, it relates to the degree
     to which the project will strengthen the
     research capacity of the applicant
     institution and that of any other
     institution assuming a major role in the
     conduct of the project.
        (1) Institutional enhancement--Will the  15 points.
         project help the institution to
         advance the expertise of current
         faculty in the natural or social
         sciences; provide a better research
         environment, state-of-the-art
         equipment, or supplies; enhance
         library collections related to the
         area of research; or enable the
         institution to provide efficacious
         organizational structures and reward
         systems to attract, hire and retain
         first-rate research faculty and
         students--particularly those from
         underrepresented groups?
        (2) Institutional commitment--Is there   15 points.
         evidence to substantiate that the
         institution attributes a high-priority
         to the project, that the project is
         linked to the achievement of the
         institution's long-term goals, that it
         will help satisfy the institution's
         high-priority objectives, or that the
         project is supported by the
         institution's strategic plans? Will
         the project have reasonable access to
         needed resources such as scientific
         instrumentation, facilities, computer
         services, library and other research
         support resources?
(d) Personnel Resources........................  10 Points
    This criterion relates to the number and
     qualifications of the key persons who will
     carry out the project. Are designated
     project personnel qualified to carry out a
     successful project? Are there sufficient
     numbers of personnel associated with the
     project to achieve the stated objectives
     and the anticipated outcomes? Will the
     project help develop the expertise of
     young scientists at the doctoral or post-
     doctorate level?
(e) Budget and cost-effectiveness:

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    This criterion relates to the extent to
     which the total budget adequately supports
     the project and is cost-effective.
        (1) Budget--Is the budget request        10 points.
         justifiable? Are costs reasonable and
         necessary? Will the total budget be
         adequate to carry out project
         activities? Are the source(s) and
         amount(s) of non-Federal matching
         support clearly identified and
         appropriately documented? For a joint
         project proposal, is the shared budget
         explained clearly and in sufficient
         detail?
        (2) Cost-effectiveness--Is the proposed  5 points.
         project cost-effective? Does it
         demonstrate a creative use of limited
         resources, maximize research value per
         dollar of USDA support, achieve
         economies of scale, leverage
         additional funds or have the potential
         to do so, focus expertise and activity
         on a high-priority research
         initiative(s), or promote coalition
         building for current or future
         ventures?
(f) Overall quality of proposal................  5 points
    This criterion relates to the degree to
     which the proposal complies with the
     application guidelines and is of high
     quality. Is the proposal enhanced by its
     adherence to instructions (table of
     contents, organization, pagination, margin
     and font size, the 20-page limitation,
     appendices, etc.); accuracy of forms;
     clarity of budget narrative; well prepared
     vitae for all key personnel associated
     with the project; and presentation (are
     ideas effectively presented, clearly
     articulated, thoroughly explained, etc.)?
------------------------------------------------------------------------



        Subpart G--Submission of a Teaching or Research Proposal



Sec. 3406.21  Intent to submit a proposal.

    To assist CSREES in preparing for the review of proposals, 
institutions planning to submit proposals may be requested to complete 
Form CSREES-711, ``Intent to Submit a Proposal,'' provided in the 
application package. CSREES will determine each year if Intent to Submit 
a Proposal forms will be requested and provide such information in the 
program announcement. If Intent to Submit a Proposal forms are required, 
one form should be completed and returned for each proposal an 
institution anticipates submitting. Submitting this form does not commit 
an institution to any course of action, nor does failure to send this 
form prohibit an institution from submitting a proposal.



Sec. 3406.22  When and where to submit a proposal.

    The program announcement will provide the deadline date for 
submitting a proposal, the number of copies of each proposal that must 
be submitted, and the address to which proposals must be submitted.



                  Subpart H--Supplementary Information



Sec. 3406.23  Access to peer review information.

    After final decisions have been announced, CSREES will, upon 
request, inform the principal investigator/project director of the 
reasons for its decision on a proposal. Verbatim copies of summary 
reviews, not including the identity of the peer reviewers, will be made 
available to the respective principal investigator/project directors 
upon specific request.



Sec. 3406.24  Grant awards.

    (a) General. Within the limit of funds available for such purpose, 
the authorized departmental officer shall make project grants to those 
responsible, eligible applicants whose proposals are judged most 
meritorious in the announced targeted need areas under the evaluation 
criteria and procedures set forth in this part. The beginning of the 
project period shall be no later than September 30 of the Federal fiscal 
year in which the project is approved for support. All funds granted 
under this part shall be expended solely for the purpose for which the 
funds are granted in accordance with the approved application and 
budget, the regulations of this part, the terms and conditions of the 
award, the applicable Federal cost principles, and the Department's 
Uniform Administrative Requirements for Grants and Agreements with 
Institutions of Higher Education, Hospitals, and Other Non-Profit 
Organizations (7 CFR part 3019).
    (b) Organizational management information. Specific management 
information relating to a proposing institution shall be submitted on a 
one-time basis prior to the award of a project grant identified under 
this part if such information has not been provided previously under 
this or another program

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for which the sponsoring agency is responsible. Copies of forms used to 
fulfill this requirement will be sent to the proposing institution by 
the sponsoring agency as part of the pre-award process.
    (c) Notice of grant award. The grant award document shall include at 
a minimum the following:
    (1) Legal name and address of performing organization.
    (2) Title of project.
    (3) Name(s) and address(es) of principal investigator(s)/project 
director(s).
    (4) Identifying grant number assigned by the Department.
    (5) Project period, which specifies how long the Department intends 
to support the effort without requiring reapplication for funds.
    (6) Total amount of Federal financial assistance approved during the 
project period.
    (7) Legal authority(ies) under which the grant is awarded.
    (8) Approved budget plan for categorizing allocable project funds to 
accomplish the stated purpose of the grant award.
    (9) Other information or provisions deemed necessary by the 
Department to carry out its granting activities or to accomplish the 
purpose of this particular project grant.
    (d) Obligation of the Federal Government. Neither the approval of 
any application nor the award of any project grant shall legally commit 
or obligate CSREES or the United States to provide further support of a 
project or any portion thereof.



Sec. 3406.25  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The grantee may not in 
whole or in part delegate or transfer to another person, institution, or 
organization the responsibility for use or expenditure of grant funds.
    (b) Change in project plans. (1) The permissible changes by the 
grantee, principal investigator(s)/project director(s), or other key 
project personnel in the approved project grant shall be limited to 
changes in methodology, techniques, or other aspects of the project to 
expedite achievement of the project's approved goals. If the grantee or 
the principal investigator(s)/project director(s) are uncertain as to 
whether a change complies with this provision, the question must be 
referred to the Department for a final determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
the grantee and approved in writing by the authorized departmental 
officer prior to effecting such changes. In no event shall requests for 
such changes be approved which are outside the scope of the approved 
project.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
grantee and approved in writing by the authorized departmental officer 
prior to effecting such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the grantee and 
approved in writing by the authorized departmental officer prior to 
effecting such transfers.
    (c) Changes in project period. The project period may be extended by 
the authorized departmental officer without additional financial support 
for such additional period(s) as the authorized departmental officer 
determines may be necessary to complete or fulfill the purposes of an 
approved project. However, due to statutory restriction, no grant may be 
extended beyond five years from the original start date of the grant. 
Grant extensions shall be conditioned upon prior request by the grantee 
and approval in writing by the authorized departmental officer, unless 
prescribed otherwise in the terms and conditions of a grant.
    (d) Changes in approved budget. Changes in an approved budget must 
be requested by the grantee and approved in writing by the authorized 
departmental officer prior to instituting such changes if the revision 
will:
    (1) Involve transfers of amounts budgeted for indirect costs to 
absorb an increase in direct costs;
    (2) Involve transfers of amounts budgeted for direct costs to 
accommodate changes in indirect cost rates negotiated during a budget 
period and not approved when a grant was awarded; or

[[Page 339]]

    (3) Involve transfers or expenditures of amounts requiring prior 
approval as set forth in the applicable Federal cost principles, 
Departmental regulations, or in the grant award.



Sec. 3406.26  Monitoring progress of funded projects.

    (a) During the tenure of a grant, principal investigators/project 
directors must attend at least one national principal investigators/
project directors meeting, if offered, in Washington, DC or any other 
announced location. The purpose of the meeting will be to discuss 
project and grant management, opportunities for collaborative efforts, 
future directions for education reform, research project management, 
advancing a field of science, and opportunities to enhance dissemination 
of exemplary end products/results.
    (b) An Annual Performance Report must be submitted to the USDA 
program contact person within 90 days after the completion of the first 
year of the project and annually thereafter during the life of the 
grant. Generally, the Annual Performance Reports should include a 
summary of the overall progress toward project objectives, current 
problems or unusual developments, the next year's planned activities, 
and any other information that is pertinent to the ongoing project or 
which may be specified in the terms and conditions of the award. These 
reports are in addition to the annual Current Research Information 
System (CRIS) reports required for all research grants under the award's 
``Special Terms and Conditions.''
    (c) A Final Performance Report must be submitted to the USDA program 
contact person within 90 days after the expiration date of the project. 
The expiration date is specified in the award documents and 
modifications thereto, if any. Generally, the Final Performance Report 
should be a summary of the completed project, including: A review of 
project objectives and accomplishments; a description of any products 
and outcomes resulting from the project; activities undertaken to 
disseminate products and outcomes; partnerships and collaborative 
ventures that resulted from the project; future initiatives that are 
planned as a result of the project; the impact of the project on the 
principal investigator(s)/project director(s), the institution, and the 
food and agricultural sciences higher education system; and data on 
project personnel and beneficiaries. The Final Performance Report should 
be accompanied by samples or copies of any products or publications 
resulting from or developed by the project. The Final Performance Report 
must also contain any other information which may be specified in the 
terms and conditions of the award.



Sec. 3406.27  Other Federal statutes and regulations that apply.

    Several other Federal statutes and regulations apply to grant 
proposals considered for review and to project grants awarded under this 
part. These include but are not limited to:

7 CFR Part 1, Subpart A--USDA implementation of Freedom of Information 
Act.
7 CFR Part 3--USDA implementation of OMB Circular No. A-129 regarding 
debt collection.
7 CFR Part 15, Subpart A--USDA implementation of Title VI of the Civil 
Rights Act of 1964, as amended.
7 CFR Part 3015--USDA Uniform Federal Assistance Regulations, 
implementing OMB directives (i.e., Circular Nos. A-21 and A-122) and 
incorporating provisions of 31 U.S.C. 6301-6308 (the Federal Grant and 
Cooperative Agreement Act of 1977, Pub. L. 95-224), as well as general 
policy requirements applicable to recipients of Departmental financial 
assistance.
7 CFR Part 3017--Governmentwide Debarment and Suspension 
(Nonprocurement); Governmentwide Requirements for Drug-Free Workplace 
(Grants), implementing Executive Order 12549 on debarment and suspension 
and the Drug-Free Workplace Act of 1988 (41 U.S.C. 701).
7 CFR Part 3018--Restrictions on Lobbying, prohibiting the use of 
appropriated funds to influence Congress or a Federal agency in 
connection with the making of any Federal grant and other Federal 
contracting and financial transactions.
7 CFR Part 3019--USDA implementation of OMB Circular A-110, Uniform 
Administrative Requirements for Grants and Agreements With Institutions 
of Higher Education, Hospitals, and Other Nonprofit Organizations.
7 CFR Part 3051--Audits of Institutions of Higher Education and other 
Nonprofit Institutions.

[[Page 340]]

29 U.S.C. 794, section 504--Rehabilitation Act of 1973, and 7 CFR Part 
15b (USDA implementation of statute), prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs.
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).



Sec. 3406.28  Confidential aspects of proposals and awards.

    When a proposal results in a grant, it becomes a part of the record 
of the Agency's transactions, available to the public upon specific 
request. Information that the Secretary determines to be of a privileged 
nature will be held in confidence to the extent permitted by law. 
Therefore, any information that the applicant wishes to have considered 
as privileged should be clearly marked as such and sent in a separate 
statement, two copies of which should accompany the proposal. The 
original copy of a proposal that does not result in a grant will be 
retained by the Agency for a period of one year. Other copies will be 
destroyed. Such a proposal will be released only with the consent of the 
applicant or to the extent required by law. A proposal may be withdrawn 
at any time prior to the final action thereon.



Sec. 3406.29  Evaluation of program.

    Grantees should be aware that CSREES may, as a part of its own 
program evaluation activities, carry out in-depth evaluations of 
assisted activities. Thus, grantees should be prepared to cooperate with 
CSREES personnel, or persons retained by CSREES, evaluating the 
institutional context and the impact of any supported project. Grantees 
may be asked to provide general information on any students and faculty 
supported, in whole or in part, by a grant awarded under this program; 
information that may be requested includes, but is not limited to, 
standardized academic achievement test scores, grade point average, 
academic standing, career patterns, age, race/ethnicity, gender, 
citizenship, and disability.



PART 3407--IMPLEMENTATION OF NATIONAL ENVIRONMENTAL POLICY ACT--Table of Contents




Sec.
3407.1  Background and purpose.
3407.2  Definitions.
3407.3  Policy.
3407.4  Responsibilities.
3407.5  Classes of action.
3407.6  Categorical exclusions.
3407.7  Actions normally requiring an environmental assessment.
3407.8  Actions normally requiring an environmental impact statement.
3407.9  Use of environmental documents in decisionmaking.
3407.10  Preparation of environmental assessments.
3407.11  Preparation of environmental impact statements.

    Authority: National Environmental Policy Act of 1969, as amended, 42 
U.S.C. 4321 et seq.; E.O. 11514, 34 FR 4247, as amended by E.O. 11991, 
42 FR 26927; E.O. 12144, 44 FR 11957; 5 U.S.C. 301; 40 CFR parts 1500-
1508; and 7 CFR part 1b.

    Source: 56 FR 49245, Sept. 27, 1991, unless otherwise noted.



Sec. 3407.1  Background and purpose.

    (a) The National Environmental Policy Act of 1969 (NEPA), as amended 
(42 U.S.C. 4321 et seq.) establishes national policies and goals for the 
protection of the human environment. Section 102(2) of NEPA directs all 
Federal agencies to give appropriate consideration to the environmental 
consequences of proposed actions in their decisionmaking and to prepare 
detailed environmental statements on major Federal actions significantly 
affecting the quality of the human environment.
    (b) The purpose of this regulation is to supplement the regulations 
for implementation of NEPA established by the Council on Environmental 
Quality (CEQ) and codified at 40 CFR parts 1500-1508, as adopted by USDA 
in 7 CFR part 1b.
    (c) Unless otherwise noted, parenthetical citations throughout this 
part refer to the CEQ regulations.



Sec. 3407.2  Definitions.

    (a) Authorized Departmental Officer means the CSREES official, 
acting within the scope of delegated authority, who is responsible for 
awarding

[[Page 341]]

and administering project grants on behalf of USDA and for carrying out 
NEPA responsibilities as outlined in Sec. 3407.4(d) of this part. The 
Authorized Departmental Officer's responsibilities do not include the 
review, approval, management, or similar activity relating to programs 
or projects funded by CSREES on the basis of statutory formula and also 
do not include parallel responsibilities relating to the management or 
administration of cooperative agreements awarded by CSREES.
    (b) Other terms used in this regulation have the same meaning as 
they have in the CEQ regulations.



Sec. 3407.3  Policy.

    (a) It is CSREES policy to comply with the provisions of NEPA and 
related laws and policies and with the implementing regulations cited in 
Sec. 3407.1(b) of this part.
    (b) Environmental documents should be concise, written in plain 
language, and address the issues pertinent to the decision being made.
    (c) Environmental documents may be substituted for or combined with 
other reports which serve to facilitate decisionmaking (40 CFR 1506.4).
    (d) CSREES personnel will cooperate with other Federal and State 
agencies or units thereof, as well as with grantees, contractors, and 
other cooperating individuals or entities undertaking activities funded 
or recommended for funding by CSREES to assure that NEPA considerations 
are addressed early in the planning process to avoid delays and 
conflicts (40 CFR 1501.2).
    (e) CSREES reserves the right to require project participants 
outside of CSREES to furnish environmental data or documentation to 
assist CSREES in carrying out its responsibilities under NEPA. When an 
applicant, grantee, or other cooperating individual or organization is 
required to submit environmental data to CSREES, including preparation 
of an environmental assessment (EA), or when a contractor hired by a 
grantee or other cooperating party prepares environmental data or 
documentation, CSREES shall provide advance instructions to the 
applicant, grantee, or other cooperator relating to the preparation and 
submission of the required information. All information supplied by 
external project participants shall be subject to verification by CSREES 
(40 CFR 1506.5).
    (f) When possible, costs of analyses and development of required 
environmental documents shall be planned for during the budgetary 
process relating to the plan or program. Where the nature of particular 
program agreements (e.g., grants, cooperative agreements, formula 
projects) are determined by CSREES to require environmental 
documentation, the cost of preparing such documentation and of 
reasonable mitigation efforts shall be considered allowable costs and 
may be charged to the project as a portion of the Federal or the non-
Federal share of project costs. However, CSREES funds above those 
authorized for the program award will not be made available to 
recipients to cover such costs.
    (g) Final environmental documents, decision notices, and records of 
decision shall be available to the public for review. There shall be an 
early and open process for determining the scope of issues to be 
addressed during environmental analysis (40 CFR 1501.7).
    (h) The concept of tiering to eliminate repetitive discussions 
applicable to EISs (40 CFR part 1502) is applicable to EAs also.
    (i) CSREES officials may adopt an existing Federal EA or EIS when a 
proposed action is substantially the same as the action for which an 
existing EA or EIS was prepared (40 CFR 1506.3), provided that the EA or 
EIS or portion thereof meets the standards for an adequate EA or EIS 
under these regulations.
    (j) Existing environmental documents may be incorporated by 
reference to reduce the bulk of an EA or EIS (40 CFR 1502.21).
    (k) After prior consultation with the Council on Environmental 
Quality, CSREES personnel may, in emergency situations, implement 
alternative arrangements for compliance with these procedures in 
accordance with 40 CFR 1506.11.



Sec. 3407.4  Responsibilities.

    The CSREES officials identified below are responsibe for carrying 
out the provisions of NEPA as indicated:

[[Page 342]]

    (a) Administrator. The Administrator is responsible for providing 
leadership, formulating agency policies and procedures to implement 
NEPA, and making available necessary resources to ensure that NEPA goals 
are met.
    (b) Associate Administrators and Deputy Administrators. Associate 
Administrators and Deputy Administrators are responsible for:
    (1) Ensuring that eligible institutions under CSREES formula grant 
programs are notified of agency environmental requirements before 
projects to be funded with formula funds are submitted to CSREES for 
approval;
    (2) Assuring that adequate consideration is given to environmental 
effects of proposed actions during programmatic planning and 
decisionmaking processes for grants, cooperative agreements, and formula 
projects;
    (3) Ensuring that environmental information is reviewed and that 
required documentation is developed in a timely and satisfactory manner 
for grants, cooperative agreements, and formula projects; and
    (4) Approving courses of action within the range of alternatives 
presented including, as appropriate, approval or recommendation of EAs 
and EISs for grants, cooperative agreements, and formula projects.
    (c) Program Managers. CSREES Program Managers are responsible for:
    (1) Preparing EISs when required;
    (2) Reviewing and making recommendations relating to environmental 
documentation submitted by project recipients;
    (3) Recommending and implementing courses of action within the range 
of alternatives presented; and
    (4) Monitoring results.
    (d) Authorized Departmental Officer. The Authorized Departmental 
Officer is responsible for:
    (1) Ensuring that eligible applicants under CSREES' project grant 
programs are notified of agency environmental requirements in advance of 
proposal preparation;
    (2) Providing terms and conditions of grant award for adequate 
environmental documentation; and
    (3) Authorizing the commencement of approved project activities.
    Note: Where agency environmental requirements are set forth in 
program regulations, solicitations of applications, program guidelines, 
or other documents that apprise applicants of environmental 
requirements, the requirement for advance notification to potential 
applicants shall be satisfied.



Sec. 3407.5  Classes of action.

    The following describes typical classes of action associated with 
CSREES programs and related activities:
    (a) Actions which normally do not require the preparation of an EA 
or an EIS are those actions which ordinarily do not have significant 
individual or cumulative effect on the quality of the human environment. 
These include those activities described in Secs. 3407.6 (a)(1) and 
(a)(2) of this part.
    (b) Actions normally requiring an EA, but not necessarily an EIS, 
are those projects in which at least some level of uncertainty exists 
regarding individual or cumulative effects on the quality of the human 
environment. Such actions generally include those identified in 
Secs. 3407.6(b) and 3407.7 of this part.
    (c) Actions normally requiring an EIS are projects which are 
determined to have a significant impact on the quality of the human 
environment or which will be performed under extraordinary 
circumstances. These types of actions are identified in Secs. 3407.6(b) 
and 3407.8 of this part.



Sec. 3407.6  Categorical exclusions.

    (a) All CSREES actions will be analyzed by the appropriate CSREES 
official specified in Sec. 3407.4(c) to determine whether the project 
under consideration will have a significant environmental effect prior 
to recommending to the official responsible for approving a formula 
project in the case of formula grants, or the official responsible for 
awarding a grant or cooperative agreement in the case of a grant or 
cooperative agreement that the action be undertaken. Unless otherwise 
determined to be necessary under the provisions of paragraph (b) of this 
section, however, the preparation of an EA or EIS is not required for 
the following categories of actions:
    (1) Department of Agriculture Categorical Exclusions (7 CFR 1b.3). 
(i) Policy

[[Page 343]]

development, planning and implementation which are related to routine 
activities such as personnel, organizational changes, or similar 
administrative functions;
    (ii) Activities which deal solely with the functions of programs, 
such as program budget proposals, disbursement, and transfer or 
reprogramming of funds;
    (iii) Inventories, research activities and studies, such as resource 
inventories and routine data collection when such actions are clearly 
limited in context and intensity;
    (iv) Educational and informational programs and activities;
    (v) Civil and criminal law enforcement and investigative activities;
    (vi) Activities which are advisory and consultative to other 
agencies and public and private entities; and
    (vii) Activities related to trade representation and market 
development activities abroad.
    (2) CSREES categorical exclusions. Based on previous experience, the 
following categories of CSREES actions are excluded because they have 
been found to have limited scope and intensity and to have no 
significant individual or cumulative impacts on the quality of the human 
environment:
    (i) The following categories of research programs or projects of 
limited size and magnitude or with only short-term effects on the 
environment:
    (A) Research conducted within any laboratory, greenhouse, or other 
contained facility where research practices and safeguards prevent 
environmental impacts;
    (B) Surveys, inventories, and similar studies that have limited 
context and minimal intensity in terms of changes in the environment; 
and
    (C) Testing outside of the laboratory, such as in small isolated 
field plots, which involves the routine use of familiar chemicals or 
biological materials.
    (ii) Routine renovation, rehabilitation, or revitalization of 
physical facilities, including the acquisition and installation of 
equipment, where such activity is limited in scope and intensity.
    (b) Exceptions to categorical exclusions. Notwithstanding paragraph 
(a) of this section, an EA or EIS shall be prepared for an activity 
which is normally within the purview of categorical exclusion where it 
is determined by CSREES that substantial controversy on environmental 
grounds exists or that other extraordinary conditions or circumstances 
are present which may cause such activity to have a significant 
environmental effect.



Sec. 3407.7  Actions normally requiring an environmental assessment.

    The following actions normally will require an EA:
    (a) Programs supported in whole or in part by CSREES which may 
result in a particular technology's moving from the field evaluation 
stage to large-scale demonstration or simulated commercial phase.
    (b) Field work that is expected to have an effect on the human 
environment such as large-scale excavations or the use of explosives.
    (c) Projects for the construction or renovation of physical 
facilities, unless categorically excluded under Sec. 3407.6(a)(2)(ii).
    (d) Activities specified in Sec. 3407.6(b).



Sec. 3407.8  Actions normally requiring an environmental impact statement.

    An EIS normally will be required for major actions where it is 
determined by CSREES that such activity will significantly affect the 
quality of the human environment, including those specified in 
Sec. 3407.6(b).



Sec. 3407.9  Use of environmental documents in decisionmaking.

    In carrying out agency responsibilities under NEPA, CSREES officials 
shall:
    (a) Consider all relevant environmental documents in evaluating 
programs, proposals, or projects for final agency action.
    (b) Make all relevant final environmental documents, comments, and 
responses part of the record in rulemaking and adjudicatory proceedings.
    (c) Ensure that all relevant final environmental documents, 
comments, and responses are submitted to

[[Page 344]]

CSREES in a timely fashion, are subjected to normal agency review 
processes, and are made a part of the official record.
    (d) Consider only those alternatives encompassed by the range of 
alternatives discussed in the relevant environmental documents when 
evaluating plans, programs, or proposals for agency action.



Sec. 3407.10  Preparation of environmental assessments.

    (a) Format and content. An EA may be prepared in any format provided 
that it covers, in a logical and succinct fashion, the information 
necessary for determining whether a proposed CSREES action may have a 
significant environmental impact and thus warrant preparation of an EIS. 
The information must include brief discussions on the need for the 
project, alternatives to the proposed action, environmental impacts of 
the proposed action and alternatives, and a listing of agencies and 
persons consulted (40 CFR 1508.9). Where possible, EAs should be limited 
to 10-15 pages. NOTE: It is the scope and complexity of the 
environmental issues, rather than the size of the project, that should 
be used to determine the length of the EA
    (b) Supplements to environmental assessments. Where substantial 
changes occur in a project or activity for which an EA has been prepared 
and it is determined by a responsible CSREES official specified in 
Sec. 3407.4(b) that the changes are pertinent to environmental concerns, 
a supplement to the EA may be required. Supplements to EAs shall be 
evaluated and processed as stated in paragraph (c) of this section.
    (c) Decision notice. Upon completion of an EA and any supplement 
thereto, the responsible CSREES official will evaluate the information 
it contains, determine whether an EIS is required or whether no 
significant environmental impact is likely to occur, and will document 
the decision and the reasons upon which it is based (40 CFR 1508.13). 
The EA shall be available to the public.



Sec. 3407.11  Preparation of environmental impact statements.

    (a) Actions involving more than one agency. If more than one Federal 
agency participates in a program activity, a lead agency shall be 
selected in accordance with 40 CFR 1501.5(c). The lead agency, in full 
cooperation with all participating agencies, shall assume responsibility 
for involving the public as required in 40 CFR 1501.4(b) and shall 
prepare the EIS or shall cause the EIS to be prepared as provided in 40 
CFR 1501.5.
    (b) Notice of intent. If a responsible CSREES official designated in 
Sec. 3407.4(b) of this part recommends the preparation of an EIS, the 
public shall be apprised of the decision. This notice shall be prepared 
according to 40 CFR 1508.2.
    (c) Draft and Final EIS. The process of preparing the draft and 
final EIS, as well as the format of the document, shall comply with the 
provisions of 40 CFR parts 1502-1506.
    (d) Supplemental statements. Where substantial changes occur or new 
information becomes available under a project or activity for which an 
EIS or draft EIS has been prepared and it is determined by a responsible 
CSREES official specified in Sec. 3407.4(b) that the changes are 
pertinent to environmental concerns, a supplement to the EIS or draft 
EIS may be required. The supplement shall be evaluated and processed in 
accordance with 40 CFR 1502.9(c).
    (e) Decisionmaking and implementation. A responsible CSREES official 
designated in Sec. 3407.4(b) may make a decision no sooner than thirty 
days after the notice of availability of the final EIS has been 
published in the Federal Register by the Environmental Protection Agency 
(40 CFR 1506.10). The decision will be documented in a record of 
decision as required by 40 CFR 1505.2, and monitoring and mitigation 
activities will be implemented as required by 40 CFR 1505.3.

[[Page 345]]



PART 3411--NATIONAL RESEARCH INITIATIVE COMPETITIVE GRANTS PROGRAM--Table of Contents




                           Subpart A--General

Sec.
3411.1  Applicability of regulations.
3411.2  Definitions.
3411.3  Eligibility requirements.
3411.4  How to apply for a grant.
3411.5  Evaluation and disposition of applications.
3411.6  Grant awards.
3411.7  Use of funds; changes.
3411.8  Other Federal statutes and regulations that apply.
3411.9  Other conditions.

    Subpart B--Scientific Peer Review of Research Grant Applications

3411.10  Establishment and operation of peer review groups.
3411.11  Composition of peer review groups.
3411.12  Conflicts of interest.
3411.13  Availability of information.
3411.14  Proposal review.
3411.15  Evaluation factors.

    Authority: Sec. 2(i) of the Act of August 4, 1965, as amended (7 
U.S.C. 450i(i)).

    Source: 56 FR 57952, Nov. 14, 1991, unless otherwise noted. 
Redesignated at 60 FR 63368, Dec. 8, 1995.



                           Subpart A--General



Sec. 3411.1  Applicability of regulations.

    (a) The regulations of this part apply to competitive research 
grants awarded under the authority of section 2(b) of the Act of August 
4, 1965, as amended by section 1615 of the Food, Agriculture, 
Conservation, and Trade Act of 1990 (FACT Act), (7 U.S.C. 450i(b)), for 
the support of research to further the programs of the Department of 
Agriculture and to improve research capabilities in the agricultural, 
food, and environmental sciences in the following categories: Single 
investigators or coinvestigators in the same disciplines; teams of 
researchers from different disciplines; multidisciplinary teams for 
long-term applied research problems; multidisciplinary teams whose 
research has the eventual goal of technology transfer; institutions for 
improvement of research, development, technology transfer and education 
capacity through the acquisition of special research equipment and 
improvement of teaching and education, including fellowships; single 
investigators or coinvestigators who are beginning their research 
careers; and, faculty of small and mid-sized institutions not previously 
successful in obtaining competitive grants under this subsection. The 
National Research Initiative Competitive Grants Program (NRICGP) Board 
of Directors was established by the Assistant Secretary for Science and 
Education to advise the Assistant Secretary on policy issues concerning 
NRICGP. The Board is comprised of the Assistant Secretary for Science 
and Education; the Administrators of the Cooperative State Research 
Service, the Agricultural Research Service, the Extension Service, and 
the Economic Research Service; the Deputy Chief for Research of the 
Forest Service; the Chief Scientist of the NRICGP; and the Director of 
the National Agricultural Library. Any determinations made by the Joint 
Council on Food and Agricultural Sciences, including recommendations 
made by the Agricultural Science and Technology Review Board, and the 
National Agricultural Research and Extension Users Advisory Board, will 
be taken into consideration by the Board in recommending policies and 
priorities for the NRICGP. The advice of other individuals is also 
encouraged; that advice also is provided to the Board of Directors. The 
Administrator of CSRS shall determine and announce, through publication 
of a Notice in such publications as the Federal Register, professional 
trade journals, agency or program handbooks, the Catalog of Federal 
Domestic Assistance, or any other appropriate means, high-priority 
research areas and categories to improve research capabilities for which 
proposals will be solicited and the extent that funds are available 
therefor.
    (b) The regulations of this part do not apply to grants awarded by 
the Department of Agriculture under any other authority.

[56 FR 57952, Nov. 14, 1991. Redesignated and amended at 60 FR 63368, 
63369, Dec. 8, 1995]

[[Page 346]]



Sec. 3411.2  Definitions.

    As used in this part and in annual program solicitations issued 
pursuant to this part:
    (a) Administrator means the Administrator of the Cooperative State 
Research Service (CSRS) and any other officer or employee of the 
Department of Agriculture to whom the authority involved may be 
delegated.
    (b) Department means the Department of Agriculture.
    (c) Principal investigator means a single individual who is 
responsible for the scientific and technical direction of the project, 
as designated by the grantee in the grant application and approved by 
the Administrator.
    (d) Grantee means the entity designated in the grant award document 
as the responsible legal entity to whom a grant is awarded under this 
part.
    (e) Grant means the award by the Administrator of funds to a grantee 
to assist in meeting the costs of conducting, for the benefit of the 
public, an identified project which is intended and designed to 
establish, discover, elucidate, or confirm information or the underlying 
mechanisms relating to a research program area identified in the program 
solicitation; it also means the award by the Administrator of funds to a 
grantee to strengthen its research capabilities relating to a research 
program area identified in the program solicitation;
    (f) Project means the particular activity within the scope of one or 
more of the research program areas or the categories to improve research 
capabilities identified in the program solicitation that is supported by 
a grant under this part.
    (g) Project period means the total time approved by the 
Administrator for conducting the proposed project as outlined in an 
approved grant application.
    (h) Budget period means the interval of time (usually 12 months) 
into which the project period is divided for budgetary and reporting 
purposes.
    (i) Awarding official means the Administrator and any other officer 
or employee of the Department to whom the authority to issue or modify 
grant instruments has been delegated.
    (j) Peer review group means an assembled group of experts or 
consultants qualified by training and experience to give expert advice 
on the scientific and technical merit of grant applications or the 
relevance of those applications to one or more of the research purposes 
as contained in Sec. 3411.15 of this part.
    (k) Ad hoc reviewers means experts or consultant qualified by 
training and experience to render special expert advice, through written 
evaluations, on the scientific and technical merit of grant applications 
or the relevance of those applications to one or more of the research 
purposes contained in Sec. 3411.15 of this part.
    (l) Research means any systematic study directed toward new or 
fuller knowledge and understanding of the subject studied.
    (1) Fundamental research, as referred to annually in the program 
solicitation, means research that tests scientific hypotheses and 
provides basic knowledge which allows advances in applied research and 
from which major conceptual breakthroughs are expected to occur.
    (2) Mission-linked research, as referred to annually in the program 
solicitation, means research on specifically identified agricultural 
problems which, through a continuum of efforts, provides information and 
technology that may be transferred to users and may relate to a product, 
practice, or process.
    (3) Multidisciplinary research, as referred to annually in the 
program solicitation, means research in which investigators from two or 
more disciplines are collaborating closely. These collaborations, where 
appropriate, may integrate the biological, physical, chemical, or social 
sciences.
    (m) Methodology means the project approach to be followed and the 
resources needed to carry out the project.
    (n) Small and mid-sized institution means an academic institution 
with a total enrollment of 15,000 or less. An institution in this 
instance is an organization that possesses a significant degree of 
academic and administrative autonomy, as specified in the annual program 
solicitation.

[[Page 347]]

    (o) USDA-EPSCoR States (Experimental Program for Stimulating 
Competitive Research) means States which have had a funding level from 
the USDA NRICGP no higher than the 38th percentile of all States, based 
on a three-year rolling average, and all United States territories and 
possessions. A list of eligible States is published annually in the 
program solicitation.

[56 FR 57952, Nov. 14, 1991. Redesignated and amended at 60 FR 63368, 
63369, Dec. 8, 1995; 61 FR 45319, Aug. 29, 1996]



Sec. 3411.3  Eligibility requirements.

    (a) Except where otherwise prohibited by law, State agricultural 
experiment stations, all colleges and universities, other research 
institutions and organizations, Federal agencies, private organizations 
or corporations, and individuals, shall be eligible to apply for and to 
receive a competitive grant award under this part, provided that the 
applicant qualifies as a responsible grantee under the criteria set 
forth in paragraph (b) of this section.
    (b) To qualify as responsible, an applicant must meet the following 
standards as they relate to a particular project:
    (1) Adequate financial resources for performance, the necessary 
experience, organizational and technical qualifications, and facilities, 
or a firm commitment, arrangement, or ability to obtain some (including 
by proposed subagreements);
    (2) Ability to comply with the proposed or required completion 
schedule for the project;
    (3) Satisfactory record of integrity, judgment, and performance, 
including, in particular, any prior performance under grants and 
contracts from the Federal government;
    (4) Adequate financial management system and audit procedures that 
provide efficient and effective accountability and control of all funds, 
property, and other assets; and
    (5) Otherwise qualified and eligible to receive a grant under the 
applicable laws and regulations; eligibility for specific program areas 
or categories of competitive grants to improve research capabilities 
will be outlined in the program solicitation.
    (c) Any applicant who is determined to be not responsible will be 
notified in writing of such finding and the basis therefor.
    (d) Agricultural Research Enhancement Awards. In addition to 
paragraphs (a), (b), and (c) of this section, the following eligibility 
requirements apply to Agricultural Research Enhancement Awards (Program 
reserves the right to specify funding limitations and administrative 
requirements each year in the program solicitation):
    (1) Postdoctoral Fellowships. In accordance with Section 2(b)(3)(D) 
of the Act of August 4, 1965, as amended, individuals who have recently 
received or will soon received their doctoral degree may submit 
proposals for postdoctoral fellowships. The following eligibility 
requirements apply:
    (i) The doctoral degree of the applicant must be received not 
earlier than January 1 of the fiscal year three years prior to the 
submission of the proposal and not later than June 15 of the fiscal year 
during which the proposal is submitted;
    (ii) The individual must be a citizen of the United States; and
    (iii) The proposal must contain:
    (A) documentation that arrangements have been made with an 
established investigator to serve as mentor;
    (B) documentation that arrangements have been made for the necessary 
facilities, space, and materials for conduct of the research; and
    (C) documentation from the host institution's authorized 
organizational representative indicating that the host institution 
concurs with these arrangements.
    (2) New Investigator Awards. Pursuant to Section 2(b)(3)(E) of the 
Act of August 4, 1965, as amended, investigators or co-investigators who 
are beginning their research careers, do not have an extensive research 
publication record, and have less than 5 years of post-graduate, career-
track research experience may submit proposals as new investigators. 
Applicants may not have received competitively-awarded Federal research 
funds beyond the level of pre- or postdoctoral research awards.
    (3) Strengthening Awards. Applicants that are eligible for any grant 
under this part may also be eligible for

[[Page 348]]

Equipment Grants, Research Career Enhancement Awards, Seed Grants, and 
Strengthening Standard Research Project Awards pursuant to Sections 
2(b)(3) (D) and (F) of the Act of August 4, 1965, as amended, subject to 
the following limitations on such eligibility:
    (i) Equipment Grants. The following organizations are ineligible to 
apply for Equipment grants:
    (A) Institutions which are among the top 100 universities and 
colleges for receiving Federal funds for science and engineering 
research as specified in the annual program solicitation; or
    (B) non-degree granting institutions.
    (ii) Research Career Enhancement Awards, Seed Grants, and 
Strengthening Standard Research Project Awards. The following 
eligibility requirements apply to Research Career Enhancement Awards, 
Seed Grants, and Strengthening Standard Research Project Awards:
    (A) No investigator listed on the Application For Funding (Form 
CSRS-661) may have received a USDA NRICGP competitive research grant 
within the last five years as evidenced by an investigator listing on a 
prior Form CSRS-661 (an investigator may have received a Seed Grant, 
Research Career Enhancement Award, Equipment Grant, or Postdoctoral 
Fellowship and still be eligible to receive a Strengthening Standard 
Research Project Award);
    (B) All investigators listed on the Application For Funding (Form 
CSRS-661) must be from a small or mid-sized institution that is not 
among the top 100 universities and colleges for receiving Federal funds 
for science and engineering research as specified in the annual program 
solicitation or must be from an institution located in a USDA-EPSCoR 
state; and
    (C) Every investigator listed on the Application For Funding (Form 
CSRS-661) must have an appointment at a degree granting institution.

[56 FR 57952, Nov. 14, 1991. Redesignated and amended at 60 FR 63368, 
63369, Dec. 8, 1995]



Sec. 3411.4  How to apply for a grant.

    (a) A program solicitation will be prepared and announced through 
publications such as the Federal Register, professional trade journals, 
agency or program handbooks, the Catalog of Federal Domestic Assistance, 
or any other appropriate means, as early as practicable each fiscal 
year. It will contain information sufficient to enable all eligible 
applicants to prepare competitive grant proposals and will be as 
complete as possible with respect to:
    (1) Descriptions of the specific research areas and the categories 
of competitive grants to improve research capabilities that the 
Department proposes to support during the fiscal year involved, 
including anticipated funds to be awarded;
    (2) Eligibility requirements;
    (3) Obtaining application kits;
    (4) Deadline dates for postmarking proposal packages;
    (5) Name and mailing address to send proposals;
    (6) Number of copies to submit;
    (7) Special requirements.
    (b) NRICGP Application Kit. A NRICGP Application Kit will be made 
available to any potential grant applicant who requests a copy. This kit 
contains required forms, certifications, and instructions applicable to 
the submission of grant proposals.
    (c) Format for grant proposals. Specific instructions regarding page 
length, type of print, size of paper, and order of assembly, etc., of 
proposals will be provided in the program solicitation. However, unless 
otherwise stated in the program solicitation, the following general 
format applies:
    (1) Application for Funding form. All grant proposals submitted by 
eligible applicants should contain an Application for Funding form, 
which must be signed by the proposing principal investigator(s) and 
endorsed by the cognizant authorized organizational representative who 
possesses the necessary authority to commit the applicant's time and 
other relevant resources. Investigators who do not sign the cover sheet 
will not be listed on the grant document in the event an award is made. 
The title of the proposal must be brief (80-character maximum), yet 
represent the major thrust of the project. Because this title will be 
used to provide information to those who may not be familiar with the 
proposed project, highly technical words or phraseology should be 
avoided where

[[Page 349]]

possible. In addition, phrases such as ``investigation of'' or 
``research on'' should not be used.
    (2) Project Summary. Each proposal must contain a project summary. 
This summary is not intended for the general reader; consequently, it 
may contain technical language comprehensible by persons in disciplines 
relating to the food and agricultural sciences. The project summary 
should be a self-contained, specific description of the activity to be 
undertaken and should focus on:
    (i) Overall project goal(s) and supporting objectives;
    (ii) Plans to accomplish project goal(s); and
    (iii) Relevance of the project to potential long-range improvements 
in and sustainability of United States agriculture or to one or more of 
the research purposes contained in Sec. 3411.15 of this part.
    (3) Project Description. The specific aims of the project must be 
included in all proposals. The text of the project description may not 
exceed 15 single or double-spaced pages and must contain the following 
components:
    (i) Introduction. A clear statement of the long-term goal(s) and 
supporting objectives of the proposed project should preface the project 
description. The most significant published work in the field under 
consideration, including the work of key project personnel on the 
current application, should be reviewed. The current status of research 
in the particular field of sciences also should be described. All work 
cited, including that of key personnel, should be referenced.
    (ii) Progress Report. If the proposal is a renewal of an existing 
project supported under this program (or its predecessor), include a 
clearly marked performance report describing results to date from the 
previous award. This section should contain the following information:
    (A) A comparison of actual accomplishments with the goals 
established for the previous award;
    (B) The reasons established goals were not met, if applicable; and
    (C) A listing of any publications resulting from the award. Copies 
of reprints or preprints may be appended to the proposal if desired.
    (iii) Rationale and Significance. Present concisely the rationale 
behind the proposed project. The objectives' specific relationship to 
potential long-range improvements in and sustainability of United States 
agriculture or relevance to one or more of the research purposes 
contained in Sec. 3411.15 of this part should be shown clearly. Any 
novel ideas or contributions that the proposed project offers also 
should be discussed in this section.
    (iv) Experimental Plan. The hypotheses or questions being asked and 
the methodology to be applied to the proposed project should be stated 
explicitly. Specifically, this section must include:
    (A) A description of the investigations and/or experiments proposed 
and the sequence in which the investigations or experiments are to be 
performed;
    (B) Techniques to be used in carrying out the proposed project, 
including the feasibility of the techniques;
    (C) Results expected;
    (D) Means by which experimental data will be analyzed or 
interpreted;
    (E) Means of applying results or accomplishing technology transfer, 
where appropriate;
    (F) Pitfalls that may be encountered;
    (G) Limitations to proposed procedures; and
    (H) A tentative schedule for conducting major steps involved in 
these investigations and/or experiments.

In describing the experimental plan, the applicant must explain fully 
any materials, procedures, situations, or activities that may be 
hazardous to personnel (whether or not they are directly related to a 
particular phase of the proposed project), along with an outline of 
precautions to be exercised to avoid or mitigate the effects of such 
hazards.
    (4) Facilities and equipment. All facilities and major items of 
equipment that are available for use or assignment to the proposed 
project during the requested period of support should be described. In 
addition, requested items of nonexpendable equipment necessary to 
conduct and successfully conclude the

[[Page 350]]

proposed project should be listed (including dollar amounts), and, if 
funds are requested for their acquisition, justified on a separate sheet 
of paper and attached to the budget.
    (5) Collaborative arrangements. If the nature of the proposed 
project requires collaboration or subcontractual arrangements with other 
research scientists, corporations, organizations, agencies, or entities, 
the applicant must identify the collaborator(s) and provide a full 
explanation of the nature of the collaboration. Evidence (i.e., letters 
of intent) should be provided to assure peer reviewers that the 
collaborators involved have agreed to render this service. In addition, 
the proposal must indicate whether or not such collaborative 
arrangement(s) have the potential for conflicts of interest.
    (6) References to Project Descriptions. All references cited should 
be complete, including titles, and should conform to an accepted journal 
format.
    (7) Personnel support. To assist peer reviewers in assessing the 
competence and experience of the proposed project staff, all personnel 
who will be involved in the proposed project must be identified clearly. 
For each principal investigator involved, and for all senior associates 
and other professional personnel who expect to work on the project, 
whether or not funds are sought for their support, the following should 
be included:
    (i) An estimate of the time commitments necessary;
    (ii) Curriculum vitae. The curriculum vitae should be limited to a 
presentation of academic and research credentials, e.g., educational, 
employment and professional history, and honors and awards. Unless 
pertinent to the project, to personal status, or to the status of the 
organization, meetings attended, seminars given, or personal data such 
as birth date, marital status, or community activities should not be 
included. The vitae shall be no more than two pages each in length, 
excluding publications listings; and
    (iii) Publication List(s). A chronological list of all publications 
in refereed journals during the past five years, including those in 
press, must be provided for each professional project member for whom a 
curriculum vitae is provided. Also list other non-refereed technical 
publications that have relevance to the proposed project. Authors should 
be listed in the same order as they appear on each paper cited, along 
with the title and complete reference as these usually appear in 
journals.
    (8) Budget. A detailed budget is required for each year of requested 
support. In addition, a summary budget is required detailing requested 
support for the overall project period. A copy of the form which must be 
used for this purpose, along with instructions for completion, is 
included in the NRICGP Application Kit identified under Sec. 3411.4(b) 
of the part and may be reproduced as needed by applicants. Funds may be 
requested under any of the categories listed, provided that the item or 
service for which support is requested may be identified as necessary 
for successful conduct of the proposed project, is allowable under 
applicable Federal cost principles, and is not prohibited under any 
applicable Federal statute or regulation. It should be noted, for 
example, that section 2(b)(7) of the Act of August 4, 1965, as amended, 
prohibits the use of funds under this program for the renovation or 
refurbishment of research spaces, purchases or installation of fixed 
equipment in such spaces, or for the planning, repair, rehabilitation, 
acquisition, or construction of a building or facility. Also, section 
2(b)(8) of the Act of August 4, 1965, as amended, requires that all 
grants, except equipment grants authorized by section 2(b)(3)(D) of the 
same Act, awarded under this part, shall be used without regard to 
matching funds or cost sharing. Equipment grants may not exceed 50 
percent of the cost of the equipment to be acquired. equipment grant 
funds also may not be used for installation, maintenance, warranty, or 
insurance expenses. Indirect costs are not permitted on equipment 
grants.
    (9) Research involving special considerations. A number of 
situations encountered in the conduct of research require special 
information and supporting documentation before funding can be approved 
for the project. If any such situation is anticipated, the proposal must 
so indicate. It is expected that a

[[Page 351]]

significant number of proposals will involve the following:
    (i) Recombinant DNA and RNA molecules. All key personnel identified 
in a proposal and all endorsing officials of a proposed performing 
entity are required to comply with the guidelines established by the 
National Institutes of Health entitled, ``Guidelines for Research 
Involving Recombinant DNA Molecules,'' as revised. The NRICGP 
Application Kit, identified above in Sec. 3411.4(b), contains forms 
which are suitable for such certification of compliance. In the event a 
project involving recombinant DNA and RNA molecules results in a grant 
award, a qualified Institutional Biosafety Committee must approve the 
research before CSREES funds will be released.
    (ii) Human subjects at risk. Applicable regulations which implement 
the Federal Policy for the Protection of Human Subjects have been issued 
by the Department under 7 CFR part 1c, Protection of Human Subjects. 
Responsibility for safeguarding the rights and welfare of human subjects 
used in any proposed project supported with grant funds provided by the 
Department rests with the performing entity. The applicant must submit a 
statement certifying that the project plan has been reviewed and 
approved by the Institutional Committee at the proposing organization or 
institution. The NRICGP Application Kit, identified above in 
Sec. 3411.4(b), contains a form which is suitable for such 
certification. In the event a project involving human subjects results 
in a grant award, funds will be released only after a qualified 
Institutional Committee has approved the project.
    (iii) Experimental vertebrate animal care. The responsibility for 
the humane care and treatment of any experimental vertebrate animal, 
which has the same meaning as ``animal'' in section 2(g) of the Animal 
Welfare Act of 1966, as amended (7 U.S.C. 2132(g)), used in any project 
supported with NRICGP funds rests with the performing organization. In 
this regard, all key personnel associated with any supported project and 
all endorsing officials of the proposed performing entity are required 
to comply with applicable provisions of the Animal Welfare Act of 1966, 
as amended (7 U.S.C. 2131 et seq.) and the regulations promulgated 
thereunder by the Secretary of Agriculture in 9 CFR parts 1, 2, 3, and 
4. In this regard, the applicant must submit a statement certifying that 
the proposed project is in compliance with the aforementioned 
regulations, and that the proposed project is either under review by or 
has been reviewed and approved by an Institutional Animal Care and Use 
Committee. The NRICGP Application Kit, identified above in 
Sec. 3411.4(b), contains a form which is suitable for such 
certification. In the event a project involving the use of living 
vertebrate animals results in a grant award, funds will be released only 
after a qualified Institutional Animal Care and Use Committee has 
approved the project.
    (10) Current and pending support. All proposals must list any other 
current public or private research support (including in-house support) 
to which key personnel identified in the proposal have committed 
portions of their time, whether or not salary support for the person(s) 
involved is included in the budget. Analogous information must be 
provided for any pending proposals that are being considered by, or that 
will be submitted in the near future to, other possible sponsors, 
including other USDA programs or agencies. Concurrent submission of 
identical or similar proposals to other possible sponsors will not 
prejudice proposal review or evaluation by the Administrator or experts 
or consultants engaged by the Administrator for this purpose. However, a 
proposal that duplicates or overlaps substantially with a proposal 
already reviewed and funded (or that will be funded) by another 
organization or agency will not be funded under this program. The Grant 
Application Kit, identified above in Sec. 3411.4(b), contains a form 
which is suitable for listing current and pending support.
    (11) Additions to project description. Each project description is 
expected by the Administrator, the members of peer review groups, and 
the relevant program staff to be complete. However, if the inclusion of 
additional information is necessary to ensure the equitable evaluation 
of the proposal (e.g., photographs which do not reproduce

[[Page 352]]

well, reprints, and other pertinent materials which are deemed to be 
unsuitable for inclusion in the text of the proposal), the number of 
copies submitted should match the number of copies of the application 
requested in the program solicitation. Each set of such materials must 
be identified with the name of the submitting organization, and the 
name(s) of the principal investigator(s). Information may not be 
appended to a proposal to circumvent page limitations prescribed for the 
project description. Extraneous materials will not be used during the 
peer review process.
    (12) Organizational management information. Specific management 
information relating to an applicant shall be submitted on a one-time 
basis prior to the award of a grant identified under this part if such 
information has not been provided previously under this or another 
program for which the sponsoring agency is responsible. Copies of forms 
recommended for use in fulfilling the requirements contained in this 
section will be provided by the agency specified in this part once a 
grant has been recommended for funding.
    (13) National Environmental Policy Act. As outlined in CSREES's 
implementing regulations of the National Environmental Policy Act of 
1969 (NEPA) at 7 CFR Part 3407, environmental data or documentation for 
the proposed project is to be provided to CSREES in order to assist 
CSREES in carrying out its responsibilities under NEPA. These 
responsibilities include determining whether the project requires an 
Environmental Assessment or an Environmental Impact Statement or whether 
it can be excluded from this requirement on the basis of several 
categorical exclusions listed in 7 CFR Part 3407. In this regard, the 
applicant should review the categories defined for exclusion to 
ascertain whether the proposed project may fall within one or more of 
the exclusions, and should indicate if it does so on the National 
Environmental Policy Act Exclusions Form (Form CSRS-1234) provided in 
the NRICGP Application Kit.
    (14) Even though the applicant considers that a proposed project may 
fall within a categorical exclusion, CSREES may determine that an 
Environmental Assessment or an Environmental Impact Statement is 
necessary for a proposed project should substantial controversy on 
environmental grounds exist or if other extraordinary conditions or 
circumstances are present that may cause such activity to have a 
significant environmental effect.

[56 FR 57952, Nov. 14, 1991. Redesignated and amended at 60 FR 63368, 
63369, Dec. 8, 1995; 61 FR 45319, Aug. 29, 1996]



Sec. 3411.5  Evaluation and disposition of applications.

    (a) Evaluation. All proposals received from eligible applicants and 
postmarked in accordance with deadlines established in the annual 
program solicitation shall be evaluated by the Administrator through 
such officers, employees, and others as the Administrator determines are 
uniquely qualified in the areas represented by particular projects. To 
assist in equitably and objectively evaluating proposals and to obtain 
the best possible balance of viewpoints, the Administrator shall solicit 
the advice of peer scientists, ad hoc reviewers, and/or others who are 
recognized specialists in the areas covered by the applications received 
and whose general roles are defined in Secs. 3411.2(j) and 3411.2(k). 
Specific evaluations will be based upon the criteria established in 
subpart B, Sec. 3411.15, unless CSRS determines that different criteria 
are necessary for the proper evaluation of proposals in one or more 
specific program areas, or for specific types of projects to be 
supported, and announces such criteria and their relative importance in 
the annual program solicitation. The overriding purpose of these 
evaluations is to provide information upon which the Administrator may 
make informed judgments in selecting proposals for ultimate support. 
Incomplete, unclear, or poorly organized applications will work to the 
detriment of applicants during the peer evaluation process. To ensure a 
comprehensive evaluation, all applications should be written with the 
care and thoroughness accorded papers for publication.
    (b) Disposition. On the basis of the Administrator's evaluation of 
an application in accordance with paragraph (a)

[[Page 353]]

of this section, the Administrator will (1) approve support using 
currently available funds, (2) defer support due to lack of funds or a 
need for further evaluations, or (3) disapprove support for the proposed 
project in whole or in part. With respect to approved projects, the 
Administrator will determine the project period (subject to extension as 
provided in Sec. 3411.7(c)) during which the project may be supported. 
Any deferral or disapproval of an application will not preclude its 
reconsideration or a reapplication during subsequent fiscal years.

[56 FR 57952, Nov. 14, 1991. Redesignated at 60 FR 63368, Dec. 8, 1995, 
as amended at 61 FR 45319, Aug. 29, 1996]



Sec. 3411.6  Grant awards.

    (a) General. Within the limit of funds available for such purpose, 
the awarding official shall make grants to those responsible, eligible 
applicants whose proposals are judged most meritorious in the announced 
program areas under the evaluation criteria and procedures set forth in 
this part. The date specified by the Administrator as the beginning of 
the project period shall be no later than September 30 of the Federal 
fiscal year in which the project is approved for support and funds are 
appropriated for such purpose, unless otherwise permitted by law. All 
funds granted under this part shall be expended solely for the purpose 
for which the funds are granted in accordance with the approved 
application and budget, the regulations of this part, the terms and 
conditions of the award, the applicable Federal cost principles, and the 
Department's ``Uniform Federal Assistance Regulations'' (part 3015 of 
this title) and the Department's ``Uniform Administrative Requirements 
for Grants and Cooperative Agreements to State and Local Governments'' 
(part 3016 of this title).
    (b) Grant award document and notice of grant award--(1) Grant award 
document. The grant award document shall include at a minimum the 
following:
    (i) Legal name and address of performing organization or institution 
to whom the Administrator has awarded a competitive grant under the 
terms of this part;
    (ii) Title of project;
    (iii) Name(s) and address(es) of principal investigator(s) chosen to 
direct and control approved activities;
    (iv) Identifying grant number assigned by the Department;
    (v) Project period, specifying the amount of time the Department 
intends to support the project without requiring recompetition for 
funds;
    (vi) Total amount of Departmental financial assistance approved by 
the Administrator during the project period;
    (vii) Legal authority(ies) under which the grant is awarded;
    (viii) Approved budget plan for categorizing allocable project funds 
to accomplish the stated purpose of the grant award; and
    (ix) Other information or provisions deemed necessary by the 
Department to carry out its granting activities or to accomplish the 
purpose of a particular grant.
    (2) Notice of grant award. The notice of grant award, in the form of 
a letter, will be prepared and will provide pertinent instructions or 
information to the grantee that is not included in the grant award 
document.
    (c) Types of grant instruments. The major types of grant instruments 
shall be as follows:
    (1) New grant. This is a grant instrument by which the Department 
agrees to support a specified level of effort for a project that 
generally has not been supported previously under this program. This 
type of grant is approved on the basis of peer review recommendation.
    (2) Renewal grant. This is a grant instrument by which the 
Department agrees to provide additional funding for a project period 
beyond that approved in an original or amended award, provided that the 
cumulative period does not exceed the statutory limitation. When a 
renewal application is submitted, it should include a summary of 
progress to date from the previous granting period. A renewal grant 
shall be based upon new application, de novo peer review and staff 
evaluation, new recommendation and approval, and a new award instrument.
    (3) Supplemental grant. This is an instrument by which the 
Department

[[Page 354]]

agrees to provide small amounts of additional funding under a new or 
renewal grant as specified in paragraphs (c)(1) and (c)(2) of this 
section and may involve a short-term (usually six months or less) 
extension of the project period beyond that approved in an original or 
amended award, but in no case may the cumulative period for the project 
exceed the statutory limitation. A supplement is awarded only if 
required to assure adequate completion of the original scope of work and 
if there is sufficient justification to warrant such action. A request 
of this nature normally will not require additional peer review.
    (d) Funding mechanisms. The two mechanisms by which new, renewal, 
and supplemental grants shall be awarded are as follows:
    (1) Standard grant. This is a funding mechanism whereby the 
Department agrees to support a specified level of effort for a 
predetermined time period without the announced intention of providing 
additional support at a future date.
    (2) Continuation grant. This is a funding mechanism whereby the 
Department agrees to support a specified level of effort for a 
predetermined period of time with a statement of intention to provide 
additional support at a future date, provided that performance has been 
satisfactory, appropriations are available for this purpose, and 
continued support would be in the best interests of the Federal 
government and the public. This kind of mechanism normally will be 
awarded for an initial one-year period, and any subsequent continuation 
project grants will also be awarded in one-year increments. The award of 
a continuation project grant to fund an initial or succeeding budget 
period does not constitute an obligation to fund any subsequent budget 
period. Unless prescribed otherwise by CSRS, a grantee must submit a 
separate application for continued support for each subsequent fiscal 
year. Requests for such continued support must be submitted in duplicate 
at least three months prior to the expiration date of the budget period 
currently being funded. Decisions regarding continued support and the 
actual funding levels of such support in future years usually will be 
made administratively after consideration of such factors as the 
grantee's progress and management practices and the availability of 
funds. Since initial peer reviews are based upon the full term and scope 
of the original special grant application, additional evaluations of 
this type generally are not required prior to successive years' support. 
However, in unusual cases (e.g., when the nature of the project or key 
personnel change or when the amount of future support requested 
substantially exceeds the grant application originally reviewed and 
approved), additional reviews may be required prior to approving 
continued funding.
    (e) Obligation of the Federal Government. Neither the approval of 
any application nor the award of any project grant shall commit or 
obligate the United States in any way to make any renewal, supplemental, 
continuation, or other award with respect to any approved application or 
portion of an approved application.
    (f) Current Research Information Service (CRIS). For each project 
funded, CRIS Form AD-416, ``Research Work Unit/Project Description-
Research Resume'' and CRIS Form AD-417, ``Research Work Unit/Project 
Description-Classification of Research'' and specific instructions for 
their completion will be sent to the grantee for completion and return. 
Grant funds will not be released until the completed forms are received 
in CSREES.

[56 FR 57952, Nov. 14, 1991. Redesignated and amended at 60 FR 63368, 
63370, Dec. 8, 1995]



Sec. 3411.7  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The grantee may not, in 
whole or in part, delegate or transfer to another person, institution, 
or organization the responsibility for use or expenditure of grant 
funds.
    (b) Change in project plans. (1) The permissible changes by the 
grantee, principal investigator(s), or other key project personnel in 
the approved grant shall be limited to changes in methodology, 
techniques, or other aspects of the project to expedite achievement of 
the project's approved goals. If the

[[Page 355]]

grantee and/or the principal investigator(s) is uncertain whether a 
particular change complies with this provision, the question must be 
referred to the Administrator for a final determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
the grantee and approved in writing by the Department prior to effecting 
such changes. Normally, no requests for such changes that are outside 
the scope of the original approved project will be approved.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
grantee and approved in writing by the Department prior to effecting 
such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the grantee and 
approved in writing by the Department prior to effecting such changes, 
except as may be allowed in the terms and conditions of a grant award.
    (c) Changes in project period. The project period determined 
pursuant to Sec. 3411.5(b) may be extended by the Administrator without 
additional financial support, for such additional period(s) as the 
Administrator determines may be necessary to complete, or fulfill the 
purposes of, an approved project. Any extension, when combined with the 
originally approved or amended project period, shall not exceed five (5) 
years (the limitation established by statute) and shall be further 
conditioned upon prior request by the grantee and approval in writing by 
the Department, except as may be allowed in the terms and conditions of 
a grant award.
    (d) Changes in approved budget. The terms and conditions of a grant 
will prescribe circumstances under which written Departmental approval 
must be requested and obtained prior to instituting changes in an 
approved budget.

[56 FR 57952, Nov. 14, 1991. Redesignated at 60 FR 63368, Dec. 8, 1995, 
as amended at 61 FR 45319, Aug. 29, 1996]



Sec. 3411.8  Other Federal statutes and regulations that apply.

    Several other Federal statutes and/or regulations apply to grant 
proposals considered for review or to grants awarded under this part. 
These include but are not limited to:

7 CFR 1.1--USDA implementation of Freedom of Information Act;
7 CFR part 1c--USDA implementation of the Federal Policy for the 
Protection of Human Subjects;
7 CFR part 15, subpart A--USDA implementation of title VI of the Civil 
Rights Act of 1964;
7 CFR part 3--USDA implementation of OMB Circular A-129 regarding debt 
collection;
7 CFR part 3015--USDA Uniform Federal Assistance Regulations, 
implementing OMB directives (i.e., Circular Nos. A-110, A-21, and A-122) 
and incorporating provisions of 31 U.S.C. 6301-6308 (formerly, the 
Federal Grant and Cooperative Agreement Act of 1977, Public Law No. 95-
224), as well as general policy requirements applicable to recipients of 
Departmental financial assistance;
7 CFR part 3016--USDA Uniform Administrative Requirements for Grants and 
Cooperative Agreements to State and Local Governments (i.e., Circular 
Nos. A-102 and A-87);
7 CFR part 3017--USDA implementation of Governmentwide Debarment and 
Suspension (Nonprocurement) and Governmentwide Requirements for Drug-
Free Workplace (Grants);
7 CFR part 3018--USDA implementation of New Restrictions on Lobbying. 
Imposes new prohibitions and requirements for disclosure and 
certification related to lobbying on recipients of Federal contracts, 
grants, cooperative agreements, and loans;
7 CFR part 3051--Audits of Institutions of Higher Education and Other 
Nonprofit Institutions.
7 CFR part 3407--CSRS procedures to implement the National Environmental 
Policy Act;
29 U.S.C. 794, section 504-- Rehabilitation Act of 1973, and 7 CFR part 
15B (USDA implementation of statute), prohibiting discrimination based 
upon physical or mental handicap in Federally assisted programs;
35 U.S.C. 200 et. seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).

[56 FR 57952, Nov. 14, 1991. Redesignated and amended at 60 FR 63368, 
63370, Dec. 8, 1995]

[[Page 356]]



Sec. 3411.9  Other conditions.

    The Administrator may, with respect to any grant or to any class of 
awards, impose additional conditions prior to or at the time of any 
award when, in the Administrator's judgment, such conditions are 
necessary to assure or protect advancement of the approved project, the 
interests of the public, or the conservation of grant funds.



    Subpart B--Scientific Peer Review of Research Grant Applications



Sec. 3411.10  Establishment and operation of peer review groups.

    Subject to Sec. 3411.5, the Administrator shall adopt procedures for 
the conduct of peer reviews and the formulation of recommendations under 
Sec. 3411.14. Peer reviews of all responsive applications will be made 
by assembled groups of reviewers and/or by written comments solicited 
from ad hoc reviewers.

[56 FR 57952, Nov. 14, 1991. Redesignated at 60 FR 63368, Dec. 8, 1995, 
as amended at 61 FR 45319, Aug. 29, 1996]



Sec. 3411.11  Composition of peer review groups.

    (a) Peer review group members and ad hoc reviewers will be selected 
based upon their training and experience in relevant scientific or 
technical fields, taking into account the following factors:
    (1) The level of formal scientific or technical education and other 
relevant experience of the individual and the extent to which an 
individual is engaged in relevant research and other relevant 
activities;
    (2) The need to include as peer reviewers experts from various areas 
of specialization within relevant scientific or technical fields;
    (3) The need to include as peer reviewers experts from a variety of 
organizational types (e.g., universities, industry, private 
consultant(s)) and geographic locations; and
    (4) The need to maintain a balanced composition of peer review 
groups related to minority and female representation and an equitable 
age distribution.
    (b) [Reserved]



Sec. 3411.12  Conflicts of interest.

    (a) Members of peer review groups covered by this part are subject 
to relevant provisions contained in title 18 of the United States Code 
relating to criminal activity, Departmental regulations governing 
employee responsibilities and conduct (part 0 of this title), and 
Executive Order 11222, as amended.
    (b) Reviewers may not review proposals submitted by institutions or 
other entities with which they have an affiliation or in which they have 
an interest. For the purposes of determining whether such a conflict 
exists, an institution shall be considered as an organization if it 
possesses a significant degree of academic and administrative autonomy, 
as specified in the annual program solicitation.

[56 FR 57952, Nov. 14, 1991. Redesignated and amended at 60 FR 63368, 
63370, Dec. 8, 1995]



Sec. 3411.13  Availability of information.

    Information regarding the peer review process will be made available 
to the extent permitted under the Freedom of Information Act (5 U.S.C. 
552), the Privacy Act (5 U.S.C. 552a.), and Departmental implementing 
regulations (part 1 of this title).



Sec. 3411.14  Proposal review.

    (a) All grant applications will be acknowledged. Prior to technical 
examination, a preliminary review will be made for responsiveness to the 
program solicitation (e.g., relationship of application to announced 
program area). Proposals which do not fall within the guidelines as 
stated in the program solicitation will be eliminated from competition 
and will be returned to the applicant.
    (b) All applications will be carefully reviewed by the 
Administrator, qualified officers or employees of the Department, the 
respective peer review group, and ad hoc reviewers, as required. Written 
comments will be solicited from ad hoc reviewers when required, and 
individual written comments and indepth discussions will be provided by 
peer review group members prior to recommending applications for 
funding. Applications will be ranked and support levels recommended with

[[Page 357]]

the limitation of total available funding for each research program area 
as announced in the program solicitation.
    (c) No awarding official will make a grant based upon an application 
covered by this part unless the application has been reviewed by a peer 
review group and/or ad hoc reviewers in accordance with the provisions 
of this part and said reviewers have made recommendations concerning the 
merit of such application.
    (d) Except to the extent otherwise provided by law, such 
recommendations are advisory only and are not binding on program 
officers or on the awarding official.



Sec. 3411.15  Evaluation factors.

    Subject to the varying conditions and needs of States, Federally 
funded agricultural research supported under this program shall be 
designed to, among other things, accomplish one or more of the following 
purposes: Continue to satisfy human food and fiber needs; enhance the 
long-term viability and competitiveness of the food production and 
agricultural system of the United States within the global economy; 
expand economic opportunities in rural America and enhance the quality 
of life for farmers, rural citizens, and society as a whole; improve the 
productivity of the American Agricultural system and develop new 
agricultural crops and new uses for agricultural commodities; develop 
information and systems to enhance the environment and the natural 
resource base upon which a sustainable agricultural economy depends; or 
enhance human health. Therefore, in carrying out its review under 
Sec. 3411.14, the peer review group shall take into account the 
following factors unless, pursuant to Sec. 3411.5(a), different 
evaluation criteria are specified in the program solicitation:
    (a) Scientific merit of the proposal.
    (1) Conceptual adequacy of hypothesis;
    (2) Clarity and delineation of objectives;
    (3) Adequacy of the description of the undertaking and suitability 
and feasibility of methodology;
    (4) Demonstration of feasibility through preliminary data;
    (5) Probability of success of project; and
    (6) Novelty, uniqueness and originality.
    (b) Qualifications of proposed project personnel and adequacy of 
facilities.
    (1) Training and demonstrated awareness of previous and alternative 
approaches to the problem identified in the proposal, and performance 
record and/or potential for future accomplishments;
    (2) Time allocated for systematic attainment of objectives;
    (3) Institutional experience and competence in subject area; and
    (4) Adequacy of available or obtainable support personnel, 
facilities, and instrumentation.
    (c) Relevance of project to long-range improvements in and 
sustainability of United States agriculture or to one or more of the 
research purposes outlined in the first paragraph of this section.
    (1) Scientific contribution of research in leading to important 
discoveries or significant breakthroughs in announced program areas; and
    (2) Relevance of the research to agricultural, environmental, or 
social needs.

[56 FR 57952, Nov. 14, 1991. Redesignated at 60 FR 63368, Dec. 8, 1995, 
as amended at 61 FR 45319, Aug. 29, 1996]



PART 3415--BIOTECHNOLOGY RISK ASSESSMENT RESEARCH GRANTS PROGRAM--Table of Contents




                           Subpart A--General

Sec.
3415.1  Applicability of regulations.
3415.2  Definitions.
3415.3  Eligibility requirements.
3415.4  How to apply for a grant.
3415.5  Evaluation and disposition of applications.
3415.6  Grant awards.
3415.7  Use of funds; changes.
3415.8  Other Federal statutes and regulations that apply.
3415.9  Other conditions.

    Subpart B--Scientific Peer Review of Research Grant Applications

3415.10  Establishment and operation of peer review groups.
3415.11  Composition of peer review groups.
3415.12  Conflicts of interest.

[[Page 358]]

3415.13  Availability of information.
3415.14  Proposal review.
3415.15  Evaluation factors.

    Authority: 5 U.S.C. 301 and 7 U.S.C. 5921.

    Source: 58 FR 65647, Dec. 15, 1993, unless otherwise noted.



                           Subpart A--General



Sec. 3415.1  Applicability of regulations.

    (a) The regulations of this part apply to research grants awarded 
under the authority of section 1668 of the Food, Agriculture, 
Conservation, and Trade Act of 1990, (7 U.S.C. 5921). Grants awarded 
under this section will support biotechnology risk assessment research 
to help address concerns about the effects of introducing certain 
biotechnology products into the environment and to help regulators 
develop policies concerning the introduction of such products. Taking 
into consideration any determinations made through consultations with 
such entities as the Animal and Plant Health Inspection Service, the 
Forest Service, the Environmental Protection Agency, the Office of 
Agricultural Biotechnology, and the Agricultural Biotechnology Research 
Advisory Committee, the Administrators of CSREES and ARS shall determine 
and announce, through publication of a Notice in such publications as 
the Federal Register, professional trade journals, agency or program 
handbooks, the Catalog of Federal Domestic Assistance, or any other 
appropriate means, specific areas of research for which preproposals or 
proposals will be solicited and the extent that funds are available 
therefor.
    (b) The regulations of this part do not apply to grants awarded by 
the Department of Agriculture under any other authority.



Sec. 3415.2  Definitions.

    As used in this part:
    (a) Ad hoc reviewers means experts or consultants qualified by 
training and experience in particular scientific or technical fields to 
render special expert advice, through written evaluations of grant 
applications, in accordance with the provisions of this part, on the 
scientific or technical merit of grant applications in those fields.
    (b) Administrator means the Administrator of the Cooperative State 
Research, Education, and Extension Service (CSREES) and/or the 
Administrator of the Agricultural Research Service (ARS) and any other 
officer or employee of the Department of Agriculture to whom the 
authority involved may be delegated.
    (c) Awarding official means the Administrator and any other officer 
or employee of the Department to whom the authority to issue or modify 
grant instruments has been delegated.
    (d) Biotechnology means any technique that uses living organisms (or 
parts of organisms) to make or modify products, to improve plants or 
animals, or to develop microorganisms for specific use. The development 
of materials that mimic molecular structures or functions of living 
systems is included.
    (e) Budget period means the interval of time (usually 12 months) 
into which the project period is divided for budgetary and reporting 
purposes.
    (f) Department means the Department of Agriculture.
    (g) Grant means the award by the Administrator of funds to a grantee 
to assist in meeting the costs of conducting, for the benefit of the 
public, an identified project which is intended and designed to 
establish, discover, elucidate, or confirm information or the underlying 
mechanisms relating to a research program area identified in program 
solicitation.
    (h) Grantee means the entity designated in the grant award document 
as the responsible legal entity to whom a grant is awarded under this 
part.
    (i) Peer review group means an assembled group of experts or 
consultants qualified by training and experience in particular 
scientific or technical fields to give expert advice, in accordance with 
the provisions of this part, on the scientific and technical merit of 
grant applications in those fields.
    (j) Principal investigator means a single individual who is 
responsible for the scientific and technical direction of the project, 
as designated by the grantee in the grant application and approved by 
the Administrator.
    (k) Project means the particular activity within the scope of one or 
more

[[Page 359]]

of the research program areas identified in the annual program 
solicitation that is supported by a grant under this part.
    (l) Project period means the total time approved by the 
Administrator for conducting the proposed project as outlined in an 
approved grant application.
    (m) Research means any systematic study directed toward new or 
fuller knowledge and understanding of the subject studied.
    (n) Methodology means the project approach to be followed to carry 
out the project.



Sec. 3415.3  Eligibility requirements.

    (a) Except where otherwise prohibited by law, any public or private 
research or educational institution or organization shall be eligible to 
apply for and to receive a grant award under this part, provided that 
the applicant qualifies as a responsible grantee under the criteria set 
forth in paragraph (b) of this section.
    (b) To qualify as responsible, an applicant must meet the following 
standards as they relate to a particular project:
    (1) Adequate financial resources for performance, the necessary 
experience, organizational and technical qualifications, and facilities, 
or a firm commitment, arrangement, or ability to obtain same (including 
by proposed subagreements);
    (2) Ability to comply with the proposed or required completion 
schedule for the project;
    (3) Satisfactory record of integrity, judgment, and performance, 
including, in particular, any prior performance under grants or 
contracts from the Federal government;
    (4) Adequate financial management system and audit procedures that 
provide efficient and effective accountability and control of all funds, 
property, and other assets; and
    (5) Otherwise be qualified and eligible to receive a grant under the 
applicable laws and regulations.
    (c) Any applicant who is determined to be not responsible will be 
notified in writing of such finding and the basis therefor.



Sec. 3415.4  How to apply for a grant.

    (a) A program solicitation will be prepared and announced through 
publications such as the Federal Register, professional trade journals, 
agency or program handbooks, the Catalog of Federal Domestic Assistance, 
or any other appropriate means, as early as practicable each fiscal 
year.

The Department may elect to solicit preproposals each fiscal year in 
order to eliminate from consideration proposed research that does not 
address narrowly focused program objectives. A preproposal will be 
limited in length (in comparison to a full proposal) to alleviate waste 
of time and effort by applicants in the preparation of proposals and 
USDA staff in the review of proposals. If the Department solicits 
preproposals through publication of the annual program solicitation, the 
Department does not anticipate publishing a subsequent solicitation for 
full proposals. Applicants submitting preproposals deemed appropriate to 
the objectives of this program as set out in the annual solicitation 
will be requested to submit full proposals; the full proposals will then 
be evaluated in accordance with Sec. 3415.5 through Sec. 3415.15 of this 
part.

The annual program solicitation will contain information sufficient to 
enable applicants to prepare preproposals or full proposals under this 
program and will be as complete as possible with respect to:
    (1) Descriptions of the specific research areas that the Department 
proposes to support during the fiscal year involved, including 
anticipated funds to be awarded;
    (2) Eligibility requirements;
    (3) Obtaining application kits;
    (4) Deadline dates for submission of preproposal or proposal 
packages;
    (5) Name and mailing address to send preproposals or proposals;
    (6) Number of copies to submit; and
    (7) Special requirements.
    (b) Application Kit. An Application Kit will be made available to 
any potential grant applicant who requests a copy. This kit contains 
required forms, certifications, and instructions applicable to the 
submission of grant preproposals or proposals.

[[Page 360]]

    (c) Format for preproposals. As stated above, the Department may 
elect to solicit preproposals under this program. Unless otherwise 
indicated by the Department in the annual program solicitation, the 
following general format applies for the preparation of preproposals:
    (1) ``Application for Funding (Form CSREES-661)''. All preproposals 
submitted by eligible applicants should contain an ``Application for 
Funding'', Form CSREES-661, which must be signed by the proposing 
principal investigator(s) and endorsed by the cognizant authorized 
organizational representative who possesses the necessary authority to 
commit the applicant's time and other relevant resources. The title of 
the proposal must be brief (80-character maximum), yet represent the 
major thrust of the project. Because this title will be used to provide 
information to those who may not be familiar with the proposed project, 
highly technical words or phraseology should be avoided where possible. 
In addition, phrases such as ``investigation of'' and ``research on'' 
should not be used.
    (2) Project summary. Each preproposal must contain a project 
summary, the text of which may not exceed three (3) single- or double-
spaced pages. The Department reserves the option of not forwarding for 
further consideration a preproposal in which the project summary page 
limit is exceeded. The project summary is not intended for the general 
reader; consequently, it may contain technical language comprehensible 
primarily by persons in disciplines relating to the food and 
agricultural sciences. The project summary should be a self-contained 
specific description of the activity to be undertaken and should focus 
on:
    (i) Overall project goal(s) and supporting objectives;
    (ii) Plans to accomplish project goal(s); and
    (iii) Relevance or significance of the project to United States 
agriculture.
    (3) Budget. A budget detailing requested support for the proposed 
project period must be included in each preproposal. A copy of the form 
which must be used for this purpose, along with instructions for 
completion, is included in the Application Kit identified under 
Sec. 3415.4(b) of this part and may be reproduced as needed by 
applicants. Funds may be requested under any of the categories listed on 
the budget form, provided that the item or service for which support is 
requested may be identified as necessary for successful conduct of the 
proposed project, is allowable under applicable Federal cost principles, 
and is not prohibited under any applicable Federal statute.
    (4) Special requirements. (i) The annual program solicitation will 
describe any special preproposal submission requirements, such as paper 
size or type pitch to be used in the preparation of preproposals. The 
solicitation will also describe special program requirements, such as 
conference attendance or electronic project reporting, for which 
applicants may allocate funds when preparing proposed budgets.
    (ii) By signing the ``Application for Funding'' identified under 
Sec. 3415.4(c)(1) in its submission of a preproposal, the applicant is 
certifying compliance with the restrictions on the use of appropriated 
funds for lobbying set out in 7 CFR part 3018.
    (5) Evaluation of preproposals. Preproposals shall be evaluated to 
determine whether the substance of the proposed project is appropriate 
to the objectives of this program as set out in the annual program 
solicitation. Subsequently, the Administrator shall request full 
proposals from those applicants proposing projects deemed appropriate to 
the objectives of this program as set out in the annual program 
solicitation. Such proposals shall conform to the format for full 
proposals set out below and shall be evaluated in accordance with 
Sec. 3415.5 through Sec. 3415.15 of this part.
    (d) Format for full proposals. Unless otherwise indicated by the 
Department in the annual program solicitation, the following general 
format applies for the preparation of full proposals under this program:
    (1) ``Application for Funding'' (Form CSREES-661). All full 
proposals submitted by eligible applicants should contain an Application 
for Funding'', Form CSREES-661, which must be

[[Page 361]]

signed by the proposed principal investigator(s) and endorsed by the 
cognizant authorized organizational representative who possesses the 
necessary authority to commit the applicant's time and other relevant 
resources. Investigators who do not sign the full proposal cover sheet 
will not be listed on the grant document in the event an award is made. 
The title of the proposal must be brief (80-character maximum), yet 
represent The major emphasis of the project. Because this title will be 
used to provide information to those who may not be familiar with the 
proposed project, highly technical words or phraseology should be 
avoided where possible. In addition, phrases such as ``investigation 
of'' or ``research on'' should not be used.
    (2) Project summary. Each full proposal must contain a project 
summary, the length of which may not exceed three (3) single- or double-
spaced pages. This summary is not intended for the general reader; 
consequently, it may contain technical language comprehensible primarily 
by persons in disciplines relating to the food and agricultural 
sciences. The project summary should be a self-contained, specific 
description of the activity to be undertaken and should focus on:
    (i) Overall project goal(s) and supporting objectives;
    (ii) Plans to accomplish project goal(s); and
    (iii) Relevance or significance of the project to United States 
agriculture.
    (3) Project description. The specific aims of the project must be 
included in all proposals. The text of the project description may not 
exceed 15 single- or double-spaced pages. The Department reserves the 
option of not forwarding for further consideration proposals in which 
the project description exceeds this page limit. The project description 
must contain the following components:
    (i) Introduction. A clear statement of the long-term goal(s) and 
supporting objectives of the proposed project should preface the project 
description. The most significant published work in the field under 
consideration, including the work of key project personnel on the 
current application, should be reviewed. The current status of research 
in the particular scientific field also should be described. All work 
cited, including that of key personnel, should be referenced.
    (ii) Progress report. If the proposal is a renewal of an existing 
project supported under this program, include a clearly marked 
performance report describing results to date from the previous award. 
This section should contain the following information:
    (A) A comparison of actual accomplishments with the goals 
established for the previous award;
    (B) The reasons established goals were not met, if applicable; and
    (C) A listing of any publications resulting from the award. Copies 
of reprints or preprints may be appended to the proposal if desired.
    (4) Rationale and significance. Present concisely the rationale 
behind the proposed project. The objectives' specific relationship and 
relevance to the area in which an application is submitted and the 
objectives' specific relationship and relevance to potential regulatory 
issues of United States biotechnology research should be shown clearly. 
Any novel ideas or contributions that the proposed project offers also 
should be discussed in this section.
    (5) Experimental plan. The hypotheses or questions being asked and 
the methodology to be applied to the proposed project should be stated 
explicitly. Specifically, this section must include:
    (i) A description of the investigations and/or experiments proposed 
and the sequence in which the investigations or experiments are to be 
performed;
    (ii) Techniques to be used in carrying out the proposed project, 
including the feasibility of the techniques;
    (iii) Results expected;
    (iv) Means by which experimental data will be analyzed or 
interpreted;
    (v) Pitfalls that may be encountered;
    (vi) Limitations to proposed procedures; and
    (vii) Tentative schedule for conducting major steps involved in 
these investigations and/or experiments.

In describing the experimental plan, the applicant must explain fully 
any materials, procedures, situations, or activities that may be 
hazardous to personnel (whether or not they are directly related to a 
particular phase of

[[Page 362]]

the proposed project), along with an outline of precautions to be 
exercised to avoid or mitigate the effects of such hazards.
    (6) Facilities and equipment. All facilities and major items of 
equipment that are available for use or assignment to the proposed 
research project during the requested period of support should be 
described. In addition, items of nonexpendable equipment necessary to 
conduct and successfully conclude the proposed project should be listed.
    (7) Collaborative arrangements. If the nature of the proposed 
project requires collaboration or subcontractual arrangements with other 
research scientists, corporations, organizations, agencies, or entities, 
the applicant must identify the collaborator(s) and provide a full 
explanation of the nature of the collaboration. Evidence (i.e., letters 
of intent) should be provided to assure peer reviewers that the 
collaborators involved have agreed to render this service. In addition, 
the proposal must indicate whether or not such a collaborative 
arrangement(s) has the potential for conflict(s) of interest.
    (8) Personnel support. To assist peer reviewers in assessing the 
competence and experience of the proposed project staff, key personnel 
who will be involved in the proposed project must be identified clearly. 
For each principal investigator involved, and for all senior associates 
and other professional personnel who expect to work on the project, 
whether or not funds are sought for their support, the following should 
be included:
    (i) An estimate of the time commitments necessary;
    (ii) Curriculum vitae. The curriculum vitae should be limited to a 
presentation of academic and research credentials, e.g., educational, 
employment and professional history, and honors and awards. Unless 
pertinent to the project, to personal status, or to the status of the 
organization, meetings attended, seminars given, or personal data such 
as birth date, marital status, or community activities should not be 
included. The vitae shall be no more than two pages each in length, 
excluding the publication lists. The Department reserves the option of 
not forwarding for further consideration a proposal in which each vitae 
exceeds the two-page limit; and
    (iii) Publication List(s). A chronological list of all publications 
in referred journals during the past five years, including those in 
press, must be provided for each professional project member for whom a 
curriculum vitae is provided. Authors should be listed in the same order 
as they appear on each paper cited, along with the title and complete 
reference as these items usually appear in journals.
    (9) Budget. A detailed budget is required for each year of requested 
support. In addition, a summary budget is required detailing requested 
support for the overall project period. A copy of the form which must be 
used for this purpose, Form CSREES-55, along with instructions for 
completion, is included in the Application Kit identified under 
Sec. 3415.4(b) of this part and may be reproduced as needed by 
applicants. Funds may be requested under any of the categories listed, 
provided that the item or service for which support is requested may be 
identified as necessary for successful conduct of the proposed project, 
is allowable under applicable Federal cost principles, and is not 
prohibited under any applicable Federal statute.
    (10) Research involving special considerations. A number of 
situations encountered in the conduct of research require special 
information and supporting documentation before funding can be approved 
for the project. If any such situation is anticipated, the proposal must 
so indicate. It is expected that a significant number of proposals will 
involve the following:
    (i) Recombinant DNA and RNA molecules. All key personnel identified 
in a proposal and all endorsing officials of a proposed performing 
entity are required to comply with the guidelines established by the 
National Institutes of Health entitled, ``Guidelines for Research 
Involving Recombinant DNA Molecules,'' as revised. The Application Kit, 
identified above in Sec. 3415.4(b), contains a form which is suitable 
for such certification of compliance (Form CSREES-662).
    (ii) Human subjects at risk. Responsibility for safeguarding the 
rights and welfare of human subjects used in any

[[Page 363]]

proposed project supported with grant funds provided by the Department 
rests with the performing entity. Regulations have been issued by the 
Department under 7 CFR Part 1c, Protection of Human Subjects. In the 
event that a project involving human subjects at risk is recommended for 
award, the applicant will be required to submit a statement certifying 
that the project plan has been reviewed and approved by the 
Institutional Review Board at the proposing organization or institution. 
The Application Kit, identified above in Sec. 3415.4(b), contains a form 
which is suitable for such certification (Form CSREES-662).
    (iii) Experimental vertebrate animal care. The responsibility for 
the humane care and treatment of any experimental vertebrate animal, 
which has the same meaning as ``animal'' in section 2(g) of the Animal 
Welfare Act of 1966, as amended (7 U.S.C. 2132(g)), used in any project 
supported with grant funds rests with the performing organization. In 
this regard, all key personnel associated with any supported project and 
all endorsing officials of the proposed performing entity are required 
to comply with the applicable provisions of the Animal Welfare Act of 
1966, as amended (7 U.S.C. 2131 et seq.) and the regulations promulgated 
thereunder by the Secretary of Agriculture in 9 CFR parts 1, 2, 3, and 
4. The applicant must submit a statement certifying that the proposed 
project is in compliance with the aforementioned regulations, and that 
the proposed project is either under review by or has been reviewed and 
approved by an Institutional Animal Care and Use Committee. The 
Application Kit, identified above in Sec. 3415.4(b), contains a form 
which is suitable for such certification (Form CSREES-662).
    (11) Current and pending support. All proposals must list any other 
current public or private research support (including in-house support) 
to which key personnel identified in the proposal have committed 
portions of their time, whether or not salary support for the person(s) 
involved is included in the budget. Analogous information must be 
provided for any pending proposals that are being considered by, or that 
will be submitted in the near future to, other possible sponsors, 
including other USDA programs or agencies. Concurrent submission of 
identical or similar proposals to other possible sponsors will not 
prejudice proposal review or evaluation by the Administrator or experts 
or consultants engaged by the Administrator for this purpose. However, a 
proposal that duplicates or overlaps substantially with a proposal 
already reviewed and funded (or that will be funded) by another 
organization or agency will not be funded under this program. The 
Application Kit, identified above in Sec. 3415.4(b), contains a form 
which is suitable for listing current and pending support (Form CSREES-
663).
    (12) Additions to project description. Each project description is 
expected by the Administrator, the members of peer review groups, and 
the relevant program staff to be complete while meeting the page limit 
established in Sec. 3415.4(d)(3). However, if the inclusion of 
additional information is necessary to ensure the equitable evaluation 
of the proposal (e.g., photographs that do not reproduce well, reprints, 
and other pertinent materials that are deemed to be unsuitable for 
inclusion in the text of the proposal), the number of copies submitted 
should match the number of copies of the application requested in the 
program solicitation. Each set of such materials must be identified with 
the name of the submitting organization, and the name(s) of the 
principal investigator(s). Information may not be appended to a proposal 
to circumvent page limitations prescribed for the project description. 
Extraneous materials will not be used during the peer review process.
    (13) Organizational management information. Specific management 
information relating to an applicant shall be submitted on a one-time 
basis prior to the award of a grant identified under this Part if such 
information has not been provided previously under this or another 
program for which the sponsoring agency is responsible. The Department 
will contact an applicant to request organizational management 
information once a proposal has been recommended for funding.

[[Page 364]]



Sec. 3415.5  Evaluation and disposition of applications.

    (a) Evaluation. All proposals received from eligible applicants and 
submitted in accordance with deadlines established in the annual program 
solicitation shall be evaluated by the Administrator through such 
officers, employees, and others as the Administrator determines are 
uniquely qualified in the areas of research represented by particular 
projects. To assist in equitably and objectively evaluating proposals 
and to obtain the best possible balance of viewpoints, the Administrator 
shall solicit the advice of peer scientists, ad hoc reviewers, or others 
who are recognized specialists in the areas covered by the applications 
received and whose general roles are defined in Sec. 3415.2. Specific 
evaluations will be based upon the criteria established in subpart B, 
Sec. 3415.15, unless CSREES and/or ARS determine that different criteria 
are necessary for the proper evaluation of proposals in one or more 
specific program areas, or for specific types of projects to be 
supported, and announces such criteria and their relative importance in 
the annual program solicitation. The overriding purpose of these 
evaluations is to provide information upon which the Administrator may 
make an informed judgment in selecting proposals for support. 
Incomplete, unclear, or poorly organized applications will work to the 
detriment of applicants during the peer evaluation process. To ensure a 
comprehensive evaluation, all applications should be written with the 
care and thoroughness accorded papers for publication.
    (b) Disposition. On the basis of the Administrator's evaluation of 
an application in accordance with paragraph (a) of this section, the 
Administrator will (1) approve support using currently available funds, 
(2) defer support due to lack of funds or a need for further evaluation, 
or (3) disapprove support for the proposed project in whole or in part. 
With respect to approved projects, the Administrator will determine the 
project period (subject to extension as provided in Sec. 3415.7(c)) 
during which the project may be supported. Any deferral or disapproval 
of an application will not preclude its reconsideration or a 
reapplication during subsequent fiscal years.



Sec. 3415.6  Grant awards.

    (a) General. Within the limit of funds available for such purpose, 
the awarding official of CSREES or ARS shall make grants to those 
responsible, eligible applicants whose proposals are judged most 
meritorious in the announced program areas under the evaluation criteria 
and procedures set forth in this part. The date specified by the 
Administrator as the effective date of the grant shall be no later than 
September 30 of the Federal fiscal year in which the project is approved 
for support and funds are appropriated for such purpose, unless 
otherwise permitted by law. It should be noted that the project need not 
be initiated on the grant effective date, but as soon thereafter as 
practicable so that project goals may be attained within the funded 
project period. All funds granted by CSREES or ARS under this Part shall 
be expended solely for the purpose for which the funds are granted in 
accordance with the approved application and budget, the regulations of 
this part, the terms and conditions of the award, the applicable Federal 
cost principles, and the Department's assistance regulations (part 3015 
and part 3016 of this title).
    (b) Grant award document and notice of grant award--(1) Grant award 
document. The grant award document shall include at a minimum the 
following:
    (i) Legal name and address of performing organization or institution 
to whom the Administrator has awarded a grant under the terms of this 
Part;
    (ii) Title of project;
    (iii) Name(s) and address(es) of principal investigator(s) chosen to 
direct and control approved activities;
    (iv) Identifying grant number assigned by the Department;
    (v) Project period, specifying the amount of time the Department 
intends to support the project without requiring recompetition for 
funds;
    (vi) Total amount of Departmental financial assistance approved by 
the Administrator during the project period;
    (vii) Legal authority(ies) under which the grant is awarded;

[[Page 365]]

    (viii) Approved budget plan for categorizing allocable project funds 
to accomplish the stated purpose of the grant award; and
    (ix) Other information or provisions deemed necessary by CSREES or 
ARS to carry out their respective granting activities or to accomplish 
the purpose of a particular grant.
    (2) Notice of grant award. The notice of grant award, in the form of 
a letter, will be prepared and will provide pertinent instructions or 
information to the grantee that is not included in the grant award 
document.
    (c) Types of grant instruments. The major types of grant instruments 
shall be as follows:
    (1) New grant. This is a grant instrument by which CSREES or ARS 
agrees to support a specified level of effort for a project that 
generally has not been supported previously under this program. This 
type of grant is approved on the basis of peer review recommendation.
    (2) Renewal grant. This is a grant instrument by which CSREES or ARS 
agrees to provide additional funding for a project period beyond that 
approved in an original or amended award. When a renewal application is 
submitted, it should include a summary of progress to date from the 
previous granting period. A renewal grant shall be based upon new 
application, de novo peer review and staff evaluation, new 
recommendation and approval, and a new award action reflecting that the 
grant has been renewed.
    (3) Supplemental grant. This is an instrument by which CSREES or ARS 
agrees to provide small amounts of additional funding under a new or 
renewal grant as specified in paragraphs (c)(1) and (c)(2) of this 
section and may involve a short-term (usually six months or less) 
extension of the project period beyond that approved in an original or 
amended award. A supplement is awarded only if required to assure 
adequate completion of the original scope of work and if there is 
sufficient justification to warrant such action. A request of this 
nature normally will not require additional peer review.
    (d) Funding mechanisms. The two mechanisms by which CSREES or ARS 
may elect to award new, renewal, and supplemental grants are as follows:
    (1) Standard grant. This is a funding mechanism whereby CSREES or 
ARS agrees to support a specified level of effort for a predetermined 
time period without the announced intention of providing additional 
support at a future date.
    (2) Continuation grant. This is a funding mechanism whereby CSREES 
or ARS agrees to support a specified level of effort for a predetermined 
period of time with a statement of intention to provide additional 
support at a future date, provided that performance has been 
satisfactory, appropriations are available for this purpose, and 
continued support would be in the best interests of the Federal 
government and the public. This kind of mechanism normally will be 
awarded for an initial one-year period, and any subsequent continuation 
project grants also will be awarded in one-year increments. The award of 
a continuation project grant to fund an initial or succeeding budget 
period does not constitute an obligation to fund any subsequent budget 
period. Unless prescribed otherwise by CSREES or ARS, a grantee must 
subject a separate application for continued support for each subsequent 
fiscal year. Requests for such continued support must be submitted in 
duplicate at least three months prior to the expiration date of the 
budget period currently being funded. Decisions regarding continued 
support and the actual funding levels of such support in future years 
usually will be made administratively after consideration of such 
factors as the grantee's progress and management practices and the 
availability of funds. Since initial peer reviews are based upon the 
full term and scope of the original grant application, additional 
evaluations of this type generally are not required prior to successive 
years' support. However, in unusual cases (e.g., when the nature of the 
project or key personnel change or when the amount of future support 
requested substantially exceeds the grant application originally 
reviewed and approved), additional reviews may be required prior to 
approving continued funding.

[[Page 366]]

    (e) Obligation of the Federal Government. Neither the approval of 
any application nor the award of any project grant commits or obligates 
the United States in any way to make any renewal, supplemental, 
continuation, or other award with respect to any approved application or 
portion thereof.



Sec. 3415.7  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The grantee may not in 
whole or in part delegate or transfer to another person, institution, or 
organization the responsibility for use or expenditure of grant funds.
    (b) Change in project plans. (1) The permissible changes by the 
grantee, principal investigator(s), or other key project personnel in 
the approved grant shall be limited to changes in methodology, 
techniques, or other aspects of the project to expedite achievement of 
the project's approved goals. If the grantee or the principal 
investigator(s) is uncertain whether a particular change complies with 
this provision, the question must be referred to the awarding official 
of CSREES or ARS, as appropriate, for a final determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
the grantee and approved in writing by the awarding official of CSREES 
or ARS, as appropriate, prior to effecting such changes. Normally, no 
requests for such changes that are outside the scope of the original 
approved project will be approved.
    (3) Changes in approved project leadership or the replacement or 
reassignment of other key project personnel shall be requested by the 
grantee and approved in writing by the awarding official of CSREES or 
ARS, as appropriate, prior to effecting such changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the grantee and 
approved in writing by the awarding official of CSREES or ARS, as 
appropriate, prior to effecting such changes, unless prescribed 
otherwise in the terms and conditions of a grant.
    (c) Changes in project period. The project period determined 
pursuant to Sec. 3415.5(b) may be extended by the awarding official of 
CSREES or ARS, as appropriate, without additional financial support, for 
such additional period(s) as the appropriate awarding official 
determines may be necessary to complete, or fulfill the purposes of, an 
approved project. Any extension of time shall be conditioned upon prior 
request by the grantee and approval in writing by the appropriate 
awarding official, unless prescribed otherwise in the terms and 
conditions of a grant.
    (d) Changes in approved budget. The terms and conditions of a grant 
will prescribe the circumstances under which written approval must be 
requested and obtained from the awarding official of CSREES or ARS, as 
appropriate, prior to instituting changes in an approved budget.



Sec. 3415.8  Other Federal statutes and regulations that apply.

    Several other Federal statutes and regulations apply to grant 
preproposals or proposals considered for review or to grants awarded 
under this part. These include but are not limited to:

7 CFR 1.1--USDA implementation of the Freedom of Information Act;
7 CFR Part 1c--USDA implementation of the Federal Policy for the 
Protection of Human Subjects;
7 CFR Part 3--USDA implementation of OMB Circular A-129 regarding debt 
collection;
7 CFR Part 15, Subpart A--USDA implementation of title VI of the Civil 
Rights Act of 1964;
7 CFR Part 520--ARS implementation of the National Environmental Policy 
Act;
7 CFR Part 3015--USDA Uniform Federal Assistance Regulations, 
implementing OMB directives (i.e., Circular Nos. A-110, A-21, and A-122) 
and incorporating provisions of 31 U.S.C. 6301-6308 (formerly, the 
Federal Grant and Cooperative Agreement Act of 1977, Pub. L. 95-224), as 
well as general policy requirements applicable to recipients of 
Departmental financial assistance;
7 CFR Part 3016--USDA Uniform Administrative Requirements for Grants and 
Cooperative Agreements to State and Local Governments;
7 CFR Part 3017, as amended--USDA implementation of Governmentwide 
Debarment and Suspension (Nonprocurement) and Governmentwide 
Requirements for Drug-Free Workplace (Grants);

[[Page 367]]

7 CFR Part 3018--USDA implementation of New Restrictions on Lobbying. 
Imposes new prohibitions and requirements for disclosure and 
certification related to lobbying on recipients of Federal contracts, 
grants, cooperative agreements, and loans;
7 CFR Part 3051--Audits of Institutions of Higher Education and Other 
Nonprofit Institutions;
7 CFR Part 3407--CSREES implementation of the National Environmental 
Policy Act;
29 U.S.C. 794, section 504--Rehabilitation Act of 1973, and 7 CFR Part 
15B (USDA implementation of the statute), prohibiting discrimination 
based upon physical or mental handicap in Federally assisted programs;
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of rights 
to inventions made by employees of small business firms and domestic 
nonprofit organizations, including universities, in Federally assisted 
programs (implementing regulations are contained in 37 CFR part 401).



Sec. 3415.9  Other conditions.

    The Administrator may elect to use a portion of available funding 
each fiscal year to support an Annual Conference, the purpose of which 
will be to bring together scientists and regulatory officials relevant 
to this program. At the Annual Conference, the participants may offer 
individual opinions regarding research needs, update information and 
discuss progress, or may offer individual opinions on areas of risk 
assessment research appropriate to agricultural biotechnology. The 
annual program solicitation will indicate whether funds are available to 
support an Annual Conference and, if so, will include instructions on 
the preparation and submission of proposals requesting funds from the 
Department for support of an Annual Conference. The Department may also 
elect to require principal investigators whose research is funded under 
this program to attend an Annual Conference and to present data on the 
results of their research efforts. Should attendance at an Annual 
Conference be required, the annual program solicitation will so 
indicate, and principal investigators may include attendance costs in 
their proposed budgets.
    The Administrator may, with respect to any grant or to any class of 
awards, impose additional conditions prior to or at the time of any 
award when, in the Administrator's judgment, such conditions are 
necessary to ensure or protect advancement of the approved project, the 
interests of the public, or the conservation of grant funds.



    Subpart B--Scientific Peer Review of Research Grant Applications



Sec. 3415.10  Establishment and operation of peer review groups.

    Subject to Sec. 3415.5, the Administrator shall adopt procedures for 
the conduct of peer reviews and the formulation of recommendations under 
Sec. 3415.14.



Sec. 3415.11  Composition of peer review groups.

    (a) Peer review group members and ad hoc reviewers will be selected 
based upon their training and experience in relevant scientific or 
technical fields, taking into account the following factors:
    (1) The level of formal scientific or technical education by the 
individual and the extent to which an individual is engaged in relevant 
research activities;
    (2) The need to include as peer reviewers experts from various areas 
of specialization within relevant scientific or technical fields;
    (3) The need to include as peer reviewers experts from a variety of 
organizational types (e.g., universities, Federal laboratories, 
industry, private consultant(s), Federal and State regulatory agencies, 
environmental organizations) and geographic locations; and
    (4) The need to maintain a balanced composition of peer review 
groups related to minority and female representation and an equitable 
age distribution.
    (b) [Reserved]



Sec. 3415.12  Conflicts of interest.

    Members of peer review groups covered by this part are subject to 
relevant provisions contained in title 18 of the United States Code 
relating to criminal activity, Departmental regulations governing 
employee responsibilities and conduct (part O of this title), and 
Executive Order No. 11222, as amended.



Sec. 3415.13  Availability of information.

    Information regarding the peer review process will be made available 
to

[[Page 368]]

the extent permitted under the Freedom of Information Act (5 U.S.C. 
552), the Privacy Act (5 U.S.C. 552a.), and implementing Departmental 
regulations (part 1 of this title).



Sec. 3415.14  Proposal review.

    (a) All grant applications will be acknowledged. Prior to technical 
examination, a preliminary review will be made for responsiveness to the 
program solicitation (e.g., relationship of application to announced 
program area). Proposals that do not fall within the guidelines as 
stated in the program solicitation will be eliminated from competition 
and will be returned to the applicant.
    (b) All applications will be carefully reviewed by the 
Administrator, qualified officers or employees of the Department, the 
respective peer review group, and ad hoc reviewers, as required. Written 
comments will be solicited from ad hoc reviewers when required, and 
individual written comments and in-depth discussions will be provided by 
peer review group members prior to recommending applications for 
funding. Applications will be ranked and support levels recommended 
within the limitation of total available funding for each research 
program area as announced in the program solicitation.
    (c) No awarding official will make a grant based upon an application 
covered by this part unless the application has been reviewed in 
accordance with the provisions of this part and unless said reviewers 
have made recommendations concerning the scientific merit and relevance 
to the program of such application.
    (d) Except to the extent otherwise provided by law, such 
recommendations are advisory only and are not binding on program 
officers or on the awarding officials of CSREES and ARS.



Sec. 3415.15  Evaluation factors.

    In carrying out its review under Sec. 3415.14, the peer review group 
will take into account the following factors unless, pursuant to 
Sec. 3415.5(a), different evaluation criteria are specified in the 
annual program solicitation:
    (a) Scientific merit of the proposal.
    (1) Conceptual adequacy of hypothesis;
    (2) Clarity and delineation of objectives;
    (3) Adequacy of the description of the undertaking and suitability 
and feasibility of methodology;
    (4) Demonstration of feasibility through preliminary data;
    (5) Probability of success of project;
    (6) Novelty, uniqueness and originality; and
    (7) Appropriateness to regulation of biotechnology and risk 
assessment.
    (b) Qualifications of proposed project personnel and adequacy of 
facilities.
    (1) Training and demonstrated awareness of previous and alternative 
approaches to the problem identified in the proposal, and performance 
record and/or potential for future accomplishments;
    (2) Time allocated for systematic attainment of objectives;
    (3) Institutional experience and competence in subject area; and
    (4) Adequacy of available or obtainable support personnel, 
facilities, and instrumentation.
    (c) Relevance of project to solving biotechnology regulatory 
uncertainty for United States agriculture.
    (1) Scientific contribution of research in leading to important 
discoveries or significant breakthroughs in announced program areas; and
    (2) Relevance of the risk assessment research to agriculture and 
environmental regulations.



PART 3418--STAKEHOLDER INPUT REQUIREMENTS FOR RECIPIENTS OF AGRICULTURAL RESEARCH, EDUCATION, AND EXTENSION FORMULA FUNDS--Table of Contents




Sec.
3418.1  Definitions.
3418.2  Scope and purpose.
3418.3  Applicability.
3418.4  Reporting requirement.
3418.5  Failure to comply and report.
3418.6  Prohibition.

    Authority: 5 U.S.C. 301; 7 U.S.C. 7612(c)(2).

    Source: 65 FR 5998, Feb. 8, 2000, unless otherwise noted.



Sec. 3418.1  Definitions.

    As used in this part:
    1862 institution means a college or university eligible to receive 
funds

[[Page 369]]

under the Act of July 2, 1862 (7 U.S.C. 301, et seq.).
    1890 institution means a college or university eligible to receive 
funds under the Act of August 30, 1890 (7 U.S.C. 321, et seq.), 
including Tuskegee University.
    1994 institution means an institution as defined in section 532 of 
the Equity in Educational Land-Grant Status Act of 1994 (7 U.S.C. 301 
note).
    Formula funds means agricultural research funds provided to 1862 
institutions and agricultural experiment stations under the Hatch Act of 
1887 (7 U.S.C. 361a, et seq.); extension funds provided to 1862 
institutions under sections 3(b) and 3(c) of the Smith-Lever Act (7 
U.S.C. 343(b) and (c)) and section 208(c) of the District of Columbia 
Public Postsecondary Education Reorganization Act, Pub. L. 93-471; 
agricultural extension and research funds provided to 1890 institutions 
under sections 1444 and 1445 of the National Agricultural Research, 
Extension, and Teaching Policy Act of 1977 (NARETPA)(7 U.S.C. 3221 and 
3222); education formula funds provided to 1994 institutions under 
section 534(a) of the Equity in Educational Land-Grant Status Act of 
1994 (7 U.S.C. 301 note); research funds provided to forestry schools 
under the McIntire-Stennis Act of 1962 (16 U.S.C. 582a, et seq.); and 
animal health and disease research funds provided to veterinary schools 
and agricultural experiment stations under section 1433 of NARETPA (7 
U.S.C. 3195).
    Recipient institution means any 1862 institution, 1890 institution, 
1994 institution, or any other institution that receives formula funds 
from the Department of Agriculture.
    Seek stakeholder input means an open, fair, and accessible process 
by which individuals, groups, and organizations may have a voice, and 
one that treats all with dignity and respect.
    Stakeholder means any person who has the opportunity to use or 
conduct agricultural research, extension, or education activities of 
recipient institutions.



Sec. 3418.2  Scope and Purpose.

    Section 102(c) of the Agricultural Research, Extension, and 
Education Reform Act of 1998 (7 U.S.C. 7612(c)) requires land-grant 
institutions, as a condition of receipt of formula funds, to solicit and 
consider input and recommendations from stakeholders concerning the use 
of formula funds. This regulation implements this requirement 
consistently for all recipient institutions that receive formula funds.



Sec. 3418.3  Applicability.

    To obtain formula funds after September 30, 1999, each recipient 
institution shall establish and implement a process for obtaining 
stakeholder input on the uses of formula funds in accordance with this 
part.



Sec. 3418.4  Reporting requirement.

    Each recipient institution shall report to the Department of 
Agriculture by October 1 of each fiscal year, the following information 
related to stakeholder input and recommendations:
    (a) Actions taken to seek stakeholder input that encourages their 
participation;
    (b) A brief statement of the process used by the recipient 
institution to identify individuals and groups who are stakeholders and 
to collect input from them; and
    (c) A statement of how collected input was considered.



Sec. 3418.5  Failure to comply and report.

    Formula funds may be withheld and redistributed if a recipient 
institution fails to either comply with Sec. 3418.3 or report under 
Sec. 3418.4.



Sec. 3418.6  Prohibition.

    A recipient institution shall not require input from stakeholders as 
a condition of receiving the benefits of, or participating in, the 
agricultural research, education, or extension programs of the recipient 
institution.

[[Page 370]]



PART 3419--MATCHING FUNDS REQUIREMENT FOR AGRICULTURAL RESEARCH AND EXTENSION FORMULA FUNDS AT 1890 LAND-GRANT INSTITUTIONS, INCLUDING TUSKEGEE UNIVERSITY, AND 
AT 1862 LAND-GRANT INSTITUTIONS IN INSULAR AREAS--Table of Contents




Sec.
3419.1  Definitions.
3419.2  Matching funds.
3419.3  Determination of non-Federal sources of funds.
3419.4  Limited waiver authority.
3419.5  Certification of matching funds.
3419.6  Use of matching funds.
3419.7  Redistribution of funds.

    Authority: 5 U.S.C. 301, 7 U.S.C. 3222d; Sec. 753, Pub. L. No. 105-
277, 112 Stat. 2681-33.

    Source: 65 FR 21631, Apr. 21, 2000, unless otherwise noted.



Sec. 3419.1  Definitions.

    As used in this part:
    Eligible institution means a college or university eligible to 
receive funds under the Act of August 30, 1890 (7 U.S.C. 321 et seq.) 
(commonly known as the Second Morrill Act), including Tuskegee 
University, or a college or university designated under the Act of July 
2, 1862 (7 U.S.C. 301, et seq.) (commonly known as the First Morrill 
Act) and located in the Commonwealth of Puerto Rico and the insular 
areas of American Samoa, Guam, Micronesia, Northern Marianas, and the 
Virgin Islands.
    Formula funds means agricultural research funds provided to the 
eligible institutions under section 1445 of the National Agricultural 
Research, Extension, and Teaching Policy Act of 1977 (NARETPA), as 
amended, or under section 3 of the Hatch Act of 1887, 7 U.S.C. 361c, and 
agricultural extension funds provided to the eligible institutions under 
section 1444 of NARETPA or under sections 3(b) and (c) of the Smith-
Lever Act, 7 U.S.C. 343(b) and (c).
    Matching funds means funds from non-Federal sources made available 
by the State to the eligible institutions:
    (a) For programs or activities that fall within the purposes of 
agricultural research and cooperative extension under sections 1444 and 
1445 of NARETPA, the Hatch Act of 1887, and the Smith-Lever Act; or
    (b) For qualifying educational activities. Matching funds means cash 
contributions and excludes in-kind matching contributions.
    Non-Federal sources means funds made available by the State to the 
eligible institution either through direct appropriation or under any 
authority (other than authority to charge tuition and fees paid by 
students) provided by a State to an eligible institution to raise 
revenue, such as gift acceptance authority or user fees.
    Qualifying educational activities means programs that address food 
and agricultural sciences components of an eligible institution.
    Secretary means the Secretary of Agriculture and any other officer 
or employee of the Department of Agriculture to whom the authority 
involved may be delegated.
    State means the government of any one of the fifty States, the 
Commonwealth of Puerto Rico, Guam, American Samoa, the Commonwealth of 
Northern Marianas, the Virgin Islands of the United States, the Republic 
of Palau, the Republic of the Marshall Islands, and the Federated States 
of Micronesia.



Sec. 3419.2  Matching funds.

    The distribution of formula funds shall be subject to the following 
matching requirements:
    (a) For fiscal year 2000, matching funds shall equal not less than 
30 percent of the formula funds to be distributed to the eligible 
institution;
    (b) For fiscal year 2001, matching funds shall equal not less than 
45 percent of the formula funds to be distributed to the eligible 
institution; and
    (c) For fiscal year 2002 and each fiscal year thereafter, the 
matching funds shall equal not less than 50 percent of the formula funds 
to be distributed to the eligible institution.



Sec. 3419.3  Determination of non-Federal sources of funds.

    Each eligible institution shall submit by September 30, 1999, a 
report describing for fiscal year 1999:

[[Page 371]]

    (a) The sources of non-Federal funds made available to the eligible 
institutions for agricultural research, extension, and qualified 
educational activity to meet the matching requirements of section 1449 
of NARETPA, as amended; and
    (b) The amount of funds generally available from each source. This 
report for the fiscal year ending September 30, 1999, may also include a 
request for a waiver of the matching funds requirement for fiscal year 
2000.



Sec. 3419.4  Limited waiver authority.

    The Secretary may waive the matching funds requirement for fiscal 
year 2000 for an eligible institution of a State if the Secretary 
determines that, based on the report received under Sec. 3419.3, the 
State will be unlikely to satisfy the matching requirement. The criteria 
to waive the match in fiscal year 2000 may include:
    (a) Natural disaster, flood, fire, tornado, hurricane, or drought;
    (b) State and/or institution facing a financial crisis; or
    (c) Demonstration of a good faith effort to obtain funds. Approval 
or disapproval of the request for a waiver will be based on the report 
submitted under Sec. 3419.3. The Secretary may not waive the matching 
requirement for any fiscal year other than fiscal year 2000.



Sec. 3419.5  Certification of matching funds.

    Prior to the distribution of formula funds each fiscal year, each 
eligible institution must certify as to the availability of matching 
funds. Eligible institutions may revise their certification of matching 
funds through July 1 of the fiscal year in which funds are appropriated.



Sec. 3419.6  Use of matching funds.

    The required matching funds for the formula programs shall be used 
by an eligible institution for agricultural research and extension 
activities that have been approved in the plan of work required under 
sections 1444(d) and 1445(c) of the National Agricultural Research, 
Extension, and Teaching Policy Act of 1977, section 7 of the Hatch Act 
of 1887, section 4 of the Smith-Lever Act, or for approved qualifying 
education activities.



Sec. 3419.7  Redistribution of funds.

    All formula funds not matched and reported under Sec. 3419.5 by July 
1 of each fiscal year will be reapportioned to the other eligible 
institutions who have satisfied their current fiscal year requirement 
for matching funds for the formula funds. Unmatched research and 
extension funds will be reapportioned in accordance with the research 
and extension statutory distribution formulas applicable to the 1890 and 
1862 land-grant institutions, respectively. Any redistribution of funds 
shall be subject to the same matching requirement under Sec. 3419.2.

[[Page 373]]



     CHAPTER XXXV--RURAL HOUSING SERVICE, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3550            Direct single family housing loans and 
                    grants..................................         375
3565            Guaranteed Rural Rental Housing Program.....         420
3570            Community programs..........................         443
3575            General.....................................         453

[[Page 375]]



PART 3550--DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS--Table of Contents




                           Subpart A--General

Sec.
3550.1  Applicability.
3550.2  Purpose.
3550.3  Civil rights.
3550.4  Reviews and appeals.
3550.5  Environmental requirements.
3550.6  State law or State supplement.
3550.7  Demonstration programs.
3550.8  Exception authority.
3550.9  Conflict of interest.
3550.10  Definitions.
3550.11-3550.49  [Reserved]
3550.50  OMB control number.

                   Subpart B--Section 502 Origination

3550.51  Program objectives.
3550.52  Loan purposes.
3550.53  Eligibility requirements.
3550.54  Calculation of income and assets.
3550.55  Applications.
3550.56  Site requirements.
3550.57  Dwelling requirements.
3550.58  Ownership requirements.
3550.59  Security requirements.
3550.60  Escrow account.
3550.61  Insurance.
3550.62  Appraisals.
3550.63  Maximum loan amount.
3550.64  Down payment.
3550.65  [Reserved]
3550.66  Interest rate.
3550.67  Repayment period.
3550.68  Payment subsidies.
3550.69  Deferred mortgage payments.
3550.70  Conditional commitments.
3550.71  Special requirements for condominiums.
3550.72  Community land trusts.
3550.73  Manufactured homes.
3550.74  Nonprogram loans.
3550.75-3550.99  [Reserved]
3550.100  OMB control number.

                   Subpart C--Section 504 Origination

3550.101  Program objectives.
3550.102  Grant and loan purposes.
3550.103  Eligibility requirements.
3550.104  Applications.
3550.105  Site requirements.
3550.106  Dwelling requirements.
3550.107  Ownership requirements.
3550.108  Security requirements (loans only).
3550.109  Escrow account (loans only).
3550.110  Insurance (loans only).
3550.111  Appraisals (loans only).
3550.112  Maximum loan and grant.
3550.113  Rates and terms (loans only).
3550.114  Repayment agreement (grants only).
3550.115  WWD grant program objectives.
3550.116  Definitions applicable to WWD grants only.
3550.117  WWD grant purposes.
3550.118  Grant restrictions.
3550.119  WWD eligibility requirements.
3550.120-3550.149  [Reserved]
3550.150  OMB control number.

                      Subpart D--Regular Servicing

3550.151  Servicing goals.
3550.152  Loan payments.
3550.153  Fees.
3550.154  Inspections.
3550.155  Escrow account.
3550.156  Borrower obligations.
3550.157  Payment subsidy.
3550.158  Active military duty.
3550.159  Borrower actions requiring RHS approval.
3550.160  Refinancing with private credit.
3550.161  Final payment.
3550.162  Recapture.
3550.163  Transfer of security and assumption of indebtedness.
3550.164  Unauthorized assistance.
3550.165-3550.199  [Reserved]
3550.200  OMB control number.

                      Subpart E--Special Servicing

3550.201  Purpose of special servicing actions.
3550.202  Past due accounts.
3550.203  General servicing actions.
3550.204  Payment assistance.
3550.205  Delinquency workout agreements.
3550.206  Protective advances.
3550.207  Payment moratorium.
3550.208  Reamortization using promissory note interest rate.
3550.209  [Reserved]
3550.210  Offsets.
3550.211  Liquidation.
3550.212-3550.249  [Reserved]
3550.250  OMB control number.

                    Subpart F--Post-Servicing Actions

3550.251  Property management and disposition.
3550.252  Debt settlement policies.
3550.253  Settlement of a debt by compromise or adjustment.
3550.254-3550.299  [Reserved]
3550.300  OMB control number.

    Authority: 5 U.S.C. 301; 42 U.S.C. 1480.

    Source: 61 FR 59779, Nov. 22, 1996, unless otherwise noted.



                           Subpart A--General



Sec. 3550.1  Applicability.

    This part sets forth policies for the direct single family housing 
loan programs operated by the Rural Housing

[[Page 376]]

Service (RHS) of the U.S. Department of Agriculture (USDA). It addresses 
the requirements of sections 502 and 504 of the Housing Act of 1949, as 
amended, and includes policies regarding both loan and grant origination 
and servicing. Procedures for implementing these regulations can be 
found in program handbooks, available in any Rural Development office. 
Any provision on the expenditure of funds under this part is contingent 
upon the availability of funds.



Sec. 3550.2  Purpose.

    The purpose of the direct RHS single family housing loan programs is 
to provide low- and very low-income people who will live in rural areas 
with an opportunity to own adequate but modest, decent, safe, and 
sanitary dwellings and related facilities. The section 502 program 
offers persons who do not currently own adequate housing, and who cannot 
obtain other credit, the opportunity to acquire, build, rehabilitate, 
improve, or relocate dwellings in rural areas. The section 504 program 
offers loans to very low-income homeowners who cannot obtain other 
credit to repair or rehabilitate their properties. The section 504 
program also offers grants to homeowners age 62 or older who cannot 
obtain a loan to correct health and safety hazards or to make the unit 
accessible to household members with disabilities.



Sec. 3550.3  Civil rights.

    RHS will administer its programs fairly, and in accordance with both 
the letter and the spirit of all equal opportunity and fair housing 
legislation and applicable executive orders. Loans, grants, services, 
and benefits provided under this part shall not be denied to any person 
based on race, color, national origin, sex, religion, marital status, 
familial status, age, physical or mental disability, receipt of income 
from public assistance, or because the applicant has, in good faith, 
exercised any right under the Consumer Credit Protection Act (15 U.S.C. 
1601 et seq.). All activities under this part shall be accomplished in 
accordance with the Fair Housing Act (42 U.S.C. 3601-3620), Executive 
Order 11246, and Executive Order 11063, as amended by Executive Order 
12259, as applicable. The civil rights compliance requirements for RHS 
are in 7 CFR part 1901, subpart E.



Sec. 3550.4  Reviews and appeals.

    Whenever RHS makes a decision that is adverse to a participant, RHS 
will provide the participant with written notice of such adverse 
decision and the participant's rights to a USDA National Appeals 
Division hearing in accordance with 7 CFR part 11. Any adverse decision, 
whether appealable or non-appealable may be reviewed by the next-level 
RHS supervisor.



Sec. 3550.5  Environmental requirements.

    (a) Policy. RHS will consider environmental quality as equal with 
economic, social, and other relevant factors in program development and 
decision-making processes. RHS will take into account potential 
environmental impacts of proposed projects by working with RHS 
applicants, other federal agencies, Indian tribes, State and local 
governments, and interested citizens and organizations in order to 
formulate actions that advance the program's goals in a manner that will 
protect, enhance, and restore environmental quality.
    (b) Regulatory references. Processing and servicing actions under 
this part will be done in accordance with the requirements provided in 7 
CFR part 1940, subpart G which addresses environmental requirements and 
7 CFR part 1924, subpart A, which addresses lead-based paint.



Sec. 3550.6  State law or State supplement.

    State and local laws and regulations, and the laws of federally 
recognized Indian tribes, may affect RHS implementation of certain 
provisions of this regulation, for example, with respect to the 
treatment of liens, construction, or environmental policies. 
Supplemental guidance may be issued in the case of any conflict or 
significant differences.



Sec. 3550.7  Demonstration programs.

    From time to time, RHS may authorize limited demonstration programs. 
The purpose of these demonstration programs is to test new approaches to 
offering housing under the statutory authority granted to the Secretary.

[[Page 377]]

Therefore, such demonstration programs may not be consistent with some 
of the provisions contained in this part. However, any program 
requirements that are statutory will remain in effect. Demonstration 
programs will be clearly identified as such.



Sec. 3550.8  Exception authority.

    An RHS official may request, and the Administrator or designee may 
make, an exception to any requirement or provision of this part or 
address any omission of this part that is consistent with the applicable 
statute if the Administrator determines that application of the 
requirement or provision, or failure to take action in the case of an 
omission, would adversely affect the Government's interest.



Sec. 3550.9  Conflict of interest.

    (a) Objective. It is the objective of RHS to maintain the highest 
standards of honesty, integrity, and impartiality by employees. To 
reduce the potential for employee conflict of interest, all processing, 
approval, servicing, or review activity will be conducted in accordance 
with 7 CFR part 1900, subpart D by RHS employees who:
    (1) Are not themselves the applicant or borrower;
    (2) Are not members of the family or close known relatives of the 
applicant or borrower;
    (3) Do not have an immediate working relationship with the applicant 
or borrower, the employee related to the applicant or borrower, or the 
employee who would normally conduct the activity; or
    (4) Do not have a business or close personal association with the 
applicant or borrower.
    (b) Applicant or borrower responsibility. The applicant or borrower 
must disclose any known relationship or association with an RHS employee 
when such information is requested.
    (c) RHS employee responsibility. An RHS employee must disclose any 
known relationship or association with a recipient, regardless of 
whether the relationship or association is known to others. RHS 
employees or members of their families may not purchase a Real Estate 
Owned (REO) property, security property from a borrower, or security 
property at a foreclosure sale. Loan closing agents who have been 
involved with a particular property, as well as members of their 
families, are also precluded from purchasing such properties.

[61 FR 59779, Nov. 22, 1996; 61 FR 65266, Dec. 11, 1996]



Sec. 3550.10  Definitions.

    Acceleration. Demand for immediate repayment of the entire balance 
of a debt if the security instruments are breached.
    Adjusted income. Used to determine whether an applicant is income-
eligible. Adjusted income provides for deductions to account for varying 
household circumstances and expenses. See Sec. 3550.54 for a complete 
description of adjusted income.
    Adjustment. An agreement to release a debtor from liability 
generally upon receipt of an initial lump sum representing the maximum 
amount the debtor can afford to pay and periodic additional payments 
over a period of up to 5 years.
    Amortized payment. Equal monthly payments under a fully amortized 
mortgage loan that provides for the scheduled payment of interest and 
principal over the term of the loan.
    Applicant. An adult member of the household who will be responsible 
for repayment of the loan.
    Assumption. The procedure whereby the transferee becomes liable for 
all or part of the debt of the transferor.
    Borrower. A recipient who is indebted under the section 502 or 504 
programs.
    Cancellation. A decision to cease collection activities and release 
the debtor from personal liability for any remaining amounts owed.
    Compromise. An agreement to release a debtor from liability upon 
receipt of a specified lump sum that is less than the total amount due.
    Conditional commitment. A determination that a proposed dwelling 
will qualify as a program-eligible property. The conditional commitment 
does not reserve funds, nor does it ensure that a program-eligible 
applicant will be available to buy the dwelling.

[[Page 378]]

    Cosigner. An individual or an entity that joins in the execution of 
a promissory note to compensate for any deficiency in the applicant's 
repayment ability. The cosigner becomes jointly liable to comply with 
the terms of the promissory note in the event of the borrower's default, 
but is not entitled to any interest in the security or borrower rights.
    Cross-collateralized loan. A situation in which a single property 
secures both RHS and Farm Service Agency loans.
    Custodial property. Borrower-owned real property that serves as 
security for a loan that has been taken into possession by the Agency to 
protect the Government's interest.
    Daily simple interest. A method of establishing borrower payments 
based on daily interest charged on the outstanding principal balance of 
the loan. Principal is reduced by the amount of payment in excess of the 
accrued interest.
    Dealer-contractor. A person, firm, partnership, or corporation in 
the business of selling and servicing manufactured homes and developing 
sites for manufactured homes. A person, firm, partnership, or 
corporation not capable of providing the complete service is not 
eligible to be a dealer-contractor.
    Debt instrument. A collective term encompassing obligating documents 
for a loan, including any applicable promissory note, assumption 
agreement, or grant agreement.
    Deferred mortgage payments. A subsidy available to eligible, very 
low-income borrowers of up to 25 percent of their principal and interest 
payments at 1 percent for up to 15 years. The deferred amounts are 
subject to recapture on sale or nonoccupancy.
    Deficient housing. A dwelling that lacks complete plumbing; lacks 
adequate heating; is dilapidated or structurally unsound; has an 
overcrowding situation that will be corrected with loan funds; or that 
is otherwise uninhabitable, unsafe, or poses a health or environmental 
threat to the occupant or others.
    Elderly family. An elderly family consists of one of the following:
    (1) A person who is the head, spouse, or sole member of a family and 
who is 62 years of age or older, or who is disabled, and is an applicant 
or borrower;
    (2) Two or more persons who are living together, at least 1 of whom 
is age 62 or older, or disabled, and who is an applicant or borrower; or
    (3) In the case of a family where the deceased borrower or spouse 
was at least 62 years old or disabled, the surviving household member 
shall continue to be classified as an elderly family for the purpose of 
determining adjusted income, even though the surviving members may not 
meet the definition of elderly family on their own, provided:
    (i) They occupied the dwelling with the deceased family member at 
the time of the death;
    (ii) If one of the surviving family members is the spouse of the 
deceased family member, the family shall be classified as an elderly 
family only until the remarriage of the surviving spouse; and
    (iii) At the time of the death of the deceased family member, the 
dwelling was financed under title V of the Housing Act of 1949, as 
amended.
    Escrow account. An account to which the borrower contributes monthly 
payments to cover the anticipated costs of real estate taxes, hazard and 
flood insurance premiums, and other related costs.
    Existing dwelling or unit. A dwelling that is more than 1 year old, 
or less than 1 year old and covered by an approved 10-year warranty 
plan.
    False information. Information that the recipient knew was incorrect 
or should have known was incorrect that was provided or omitted for the 
purposes of obtaining assistance for which the recipient was not 
eligible.
    Full-time student. A person who carries at least the minimum number 
of credit hours considered to be full-time by college or vocational 
school in which the person is enrolled.
    Hazard. A condition of the property that jeopardizes the health or 
safety of the occupants or members of the community, that does not make 
it unfit for habitation. (See also the definition of major hazard in 
this section.)
    Household. All persons expected to be living in the dwelling, except 
for live-

[[Page 379]]

in aids, foster children, and foster adults.
    Housing Act of 1949, as amended. The Act which provides the 
authority for the direct single family housing programs. It is codified 
at 42 U.S.C. 1471 et seq.
    HUD. The U.S. Department of Housing and Urban Development.
    Inaccurate information. Incorrect information inadvertently 
provided, used, or omitted without the intent to obtain benefits for 
which the recipient was not eligible.
    Indian reservation. All land located within the limits of any Indian 
reservation under the jurisdiction of the United States notwithstanding 
the issuance of any patent and including rights-of-way running through 
the reservation; trust or restricted land located within the boundaries 
of a former reservation of a federally recognized Indian tribe in the 
State of Oklahoma; or all Indian allotments, the titles to which have 
not been extinguished, if such allotments are subject to the 
jurisdiction of a federally recognized Indian tribe.
    Interest credit. A payment subsidy available to certain eligible 
section 502 borrowers that reduces the effective interest rate of a loan 
(see 3550.68(d)). Borrowers receiving interest credit will continue to 
receive it on all current and future loans for as long as they remain 
eligible for and continue to receive a subsidy. Borrowers who cease to 
be eligible for interest credit can never receive interest credit again, 
but may receive payment assistance if they again qualify for a payment 
subsidy.
    Junior lien. A security instrument or a judgment against the 
security property to which the RHS debt instrument is superior.
    Legal alien. For the purposes of this part, legal alien refers to 
any person lawfully admitted to the country who meets the criteria in 
section 214 of the Housing and Community Development Act of 1980, 42 
U.S.C. 1436a.
    Leveraged loan. A loan or grant to an Agency borrower from a non-RHS 
source for the same property, closed simultaneously with an RHS loan.
    Live-in aide. A person who lives with an elderly or disabled person 
and is essential to that person's care and well-being, not obligated for 
the person's support, and would not be living in the unit except to 
provide the support services.
    Low income. An adjusted income that is greater than the HUD 
established very low-income limit, but that does not exceed the HUD 
established low-income limit (generally 80 percent of median income 
adjusted for household size) for the county or Metropolitan Statistical 
Area where the property is or will be located.
    Major hazard. A condition so severe that it makes the property unfit 
for habitation. (See also the definition of hazard in this section.)
    Manufactured home. A structure that is built to Federally 
Manufactured Home Construction and Safety Standard and RHS Thermal 
Performance Standards. It is transportable in 1 or more sections, which 
in the traveling mode is 10-body feet (3.048 meters) or more in width, 
and when erected on site is 400 or more square feet (37.16 square 
meters), and which is built on a permanent chassis and designed to be 
used as a dwelling with or without a permanent foundation when connected 
to the required utilities. It is designed and constructed for permanent 
occupancy by a single family and contains permanent eating, cooking, 
sleeping, and sanitary facilities. The plumbing, heating, and electrical 
systems are contained in the structure. A permanent foundation is 
required.
    Market value. The value of the property as determined by a current 
appraisal, RHS may authorize the use of a Broker's Price Opinion or 
similar instrument to determine market value in limited servicing 
situations.
    Mobile home. A manufactured unit often referred to as a ``trailer,'' 
designed to be used as a dwelling, but built prior to the enactment of 
the Housing and Community Development Act of 1980 (Pub. L. 96-399) 
enacted October 8, 1980.
    Moderate income. An adjusted income that is greater than the low-
income limit, but that does not exceed the HUD established low-income 
limit by more than $5,500.
    Modest housing. A property that is considered modest for the area, 
with a

[[Page 380]]

cost that does not exceed the applicable limit established under section 
203(b) of the National Housing Act (12 U.S.C. 1709) (unless an exception 
is approved by RHS). In addition, the property must not be designed for 
income-producing activities nor have an in-ground swimming pool.
    Modular or panelized home. Housing, constructed of one or more 
factory-built sections or panels, which, when completed, meets or 
exceeds the requirements of the recognized development standards (model 
building codes) for site built housing, and which is designed to be 
permanently connected to a site-built foundation.
    Moratorium. A period of up to 2 years during which scheduled 
payments are not required, but are subject to repayment at a later date.
    Mortgage. A form of security instrument or consensual lien on real 
property including a real estate mortgage or a deed of trust.
    Net family assets. The value of assets available to a household that 
could be used towards housing costs. Net family assets are considered in 
the calculation of annual income and are used to determine whether the 
household must make additional cash contributions to improve or purchase 
the property.
    Net recovery value. The market value of the security property minus 
anticipated expenses of liquidation, acquisition, and sale as determined 
by RHS.
    New dwelling. A dwelling that is to be constructed, or an already-
existing dwelling that is less than 1 year old and is not covered by an 
approved 10-year warranty plan.
    Nonprogram (NP) interest rate. The interest rate offered by RHS for 
loans made on NP terms.
    NP property. Property that does not meet the program eligibility 
requirements outlined in Secs. 3550.56 and 3550.57.
    NP terms. Credit terms available from RHS when the applicant or 
property is not program-eligible.
    Offset. Deductions to pay a debt owed to RHS from a borrower's 
retirement benefits, salary, income tax refund, or payments from other 
federal agencies to the borrower. Deductions from retirement benefits 
and salary generally apply only to current and former federal employees.
    Participant. For the purpose of reviews and appeals, a participant 
is any individual or entity who has applied for, or whose right to 
participate in or receive a payment, loan, or other benefit is affected 
by an RHS decision.
    Payment assistance. A payment subsidy available to eligible section 
502 borrowers that reduces the effective interest rate of a loan (see 
Sec. 3550.68(c)). Borrowers eligible for a payment subsidy receive 
payment assistance unless they are currently eligible for and receive 
interest credit.
    Payment subsidy. A general term for subsidies which reduce the 
borrower's scheduled payment. It refers to either payment assistance or 
interest credit.
    Person with disability. Any person who has a physical or mental 
impairment that substantially limits one or more major life activities, 
including functions such as caring for one's self, performing manual 
tasks, walking, seeing, hearing, speaking, breathing, learning and 
working, has a record of such an impairment, or is regarded as having 
such an impairment.
    PITI ratio. The amount paid by the borrower for principal, interest, 
taxes, and insurance (PITI), divided by repayment income.
    Principal reduction attributed to subsidy (PRAS). Accelerated 
principal reduction that can occur when a borrower receives a reduced 
interest rate through a payment subsidy.
    Prior lien. A security instrument or a judgment against the security 
property that is superior to the RHS debt instrument.
    Program-eligible applicant. Any applicant meeting the eligibility 
requirements described in Sec. 3550.53.
    Program-eligible property. A property eligible to be financed under 
this part, as determined by the criteria listed in Secs. 3550.56 through 
3550.59.
    Program terms. Credit terms that are available only to program-
eligible applicants for program-eligible properties.
    Property. The land, dwelling, and related facilities for which the 
applicant will use RHS assistance.
    Protective advances. Costs incurred by the Agency to protect the 
security interest of the Government that are charged to the borrower's 
account.

[[Page 381]]

    Real estate taxes. Taxes and the annual portion of assessments 
estimated to be due and payable on the property, reduced by any 
available tax exemption.
    Recapture amount. An amount of subsidy to be repaid by the borrower 
upon disposition or nonoccupancy of the property.
    Recipient. Any applicant, borrower, or grant recipient who applies 
for or receives assistance under the section 502 or 504 programs.
    REO. The acronym for ``Real Estate Owned.'' It refers to property 
for which RHS holds title.
    Repayment income. Used to determine whether an applicant has the 
ability to make monthly loan payments. Repayment income includes amounts 
excluded for the purpose of determining adjusted income. See 
Sec. 3550.54 for a complete description.
    RHS. The Rural Housing Service of the U.S. Department of 
Agriculture, or its successor agency, formerly the Rural Housing and 
Community Development Service (RHCDS), a successor agency to the Farmers 
Home Administration (FmHA).
    RHS employee. Any employee of RHS, or any employee of the Rural 
Development mission area who carries out grant or loan origination or 
servicing functions for the section 502 or 504 programs.
    RHS interest rate. The unsubsidized interest rate offered by RHS for 
loans made on program terms.
    Rural area. A rural area is:
    (1) Open country which is not part of or associated with an urban 
area.
    (2) Any town, village, city, or place, including the immediate 
adjacent densely settled area, which is not part of or associated with 
an urban area and which:
    (i) Has a population not in excess of 10,000 if it is rural in 
character; or
    (ii) Has a population in excess of 10,000 but not in excess of 
20,000, is not contained within a Metropolitan Statistical Area, and has 
a serious lack of mortgage credit for low- and moderate-income 
households as determined by the Secretary of Agriculture and the 
Secretary of HUD.
    (3) An area classified as a rural area prior to October 1, 1990, 
(even if within a Metropolitan Statistical Area), with a population 
exceeding 10,000, but not in excess of 25,000, which is rural in 
character, and has a serious lack of mortgage credit for low- and 
moderate-income families. This is effective through receipt of census 
data for the year 2000.
    Rural Development. A mission area within USDA which includes RHS, 
Rural Utilities Service (RUS), and Rural Business-Cooperative Service 
(RBS).
    Scheduled payment. The monthly or annual installment on a promissory 
note plus escrow (if required), as modified by any payment subsidy 
agreement, delinquency workout agreement, other documented agreements 
between RHS and the borrower, or protective advances.
    Secured loan. A loan that is collateralized by property so that in 
the event of a default on the loan, the property may be sold to satisfy 
the debt.
    Security property. All the property that serves as collateral for an 
RHS loan.
    Subsidy. Interest credit, payment assistance, or deferred mortgage 
assistance received by a borrower under the section 502 or 504 programs.
    Total debt ratio. The amount paid by the borrower for PITI and any 
recurring monthly debt, divided by repayment income.
    Unauthorized assistance. Any loan, payment subsidy, deferred 
mortgage payment, or grant for which there was no regulatory 
authorization or for which the recipient was not eligible.
    U.S. citizen. An individual who resides as a citizen in any of the 
50 States, the District of Columbia, the Commonwealth of Puerto Rico, 
the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the 
Northern Marianas, the Federated States of Micronesia, the Republic of 
Palau, or the Republic of the Marshall Islands.
    USDA. The United States Department of Agriculture.
    Unsecured loan. A loan evidenced only by the borrower's promissory 
note.
    Value appreciation. The current market value of the property minus: 
the

[[Page 382]]

balance due prior lienholders, the unpaid balance of the RHS debt, 
unreimbursed closing costs (if any), principal reduction, the original 
equity (if any) of the borrower, and the value added by capital 
improvements.
    Very low-income. An adjusted income that does not exceed the HUD- 
established very low-income limit (generally 50 percent of median income 
adjusted for household size) for the county or the Metropolitan 
Statistical Area where the property is or will be located.
    Veterans preference. A preference extended to any person applying 
for a loan or grant under this part who served on active duty and has 
been discharged or released from the active forces on conditions other 
than dishonorable from the United States Army, Navy, Air Force, Marine 
Corps, or Coast Guard. The preference applies to the serviceperson, or 
the family of a deceased serviceperson who died in service before the 
termination of such war or such period or era. The applicable timeframes 
are:
    (1) During the period of April 6, 1917, through March 31, 1921;
    (2) During the period of December 7, 1941, through December 31, 
1946;
    (3) During the period of June 27, 1950, through January 31, 1955;
    (4) For a period of more than 180 days, any part of which occurred 
after January 31, 1955, but on or before May 7, 1975; or
    (5) During the period beginning August 2, 1990, and ending the date 
prescribed by Presidential Proclamation or law.

[61 FR 59779, Nov. 22, 1996; 61 FR 65266, Dec. 11, 1996]

    Effective Date Note: At 67 FR 78329, Dec. 24, 2002, Sec. 3550.10 was 
amended by revising the definition for ``Modest housing'', effective 
Jan. 23, 2003. For the convenience of the user the revised text follows:

Sec. 3550.10  Definitions.

                                * * * * *

    Modest housing. A property that is considered modest for the area, 
with a market value that does not exceed the applicable maximum loan 
limit as established by RHS in accordance with Sec. 3550.63. In 
addition, the property must not be designed for income producing 
activities nor have an in-ground swimming pool.

                                * * * * *



Secs. 3550.11-3550.49  [Reserved]



Sec. 3550.50  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0166. Public reporting burden for 
this collection of information is estimated to vary from 5 minutes to 3 
hours per response, with an average of 1\1/2\ hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden to the Department of 
Agriculture, Clearance Officer, STOP 7602, 1400 Independence Ave, SW., 
Washington, DC 20250-7602. You are not required to respond to this 
collection of information unless it displays a currently valid OMB 
control number.

    Effective Date Note: At 67 FR 78329, Dec. 24, 2002, Sec. 3550.50 was 
amended by revising the OMB control number ``0575-0166'' to read ``0575-
0172'' and by removing the third sentence, effective Jan. 23, 2003.



                   Subpart B--Section 502 Origination



Sec. 3550.51  Program objectives.

    Section 502 of the Housing Act of 1949, as amended authorizes the 
Rural Housing Service (RHS) to provide financing to help low- and very 
low-income persons who cannot obtain credit from other sources obtain 
adequate housing in rural areas. Resources for the section 502 program 
are limited, and therefore, applicants are required to use section 502 
funds in conjunction with funding or financing from other sources, if 
feasible. Sections 3550.52 through 3550.73 set forth the requirements 
for originating loans on program

[[Page 383]]

terms. Section 3550.74 describes the differences for originating loans 
on nonprogram (NP) terms.



Sec. 3550.52  Loan purposes.

    Section 502 funds may be used to buy, build, rehabilitate, improve, 
or relocate an eligible dwelling and provide related facilities for use 
by the borrower as a permanent residence. In limited circumstances 
section 502 funds may be used to refinance existing debt.
    (a) Purchases from existing RHS borrowers. To purchase a property 
currently financed by an RHS loan, the new borrower must assume the 
existing RHS indebtedness. Section 502 funds may be used to provide 
additional financing or make repairs. Loan funds also may be used to 
permit a remaining borrower to purchase the equity of a departing co-
borrower.
    (b) Refinancing non-RHS loans. Debt from an existing non-RHS loan 
may be refinanced if the existing debt is secured by a lien against the 
property, RHS will have a first lien position on the security property 
after refinancing, and:
    (1) In the case of loans for existing dwellings, if:
    (i) Due to circumstances beyond the applicant's control, the 
applicant is in danger of losing the property; and
    (ii) The debt is over $5,000 and was incurred for eligible program 
purposes prior to loan application or was a protective advance made by 
the mortgagee for items covered by the loan to be refinanced, including 
accrued interest, insurance premiums, real estate tax advances, or 
preliminary foreclosure costs.
    (2) In the case of loans for a building site without a dwelling, if:
    (i) The debt to be refinanced was incurred for the sole purpose of 
purchasing the site;
    (ii) The applicant is unable to acquire adequate housing without 
refinancing; and
    (iii) The RHS loan will include funds to construct an appropriate 
dwelling on the site for the applicant's use.
    (3) Debts incurred after the date of RHS loan application but before 
closing may be refinanced if the costs are incurred for eligible loan 
purposes and any construction work conforms to the standards specified 
in this part.
    (c) Refinancing RHS debt. Under limited circumstances, an existing 
RHS loan may be refinanced in accordance with Sec. 3550.204 to allow the 
borrower to receive payment assistance.
    (d) Eligible costs. Improvements financed with loan funds must be on 
land which, after closing, is part of the security property. In addition 
to acquisition, construction, repairs, or the cost of relocating a 
dwelling, loan funds may be used to pay for:
    (1) Reasonable expenses related to obtaining the loan, including 
legal, architectural and engineering, technical, title clearance, and 
loan closing fees; and appraisal, surveying, environmental, tax 
monitoring, and other technical services; and personal liability 
insurance fees for Mutual Self-Help borrowers.
    (2) The cost of providing special design features or equipment when 
necessary because of a physical disability of the applicant or a member 
of the household.
    (3) Reasonable connection fees, assessments, or the pro rata 
installment costs for utilities such as water, sewer, electricity, and 
gas for which the borrower is liable and which are not paid from other 
funds.
    (4) Reasonable and customary lender charges and fees if the RHS loan 
is being made in combination with a leveraged loan.
    (5) Real estate taxes that are due and payable on the property at 
the time of closing and for the establishment of escrow accounts for 
real estate taxes, hazard and flood insurance premiums, and related 
costs.
    (6) Fees to public and private nonprofit organizations that are tax 
exempt under the Internal Revenue Code for the development and packaging 
of loan applications, except for loans related to the purchase of an RHS 
Real Estate Owned (REO) property.
    (7) Purchasing and installing essential equipment in the dwelling, 
including ranges, refrigerators, washers or dryers, if these items are 
normally sold with dwellings in the area and if the purchase of these 
items is not the primary purpose of the loans.

[[Page 384]]

    (8) Purchasing and installing approved energy savings measures and 
approved furnaces and space heaters that use fuel that is commonly used, 
economical, and dependably available.
    (9) Providing site preparation, including grading, foundation 
plantings, seeding or sodding, trees, walks, yard fences, and driveways 
to a building site.
    (e) Loan restrictions. Loan funds may not be used to:
    (1) Purchase an existing manufactured home, or for any other 
purposes prohibited in Sec. 3550.73(b).
    (2) Purchase or improve income-producing land or buildings to be 
used principally for income-producing purposes.
    (3) Pay fees, commissions, or charges to for-profit entities related 
to loan packaging or referral of prospective applicants to RHS.

    Effective Date Note: At 67 FR 78329, Dec. 24, 2002, Sec. 3550.52 was 
amended by revising paragraph (b)(1)(i) and (b)(1)(ii), effective Jan. 
23, 2003. For the convenience of the user the revised text follows:

Sec. 3550.52  Loan purposes.

                                * * * * *

    (a) * * *
    (1) * * *
    (i) Due to circumstances beyond the applicant's control, the 
applicant is in danger of losing the property, the debt is over $5,000, 
and the debt was incurred for eligible program purposes prior to loan 
application or was a protective advance made by the mortgagee for items 
covered by the loan to be refinanced, including accrued interest, 
insurance premiums, real estate tax advances, or preliminary foreclosure 
costs; or
    (ii) If a loan of $5,000 or more is necessary for repairs to correct 
major deficiencies and make the dwelling decent, safe and sanitary and 
refinancing is necessary for the borrower to show repayment ability, 
regardless of the delinquency.

                                * * * * *



Sec. 3550.53  Eligibility requirements.

    (a) Income eligibility. At the time of loan approval, the 
household's adjusted income must not exceed the applicable low-income 
limit for the area, and at closing, must not exceed the applicable 
moderate-income limit for the area (see Sec. 3550.544).
    (b) Citizenship status. The applicant must be a United States 
citizen or a noncitizen who qualifies as a legal alien as defined in 
Sec. 3550.10.
    (c) Primary residence. Applicants must agree to and have the ability 
to occupy the dwelling on a permanent basis.
    (1) Because of the probability of transfer, loans will not be 
approved for military personnel on active duty unless the applicant will 
be discharged within a reasonable period of time.
    (2) Because of the probability of moves after graduation, loans will 
not be approved for a full-time student unless the applicant intends to 
make the home a permanent residence and there are reasonable prospects 
that employment will be available in the area after graduation.
    (3) If the home is being constructed or renovated an adult member of 
the household must be available to make inspections and authorize 
progress payments as the dwelling is being constructed.
    (d) Eligibility of current homeowners. Current homeowners are not 
eligible for initial loans except as follows:
    (1) Current homeowners may receive RHS loan funds to:
    (i) Refinance an existing loan under the conditions outlined in 
Sec. 3550.52(b);
    (ii) Purchase a new dwelling if the current dwelling is deficient 
housing as defined in Sec. 3550.10; or
    (iii) Make necessary repairs to the property which is financed with 
an affordable non- RHS loan.
    (2) Current homeowners with an RHS loan may receive a subsequent 
loan.
    (e) Legal capacity. Applicants must have the legal capacity to incur 
the loan obligation, or have a court appointed guardian or conservator 
who is empowered to obligate the applicant in real estate matters.
    (f) Suspension or debarment. Applications from applicants who have 
been suspended or debarred from participation in federal programs will 
be handled in accordance with 7 CFR part 3017.
    (g) Repayment ability. Applicants must demonstrate adequate 
repayment ability.
    (1) A very low-income applicant is considered to have repayment 
ability when the monthly amount required for

[[Page 385]]

payment of principal, interest, taxes, and insurance (PITI) does not 
exceed 29 percent of the applicant's repayment income, and the monthly 
amount required to pay PITI plus recurring monthly debts does not exceed 
41 percent of the applicant's repayment income.
    (2) A low-income applicant is considered to have repayment ability 
when the monthly amount required for payment of PITI does not exceed 33 
percent of the applicant's repayment income, and the monthly amount 
required to pay PITI plus recurring monthly debts does not exceed 41 
percent of repayment income.
    (3) Repayment ratios may exceed the percentages specified in 
paragraphs (g)(1) and (g)(2) of this section if the applicant has 
demonstrated an ability to meet higher debt obligations, or if RHS 
determines, based on other compensating factors, that the household has 
a higher repayment ability.
    (4) If an applicant does not meet the repayment ability 
requirements, the applicant can have another party join the application 
as a cosigner.
    (5) If an applicant does not meet the repayment ability 
requirements, the applicant can have other household members join the 
application.
    (h) Credit qualifications. Applicants must be unable to secure the 
necessary credit from other sources on terms and conditions that the 
applicant could reasonably be expected to fulfill. Applicants must have 
a credit history that indicates reasonable ability and willingness to 
meet debt obligations. An applicant with an outstanding judgment 
obtained by the United States in a federal court, other than the United 
States Tax Court, is not eligible for a loan or grant from RHS.
    (1) Indicators of unacceptable credit include:
    (i) Incidents of more than 2 debt payments more than 30 days late 
within the last 12 months.
    (ii) A foreclosure which has been completed within the last 36 
months.
    (iii) An outstanding Internal Revenue Service tax lien or any other 
outstanding tax liens with no satisfactory arrangement for payment.
    (iv) A court-created or court-affirmed obligation or judgment caused 
by nonpayment that is currently outstanding or has been outstanding 
within the last 12 months, except for those excluded in paragraphs 
(h)(2)(i) and (h)(2)(ii) of this section.
    (v) Two or more rent payments paid 30 or more days late within the 
last 2 years. If the applicant has experienced no other credit problems 
in the past 2 years, only 1 year of rent history will be evaluated. Rent 
payment history requirements may be waived if the RHS loan will reduce 
shelter costs significantly and contribute to an improved repayment 
ability.
    (vi) Outstanding collection accounts with a record of irregular 
payment with no satisfactory arrangements for repayment, or collection 
accounts that were paid in full within the last 6 months.
    (vii) Non-agency debts written off within the last 36 months unless 
paid in full at least 12 months ago.
    (viii) Agency debts that were debt settled, or are being considered 
for debt settlement.
    (ix) Delinquency on a federal debt.
    (2) The following will not be considered indicators of unacceptable 
credit:
    (i) A bankruptcy in which debts were discharged more than 36 months 
prior to the date of application or where an applicant successfully 
completed a bankruptcy debt restructuring plan and has demonstrated a 
willingness to meeting obligations when due for the 12 months prior to 
the date of application.
    (ii) A judgment satisfied more than 12 months before the date of 
application.
    (3) When an application is rejected because of unacceptable credit, 
the applicant will be informed of the reason and source of information.

    Effective Date Note: At 67 FR 78330, Dec. 24, 2002, Sec. 3550.53 was 
amended as follows, effective Jan. 23, 2002:
    a. By revising the introductory text of paragraph (g);
    b. By redesignating paragraphs (h)(1)(ii) through (h)(1)(ix) as 
paragraphs (h)(1)(iii) through (h)(1)(x);
    c. By revising paragraph (h)(1)(i);
    d. By adding a new paragraph (h)(1)(ii); and
    e. By revising newly redesignated paragraphs (h)(1)(v) and 
(h)(1)(ix).
    The revisions and additions read as follows:

[[Page 386]]

Sec. 3550.53  Eligibility requirements.

                                * * * * *

    (g) Repayment ability. Repayment ability means applicants must 
demonstrate adequate and dependably available income. The determination 
of income dependability will include consideration of the applicant's 
past history of annual income.

                                * * * * *

    (h) * * *
    (1) * * *
    (i) Payments on any account where the amount of the delinquency 
exceeded one installment for more than 30 days within the last 12 
months.
    (ii) Payments on any account which was delinquent for more than 30 
days on two or more occasions within a 12-month period.

                                * * * * *

    (v) A court-created or court-affirmed obligation or judgment caused 
by nonpayment that is currently outstanding or has been outstanding 
within the last 12 months, except for those excluded in paragraph (i)(2) 
of this section.

                                * * * * *

    (ix) Agency debts that were debt settled within the last 36 months 
or are being considered for debt settlement.

                                * * * * *



Sec. 3550.54  Calculation of income and assets.

    (a) Repayment income. Repayment income is the annual amount of 
income from all sources that are expected to be received by those 
household members who are parties to the promissory note, except for any 
student financial aid received by these household members for tuition, 
fees, books, equipment, materials, and transportation. Repayment income 
is used to determine the household's ability to repay a loan.
    (b) Annual income. Annual income is the income of all household 
members from all sources except those listed in (b)(1) through (b)(12) 
of this section:
    (1) Earned income of persons under the age of 18 unless they are a 
borrower or a spouse of a member of the household;
    (2) Payments received for the care of foster children or foster 
adults;
    (3) Amounts granted for or in reimbursement of the cost of medical 
expenses;
    (4) Earnings of each full-time student 18 years of age or older, 
except the head of household or spouse, that are in excess of any amount 
determined pursuant to section 501(b)(5) of the Housing Act of 1949, as 
amended;
    (5) Temporary, nonrecurring, or sporadic income (including gifts);
    (6) Lump sum additions to family assets such as inheritances; 
capital gains; insurance payments under health, accident, or worker's 
compensation policies; settlements for personal or property losses; and 
deferred periodic payments of supplemental security income and Social 
Security benefits received in a lump sum;
    (7) Any earned income tax credit;
    (8) Adoption assistance in excess of any amount determined pursuant 
to section 501(b)(5) of the Housing Act of 1949, as amended;
    (9) Amounts received by the family in the form of refunds or rebates 
under State or local law for property taxes paid on the dwelling;
    (10) Amounts paid by a State agency to a family with a 
developmentally disabled family member living at home to offset the cost 
of services and equipment needed to keep the developmentally disabled 
family member at home;
    (11) The full amount of any student financial aid; and
    (12) Any other revenue exempted by a Federal statute; a list of 
which is available from any Rural Development office.
    (c) Adjusted income. Adjusted income is used to determine program 
eligibility for sections 502 and 504 and the amount of payment subsidy 
for which the household qualifies under section 502. Adjusted income is 
annual income as defined in paragraph (b) of this section less any of 
the following deductions for which the household is eligible.
    (1) For each family member, except the head of household or spouse, 
who is under 18 years of age, 18 years of age or older with a 
disability, or a full-time student, the amount determined pursuant to 
section 501(b)(5) of the Housing Act of 1949, as amended.

[[Page 387]]

    (2) A deduction of reasonable expenses for the care of minor 12 
years of age or under that:
    (i) Enable a family member to work or to further a member's 
education;
    (ii) Are not reimbursed or paid by another source; and
    (iii) In the case of expenses to enable a family member to work do 
not exceed the amount of income earned by the family member enabled to 
work.
    (3) Expenses related to the care of household members with 
disabilities that:
    (i) Enable a family member to work;
    (ii) Are not reimbursed from insurance or another source; and
    (iii) Are in excess of three percent of the household's annual 
income.
    (4) For any elderly family, a deduction in the amount determined 
pursuant to section 501(b)(5) of the Housing Act of 1949, as amended.
    (5) For elderly households only, a deduction for household medical 
expenses that are not reimbursed from insurance or another source and 
which in combination with any expenses related to the care of household 
members with disabilities described in paragraph (c)(3) of this section, 
are in excess of three percent of the household's annual income.
    (d) Net family assets. Income from net family assets must be 
included in the calculation of annual and repayment income. Net family 
assets also are considered in determining whether a down payment is 
required.
    (1) Net family assets include the cash value of:
    (i) Equity in real property, other than the dwelling or site;
    (ii) Cash on hand and funds in savings or checking accounts;
    (iii) Amounts in trust accounts that are available to the household;
    (iv) Stocks, bonds, and other forms of capital investments including 
life insurance policies and retirement plans that are accessible to the 
applicant without retiring or terminating employment;
    (v) Lump sum receipts such as lottery winnings, capital gains, 
inheritances;
    (vi) Personal property held as an investment; and
    (vii) Any value, in excess of the consideration received, for any 
business or household assets disposed for less than fair market value 
during the 2 years preceding the income determination. The value of 
assets disposed of for less than fair market value shall not be 
considered if they were disposed of as a result of foreclosure or 
bankruptcy or a divorce or separation settlement.
    (2) Net family assets do not include:
    (i) Interest in American Indian trust land;
    (ii) Cash on hand which will be used to reduce the amount of the 
loan;
    (iii) The value of necessary items of personal property;
    (iv) Assets that are part of the business, trade, or farming 
operation of any member of the household who is actively engaged in such 
operation;
    (v) The value of an irrevocable trust fund or any other trust over 
which no member of the household has control.

    Effective Date Note: At 67 FR 78330, Dec. 24, 2002, Sec. 3550.54 was 
amended in paragraph (c)(1) by revising the word ``family'' to read 
``household'', effective Jan. 23, 2003.



Sec. 3550.55  Applications.

    (a) Application submissions. All persons applying for RHS loans must 
file a complete written application in a format specified by RHS. 
Applications will be accepted even when funds are not available.
    (b) Application processing. (1) Incomplete applications will be 
returned to the applicant specifying in writing the additional 
information that is needed to make the application complete.
    (2) An applicant may voluntarily withdraw an application at any 
time.
    (3) RHS may periodically request in writing that applicants 
reconfirm their interest in obtaining a loan. RHS may withdraw the 
application of any applicant who does not respond within the specified 
timeframe.
    (4) Applicants who are eligible will be notified in writing. If 
additional information becomes available that indicates that the 
original eligibility determination may have been incorrect, or that 
circumstances have changed, RHS may reconsider the application and the 
applicant may be required to submit additional information.

[[Page 388]]

    (5) Applicants who are ineligible will be notified in writing and 
provided with the specific reasons for the rejection.
    (c) Selection for processing. When funding is not sufficient to 
serve all program-eligible applicants, applications will be selected for 
processing using the funding priorities specified in this paragraph. 
Within priority categories, applications will be processed in the order 
that the completed applications are received. In the case of 
applications with equivalent priority status that are received on the 
same day, preference will be extended to applicants qualifying for a 
veterans preference. After selection for processing, loans are funded on 
a first-come, first-served basis.
    (1) First priority will be given to existing customers who request 
subsequent loans to correct health and safety hazards.
    (2) Second priority will be given to loans related to the sale of an 
REO property or the transfer of an exisiting RHS financed property.
    (3) Third priority will be given to applicants facing housing 
related hardships including applicants who have been living in deficient 
housing for more than 6 months, current homeowners in danger of losing a 
property through foreclosure, and other circumstances determined by RHS 
on a case-by-case basis to constitute a hardship.
    (4) Fourth priority will be given to applicants seeking, loans for 
the construction of dwellings in an RHS-approved Mutual Self-Help 
project or loans that will leverage funding or financing from other 
sources.
    (5) Applications from applicants who do not qualify for priority 
consideration in paragraphs (c)(1), (c)(2), (c)(3), or (c)(4) of this 
section will be selected for processing after all applications with 
priority status have been processed.
    (d) Applicant timeframe. RHS will specify a reasonable timeframe 
within which eligible applicants selected for processing must provide 
the information needed to underwrite the loan.



Sec. 3550.56  Site requirements.

    (a) Rural areas. Loans may be made only in rural areas designated by 
RHS. If an area designation is changed to non-rural:
    (1) New conditional commitments will be made and existing 
conditional commitments will be honored only in conjunction with an 
applicant for a section 502 loan who applied for assistance before the 
area designation changed.
    (2) REO property sales and transfers with assumption may be 
processed.
    (3) Subsequent loans may be made either in conjunction with a 
transfer with assumption of an RHS loan or to repair properties that 
have RHS loans.
    (b) Site standards. Sites must be developed in accordance with 7 CFR 
part 1924, subpart C and any applicable standards imposed by a State or 
local government.
    (1) The site must not be large enough to subdivide into more than 
one site under existing local zoning ordinances;
    (2) The site must not include farm service buildings, though small 
outbuildings such as a storage shed may be included; and
    (3) The value of the site must not exceed 30 percent of the as 
improved market value of the property. The State Director may waive the 
30 percent requirement in high cost areas where other lenders permit a 
higher percentage.



Sec. 3550.57  Dwelling requirements.

    (a) Modest dwelling. The property must be one that is considered 
modest for the area, must not be designed for income providing purposes, 
must not have an in-ground pool or have a cost in excess of the section 
203(b) limit of the National Housing Act unless RHS authorizes an 
exception:
    (1) Area-wide exception. Area-wide exceptions may be granted when 
RHS determines that the section 203(b) limit is too low to enable 
applicants to purchase adequate housing.
    (2) Individual exceptions. Individual exceptions may be granted to 
accommodate the specific needs of an applicant, such as to serve 
exceptionally large households or to provide reasonable accommodation 
for a household

[[Page 389]]

member with a disability. Any additional loan amount approved must not 
exceed the amount required to address the specific need.
    (b) New dwellings. Construction must meet the requirements in 7 CFR 
part 1924, subpart A.
    (c) Existing dwellings. Existing dwellings must be structurally 
sound; functionally adequate; in good repair, or to be placed in good 
repair with loan funds; have adequate electrical, heating, plumbing, 
water, and wastewater disposal systems; be free of termites and other 
wood damaging pests and organisms; and meet the thermal performance 
requirements for existing dwellings of 7 CFR part 1924, subpart A.

    Effective Date Note: At 67 FR 78330, Dec. 24, 2002, Sec. 3550.57 was 
amended by revising the introductory text of paragraph (a), effective 
Jan. 23, 2003. For the convenience of the user the revised text follows:

Sec. 3550.57  Dwelling requirements.

    (a) Modest dwelling. The property must be one that is considered 
modest for the area, must not be designed for income producing purposes, 
must not have an in-ground swimming pool or have a market value in 
excess of the applicable maximum loan limit, in accordance with 
Sec. 3550.63, unless RHS authorizes an exception under this paragraph. 
An exception may be granted on a case-by-case basis to accommodate the 
specific needs of an applicant, such as to serve exceptionally large 
households or to provide reasonable accommodation for a household member 
with a disability. Any additional loan amount approved must not exceed 
the amount required to address the specific need.

                                * * * * *



Sec. 3550.58  Ownership requirements.

    After the loan is closed, the borrower must have an acceptable 
interest in the property as evidenced by one of the following.
    (a) Fee-simple ownership. Acceptable fee-simple ownership is 
evidenced by a fully marketable title with a deed vesting a fee-simple 
interest in the property to the borrower.
    (b) Secure leasehold interest. A written lease is required. To be 
acceptable, a leasehold interest must have an unexpired term that is at 
least 150 percent of the term of the mortgage, unless the loan is 
guaranteed, in which case the unexpired term of the lease must be at 
least 2 years longer than the loan term. In no case may the unexpired 
term be less than 25 years.
    (c) Life estate interest. To be acceptable a life estate interest 
must provide the borrower with rights of present possession, control, 
and beneficial use of the property. Generally, persons with any 
remainder interests must be signatories to the mortgage. All of the 
remainder interests need not be included in the mortgage to the extent 
that one or more of the persons holding remainder interests are not 
legally competent (and there is no representative who can legally 
consent to the mortgage), cannot be located, or if the remainder 
interests are divided among such a large number of people that it is not 
practical to obtain the signatures of all of the remainder interests. In 
such cases, the loan may not exceed the value of the property interests 
owned by the persons executing the mortgage.
    (d) Undivided interest. All legally competent co-owners will be 
required to sign the mortgage. When one or more of the co-owners are not 
legally competent (and there is no representative who can legally 
consent to the mortgage), cannot be located, or the ownership interests 
are divided among so large a number of co- owners that it is not 
practical for all of their interests to be mortgaged, their interests 
not exceeding 50 percent may be excluded from the security requirements. 
In such cases, the loan may not exceed the value of the property 
interests owned by the persons executing the mortgage.
    (e) Possessory rights. Acceptable forms of ownership include 
possessory rights on an American Indian reservation or State-owned land 
and the interest of an American Indian in land held in severalty under 
trust patents or deeds containing restrictions against alienation, 
provided that land in trust or restricted status will remain in trust or 
restricted status.



Sec. 3550.59  Security requirements.

    Before approving any loan, RHS will impose requirements to secure 
its interests.
    (a) Adequate security. A loan will be considered adequately secured 
only

[[Page 390]]

when all of the following requirements are met:
    (1) RHS obtains at closing a mortgage on all ownership interests in 
the security property or the requirements of Sec. 3550.58 are satisfied.
    (2) No liens prior to the RHS mortgage exist at the time of closing 
and no junior liens are likely to be taken immediately subsequent to or 
at the time of closing, unless the other liens are taken as part of a 
leveraging strategy or the RHS loan is essential for repairs and the 
senior lien secures an affordable non-RHS loan. Liens junior to the RHS 
lien may be allowed at loan closing if the junior lien will not 
interfere with the purpose or repayment of the RHS loan and the total 
value of all liens on the property is less than or equal to the 
property's market value.
    (3) The provisions of 7 CFR part 1927, subpart B regarding title 
clearance and the use of legal services have been followed.
    (4) Existing and proposed property improvements are totally on the 
site and do not encroach on adjoining property.
    (b) Guaranteed payment. Mortgage insurance guaranteeing payment from 
a Government agency or Indian tribe is adequate security.

    Effective Date Note: At 67 FR 78330, Dec. 24, 2002, Sec. 3550.59 was 
amended by revising the last sentence of paragraph (a)(2) and adding a 
new sentence at the end of paragraph (a)(2), effective Jan. 23, 2003. 
For the convenience of the user, the revised text follows:

Sec. 3550.59  Security requirements.

                                * * * * *

    (a) * * *
    (2) * * * Liens junior to the RHS lien may be allowed at loan 
closing if the junior lien will not interfere with the purpose or 
repayment of the RHS loan. When the junior lien involves a grant or a 
forgivable affordable housing product, the total debt may exceed the 
market value by the amount of the forgivable loan or grant up to 5 
percent.

                                * * * * *



Sec. 3550.60  Escrow account.

    RHS may require that customers deposit into an escrow account 
amounts necessary to ensure that the account will contain sufficient 
funds to pay real estate taxes, hazard and flood insurance premiums, and 
other related costs when they are due in accordance with the Real Estate 
Settlement and Procedures Act of 1974 (RESPA) (12 U.S.C. 2601, et seq.) 
and section 501(e) of the Housing Act of 1949, as amended.



Sec. 3550.61  Insurance.

    (a) Customer responsibility. Until the loan is paid in full the 
customer must furnish and continually maintain hazard and flood 
insurance on property securing RHS loans, with companies, in amounts, 
and on terms and conditions acceptable to RHS. Customers who are 
required to have insurance may be required to escrow funds to ensure 
payment. All policies must have a ``loss payable clause'' payable to RHS 
to protect the Government's interest.
    (b) Amount. Essential buildings must be insured in an amount at 
least equal to the balance of the secured debts.
    (c) Flood insurance. Flood insurance must be obtained and maintained 
for the life of the loan for all property located in a Special Flood 
Hazard Area (SFHA) as determined by the Federal Emergency Management 
Agency (FEMA). RHS actions will be consistent with 7 CFR part 1806, 
subpart B which addressed flood insurance requirements. If flood 
insurance through FEMA's National Flood Insurance Program is not 
available in an SFHA, the property is not eligible for federal financial 
assistance.
    (d) Losses. (1) Loss deductible clauses may not exceed $250 or 1 
percent of the insurance coverage, whichever is greater. The deductible 
for any 1 building may not exceed $750.
    (2) Customers must immediately notify RHS of any loss or damage to 
insured property and collect the amount of the loss from the insurance 
company.
    (3) Depending on the amount of the loss, RHS may require that loss 
payments be supervised. All repairs and replacements done by or under 
the direction of the borrower, or by contract, will be planned, 
performed, inspected, and paid for in accordance with 7 CFR part 1924, 
subpart A.
    (4) When insurance funds remain after all repairs, replacements, and 
other authorized disbursements have

[[Page 391]]

been made, the funds will be applied in the following order:
    (i) Prior liens, including delinquent property taxes.
    (ii) Past-due amounts.
    (iii) Protective advances due.
    (iv) Released to the customer if the RHS debt is adequately secured.
    (5) If a loss occurs when insurance is not in force, the borrower is 
responsible for making the needed repairs or replacements and ensuring 
that the insurance is reinstated on the property.
    (6) If the borrower is not financially able to make the repairs, RHS 
may take one of the following actions:
    (i) Make a subsequent loan for repairs.
    (ii) Subordinate the RHS lien to permit the borrower to obtain funds 
for needed repairs from another source.
    (iii) Permit the borrower to obtain funds secured by a junior lien 
from another source.
    (iv) Make a protective advance to protect the Government's interest.
    (v) Accelerate the account.



Sec. 3550.62  Appraisals.

    (a) Requirement. An appraisal is required when the debt to be 
secured exceeds $15,000 or whenever RHS determines that it is necessary 
to establish the adequacy of the security. Appraisals must be made in 
accordance with the Uniform Standards of Professional Appraisal 
Practices. When other real estate is taken as additional security, it 
will be appraised if it represents a substantial portion of the security 
for the loan.
    (b) Fees. RHS will charge a fee for each loan application that 
requires an appraisal, except the appraisal fee is not required on 
appraisals done for subsequent loans needed to make minimal, essential 
repairs or in cases where another party provides an appraisal which is 
acceptable to RHS. Fees collected in connection with a dwelling 
constructed under an approved conditional commitment will be paid to the 
contractor at closing to offset the cost of the real estate appraisal 
that is included in the conditional commitment fee.



Sec. 3550.63  Maximum loan amount.

    Total secured indebtedness must not exceed the section 203(b) or 
market value limitations specified in paragraphs (a) and (b) of this 
section. In addition, the borrower may also finance the amount of the 
RHS appraisal and tax monitoring fee and the amount required to 
establish an escrow account for taxes and insurance over and above the 
limitations specified below. This section does not apply to NP loans.
    (a) Section 203(b) limitation. The section 203(b) limitation is the 
amount established by 203(b) of the National Housing Act, unless RHS 
authorizes an exception, as described in Sec. 3550.57(a) of this 
subpart.
    (b) Market value limitation. (1) The market value limitation is 100 
percent of market value for existing housing and for new dwellings for 
which RHS will receive adequate documentation of construction quality 
and the source of such documentation is acceptable to RHS.
    (2) The market value limitation is 90 percent of market value for 
new dwellings for which adequate documentation of construction quality 
is not available.
    (3) The market value limitation can be increased by:
    (i) Up to one percent, if RHS makes a subsequent loan for closing 
costs only, in conjunction with the sale of an REO property or an 
assumption.
    (ii) The amount necessary to make a subsequent loan for repairs 
necessary to protect the Government's interest, and reasonable closing 
costs.
    (iii) The amount necessary to refinance an existing borrower's RHS 
loans, plus closing costs associated with the new loan.

[61 FR 59779, Nov. 22, 1996; 61 FR 65266, Dec. 11, 1996]

    Effective Date Note: At 67 FR 78330, Dec. 24, 2002, Sec. 3550.63 was 
amended by revising the introductory text and paragraph (a), effective 
Mar. 24, 2003. For the convenience of the user the revised text follows:

Sec. 3550.63  Maximum loan amount.

    Total secured indebtedness must not exceed the area loan limit or 
market value limitations specified in paragraphs (a) or (b) of this 
section, whichever is lower. Any loan

[[Page 392]]

amount for the RHS appraisal, tax monitoring fee, and the charge to 
establish an escrow account for taxes and insurance will not be subject 
to the limitations specified below. This section does not apply to loans 
on NP terms.
    (a) Area loan limit.
    (1) The area loan limit is the maximum value of the property RHS 
will finance in a given locality. Subject to the following, this limit 
is based on cost data plus the market value of an improved lot, or the 
State Housing Authority limits, whichever the State Director determines 
most appropriately reflects the value of modest housing for the area:
    (i) The cost of the structure is based upon the cost to construct a 
modest home and is obtained by RHS from a nationally recognized 
residential cost provider.
    (ii) The market value of an improved site (without the dwelling) is 
based upon current sales data for typical housing sites and reasonable 
and typical costs of site improvements.
    (iii) The applicable State Housing Authority limit will only be 
considered if it is within 10 percent of the cost data plus the market 
value of an improved lot.
    (iv) The area loan limit may not exceed the applicable local HUD 
section 203(b) limit.
    (v) All area loan limit data will be updated at least annually and 
is available in any Rural Development office.
    (2) The maximum loan limit calculated under paragraph (a)(1) will be 
reduced in the following situations:
    (i) When the applicant owns the site or is purchasing the site at a 
sales price below market value, the market value of the lot will be 
deducted from the maximum loan limit, and
    (ii) When an applicant is receiving a housing grant or other form of 
affordable housing assistance for purposes other than closing costs, the 
amount(s) of such grants and affordable housing assistance will be 
deducted from the maximum loan limit.
    (3) The maximum loan limit for self-help housing will be calculated 
by adding the total of the market value of the lot (including reasonable 
and typical costs of site development), the cost of construction, and 
the value of sweat equity. The total of these three factors cannot 
exceed the limit established in paragraph (a)(1) of this section.

                                * * * * *



Sec. 3550.64  Down payment.

    Elderly families must use any net family assets in excess of $10,000 
towards a down payment on the property. Non-elderly families must use 
net family assets in excess of $7,500 towards a down payment on the 
property. Applicants may contribute assets in addition to the required 
down payment to further reduce the amount to be financed.



Sec. 3550.65  [Reserved]



Sec. 3550.66  Interest rate.

    Loans will be written using the applicable RHS or NP interest rate 
in effect at loan approval or loan closing, whichever is lower. 
Information about current interest rates is available in any Rural 
Development office.

    Effective Date Note: At 67 FR 78330, Dec. 24, 2002, Sec. 3550.66 was 
revised, effective Jan. 23, 2003. For the convenience of the user the 
revised text follows:

Sec. 3550.66  Interest rate.

    Loans will be written using the applicable RHS interest rate in 
effect at loan approval or loan closing, whichever is lower. Information 
about current interest rates is available in any Rural Development 
office.



Sec. 3550.67  Repayment period.

    Loans will be scheduled for repayment over a period that does not 
exceed the expected useful life of the property as a dwelling. The loan 
repayment period will not exceed:
    (a) Thirty-three years in all cases except as noted in paragraphs 
(b), (c), and (d) of this section.
    (b) Thirty-eight years:
    (1) For initial loans, or subsequent loans made in conjunction with 
an assumption, if the applicant's adjusted income does not exceed 60 
percent of the area adjusted median income and the longer term is 
necessary to show repayment ability.
    (2) For subsequent loans not made in conjunction with an assumption 
if the applicant's initial loan was for a period of 38 years, the 
applicant's adjusted income at the time the subsequent loan is approved 
does not exceed 60 percent of area adjusted median income, and the 
longer terms is necessary to show repayment ability.
    (c) Ten years for loans not exceeding $2,500.
    (d) Thirty years for manufactured homes.

[[Page 393]]



Sec. 3550.68  Payment subsidies.

    RHS administers two types of payment subsidies: payment assistance 
and interest credit. Payment subsidies are subject to recapture when the 
borrower transfers title or ceases to occupy the property.
    (a) Eligibility for payment subsidy. (1) Applicants or borrowers who 
receive loans on program terms are eligible to receive payment subsidy 
if they personally occupy the property and have adjusted income at or 
below the applicable moderate-income limit.
    (2) Borrowers with loans approved before August 1, 1968, are not 
eligible for payment assistance, even if they assumed the loan after 
that date.
    (3) Payment assistance may be granted for initial loans or 
subsequent loans made in conjunction with an assumption only if the term 
of the loan is at least 25 years or more.
    (4) Payment assistance may be granted for subsequent loan not made 
in conjunction with an assumption if the initial loan was for a term of 
25 years or more.
    (b) Determining type of payment subsidy. A borrower currently 
receiving interest credit will continue to receive it for the initial 
loan and for any subsequent loan for as long as the borrower is eligible 
for and remains on interest credit. A borrower who has never received 
interest credit, or who has stopped receiving interest credit and at a 
later date again qualifies for a payment subsidy, will receive payment 
assistance.
    (c) Calculation of payment assistance. The amount of payment 
assistance granted is the difference between the installment due on the 
promissory note and the greater of the payment amortized at the 
equivalent interest rate or the payment calculated based on the required 
floor payment. In leveraging situations, the equivalent interest rate 
will be used.
    (1) The floor payment is a minimum percentage of adjusted income 
that the borrower must pay for PITI:
    (i) Very low-income borrowers must pay a minimum of 22 percent of 
adjusted income;
    (ii) Low-income borrowers with adjusted income below 65 percent of 
area adjusted median income must pay a minimum of 24 percent of adjusted 
income; and
    (iii) Low-income borrowers with adjusted incomes between 65 and 80 
percent of area adjusted median income must pay a minimum of 26 percent 
of adjusted income.
    (2) The equivalent interest rate is determined by a comparison of 
the borrower's adjusted income to the adjusted median income for the 
area in which the security property is located. The following chart is 
used to determine the equivalent interest rate paid by applicants 
eligible for payment assistance.

      Percentage of Median Income and the Equivalent Interest Rate
------------------------------------------------------------------------
                When the applicants adjusted income is--
-------------------------------------------------------------------------
                                                               Then the
                                                              equivalent
   Equal to or more than              But less than            interest
                                                                rate is
                                                                  \1\
------------------------------------------------------------------------
00%                          50.01% of adjusted median                 1
                              income.
50.01%                       55% of adjusted median income..           2
55%                          60% of adjusted median income..           3
60%                          65% of adjusted median income..           4
65%                          70% of adjusted median income..           5
70%                          75% of adjusted median income..           6
75%                          80.01% of adjusted median               6.5
                              income.
80.01%                       90% of adjusted median income..         7.5
90%                          100% of adjusted median income.         8.5
100%                         110% of adjusted median income.           9
110%                         or more than median income.....        9.5
------------------------------------------------------------------------
\1\ Or note rate, whichever is less; in no case will the equivalent
  interest rate be less than one percent.

    (d) Calculation of interest credit. The amount of interest credit 
granted is the difference between the sum of the annual installments due 
at the promissory note interest rate and the greater of:
    (1) Twenty percent of the borrower's adjusted income less the cost 
of real estate taxes and insurance; or
    (2) The amount the borrower would pay if the loan were amortized at 
an interest rate of one percent.
    (e) Annual review. The borrower's income will be reviewed annually 
to determine whether the borrower is eligible for continued payment 
subsidy. The borrower must notify RHS whenever an adult member of the 
household changes or obtains employment, there is a change in household 
composition, or if income increases by at least 10 percent so that RHS 
can determine whether a

[[Page 394]]

review of the borrowers circumstances is required.



Sec. 3550.69  Deferred mortgage payments.

    For qualified borrowers, RHS may defer up to 25 percent of the 
monthly principal and interest payment at 1 percent for up to 15 years. 
This assistance may be granted only at initial loan closing and is 
reviewed annually. Deferred mortgage payments are subject to recapture 
when the borrower transfers title or ceases to occupy the property.
    (a) Eligibility. In order to qualify for deferred mortgage payments, 
all of the following must be true:
    (1) The applicants adjusted income at the time of initial loan 
approval does not exceed the applicable very low-income limits.
    (2) The loan term is 38 years, or 30 years for a manufactured home.
    (3) The applicant's payments for principal and interest, calculated 
at a one percent interest rate for the maximum allowable term, plus 
estimated costs for taxes and insurance exceeds:
    (i) For applicants receiving payment assistance, 29 percent of the 
applicants repayment income by more than $10 per month; or
    (ii) For applicants receiving interest credit, 20 percent of 
adjusted income by more than $10 per month.
    (b) Amount and terms. (1) The amount of the mortgage payment to be 
deferred will be the difference between the applicants payment for 
principal and interest, calculated at one percent interest for the 
maximum allowable term, plus estimated costs for taxes and insurance 
and:
    (i) For applicants receiving payment assistance, 29 percent of the 
applicants repayment income.
    (ii) For applicants receiving interest credit, 20 percent of 
adjusted income.
    (2) Deferred mortgage payment agreements will be effective for a 12-
month period.
    (3) Deferred mortgage assistance may be continued for up to 15 years 
after loan closing. Once a borrower becomes ineligible for deferred 
mortgage assistance, the borrower can never again receive deferred 
mortgage assistance.
    (c) Annual review. The borrower's income, taxes, and insurance will 
be reviewed annually to determine eligibility for continued deferred 
mortgage assistance. The borrower must notify RHS whenever an adult 
member of the household changes or obtains employment or if income 
increases by at least 10 percent so that RHS can determine whether a 
review of the borrower's circumstances is required.



Sec. 3550.70  Conditional commitments.

    A conditional commitment is a determination by RHS that a dwelling 
be offered for sale will be acceptable for purchase by a qualified RHS 
loan applicant if it is built or rehabilitated in accordance with RHS-
approved plans, specifications, and regulations and priced within the 
lessor of the property's appraised value or the applicable HUD section 
203(b) limit. The conditional commitment does not reserve funds, does 
not guarantee funding, and does not ensure that an eligible loan 
applicant will be available to buy the dwelling.
    (a) Eligibility. To be eligible to request a conditional commitment, 
the builder, dealer-contractor, or seller must:
    (1) Have an adequate ownership interest in the property, as defined 
in Sec. 3550.58, prior to the beginning of any planned construction;
    (2) Have the experience and ability to complete any proposed work in 
a competent and professional manner;
    (3) Have the legal capacity to enter into the required agreements;
    (4) Be financially responsible and have the ability to finance or 
obtain financing for any proposed construction or rehabilitation; and
    (5) Comply with the requirements of 7 CFR part 1901, subpart E and 
all applicable laws, regulations, and Executive Orders relating to equal 
opportunity. Anyone who receives 5 or more conditional commitments 
during a 12-month period must obtain RHS approval of an affirmative 
marketing plan.
    (b) Limitations. Conditional commitments for new or substantially 
rehabilitated dwellings will not be issued after construction has 
started. RHS may limit the total number of conditional commitments 
issued in any locality based on market demand.

[[Page 395]]

    (c) Commitment period. A conditional commitment will be valid for 12 
months from the date of issuance. The commitment may be extended for up 
to an additional 6 months if there are unexpected delays in construction 
caused by such factors as bad weather, materials shortages, or marketing 
difficulties. Conditional commitments may be canceled if construction 
does not begin within 60 days after the commitment is issued.
    (d) Conditional commitments involving packaging of applications. A 
conditional commitment may be made to a seller, builder, or dealer-
contractor who packages an RHS loan application for a prospective 
purchaser. In cases where the dwelling is to be constructed for sale to 
a specific eligible applicant, all of the following conditions must be 
met:
    (1) The conditional commitment will not be approved until the 
applicant's loan has been approved;
    (2) Construction will not begin until loan funds are obligated for 
the loan. Exceptions may be made when it appears likely that funding 
will be forthcoming and as long as the RHS lien priority is not 
jeopardized. The sales agreement must indicate that the loan has been 
approved but not funded and must provide that if the loan is not closed 
within 90 days of the date of approval, the contractor may terminate the 
sales agreement and sell the property to another party. If the sales 
agreement is terminated, the conditional commitment will be honored for 
another eligible loan applicant for the remaining period of the 
commitment; and
    (3) The RHS loan will be closed only after the dwelling is 
constructed or the required rehabilitation completed and final 
inspection has been made.
    (e) Fees. An application for a conditional commitment must include 
payment of the conditional commitment fee. The fee will be refunded if 
for any reason preliminary inspection of the property or investigation 
of the conditional commitment applicant indicates that a conditional 
commitment will not be issued. Application fees will not be refunded for 
any property on which the required appraisal has been made.
    (f) Failure of conditional commitment applicant or dwelling to 
qualify. The conditional commitment applicant will be informed if the 
conditional commitment is denied. Conditional commitments will be 
canceled if the property does not meet program requirements.
    (g) Changes in plans, specifications, or commitment price. The 
holder of the conditional commitment must request approval for changes 
in plans, specifications, and commitment price. RHS may approve the 
changes if the following requirements are met:
    (1) The property price does not exceed the maximum loan limit and 
increases in costs are due to factors beyond the control of the 
commitment holder; and
    (2) The requested changes are justifiable and appropriate.
    (h) Builder's warranty. The builder or seller, as appropriate, must 
execute either an RHS-approved ``Builder's Warranty,'' or provide a 10-
year insured warranty when construction is completed or the loan is 
closed.

    Effective Date Note: At 67 FR 78330, Dec. 24, 2002, Sec. 3550.70 was 
amended in the introductory text by removing the word ``be'' in the 
first sentence the first time it appears and by revising the word 
``lessor'' to read ``lesser'' and the words ``HUD section 203(b) limit'' 
to read ``maximum loan limit.'', effective Jan. 23, 2003.



Sec. 3550.71  Special requirements for condominiums.

    RHS loans may be made for condominium units under the following 
conditions:
    (a) The unit is in a project approved or accepted by U.S. Department 
of Housing and Urban Development (HUD), the Federal National Mortgage 
Association (Fannie Mae), or the Federal Home Loan Mortgage Corporation 
(Freddie Mac).
    (b) The condominium project complies with the requirements of the 
condominium enabling statute and all other applicable laws. Any right of 
first refusal in the condominium documents will not impair the rights of 
RHS to:
    (1) Foreclose or take title to a condominium unit pursuant to the 
remedies in the mortgage;
    (2) Accept a deed in lieu of foreclosure in the event of default by 
a mortgagor; and

[[Page 396]]

    (3) Sell or lease a unit acquired by RHS.
    (c) If RHS obtains title to a condominium unit pursuant to the 
remedies in its mortgage or through foreclosure, RHS will not be liable 
for more than 6 months of the unit's unpaid regularly budgeted dues or 
charges accrued before acquisition of the title to the unit by RHS. The 
homeowners association's lien priority may include costs of collecting 
unpaid dues.
    (d) In case of condemnation or substantial loss to the units or 
common elements of the condominium project, unless at least two-thirds 
of the first mortgagees or unit owners of the individual condominium 
units have given their consent, the homeowners association may not:
    (1) By act or omission seek to abandon or terminate the condominium 
project;
    (2) Change the pro rata interest or obligations of any condominium 
unit in order to levy assessments or charges, allocate distribution of 
hazard insurance proceeds or condemnation awards, or determine the pro 
rata share of ownership of each condominium unit in the common elements;
    (3) Partition or subdivide any condominium unit;
    (4) Seek to abandon, partition, subdivide, encumber, sell, or 
transfer the common elements by act or omission (the granting of 
easements for public utilities or other public purposes consistent with 
the intended use of the common elements by the condominium project is 
not a transfer within the meaning of this clause); or
    (5) Use hazard insurance proceeds for losses to any condominium 
property (whether units or common elements) for other than the repair, 
replacement, or reconstruction of the condominium property.
    (e) All taxes, assessments, and charges that may become liens prior 
to the first mortgage under local law relate only to the individual 
condominium units and not to the condominium project as a whole.
    (f) No provision of the condominium documents gives a condominium 
unit owner or any other party priority over any rights of RHS as first 
or second mortgagee of the condominium unit pursuant to its mortgage in 
the case of a payment to the unit owner of insurance proceeds or 
condemnation awards for losses to or taking of condominium units or 
common elements.
    (g) If the condominium project is on a leasehold the underlying 
lease provides adequate security of tenure as described in 
Sec. 3550.58(b).
    (h) At least 70 percent of the units have been sold. Multiple 
purchases of condominium units by one owner are counted as one sale when 
determining if the sales requirement has been met.
    (i) No more than 15 percent of the unit owners are more than 1 month 
delinquent in payment of homeowners association dues or assessments at 
the time the RHS loan is closed.



Sec. 3550.72  Community land trusts.

    Eligible dwellings located on land owned by a community land trust 
may be financed if:
    (a) The loan meets all the requirements of this subpart; and
    (b) Any restrictions, imposed by the community land trust on the 
property or applicant are:
    (1) Reviewed and accepted by RHS before loan closing; and
    (2) Automatically and permanently terminated upon foreclosure or 
acceptance by RHS of a deed in lieu of foreclosure.



Sec. 3550.73  Manufactured homes.

    With the exception of the restrictions and additional requirements 
contained in this section, section 502 loans on manufactured homes are 
subject to the same conditions as all other section 502 loans.
    (a) Eligible costs. In addition to the eligible costs described in 
Sec. 3550.52(d), RHS may finance the following activities related to 
manufactured homes when a real estate mortgage covers both the unit and 
the site:
    (1) Purchase of an eligible unit, transportation, and set-up costs, 
and purchase of an eligible site if not already owned by the applicant;
    (2) Site development work in accordance with 7 CFR part 1924, 
subpart A:
    (3) Subsequent loans in conjunction with an assumption or sale of an 
REO property; or

[[Page 397]]

    (4) Subsequent loans for repairs of units financed under section 
502.
    (b) Loan restrictions. In addition to the loan restrictions 
described in Sec. 3550.52(e), RHS may not use loan funds to finance:
    (1) An existing unit and site unless it is already financed with a 
section 502 loan or is an RHS REO property.
    (2) The purchase of a site without also financing the unit.
    (3) Alteration or remodeling of the unit when the initial loan is 
made.
    (4) Furniture, including movable articles of personal property such 
as drapes, beds, bedding, chairs, sofas, divans, lamps, tables, 
televisions, radios, stereo sets, and other similar items of personal 
property. Furniture does not include wall-to-wall carpeting, 
refrigerators, ovens, ranges, washing machines, clothes dryers, heating 
or cooling equipment, or other similar items.
    (c) Dealer-contractors. No loans will be made on a manufactured home 
sold by any entity that is not an approved dealer-contractor that will 
provide complete sales, service, and site development services.
    (d) Loan term. The maximum term of a loan on a manufactured home is 
30 years.
    (e) Construction and development. Unit construction, site 
development and set-up must conform to the Federal Manufactured Home 
Construction and Safety Standards (FMHCSS) and 7 CFR part 1924, subpart 
A. Development under the Mutual Self-Help and borrower construction 
methods is not permitted for manufactured homes.
    (f) Contract requirements. The dealer-contractor must sign a 
construction contract, as specified in 7 CFR 1924.6 which will cover 
both the unit and site development work. The use of multi-contracts is 
prohibited. A dealer-contractor may use subcontractors if the dealer-
contractor is solely responsible for all work under the contract. 
Payment for all work will be in accordance with 7 CFR part 1924, subpart 
A, except no payment will be made for materials or property stored on 
site (e.g., payment for a unit will be made only after it is permanently 
attached to the foundation).
    (g) Lien release requirements. All persons furnishing materials or 
labor in connection with the contract except the manufacturer of the 
unit must sign a Release by Claimants document, as specified in 7 CFR 
part 1924, subpart A. The manufacturer of the unit must furnish an 
executed manufacturer's certificate of origin to verify that the unit is 
free and clear of all legal encumbrances.
    (h) Warranty requirements. The dealer-contractor must provide a 
warranty in accordance with the provisions of 7 CFR 1924.12. The 
warranty must identify the unit by serial number. The dealer-contractor 
must certify that the unit substantially complies with the plans and 
specifications and the manufactured home has sustained no hidden damage 
during transportation and, if manufactured in separate sections, that 
the sections were properly joined and sealed according to the 
manufacturer's specifications. The dealer-contractor will also furnish 
the applicant with a copy of all manufacturer's warranties.



Sec. 3550.74  Nonprogram loans.

    NP terms may be extended to applicants who do not qualify for 
program credit, or for properties that do not qualify as program 
properties, when it is in the best interest of the Government. NP loans 
are originated and serviced according to the requirements for program 
loans except as indicated in this section.
    (a) Purpose. NP terms may be offered to expedite:
    (1) Sale of an REO property.
    (2) Assumption of an existing program loan on new rates and terms. 
If additional funds are required to purchase the property, the applicant 
must obtain them from another source.
    (3) Conversion of a program loan that has received unauthorized 
assistance.
    (4) Continuation of a loan on a portion of a security property when 
the remainder is being transferred and the RHS debt is not paid in full.
    (b) Terms. (1) Rate and term:
    (i) For an applicant who intends to occupy the property, the term 
will not exceed 30 years.
    (ii) For other applicants, the term will not exceed 10 years. If 
more favorable terms are necessary to facilitate the sale, the loan may 
be amortized

[[Page 398]]

over a period of up to 20 years with payment in full due not later than 
10 years from the date of closing.
    (iii) An applicant with an NP loan under paragraph (b)(1)(i) of this 
section who wishes to retain the property and purchase a new property 
with RHS credit must purchase the second property according to the terms 
of paragraph (b)(1)(ii) of this section, even if the new property will 
serve as the applicant's principal residence.
    (2) NP loans are written at the NP interest rate in effect at the 
time of loan approval.
    (3) NP borrowers are not eligible for payment assistance or a 
moratorium.
    (c) Additional requirements. (1) NP applicants other than public 
bodies and nonprofit organizations must pay a nonrefundable application 
fee.
    (2) NP applicants must make a down payment based upon the purchase 
price and whether the applicant intends to personally occupy the 
property or use it for other purposes.
    (3) NP applicants cannot finance loan closing costs or escrow, tax 
service, or appraisal fees.
    (d) Reduced restrictions. (1) NP applicants need not be unable to 
obtain other credit in order to receive an NP loan and are not required 
to refinance with private credit when they are able to do so.
    (2) NP applicants are not required to occupy the property.
    (3) NP applicants are not subject to leasing restrictions.
    (e) Waiver of costs. When the purpose of the loan is the conversion 
of a program loan that has received unauthorized assistance or 
continuation of a loan on a portion of a security property when the 
remainder is being transferred, the application fee, appraisal fee, and 
down payment may be waived.



Secs. 3550.75-3550.99  [Reserved]



Sec. 3550.100  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0166. Public reporting burden for 
this collection of information is estimated to vary from 5 minutes to 3 
hours per response, with an average of 1\1/2\ hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comment regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden to the Department of 
Agriculture, Clearance Officer, STOP 7602, 1400 Independence Avenue, 
SW., Washington, DC 20250-0762. You are not required to respond to this 
collection of information unless it displays a currently valid OMB 
control number.

    Effective Date Note: At 67 FR 78330, Dec. 24, 2002, Sec. 3550.100 
was amended by revising the OMB control number ``0575-0166'' to read 
``0575-0172'' and by removing the third sentence, effective Jan. 23, 
2003.



                   Subpart C--Section 504 Origination

    Effective Date Note: At 67 FR 78330, Dec. 24, 2002, the heading of 
subpart C of part 3550 was revised to read ``Subpart C--Section 504 
Origination and Section 306C Water and Waste Disposal Grants'', 
effective Jan. 23, 2003.



Sec. 3550.101  Program objectives.

    This subpart sets forth policies for administering loans and grants 
under section 504(a) of title V of the Housing Act of 1949, as amended. 
Section 504 loans and grants are intended to help very low-income owner-
occupants in rural areas repair their properties.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.101 
was amended by adding a sentence at the end of the section, effective 
Jan. 23, 2003. For the convenience of the user the revised text follows:

Sec. 3550.101  Program objectives.

    * * * This subpart also covers Water and Waste Disposal (WWD) Grants 
to individuals authorized by Section 306C(b) of the Consolidated Farm 
and Rural Development Act, (7 U.S.C. 1926c).



Sec. 3550.102  Grant and loan purposes.

    (a) Grant funds. Grant funds may be used only to pay costs for 
repairs and improvements that will remove identified health and safety 
hazards or to repair or remodel dwellings to make

[[Page 399]]

them accessible and useable for household members with disabilities. 
Unused grant funds must be returned to the Rural Housing Service (RHS).
    (b) Loan funds. Loan funds may be used to make general repairs and 
improvements to properties or to remove health and safety hazards, as 
long as the dwelling remains modest in size and design.
    (c) Eligibility of mobile and manufactured homes. Repairs necessary 
to remove health and safety hazards may be made to mobile or 
manufactured homes provided:
    (1) The applicant owns the home and site and has occupied the home 
prior to filing an application with RHS; and
    (2) The mobile or manufactured home is on a permanent foundation or 
will be put on a permanent foundation with section 504 funds.
    (d) Eligible costs. In addition to construction costs to make 
necessary repairs and improvements, loan and grant funds may be used 
for:
    (1) Reasonable expenses related to obtaining the loan or grant, 
including legal, architectural and engineering, title clearance, and 
loan closing fees; and appraisal, surveying, environmental, tax 
monitoring, and other technical services.
    (2) The cost of providing special design features or equipment when 
necessary because of a physical disability of the applicant or a member 
of the household.
    (3) Reasonable connection fees, assessments, or the pro rata 
installation costs for utilities such as water, sewer, electricity, and 
gas for which the borrower is liable and which are not paid from other 
funds.
    (4) Real estate taxes that are due and payable on the property at 
the time of closing and for the establishment of escrow accounts for 
real estate taxes, hazard and flood insurance premiums, and related 
costs.
    (5) Fees to public and private nonprofit organizations that are tax 
exempt under the Internal Revenue Code for the development and packaging 
of applications.
    (e) Restrictions on uses of loan or grant funds. Section 504 funds 
may not be used to:
    (1) Assist in the construction of a new dwelling.
    (2) Make repairs to a dwelling in such poor condition that when the 
repairs are completed, the dwelling will continue to have major hazards.
    (3) Move a mobile home or manufactured home from one site to 
another.
    (4) Pay for off-site improvements except for the necessary 
installation and assessment costs for utilities.
    (5) Refinance any debt or obligation of the applicant incurred 
before the date of application, except for the installation and 
assessment costs of utilities.
    (6) Pay fees, commission, or charges to for-profit entities related 
to loan packaging or referral of prospective applicants to RHS.



Sec. 3550.103  Eligibility requirements.

    To be eligible, applicants must meet the following requirements:
    (a) Owner-occupant. Applicants must own, as described in 
Sec. 3550.107, and occupy the dwelling.
    (b) Age (grant only). To be eligible for grant assistance, an 
applicant must be 62 years of age or older at the time of application.
    (c) Income eligibility. At the time of loan or grant approval, the 
household's adjusted income must not exceed the applicable very low-
income limit. Section 3550.54 provides a detailed discussion of the 
calculation of adjusted income.
    (d) Citizenship status. The applicant must be a U.S. citizen or a 
non-citizen who qualifies as a legal alien, as defined in Sec. 3550.10.
    (e) Need and use of personal resources. Applicants must be unable to 
obtain financial assistance at reasonable terms and conditions from non-
RHS credit or grant sources and lack the personal resources to meet 
their needs. In cases where the household is experiencing medical 
expenses in excess of three percent of the household's income, this 
requirement may be waived or modified. Elderly families must use any net 
family assets in excess of $10,000 to reduce their section 504 request. 
Non-elderly families must use any net family assets

[[Page 400]]

in excess of $7,500 to reduce their section 504 request. Applicants may 
contribute assets in excess of the aforementioned amounts to further 
reduce their request for assistance. The definition of assets for this 
purpose is net family assets as described in Sec. 3550.54 of subpart B 
of this part, less the value of the dwelling and a minimum adequate 
site.
    (f) Legal capacity. The applicant must have the legal capacity to 
incur the loan obligation or have a court appointed guardian or 
conservator who is empowered to obligate the applicant in real estate 
matters.
    (g) Suspension or debarment. Applications from applicants who have 
been suspended or debarred from participation in federal programs will 
be handled in accordance with FmHA Instruction 1940-M (available in any 
Rural Development office).
    (h) Repayment ability (loans only). Applicants must demonstrate 
adequate repayment ability as supported by a budget.
    (1) If an applicant does not meet the repayment ability 
requirements, the applicant can have another party join the application 
as a cosigner.
    (2) If an applicant does not meet the repayment ability 
requirements, the applicant can have other household members join the 
application.
    (i) Credit qualifications. Applicants must be unable to secure the 
necessary credit from other sources under terms and conditions that the 
applicant could reasonably be expected to fulfill. Loan applicants must 
have a credit history that indicates reasonable ability and willingness 
to meet debt obligations. An applicant with an outstanding judgment 
obtained by the United States in a federal court, other than the United 
States Tax Court, is not eligible for a loan or grant from RHS.
    (1) Indicators of unacceptable credit include:
    (i) Repeated incidents of 2 debt payments being more than 30 days 
late within the last 12 months that indicate an unwillingness to meet 
financial obligations when due.
    (ii) Loss of security due to a foreclosure if the foreclosure has 
been completed within the last 36 months.
    (iii) An outstanding Internal Revenue Service tax lien or any other 
outstanding tax liens with no satisfactory arrangement for payment.
    (iv) A court-created or court-affirmed obligation or judgment caused 
by nonpayment that is currently outstanding or has been outstanding 
within the last 12 months, except for those excluded by paragraphs 
(i)(2)(ii) and (i)(2)(iii) of this section.
    (v) Outstanding collection accounts with a record of irregular 
payment with no satisfactory arrangements for repayment, or collection 
accounts that were paid in full within the last 6 months.
    (vi) Non-agency debts written off within the last 36 months or paid 
in full at least 12 months ago.
    (vii) Agency debts that were debt settled, or are being considered 
for debt settlement.
    (viii) Delinquency on a federal debt.
    (2) The following will not be considered indicators of unacceptable 
credit:
    (i) A bankruptcy in which debts were discharged more than 36 months 
prior to the date of application or where an applicant successfully 
completed a bankruptcy debt restructuring plan and has demonstrated a 
willingness to meet obligations when due for the 12 months prior to the 
date of application.
    (ii) A non-foreclosure judgment satisfied more than 12 months before 
the date of application.
    (3) When an application is rejected because of unacceptable credit, 
the applicant will be informed of the reason and source of information.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.103 
was amended by redesignating paragraphs (i)(1)(ii) through (i)(1)(viii) 
as (i)(1)(iii) through (i)(1)(ix) respectively; by revising paragraph 
(i)(1)(i) and newly redesignated paragraphs (i)(1)(v) and (i)(1)(viii); 
and by adding a new paragraph (i)(1)(ii), effective Jan. 23, 2003. For 
the convenience of the user, the revised text follows:

Sec. 3550.103  Eligibility requirements.

                                * * * * *

    (i) * * *
    (1) * * *

[[Page 401]]

    (i) Payments on any account where the amount of the delinquency 
exceeded one installment for more than 30 days within the last 12 
months.
    (ii) Payments on any account which was delinquent for more than 30 
days on two or more occasions within a 12-month period.

                                * * * * *

    (v) A court-created or court-affirmed obligation or judgment caused 
by nonpayment that is currently outstanding or has been outstanding 
within the last 12 months, except for those excluded by paragraphs 
(i)(2)(i) and (i)(2)(ii) of this section.

                                * * * * *

    (viii) Agency debts that were debt settled within the last 36 months 
or are being considered for debt settlement.

                                * * * * *



Sec. 3550.104  Applications.

    (a) Application submissions. All persons applying for section 504 
loans or grants must file a complete written application in a format 
specified by RHS. Applications will be accepted even when funds are not 
available.
    (b) Application processing. (1) Incomplete applications will be 
returned to the applicant specifying in writing the additional 
information that is needed to make the application complete.
    (2) An applicant may voluntarily withdraw an application at any 
time.
    (3) RHS may periodically request in writing that applicants 
reconfirm their interest in obtaining a loan or grant. RHS may withdraw 
the application of any applicant who does not respond within the 
specified timeframe.
    (4) Applicants who are eligible will be notified in writing. If 
additional information becomes available that indicates that the 
original eligibility determination may have been in error or that 
circumstances have changed, RHS may reconsider the application and the 
applicant may be required to submit additional information.
    (5) Applicants who are ineligible will be notified in writing and 
provided with the specific reasons for the rejection.
    (c) Processing priorities. When funding is not sufficient to serve 
all eligible applicants, applications for assistance to remove health 
and safety hazards will receive priority for funding. In the case of 
applications with equivalent priority status that are received on the 
same day, preference will be extended to applicants qualifying for a 
veterans preference. After selection for processing, requests for 
assistance are funded on a first-come, first-served basis.



Sec. 3550.105  Site requirements.

    (a) Rural areas. Loans may be made only in rural areas designated by 
RHS. If an area designation is changed to nonrural an existing RHS 
borrower may receive 504 assistance.
    (b) Not subdividable. The site must not be large enough to subdivide 
into more than one site under existing local zoning ordinances.



Sec. 3550.106  Dwelling requirements.

    (a) Modest dwelling. The property must be one that is considered 
modest for the area, must not be designed for income producing purposes, 
have an in-ground pool, or have a value in excess of the 203(b) limits 
of the National Housing Act.
    (b) Post-repair condition. Dwellings repaired with section 504 funds 
need not be brought to the agency development standards or thermal 
performance standards of 7 CFR part 1924, subpart A, nor must all 
existing hazards be removed. However, the dwelling may not continue to 
have major health or safety hazards.
    (c) Construction standards. All work must be completed in accordance 
with local construction codes and standards. When potentially hazardous 
equipment or materials are being installed, all materials and 
installations must be in accordance with the applicable standards in 7 
CFR part 1924, subpart A.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.106 
was amended in paragraph (a) by removing the words ``or have a value in 
excess of the 203(b) limits of the National Housing Act'' to read ``or 
have a market value in excess of the applicable maximum loan limit, in 
accordance with Sec. 3550.63.'', effective Jan. 23, 2003.



Sec. 3550.107  Ownership requirements.

    The applicant must have an acceptable ownership interest in the 
property as evidenced by one of the following:

[[Page 402]]

    (a) Full fee ownership. Acceptable full fee ownership is evidenced 
by a fully marketable title with a deed vesting a fee interest in the 
property to the applicant.
    (b) Secure leasehold interest. A written lease is required. For 
loans, the unexpired portion of the lease must not be less than 2 years 
beyond the term of the promissory note. For grants, the remaining lease 
period must be at least 5 years. A leasehold for mutual help housing 
financed by U.S. Department of Housing and Urban Development (HUD) on 
Indian lands requires no minimum lease period and constitutes acceptable 
ownership.
    (c) Life estate interest. To be acceptable, a life estate interest 
must provide the applicant with rights of present possession, control, 
and beneficial use of the property. For secured loans, generally persons 
with any remainder interests must be signatories to the mortgage. All of 
the remainder interests need not be included in the mortgage to the 
extent that one or more of the persons holding remainder interests are 
not legally competent (and there is no representative who can legally 
consent to the mortgage), cannot be located, or if the remainder 
interests are divided among such a large number of people that it is not 
practical to obtain the signatures of all of the remainder interests. In 
such cases, the loan may not exceed the value of the property interests 
owned by the persons executing the mortgage.
    (d) Undivided interest. An undivided interest is acceptable if there 
is no reason to believe that the applicant's position as an owner-
occupant will be jeopardized as a result of the improvements to be made, 
and:
    (1) In the case of unsecured loans or grants, if any co-owners 
living or planning to live in the dwelling sign the repayment agreement.
    (2) In the case of a secured loan, when one or more of the co-owners 
are not legally competent (and there is no representative who can 
legally consent to the mortgage), cannot be located, or the ownership 
interests are divided among so large a number of co-owners that it is 
not practical for all of their interests to be mortgaged, their 
interests not exceeding 50 percent may be excluded from the security 
requirements. In such cases, the loan may not exceed the value of the 
property interests owned by the persons executing the mortgage.
    (e) Possessory rights. Acceptable forms of ownership include 
possessory right on an American Indian reservation or State-owned land 
and the interest of an American Indian in land held severalty under 
trust patents or deeds containing restrictions against alienation, 
provided that land in trust or restricted status will remain in trust or 
restricted status.
    (f) Land purchase contract. A land purchase contract is acceptable 
if the applicant is current on all payments, and there is a reasonable 
likelihood that the applicant will be able to continue meeting the 
financial obligations of the contract.
    (g) Alternative evidence of ownership. If evidence, as described in 
paragraphs (a) through (e) of this section, is not available, RHS may 
accept any of the following as evidence of ownership:
    (1) Records of the local taxing authority that show the applicant as 
owner and that demonstrate that real estate taxes for the property are 
paid by the applicant.
    (2) Affidavits by others in the community stating that the applicant 
has occupied the property as the apparent owner for a period of not less 
than 10 years, and is generally believed to be the owner.
    (3) Any instrument, whether or not recorded, which is commonly 
accepted as evidence of ownership.



Sec. 3550.108  Security requirements (loans only).

    When the total section 504 indebtedness is $2,500 or more, the 
property will be secured by a mortgage on the property, leasehold 
interest, or land purchase contract.
    (a) RHS does not require a first lien position, but the total of all 
debts on the secured property may not exceed the value of the security, 
except by the amount of any required contributions to an escrow account 
for taxes and insurance and any required appraisal fee.
    (b) Title clearance and the use of legal services generally must be 
conducted in accordance with 7 CFR part

[[Page 403]]

1927, subpart B. These requirements need not be followed for:
    (1) Loans where the total RHS indebtedness is $7,500 or less; or
    (2) Subsequent loans made for minimal essential repairs necessary to 
protect the Government's interest.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.108 
was amended by revising in the introductory text the amount ``$2,500'' 
to read ``$7,500'' and by revising paragraph (b)(1), effective Jan. 23, 
2003. For the convenience of the user the revised text follows:

Sec. 3550.108  Security requirements (loans only).

                                * * * * *

    (b) * * *
    (1) Loans where the total RHS indebtedness is less than $7,500; or

                                * * * * *



Sec. 3550.109  Escrow account (loans only).

    RHS may require that borrowers deposit into an escrow account 
amounts necessary to ensure that the account will contain sufficient 
funds to pay real estate taxes, hazard and flood insurance premiums, and 
other related costs when they are due in accordance with the Real Estate 
Settlement and Procedures Act of 1974 (RESPA) and section 501(e) of the 
Housing Act of 1949, as amended.



Sec. 3550.110  Insurance (loans only).

    (a) Borrower responsibility. Until the loan is paid in full, any 
borrower with a secured indebtedness in excess of $15,000 must furnish 
and continually maintain hazard insurance on the security property, with 
companies, in amounts, and on terms and conditions acceptable to RHS and 
include a ``loss payable clause'' payable to RHS to protect the 
Government's interest.
    (b) Amount. Essential buildings must be insured in an amount at 
least equal to the balance of the secured debts.
    (c) Flood insurance. Flood insurance must be obtained and maintained 
for the life of the loan for all property located in Special Flood 
Hazard Areas (SFHA) as determined by the Federal Emergency Management 
Agency (FEMA). RHS actions will be consistent with 7 CFR part 1806, 
subpart B which addresses flood insurance requirements. If flood 
insurance through FEMA's National Flood Insurance Program is not 
available in a SFHA, the property is not eligible for federal financial 
assistance.
    (d) Losses. (1) Loss deductible clauses may not exceed $250 or 1 
percent of the insurance coverage, whichever is greater. The deductible 
for any 1 building may not exceed $750.
    (2) Borrowers must immediately notify RHS of any loss or damage to 
insured property and collect the amount of the loss from the insurance 
company.
    (3) RHS may require that loss payments be supervised. All repairs 
and replacements done by or under the direction of the borrower, or by 
contract, will be planned, performed, inspected, and paid for in 
accordance with 7 CFR part 1924, subpart A.
    (4) When insurance funds remain after all repairs, replacements, and 
other authorized disbursements have been made, the funds will be applied 
in the following order:
    (i) Prior liens, including delinquent property taxes.
    (ii) Delinquency on the account.
    (iii) Advances due for recoverable cost items.
    (iv) Released to the borrower if the RHS debt is adequately secured.
    (5) If a loss occurs when insurance is not in force, the borrower is 
responsible for making the needed repairs or replacements and ensuring 
that the insurance is reinstated on the property.
    (6) If the borrower is not financially able to make the repairs, RHS 
may take one of the following actions:
    (i) Make a subsequent loan for repairs.
    (ii) Subordinate the RHS lien to permit the borrower to obtain funds 
for needed repairs from another source.
    (iii) Permit the borrower to obtain funds secured by a junior lien 
from another source.
    (iv) Make a protective advance to protect the Government's interest.
    (v) Accelerate the account and demand payment in full.



Sec. 3550.111  Appraisals (loans only).

    An appraisal is required when the section 504 debt to be secured 
exceeds

[[Page 404]]

$15,000 or whenever RHS determines that it is necessary to establish the 
adequacy of the security. RHS may charge an appraisal fee. Appraisals 
must be made in accordance with the Uniform Standards of Professional 
Appraisal Practices. When other real estate is taken as additional 
security it will be appraised if it represents a substantial portion of 
the security for the loan.



Sec. 3550.112  Maximum loan and grant.

    (a) Maximum loan permitted. The sum of all outstanding section 504 
loans to 1 borrower or on 1 dwelling may not exceed $20,000.
    (1) Transferees who have assumed a section 504 loan and wish to 
obtain a subsequent section 504 loan are limited to the difference 
between the unpaid principal balance of the debt assumed and $20,000.
    (2) For a secured loan, the total of all debts on the secured 
property may not exceed the value of the security, except by the amount 
of any required appraisal and tax monitoring fees, and the contributions 
to an escrow account for taxes and insurance.
    (b) Maximum loan based upon ability to pay. The maximum loan is 
limited to the principal balance that can be supported given the amount 
the applicant has available, as determined by RHS, to repay a loan at 1 
percent interest with a 20-year term.
    (c) Maximum grant. The lifetime total of the grant assistance to any 
recipient is $7,500. No grant can be awarded unless the maximum level of 
loans, as supported by a budget, have been obtained.



Sec. 3550.113  Rates and terms (loans only).

    (a) Interest rate. The interest rate for all section 504 loans will 
be 1 percent.
    (b) Loan term. The repayment period for the loan should generally be 
as short as possible based on the applicant's repayment ability, and may 
never exceed 20 years; however loans made in combination with grants 
must have a term of 20 years.



Sec. 3550.114  Repayment agreement (grants only).

    Grant recipients are required to sign a repayment agreement which 
specifies that the full amount of the grant must be repaid if the 
property is sold in less than 3 years from the date the grant was 
approved.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.114 
was amended by revising the words ``was approved'' to read ``agreement 
was signed.'', effective Jan. 23, 2003.



Sec. 3550.115  WWD grant program objectives.

    The objective of the WWD individual grant program is to facilitate 
the use of community water and waste disposal systems by the residents 
of colonias along the border between the U.S. and Mexico. WWD grants are 
processed the same as Section 504 grants, except as specified in this 
subpart.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.115 
was added, effective Jan. 23, 2003.



Sec. 3550.116  Definitions applicable to WWD grants only.

    (a) Colonia. Any identifiable community designated in writing by the 
State or county in which it is located; determined to be a colonia on 
the basis of objective criteria including lack of a potable water 
supply, lack of adequate sewage systems, and lack of decent, safe, and 
sanitary housing, inadequate roads, and drainage; and existed and was 
generally recognized as a colonia before October 1, 1989.
    (b) Individual. Resident of a colonia located in a rural area.
    (c) Rural areas. Includes unincorporated areas and any city or town 
with a population not in excess of 10,000 inhabitants according to the 
most recent decennial census of the United States.
    (d) System. A community or central water supply or waste disposal 
system.
    (e) WWD. Water and Waste Disposal grants to individuals.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.116 
was added, effective Jan. 23, 2003.

[[Page 405]]



Sec. 3550.117  WWD grant purposes.

    Grant funds may be used to pay the reasonable costs for individuals 
to:
    (a) Extend service lines from the system to their residence.
    (b) Connect service lines to residence's plumbing.
    (c) Pay reasonable charges or fees for connecting to a system.
    (d) Pay for necessary installation of plumbing and related fixtures 
within dwellings lacking such facilities. This is limited to one 
bathtub, sink, commode, kitchen sink, water heater, and outside spigot.
    (e) Construction and/or partitioning off a portion of the dwelling 
for a bathroom, not to exceed 4.6 square meters (48 square feet) in 
size.
    (f) Pay reasonable costs for closing abandoned septic tanks and 
water wells when necessary to protect the health and safety of 
recipients of a grant for a purpose provided in paragraph (a) or (b) of 
this section and is required by local or State law.
    (g) Make improvements to individual's residence when needed to allow 
the use of the water and/or waste disposal system.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.117 
was added, effective Jan. 23, 2003.



Sec. 3550.118  Grant restrictions.

    (a) Maximum grant. Lifetime assistance to any individual for initial 
or subsequent Section 306C WWD grants may not exceed a cumulative total 
of $5,000.
    (b) Limitation on use of grant funds. WWD grant funds may not be 
used to:
    (1) Pay any debt or obligation of the grantees other than 
obligations incurred for purposes listed in Sec. 3550.117.
    (2) Pay individuals for their own labor.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.118 
was added, effective Jan. 23, 2003.



Sec. 3550.119  WWD eligibility requirements.

    In addition to the eligibility requirements of Sec. 3550.103, WWD 
applicants must meet the following requirements:
    (a) An applicant need not be 62 years of age or older.
    (b) Own and occupy a dwelling located in a colonia. Evidence of 
ownership will be presented as outlined in Sec. 3550.107.
    (c) Have a total taxable income from all individuals residing in the 
household that is below the most recent poverty income guidelines 
established by the Department of Health and Human Services.
    (d) Must not be delinquent on any Federal debt.
    (e) The household income must be verified at the time they apply for 
assistance through verification of employment and benefits. Federal tax 
returns are used as further verification of household income.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.119 
was added, effective Jan. 23, 2003.



Sec. 3550.120-3550.149  [Reserved]



Sec. 3550.150  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0166. Public reporting burden for 
this collection of information is estimated to vary from 5 minutes to 3 
hours per response, with an average of 1\1/2\ hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comment regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden to the Department of 
Agriculture, Clearance Officer, STOP 7602, 1400 Independence Avenue, 
SW., Washington, DC 20250-0762. You are not required to respond to this 
collection of information unless it displays a currently valid OMB 
control number.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.150 
was amended by revising the OMB control number ``0575-0166'' to read 
``0575-0172'' and by removing the third sentence, effective Jan. 23, 
2003.

[[Page 406]]



                      Subpart D--Regular Servicing



Sec. 3550.151  Servicing goals.

    This subpart sets forth the Rural Housing Service (RHS) policies for 
managing the repayment of loans made under sections 502 and 504 of the 
Housing Act of 1949, as amended.



Sec. 3550.152  Loan payments.

    (a) Payment terms. Unless the loan documents specify other loan 
repayment terms, borrowers are required to make monthly payments. 
Borrowers with existing loans specifying annual payments may request 
conversion to monthly payments, and must convert to a monthly payment 
schedule before any subsequent loan or new payment assistance is 
approved. Suitable forms of payment are: check, money order, or bank 
draft. Borrowers who make cash payments will be assessed a fee to cover 
the cost of conversion to a money order.
    (b) Application of payments. If a borrower makes less than the 
scheduled payment, the payment is held in suspense and is not applied to 
the borrower's account. When subsequent payments are received in an 
amount sufficient to equal a scheduled payment, the amount will be 
applied in the following order:
    (1) Protective advances charged to the account.
    (2) Accrued interest due.
    (3) Principal due.
    (4) Escrow for taxes and insurance.
    (c) Multiple loans. When a borrower with multiple loans for the same 
property makes less than the scheduled payment on all loans, the payment 
will be applied to the oldest loan and then in declining order of age. 
Future remittances will be applied beginning with the oldest unpaid 
installment.
    (d) Application of excess payments. Borrowers can elect to make 
payments in excess of the scheduled amount to be applied to principal, 
provided there are no outstanding fees.



Sec. 3550.153  Fees.

    RHS may assess reasonable fees including a tax service fee, fees for 
late payments, and fees for checks returned for insufficient funds.



Sec. 3550.154  Inspections.

    RHS or its agent may make reasonable entries upon and inspections of 
any property used as security for an RHS loan as necessary to protect 
the interest of the Government. RHS will give the borrower notice at the 
time of or prior to an inspection.



Sec. 3550.155  Escrow account.

    Escrow accounts will be administered in accordance with RESPA and 
section 501(e) of the Housing Act of 1949, as amended.
    (a) Upon creation of the escrow account, RHS may require borrowers 
to deposit funds sufficient to pay taxes and insurance premiums 
applicable to the mortgage for the period since the last payments were 
made and to fund a cushion as permitted by RESPA.
    (b) Borrowers may elect to escrow at any time during the terms of 
the loan if the outstanding RHS loan balance is over $2,500.
    (c) RHS may require borrowers to escrow in conjunction with any 
special servicing action.



Sec. 3550.156  Borrower obligations.

    (a) After receiving a loan from RHS, borrowers are expected to meet 
a variety of obligations outlined in the loan documents. In addition to 
making timely payments, these obligations include:
    (1) Maintaining the security property; and
    (2) Maintaining an adequately funded escrow account, or paying real 
estate taxes, hazard and flood insurance, and other related costs when 
due.
    (b) If a borrower fails to fulfill these obligations, RHS may obtain 
the needed service and charge the cost to the borrowers account.



Sec. 3550.157  Payment subsidy.

    (a) Borrowers currently receiving payment subsidy. (1) RHS will 
review annually each borrower's eligibility for continued payment 
subsidy and determine the appropriate level of assistance. To be 
eligible for payment subsidy renewal, the borrower must also occupy the 
property.
    (2) If the renewal is not completed before the expiration date of 
the existing

[[Page 407]]

agreement, the effective date of the renewal will be either the 
expiration date of the previous agreement if RHS error caused the delay, 
or the next due date after the renewal is approved in all other cases.
    (3) The borrower must notify RHS whenever an adult member of the 
household becomes employed or changes employment, there is a change in 
household composition, or if income increases by at least 10 percent. 
The household may also report decreases in income. If the change in the 
household's income will cause the payment for principal and interest to 
change by at least 10 percent, the household's payment subsidy may be 
adjusted for a new 12-month period. The new agreement will be effective 
the due date following the date the borrower's information is verified 
by RHS.
    (b) Borrowers not currently receiving payment subsidy. Payment 
assistance may be granted to borrowers not currently receiving payment 
subsidy whose loans were approved on or after August 1, 1968, whose 
income does not exceed the applicable low-income limit for the area, are 
personally occupying the RHS financed property, and who meet the 
requirements of Sec. 3550.53(b), (e), and (f). In general, to receive 
payment assistance the term of the loan at closing must have been at 
least 25 years. If an account has been reamortized and the initial term 
of the loan was at least 25 years, payment assistance may be granted 
even though the term of the reamortized loan is less than 25 years. 
Payment assistance may be granted on a subsequent loan for repairs with 
a term of less than 25 years.
    (c) Cancellation of payment subsidy. RHS will cancel a payment 
subsidy if the borrower does not occupy the property, has sold or 
transferred title to the property, or is no longer eligible for payment 
subsidy.



Sec. 3550.158  Active military duty.

    The Soldiers and Sailors Relief Act requires that the interest rate 
charged a borrower who enters full-time active military duty after a 
loan is closed not exceed six percent. Active military duty does not 
include participation in a military reserve or the National Guard unless 
the borrower is called to active duty.
    (a) Amount of assistance. If a borrower qualifies for payment 
subsidy after reduction of the interest rate to six percent, the amount 
of payment subsidy received during the period of active military duty 
will be the difference between the amount due at the subsidized rate for 
principal and interest and the amount due at a six percent interest 
rate. The six percent interest rate will be effective with the first 
payment due after RHS confirms the active military status of the 
borrower.
    (b) Change of active military status. The borrower must notify RHS 
when he or she is no longer on active military duty. RHS will cancel the 
six percent interest rate and resume use of the promissory note interest 
rate. A new payment subsidy agreement may be processed if the borrower 
is eligible.



Sec. 3550.159  Borrower actions requiring RHS approval.

    (a) Mineral leases. Borrowers who wish to lease mineral rights to a 
security property must request authorization from RHS. RHS may consent 
to the lease of mineral rights and subordinate its liens to the lessee's 
rights and interests in the mineral activity if the security property 
will remain suitable as a residence and the Government's security 
interest will not be adversely affected. Subordination of RHS loans to a 
mineral lease does not entitle the leaseholder to any proceeds from the 
sale of the security property.
    (1) If the proposed activity is likely to decrease the value of the 
security property, RHS may consent to the lease only if the borrower 
assigns 100 percent of the income from the lease to RHS to be applied to 
reduce principal and the rent to be paid is at least equal to the 
estimated decrease in the market value of the security.
    (2) If the proposed activity is not likely to decrease the value of 
the security property, RHS may consent to the lease if the borrower 
agrees to use any damage compensation received from the lessee to repair 
damage to the site or dwelling, or to assign it to RHS to be applied to 
reduce principal.
    (b) Subordination. RHS may subordinate its interests to permit a 
borrower

[[Page 408]]

to defer recapture amounts and refinance the loan, or to obtain a 
subsequent loan with private credit.
    (1) When it is in the best interest of the Government, subordination 
will be permitted if:
    (i) The other lender will verify that the funds will be used for 
purposes for which an RHS loan could be made;
    (ii) The prior lien debt will be on terms and conditions that the 
borrower can reasonably be expected to meet without jeopardizing 
repayment of the RHS indebtedness;
    (iii) Any proposed development will be planned and performed in 
accordance with 7 CFR part 1924, subpart A or directed by the other 
lender in a manner which is consistent with that subpart; and
    (iv) An agreement is obtained in writing from the prior lienholder 
providing that at least 30 days prior written notice will be given to 
RHS before action to foreclose on the prior lien is initiated.
    (2) The total amount of debt permitted when RHS subordinates its 
interests depends on whether the borrower pays off the RHS loan.
    (i) For situations in which the borrower is obtaining a subsequent 
loan from another source and will not pay off the RHS debt, the prior 
lien debt plus the unpaid balance of all RHS loans, exclusive of 
recapture, will not exceed the market value of the security.
    (ii) For situations in which RHS is subordinating only a deferred 
recapture amount, the prior lien debt plus the deferred recapture amount 
will not exceed the market value of the security.
    (c) Partial release of security. RHS may consent to transactions 
affecting the security, such as sale or exchange of security property or 
granting of a right-of-way across the security property, and grant a 
partial release provided:
    (1) The compensation is:
    (i) For sale of the security property, cash in an amount equal to 
the value of the security being disposed of or rights granted.
    (ii) For exchange of security property, another parcel of property 
acquired in exchange with value equal to or greater than that being 
disposed of.
    (iii) For granting an easement or right-of-way, benefits derived 
that are equal to or greater than the value of the security property 
being disposed of.
    (2) An appraisal must be conducted if the latest appraisal is more 
than 1 year old or if it does not reflect market value and the amount of 
consideration exceeds $5,000. The appraisal fee will be charged to the 
borrower.
    (3) The security property, after the transaction is completed, will 
be an adequate but modest, decent, safe, and sanitary dwelling and 
related facilities.
    (4) Repayment of the RHS debt will not be jeopardized.
    (5) If applicable, the environmental requirements of 7 CFR part 
1940, subpart G are met.
    (6) When exchange of all or part of the security is involved, title 
clearance is obtained before release of the existing security.
    (7) Proceeds from the sale of a portion of the security property, 
granting an easement or right-of-way, damage compensation, and all 
similar transactions requiring RHS consent, will be used in the 
following order:
    (i) To pay customary and reasonable costs related to the transaction 
that must be paid by the borrower.
    (ii) To be applied on a prior lien debt, if any.
    (iii) To be applied to RHS indebtedness or used for improvements to 
the security property in keeping with purposes and limitations 
applicable for use of RHS loan funds. Proposed development will be 
planned and performed in accordance with 7 CFR part 1924, subpart A and 
supervised to ensure that the proceeds are used as planned.
    (d) Lease of security property. A borrower must notify RHS if they 
lease the property. If the lease is for a term of more than 3 years or 
contains an option to purchase, RHS may liquidate the loan. During the 
period of any lease, the borrower is not eligible for a payment subsidy 
or special servicing benefits.



Sec. 3550.160  Refinancing with private credit.

    (a) Objective. RHS direct loan programs are not intended to supplant 
or

[[Page 409]]

compete with private credit sources. Therefore, borrowers are required 
to refinance RHS loans with private credit sources when RHS determines 
that the borrower meets RHS criteria.
    (b) Criteria for refinancing with private credit. Borrowers must 
refinance with private credit when RHS determines that the borrower has 
the ability to obtain other credit at reasonable rates and terms based 
on their income, assets, and credit history. Reasonable rates and terms 
are those commercial rates and terms that borrowers are expected to meet 
when borrowing for similar purposes. Differences in interest rates and 
terms between RHS and other lenders will not be an acceptable reason for 
a borrower to fail to refinance with private credit if the available 
rates and terms are within the borrower's ability to pay.
    (c) Notice of requirement to refinance with private credit. The 
financial status of all borrowers may be reviewed periodically to 
determine their ability to refinance with private credit. A borrower's 
financial status may be reviewed at any time if information becomes 
available to RHS that indicates that the borrower's circumstances have 
changed.
    (1) A borrower undergoing review is required to supply, within 30 
days of a request from RHS, sufficient financial information to enable 
RHS to determine the borrowers ability to refinance with private credit. 
Foreclosure action may be initiated against any borrower who fails to 
respond.
    (2) When RHS determines that a borrower has the ability to refinance 
with private credit, the borrower will be required to refinance within 
90 days.
    (3) Within 30 days after being notified of the requirement to 
refinance with private credit, a borrower may contest the RHS decision 
and provide additional financial information to document an inability to 
refinance with private credit.
    (d) Failure to refinance with private credit. (1) If the borrower is 
unable to secure private credit, the borrower must submit written 
statements and documentation to RHS showing:
    (i) The lenders contacted.
    (ii) The amount of the loan requested by the borrower and the 
amount, if any, offered by the lenders.
    (iii) The rates and terms offered by the lenders or the specific 
reasons why other credit is not available.
    (iv) The information provided by the borrower to the lenders 
regarding the purpose of the loan.
    (2) If RHS determines that the borrower's submission does not 
demonstrate the borrower's inability to refinance with private credit, 
or if the borrower fails to submit the required information, foreclosure 
may be initiated.
    (e) Subordination of recapture amount. RHS may subordinate its 
interest in any deferred recapture amount to permit a borrower to 
refinance with private credit. The amount to which the RHS debt will be 
subordinated may include:
    (1) The amount required to repay the RHS debt, exclusive of 
recapture;
    (2) Reasonable closing costs;
    (3) Up to one percent of the loan amount for loan servicing costs, 
if required by the lender; and
    (4) The cost of any necessary repairs or improvements to the 
security property.
    (f) Application for additional credit. A borrower who has been asked 
to refinance with private credit will not be considered for additional 
credit until the refinancing issue is resolved unless such additional 
credit is necessary to protect the Government's interest.



Sec. 3550.161  Final payment.

    (a) Payment in full. Full payment of a borrower's account includes 
repayment of principal and outstanding interest, unauthorized 
assistance, recapture amounts, and charges made to the borrower's 
account. Any supervised funds or funds remaining in a borrower's escrow 
account will be applied to the borrower's account or returned to the 
borrower.
    (b) Release of security instruments. RHS may release security 
instruments when full payment of all amounts owed has been received and 
verified. If RHS and the borrower agree to settle the account for less 
than the full amount owed, the security instruments may be released when 
all agreed-upon amounts

[[Page 410]]

are received and verified. Security instruments will not be released 
until any deferred recapture amount has been paid in full.
    (c) Payoff statements. At the borrower's request, RHS will provide a 
written statement indicating the amount required to pay the account in 
full. RHS may charge a fee for statements for the same account if more 
than 2 statements are requested in any 30 day period.
    (d) Suitable forms of payment. Suitable forms of payment are: check, 
money order, or bank draft. Borrowers who make cash payments will be 
assessed a fee to cover conversion to a money order.
    (e) Recording costs. Recording costs for the release of the mortgage 
will be the responsibility of the borrower, except where State law 
requires the mortgagee to record or file the satisfaction.



Sec. 3550.162  Recapture.

    (a) Recapture policy. Borrowers with loans approved or assumed on or 
after October 1, 1979, will be required to repay subsidy amounts 
received through payment subsidy or deferred mortgage assistance. 
Amounts to be recaptured are due and payable when the borrower transfers 
title or ceases to occupy the property.
    (b) Amount to be recaptured. (1) The maximum amount to be recaptured 
is the amount of principal reduction attributed to subsidy and the 
lesser of:
    (i) The amount of subsidy received; or
    (ii) 50 percent of the value appreciation.
    (2) The value appreciation of a property with a cross-collateralized 
loan is based on the market value of the dwelling; and if located on a 
farm, the dwelling and a minimum adequate site.
    (3) Interest reduced from the promissory note rate to six percent 
under the Soldiers and Sailors Relief Act is not subject to recapture.
    (c) Option to defer payment of recapture amounts. (1) Borrowers may 
defer payment of recapture amounts if the loan is repaid, the title does 
not transfer, and the borrower continues to occupy the property.
    (2) The RHS mortgage securing the deferred recapture amount may be 
subordinated to permit refinancing if the RHS mortgage will be 
adequately secured.
    (3) Borrowers eligible to defer recapture may receive a discount on 
the recapture amount due if the recapture amount is paid along with the 
final payment, or in the case of a final installment, within 60 days of 
the date RHS notifies the borrower that recapture may be due.
    (d) Borrower ceases to occupy the property. When a borrower ceases 
to occupy a property:
    (1) The borrower may pay the recapture amount in full or reamortize 
the existing loan to include the recapture amount.
    (2) If the borrower does not pay the recapture amount or consent to 
reamortization within 30 days, RHS may proceed with foreclosure.
    (e) Assumed loans. (1) When a loan subject to recapture is assumed 
under new rates and terms, the recapture amount may be paid in full by 
the seller or included in the principal amount assumed by the buyer.
    (2) When a loan is assumed under the terms of the promissory note, 
recapture amounts will not be due. When the new borrower transfers title 
or ceases to occupy the property, all subsidy subject to recapture 
before and after the assumption is due.
    (3) When a borrower has deferred payment of recapture amounts, the 
deferred recapture amount may be included in the principal amount of the 
new loan.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.162 
was amended by revising paragraph (b)(2), effective Jan. 23, 2003. For 
the convenience of the user the revised text follows:

Sec. 3550.162  Recapture.

                                * * * * *

    (b) * * *
    (2) The value appreciation of property with a cross-collateralized 
loan is based on the market value of the dwelling and lot. If located on 
a farm, the lot size would be a typical lot for a single family housing 
property.

                                * * * * *

[[Page 411]]



Sec. 3550.163  Transfer of security and assumption of indebtedness.

    (a) General policy. RHS mortgages contain due-on-sale clauses that 
generally require RHS consent before title to a security property can be 
transferred with an assumption of the indebtedness. If it is in the best 
interest of the Government, RHS will approve the transfer of title and 
assumption of indebtedness on program or nonprogram (NP) terms, 
depending on the transferee's eligibility and the property's 
characteristics.
    (b) RHS approval of assumptions. (1) A borrower with a loan on 
program terms who wishes to transfer a security property restricted by a 
due-on-sale clause to a purchaser who wishes to assume the debt must 
receive prior authorization from RHS. If RHS authorizes the transfer and 
assumption, the account will be serviced in the purchaser's name and the 
purchaser will be liable for the loan under the terms of the security 
instrument.
    (2) If a borrower sells a security property with a due-on-sale 
clause without obtaining RHS authorization, RHS will not approve 
assumption of the indebtedness, and the loan will be liquidated unless 
RHS determines that it is in the Government's best interest to continue 
the loan. If RHS decides to continue the loan, the account will be 
serviced in the original borrower's name and the original borrower will 
remain liable for the loan under the terms of the security instrument.
    (c) Exceptions to due-on-sale clauses. (1) Due-on-sale clauses are 
not triggered by the following types of transfers:
    (i) A transfer from the borrower to a spouse or children not 
resulting from the death of the borrower.
    (ii) A transfer to a relative, joint tenant, or tenant by the 
entirety resulting from the death of the borrower.
    (iii) A transfer to a spouse or ex-spouse resulting from a divorce 
decree, legal separation agreement, or property settlement agreement.
    (iv) A transfer to a person other than a deceased borrower's spouse 
who wishes to assume the loan for the benefit of persons who were 
dependent on the deceased borrower at the time of death, if the dwelling 
will be occupied by one or more persons who were dependent on the 
borrower at the time of death, and there is a reasonable prospect of 
repayment.
    (v) A transfer into an inter vivos trust in which the borrower does 
not transfer rights of occupancy in the property.
    (2) A transferee who obtains property through one of the types of 
transfer listed in paragraph (c)(1) of this section:
    (i) Is not required to assume the loan, and RHS is not permitted to 
liquidate the loan, if the transferee continues to make scheduled 
payments and meet all other obligations of the loan. A transferee who 
does not assume the loan is not eligible for payment assistance or a 
moratorium.
    (ii) May assume the loan on the rates and terms contained in the 
promissory note, with no down payment. If the account is past due at the 
time an assumption is executed, the account may be brought current by 
using any of the servicing methods discussed in subpart E of this part.
    (iii) May assume the loan under new rates and terms if the 
transferee applies and is program-eligible.
    (3) Any subsequent transfer of title, except upon death of the 
inheritor or between inheritors to consolidate title, will be treated as 
a sale.
    (d) Requirements for an assumption. (1) Loans secured by program-
eligible properties to be assumed by program-eligible purchasers may be 
assumed on program terms. Loans secured by nonprogram properties and 
loans to be assumed by purchasers who are not eligible for program terms 
may be assumed on NP terms.
    (2) The amount the transferee will assume will be either the current 
market value less any prior liens and any required down payment, or the 
indebtedness, whichever is less.
    (3) For loans assumed on program terms, the interest rate charged by 
RHS will be the rate in effect at loan approval or loan closing, 
whichever is lower. For loans assumed on nonprogram terms, the interest 
rate will be the rate in effect at the time of loan approval.
    (4) If additional financing is required to purchase the property or 
to make

[[Page 412]]

repairs, RHS may approve a subsequent loan under subparts B or C of this 
part.
    (5) If an appraisal is required for an assumption on new terms, the 
purchaser is responsible for the appraisal fee.
    (6) If all or a portion of the borrower's account balance is 
assumed, the borrower and cosigner, if any, will be released from 
liability on the amount of the indebtedness assumed. If an account 
balance remains after the assumption, RHS may pursue debt settlement in 
accordance with subpart F of this part.
    (7) Unless it is in the Government's best interest, RHS will not 
approve an assumption of a secured loan if the seller fails to repay any 
unsecured RHS loan.
    (8) If a loan is secured by a property with a dwelling situated on 
more than a minimum adequate site and the excess property cannot be sold 
separately as a minimum adequate site for another dwelling, RHS may 
approve a transfer of the entire property. If the excess property can be 
sold separately as a minimum adequate site, RHS will approve assumption 
of only the dwelling and the minimum adequate site. If the value of the 
dwelling on the minimum adequate site is less than the amount of the 
outstanding RHS debt, the remaining debt will be secured by the excess 
property. The outstanding debt will be converted to an NP loan and 
reamortized over a period not to exceed 10 years or the final due date 
of the original promissory note, whichever is sooner.

    Effective Date Note: At 67 FR 78331, Dec. 24, 2002, Sec. 3550.163 
was amended in the first sentence of paragraph (b)(2) by revising the 
words ``sells a'' to read ``transfers title to the'', effective Jan. 23, 
2003.



Sec. 3550.164  Unauthorized assistance.

    (a) Definition. Unauthorized assistance includes any loan, payment 
subsidy, deferred mortgage payment, or grant for which the recipient was 
not eligible.
    (b) Unauthorized assistance due to false information. (1) False 
information includes information that the recipient knew was incorrect 
or should have known was incorrect that was provided or omitted for the 
purposes of obtaining assistance for which the recipient was not 
eligible.
    (2) If the recipient receives an unauthorized loan due to false 
information, RHS will adjust the account using the NP interest rate that 
was in effect when the loan was approved. The recipient must pay the 
account in full within 30 days.
    (3) If the recipient receives unauthorized subsidy due to false 
information, RHS will require the recipient to repay it within 30 days. 
The account cannot be reamortized to include the unauthorized subsidy. 
If the recipient repays the unauthorized subsidy, the loan may be 
continued.
    (c) Unauthorized assistance due to inaccurate information. (1) 
Inaccurate information includes incorrect information inadvertently 
provided, used, or omitted without the intent to obtain benefits for 
which the recipient was not eligible.
    (2) RHS will permit a recipient who receives an unauthorized loan 
due to inaccurate information to retain the loan under the following 
conditions.
    (i) If the inaccurate information was related to the purpose of the 
loan or the recipient's eligibility, with the exception of income, or 
the income used was incorrect, but the recipient still qualified as 
income-eligible, RHS will allow the recipient to continue the loan on 
existing terms.
    (ii) If a section 502 recipient's income was above the moderate-
income level, RHS will convert the loan to an NP loan, using the 
nonprogram interest rate in effect on the date the loan was approved.
    (iii) If a section 504 recipient's income was above the very low-
income level, RHS will apply the applicable 502 or nonprogram interest 
rate in effect on the date the loan was approved.
    (iv) If an incorrect interest rate was used, RHS will adjust the 
account using the correct interest rate.
    (3) If the recipient receives unauthorized subsidy due to inaccurate 
information, RHS will require the recipient to repay it within 30 days. 
If the recipient cannot repay it within 30 days, the account may be 
reamortized. If the recipient repays the unauthorized subsidy or 
reamortizes the loan, the loan may be continued.

[[Page 413]]

    (d) Unauthorized grants. Recipients may either repay the 
unauthorized assistance in a lump sum or execute a promissory note, 
regardless of whether the unauthorized assistance was due to false or 
inaccurate information. RHS may seek a judgment if the recipient refuses 
to repay the unauthorized assistance.
    (e) Account servicing. RHS will adjust all accounts retroactively to 
establish the amount of unauthorized assistance. If the recipient does 
not repay the unauthorized assistance within 30 days, RHS may accelerate 
the loan. If the unauthorized assistance is due to inaccurate 
information and the recipient is unable to repay within 30 days, RHS may 
reamortize the loan.
    (f) Accounts with no security. If an unauthorized loan or grant is 
unsecured, RHS may seek the best mortgage obtainable.



Secs. 3550.165-3550.199  [Reserved]



Sec. 3550.200  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0166. Public reporting burden for 
this collection of information is estimated to vary from 5 minutes to 3 
hours per response, with an average of 1\1/2\ hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden to the Department of 
Agriculture, Clearance Officer, STOP 7602, 1400 Independence Avenue, 
SW., Washington, DC 20250-7602. You are not required to respond to this 
collection of information unless it displays a currently valid OMB 
control number.

    Effective Date Note: At 67 FR 78332, Dec. 24, 2002, Sec. 3550.200 
was amended by revising the OMB control number ``0575-0166'' to read 
``0575-0172'' and by removing the third sentence, effective Jan. 23, 
2002.



                      Subpart E--Special Servicing



Sec. 3550.201  Purpose of special servicing actions.

    The Rural Housing Service (RHS) may approve special servicing 
actions to reduce the number of borrower failures that result in 
liquidation. Borrowers who have difficulty keeping their accounts 
current may be eligible for one or more available servicing options 
including: payment assistance; delinquency workout agreements that 
temporarily modify payment terms; protective advances of funds for 
taxes, insurance, and other approved costs; payment moratoriums; and 
reamortization of the loan.



Sec. 3550.202  Past due accounts.

    An account is past due if the scheduled payment is not received by 
the due date, or as authorized by State law.
    (a) Late fee. A late fee will be assessed if the full scheduled 
payment is not received by the 15th day after the due date.
    (b) Liquidation--(1) For borrowers with monthly payments. The 
account may be accelerated without further servicing when at least 3 
scheduled payments are past due or an amount equal to at least 2 
scheduled payments is past due for at least 3 consecutive months. In 
such cases RHS may pursue voluntary liquidation and foreclosure.
    (2) For borrowers with annual payments. The account may be 
accelerated without further servicing when at least \3/12\ of 1 
scheduled payment has not been received by its due date. In such cases, 
RHS may pursue voluntary liquidation and foreclosure.



Sec. 3550.203  General servicing actions.

    Whenever any of the servicing actions described in this subpart 
result in reamortization of the account RHS may:
    (a) Require a borrower who currently makes annual payments, but 
receives a monthly income, to convert to monthly payments.
    (b) Require the creation and funding of an escrow account for real 
estate taxes and insurance, if one does not already exist for any 
borrower with monthly payments.

[[Page 414]]

    (c) Convert the method of calculating interest for any account being 
charged daily simple interest to an amortized payment schedule.



Sec. 3550.204  Payment assistance.

    Borrowers who are eligible may be offered payment assistance in 
accordance with subpart B of this part. Borrowers who are not eligible 
for payment assistance because the loan was approved before August 1, 
1968, or the loan was made on above-moderate or nonprogram (NP) terms, 
may refinance the loan in order to obtain payment assistance if:
    (a) The borrower is eligible to receive a loan with payment 
assistance;
    (b) Due to circumstances beyond the borrower's control, the borrower 
is in danger of losing the property; and
    (c) The property is program-eligible.



Sec. 3550.205  Delinquency workout agreements.

    Borrowers with past due accounts may be offered the opportunity to 
avoid liquidation by entering into a delinquency workout agreement that 
specifies a plan for bringing the account current. To receive a 
delinquency workout agreement, the following requirements apply:
    (a) A borrower who is able to do so will be required to pay the 
past-due amount in a single payment.
    (b) A borrower who is unable to pay the past-due amount in a single 
payment must pay monthly all scheduled payments plus an agreed upon 
additional amount that brings the account current within 2 years or the 
remaining term of the loan, whichever is shorter.
    (c) If a borrower becomes more than 30 days past due under the terms 
of a delinquency workout agreement, RHS may cancel the agreement.



Sec. 3550.206  Protective advances.

    RHS may pay for fees or services and charge the cost against the 
borrower's account to protect the Governments interest.
    (a) Advances for taxes and insurance. RHS may advance funds to pay 
real estate taxes, hazard and flood insurance premiums, and other 
related costs, as well as amounts needed to fund the current escrow 
cycle.
    (b) Advances for costs other than taxes and insurance. Protective 
advances for costs other than taxes and insurance, such as emergency 
repairs, will be made only if the borrower cannot obtain a subsequent 
loan.
    (c) Repayment arrangements. (1) Advances for borrowers with multiple 
loans will be charged against the largest loan.
    (2) Amounts advanced will be due with the next scheduled payment. 
RHS may schedule repayment consistent with the borrowers ability to 
repay or reamortize the loan.
    (3) Advances will bear interest at the promissory note rate of the 
loan to which the advance was charged.



Sec. 3550.207  Payment moratorium.

    RHS may defer a borrowers scheduled payments for up to 2 years. NP 
borrowers are not eligible for a payment moratorium.
    (a) Borrower eligibility. For a borrower to be eligible for a 
moratorium, all of the following conditions must be met:
    (1) Due to circumstances beyond the borrower's control, the borrower 
is temporarily unable to continue making scheduled payments because:
    (i) The borrower's repayment income fell by at least 20 percent 
within the past 12 months;
    (ii) The borrower must pay unexpected and unreimbursed expenses 
resulting from the illness, injury, or death of the borrower or a family 
member; or
    (iii) The borrower must pay unexpected and unreimbursed expenses 
resulting from damage to the security property in cases where adequate 
hazard insurance was not available or was prohibitively expensive.
    (2) The borrower occupies the dwelling, unless RHS determines that 
it is uninhabitable.
    (3) The borrower's account is not currently accelerated.
    (b) Reviews of borrower eligibility. (1) Periodically RHS may 
require the borrower to submit financial information to demonstrate that 
the moratorium should be continued. The moratorium may be canceled if:

[[Page 415]]

    (i) The borrower does not respond to a request for financial 
information;
    (ii) RHS receives information indicating that the moratorium is no 
longer required; or
    (iii) In the case of a moratorium granted to pay unexpected or 
unreimbursed expenses, the borrower cannot show that an amount at least 
equal to the deferred payments has been applied toward the expenses.
    (2) At least 30 days before the moratorium is scheduled to expire, 
RHS will require the borrower to provide financial information needed to 
determine whether the borrower is able to resume making scheduled 
payments.
    (c) Resumption of scheduled payments. When the borrower is able to 
resume scheduled payments, the loan will be reamortized to include the 
amount deferred during the moratorium and the borrower will be required 
to escrow. If the new monthly payment, after consideration of the 
maximum amount of payment subsidy available to the borrower, exceeds the 
borrower's repayment ability, all or part of the interest that has 
accrued during the moratorium may be forgiven.
    (d) Borrowers unable to resume scheduled payments. If even after all 
appropriate servicing actions have been taken the borrower is unable to 
resume making scheduled payments after 2 consecutive years of being on a 
moratorium, the account will be liquidated.



Sec. 3550.208  Reamortization using promissory note interest rate.

    Reamortization using the promissory note interest rate may be 
authorized when RHS determines that reamortization is required to enable 
the borrower to meet scheduled obligations, and only if the Government's 
lien priority is not adversely affected.
    (a) Permitted uses. Reamortization at the promissory note interest 
rate may be used to accomplish a variety of servicing actions, including 
to:
    (1) Repay unauthorized assistance due to inaccurate information.
    (2) Repay principal and interest accrued and advances made during a 
moratorium.
    (3) Bring current an account under a delinquency workout agreement 
after the borrower has demonstrated the willingness and ability to meet 
the terms of the loan and delinquency workout agreement and 
reamortization is in the borrower's and Government's best interests.
    (4) Bring a delinquent account current in the case of an assumption 
where the due on sale clause is not triggered as described in 
Sec. 3550.163(c).
    (5) Cover the remaining debt when a portion of the security property 
is being transferred but the acquisition price does not cover the 
outstanding debt. The remaining balance will be reamortized for a period 
not to exceed 10 years or the final due date of the note being 
reamortized, whichever is sooner.
    (b) Payment term of reamortized loan. Except as noted in paragraph 
(a)(6) of this section, the term of the reamortized loan may be extended 
to the maximum term for which the borrower was eligible at the time the 
loan was originally made, less the number of years the loan has been 
outstanding. In all cases, the term must not exceed the remaining 
security life of the property.

    Effective Date Note: At 67 FR 78332, Dec. 24, 2002, Sec. 3550.208 
was amended by revising in paragraph (b) the reference to ``paragraph 
(a)(6)'' to read ``paragraph (a)(5)'' and by adding a new paragraph 
(a)(6), effective Jan. 23, 2003. For the convenience of the user the 
added text follows:

Sec. 3550.208  Reamortization using promissory note interest rate.

                                * * * * *

    (a) * * *
    (6) Bring an account current where the National Appeals Division 
(NAD) reverses an adverse action, the borrower has adequate repayment 
ability, and RHS determines the reamortization is in the best interests 
of the Government and the borrower.

                                * * * * *



Sec. 3550.209  [Reserved]



Sec. 3550.210  Offsets.

    Any money that is or may become payable from the United States to an 
RHS borrower may be subject to administrative, salary, or Internal 
Revenue Service (IRS) offsets for the collection of a debt owed to RHS.
    (a) IRS offset. RHS may take action to effect offset of claims due 
RHS

[[Page 416]]

against tax refunds due to RHS debtors under 31 U.S.C. 3720a and 31 CFR 
285.2.
    (b) Salary offset. Offset of claims due to RHS may be collected 
pursuant to the salary offset provisions in 7 CFR part 3, subpart C for 
a federal employee or other persons covered in that subpart.
    (c) Administrative offset. RHS may take action to effect 
administrative offset to recover delinquent claims due to it in 
accordance with the procedures in 7 CFR part 3, subpart B.
    (d) Offset by other federal agencies. Escrow funds and loan and 
grant funds held or payable by RHS are not subject to offset by other 
federal agencies.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 69672, Nov. 19, 2002]



Sec. 3550.211  Liquidation.

    (a) Policy. When RHS determines that a borrower is unable or 
unwilling to meet loan obligations, RHS may accelerate the loan and, if 
necessary, acquire the security property. The borrower is responsible 
for all expenses associated with liquidation and acquisition. If the 
account is satisfied in full, the borrower will be released from 
liability. If the account is not satisfied in full, RHS may pursue any 
deficiency unless the borrower received a moratorium at any time during 
the life of the loan and faithfully tried to repay the loan.
    (b) Tribal allotted or trust land. Liquidations involving a security 
interest in tribal allotted or trust land shall only be pursued after 
offering to transfer the account to an eligible tribal member, the 
tribe, or the Indian Housing Authority. Forced liquidation of RHS 
security interests in Indian trust lands or on tribal allotted land will 
be recommended only after the State Director has determined it is in the 
best interest of the Government.
    (c) Acceleration and foreclosure. If RHS determines that foreclosure 
is in the best interest of the Government, RHS will send an acceleration 
notice to each borrower and any cosigner. If the borrower does not pay 
the full account balance and meet the other terms of the loan within 30 
days of acceleration, RHS may foreclose. RHS will not accept partial 
payment of an accelerated loan unless required to accept the payment by 
State law.
    (d) Voluntary liquidation. Borrowers may voluntarily liquidate 
through:
    (1) Refinancing or sale. The borrower may refinance or sell the 
security property for at least net recovery value and apply the proceeds 
to the account.
    (2) Deed in lieu of foreclosure. RHS may accept a deed in lieu of 
foreclosure to convey title to the security property only after the debt 
has been accelerated and when it is in the Government's best interest.
    (3) Offer by third party. If a junior lienholder or cosigner makes 
an offer in the amount of at least the net recovery value, RHS may 
assign the note and mortgage.
    (e) Bankruptcy. (1) When a petition in bankruptcy is filed by a 
borrower after acceleration, collection actions and foreclosure actions 
are suspended in accordance with the provisions of the Bankruptcy Code.
    (2) RHS may accept conveyance of security property by the trustee in 
bankruptcy if the Bankruptcy Court has approved the transaction, RHS 
determines the conveyance is in the best interest of the Government, and 
RHS will acquire title free of all liens and encumbrances except RHS 
liens.
    (3) Whenever possible in a Chapter 7 Bankruptcy, a reaffirmation 
agreement will be signed by the borrower and approved by the court prior 
to discharge, if RHS decides to continue with the borrower.
    (f) Junior lienholder foreclosure. When a junior lienholder 
foreclosure does not result in payment in full of the RHS debt but the 
property is sold subject to the RHS lien, RHS may liquidate the account 
unless the new owner is eligible to assume the RHS debt and actually 
assumes the RHS debt.
    (g) Payment subsidy. If the borrower is receiving payment subsidy, 
the payment subsidy agreement will not be canceled when the debt is 
accelerated, but will not be renewed unless the account is reinstated.
    (h) Eligibility for special servicing actions. A borrower is not 
eligible for special servicing actions once the account has been 
accelerated.

[[Page 417]]

    (i) Reporting. RHS may report to IRS and credit reporting agencies 
any debt settled through liquidation.

    Effective Date Note: At 67 FR 78332, Dec. 24, 2002, Sec. 3550.211 
was amended in paragraph (c) by removing the last two sentences, 
effective Jan. 23, 2003.



Secs. 3550.212-3550.249  [Reserved]



Sec. 3550.250  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0166. Public reporting burden for 
this collection of information is estimated to vary from 5 minutes to 3 
hours per response, with an average of 1\1/2\ hours per response, 
including time for reviewing insurrections, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden to the Department of 
Agriculture, Clearance Officer, STOP 7602, 1400 Independence Avenue, 
SW., Washington, DC 20250-7602. You are not required to respond to this 
collection of information unless it displays a currently valid OMB 
control number.

    Effective Date Note: At 67 FR 78332, Dec. 24, 2002, Sec. 3550.250 
was amended by revising the OMB control number ``0575-0166'' to read 
``0575-0172'' and by removing the third sentence, effective Jan. 23, 
2003.



                    Subpart F--Post-Servicing Actions



Sec. 3550.251  Property management and disposition.

    (a) Policy. Rural Housing Service (RHS) will manage custodial 
property and Real Estate Owned (REO) property to protect the 
Government's interest, and may dispose of REO property through direct 
sales, sealed bid, or auction. RHS will follow affirmative fair housing 
marketing policies.
    (b) Custodial property. RHS may take custodial possession of 
security property that has been abandoned, or for other reasons 
necessary to protect the Government's security. After taking custodial 
possession of a security property, RHS may maintain and repair the 
security property as needed to protect the Government's interest, pay 
required real estate taxes and assessments, and secure personal property 
left on the premises. Expenses will be charged to the borrower's 
account. Custodial property may be leased when it is in the Government's 
best interest and in such cases the borrower's account will be credited 
for income from the security property.
    (c) REO property--(1) Classification. When RHS takes title to a 
security property, it is classified as either program or nonprogram (NP) 
property. An REO property that is eligible for financing under the 
section 502 program, or which could reasonably be repaired to be 
eligible, is classified as program property. An REO property that cannot 
reasonably be repaired to be eligible as section 502 property, and 
property that has been improved to a point that it will no longer 
qualify as modest under section 502, is classified as NP property.
    (2) Disclosing decent, safe, and sanitary defects. When RHS 
determines that an REO property to be sold is not decent, safe, and 
sanitary, or does not meet cost-effective energy conservation standards, 
it will disclose the reasons why. The deed by which such an REO property 
is conveyed will contain a covenant restricting it from residential use 
until it is decent, safe, and sanitary and meets the RHS cost-effective 
energy conservation standards. RHS will also notify any potential 
purchaser of any known lead-based paint hazards.
    (3) Property on Indian tribal allotted or trust land. REO property 
which is located on Indian tribal allotted or trust land, will be sold 
or otherwise disposed of only to a member of the particular tribe having 
jurisdiction over the allotted or tribal land, to the tribe, or to an 
Indian housing authority serving the tribe on a first-come, first-served 
basis.
    (4) Reservation of program REO properties. (i) Program REO 
properties are reserved for program-eligible applicants and nonprofit 
organizations or public bodies providing transitional housing during the 
first 60 days after the date of the first notice of sale, and

[[Page 418]]

during the first 30 days following any reduction in price or any other 
change in credit terms or other sale terms. After the expiration of a 
reservation period, program REO properties can be bought by any buyer.
    (ii) An offer on a program REO property from a buyer who does not 
qualify for a section 502 program loan may be submitted during a 
reservation period, but is considered to have been received on the day 
after the reservation period ends.
    (iii) No offer is considered until 3 business days after the date 
the property is offered for sale. An offer received during the 3-day 
holding period is not considered until the 4th day, and is evaluated 
with any other offers actually received on the 4th day.
    (5) Priority of offers received the same day. (i) Offers received on 
the same business day are selected in the following order:
    (A) Offers from program-eligible applicants, with a request for 
credit on program terms. All offers are evaluated as if they were 
submitted at the listed price, regardless of the offering price.
    (B) Offers from nonprofits or public bodies for conversion to use as 
transitional housing or for other special purposes as specified in 
paragraph (d)(4)of this section.
    (C) Cash offers, from highest to lowest.
    (D) NP credit offers, from highest to lowest.
    (ii) Acceptable offers of equal priority received on the same 
business day are selected by lot.
    (iii) REO properties are not held off the market pending the outcome 
of an appeal of RHS rejection of a request for financing.
    (6) Sale by sealed bid or auction. RHS may authorize the sale of an 
REO property by sealed bid or public auction when it is in the best 
interest of the Government. RHS will publicly solicit requests for 
sealed bids and publicize auctions. If a successful bidder is unable to 
settle the transaction under the terms of the offer, except for the 
financing contingency, any required bid deposit may be retained by RHS. 
If the highest bid is lower than the minimum acceptable bid established 
by RHS, or if no acceptable bids are received, RHS may negotiate a sale 
without further public notice.
    (d) Special purposes. (1) REO property may be purchased for 
conversion to multiple family housing.
    (2) When a nonprofit organization or public body notifies RHS in 
writing of its intent to buy an REO property to provide transitional 
housing for the homeless, RHS may withdraw the property from the market 
for up to 30 days to give the entity an opportunity to execute a 
purchase contract. The listed price may be discounted for offers on a 
nonprogram REO property at any time, and on a program REO property after 
the 60-day reservation period. No down payment is required, and the loan 
term will be for a maximum of 30 years. Until RHS executes a sales 
agreement, an offer from a program-eligible applicant will receive 
priority, regardless of a nonprofit's interest in purchasing the REO 
property for use as transitional housing.
    (3) NP properties may be leased to a nonprofit organization or 
public body to provide transitional housing for the homeless at an 
annual cost of one dollar. When an REO property is to be leased as 
transitional housing, RHS will make repairs needed to put the property 
in decent, safe, and sanitary condition. The lessee is responsible for 
all future repairs and maintenance.
    (4) REO property may be sold under special provisions to nonprofit 
organizations or public bodies for the purpose of providing affordable 
housing to very low- and low-income families.

    Effective Date Note: At 67 FR 78332, Dec. 24, 2002, Sec. 3550.251 
was amended in paragraph (c)(5)(i)(A) by revising the words ``program-
eligible applicants'' to read ``eligible direct or guaranteed single 
family housing loan applicants'' and by revising paragraphs (c)(4)(i) 
and (c)(4)(ii), effective Jan. 23, 2003. For the convenience of the 
user, the revised text follows:

Sec. 3550.251  Property management and disposition.

                                * * * * *

    (c) * * *
    (4) * * *
    (i) Program REO properties are reserved for eligible direct or 
guaranteed single family housing loans under this part or part 1980,

[[Page 419]]

subpart D of this title and nonprofit organizations or public bodies 
providing transitional housing during the first 60 days after the date 
of the first notice of sale, and during the first 30 days following any 
reduction in price or any other change in credit terms or other sale 
terms. After the expiration of a reservation period, program REO 
properties can be bought by any buyer.
    (ii) An offer on a program REO property from a buyer who does not 
qualify for a direct or guaranteed single family housing loan may be 
submitted during a reservation period, but is considered to have been 
received on the day after the reservation period ends.

                                * * * * *



Sec. 3550.252  Debt settlement policies.

    (a) Applicability. Debt settlement procedures may be initiated to 
collect any amounts due to RHS including:
    (1) Balances remaining on loan accounts after all liquidation 
proceeds or credits have been applied;
    (2) Subsidy recapture or grant amounts due; and
    (3) Unauthorized assistance due.
    (b) Judgment. RHS may seek a judgment whenever a judgment might 
enable RHS to collect all or a significant portion of an amount owed.
    (c) Multiple loans. RHS does not settle debts for one loan while 
other RHS loans on the same security property remain active.
    (d) Cosigners and claims against estates. RHS may use any and all 
remedies available under law to collect from any cosigner and from a 
deceased borrower's estate.
    (e) Reporting. RHS will report to the Internal Revenue Service and 
credit reporting agencies any debt settled through cancellation, 
compromise, or adjustment.
    (f) Settlement during legal or investigative action. Cases that are 
under investigation for fiscal irregularity or have been referred to the 
Office of the Inspector General, the Office of the General Counsel, or 
the U.S. Attorney will not be considered for debt settlement until final 
action by the investigating or prosecuting entity has been taken.
    (g) Offsets. RHS may request offsets as described in Sec. 3550.210 
to collect amounts owed.
    (h) Escrow funds. At liquidation all funds held in escrow or 
unapplied funds will be applied against the debt.



Sec. 3550.253  Settlement of a debt by compromise or adjustment.

    Compromise or adjustment offers may be initiated by the debtor or by 
RHS. RHS will approve only those compromises and adjustments that are in 
the best interest of the Government.
    (a) Compromise. A compromise is an agreement by RHS to release a 
debtor from liability upon receipt of a specified lump sum that is less 
than the total amount due.
    (b) Adjustments. An adjustment is an agreement by RHS to release a 
debtor from liability generally upon receipt of an initial lump sum 
representing the maximum amount the debtor can afford to pay and 
periodic additional payments over a period of up to 5 years.
    (c) Timing of offers. (1) For a settlement offer to be considered, 
secured debts must be fully matured under the terms of the debt 
instrument or must have been accelerated by RHS.
    (2) Unsecured debts owed after the sale of the security property may 
be proposed for compromise or adjustment at any time. Debts that were 
never secured may be proposed for compromise or adjustment when they are 
due and payable.
    (d) Retention of security property. The debtor may retain the 
security property if the compromise payment is at least equal to the net 
recovery value, and it is in the best interest of the Government to 
allow the debtor to retain the security property.



Secs. 3550.254-3550.299  [Reserved]



Sec. 3550.300  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0166. Public reporting burden for 
this collection of information is estimated to vary from 5 minutes to 3 
hours per response, with an average of 1\1/2\ hours per response, 
including time for review instructions, searching existing data sources, 
gathering and

[[Page 420]]

maintaining the data needed, and completing and reviewing the collection 
of information. Send comments regarding this burden estimate or any 
other aspect of this collection of information, including suggestions 
for reducing this burden to the Department of Agriculture, Clearance 
Officer, STOP 7602, 1400 Independence Avenue, SW., Washington, DC 20250-
7602.

    Effective Date Note: At 67 FR 78332, Dec. 24, 2002, Sec. 3550.300 
was amended by revising the OMB control number ``0575-0166'' to read 
``0575-0172'' and by removing the third sentence, effective Jan. 23, 
2003.



PART 3565--GUARANTEED RURAL RENTAL HOUSING PROGRAM--Table of Contents




                      Subpart A--General Provisions

Sec.
3565.1  Purpose.
3565.2  Applicability and authority.
3565.3  Definitions.
3565.4  Availability of assistance.
3565.5  Ranking and selection criteria.
3565.6  Inclusion of tax-exempt debt.
3565.7  Agency environmental requirements.
3565.8  Civil rights compliance.
3565.9  Compliance with federal requirements.
3565.10  Conflict of interest.
3565.11-3565.12  [Reserved]
3565.13  Exception authority.
3565.14  Review and appeals.
3565.15  Oversight and monitoring.
3565.16  [Reserved]
3565.17  Demonstration programs.
3565.18-3565.49  [Reserved]
3565.50  OMB control number.

                    Subpart B--Guarantee Requirements

3565.51  Eligible loans and advances.
3565.52  Extent of the guarantee.
3565.53  Guarantee fees.
3565.54  Transferability of the guarantee.
3565.55  Participation loans.
3565.56  Suspension or termination of loan guarantee agreement.
3565.57  Modification, extension, reinstatement of loan guarantee.
3565.58-3565.99  [Reserved]
3565.100  OMB control number.

                     Subpart C--Lender Requirements

3565.101  Responsibility of lenders.
3565.102  Lender eligibility.
3565.103  Approval requirements.
3565.104  Application requirements.
3565.105  Lender compliance.
3565.106  Construction lender requirements.
3565.107  [Reserved]
3565.108  Responsibility for actions of agents and mortgage brokers.
3565.109  Minimum loan prohibition.
3565.110  Insolvency of lender.
3565.111  Lobbying activities.
3565.112-3565.149  [Reserved]
3565.150  OMB control number.

              Subpart D--Borrower Eligibility Requirements

3565.151  Eligible borrowers.
3565.152  Control of land.
3565.153  Experience and capacity of borrower.
3565.154  Previous participation in state and federal programs.
3565.155  Identity of interest.
3565.156  Certification of compliance with federal, state, and local 
          laws and with Agency requirements.
3565.157-3565.199  [Reserved]
3565.200  OMB control number.

                      Subpart E--Loan Requirements

3565.201  General.
3565.202  Tenant eligibility.
3565.203  Restrictions on rents.
3565.204  Maximum loan amount.
3565.205  Eligible uses of loan proceeds.
3565.206  Ineligible uses of loan proceeds.
3565.207  Form of lien.
3565.208  Maximum loan term.
3565.209  Loan amortization.
3565.210  Maximum interest rate.
3565.211  Interest credit.
3565.212  Multiple guaranteed loans.
3565.213  Geographic distribution.
3565.214  [Reserved]
3565.215  Special conditions.
3565.216-3565.249  [Reserved]
3565.250  OMB control number.

                    Subpart F--Property Requirements

3565.251  Eligible property.
3565.252  Housing types.
3565.253  Form of ownership.
3565.254  Property standards.
3565.255  Environmental requirements.
3565.256  Architectural services.
3565.257  Procurement actions.
3565.258-3565.299  [Reserved]
3565.300  OMB control number.

                   Subpart G--Processing Requirements

3565.301  Loan standards.
3565.302  Allowable fees.
3565.303  Issuance of loan guarantee.
3565.304  Lender loan processing responsibilities.
3565.305  Mortgage and closing requirements.
3565.306-3565.349  [Reserved]
3565.350  OMB control number.

[[Page 421]]

                      Subpart H--Project Management

3565.351  Project management.
3565.352  Preservation of affordable housing.
3565.353  Affirmative fair housing marketing.
3565.354  Fair housing accommodations.
3565.355  Changes in ownership.
3565.356-3565.399  [Reserved]
3565.400  OMB control number.

                    Subpart I--Servicing Requirements

3565.401  Servicing objectives.
3565.402  Servicing responsibilities.
3565.403  Special servicing.
3565.404  Transfer of mortgage servicing.
3565.405-3565.449  [Reserved]
3565.450  OMB control number.

              Subpart J--Assignment, Conveyance, and Claims

3565.451  Preclaim requirements.
3565.452  Decision to liquidate.
3565.453  Disposition of the property.
3565.454  [Reserved]
3565.455  Alternative disposition methods.
3565.456  Filing a claim.
3565.457  Determination of claim amount.
3565.458  Withdrawal of claim.
3565.459-3565.499  [Reserved]
3565.500  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

    Source: 63 FR 39458, July 22, 1998, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 3565.1  Purpose.

    The purpose of the Guaranteed Rural Rental Housing Program (GRRHP) 
is to increase the supply of affordable rural rental housing, through 
the use of loan guarantees that encourage partnerships between the Rural 
Housing Service, private lenders and public agencies.



Sec. 3565.2  Applicability and authority.

    The regulation prescribes the policies, authorizations, and 
procedures for the guarantee of multifamily loans under section 538 of 
the Housing Act of 1949.



Sec. 3565.3  Definitions.

    Administrator. The Administrator of the Rural Housing Service, or 
his or her designee.
    Agency. The Rural Housing Service, or a successor agency.
    Allowable claim amount. The total losses incurred by the lender, as 
calculated pursuant to subpart J of this part.
    Applicable Federal Rate (AFR). The interest rate set by the federal 
government for federal financing programs pursuant to section 42 of the 
Internal Revenue Code.
    Approved lender. An eligible lender who has been authorized by the 
Agency to originate and service guaranteed multifamily loans under the 
program.
    Assignment. The delivery by a lender to the Agency of the note and 
any other security instruments securing the guaranteed loan; and any and 
all liens, interest, or claims the lender may have against the borrower.
    Assistance. Financial assistance in the form of a loan guarantee or 
interest credit received from the Agency.
    Borrower. The individuals or entities responsible for repaying the 
loans.
    Claim. The presentation to the Agency of a demand for payment for 
losses incurred on a loan guaranteed under the program.
    Combination construction and permanent loan. The Agency may 
guarantee a construction contract which has credit enhancements to 
protect the Government's interest. The construction guarantee will be 
converted to a permanent guarantee when construction is completed and 
the requirements contained in the conditional commitment are met.
    Conditional commitment. The written commitment by the Agency to 
guarantee a loan subject to the stated terms and conditions.
    Correspondent relationship. A contractual relationship between an 
approved lender and a non-approved lender or mortgage broker in which 
the correspondent performs certain origination, underwriting or 
servicing functions for the approved lender.
    Default. Failure by a borrower to meet any obligation or term of a 
loan, grant, or regulatory agreement, or any program requirement.
    Delinquency. Failure to make a timely payment under the terms of the 
promissory note or regulatory agreement.
    Department of Housing and Urban Development (HUD). A federal agency

[[Page 422]]

which may be a partner in some of the Agency guarantees.
    Due diligence. The process of evaluating real estate in the context 
of a real estate transaction for the presence of contamination from 
release of hazardous substances, petroleum products, or other 
environmental hazards and determining what effect, if any, the 
contamination has on the regulatory status or security value of the 
property.
    Eligible borrower. A borrower who meets the requirements of subpart 
D of this part.
    Eligible lender. A lender who meets the requirements of subpart C of 
this part or any successor regulation.
    Eligible loan. A loan that meets the requirements of subpart E of 
this part or any successor regulation.
    Eligible rural area. An eligible rural area is an area which meets 
the requirements of part 3550 of this chapter or any successor 
regulation.
    Fannie Mae. A Federally chartered, publicly owned enterprise created 
by Congress to purchase, sell or otherwise facilitate the purchase or 
sale of mortgages in the secondary mortgage market.
    Federal Home Loan Bank System. A system of member savings and loans, 
banks and other lenders whose primary business is the making of housing 
loans.
    Final claim payment. The amount due to the lender (or the Agency) 
after disposition of the collateral is complete and the proceeds from 
liquidation, as well as any other claim payments, are applied against 
the allowable claim amount.
    Foreclosure. The process by which the ownership interest of a 
borrower in a mortgaged property is extinguished and the security is 
liquidated with the proceeds applied to the loan.
    Freddie Mac. A Federally chartered, publicly owned enterprise 
created to purchase, sell or otherwise facilitate the purchase or sale 
of mortgages in the secondary mortgage market.
    GRRHP. Guaranteed Rural Rental Housing Program.
    Guarantee fees. The fees paid by the lender to the Agency for the 
loan guarantee.
    (1) An initial guarantee fee is due at the time the guarantee is 
issued.
    (2) An annual guarantee fee is due at the beginning of each year 
that the guarantee remains in effect.
    Guaranteed loan. Any loan for which the Agency provides a loan 
guarantee.
    Housing Finance Agency (HFA). A state or local government 
instrumentality authorized to issue housing bonds or otherwise provide 
financing for housing. Identity of interest. With respect to a project, 
an actual or apparent financial interest of any type, that exists or 
will exist among the borrower, contractor, lender, syndicator, 
management agent, suppliers of materials or services, including 
professional services, or vendors (including servicing and property 
disposal), in any combination of relationships which may result in an 
actual or perceived conflict of interest
    Income eligibility. A determination that the income of a tenant at 
initial occupancy does not exceed 115 percent of the area median income 
as such area median income is defined by HUD or a successor agency.
    Indian tribe. Any Indian tribe, band, nation, or other organized 
group or community of Indians, including any Alaska Native village or 
regional or village corporation, as defined by or established pursuant 
to the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.), 
that is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians pursuant to the Indian Self-Determination and Education 
Assistance Act of 1975 (25 U.S.C. 450 et seq.); or any entity 
established by the governing body of an Indian tribe, as described in 
this definition, for the purpose of financing economic development.
    Interest credit. A subsidy available to eligible borrowers that 
reduces the effective interest rate of the loan to the AFR.
    Land lease. A written agreement between a landowner and a borrower 
for the possession and use of real property for a specified period of 
time.
    Lease. A contract containing the rights and obligations of a tenant 
or cooperative member and a borrower, including the amount of the 
monthly occupancy charge and other terms

[[Page 423]]

under which the tenant will occupy the housing.
    Lender. A bank or other financial institution, including a housing 
finance agency, that originates or services the guaranteed loan.
    Lender agreement. The written agreement between the Agency and the 
lender containing the requirements the lender must meet on a continuing 
basis to participate in the program.
    Loan. A mechanism by which a lender funds the acquisition and 
development of a multifamily project. A loan in this context is secured 
by a mortgage executed by the lender and borrower.
    Loan guarantee. A pledge to pay part of the loss incurred by a 
lender in the event of default by the borrower.
    Loan guarantee agreement. The written agreement between the Agency 
and the lender containing the terms and conditions of the guarantee with 
respect to an individual loan.
    Loan participation. A loan made by more than one lender wherein each 
lender funds an individual portion of the loan.
    Loan-to-value ratio. The amount of the loan divided by the appraised 
market value of the project.
    Maximum guarantee payment. The maximum payment by the Agency under 
the guarantee agreement computed by applying the guarantee percentage 
times the allowable claim amount, but not to exceed original principal 
amount.
    Mortgage. A written instrument evidencing or creating a lien against 
real property for the purpose of providing collateral to secure the 
repayment of a loan. For program purposes, this may include a deed of 
trust or any similar document.
    Multifamily project. A project designed with five or more living 
units.
    NOFA. A ``Notice of Funding Availability'' published in the Federal 
Register to inform interested parties of the availability of assistance 
and other non-regulatory matters pertinent to the program.
    Non-monetary default. A default that does not involve the payment of 
money.
    Note. Any note, bond, assumption agreement, or other evidence of 
indebtedness pertaining to a guaranteed loan.
    Office of Inspector General (OIG). The agency of USDA established 
under the Inspector General Act.
    Payment effective date. For the month payment is due, the day of the 
month on which payment will be effectively applied to the account by the 
lender, regardless of the date payment is received.
    Permanent loan. A loan that becomes effective upon Agency acceptance 
of a lender certification of an acceptable minimum level of occupancy.
    Prepayment. The payment of the outstanding balance on a loan prior 
to the note's maturity date.
    Project. The total number of rental housing units and related 
facilities subject to a guaranteed loan that are operated under one 
management plan and one Regulatory Agreement.
    Program requirements. Any requirements contained in any loan 
document, guarantee agreement, statute, regulation, handbook, or 
administrative notice.
    Promissory note. See ``Note''.
    Qualified alien. For the purposes of this part, qualified alien 
refers to any person lawfully admitted into the country who meets the 
criteria of 42 U.S.C. 1436a.
    Real estate owned. Denotes real estate that has been acquired by the 
lender or the Agency (often known as ``inventory property'').
    Recourse. The lender's right to seek satisfaction from the 
borrower's personal financial resources or other resources for monetary 
default.
    Regulatory agreement. The agreement that establishes the 
relationship among the Agency, the lender, and the borrower; and 
contains the borrower's responsibilities with respect to all aspects of 
the management and operation of the project.
    RHS. The Rural Housing Service within the Rural Development mission 
area, or a successor agency, which administers section 538 guarantees.
    Rural area. A geographic area as defined in section 520 of the 
Housing Act of 1949.
    Rural Development. A mission area within USDA which includes RHS,

[[Page 424]]

Rural Utilities Service, and Rural Business-Cooperative Service.
    Servicing. The broad scope of activities undertaken to manage the 
performance of a loan throughout its term and to assure compliance with 
the program requirements.
    Single asset ownership. A borrower who owns only one project.
    Surplus cash. The borrower's remaining funds at the project's fiscal 
year end, after making all required payments, excluding required 
reserves and escrows.
    Tenant. The individual that holds the right to occupy a unit in 
accordance with the terms of a lease executed with the project owner.
    U.S. citizen. An individual who resides as a citizen in any of the 
50 States, the District of Columbia, the Commonwealth of Puerto Rico, 
the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the 
Northern Marinas, the Federated States of Micronesia, the Republic of 
Palau, or the Republic of the Marshall Islands.
    USDA. The United States Department of Agriculture.

[63 FR 39458, July 22, 1998, as amended at 67 FR 16970, April 9, 2002]



Sec. 3565.4  Availability of assistance.

    The Agency's authority to enter into commitments, guarantee loans, 
or provide interest credits is limited to the extent that appropriations 
are available to cover the cost of the assistance. The Agency will 
publish a NOFA in the Federal Register to notify interested parties of 
the availability of assistance.



Sec. 3565.5  Ranking and selection criteria.

    (a) Threshold criteria. Applications for loan guarantee submitted by 
lenders must include a loan request for a project that meets all of the 
following threshold criteria:
    (1) The project must involve an owner and a development team with 
qualifications and experience sufficient to carry out development, 
management, and ownership responsibilities, and the owner and 
development team must not be under investigation or suspension from any 
government programs;
    (2) The project must involve the financing of a property located in 
an eligible rural area;
    (3) Demonstrate a readiness, for the project to proceed, including 
submission of a complete application for a loan guarantee and evidence 
of financing;
    (4) Demonstrate market and financial feasibility; and
    (5) Include evidence that the credit risk is reasonable, taking into 
account conventional lending practices, and factors related to 
concentration of risk in a given market and with a given borrower.
    (b) Priority projects. Priority will be given to projects: in 
smaller rural communities, in the most needy communities having the 
highest percentage of leveraging, having the lowest interest rate, 
having the highest ratio of 3-5 bedroom units to total units, or located 
in Empowerment Zones/Enterprise Communities or on tribal lands. In 
addition, the Agency may, at its sole discretion, set aside assistance 
for or rank projects that meet important program goals. Assistance will 
include both loan guarantees and interest credits. Priority projects 
must compete for set-aside funds. The Agency will announce any 
assistance set aside and selection criteria in the NOFA.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32371, June 16, 1999]



Sec. 3565.6  Inclusion of tax-exempt debt.

    Tax-exempt financing can be used a source of capital for the 
guaranteed loan.

[64 FR 32371, June 16, 1999]



Sec. 3565.7  Agency environmental requirements.

    The Agency will take into account potential environmental impacts of 
proposed projects by working with applicants, other federal agencies, 
Indian tribes, State and local governments, and interested citizens and 
organizations in order to formulate actions that advance the program 
goals in a manner that will protect, enhance, and restore environmental 
quality. Actions taken by the Agency under this subpart are subject to 
an environmental review conducted in accordance with

[[Page 425]]

the requirements of 7 CFR part 1940, subpart G or any successor 
regulations.



Sec. 3565.8  Civil rights compliance.

    (a) All actions taken by the Agency, or on behalf of the Agency, by 
a lender will be conducted without regard to race, color, religion, 
national origin, sex, marital status, age, income from public assistance 
or having exercised their right under the Consumer Credit Protection 
Act, and in accordance with the Equal Credit Opportunity Act (ECOA).
    (b) Any action related to the sale, rental or advertising of 
dwellings; in the provision of brokerage services; or in making 
available residential real estate transactions involving Agency 
assistance, must be in accordance with the Fair Housing Act, which 
prohibits discrimination on the basis of race, color, religion, sex, 
national origin, familial status or handicap. It is unlawful for a 
lender or borrower participating in the program to:
    (1) Refuse to make accommodations in rules, policies, practices, or 
services if such accommodations are necessary to provide a person with a 
disability an opportunity to use or continue to use a dwelling unit and 
all public and common use areas; and
    (2) Refuse to allow an individual with a disability to make 
reasonable modifications to a unit at his or her expense, if such 
modifications may be necessary to afford the individual full enjoyment 
of the unit.
    (c) Any resident or prospective resident seeking occupancy or use of 
a unit, property or related facility for which a loan guarantee has been 
provided, and who believes that he or she is being discriminated against 
may file a complaint with the lender, the Agency or the Department of 
Housing and Urban Development. A written complaint should be sent to the 
Secretary of Agriculture or of the Department of Housing and Urban 
Development in Washington, DC.
    (d) Lenders and borrowers that fail to comply with the requirements 
of title VIII of the Civil Rights Act of 1968, as amended (the Fair 
Housing Act), are liable for those sanctions authorized by law.
    (e) For guaranteed loans with ``interest credit,'' the following 
additional civil rights laws will apply and be enforced by the agency 
delivering this guarantee program: title VI of the Civil Rights Act of 
1964, section 504 of the Rehabilitation Act of 1973, the Americans with 
Disabilities Act, Age Discrimination Act of 1975, and title IX of the 
Education Amendments of 1972.
    (f) In accordance with title VI, borrowers will be subjected to 
compliance reviews for projects that receive interest credit.

[64 FR 32371, June 16, 1999]



Sec. 3565.9  Compliance with federal requirements.

    The Agency and the lender are responsible for ensuring that the 
application is in compliance with all applicable federal requirements, 
including the following specific statutory requirements:
    (a) Intergovernmental review. 7 CFR part 3015, subpart V, 
``Intergovernmental Review of Department of Agriculture Programs and 
Activities'', or successor regulation, including the Agency supplemental 
administrative instruction, RD Instruction 1940-J (available in any 
Rural Development Office).
    (b) National flood insurance. The National Flood Insurance Act of 
1968, as amended by the Flood Disaster Protection Act of 1973; the 
National Flood Insurance Reform Act of 1994; and 7 CFR part 1806, 
subpart B, or successor regulation.
    (c) Clean Air Act and Water Pollution Control Act Requirements. For 
any contract, all applicable standards, orders or requirements issued 
under section 306 of the Clean Air Act; section 508 of the Clean Water 
Act; Executive Order 11738; and EPA regulations at part 32, of title 40.
    (d) Historic preservation requirements. The provisions of 7 CFR part 
1901, subpart F or successor regulation.
    (e) Lead-based paint requirements. The provisions of 7 CFR part 
1924, subpart A, or successor regulation.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999]

[[Page 426]]



Sec. 3565.10  Conflict of interest.

    (a) Objective. It is the objective within the Rural Development 
mission area to maintain the highest standards of honesty, integrity, 
and impartiality by employees.
    (b) Rural Development requirement. To reduce the potential for 
employee conflict of interest, all Rural Development activities will be 
conducted in accordance with 7 CFR part 1900, subpart D, or successor 
regulation by Rural Development employees who:
    (1) Are not themselves a beneficiary;
    (2) Are not family members or known relatives of any beneficiary; 
and
    (3) Do not have any business or personal relationship with any 
beneficiary or any employee of a beneficiary.
    (c) Rural Development employee responsibility. Rural Development 
employees must disclose any known relationship or association with a 
lender or borrower or their agents, regardless of whether the 
relationship or association is known to others. Rural Development 
employees or members of their families may not purchase a Real Estate 
Owned property, security property from a borrower, or security property 
at a foreclosure sale.
    (d) Loan closing agent responsibility. Loan closing agents (or 
members of their families) who have been involved with a particular 
property are precluded from purchasing such properties.
    (e) Lender and borrower responsibility. Lenders, borrowers, and 
their agents must identify any known relationship or association with a 
Rural Development employee.



Secs. 3565.11-3565.12  [Reserved]



Sec. 3565.13  Exception authority.

    An Agency official may request and the Administrator or designee may 
make an exception to any requirement or provision, or address any 
omission of this part, if the Administrator determines that application 
of the requirement or provision, or failure to take action, would 
adversely affect the government's interest or the program objectives, 
and provided that such an exception is not inconsistent with any 
applicable law or statutory requirement.

[64 FR 32372, June 16, 1999]



Sec. 3565.14  Review and appeals.

    Whenever RHS makes a decision that is adverse to a lender or a 
borrower, RHS will provide written notice of such adverse decision and 
of the right to a USDA National Appeals Division hearing in accordance 
with 7 CFR part 11 or successor regulations. The lender or borrower may 
request an informal review with the decision maker and the use of 
available alternative dispute resolution or mediation programs as a 
means of resolution of the adverse decision. Any adverse decision, 
whether appealable or non-appealable may also be reviewed by the next 
level RHS supervisor. Adverse decisions affecting project tenants or 
applicants for tenancy will be handled in accordance with 7 CFR part 
1944, subpart L or successor regulations.



Sec. 3565.15  Oversight and monitoring.

    The lender, borrower, and all parties involved in any manner with 
any guarantee under this program must cooperate fully with all oversight 
and monitoring efforts of the Agency, Office of Inspector General, the 
U.S. General Accounting Office, and the U.S. Department of Justice or 
their representatives including making available any records concerning 
this transaction. This includes the annual eligibility audit and any 
other oversight or monitoring activities. If the Agency implements a 
requirement for an electronic transfer of information, the lender and 
borrower must cooperate fully.



Sec. 3565.16  [Reserved]



Sec. 3565.17  Demonstration programs.

    To test ways to expand the availability or enhance the effectiveness 
of the guarantee program, or for similar purposes, the Agency may, from 
time to time, propose demonstration programs that use loan guarantees or 
interest credit. Toward this end, the Agency may enter into special 
partnerships with lenders, financial intermediaries, or others to carry 
out one or more elements of a demonstration program. Demonstration 
programs will be

[[Page 427]]

publicized by notices in the Federal Register.



Secs. 3565.18-3565.49  [Reserved]



Sec. 3565.50  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



                    Subpart B--Guarantee Requirements



Sec. 3565.51  Eligible loans and advances.

    Upon approval of an application from an approved lender, the Agency 
will commit to providing a guarantee for a permanent loan or a 
combination construction and permanent loan, subject to the availability 
of funds. The Agency will not guarantee a construction loan that is not 
a combination construction and permanent loan.



Sec. 3565.52  Extent of the guarantee.

    A guarantee of a permanent loan will be made once the project has 
attained a minimum level of acceptable occupancy as determined by the 
lender with Agency concurrence. The required occupancy level must be 
reached before the commitment for a loan guarantee, including any 
extensions, expires. For combination construction and permanent loans, 
the Agency will guarantee advances during the construction loan period 
(which can not exceed 24 months). The guarantee of construction loan 
advances will convert to a permanent loan guarantee once the required 
level of occupancy has been reached.
    (a) Maximum guarantee amount. The maximum guarantee for a permanent 
loan will be 90 percent of the unpaid principal and interest of the 
loan. The Agency liability under any guarantee will decrease or 
increase, in proportion to any increase or decrease in the amount of the 
unpaid portion of the loan, up to the maximum amount specified in the 
guarantee document. The Agency will guarantee construction contracts not 
to exceed 90 percent of the work in place which have credit enhancements 
to protect the Government's guarantee. Acceptable credit enhancements 
include:
    (1) Surety bonding or performance and payment bonding are the 
preferred credit enhancement;
    (2) An irrevocable letter of credit acceptable to the Agency; and
    (3) A pledge by the lender of acceptable collateral.
    (b) Lesser guarantee amount. The Agency may provide a lesser 
guarantee based upon its evaluation of the credit quality of the loan.
    (c) Cancellation or reduction to the guarantee amount. In cases of 
fraud, misrepresentation, abuse, negligence, or failure to follow the 
terms of the guarantee or the note, the Agency may cancel the guarantee.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999]



Sec. 3565.53  Guarantee fees.

    As a condition of receiving a loan guarantee, the Agency will charge 
the following guarantee fees to the lender.
    (a) Initial guarantee fee. The Agency will charge an initial 
guarantee fee equal to one percent of the guarantee amount. For purposes 
of calculating this fee, the guarantee amount is the product of the 
percentage of the guarantee times the initial principal amount of the 
guaranteed loan.
    (b) Annual guarantee fee. An annual guarantee fee of at least 50 
basis points (one-half percent) of the outstanding principal amount of 
the loan will be charged each year or portion of a year that the 
guarantee is in effect. This fee will be collected on January 1, of each 
calendar year.
    (c) Surcharge for guarantees on construction advances. The Agency 
may, at its sole discretion, charge an additional fee on the portion of 
the loan advanced during construction. This fee will be charged in 
advance at the start of construction and will be announced in NOFA 
before loan approval.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999]



Sec. 3565.54  Transferability of the guarantee.

    A lender must receive the Agency's approval prior to any sale or 
transfer of the loan guarantee.

[[Page 428]]



Sec. 3565.55  Participation loans.

    Loans involving multiple lenders are eligible for a guarantee when 
one of the lenders is an approved lender and agrees to act as the lead 
lender with responsibility for the loan under the loan guarantee 
agreement.



Sec. 3565.56  Suspension or termination of loan guarantee agreement.

    A guarantee agreement will terminate when one of the following 
actions occurs: (In accordance with subpart H of this part, use 
restrictions on the property will remain if the following actions take 
place prior to the term of the loan and RHS determines the restrictions 
apply.)
    (a) Voluntary termination. A lender and borrower voluntarily request 
the termination of the loan guarantee.
    (b) Agency withdrawal of guarantee. The Agency withdraws the loan 
guarantee in the event of fraud, misrepresentation, abuse, negligence, 
or failure to meet the program requirements.
    (c) Mortgage pay-off. The loan is paid.
    (d) Settlement of claim. Final settlement of the claim.



Sec. 3565.57  Modification, extension, reinstatement of loan guarantee.

    To protect its interest or further the objectives of the program, 
the Agency may, at its sole discretion, modify, extend, or reinstate a 
loan guarantee. In making this decision the Agency will consider 
potential losses under the program, impact on the tenants and the public 
reaction that may be received regarding the action. Further, the Agency 
may authorize a guarantee on a new loan that is originated as a part of 
a workout agreement.



Secs. 3565.58-3565.99  [Reserved]



Sec. 3565.100  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



                     Subpart C--Lender Requirements



Sec. 3565.101  Responsibility of lenders.

    A participating lender must originate and service a guaranteed loan 
in accordance with the regulation and program requirements throughout 
the life of a loan or guarantee, whichever is less. When it is in the 
best interests of the Agency, the Agency may permit the transfer of 
servicing from the originating lender to a servicer.



Sec. 3565.102  Lender eligibility.

    An eligible lender must be a licensed business entity or HFA in good 
standing in the state or states where it conducts business; be approved 
by the Agency; and meet at least one of the criteria contained below. 
Lenders who are not eligible may participate in the program if they 
maintain a correspondent relationship with a lender who is eligible. An 
eligible lender must:
    (a) Meet the qualifications of, and be approved by, the Secretary of 
HUD to make multifamily housing loans that are to be insured under the 
National Housing Act;
    (b) Meet the qualifications and be approved by Fannie Mae or Freddie 
Mac to make multifamily housing loans that are to be sold to such 
corporations;
    (c) Be a state or local HFA, or a member of the Federal Home Loan 
Bank system, with a demonstrated ability to underwrite, originate, 
process, close, service, manage, and dispose of multifamily housing 
loans in a prudent manner;
    (d) Be a lender who meets the requirements for Agency approval 
contained in this subpart and has a demonstrated ability to underwrite, 
originate, process, close, service, manage, and dispose of multifamily 
housing loans in a prudent manner; or
    (e) Be a lender who meets the following requirements in addition to 
the other requirements of this subpart and of subpart I of this part:
    (1) Have qualified staff to perform multifamily housing servicing 
and asset management;
    (2) Have facilities and systems that support servicing and asset 
management functions; and

[[Page 429]]

    (3) Have documented procedures for carrying out servicing and asset 
management responsibilities.



Sec. 3565.103  Approval requirements.

    The Agency will establish and maintain a ``list of approved 
lenders''. To be an approved lender, eligible lenders must meet the 
following requirements and maintain them on a continuing basis at a 
level consistent with the nature and size of their portfolio of 
guaranteed loans.
    (a) Commitment. A lender must have a commitment for a guaranteed 
loan or an agreement to purchase a guaranteed loan.
    (b) Audited statement. A lender must provide the Agency with an 
annual audited financial statement conducted in accordance with 
generally accepted government auditing standards.
    (c) Previous participation. A lender may not be delinquent on a 
federal debt or have an outstanding finding of deficiency in a federal 
housing program.
    (d) Ongoing requirements. A lender must meet the following 
requirements at initial application and on a continuing basis 
thereafter:
    (1) Overall financial strength, including capital, liquidity, and 
loan loss reserves, to have an acceptable level of financial soundness 
as determined by a lender rating service (such as Sheshunoff, Inc.); or 
to be an approved Fannie Mae, Freddie Mac or HUD Federal Housing 
Administration multifamily lender; or, if a state housing finance 
agency, to have a top tier rating by a rating agency (such as Standard 
and Poor's Corporation);
    (2) Bonding and insurance to cover business related losses, 
including directors and officers insurance, business income loss 
insurance, and bonding to secure cash management operations;
    (3) A minimum of two years experience in originating and servicing 
multifamily loans;
    (4) A positive record of past performance when participating in RHS 
or other federal loan programs;
    (5) Adequate staffing and training to perform the program 
obligations; the head underwriter must have 3 years of experience and 
all staff must receive annual multifamily training;
    (6) Demonstrated overall financial stability of the business over 
the past five years;
    (7) Evidence of reasonable and prudent business practices for 
management of the program; and
    (8) No negative information on Dunn & Bradstreet or similar type 
report.
    (9) The lender must certify that they have computer systems that 
comply with year 2000 technology.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999]



Sec. 3565.104  Application requirements.

    Eligible lenders must submit a lender approval application, in a 
format prescribed by the Agency. The lender approval application 
submission must occur at the time the lender submits its first 
application for a loan guarantee, or its first application to purchase a 
guaranteed loan. The application must include documentation of lender 
compliance with Sec. 3565.103. A non-refundable application fee will be 
charged for each review of a lender's application. The amount of the fee 
will be announced in NOFA.



Sec. 3565.105  Lender compliance.

    A lender will remain an approved lender unless terminated by the 
Agency. To maintain approval, the lender must comply with the following 
requirements.
    (a) Maintain eligibility in accordance with Sec. Sec. 3565.102 and 
3565.103;
    (b) Comply with all applicable statutes, regulations, and 
procedures;
    (c) Inform the Agency of any material change in the lender's 
staffing, policies and procedures, or corporate structure;
    (d) Cooperate fully with all program or Agency monitoring and 
auditing policies and procedures, including the Agency's annual audit of 
approved lenders; and
    (e) Maintain active participation in the multifamily guaranteed loan 
program by initiating a new loan guarantee or holding a loan guaranteed 
under this program.



Sec. 3565.106  Construction lender requirements.

    A lender making a construction loan, as part of a combination 
construction

[[Page 430]]

and permanent loan, must demonstrate an ability to originate and service 
construction loans, in addition to meeting the other requirements of 
this subpart.



Sec. 3565.107  [Reserved]



Sec. 3565.108  Responsibility for actions of agents and mortgage brokers.

    An approved lender is responsible for the actions of its agents and 
mortgage brokers.



Sec. 3565.109  Minimum loan prohibition.

    A lender must not establish a minimum loan amount for loans under 
this program.



Sec. 3565.110  Insolvency of lender.

    The Agency may require a lender to transfer a guaranteed loan or 
loans to another approved lender prior to a determination of insolvency 
by the lender. If the lender fails to transfer a loan when required, the 
guarantee will be considered null and void.



Sec. 3565.111  Lobbying activities.

    An approved lender must comply with RD Instruction 1940-Q (available 
in any Rural Development Office) regarding lobbying activities.



Secs. 3565.112-3565.149  [Reserved]



Sec. 3565.150  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



              Subpart D--Borrower Eligibility Requirements



Sec. 3565.151  Eligible borrowers.

    Guaranteed loans must be made to an eligible borrower whose 
intention is to provide and maintain rural rental housing. The ownership 
entity must be a valid entity in good standing under the laws of the 
jurisdiction in which it is organized. Eligible borrowers shall include 
individuals, corporations, state or local public agencies or an 
instrumentality thereof, partnerships, limited liability companies, 
trusts, Indian tribes, or any organization deemed eligible by the 
Agency. Eligible borrowers must be U.S. citizens or permanent legal 
residents; a U.S. owned corporation, or a limited liability company, or 
partnership in which the principals are U.S. citizens or permanent legal 
residents.



Sec. 3565.152  Control of land.

    At time of application, the lender must have evidence of site 
control by the borrower (option to purchase, lease, deed or other 
evidence acceptable to the Agency). At the time of loan closing, the 
lender's closing docket must provide documentary evidence that the 
borrower owns or has a long-term lease on the land on which the housing 
is or will be located. The form of ownership or the leasehold agreement 
must meet Agency requirements. Notwithstanding any investment in the 
site, the site may not be accepted based on the Agency's environmental 
assessment.



Sec. 3565.153  Experience and capacity of borrower.

    At the time of application, the lender must certify that the 
borrower:
    (a) Has the ability and experience to construct or rehabilitate 
multifamily housing that meets the requirements established by the 
Agency, the lender and the loan agreement;
    (b) Has the legal and financial capacity to meet all of the 
obligations of the loan; and
    (c) Has the ability and experience to meet the property management 
requirements established by the Agency, the lender, and the loan 
agreement.



Sec. 3565.154  Previous participation in state and federal programs.

    Loans to borrowers who are delinquent on a federal debt may not be 
guaranteed. Furthermore, borrowers or principals thereof who have 
defaulted on state or local government loans will not be eligible for a 
guarantee unless the Agency determines that the default was beyond the 
borrower's control, and that the identifiable reasons for the default no 
longer exist. At the time of application, the lender must obtain from 
the borrower a certification that the

[[Page 431]]

borrower is not under any state or federal order suspending or debarring 
participation in state or federal loan programs and that the borrower is 
not delinquent on any non-tax obligation to the United States.



Sec. 3565.155  Identity of interest.

    At the time of application, the lender must certify that it has 
disclosed any and all identity of interest relationships and preexisting 
conditions with respect to its relationships and that of the borrower, 
or that no identity of interest relationships exists. Identity of 
interest relationships include any financial or other relationship that 
exists or will exist between a lender, borrower, management agent, 
supplier, or any agent of any of these entities, that could influence, 
give the appearance of influencing or have the potential to influence 
the actions of the parties in carrying out their responsibilities under 
the program. Disclosure will be in a form and manner established by the 
Agency.



Sec. 3565.156  Certification of compliance with federal, state, and local laws and with Agency requirements.

    At the time of application, the lender must obtain from the borrower 
a certification of compliance with all applicable federal, state, and 
local laws, and with Agency requirements regarding discrimination and 
equal opportunity in housing, including title VIII of the Civil Rights 
Act of 1968, and the Fair Housing Amendments Act of 1988. The borrower 
must also certify that it is not the subject of any federal, state, or 
local sanction or punitive action.



Secs. 3565.157-3565.199  [Reserved]



Sec. 3565.200  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



                      Subpart E--Loan Requirements



Sec. 3565.201  General.

    To be eligible for a guarantee, a loan must comply with the 
provisions of this subpart and be originated by an approved lender.



Sec. 3565.202  Tenant eligibility.

    (a) Limits on income of tenants. The housing units subject to a 
guaranteed loan must be available for occupancy only by low or moderate-
income families or individuals whose incomes at the time of initial 
occupancy do not exceed 115 percent of the area median income. After 
initial occupancy, a tenant's income may exceed these limits.
    (b) Citizenship status. A tenant must be a United States citizen or 
a noncitizen who is a qualified alien as defined in Sec. 3565.3.



Sec. 3565.203  Restrictions on rents.

    The rent for any individual housing unit, including any tenant-paid 
utilities, must not exceed an amount equal to 30 percent of 115 percent 
of area median income, adjusted for family size. In addition, on an 
annual basis, the average rent for a project, taking into account all 
individual unit rents, must not exceed 30 percent of 100 percent of area 
median income, adjusted for family size.



Sec. 3565.204  Maximum loan amount.

    (a) Section 207(c) limits and exceptions. For that part of the 
property that is attributable to dwelling use, the principal obligation 
of each guaranteed loan must not exceed the applicable maximum per-unit 
limitations under section 207(c) of the National Housing Act.
    (b) Loan-to-value limits. (1) In the case of a borrower that is a 
nonprofit organization or an agency or body of any State, local or 
tribal government, each guaranteed loan must involve a principal 
obligation that does not exceed the lesser of 97 percent of:
    (i) The development costs of the housing and related facilities, or

[[Page 432]]

    (ii) The lender's determination of value not to exceed the appraised 
value of the housing and facilities.
    (2) In the case of a borrower that is a for-profit entity or other 
entity not referred to in paragraph (b)(1) of this section, each 
guaranteed loan must involve a principal obligation that does not exceed 
the lesser of 90 percent of:
    (i) The development costs of the housing and related facilities, or
    (ii) The lender's determination of value not to exceed the appraised 
value of the housing and facilities.
    (3) To protect the interest of the Agency or to further the 
objectives of the program, the Agency may establish lower loan-to-value 
limits or further restrict the statutory maximum limits based upon its 
evaluation of the credit quality of the loan.
    (c) Necessary assistance review. (1) A lender requesting a loan 
guarantee must review all loans to determine the appropriate amount of 
assistance necessary to complete and maintain the project. The lender 
shall recommend to the Agency an adjustment in the loan amount if 
appropriate as a result of this review.
    (2) Where the project financing combines a guaranteed loan with Low-
Income Housing Tax Credits or other Federal assistance, the project must 
conform to the policies regarding necessary assistance in 7 CFR part 
1944, subpart E or successor provision.



Sec. 3565.205  Eligible uses of loan proceeds.

    Eligible uses of loan proceeds must conform with standards and 
conditions for housing and facilities contained in 7 CFR part 1924, 
subpart A or successor provision, except that the Agency, at its sole 
discretion, may approve, in advance, a higher level of amenities, 
construction, and fees for projects proposed for a guaranteed loan 
provided the costs and features are reasonable and customary for similar 
housing in the market area.
    (a) Use of loan proceeds. The proceeds of a guaranteed loan may be 
used for the following purposes relating to the project.
    (1) New construction costs of the project;
    (2) Moderate or substantial rehabilitation of buildings and 
acquisition costs when related to the rehabilitation of a building as 
described in paragraph (b) of this section;
    (3) Acquisition of existing buildings, when approved by the Agency, 
for projects that serve a special housing need;
    (4) Acquisition and improvement of land on which housing will be 
located;
    (5) Development of on-site and off-site improvements essential to 
the use of the property;
    (6) Development of related facilities such as community space, 
recreation, storage or maintenance structures, except that any high cost 
recreational facility, such as swimming pools and exercise clubs or 
similar facilities, must be specifically approved in advance by the 
Agency;
    (7) Construction of on-site management or maintenance offices and 
living quarters for operating personnel for the property being financed;
    (8) Purchase and installation of appliances and certain approved 
decorating items, such as window blinds, shades, or wallpaper;
    (9) Development of the surrounding grounds, including parking, 
signs, landscaping and fencing;
    (10) Costs associated with commercial space provided that:
    (i) The project is designed primarily for residential use;
    (ii) The commercial use consists of essential tenant service type 
facilities, such as laundry rooms, that are not otherwise conveniently 
available;
    (iii) The commercial space does not exceed 10 percent of the gross 
floor area of the residential units and common areas, unless a higher 
level is specifically approved in writing by the Agency; and
    (iv) The commercial activity is compatible with the use of the 
project and that the income is not more than 10 percent of the total 
annual operating income of the project.
    (11) Costs for feasibility determination, loan application fees, 
appraisals, environmental documentation, professional fees or other fees 
determined by the Agency to be necessary to the development of the 
project;

[[Page 433]]

    (12) Technical assistance to and by non-profit entities to assist in 
the formation, development, and packaging of a project, or formation or 
incorporation of a borrower entity;
    (13) Education programs for a board of directors, both before and 
after incorporation of a cooperative that will serve as the borrower;
    (14) Construction interest accrued on the construction loan;
    (15) Relocation assistance in the case of rehabilitation projects;
    (16) Developers' fees; and
    (17) Repaying applicant debts in the following cases:
    (i) When the Agency authorizes in writing in advance the use of loan 
funds to pay debts for work, materials, land purchase, or other fees and 
charges before the loan is closed; or
    (ii) When the Agency concurs in writing with a determination by the 
lender that costs for work, fees and charges incurred prior to loan 
application are integral to development of the guarantee application and 
project.
    (b) Rehabilitation requirements. Rehabilitation work must be 
classified as either moderate or substantial as defined in exhibit K of 
7 CFR part 1924, subpart A or a successor document. In all cases, the 
building or project must be structurally sound, and improvements must be 
necessary to meet the requirements of decent, safe, and sanitary living 
units. Applications must include a structural analysis, along with plans 
and specifications describing the type and amount of planned 
rehabilitation. The project as rehabilitated must meet the applicable 
development standards contained in 7 CFR part 1924, subpart A or a 
successor regulation, as well as any applicable historic preservation 
requirements. All proposed rehabilitation projects are subject to an 
environmental review completed in accordance with 7 CFR part 1940, 
subpart G or a successor regulation.



Sec. 3565.206  Ineligible uses of loan proceeds.

    Loan proceeds must not be used for the following:
    (a) Specialized equipment for training and therapy;
    (b) Housing in military impact areas;
    (c) Housing that serves primarily temporary and transient residents;
    (d) Nursing homes, special care facilities and institutional type 
homes that require licensing as a medical care facility;
    (e) Operating capital for central dining facilities or for any items 
not affixed to the real estate, such as special portable equipment, 
furnishings, kitchen ware, dining ware, eating utensils, movable tables 
and chairs, etc.;
    (f) Payment of fees, salaries and commissions or compensation to 
borrowers (except developers' fees); or
    (g) Refinancing of an outstanding debt, except in the case of an 
existing guaranteed loan where the Agency determines that the 
refinancing is in the government's interest or furthers the objectives 
of the program. The term and amount of any loan for refinancing must not 
exceed the maximum loan amount or term limits.



Sec. 3565.207  Form of lien.

    The loan originated by the lender for a guarantee must be secured by 
a first lien against the property.



Sec. 3565.208  Maximum loan term.

    (a) Statutory term limit. The lender may set the term of the loan, 
but in no instance may the term of a guaranteed loan exceed the lesser 
of 40 years or the remaining economic life of the project.
    (b) Prepayment of loans. A guaranteed loan may be prepaid in whole 
or in part at the determination of the lender, and upon the lender's 
written notice to the Agency at least 30 days prior to the expected date 
of prepayment. The Agency will not pay any lockout or prepayment penalty 
assessed by the lender. The lender must certify the following in the 
notice of prepayment:
    (1) The lease documents used by the borrower or its agent prohibit 
the abrogation of tenant leases in the event of prepayment; and
    (2) The borrower has notified tenants of the request to prepay the 
loan, including notice of the prohibition against abrogation of the 
lease and the policy and procedure for handling complaints regarding 
compliance with the long-term use restriction as contained in subpart H 
of this part.

[[Page 434]]



Sec. 3565.209  Loan amortization.

    Each guaranteed loan shall be made for a period of not less than 25 
nor greater than 40 years from the date the loan was made and may 
provide for amortization of the loan over a period of not to exceed 40 
years with a final payment of the balance due at the end of the loan 
term.

[67 FR 16970, April 9, 2002]



Sec. 3565.210  Maximum interest rate.

    The interest rate for a guaranteed loan must not exceed the maximum 
allowable rate specified by the Agency in NOFA. Such rate must be fixed 
over the term of the loan.



Sec. 3565.211  Interest credit.

    (a) Limitation. For at least 20 percent of the loans made during 
each fiscal year, the Agency will provide assistance in the form of 
interest credit, to the extent necessary to reduce the agreed-upon rate 
of interest to the AFR as such term is used in section 42(I)(2)(D) of 
the Internal Revenue Code of 1986, 26 U.S.C. 7805, Sec. 1.42-1T.
    (b) Selection criteria. The Agency will select projects to receive 
interest credits using any of such criteria as the Agency may establish 
for priority projects as contained in subpart A of this part.



Sec. 3565.212  Multiple guaranteed loans.

    The Agency may guarantee more than one loan on any project if all 
guaranteed loans, in the aggregate, comply with these regulations, 
including without limitation:
    (a) In the aggregate, loans do not exceed the maximum guaranteed 
loan amount and loan-to-value limits, as contained in Sec. 3565.204;
    (b) In the aggregate, loans are all to be secured equally by a first 
lien as the Agency may, at its sole discretion, determine necessary to 
ensure repayment of the loans; and
    (c) If different lenders originate the loans, each lender has 
executed an intercreditor agreement in form and substance acceptable to 
the Agency; and
    (d) The loans do no contain tax exempt financing.



Sec. 3565.213  Geographic distribution.

    The Agency may refuse to guarantee a loan in an area where there is 
undue risk due to a concentration in the market of properties subject to 
a Agency guaranteed loan. The Agency will consider the credit quality of 
the loan and overall market conditions in making a determination of 
undue risk. If any of the Agency guaranteed loans in the market are 
experiencing vacancy rates in excess of 15% and the vacancy is due to 
market conditions, the Agency will invoke this provision and not 
guarantee the loan.



Sec. 3565.214  [Reserved]



Sec. 3565.215  Special conditions.

    (a) Use of third party funds. As a condition of receiving a 
guaranteed loan, the Agency, or the lender if designated by the Agency, 
must review the terms and conditions of any secondary financing or 
funding of projects, including loans, capital grants or rental 
assistance.
    (b) Recourse. If required by the lender, loans guaranteed under this 
program may be made on a recourse or nonrecourse basis, or with any 
personal or special borrower guarantees on collateralization.



Secs. 3565.216-3565.249  [Reserved]



Sec. 3565.250  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



                    Subpart F--Property Requirements



Sec. 3565.251  Eligible property.

    To be eligible for a guaranteed loan, a property must be used 
primarily for residential dwelling purposes and must meet the following 
requirements or the requirements of this subpart:
    (a) Property location. All the property must be located in a rural 
area.
    (b) Minimum size of development. The property must consist of at 
least five rental dwelling units.
    (c) Non-contiguous sites. For a loan secured by two or more non-
contiguous

[[Page 435]]

parcels of land, all sites must meet each of the following requirements:
    (1) Located in one market area;
    (2) Managed under one management plan with one loan agreement or 
resolution for all of the sites; and
    (3) Consist of single asset ownership.
    (d) Compliance with statutes. All properties must comply with the 
applicable requirements in section 504 of the Rehabilitation Act of 
1973, the Fair Housing Act, the Americans with Disabilities Act, and 
other applicable statutes.



Sec. 3565.252  Housing types.

    The property may include new construction or substantially 
rehabilitated existing structures. The units may be attached, detached, 
semi-detached, row houses, modular or manufactured houses, or 
multifamily structures. Manufactured housing must meet Agency 
requirements contained in 7 CFR part 1924, subpart A or a successor 
regulation. The Agency proposes to guarantee proposals for new 
construction or acquisition with rehabilitation of at least $15,000 per 
unit. The portion of the guaranteed funds for acquisition with 
rehabilitation is limited to 25 percent of the program authority.



Sec. 3565.253  Form of ownership.

    The property must be owned in fee simple or be subject to a ground 
lease or other legal right in land acceptable to the Agency.



Sec. 3565.254  Property standards.

    (a) Housing quality and site and neighborhood standards. The 
property must meet the site and neighborhood requirements established by 
the state or locality, and those standards contained under 7 CFR part 
1924, subparts A and C or any successor regulations.
    (b) Third party assessments. As part of the application for a 
guaranteed loan, the lender must provide documentation of qualified 
third parties' assessments of the property's physical condition and any 
environmental conditions or hazards which may have a bearing on the 
market value of the property. These assessments must include:
    (1) An acceptable property appraisal.
    (2) A Phase I Environmental Site Assessment (American Society of 
Testing and Materials).
    (3) A Standard Flood Hazard Determination.
    (4) In the case of the purchase of an existing structure, 
rehabilitation or refinancing, a physical needs assessment.



Sec. 3565.255  Environmental requirements.

    Under the National Environmental Policy Act, the Agency is required 
to assess the potential impact of the proposed actions on protected 
environmental resources. Measures to avoid or at least mitigate adverse 
impacts to protected resources may require a change in site or project 
design. A site will not be approved until the Agency has completed the 
environmental review in accordance with 7 CFR part 1940, subpart G or 
successor regulation.



Sec. 3565.256  Architectural services.

    Architectural services must be provided for the project in 
accordance with 7 CFR part 1924, subpart A or successor regulation, 
including plan certifications.



Sec. 3565.257  Procurement actions.

    All construction procurement actions, whether by sealed bid or by 
negotiation, must be conducted in a manner that provides maximum open 
and free competition.



Secs. 3565.258-3565.299  [Reserved]



Sec. 3565.300  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



                   Subpart G--Processing Requirements



Sec. 3565.301  Loan standards.

    An approved lender must originate and underwrite the loan and 
appraise the subject property in accordance with prudent lending 
practices and Agency criteria addressing the following factors:

[[Page 436]]

    (a) Borrower qualifications and creditworthiness;
    (b) Property, vacancy, market vacancy or collection loss;
    (c) Rental concessions and rent levels;
    (d) Tenant demand and housing supply;
    (e) Property operating and maintenance expense;
    (f) Property requirements as contained in subpart F of this part;
    (g) Debt coverage ratio;
    (h) Operating and long-term capital requirements;
    (i) Loan-to-value ratio;
    (j) Return on borrower equity; and
    (k) Estimated long-term marketability of the project.



Sec. 3565.302  Allowable fees.

    (a) Lender fees. The lender is authorized to charge reasonable and 
necessary fees in connection with a borrower's application for a 
guaranteed loan.
    (b) Agency fees. The Agency will charge one or more types of fees 
deemed appropriate as reimbursement for reasonable and necessary costs 
incurred in connection with applications received from lenders for 
monitoring or annual renewal fees. These fees will be published in NOFA. 
Agency fees may include, but are not limited to the following:
    (1) Site assessment and market analysis or preliminary feasibility 
fee. A fee for review of an application for a determination of 
preliminary feasibility.
    (2) Application fee. A fee submitted in conjunction with the 
application for a loan guarantee.
    (3) Inspection fee. A fee for inspection of the property in 
conjunction with a loan guarantee.
    (4) Transfer fee. A fee in connection with a request for approval of 
a transfer of physical assets or a change in the composition of the 
ownership entity.
    (5) Extension or reopening fees. A fee to extend the guarantee 
commitment or to reopen an application when a commitment has expired.



Sec. 3565.303  Issuance of loan guarantee.

    (a) Preliminary feasibility review. During the initial processing of 
a loan, the lender may request a preliminary feasibility review by the 
Agency when required loan documentation is submitted.
    (b) Conditional commitment to guarantee a loan. The Agency will 
issue a conditional commitment to guarantee a loan. This commitment will 
be good for such time frame as the Agency deems appropriate based on 
project requirements. The commitment to guarantee a loan, will specify 
any conditions necessary to obtain a determination by the Agency that 
all program requirements have been met. A conditional commitment can be 
issued, subject to the availability of funds, after:
    (1) Completion by the Agency of an environmental review in 
accordance with 7 CFR part 1940, subpart G or successor regulation, and 
the National Environmental Policy Act; and
    (2) Selection of the proposed project for funding by the Agency in 
accordance with ranking and selection criteria.
    (c) Guarantee during construction. For combination construction and 
permanent loans, the Agency will issue an initial guarantee to an 
approved construction lender.
    (1) This guarantee will be subject to the limits contained in 
subpart B of this part and in the loan closing documentation.
    (2) In all cases, the lender must obtain a payment and performance 
bond covering contract work or acceptable credit enhancement as 
discussed in Sec. 3565.52(a).
    (3) The lender must verify amounts expended prior to each payment 
for completed work and certify that an independent inspector has 
inspected the property and found it to be in conformance with Agency 
standards. The lender must provide verification that all subcontractors 
have been paid and no liens have been filed against the property.
    (d) Permanent loan guarantee. The guarantee on the permanent loan 
will be issued once the following items have been submitted to and 
approved by the Agency.
    (1) An updated appraisal of the project as built;
    (2) A certificate of substantial completion;

[[Page 437]]

    (3) A certificate of occupancy or similar evidence of local approval 
;
    (4) A final inspection conducted by a qualified Agency 
representative;
    (5) A final cost certification in a form acceptable to the Agency;
    (6) A submission to the Agency of the complete closing docket;
    (7) A certification by the lender that the project has reached an 
acceptable minimum level occupancy;
    (8) An executed regulatory agreement.
    (9) The Lender certifies that it has approved the borrower's 
management plan and assures that the borrower is in compliance with 
Agency standards regarding property management, contained in subparts E 
and F of this part;
    (10) Necessary information to complete an updated necessary 
assistance review by the Agency; and
    (11) Compliance with all conditions contained in the conditional 
commitment for guarantee.
    (e) Modification of guarantee amount after commitment. The Agency 
may modify the guarantee amount or decline to issue a loan guarantee 
when a lender fails to honor obligations or to fulfill representations 
made under the guarantee commitment.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999]



Sec. 3565.304  Lender loan processing responsibilities.

    (a) Application. The lender will be responsible for submitting an 
application for a loan guarantee in a format prescribed by the Agency. 
Lenders may submit an application at the feasibility stage or when they 
request a conditional commitment.
    (b) Project servicing, management and disposition. Unless otherwise 
permitted by the Agency, the originating lender must perform all loan 
functions during the period of the guarantee. These functions include 
servicing, asset management, and, if necessary, property disposition. 
The lender must maintain and service the loan in accordance with the 
provisions of subpart I of this part and Agency servicing procedures.



Sec. 3565.305  Mortgage and closing requirements.

    It is the lender's responsibility to ensure that the loan closing 
statement and required loan documents are in a form acceptable to the 
Agency and included in the closing docket. The lender is responsible for 
resolving any underwriting and loan closing deficiencies that are found. 
The Agency's review of the lender's loan closing documentation does not 
constitute a waiver of fraud, misrepresentation, or failure of judgment 
by the lender.



Secs. 3565.306-3565.349  [Reserved]



Sec. 3565.350  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



                      Subpart H--Project Management



Sec. 3565.351  Project management.

    As a condition of the guarantee, the lender is to obtain borrower 
certification that the project is in compliance with local, state, 
federal laws and program requirements.
    (a) Regulatory agreement. A regulatory agreement between the 
borrower and lender must be executed at the time of loan closing and 
contain the following covenants:
    (1) That it is binding upon the borrower and any of its successors 
and assigns, as well as upon the lender and any of its successors and 
assigns, for the duration of the guaranteed loan;
    (2) That the borrower makes all payments due under the note and to 
the required escrow and reserve accounts;
    (3) That the borrower maintains the project as affordable housing in 
accordance with the purposes and for the duration defined in the 
statute;
    (4) That the borrower maintains the project in good physical and 
financial condition at all times;
    (5) That the borrower obtains and maintains property insurance and 
any other insurance coverage required to protect the security;

[[Page 438]]

    (6) That the borrower maintains complete project books and financial 
records, and provides the Agency and the lender with an annual audited 
financial statement after the end of each fiscal year;
    (7) That the borrower makes project books and records available for 
review by the Office of Inspector General, Rural Development staff, 
General Accounting Office, and the Department of Justice, or their 
representatives or successors upon appropriate notification;
    (8) That the borrower prepares and complies with the Affirmative 
Fair Housing Marketing Plan and all other Fair Housing requirements;
    (9) That the borrower operates as a single asset ownership entity, 
unless otherwise approved by the Agency;
    (10) That the borrower complies with applicable federal, state and 
local laws; and
    (11) That the borrower provides management satisfactory to the 
lender and to the Agency and complies with an approved management plan 
for the project.
    (b) Management plan. The lender must approve the borrower's 
management plan and assure that the borrower is in compliance with 
Agency standards regarding property management, including the 
requirements contained in subparts E and F of this part.
    (c) Tenant protection and grievance procedures. Tenants in 
properties subject to a guaranteed loan are entitled to the grievance 
and appeal rights contained in 7 CFR part 1944, subpart L or successor 
regulation. The borrower must inform tenants in writing of these rights.
    (d) Financial management--(1) Borrower reporting requirements. At a 
minimum, the lender must obtain, on an annual basis, an audited annual 
financial statement conducted in accordance with generally accepted 
government auditing standards.
    (2) Lender reporting requirements. The lender must review the 
financial reports to assure that the property is in sound fiscal 
condition and the borrower is in compliance with financial requirements. 
The lender must report findings to the Agency as follows:
    (i) Annual reports. The lender must submit to the Agency a copy of 
the annual financial audit of the project and must report on the nature 
and status of any findings. To the extent that outstanding findings or 
issues remain, the lender must submit to the Agency a copy of a plan of 
action for any unresolved findings.
    (ii) Monthly reports. The lender must submit monthly reports to the 
Agency on all loans that are either in default, delinquent, or not in 
compliance with program requirements. This report must provide 
information on the financial condition of each loan, the physical 
condition of the property, the amount of delinquency, any other non-
compliance with program requirements and the proposed actions and 
timetable to resolve the delinquency, default or non-compliance.
    (3) Reserve releases. The lender is responsible for approving or 
disapproving all borrower requests for release of funds from the reserve 
and escrow accounts. Security deposit accounts will not be considered a 
reserve or escrow account.
    (4) Insurance requirements. At loan closing, the borrower will 
provide the lender with documentary evidence that Agency insurance 
requirements have been met. The borrower must maintain insurance in 
accordance with Agency requirements until the loan is repaid and the 
lender must be named as the insurance policy's beneficiary. The lender 
must obtain insurance on the secured property if the borrower is unable 
or unwilling to do so and charge the cost as an advance.
    (5) Distribution of surplus cash. Prior to the distribution of 
surplus cash to the owner, the lender must certify that the property is 
in good financial and physical condition and in compliance with the 
regulatory agreement. Such compliance includes payment of outstanding 
obligations, debt service, and required funding of reserve and escrow 
accounts.
    (e) Physical maintenance. The lender must annually inspect the 
property to ensure that it is in compliance with state and local codes 
and program requirements. The lender must certify to the Agency that a 
property is in such compliance, or report to the Agency on

[[Page 439]]

any non-compliance items and proposed actions and timetable for 
resolution. Failure to provide responsive corrective action can result 
in reduction or cancellation of the guarantee by the Agency.

[63 FR 39458, July 22, 1998, as amended at 64 FR 32372, June 16, 1999]



Sec. 3565.352  Preservation of affordable housing.

    (a) Original purpose. During the period of the guarantee, owners are 
prohibited from using the housing or related facilities for any purpose 
other than an approved program purpose.
    (b) Use restriction. For the original term of the guaranteed loan, 
the housing must remain available for occupancy by low and moderate 
income households, in accordance with subpart E of this part. This 
requirement will be included in a deed restriction or other instrument 
acceptable to the Agency. The restriction will apply unless the housing 
is acquired by foreclosure or an instrument in lieu of foreclosure, or 
the Agency waives the applicability of this requirement after 
determining that each of the following three circumstances exist.
    (1) There is no longer a need for low-and moderate-income housing in 
the market area in which the housing is located;
    (2) Housing opportunities for low-income households and minorities 
will not be reduced as a result of the waiver; and
    (3) Additional federal assistance will not be necessary as a result 
of the waiver.



Sec. 3565.353  Affirmative fair housing marketing.

    As a condition of the guarantee, the lender must ensure that the 
lender and borrower are in compliance with the approved Affirmative Fair 
Housing Marketing Plan. This plan must be reviewed annually by the 
lender to ensure that the borrower remains in compliance and to 
recommend modifications, as necessary.



Sec. 3565.354  Fair housing accommodations.

    The lender must ensure that the borrower is in compliance with the 
applicable fair housing laws in the development of the property, the 
selection of applicants for housing, and ongoing management. See subpart 
A of this part.



Sec. 3565.355  Changes in ownership.

    Any change in ownership, in whole or in part, must be approved by 
the lender and the Agency before such change takes effect.



Secs. 3565.356-3565.399  [Reserved]



Sec. 3565.400  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



                    Subpart I--Servicing Requirements



Sec. 3565.401  Servicing objectives.

    The participating lender is responsible for servicing the guaranteed 
loan throughout the term of the loan or guarantee, whichever is less. In 
all cases, the lender remains responsible for liquidation of the 
property in accordance with the Loan Note Agreement, unless otherwise 
determined by the Agency. A lender-servicing plan must be designed and 
implemented to achieve the following objectives.
    (a) To preserve the value of the loan and the real estate;
    (b) To avoid a loss to the lender or the Agency and to limit 
exposure to potential loss;
    (c) To protect the interests of the tenants; and
    (d) To further program objectives.



Sec. 3565.402  Servicing responsibilities.

    The lender must service the loan in accordance with this subpart and 
perform the services contained in this section in a reasonable and 
prudent manner. The lender is responsible for the actions of its agents 
and representatives.
    (a) Funds management. The lender must have a funds management system 
to receive and process borrower payments, including the following.

[[Page 440]]

    (1) All principal and interest (P&I) funds and guarantee fees 
collected and deposited into the appropriate custodial accounts.
    (2) Payments to custodial escrow accounts for taxes and insurance 
premiums, assessments that might impair the security (such as ground 
rent), and reserve accounts for repair and capital improvement of the 
property.
    (b) Asset management. The lender must ensure that the property 
securing the guaranteed loan remains in good physical and financial 
condition, in accordance with project management requirements contained 
in subpart H of this part.
    (c) Management of delinquencies and defaults. Each month the lender 
must report to the Agency any delinquencies and defaults in accordance 
with subpart H of this part.



Sec. 3565.403  Special servicing.

    Special servicing must be initiated when regular servicing actions 
are insufficient to resolve borrower default or property deficiencies.
    (a) Responsibility of lender. It is the lender's responsibility 
during special servicing to make a special effort to ensure that 
maintenance of the property meets Agency requirements and the tenants' 
rights are protected, until such time that the property is liquidated by 
the lender, the loan is paid in full, or the loan is assigned to the 
Agency. The lender must update the Agency monthly until the default is 
cured or a claim is filed. The lender must maintain adequate records of 
any and all efforts to cure the default or to foreclose.
    (b) Initiating special servicing. When special servicing is 
initiated, the lender must submit for Agency review a special servicing 
plan that includes proposed actions to cure the deficiencies and a 
timeframe for completion. The special servicing plan will specify the 
proposed terms of any workout agreement recommended by the lender. The 
lender must obtain Agency approval of the terms of any workout agreement 
with the borrower. The workout agreement may include a loan 
modification, transfer of physical assets, or partial payment of claim 
and reamortization of the loan. Failure to comply with terms contained 
in the executed workout agreement will be considered a default of the 
guaranteed loan.
    (1) Loan modification. The borrower and lender may agree to a loan 
modification when such action will improve the financial viability of 
the project and its operations, and when a circumstance exists that is 
beyond the borrower's control. The Agency must approve in advance any 
loan modification that extends the life of the loan or requires an 
increase in the amount of the guarantee. All changes must be within the 
requirements of section 538 of the Housing Act of 1949.
    (2) Change in ownership and transfer of physical assets. A default 
or delinquency may be resolved by a change of the ownership entity in 
whole or in part. The Agency must approve all changes in ownership prior 
to the effective date of the transfer, and may require additional 
resources from the lender or borrower to resolve project deficiencies.
    (3) Partial payment of claims. The lender may request a partial 
payment of claim as a result of a loss experienced by the lender as a 
means to work out a troubled loan. The Agency will accept such claim if 
it determines that it is in the best interest of the government. In 
applying the partial payment, the lender must assign the obligation 
covered by the partial payment to the Agency, and, if required by the 
Agency, reamortize the obligation using the amount of the remaining 
obligation over an agreed-upon term.
    (c) Claims processing. In the event of a loss, the lender must 
submit claims under the guarantee in accordance with subpart J of this 
part. Prior to submitting a claim, the lender must exhaust all 
possibilities of collection on the loan.
    (d) Displacement prevention. The actions of the lender must not harm 
the property's tenants through displacement.

[63 FR 39458, July 22, 1998, as amended at 67 FR 16971, April 9, 2002]

[[Page 441]]



Sec. 3565.404  Transfer of mortgage servicing.

    Transfer of servicing is prohibited unless the Agency determines 
that circumstances warrant such action, the proposed lender is an 
eligible lender approved by the Agency, and the transfer of servicing is 
approved by the Agency in advance.



Secs. 3565.405-3565.449  [Reserved]



Sec. 3565.450  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



              Subpart J--Assignment, Conveyance, and Claims



Sec. 3565.451  Preclaim requirements.

    (a) Lender certifications. After borrower default and before filing 
a claim or assignment of the loan to the Agency, the lender must make 
every reasonable and prudent effort to resolve the default. The lender 
must provide the Agency with an accounting of all proposed and actual 
actions taken to cure the default. The lender must certify that all 
reasonable efforts to cure the default have been exhausted. Where the 
lender fails to comply with the terms of the loan guarantee agreement 
and the corresponding regulations and guidance with regard to 
liquidating the property, the Agency, at its option, may take possession 
of the security collateral and dispose of the property.
    (b) Due diligence by lender. For all loan servicing actions where a 
market, net recovery or liquidation value determination is required, 
guaranteed lenders shall perform due diligence in conjunction with the 
appraisal and submit it to the Agency for review. The Phase I 
Environmental Site Assessment published by the American Society of 
Testing and Materials is considered an acceptable format for due 
diligence.
    (c) Environmental review. The Agency is required to complete an 
environmental review under the National Environmental Policy Act, in 
accordance with 7 CFR part 1940, subpart G or a successor regulation, 
prior to disposition of inventory property, if title is held by the 
Agency, and prior to any authorization to the guaranteed lender to 
foreclose and dispose of property, and for any other servicing action 
requiring Agency approval or consent.



Sec. 3565.452  Decision to liquidate.

    (a) A decision to liquidate shall be made when it is determined that 
the default cannot be cured through actions contained in Sec. 3565.403 
of subpart I or it has been determined that it is in the best interest 
of the Agency and the lender to liquidate.
    (b) In the event of a default involving a loan to an Indian tribe or 
tribal corporation made under this section which is secured by an 
interest in land within such tribe's reservation (as determined by the 
Secretary of the Interior), including a community in Alaska incorporated 
by the Secretary of the Interior pursuant to the Indian Reorganization 
Act (25 U.S.C. 461 et seq.), the lender shall only pursue liquidation 
after offering to transfer the account to an eligible tribal member, the 
tribe, or the Indian housing authority serving the tribe. If the lender 
subsequently proceeds to liquidate the account, the lender shall not 
sell, transfer, or otherwise dispose of or alienate the property except 
to one of the entities described in the preceding sentence.

[67 FR 16971, April 9, 2002]



Sec. 3565.453  Disposition of the property.

    (a) Liquidation plan. The lender will, within 30 days after a 
decision to liquidate, submit to the Agency in writing its proposed 
detailed plan of liquidation. Upon approval by the Agency of the 
liquidation plan, the lender will proceed to liquidate. At a minimum, 
this plan must contain the following information:
    (1) Such proof as the Agency requires to establish the lender's 
ownership of the guaranteed loan promissory note and related security 
instruments and a copy of the payment ledger if available which reflects 
the current loan balance and accrued interest to date and the method of 
computing the interest.
    (2) A full and complete list of all collateral including any 
personal and corporate guarantees.

[[Page 442]]

    (3) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including recommended actions for:
    (i) Acquiring and disposing of all collateral;
    (ii) Collecting from guarantors;
    (iii) Obtaining an appraisal of the collateral;
    (iv) Setting the proposed date of foreclosure; and
    (v) Setting the proposed date of liquidation.
    (4) Necessary steps for protection of the tenants and preservation 
of the collateral.
    (5) Copies of the borrower's latest available financial statements.
    (6) Copies of the guarantor's latest available financial statements.
    (7) An itemized list of estimated liquidation expenses expected to 
be incurred along with justification for each expense.
    (8) A schedule to periodically report to the Agency on the progress 
of liquidation.
    (9) Estimated protective advance amounts with justification.
    (b) Filing an estimated loss claim. Upon Agency concurrence in the 
liquidation plan and when the lender owns any or all of the guaranteed 
portion of the loan, the Agency may, in accordance with program 
guidance, pay an estimated loss payment based on an Agency determined 
percentage of the approved estimate of the loss. The estimated loss 
payment will be based in the liquidation value of the collateral. If 
such payment is made, it will be applied to the outstanding principal 
balance owed on the guaranteed debt. The lender will discontinue 
interest accrual on the defaulted loan in accordance with Agency 
procedures.
    (c) Property disposition. Once the liquidation plan has Agency 
approval, the lender must make every effort to liquidate the property in 
a manner that will yield the highest market value consistent with the 
protections afforded to tenants contained in 7 CFR part 1944, subpart L 
or successor regulation. This liquidation process must be completed 
within 9 months from the lender's decision to liquidate, unless 
otherwise approved by the Agency.
    (d) Transmitting payments and proceeds to the Agency. When the 
Agency is the holder of a portion of the guaranteed loan, the lender 
will transmit to the Agency its pro rata share of any payments received 
from the borrower, liquidation, or other proceeds.



Sec. 3565.454  [Reserved]



Sec. 3565.455  Alternative disposition methods.

    The Agency, in its sole discretion, may choose to obtain an 
assignment of the loan from the lender or conveyance of title obtained 
by the lender through foreclosure or a deed-in-lieu of foreclosure.
    (a) Assignment. In the case of an assignment of the loan, the 
assignment of the security instruments or the security must be in 
written and recordable form. Completion of the assignment will occur 
once the following transactions are completed to the Agency's 
satisfaction.
    (1) Conveyance to the Agency of all the lender's rights and 
interests arising under the loan.
    (2) Assignment to the Agency of all claims against the borrower or 
others arising out of the loan transactions, including:
    (i) All collateral agreements affecting financing, construction, use 
or operation of the property; and
    (ii) All insurance or surety bonds, or other guarantees, and all 
claims under them.
    (3) Certification that the collateral has been evaluated for the 
presence of contamination from the release of hazardous substances, 
petroleum products or other environmental hazards which may adversely 
impact the market value of the property and the results of that 
evaluation.
    (b) Conveyance of title. In the case of a conveyance of title to the 
property, the lender must inform the Agency in advance of how it plans 
to acquire title and a timetable for doing so. The Agency will accept 
the conveyance upon receipt of an assignment to the Agency of all claims 
of the lender against the property and assignment of the lender's rights 
to any operating funds and any reserves or escrows established for the 
maintenance of the property or the

[[Page 443]]

payment of property taxes and insurance.



Sec. 3565.456  Filing a claim.

    Once the lender has disposed of the property or the Agency has 
agreed to accept an assignment of the loan or conveyance of title to the 
property, the lender may file a claim for the guaranteed portion of 
allowable losses. All claim amounts must be calculated in accordance 
with this subpart and be approved by the Agency.



Sec. 3565.457  Determination of claim amount.

    (a) Maximum guarantee payment. The maximum guarantee payment will 
not exceed the amount of guarantee percentage as contained in the 
guarantee agreement (but in no event more than 90%) times the allowable 
loss amount.
    (b) Date of loss. The date of loss is the earliest of the date on 
which the property is foreclosed or acquired or the proposed date of 
foreclosure or acquisition in the liquidation plan, unless an 
alternative date is approved by the Agency. Where the Agency chooses to 
accept an assignment of the loan or conveyance of title, the date of 
loss will be the date on which the Agency accepts assignment of the loan 
or conveyance of title.
    (c) Allowable claim amount. The allowable claim amount must be 
calculated by:
    (1) Adding to the unpaid principal and interest on the date of loss, 
an amount approved by the Agency for payments made by the lender for 
amounts due and owing on the property, including:
    (i) Property taxes and other protective advances as approved by the 
Agency;
    (ii) Water and sewer charges and other special assessments that are 
liens prior to the guaranteed loan;
    (iii) Insurance on the property;
    (iv) Loan guarantee fees paid after default; and
    (v) Reasonable liquidation expenses.
    (2) And by deducting the following items:
    (i) Any amount received by the lender on the account of the 
guaranteed loan after the date of default;
    (ii) Any net income received by the lender from the secured property 
after the date of default; and
    (iii) Any cash items retained by the lender, except any amount 
representing a balance of the guaranteed loan not advanced to the 
borrower. Any loan amount not advanced will be applied by the lender to 
reduce the outstanding principal on the loan.
    (d) Lender certification. The lender must certify that all 
possibilities of collection have been exhausted and that all of the 
items specified in paragraph (c) of this section have been identified 
and reported to the Agency as a condition for payment of claim.



Sec. 3565.458  Withdrawal of claim.

    If the lender provides timely written notice to the Agency of 
withdrawal of the claim, the guarantee will continue as if the default 
had not occurred if the borrower cures the default prior to foreclosure 
or prior to acceptance of a deed-in-lieu of foreclosure.



Secs. 3565.459-3565.499  [Reserved]



Sec. 3565.500  OMB control number.

    According to the Paperwork Reduction Act of 1995, no party is 
required to respond to a collection of information unless it displays a 
valid OMB control number. The valid OMB control number for this 
information collection is 0575-0174.



PART 3570--COMMUNITY PROGRAMS--Table of Contents




Subpart A [Reserved]

              Subpart B--Community Facilities Grant Program

Sec.
3570.51  General.
3570.52  Purpose.
3570.53  Definitions.
3570.54-3570.60  [Reserved]
3570.61  Eligibility for grant assistance.
3570.62  Use of grant funds.
3570.63  Grant limitations.
3570.64  Applications determined ineligible.
3570.65  Processing preapplications and applications.
3570.66  Determining the maximum grant assistance.
3570.67  Project selection priorities.
3570.68  Selection process.

[[Page 444]]

3570.69  Environmental review, intergovernmental review, and public 
          notification.
3570.70  Other considerations.
3570.71-3570.74  [Reserved]
3570.75  Grantee contracts.
3570.76  Planning, bidding, contracting, and construction.
3570.77-3570.79  [Reserved]
3570.80  Grant closing and delivery of funds.
3570.81-3570.82  [Reserved]
3570.83  Audits.
3570.84  Grant servicing.
3570.85  Programmatic changes.
3570.86  [Reserved]
3570.87  Grant suspension, termination, and cancellation.
3570.88  Management assistance.
3570.89  [Reserved]
3570.90  Exception authority.
3570.91  Regulations.
3570.92  [Reserved]
3570.93  Regional Commission grants.
3570.94-3570.99  [Reserved]
3570.100  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989.

    Source: 62 FR 16469, Apr. 7, 1997, unless otherwise noted.

Subpart A [Reserved]



              Subpart B--Community Facilities Grant Program

    Source: 64 FR 32388, June 17, 1999, unless otherwise noted.



Sec. 3570.51  General.

    (a) This subpart contains Rural Housing Service (RHS) policies and 
authorizations and establishes procedures for making essential Community 
Facilities Grants (CFG) authorized under section 306(a)(19) of the 
Consolidated Farm and Rural Development Act (7 U.S.C. 1926(a)(19)).
    (b) Funds allocated for use in accordance with this subpart are also 
to be considered for use by federally recognized Indian tribes within a 
State regardless of whether State development strategies include Indian 
reservations within the State's boundaries. Indian tribes must have 
equal opportunity along with other rural residents to participate in the 
benefits of this program.
    (c) Federal statutes provide for extending RHS financial assistance 
without regard to race, color, religion, sex, national origin, age, 
disability, and marital or familial status. To file a complaint, write 
the Secretary of Agriculture, U.S. Department of Agriculture, Washington 
DC 20250, or call 1-800-245-6340 (voice) or (202) 730-1127 (TDD). 
Persons with disabilities who require alternative means for 
communication of program information (Braille, large print, audiotape, 
etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and 
TDD).
    (d) Any processing or servicing activity conducted pursuant to this 
subpart involving authorized assistance to Agency employees, members of 
their families, close relatives, or business or close personal 
associates is subject to the provisions of 7 CFR part 1900, subpart D. 
Applications for assistance are required to identify any relationship or 
association with an RHS employee.
    (e) Copies of all forms referenced in this subpart are available in 
the Agency's National Office or any Rural Development field office.
    (f) An outstanding judgment obtained against an applicant by the 
United States in a Federal Court (other than in the United States Tax 
Court), shall cause the applicant to be ineligible to receive any grant 
or loan until the judgment is paid in full or otherwise satisfied. Grant 
funds may not be used to satisfy the judgment.
    (g) Grants made under this subpart will be administered under, and 
are subject to, 7 CFR parts 3015, 3016, or 3019, as appropriate.
    (h) The income data used to determine median household income must 
be that which accurately reflects the income of the population to be 
served by the proposed facility. The median household income of the 
service area and the nonmetropolitan median household income for the 
State will be determined using income data from the most recent 
decennial Census of the United States. If there is reason to believe 
that the census data is not an accurate representation of the median 
household income within the area to be served, this will be documented 
and the applicant may furnish, or the Agency may obtain, additional 
information regarding such median household income. Information will 
consist of reliable data from local, regional, State, or Federal sources 
or from a survey conducted by a reliable impartial source.

[[Page 445]]

    (i) CFG funds can be used for up to 75 percent of the cost to 
develop the facility, notwithstanding that other contributions may be 
from other Federal sources.



Sec. 3570.52  Purpose.

    The purpose of CFG program is to assist in the development of 
essential community facilities in rural areas. The Agency will authorize 
grant funds on a graduated basis. Eligible applicants located in smaller 
communities with lower populations and lower median household incomes 
may receive a higher percentage of grant funds. The amount of CFG funds 
provided for a facility shall not exceed 75 percent of the cost of 
developing the facility.



Sec. 3570.53  Definitions.

    Agency. The Rural Housing Service (RHS), an agency of the U.S. 
Department of Agriculture, or a successor agency.
    Approval official. An official who has been delegated loan or grant 
approval authorities within applicable programs, subject to certain 
dollar limitations.
    CF. Community Facilities.
    CFG. Community Facilities Grant.
    Essential community facilities. Those public improvements requisite 
to the beneficial and orderly development of a community that is 
operated on a nonprofit basis. (See Sec. 3570.62(a)(1)). An essential 
community facility must:
    (1) Serve a function customarily provided by a local unit of 
government;
    (2) Be a public improvement needed for the orderly development of a 
rural community;
    (3) Not include private affairs or commercial or business 
undertakings (except for limited authority for industrial parks) unless 
it is a minor part of the total facility;
    (4) Be within the area of jurisdiction or operation for the public 
bodies eligible to receive assistance or a similar local rural service 
area of a not-for-profit corporation; and
    (5) Be located in a rural area.
    Facility. The physical structure financed by the Agency or the 
resulting service provided to rural residents.
    Grantee. An entity with whom the Agency has entered into a grant 
agreement under this program.
    Instructions. Agency internal procedures available in any Rural 
Development office and variously referred to as Rural Development 
Instructions, RD Instructions.
    Minor part. No more than 15 percent of the total floor space of the 
proposed facility.
    Nonprofit corporations. Any corporation that is not organized or 
maintained for the making of a profit and that meets the eligibility 
requirements for RHS financial assistance in accordance with 
Sec. 3570.61(a)(2).
    Processing office. The office designated by the State program 
official to accept and process applications for CF projects.
    Project cost. The cost of completing the proposed facility. 
(Facilities previously constructed will not be considered in determining 
project costs.) Total project cost will include only those costs 
eligible for CFG assistance.
    Poverty line. The level of income for a family of four as defined by 
section 673(2) of the Community Services Block Grant Act (42 U.S.C. 
9902(2)).
    Public body. Any State, county, city, township, incorporated town or 
village, borough, authority, district, economic development authority, 
or federally recognized Indian tribe in rural areas.
    Reasonable rates and terms. The rates and terms customarily charged 
public and nonprofit type borrowers in similar circumstances in the 
ordinary course of business and subject to Agency review.
    RHS. The Rural Housing Service, an agency of the United States 
Department of Agriculture, or a successor agency.
    Rural and rural area. For fiscal year 1999, the terms ``rural'' and 
``rural area'' include a city or town with a population of 20,000 or 
less inhabitants according to the latest decennial census of the United 
States. There is no limitation placed on population in open rural areas. 
After fiscal year 1999, the terms ``rural'' and ``rural area'' include a 
city, town, or unincorporated area that has a population of 50,000 
inhabitants or less, other than an urbanized area immediately adjacent 
to a

[[Page 446]]

city, town, or unincorporated area that has a population in excess of 
50,000 inhabitants.
    Rural Development. A mission area within USDA which includes Rural 
Housing Service, Rural Utilities Service, and Rural Business-Cooperative 
Service.
    RUS. The Rural Utilities Service, an agency of USDA or a successor 
agency.
    Service area. The area reasonably expected to be served by the 
facility.
    State. The term ``State'' means each of the 50 States, the 
Commonwealth of Puerto Rico, Guam, the Virgin Islands of the United 
States, American Samoa, the Commonwealth of the Northern Mariana 
Islands, the Marshall Islands, the Republic of Palau, and the Federated 
States of Micronesia.
    State Director. The term ``State Director'' means, with respect to a 
State, the Director of the Rural Development State Office.
    State nonmetropolitan median household income. The median household 
income of all rural areas of a State as reported by the U.S. Census 
Bureau.
    State strategic plan. A plan developed by each State for Rural 
Development initiatives and the type of assistance required. Plans shall 
identify goals, methods, and benchmarks for measuring success.



Secs. 3570.54-3570.60  [Reserved]



Sec. 3570.61  Eligibility for grant assistance

    The essential community facility must primarily serve rural areas, 
be located in a rural area, and the median household income of the 
population to be served by the proposed facility must be below the 
higher of the poverty line or the eligible percentage (60, 70, 80, or 
90) of the State nonmetropolitan median household income (see 
Sec. 3570.63(b)).
    (a) Eligible applicant. An applicant must be a:
    (1) Public body, such as a municipality, county, district, 
authority, or other political subdivision of a State;
    (2) Nonprofit corporation or association. Applicants, other than 
nonprofit utility applicants, must have significant ties with the local 
rural community. Such ties are necessary to ensure to the greatest 
extent possible that a facility under private control will carry out a 
public purpose and continue to primarily serve rural areas. Ties may be 
evidenced by items such as:
    (i) Association with, or controlled by, a local public body or 
bodies, or broadly based ownership and control by members of the 
community; or
    (ii) Substantial public funding through taxes, revenue bonds, or 
other local government sources or substantial voluntary community 
funding, such as would be obtained through a community-wide funding 
campaign.
    (3) Federally recognized Indian tribe in a rural area.
    (b) Eligible facilities. Essential community facilities must be:
    (1) Located in rural areas, except for utility-type services, such 
as telecommunications or hydroelectric, serving both rural and non-rural 
areas. In such cases, RHS funds may be used to finance only that portion 
serving rural areas, regardless of facility location.
    (2) Necessary for orderly community development and consistent with 
the State Strategic Plan.
    (c) Credit elsewhere. The approval official must determine that the 
applicant is unable to finance the proposed project from its own 
resources, or through commercial credit at reasonable rates and terms, 
or other funding sources without grant assistance under this subpart. 
The applicant must certify to such status in writing.
    (d) Economic feasibility. All projects financed under the provisions 
of this section must be based on satisfactory sources of revenues as 
outlined in 7 CFR 1942.17(h) and 1942.116. The amount of CFG assistance 
must be the minimum amount sufficient for feasibility which will provide 
for facility operation and maintenance, reasonable reserves, and debt 
repayment. The applicant's available excess funds must be used to 
supplement eligible project costs.
    (e) Legal authority and responsibility. Each applicant must have, or 
will obtain, prior to the grant award, the legal authority necessary to 
own, construct, operate, and maintain the proposed facility. The 
applicant shall be responsible for operating, maintaining, and managing 
the facility and providing for its continued availability

[[Page 447]]

and use at reasonable rates and terms. This responsibility shall be the 
applicant's even though the facility may be operated, maintained, or 
managed by a third party under contract or management agreement. If an 
applicant does not have the authority to borrow funds, but owns, 
operates, and maintains the facility, the applicant is eligible for CFG 
funds.
    (f) Facilities for public use. All facilities shall be for the 
benefit of the public at large without discrimination as to race, color, 
religion, sex, national origin, disability, and marital or familial 
status.



Sec. 3570.62  Use of grant funds.

    Grants of up to 75 percent of the cost of developing essential 
community facilities may be used to supplement financial assistance 
authorized in accordance with 7 CFR parts 1942, subparts A and C, and 
3575, subpart A. Eligible CFG purposes are those listed in paragraphs 
(a), (b), (c), and (d) of this section. Funding for the balance of the 
project may consist of other CF financial assistance, applicant 
contributions, or loans and grants from other sources. CFGs may be used 
to:
    (a) Construct, enlarge, extend, or otherwise improve essential 
community facilities providing essential service primarily to rural 
residents and rural businesses. Rural businesses include facilities such 
as educational and other publicly owned facilities.
    (1) ``Essential community facilities'' are those public improvements 
requisite to the beneficial and orderly development of a community 
operated on a nonprofit basis including, but not limited to:
    (i) Fire, rescue, and public safety;
    (ii) Health services;
    (iii) Community, social, or cultural services;
    (iv) Transportation facilities such as streets, roads, and bridges;
    (v) Hydroelectric generating facilities and related connecting 
systems and appurtenances, when not eligible for RUS financing;
    (vi) Telecommunications equipment as it relates to medical and 
educational telecommunications links;
    (vii) Supplemental and supporting structures for other rural 
electrification or telephone systems (including facilities such as 
headquarters and office buildings, storage facilities, and maintenance 
shops) when not eligible for RUS financing;
    (viii) Natural gas distribution systems; and
    (ix) Industrial park sites, but only to the extent of land 
acquisition and necessary site preparation, including access ways and 
utility extensions to and throughout the site. Funds may not be used in 
connection with industrial parks to finance on-site utility systems, or 
business and industrial buildings.
    (2) ``Otherwise improve'' includes, but is not limited to, the 
following:
    (i) The purchase of major equipment (such as solid waste collection 
trucks, telecommunication equipment, necessary maintenance equipment, 
fire service equipment, X-ray machines) which will in themselves provide 
an essential service to rural residents; and
    (ii) The purchase of existing facilities when it is necessary either 
to improve or to prevent a loss of service.
    (b) Construct or relocate public buildings, roads, bridges, fences, 
or utilities and to make other public improvements necessary to the 
successful operation or protection of facilities authorized in paragraph 
(a) of this section.
    (c) Relocate private buildings, roads, bridges, fences, or 
utilities, and other private improvements necessary to the successful 
operation or protection of facilities authorized in paragraph (a) of 
this section.
    (d) Pay the following expenses, but only when such expenses are a 
necessary part of a project to finance facilities authorized in 
paragraphs (a), (b), and (c) of this section:
    (1) Reasonable fees and costs such as legal, engineering, 
architectural, fiscal advisory, recording, environmental impact 
analyses, archeological surveys and possible salvage or other mitigation 
measures, planning, establishing or acquiring rights.
    (2) Costs of acquiring interest in land; rights, such as water 
rights, leases, permits, and rights-of-way; and other evidence of land 
or water control necessary for development of the facility.

[[Page 448]]

    (3) Purchasing or renting equipment necessary to install, maintain, 
extend, protect, operate, or utilize facilities.
    (4) Obligations for construction incurred before grant approval. 
Construction work should not be started and obligations for such work or 
materials should not be incurred before the grant is approved. However, 
if there are compelling reasons for proceeding with construction before 
grant approval, applicants may request Agency approval to pay such 
obligations. Such requests may be approved if the Agency determines 
that:
    (i) Compelling reasons exist for incurring obligations before grant 
approval;
    (ii) The obligations will be incurred for authorized grant purposes;
    (iii) Contract documents have been approved by the Agency;
    (iv) All environmental requirements applicable to the Agency and the 
applicant have been met; and
    (v) The applicant has the legal authority to incur the obligations 
at the time proposed, and payment of the debts will remove any basis for 
any mechanic's, material, or other liens that may attach to the security 
property.

The Agency may authorize payment of such obligations at the time of 
grant closing. The Agency's authorization to pay such obligations, 
however, is on the condition that it is not committed to make the grant; 
it assumes no responsibility for any obligations incurred by the 
applicant; and the applicant must subsequently meet all grant approval 
requirements. The applicant's request and the Agency's authorization for 
paying such obligations shall be in writing.



Sec. 3570.63  Grant limitations.

    (a) Grant funds may not be used to:
    (1) Pay initial operating expenses or annual recurring costs, 
including purchases or rentals that are generally considered to be 
operating and maintenance expenses (unless a CF loan is part of the 
funding package);
    (2) Construct or repair electric generating plants, electric 
transmission lines, or gas distribution lines to provide services for 
commercial sale;
    (3) Refinance existing indebtedness;
    (4) Pay interest;
    (5) Pay for facilities located in nonrural areas, except as noted in 
Sec. 3570.61(b)(1).
    (6) Pay any costs of a project when the median household income of 
the population to be served by the proposed facility is above the higher 
of the poverty line or eligible percent (60, 70, 80, or 90) of the State 
nonmetropolitan median household income (see Sec. 3570.63(b));
    (7) Pay project costs when other loan funding for the project is not 
at reasonable rates and terms;
    (8) Pay an amount greater than 75 percent of the cost to develop the 
facility;
    (9) Pay costs to construct facilities to be used for commercial 
rental unless it is a minor part of the total facility;
    (10) Construct facilities primarily for the purpose of housing 
State, Federal, or quasi-Federal agencies; and
    (11) Pay for any purposes restricted by 7 CFR 1942.17(d)(2).
    (b) Grant assistance will be provided on a graduated scale with 
smaller communities with the lowest median household incomes being 
eligible for projects with a higher proportion of grant funds. Grant 
assistance is limited to the following percentages of eligible project 
costs:
    (1) 75 percent when the proposed project is:
    (i) Located in a rural community having a population of 5,000 or 
less; and
    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 60 
percent of the State nonmetropolitan median household income.
    (2) 55 percent when the proposed project is:
    (i) Located in a rural community having a population of 12,000 or 
less; and
    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 70 
percent of the State nonmetropolitan median household income.
    (3) 35 percent when the proposed project is:
    (i) Located in a rural community having a population of 20,000 or 
less; and

[[Page 449]]

    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 80 
percent of the State nonmetropolitan median household income.
    (4) 15 percent when the proposed project is:
    (i) Located in a rural community having a population of 50,000 or 
less; and
    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 90 
percent of the State nonmetropolitan median household income.
    (5) Grant assistance cannot exceed the applicable percentages 
contained in this section and may be further limited due to availability 
of funds or by the maximum grant assistance allowable determined in 
accordance with Sec. 3570.66.



Sec. 3570.64  Applications determined ineligible.

    If, at any time, an application is determined ineligible, the 
processing office will notify the applicant in writing of the reasons. 
The applicant will be advised that it may appeal the decision. (See 7 
CFR part 11.)



Sec. 3570.65  Processing preapplications and applications.

    For combination proposals for loan and grant funds, only one 
preapplication package and one application package should be prepared 
and submitted. Preapplications and applications for grants will be 
developed in accordance with applicable portions of 7 CFR 1942.2, 
1942.104, and 3575.52.
    (a) Preapplications. Applicants will file an original and one copy 
of ``Application for Federal Assistance (For Construction),'' with the 
appropriate Agency office. This form is available in all Agency offices. 
The preapplication and supporting documentation are used to determine 
applicant eligibility and priority for funding.
    (1) All preapplications shall be accompanied by:
    (i) Evidence of applicant's legal existence and authority; and
    (ii) Appropriate clearinghouse agency comments.
    (b) Application processing. Upon notification on ``Notice of 
Preapplication Review Action'' that the applicant is eligible for CFG 
funding, the applicant will be provided forms and instructions for 
filing a complete application. The forms required for a complete 
application, including the following, will be submitted to the 
processing office by the applicant:
    (1) Updated ``Application for Federal Assistance (For 
Construction).''
    (2) Financial feasibility report.
    (c) Discontinuing the processing of the application. If the 
applicant fails to submit the application and related material by the 
date shown on ``Notice of Preapplication Review Action'' (normally 60 
days from the date of this form), the Agency will discontinue 
consideration of the application.



Sec. 3570.66  Determining the maximum grant assistance.

    (a) Responsibility. State Directors are responsible for determining 
the applicant's eligibility for grant assistance.
    (b) Maximum grant assistance. Grant assistance cannot exceed the 
lower of:
    (1) Qualifying percentage of eligible project cost determined in 
accordance with Sec. 3570.63(b);
    (2) Minimum amount sufficient to provide for economic feasibility as 
determined in accordance with Sec. 3570.61(d); or
    (3) Either 50 percent of the annual State allocation or $50,000, 
whichever is greater, unless an exception is made by the RHS 
Administrator in accordance with Sec. 3570.90.



Sec. 3570.67  Project selection priorities.

    Applications are scored on a priority basis. Points will be 
distributed as follows:
    (a) Population priorities. The proposed project is located in a 
rural community having a population of:
    (1) 5,000 or less--30 points;
    (2) Between 5,001 and 12,000, inclusive--20 points;
    (3) Between 12,001 and 20,000, inclusive--10 points; or
    (4) Between 20,001 and 50,000, inclusive, when applicable--5 points.
    (b) Income priorities. The median household income of the population 
to

[[Page 450]]

be served by the proposed project is below the higher of the poverty 
line or:
    (1) 60 percent of the State nonmetropolitan median household income-
-30 points;
    (2) 70 percent of the State nonmetropolitan median household income-
-20 points;
    (3) 80 percent of the State nonmetropolitan median household income-
-10 points; or
    (4) 90 percent of the State nonmetropolitan median household income-
-5 points.
    (c) Other priorities. Points will be assigned for one or more of the 
following initiatives:
    (1) Project is consistent with, and is reflected in, the State 
Strategic Plan--10 points;
    (2) Project is for health care--10 points; or
    (3) Project is for public safety--10 points.
    (d) Discretionary. (1) The State Director may assign up to 15 points 
to a project in addition to those that may be scored under paragraphs 
(a) through (c) of this section. These points are to address unforeseen 
exigencies or emergencies, such as the loss of a community facility due 
to an accident or natural disaster or the loss of joint financing if 
Agency funds are not committed in a timely fashion. In addition, the 
points will be awarded to projects benefiting from the leveraging of 
funds in order to improve compatibility and coordination between the 
Agency and other agencies' selection systems and for those projects that 
are the most cost effective.
    (2) In selecting projects for funding at the National Office level, 
additional points will be awarded based on the priority assigned to the 
project by the State Office. These points will be awarded in the manner 
shown below. Only the three highest priority projects for a State will 
be awarded points. The Administrator may assign up to 30 additional 
points to account for geographic distribution of funds, emergency 
conditions caused by economic problems, natural disasters, or leveraging 
of funds.

------------------------------------------------------------------------
                          Priority                              Points
------------------------------------------------------------------------
1..........................................................            5
2..........................................................            3
3..........................................................            1
------------------------------------------------------------------------



Sec. 3570.68  Selection process.

    Each request for grant assistance will be carefully scored and 
prioritized to determine which projects should be selected for further 
development and funding.
    (a) Selection of applications for further processing. The approval 
official will, subject to paragraph (b) of this section, authorize 
grants for those eligible preapplications with the highest priority 
score. When selecting projects, the following circumstances must be 
considered:
    (1) Scoring of project and scores of other applications on hand;
    (2) Funds available in the State allocation; and
    (3) If other Community Facilities financial assistance is needed for 
the project, the availability of other funding sources.
    (b) Lower scoring projects. (1) In cases when preliminary cost 
estimates indicate that an eligible, high-scoring application is not 
feasible, or would require grant assistance exceeding 50 percent of a 
State's current annual allocation, or an amount greater than that 
remaining in the State's allocation, the approval official may instead 
select the next lower-scoring application for further processing 
provided the high-scoring applicant is notified of this action and given 
an opportunity to review the proposal and resubmit it prior to selection 
of the next application.
    (2) If it is found that there is no effective way to reduce costs, 
the approval official, after consultation with the applicant, may 
request an additional allocation of funds from the National office.



Sec. 3570.69  Environmental review, intergovernmental review, and public notification.

    All grants awarded under this subpart, including grant-only awards, 
are subject to the environmental requirements of 7 CFR part 1940, 
subpart G, to the intergovernmental review requirements of RD 
Instruction 1940-J (available in any Rural Development office),

[[Page 451]]

and the public information process in 7 CFR 1942.17(j)(9).



Sec. 3570.70  Other considerations.

    Each application must contain the comments, necessary 
certifications, and recommendations of appropriate Federal or State 
regulatory or other agency or institution having expertise in the 
planning, operation, and management of similar facilities as required by 
7 CFR parts 1942, subparts A and C, and 3575, subpart A. Proposals for 
facilities financed in whole or in part with Agency funds will be 
coordinated with appropriate Federal, State, and local agencies as 
required by the following:
    (a) Grants under this subpart are subject to the provisions of 7 CFR 
1942.17(k) which include title VI of the Civil Rights Act of 1964, 
section 504 of the Rehabilitation Act of 1973, Americans with Disability 
Act of 1990, and the regulations issued thereto. Certain housing-related 
projects, such as nursing homes, group homes, or assisted-living 
facilities, must comply with the requirements of the Fair Housing Act.
    (b) Governmentwide debarment and suspension (nonprocurement) and 
requirements for drug-free workplace are applicable to CFG and grantees. 
See 7 CFR part 3017 and RD Instruction 1940-M (available in any Rural 
Development office) for further guidance.
    (c) Restrictions on lobbying. Grantees must comply with the lobbying 
restrictions set forth in 7 CFR part 3018.
    (d) Civil Rights Impact Analysis, RD Instruction 2006-P (available 
in any Rural Development office), and ``Civil Rights Impact Analysis 
Certification.''



Secs. 3570.71-3570.74  [Reserved]



Sec. 3570.75  Grantee contracts.

    The requirements of 7 CFR 1942.4, 1942.17(e), 1942.17(l), 1942.118, 
and 1942.119 will be applicable when agreements between grantees and 
third parties are involved.



Sec. 3570.76  Planning, bidding, contracting, and construction.

    Planning, bidding, contracting, and construction will be handled in 
accordance with 7 CFR 1942.9, 1942.18, and 1942.126.



Secs. 3570.77-3570.79  [Reserved]



Sec. 3570.80  Grant closing and delivery of funds.

    (a) ``Community Facilities Grant Agreement'' will be used as the 
grant agreement between the Agency and the grantee and will be signed by 
the grantee before grant funds are advanced.
    (b) Approval officials may require applicants to record liens or 
other appropriate notices of record to indicate that personal or real 
property has been acquired or improved with Federal grant funds and that 
use and disposition conditions apply to the property as provided by 7 
CFR parts 3015, 3016, or 3019, as subsequently modified.
    (c) Agency grant funds will be disbursed and monitored in accordance 
with 7 CFR 1942.17(p), 1942.123, and 1942.127.
    (d) Grant funds will not be disbursed until they are actually needed 
by the applicant and all borrower, Agency, or other funds are expended, 
except when:
    (1) Interim financing of the total estimated amount of loan funds 
needed during construction is arranged,
    (2) All interim funds have been disbursed, and
    (3) Agency grant funds are needed before RHS or other loans can be 
closed.
    (e) If grant funds are available from other agencies and are 
transferred for disbursement by RHS, these grant funds will be disbursed 
in accordance with the agreement governing such other agencies' 
participation in the project.



Secs. 3570.81-3570.82  [Reserved]



Sec. 3570.83  Audits.

    (a) Audits will be conducted in accordance with 7 CFR 1942.17(q)(4), 
except as provided in this section.
    (b) Grantees who are not required to submit an audit report will, 
within 60 days following the end of the fiscal year in which any grant 
funds were expended, furnish RHS with annual financial statements, 
consisting of a verification of the organization's balance sheet and 
statement of income and expense report signed by an appropriate official 
of the organization or

[[Page 452]]

other documentation as determined appropriate by the approval official.



Sec. 3570.84  Grant servicing.

    Grants will be serviced in accordance with 7 CFR part 1951, subparts 
E and O.



Sec. 3570.85  Programmatic changes.

    The grantee shall obtain prior Agency approval for any change to the 
objectives of the approved project. (For construction projects, a 
material change in approved space utilization or functional layout shall 
be considered such a change.) Failure to obtain prior approval of 
changes to the approved project or budget may result in suspension, 
refund, or termination of grant funds.



Sec. 3570.86  [Reserved]



Sec. 3570.87  Grant suspension, termination, and cancellation.

    Grants may be suspended or terminated for cause or convenience in 
accordance with 7 CFR parts 3015, 3016, or 3019, as applicable.



Sec. 3570.88  Management assistance.

    Grant recipients will be supervised to the extent necessary to 
ensure that facilities are constructed in accordance with approved plans 
and specifications and to ensure that funds are expended for approved 
purposes.



Sec. 3570.89  [Reserved]



Sec. 3570.90  Exception authority.

    An RHS official may request, and the Administrator or designee may 
make, in individual cases, an exception to any requirement or provision 
of this subpart or address any omission of this subpart if the 
Administrator determines that application of the requirement or 
provision, or failure to take action in the case of an omission, would 
adversely affect the Government's interest.



Sec. 3570.91  Regulations.

    Grants under this part will be in accordance with 7 CFR parts 3015, 
3016, or 3019, as applicable, and any conflicts between those parts and 
this part will be resolved in favor of applicable 7 CFR parts 3015, 
3016, or 3019.



Sec. 3570.92  [Reserved]



Sec. 3570.93  Regional Commission grants.

    (a) Grants are sometimes made by Federal Regional Commissions 
(designated under Title V of the Public Works and Economic Development 
Act of 1965) for projects eligible for RHS assistance. RHS has agreed to 
administer such funds in a manner similar to administering RHS 
assistance.
    (b) The transfer of funds from a Federal Regional Commission to RHS 
will be based on specific applications determined to be eligible for an 
authorized purpose in accordance with the requirements of RHS and the 
Federal Regional Commission.
    (c) The Appalachian Regional Commission (ARC) is authorized under 
the Appalachian Regional Development Act of 1965 to serve the 
Appalachian region. ARC grants are handled in accordance with the ARC 
Agreement which applies to all ARC grants administered by Rural 
Development. Therefore, a separate Project Management Agreement between 
RHS and ARC is not needed for each ARC grant.
    (d) Grants by other Federal Regional Commissions are handled in 
accordance with a separate Project Management Agreement between the 
respective Federal Regional Commission and RHS for each Commission grant 
or class of grants administered by RHS.
    (e) When the Agency has funds in the project, no charge will be made 
for administering Federal Regional Commission grant funds.
    (f) When RHS has no loan or grant funds in the project, an 
administrative charge will be made pursuant to the Economy Act (31 
U.S.C. 1535).



Secs. 3570.94-3570.99  [Reserved]



Sec. 3570.100  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0575-0173. You are not required to 
respond to this collection of information unless it displays a valid OMB 
control number.

[[Page 453]]



PART 3575--GENERAL--Table of Contents




             Subpart A--Community Programs Guaranteed Loans

Sec.
3575.1  General.
3575.2  Definitions.
3575.3  Full faith and credit.
3575.4  Conditions of guarantee.
3575.5-3575.7  [Reserved]
3575.8  Access to lender's records.
3575.9  Environmental requirements.
3575.10-3575.11  [Reserved]
3575.12  Inspections.
3575.13  Appeals.
3575.14-3575.16  [Reserved]
3575.17  Exception authority.
3575.18-3575.19  [Reserved]
3575.20  Eligibility.
3575.21-3575.23  [Reserved]
3575.24  Eligible loan purposes.
3575.25  Ineligible loan purposes.
3575.26  [Reserved]
3575.27  Eligible lenders.
3575.28  Transfer of lenders or borrowers (prior to issuance of Loan 
          Note Guarantee).
3575.29  Fees and charges by lender.
3575.30  Loan guarantee limitations.
3575.31-3575.32  [Reserved]
3575.33  Interest rates.
3575.34  Terms of loan repayment.
3575.35-3575.36  [Reserved]
3575.37  Insurance and fidelity bonds.
3575.38-3575.39  [Reserved]
3575.40  Equal opportunity and Fair Housing Act requirements.
3575.41  [Reserved]
3575.42  Design and construction requirements.
3575.43  Other Federal, State, and local requirements.
3575.44-3575.46  [Reserved]
3575.47  Economic feasibility requirements.
3575.48  Security.
3575.49-3575.51  [Reserved]
3575.52  Processing.
3575.53  Evaluation of application.
3575.54-3575.58  [Reserved]
3575.59  Review of requirements.
3575.60-3575.62  [Reserved]
3575.63  Conditions precedent to issuance of the Loan Note Guarantee.
3575.64  Issuance of Lender's Agreement, Loan Note Guarantee, and 
          Assignment Guarantee Agreement.
3575.65  Lender's sale or assignment of the guaranteed portion of loan.
3575.66-3575.68  [Reserved]
3575.69  Loan servicing.
3575.70-3575.72  [Reserved]
3575.73  Replacement of loss, theft, destruction, mutilation, or 
          defacement of Loan Note Guarantee or Assignment Guarantee 
          Agreement.
3575.74  [Reserved]
3575.75  Defaults by borrower.
3575.76-3575.77  [Reserved]
3575.78  Repurchase of loan.
3575.79  [Reserved]
3575.80  Interest rate changes after loan closing.
3575.81  Liquidation.
3575.82  [Reserved]
3575.83  Protective advances.
3575.84  Additional loans or advances.
3575.85  Bankruptcy.
3575.86-3575.87  [Reserved]
3575.88  Transfer and assumptions.
3575.89  Mergers.
3575.90  Disposition of acquired property.
3575.91-3575.93  [Reserved]
3575.94  Determination and payment of loss.
3575.95  Future recovery.
3575.96  Termination of Loan Note Guarantee.
3575.97-3575.99  [Reserved]
3575.100  OMB control number.

Subpart B  [Reserved]

    Authority: 5 U.S.C. 301, 7 U.S.C. 1989.

    Source: 64 FR 28337, May 26, 1999, unless otherwise noted.



             Subpart A--Community Programs Guaranteed Loans



Sec. 3575.1  General.

    (a) This subpart contains the regulations for Community Programs 
loans guaranteed by the Agency and applies to lenders, holders, 
borrowers, and other parties involved in making, guaranteeing, holding, 
servicing, or liquidating such loans.
    (b) The purpose of the Community Programs guaranteed loan program is 
to improve, develop, or finance essential community facilities in rural 
areas. This purpose is achieved through bolstering the existing private 
credit structure through the guarantee of quality loans which will 
provide lasting community benefits.



Sec. 3575.2  Definitions.

    The following general definitions are applicable to the terms used 
in this subpart:
    Agency. The Rural Housing Service which is within the Rural 
Development mission area of the United States Department of Agriculture 
or its successor agencies with authority delegated by the Secretary of 
Agriculture

[[Page 454]]

to administer the Community Facilities programs.
    Application. An Agency prescribed form to request an Agency 
guarantee (available in any Agency office).
    Arm's length transaction. The sale, release, or disposition of 
assets in which the title to the property passes to a ready, willing, 
and able third party who is not affiliated with, or related to, and has 
no security, monetary, or stockholder interest in the borrower or 
transferor at the time of the transaction.
    Assignment Guarantee Agreement. The signed agreement among the 
Agency, the lender, and the holder setting forth the terms and 
conditions of an assignment of the guaranteed portion of a loan or any 
part thereof (available in any Agency office).
    Borrower. The entity that borrows money from the lender.
    Collateral. Property pledged to secure the guaranteed loan.
    Community facility (essential). The term ``facility'' as used in 
this subpart refers to both the physical structure financed and the 
resulting service provided to rural residents. An essential community 
facility must:
    (1) Be a function customarily provided by a local unit of 
government;
    (2) Be a public improvement needed for the orderly development of a 
rural community;
    (3) Not include private affairs or commercial or business 
undertakings (except for limited authority for industrial parks);
    (4) Be within the area of jurisdiction or operation for eligible 
public bodies or a similar local rural service area of a not-for-profit 
corporation; and
    (5) Be located in a rural area.
    Conditional Commitment for Guarantee. The Agency's written statement 
to the lender that the material submitted is approved subject to the 
completion of all conditions and requirements contained in the 
commitment (available in any Agency office).
    Guaranteed loan. A loan made and serviced by a lender for which the 
Agency and lender have entered into a Lender's Agreement and for which 
the Agency has issued a Loan Note Guarantee.
    Holder. The person or entity (other than the lender) who holds all 
or a part of the guaranteed portion of the loan with no servicing 
responsibilities. When the lender assigns part or all of the guaranteed 
portion of the loan to an assignee, the assignee becomes a holder when 
the Assignment Guarantee Agreement is signed by all parties.
    Immediate family. Individuals who are closely related by blood or by 
marriage, or within the same household, such as a spouse, parent, child, 
brother, sister, aunt, uncle, grandparent, grandchild, niece, or nephew.
    In-house expenses. In-house expenses include, but are not limited 
to, employees' salaries, staff lawyers, travel, and overhead.
    Insurance. Fire, windstorm, lightning, hail, explosion, riot, civil 
commotion, aircraft, vehicles, smoke, builder's risk, liability, 
property damage, flood or mudslide, worker's compensation, fidelity 
bond, malpractice, or any similar insurance that is available and needed 
to protect the security or that is required by law.
    Joint financing. Two or more lenders (or any combination of lenders 
and other financial sources) making separate relatively contemporaneous 
loans to supply the funds required by one borrower. For example, such 
joint financing may consist of the Agency's financial assistance with 
the Economic Development Administration, Department of Housing and Urban 
Development (HUD), or other Federal and State agencies, and private and 
quasi-public financial institutions.
    Lender. The person or organization making and responsible for 
servicing the loan. The lender is also referred to in this subpart as 
the applicant who is requesting a guarantee during the preapplication 
and application stage of processing.
    Lender's Agreement. The signed agreement between the Agency and the 
lender containing the lender's responsibilities when the Loan Note 
Guarantee is issued (available in any Agency office).
    Loan classification system. The process by which loans are examined 
and categorized by degree of potential loss in the event of default.

[[Page 455]]

    Loan Note Guarantee. The signed commitment issued by the Agency 
containing the terms and conditions of the guarantee of an identified 
loan (available in any Agency office).
    Market value. The amount for which property would sell for its 
highest and best use at a voluntary sale in an arm's length transaction.
    Note. An evidence of debt. In those instances where the Agency 
guarantees a bond issue, ``note'' shall also be construed to include a 
bond or other evidence of indebtedness, as appropriate.
    Participation. Sale of an interest in a loan in which the lender 
retains the note, collateral securing the note, and all responsibility 
for loan servicing and liquidation.
    Principals of borrowers. The owners, officers, directors, entities, 
and supervisors directly involved in the operation and management of the 
borrower.
    Problem loan. A loan which is not complying with its terms and 
conditions.
    Protective advances. Advances made by the lender for the purpose of 
preserving and protecting the collateral where the debtor has failed to, 
and will not or cannot, meet obligations to protect or preserve 
collateral.
    Public body. A municipality, county, or other political subdivision 
of a State, special purpose district, an Indian tribe on a Federal or 
State reservation, or another federally recognized Indian tribe.
    Report of loss. A form used by lenders when reporting a loss under 
an Agency guarantee (available in any Agency office).
    Rural and rural area. (1) For fiscal year 1999, the terms ``rural'' 
and ``rural area'' mean a city, town, or unincorporated area with 20,000 
inhabitants or less according to the latest decennnial census.
    (2) For later fiscal years, the terms ``rural'' and ``rural area'' 
mean a city, town, or unincorporated area that has a population of 
50,000 inhabitants or less according to the latest decennial census of 
the United States, other than an urbanized area immediately adjacent to 
a city, town, or unincorporated area that has a population in excess of 
50,000 inhabitants.
    Service area. The area reasonably expected to be served by the 
facility being financed by the guaranteed loan.
    State. Any of the 50 States, the Commonwealth of Puerto Rico, the 
Virgin Islands of the United States, Guam, American Samoa, Commonwealth 
of the Northern Mariana Islands, Republic of the Marshall Islands, 
Republic of Palau, and the Federated States of Micronesia.
    State Bond Banks and State Bond Pools. An entity authorized by the 
State to issue State debt instruments and utilize the funds received to 
finance essential community facilities.
    State Director. The Rural Development State Director or the staff 
member who has been delegated authority to perform action on behalf of 
the State Director.
    Substantive change. Any change in the purpose of the loan or any 
change in the financial condition of the borrower or the collateral 
which would jeopardize the performance of the loan.
    Transfer and assumption. The conveyance by a debtor to an assuming 
party of the assets, collateral, and liabilities of the loan in return 
for the assuming party's binding promise to pay the outstanding debt.



Sec. 3575.3  Full faith and credit.

    The Loan Note Guarantee constitutes an obligation supported by the 
full faith and credit of the United States and is not contestable except 
for fraud or misrepresentation (including negligent misrepresentation) 
of which the lender or holder has actual knowledge, participates in, or 
condones. A note which provides for the payment of interest on interest 
shall not be guaranteed and any Loan Note Guarantee or Assignment 
Guarantee Agreement attached to, or relating to, a note which provides 
for payment of interest on interest is void. The Loan Note Guarantee 
will not be enforceable by the lender to the extent any loss is 
occasioned by violation of usury laws, negligent servicing, or failure 
to obtain the required security regardless of the time at which the 
Agency acquires knowledge of the foregoing. Any losses occasioned will 
not be enforceable by the lender to the extent that loan funds are used 
for purposes other than

[[Page 456]]

those specifically approved by the Agency in its Conditional Commitment 
for Guarantee. Negligent servicing is defined as the failure to perform 
those services which a reasonably prudent lender would perform in 
servicing its own portfolio of loans that are not guaranteed. The term 
includes not only the concept of a failure to act, but also not acting 
in a timely manner, acting in a manner contrary to the manner in which a 
reasonably prudent lender would act up to the time of loan maturity, or 
until a final loss is paid. The Loan Note Guarantee or Assignment 
Guarantee Agreement in the hands of a holder shall not cover interest 
accruing 90 days after the holder has demanded repurchase by the lender, 
nor shall the Loan Note Guarantee or Assignment Guarantee Agreement in 
the hands of a holder cover interest accruing 90 days after the lender 
or Agency has requested the holder to surrender the evidence of debt for 
repurchase.



Sec. 3575.4  Conditions of guarantee.

    A loan guarantee under this part will be evidenced by a Loan Note 
Guarantee issued by the Agency. Each lender will also execute a Lender's 
Agreement.
    (a) The entire loan will be secured by the same security with equal 
lien priority for the guaranteed and non-guaranteed portions of the 
loan. The non-guaranteed portion of the loan will not be paid first nor 
given any preference or priority over the guaranteed portion.
    (b) The lender will be responsible for servicing the entire loan and 
will remain mortgagee or secured party of record notwithstanding the 
fact that another party may hold a portion of the loan.
    (c) When a guaranteed portion of a loan is sold to a holder, the 
holder shall have all rights of the lender under the Loan Note Guarantee 
to the extent of the portion purchased. The lender will remain bound by 
all the obligations under the Loan Note Guarantee, Lender's Agreement, 
and Agency program regulations. If the Agency makes a payment to a 
holder, then the lender must reimburse the Agency.
    (d) A lender will receive all payments of principal and interest on 
the account of the entire loan and will promptly remit to each holder a 
pro rata share, less any lender servicing fee.
    (e) The lender may retain all of the unguaranteed portion of the 
loan or may sell part of the unguaranteed portion of the loan through 
participation. However, the lender is required to retain 5 percent of 
the loan amount from the unguaranteed portion in their portfolio.



Secs. 3575.5-3575.7  [Reserved]



Sec. 3575.8  Access to lender's records.

    Upon request by the Agency, the lender will permit representatives 
of the Agency (or other agencies of the U.S. Department of Agriculture 
authorized by that Department or the U.S. Government) to inspect and 
make copies of any of the records of the lender pertaining to the 
guaranteed loans. Such inspection and copying may be made during regular 
office hours of the lender or at any other time the lender and the 
Agency agree upon.



Sec. 3575.9  Environmental requirements.

    Requirements for an environmental review or mitigation actions are 
contained in part 1940, subpart G, of this title. The lender must assist 
the Agency to ensure that the lender's applicant complies with any 
mitigation measures required by the Agency's environmental review for 
the purpose of avoiding or reducing adverse environmental impacts of 
construction or operation of the facility financed with the guaranteed 
loan. This assistance includes ensuring that the lender's applicant is 
to take no actions (for example, initiation of construction) or incur 
any obligations with respect to their proposed undertaking that would 
either limit the range of alternatives to be considered during the 
Agency's environmental review process or which would have an adverse 
effect on the environment. If construction is started prior to 
completion of the environmental review and the Agency is deprived of its 
opportunity to fulfill its obligation to comply with applicable 
environmental requirements, the application for financial assistance may 
be denied. Satisfactory completion of the environmental review process 
must occur prior to

[[Page 457]]

Agency approval of the applicant's request or any commitment of Agency 
resources.



Secs. 3575.10-3575.11  [Reserved]



Sec. 3575.12  Inspections.

    The lender will notify the Agency of any scheduled field inspections 
during construction and after issuance of the Loan Note Guarantee. The 
Agency may attend such field inspections. Any inspections or review 
conducted by the Agency, including those with the lender, are for the 
benefit of the Agency only and not for the benefit of other parties of 
interest. Agency inspections do not relieve any parties of interest of 
their responsibilities to conduct necessary inspections.



Sec. 3575.13  Appeals.

    Only the borrower, lender, or holder can appeal an Agency decision. 
In cases where the Agency has denied or reduced the amount of final loss 
payment to the lender, the adverse decision may be appealed only by the 
lender. A decision by a lender adverse to the interest of the borrower 
is not a decision by the Agency, whether or not concurred in by the 
Agency. Appeals will be handled in accordance with the regulations of 
the National Appeals Division, U.S. Department of Agriculture, published 
at 7 CFR part 11.



Secs. 3575.14-3575.16  [Reserved]



Sec. 3575.17  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this subpart or address any omission of this 
subpart provided the Administrator determines that application of the 
requirement or provision, or failure to take action in the case of an 
omission, would adversely affect the Government's financial interest. 
Requests for exceptions must be in writing by the State Director.



Secs. 3575.18-3575.19  [Reserved]



Sec. 3575.20  Eligibility.

    (a) Availability of credit from other sources. The Agency must 
determine that the borrower is unable to obtain the required credit 
without the loan guarantee from private, commercial, or cooperative 
sources at reasonable rates and terms for loans for similar purposes and 
periods of time. This determination shall become a part of the Agency 
casefile. The Agency must also determine if an outstanding judgment 
obtained by the United States in a Federal Court (other than the U.S. 
Tax Court) has been entered against the borrower or if the borrower has 
an outstanding delinquent debt with any Federal agency. Such judgment or 
delinquency shall cause the potential borrower to be ineligible to 
receive a loan guarantee until the judgment is paid in full or otherwise 
satisfied or the delinquency is cured.
    (b) Legal authority and responsibility. (1) Each borrower must have, 
or will obtain, the legal authority necessary to construct, operate, and 
maintain the proposed facility and services. They must also have legal 
authority for obtaining security and repaying the proposed loan.
    (2) The borrower shall be responsible for operating, maintaining, 
and managing the facility and services, and providing for the continued 
availability and use of the facility and services at reasonable rates 
and terms.
    (i) These responsibilities must be exercised by the borrower even 
though the facility may be operated, maintained, or managed by a third 
party under contract, management agreement, or written lease.
    (ii) Leases may only be used when this is the only feasible way to 
provide the service, is the customary practice to provide such service 
in the State, and must provide for the borrower's management control of 
the facility.
    (iii) Contracts, management agreements, or leases must not contain 
options or other provisions for transfer of ownership.
    (3) The lender is responsible for reviewing any contracts, 
management agreements, or leases to determine that they will not 
adversely impact the borrower's repayment ability or the security value 
of the guaranteed loan.
    (c) Borrower. (1) A public body such as a municipality, county, 
district, authority, or other political subdivision of a State located 
in a rural area.

[[Page 458]]

    (2) An organization operated on a not-for-profit basis such as an 
association, cooperative, or private corporation. For-profit 
corporations operated as not-for-profit corporations are eligible 
borrowers as long as they operate as a not-for-profit corporation for 
the duration of their guaranteed loans. Single member corporations or 
corporations owned or substantially controlled by other corporations or 
associations are not eligible organizations. Before a loan is made to a 
borrower other than a public body, the articles of incorporation or the 
loan agreement will include a condition similar to the following:

    If the corporation dissolves or ceases to perform the community 
facility objectives and functions, the board of directors shall 
distribute all business property and assets to one or more nonprofit 
corporations or public bodies. This distribution must be approved by 75 
percent of the users or members and must serve the public welfare of the 
community. The assets may not be distributed to any members, directors, 
stockholders, or others having financial or managerial interest in the 
corporation. Nothing herein shall prohibit the corporation from paying 
its debts.

    (3) A private nonprofit essential community facility (other than 
utilities) must have significant ties with the local rural community. 
Such ties are necessary to ensure to the greatest extent possible that a 
facility under private control will carry out a public purpose and 
continue to primarily serve rural areas. Ties may be evidenced by items 
such as:
    (i) Association with, or controlled by, a local public body or 
bodies or broadly based ownership and controlled by members of the 
community.
    (ii) Substantial public funding through taxes, revenue bonds, or 
other local government sources, or substantial voluntary community 
funding such as would be obtained through a community-wide funding 
campaign.
    (4) Indian tribes on Federal and State reservations and other 
federally recognized Indian tribes.
    (d) Facility location. Facilities must be located in rural areas, 
except:
    (1) For utility services such as natural gas or hydroelectric 
serving both rural and non-rural areas. In such cases, Agency funds may 
be used to finance only that portion serving rural areas, regardless of 
facility location.
    (2) Telecommunication projects. The part of the facility located in 
a non-rural area must be necessary to provide the essential services to 
rural areas.
    (e) Facilities for public use. All facilities financed under the 
provisions of this subpart shall be for public purposes.
    (1) Facilities will be installed to serve any user within the 
service area who desires service and can be feasibly and legally served.
    (2) In no case will boundaries for the proposed service area be 
chosen in such a way that any user or area will be excluded because of 
race, color, religion, sex, marital status, age, disability, or national 
origin. This does not preclude:
    (i) Financing or constructing projects in phases when it is not 
practical to finance or construct the entire project at one time, and
    (ii) Financing or constructing facilities where it is not 
economically feasible to serve the entire area, provided economic 
feasibility is determined on the basis of the entire system or facility 
and not by considering the cost of separate extensions to, or parts 
thereof. Additionally, the borrower must publicly announce a plan for 
extending service to areas not initially receiving service. Also, the 
borrower must provide written notice to potential users located in the 
areas not to be initially served.
    (3) The lender will determine that, when feasible and legally 
possible, inequities within the proposed project's service area for the 
same type service proposed (i.e., gas distribution system) will be 
remedied by the owner on, or before, completion of the project. 
Inequities are defined as unjustified variations in availability, 
adequacy, or quality of service. User rate schedules for portions of 
existing systems or facilities that were developed under different 
financing, rates, terms, or conditions do not necessarily constitute 
inequities.



Secs. 3575.21-3575.23  [Reserved]



Sec. 3575.24  Eligible loan purposes.

    (a) Funds may be used to construct, enlarge, extend, or otherwise 
improve

[[Page 459]]

other essential community facilities providing essential service 
primarily to rural residents and rural businesses.
    (1) Essential community facilities include, but are not limited to:
    (i) Fire, rescue, and public safety,
    (ii) Health services,
    (iii) Community, social, or cultural services,
    (iv) Transportation facilities such as streets, roads, and bridges,
    (v) Telecommunication equipment,
    (vi) Hydroelectric generating facilities and related connecting 
systems and appurtenances only when not eligible for financing under the 
authorities of the Rural Utilities Service. Funds may not be used to 
finance other types of electrical generating or transmitting facilities,
    (vii) Supplemental and supporting structures for other rural 
electrification or telephone systems (including facilities such as 
headquarters and office buildings, storage facilities, and maintenance 
shops) only when not eligible for financing under the authorities of the 
Rural Utilities Service,
    (viii) Natural gas distribution systems,
    (ix) Industrial park sites (but only to the extent of land 
acquisition and necessary site preparation) including access ways and 
utility extensions to and throughout the site. Funds may not be used in 
connection with industrial parks to finance on-site utility systems or 
business and industrial buildings, and
    (x) Recreational facilities.
    (2) Otherwise improve includes, but is not limited to, the 
following:
    (i) The purchase of major equipment (such as telecommunication 
equipment and X-ray machines) which will in themselves provide an 
essential service to rural residents,
    (ii) The purchase of existing facilities, when necessary, either to 
improve or to prevent a loss of service, and
    (iii) Payment of tap fees and other utility connection charges as 
provided in utility purchase contracts.
    (b) Funds also may be used:
    (1) To construct or relocate public buildings, roads, bridges, 
fences, or utilities and to make other public improvements necessary to 
the successful operation or protection of facilities authorized by 
paragraph (a) of this section.
    (2) To relocate private buildings, roads, bridges, fences, or 
utilities, and other private improvements necessary to the successful 
operation or protection of facilities authorized in paragraph (a) of 
this section.
    (3) To pay the following expenses (but only when such expenses are a 
necessary part of a loan to finance facilities authorized in paragraph 
(a) of this section):
    (i) Reasonable fees and costs such as origination fee, loan 
guarantee fee, legal, engineering, architectural, fiscal advisory, 
recording, environmental impact analyses, archaeological surveys, 
possible salvage or other mitigation measures, planning and establishing 
or acquiring rights.
    (ii) Interest on loans until the facility is self-supporting, but 
not for more than 2 years unless a longer period is approved by the 
Agency; interest on loans secured by general obligation bonds until tax 
revenues are available for payment, but not for more than 2 years unless 
a longer period is approved by the Agency's National Office; and 
interest on interim financing.
    (iii) Costs of acquiring interest in land; rights such as water 
rights, leases, permits, rights-of-way, and other evidence of land or 
water control necessary for development of the facility.
    (iv) Purchasing or renting equipment necessary to install, maintain, 
extend, protect, operate, or utilize facilities.
    (v) Initial operating expenses for a period ordinarily not exceeding 
1 year when the borrower is unable to pay such expenses.
    (vi) Refinancing debts incurred by, or on behalf of, a community 
when all of the following conditions exist:
    (A) The debts being refinanced are less than 50 percent of the total 
loan,
    (B) The debts were incurred for the facility or service being 
financed or any part thereof (such as interim financing, construction 
expenses, etc.), and
    (C) Arrangements cannot be made with the creditors to extend or 
modify the terms of the debts so that a sound basis will exist for 
making a loan.

[[Page 460]]

    (4) To pay obligations for construction incurred prior to filing a 
preapplication and application with the Agency. Construction work must 
not be started (and obligations for such work or materials must not be 
incurred) before the Conditional Commitment for Guarantee is issued. If 
there are compelling reasons for proceeding with construction before the 
Conditional Commitment for Guarantee is issued, lenders may request 
Agency approval to pay such obligations and not jeopardize a guarantee 
from the Agency. Such request must comply with the following:
    (i) Provide conclusive evidence that the contract was entered into 
without intent to circumvent the Agency regulations. However, the Agency 
is not required or obligated to pay a loss unless a written guarantee is 
issued,
    (ii) Modify the outstanding contract to conform with the provisions 
of this subpart. Where this is not possible, modifications will be made 
to the extent practicable and, as a minimum, the contract must comply 
with all State and local laws and regulations as well as statutory 
requirements and executive orders related to the Agency financing. When 
construction is complete and it is impracticable to modify the contract, 
the borrower and lender must provide the certification required by 
paragraph (b)(4)(iii) of this section,
    (iii) Provide a certification by an engineer or architect that any 
construction performed complies fully with the plans and specifications, 
and
    (iv) The borrower and the contractor must have complied with all 
statutory and executive order requirements related to Agency financing 
for construction already performed even though the requirements may not 
have been included in the contract documents.



Sec. 3575.25  Ineligible loan purposes.

    Loan funds may not be used to finance:
    (a) Properties to be used for commercial rental when the borrower 
has no control over tenants and services offered except for industrial-
site infrastructure development,
    (b) Facilities primarily for the purpose of housing Federal or State 
agencies,
    (c) Community antenna television services or facilities,
    (d) Telephone systems,
    (e) Facilities which are not modest in size, design, and cost,
    (f) Finder's and packager's fees,
    (g) Projects located within the Coastal Barriers Resource System 
that do not qualify for an exception as defined in section 6 of the 
Coastal Barriers Resource Act, 16 U.S.C. 3501 et seq. (available in any 
Agency office),
    (h) New combined sanitary and storm water sewer facilities, or
    (i) Projects that are located in a special flood or mudslide hazard 
area as designated by the Federal Emergency Management Agency in a 
community that is not participating in the National Flood Insurance 
Program.



Sec. 3575.26  [Reserved]



Sec. 3575.27  Eligible lenders.

    (a) Eligible lenders. Eligible lenders (as defined in this section) 
may participate in the loan guarantee program. These lenders must be 
subject to credit examination and supervision by an appropriate agency 
of the United States or a State that supervises and regulates credit 
institutions. A lender must have the capability to adequately service 
loans for which a guarantee is requested. Eligible lenders are:
    (1) Any Federal or State chartered bank or savings and loan 
association;
    (2) Any mortgage company that is a part of a bank holding company;
    (3) Bank for Cooperatives, National Rural Utilities Cooperative 
Finance Corporation, Farm Credit Bank of the Federal Land Bank, or other 
Farm Credit System institution with direct lending authority authorized 
to make loans of the type guaranteed by this subpart;
    (4) An insurance company regulated by a State or National insurance 
regulatory agency;
    (5) State Bond Banks or State Bond Pools; and
    (6) Other lenders that possess the legal powers necessary and 
incidental to making and servicing guaranteed loans involving community 
development-type projects. These lenders must also be subject to credit 
examination

[[Page 461]]

and supervision by either an appropriate agency of the United States or 
a State that supervises and regulates credit institutions and provide 
documentation acceptable to the Agency that they have the ability to 
service the loan. Lenders under this category must be approved by the 
National Office prior to the issuance of the loan guarantee.
    (b) Conflict of interest. When the lender's officers, stockholders, 
directors, or partners (including their immediate families) or the 
borrower, its officers, stockholders, directors, or partners (including 
their immediate families) own, or have management responsibilities in 
each other, the lender must disclose such business or ownership 
relationships. The Agency will determine if such relationships are 
likely to result in a conflict of interest. This does not preclude 
lender officials from being on the borrower's board of directors.



Sec. 3575.28  Transfer of lenders or borrowers (prior to issuance of Loan Note Guarantee).

    (a) Prior to issuance of the loan guarantee, the Agency may approve 
the transfer of an outstanding Conditional Commitment for Guarantee from 
the present lender to a new eligible lender, provided:
    (1) The former lender states in writing why it does not wish to 
continue to be the lender for this project;
    (2) No substantive changes in ownership or control of the borrower 
has occurred;
    (3) No substantive changes in the borrower's written plan, scope of 
work, or changes in the purpose or intent of the project has occurred; 
and
    (4) No substantive changes in the loan agreement or Conditional 
Commitment for Guarantee are required.
    (b) The substitute lender must execute a new application for loan 
and guarantee (available in any Agency office).
    (c) If approved, the Agency will issue a letter of amendment to the 
original Conditional Commitment for Guarantee reflecting the new lender 
who will acknowledge acceptance of the offer in writing.
    (d) Once the Conditional Commitment for Guarantee is issued, the 
Agency will not approve any substitution of borrowers, including changes 
in the form of the legal entity. Exceptions to a change in the legal 
entity may be requested when the original borrower is replaced with 
substantially the same individuals or officers with the same interest as 
originally approved.



Sec. 3575.29  Fees and charges by lender.

    (a) Routine charges and fees. The lender may establish the charges 
and fees for the loan, provided they do not exceed those charged other 
borrowers for similar types of transactions. ``Similar types of 
transactions'' mean those transactions involving the same type of loan 
for which a non-guaranteed loan borrower would be assessed charges and 
fees.
    (b) Late payment fees. Late payment charges will not be covered by 
the Loan Note Guarantee. Such charges may not be added to the principal 
and interest due under any guaranteed note. Late payment charges may be 
made only if:
    (1) They are routinely made by the lender in all types of loan 
transactions;
    (2) Payment has not been received within the customary timeframe 
allowed by the lender; or
    (3) The lender agrees with the borrower, in writing, that the rate 
or method of calculating the late payment charges will not be changed to 
increase charges while the Loan Note Guarantee is in effect.
    (c) Guarantee fees. The guaranteed loan fee will be the applicable 
guarantee fee rate multiplied by the principal loan amount multiplied by 
the percent of guarantee. The one-time guarantee fee is paid when the 
Loan Note Guarantee is issued.
    (1) The fee will be paid to the Agency by the lender and is 
nonreturnable. The lender may pass the fee to the borrower.
    (2) The guarantee fee rates are available in any Agency office.



Sec. 3575.30  Loan guarantee limitations.

    The percentage of guarantee, up to the maximum allowed by this 
section, is a matter for negotiation between the lender and the Agency.

[[Page 462]]

    (a) The maximum guarantee is 90 percent of eligible loss.
    (b) The lender will retain a minimum of 5 percent of the total loan 
amount. The retained amount must be from the unguaranteed portion of the 
loan and cannot be participated to another lender.



Secs. 3575.31-3575.32  [Reserved]



Sec. 3575.33  Interest rates.

    (a) General. Rates will be negotiated between the lender and the 
borrower.
    They may be either fixed or variable rates. Interest rates will be 
those rates customarily charged borrowers in similar circumstances in 
the ordinary course of business and are subject to Agency review and 
approval.
    (b) Variable rate publication. A variable interest rate must be tied 
to a base rate published periodically in a recognized national or 
regional financial publication specifically agreed to by the lender and 
borrower. Such an agreement must be documented in the borrower or lender 
loan agreement.
    (1) Interest rate caps and incremental adjustment limitations will 
also be negotiated between the lender and the borrower. Notice of any 
interest rate change proposed by the lender should allow a sufficient 
time period for the borrower to obtain any required State or other 
regulatory approval and to implement any user rate adjustments necessary 
as a result of the interest rate change. The intervals between interest 
rate adjustments will be specified in the loan agreement (but not more 
often than quarterly).
    (2) The lender must incorporate within the variable rate note, the 
provision for adjustment of payments coincident with an interest rate 
adjustment. This will ensure the outstanding principal balance is 
properly amortized within the prescribed loan maturity and eliminate the 
possibility of a balloon payment at the end of the loan.
    (c) Changes. Any change in the interest rate between the date of 
issuance of the Conditional Commitment for Guarantee and before the 
issuance of the Loan Note Guarantee must be approved by the Agency. 
Approval of such change will be shown as an amendment to the Conditional 
Commitment for Guarantee.
    (d) Different rates on guaranteed and unguaranteed portion of the 
loan. It is permissible to have one interest rate on the guaranteed 
portion of the loan and another interest rate on the unguaranteed 
portion of the loan, provided the lender and borrower agree, and:
    (1) The rate on the unguaranteed portion does not exceed that 
currently being charged on loans for similar purposes to borrowers under 
similar circumstances; and,
    (2) The rate on the guaranteed portion of the loan will not exceed 
the rate on the unguaranteed portion. This requirement does not apply 
when the unguaranteed rate is variable and the guaranteed portion is 
fixed.
    (e) Multi-rates. When multi-rates are used, the lender will provide 
the Agency with the overall effective interest rate for the entire loan. 
Multi-rate loans may be either fixed, variable, or a combination of 
fixed and variable. When a combination of fixed and variable interest 
rates are used, the interest rate for the unguaranteed portion will not 
be lower than the guaranteed portion of the loan.



Sec. 3575.34  Terms of loan repayment.

    (a) General. Principal and interest on the loan will be due and 
payable as provided in the note except, any interest accrued as the 
result of the borrower's default on the guaranteed loan over and above 
that which would have accrued at the note rate on the guaranteed loan 
will not be guaranteed by the Agency. The lender will structure 
repayments as established in the loan agreement between the lender and 
borrower. Ordinarily, such installments will be scheduled for payment as 
agreed upon by the lender and borrower on terms that reasonably ensure 
repayment of the loan. However, the first installment to include a 
repayment of principal may be scheduled for payment after the project is 
operable and has begun to generate income. Such installment must be due 
and payable within 3 years from the date of the note and at least 
annually thereafter. Interest will be due at least annually from the 
date of the note. Monthly

[[Page 463]]

payments will be required except for borrowers with income limited to 
less frequent intervals.
    (b) Term length. The maximum time allowable for final maturity for a 
guaranteed CP loan will be limited to the useful life of the facility, 
not to exceed 40 years.
    (c) Balloon payments. The principal balance should be properly 
amortized within the prescribed loan maturity. Balloon payments at the 
end of the loan are prohibited.



Secs. 3575.35-3575.36  [Reserved]



Sec. 3575.37  Insurance and fidelity bonds.

    The lender must provide evidence that the borrower has adequate 
insurance and fidelity bond coverage by loan closing or start of 
construction, whichever occurs first. Adequate coverage must be 
maintained for the life of the loan and is subject to Agency review and 
approval.



Secs. 3575.38-3575.39  [Reserved]



Sec. 3575.40  Equal opportunity and Fair Housing Act requirements.

    (a) Equal Credit Opportunity Act. The lender will comply with the 
requirements of title V of the Equal Credit Opportunity Act (15 U.S.C. 
1691 et seq.). (See the Federal Reserve Board Regulation, 12 CFR part 
202.)
    (b) Fair Housing Act. Certain housing-related projects such as 
nursing homes, group homes, or assisted-living facilities must comply 
with the requirements of the Fair Housing Act (42 U.S.C. 3601 et seq.). 
This includes completion of an Affirmative Fair Housing Marketing Plan 
and compliance with the Housing and Urban Development accessibility 
guidelines except for areas open to the public which are covered by the 
Americans with Disabilities Act (42 U.S.C. 12181 et seq.). The lender 
will determine that the borrower has a valid plan in effect at all 
times.



Sec. 3575.41  [Reserved]



Sec. 3575.42  Design and construction requirements.

    The lender will provide the Agency with a written certification at 
the end of construction that all funds were utilized for authorized 
purposes. The borrower and the lender will authorize designs and plans 
based upon the preliminary architectural and engineering reports or 
plans approved by the lender and concurred in by the Agency. The 
borrower will take into consideration any lender or Agency comments when 
the facility is being designed.
    (a) Architectural and engineering practices. All project facilities 
must be designed utilizing accepted architectural and engineering 
practices and must conform to applicable Federal, State, and local codes 
and requirements. The lender must ensure that the planned project will 
be completed within the available funds and, once completed, will be 
suitable for the borrower's needs.
    (b) Construction monitoring. The lender will monitor the progress of 
construction and undertake the reviews and inspections necessary to 
ensure that construction proceeds in accordance with the approved plans, 
specifications, and contract documents and that funds are used for 
eligible project costs. The lender must expeditiously report any 
problems in project development to the Agency.
    (c) Equal employment opportunities. For all construction contracts 
in excess of $10,000, the contractor must comply with Executive Order 
11246 entitled ``Equal Employment Opportunity'' as amended and as 
supplemented by applicable Department of Labor regulations (41 CFR part 
60-1). The borrower and lender are responsible for ensuring that the 
contractor complies with these requirements.
    (d) Americans with Disabilities Act. Community Facilities loans 
which involve the construction of, or addition to, facilities that 
accommodate the public and commercial facilities as defined by the 
Americans with Disabilities Act (42 U.S.C. 12181--et seq.) must comply 
with that Act. The lender and borrower are responsible for compliance.



Sec. 3575.43  Other Federal, State, and local requirements.

    In addition to the specific requirements of this subpart and 
beginning on the date of issuance of the Loan Note

[[Page 464]]

Guarantee, proposals for facilities financed in whole or in part with a 
loan guaranteed by the Agency will be coordinated with all appropriate 
Federal, State, and local agencies. Borrowers and lenders will be 
required to comply with any Federal, State, or local laws or regulatory 
commission rules which are in existence and which affect the project 
including, but not limited to:
    (a) Organization and authority to design, construct, develop, 
operate, and maintain the proposed facilities;
    (b) Borrowing money, giving security, and raising revenues for 
repayment;
    (c) Land use zoning;
    (d) Health, safety, and sanitation standards; and
    (e) Protection of the environment and consumer affairs.



Secs. 3575.44-3575.46  [Reserved]



Sec. 3575.47  Economic feasibility requirements.

    All projects financed under the provisions of this section must be 
based on taxes, assessments, revenues, fees, or other sources of 
revenues in an amount sufficient to provide for facility operation and 
maintenance, a reasonable reserve, and debt payment. Other sources of 
revenue or guarantors are particularly important in considering the 
feasibility of recreation-type loans. The lender is responsible for 
determining the credit quality and economic feasibility of the proposed 
loan and must address all elements of the credit quality in a written 
financial feasibility analysis which includes adequacy of equity, cash 
flow, security, history, and management capabilities. Financial 
feasibility reports must take into consideration any interest rate 
adjustment which may be instituted under the terms of the note. The 
lender's financial credit analysis may also serve as the feasibility 
analysis when sufficient evidence is included to determine economic 
feasibility as well as financial viability.
    (a) Financial feasibility. The borrower, lender, or other qualified 
entity must prepare the financial feasibility analysis (suggested 
financial feasibility guidelines are available in any Agency office) in 
the following instances:
    (1) Facilities primarily used for fire and rescue services;
    (2) Facilities that are not dependent on facility revenues for debt 
payment;
    (3) Loans of less than $500,000; or
    (4) Projects in which the borrower has operated similar facilities 
on a financially successful basis.
    (b) Utility projects. The borrower's consulting engineer may 
complete the financial feasibility analysis for utility systems.
    (c) Other community facilities. Financial feasibility reports for 
all other facilities must be prepared by a qualified entity not having a 
direct interest in the management of the facility. The lender may 
prepare the feasibility study if qualified staff is available.
    (d) Exceptions. The Agency loan approval official may exempt the 
lender from the requirement for an independent financial feasibility 
report (when requested by the borrower and the lender) provided the 
approval official determines that the financial feasibility analysis 
prepared by the borrower fairly represents the financial feasibility of 
the facility and the financial feasibility analysis contains an accurate 
projection of the usage, revenues, and expenses of the facility.
    (e) Insufficient information. When the lender or Agency has 
insufficient information to determine the borrower's repayment ability, 
an independent feasibility analysis is required.



Sec. 3575.48  Security.

    (a) Lender responsibility. The lender is responsible for obtaining 
and maintaining proper and adequate security to protect the interest of 
the lender, the holder, and the Government.
    (b) Type of security. Security must be of such a nature that 
repayment of the loan is reasonably ensured when considered with the 
integrity and ability of project management, soundness of the project, 
and the borrower's prospective earnings. The security may include, but 
is not limited to, the following: General obligation bonds, revenue 
bonds, pledge of taxes or assessments, assignment of facility revenue, 
land, easements, rights-of-way, water rights, buildings, machinery, 
equipment, accounts receivable, contracts,

[[Page 465]]

cash, or other accounts or assignments of leases or leasehold interest.
    (c) Separate security. All security must secure the entire loan. The 
lender will not take separate security to secure only the unguaranteed 
portion of the loan. The lender will not require compensating balances 
or certificates of deposit as a means of eliminating the lender's 
exposure on the unguaranteed portion of the loan.



Secs. 3575.49-3575.51  [Reserved]



Sec. 3575.52  Processing.

    (a) Preapplications. (1) The preapplication package must be 
submitted either alone or the necessary information may be submitted 
simultaneously with the application. The preapplication package will 
contain:
    (i) An Application for Federal Assistance on a form provided by the 
Agency (available in any Agency office);
    (ii) State intergovernmental or other type review comments and 
recommendations for the borrower's project (clearinghouse comments, if 
applicable);
    (iii) Supporting documentation necessary to make an eligibility 
determination such as financial statements, audits, copies of 
organizational documents, existing debt instruments, etc.; and
    (iv) Documentation of lender eligibility in accordance with 
Sec. 3575.27.
    (2) If the Agency determines that the project may meet requirements 
and is likely to be funded, the lender must submit a complete 
application if it has not previously submitted one. The Agency must do 
an environmental review before further processing will be completed.
    (b) Applications. Contents of application package:
    (1) Application for Loan and Guarantee on a form prescribed by the 
Agency (available in any Agency office);
    (2) Proposed loan agreement;
    (3) Request for Environmental Information (available in any Agency 
office);
    (4) Preliminary architectural or engineering report;
    (5) Cost estimates;
    (6) Appraisal reports (as appropriate);
    (7) Credit reports;
    (8) Financial feasibility analysis and report; and
    (9) Any additional information required.



Sec. 3575.53  Evaluation of application.

    If the Agency determines that the borrower is eligible, the proposed 
loan is for an eligible purpose, there is reasonable assurance of 
repayment ability, sufficient collateral and equity exists, the proposed 
loan complies with all applicable statutes and regulations, the 
environmental review is complete and considered in determining 
compliance, and adequate funds are available, the Agency will provide 
the lender and the borrower with the Conditional Commitment for 
Guarantee, listing all conditions for the guarantee. Applicable 
requirements will include the following:
    (a) Approved use of guaranteed loan funds (source and use of funds);
    (b) Rates and terms of the loan;
    (c) Scheduling of payments;
    (d) Number of customers;
    (e) Security and lien priority;
    (f) Appraisals;
    (g) Insurance and bonding;
    (h) Financial reporting;
    (i) Equal opportunity and nondiscrimination;
    (j) Environment or mitigation;
    (k) Americans with Disabilities Act;
    (l) By-laws and articles of incorporation changes; and
    (m) Other requirements necessary to protect the Government.



Secs. 3575.54-3575.58  [Reserved]



Sec. 3575.59  Review of requirements.

    (a) Lender and borrower. The lender and borrower must complete and 
sign the Acceptance of Conditions and return a copy to the Agency as 
soon as possible. Notwithstanding the preceding sentence, if certain 
conditions cannot be met, the lender and borrower may propose alternate 
conditions for Agency consideration.
    (b) Cancellation. If the lender decides at any time after receiving 
a Conditional Commitment for Guarantee that it no longer wants a 
guarantee, the lender must immediately advise the Agency of the 
cancellation.

[[Page 466]]

    (c) Modifications. The lender agrees that once the Conditional 
Commitment for Guarantee is issued and accepted by the lender and 
borrower, it will not be modified as to the scope of the project, 
overall facility concept, project purpose, use of proceeds, or other 
terms and conditions.



Secs. 3575.60-3575.62  [Reserved]



Sec. 3575.63  Conditions precedent to issuance of the Loan Note Guarantee.

    The Loan Note Guarantee will not be issued until:
    (a) The lender certifies that:
    (1) No changes have been made in the lender's loan conditions and 
requirements since the issuance of the Conditional Commitment for 
Guarantee except those approved in the interim by the Agency in writing.
    (2) All planned property acquisition has been completed and all 
development has been substantially completed in accordance with plans, 
specifications, and applicable building codes. No costs have exceeded 
the amounts approved by the lender and the Agency.
    (3) Required insurance is in effect.
    (4) All equal opportunity and Fair Housing Plan requirements have 
been met.
    (5) The loan has been properly closed and the required security 
instruments have been obtained on any after-acquired property that 
cannot be covered initially under State statutory provisions.
    (6) The borrower has marketable title to the collateral then owned 
by the borrower, subject to the instrument securing the loan to be 
guaranteed and subject to any other exceptions approved, in writing, by 
the Agency.
    (7) When required, the entire amount of the loan for working capital 
has been disbursed except in cases where the Agency has approved 
disbursement over an extended time.
    (8) All other requirements of the Conditional Commitment for 
Guarantee have been met.
    (9) Lien priorities are consistent with requirements of the 
Conditional Commitment for Guarantee.
    (10) The loan proceeds have been disbursed for purposes and in 
amounts consistent with the Conditional Commitment for Guarantee and as 
specified on the application for the guaranteed loan. A copy of a 
detailed statement by the lender detailing the use of loan funds will be 
attached to support this certification.
    (11) There has been no substantive adverse change in the borrower's 
financial condition nor any other adverse change in the borrower during 
the period of time from the Agency's issuance of the Conditional 
Commitment for Guarantee to issuance of the Loan Note Guarantee. The 
lender's certification must address all adverse changes of the borrower 
and the guarantors. For purposes of this paragraph, the term borrower 
includes any parent, affiliate, or subsidiary of the borrower.
    (12) All Federal, State, and local design and construction 
requirements have been met.
    (13) The lender understands and will meet the requirements of the 
Debt Collection Act (chapter 37 of title 31 of the United States Code).
    (14) The lender would not make the loan without an Agency guarantee.
    (b) The lender has executed and delivered the Lender's Agreement and 
closing report for the guaranteed loan along with the appropriate 
guarantee fee.
    (c) The lender has advised the Agency of plans to sell or assign any 
part of the loan as provided in the Lender's Agreement.
    (d) Where applicable, the lender must certify that the borrower has 
obtained:
    (1) A legal opinion relative to the title to rights-of-way and 
easements. Lenders are responsible for ensuring that borrowers have 
obtained valid, continuous, and adequate rights-of-way and easements 
needed for the construction, operation, and maintenance of a facility.
    (2) A title opinion or title insurance showing ownership of the land 
and all mortgages or other lien defects, restrictions, or encumbrances, 
if any. It is the responsibility of the lender to ensure that the 
borrower has obtained and recorded such releases, consents, or 
subordinations to such property rights from holders of outstanding liens 
or other instruments as may be necessary for the construction, 
operation, and maintenance of the facility

[[Page 467]]

and to provide the required security. For example, when a site is for 
major structures for utility-type facilities (such as a gas distribution 
system) and the lender and borrower are able to obtain only a right-of-
way or easement on such a site rather than a fee simple title, such a 
title opinion must be requested.
    (e) For loans exceeding $150,000, the lender has certified its 
compliance with the Anti-Lobby Act (18 U.S.C. 1913). Also, if any funds 
have been, or will be, paid to any person for influencing or attempting 
to influence an officer or employee of any agency, a Member of Congress, 
an officer or employee of Congress, or an employee of a Member of 
Congress in connection with this commitment providing for the United 
States to guarantee a loan, the lender shall completely disclose such 
lobbying activities in accordance with 31 U.S.C. 1352.
    (f) If the Loan Note Guarantee cannot be issued before the 
Conditional Commitment expires, the lender must submit a written request 
for an extension of the expiration date. The lender must document and 
certify to paragraph (a)(1) and (a)(11) of this section specifically 
identifying any modifications.
    (g) Coincident with, or immediately after, loan closing, the lender 
will contact the Agency and provide those documents and certifications 
required in this section. For loans to public bodies, lenders may 
require an opinion from recognized bond counsel regarding the adequacy 
of the preparation and issuance of the debt instruments. Only when the 
Agency is satisfied that all conditions for the guarantee have been met 
will the Loan Note Guarantee be executed.



Sec. 3575.64  Issuance of Lender's Agreement, Loan Note Guarantee, and Assignment Guarantee Agreement.

    (a) Lender's Agreement. If the Agency finds that all requirements 
have been met, the lender and the Agency will execute the Lender's 
Agreement. The original will be retained by the Agency and a signed 
duplicate original will be retained by the lender. A separate Lender's 
Agreement must be executed for each loan to be guaranteed by the Agency.
    (b) Loan Note Guarantee. (1) Upon receipt of the executed Lender's 
Agreement and after all requirements have been met, the Agency will 
execute the Loan Note Guarantee. All originals of the Loan Note 
Guarantee will be provided to the lender and attached to the note.
    (2) If the lender has selected the multi-note system, a Loan Note 
Guarantee will be prepared and attached to each note the borrower 
issues. All the notes will be listed on the Loan Note Guarantee. Not 
more than ten notes will be issued for the guaranteed portion (unless 
the Agency and borrower agree otherwise) and one note issued for the 
unguaranteed portion.
    (c) Assignment of guarantee. In the event the lender assigns the 
guaranteed portion of the loan to a holder, the lender, holder, and 
Agency will execute an Agency prescribed Assignment Guarantee Agreement.
    (d) Failure to meet conditions. If the Agency determines that it 
cannot execute the Loan Note Guarantee because all requirements have not 
been met, the lender will have a reasonable period within which to 
satisfy the objections. If the lender satisfies the objections within 
the time allowed, the guarantee will be issued.
    (e) Loan closing report. The lender will prepare and deliver a 
guaranteed loan closing report for each loan to be guaranteed and a 
guarantee fee to the Agency in return for the Loan Note Guarantee.



Sec. 3575.65  Lender's sale or assignment of the guaranteed portion of loan.

    The lender may retain all of the guaranteed loan. The lender must 
not sell or participate any amount of the guaranteed or non-guaranteed 
portion of the loan to the borrower or to members of the borrower's 
immediate families, the borrower's officers, directors, stockholders, 
other owners, or a subsidiary or affiliate. Disposition of the 
guaranteed portion of a loan may not be made prior to full disbursement, 
completion of construction, and acquisition of real estate and equipment 
without the prior written approval of the Agency. If the lender desires 
to

[[Page 468]]

market all or part of the guaranteed portion of the loan at, or 
subsequent to, loan closing, the loan must not be in default.
    (a) Assignment. Any sale or assignment by the lender of the 
guaranteed portion of the loan must be accomplished in accordance with 
the conditions in the Lender's Agreement.
    (b) Participation. The lender may obtain participation in the loan 
under its normal operating procedures.
    (c) Minimum retention. The lender is required to hold in its own 
portfolio or retain a minimum of 5 percent of the total loan amount. 
This amount must be of the non-guaranteed portion of the loan and cannot 
be participated to another. The lender may sell the remaining amount of 
the non-guaranteed portion of the loan only through participation.



Secs. 3575.66-3575.68  [Reserved]



Sec. 3575.69  Loan servicing.

    (a) Lender responsibilities. The lender is responsible for servicing 
the entire loan in accordance with the lender's loan agreement. The 
unguaranteed portion of the loan will not be paid first nor given any 
preference or priority over the guaranteed portion of the loan. The 
lender is responsible for taking all servicing actions that a prudent 
lender would perform in servicing a portfolio of loans that are not 
guaranteed. This responsibility includes, but is not limited to, the 
collection of payments; obtaining compliance with the covenants and 
provisions in the note, loan agreement, security instrument, or any 
supplemental agreements; obtaining and analyzing financial statements; 
verifying the payment of taxes and insurance premiums; and maintaining 
liens on collateral. The lender must notify the Agency of any violation 
of the loan agreement with the borrower within 30 days of such 
violation.
    (b) Financial reports. The lender must obtain the financial 
statements required by the Loan Agreement. The lender must submit the 
borrower's annual financial statements to the Agency within 120 days of 
the end of the borrower's fiscal year. The lender must analyze the 
financial statements and provide the Agency with a written summary of 
the lender's analysis and conclusions, including trends, strengths, 
weaknesses, extraordinary transactions, and other indications of the 
financial condition of the borrower. Additionally, when applicable, the 
lender will require an audit in accordance with Office of Management and 
Budget (OMB) circulars (available in any Agency office).
    (c) Delinquent loans. The lender will service delinquent loans in 
accordance with the Lender's Agreement and reasonable and prudent 
lending standards.
    (d) Loan balances. The lender must report to the Agency the 
outstanding principal and interest balance on each guaranteed loan 
semiannually.
    (e) Collateral inspections. The lender will inspect the collateral 
as often as necessary to properly service the loan.



Secs. 3575.70-3575.72  [Reserved]



Sec. 3575.73  Replacement of loss, theft, destruction, mutilation, or defacement of Loan Note Guarantee or Assignment Guarantee Agreement.

    (a) Replacement of Loan Note Guarantee. The Agency may issue a 
replacement Loan Note Guarantee or Assignment Guarantee Agreement which 
may have been lost, stolen, destroyed, mutilated, or defaced to the 
lender or holder upon receipt of a certificate of loss and an indemnity 
bond in accordance with this section.
    (b) Lender responsibilities. When a Loan Note Guarantee or 
Assignment Guarantee Agreement is lost, stolen, destroyed, mutilated, or 
defaced while in the custody of the lender or holder, the lender will 
coordinate the activities of the party who seeks the replacement 
documents and will submit the required documents to the Agency for 
processing. The requirements for replacement are as follows:
    (1) A certificate of loss properly notarized which includes:
    (i) Legal name and present address of either the lender or the 
holder who is requesting the replacement forms;
    (ii) Legal name and address of the lender of record;
    (iii) Capacity of person certifying;
    (iv) Full identification of the Loan Note Guarantee or Assignment 
Guarantee Agreement, including the name

[[Page 469]]

of the borrower, Agency case number, date of the Loan Note Guarantee, 
Assignment Guarantee Agreement, face amount of the evidence of debt 
purchased, date of evidence of debt, present balance of the loan, 
percentages of guarantee and, if Assignment Guarantee Agreement, the 
original named holder and the percentage of the guaranteed portion of 
the loan assigned to that holder. Any existing parts of the document to 
be replaced must be attached to the certificate;
    (v) A full statement of circumstances of the loss, theft, or 
destruction of the Loan Note Guarantee or Assignment Guarantee 
Agreement; and
    (vi) The holder shall present evidence demonstrating current 
ownership of the Loan Note Guarantee and Note or Assignment Guarantee 
Agreement. If the present holder is not the same as the original holder, 
a copy of the endorsement of each successive holder in the chain of 
transfer from the initial holder to present holder must be included. If 
copies of the endorsement cannot be obtained, best available records of 
transfer must be presented to the Agency (e.g., order confirmation, 
canceled checks, etc.).
    (2) An indemnity bond acceptable to the Agency shall accompany the 
request for replacement except when the holder is the United States, a 
Federal Reserve Bank, a Federal Government corporation, a State or 
Territory, or the District of Columbia.
    (3) All indemnity bonds must be issued and payable to the United 
States of America. The bond shall be in an amount not less than the 
unpaid principal and interest. The bond shall hold the Government 
harmless against any claim or demand which might arise or against any 
damage, loss, costs, or expenses which might be sustained or incurred by 
reasons of the loss or replacement of the instruments.



Sec. 3575.74  [Reserved]



Sec. 3575.75  Defaults by borrower.

    (a) Lender notification to Agency. The lender must notify the Agency 
when a borrower is 30 days past due on a payment, has not met its 
responsibilities of providing the required financial statements, or is 
otherwise in default. The lender will continue to keep the Agency 
informed on a bimonthly basis until such time as the loan is no longer 
in default. If a monetary default exceeds 60 days, the lender will 
arrange a meeting with the borrower to resolve the default. The lender 
will provide a summary of the meeting and any decisions or actions 
agreed upon.
    (b) Servicing options. In considering servicing options, the 
prospects for providing a permanent cure without adversely affecting the 
risks to the Agency and the lender must be the paramount objective. 
Temporary curative actions (such as payment deferments or collateral 
subordination) must strengthen the loan and be in the best financial 
interest of the lender and the Agency. Some of these actions may require 
concurrence of the holder.
    (c) Multi-note. If the loan was closed with the multi-note option, 
the lender may need to possess all notes to take some servicing actions. 
In those situations when the Agency is holder of some of the notes, the 
Agency may endorse the notes back to the lender, provided a proper 
receipt is received from the lender which defines the reason for the 
transfer. Under no circumstances will the Agency endorse the original 
Loan Note Guarantee to the lender.



Secs. 3575.76-3575.77  [Reserved]



Sec. 3575.78  Repurchase of loan.

    (a) Repurchase by lender. The lender has the option to repurchase 
the loan from a holder within 30 days of written demand from the holder 
when the borrower is in default not less than 60 days on payment. The 
repurchase will be for an amount equal to the unpaid guaranteed portion 
of principal and accrued interest less the lender's servicing fee. The 
guarantee does not cover the note interest to the holder on the 
guaranteed loan accruing after 90 days from the date of the demand 
letter to the lender. The holder will concurrently send a copy of the 
demand to the Agency. The lender will accept an assignment without 
recourse from the holder upon repurchase. The lender is encouraged to 
repurchase the loan to facilitate the accounting of funds, resolve the 
problem, and permit the borrower to cure the default, where reasonable.

[[Page 470]]

The lender will notify the holder and the Agency of its decision within 
30 days of receipt of demand from the holder.
    (b) Agency repurchase. (1) If the lender does not repurchase as 
provided in paragraph (a) of this section, the Agency will purchase from 
the holder the unpaid principal balance of the guaranteed portion 
together with accrued interest to date of repurchase (less the lender's 
servicing fee) within 30 days after written demand to the Agency. The 
guarantee will not cover the note interest to the holder on the 
guaranteed loan accruing after 90 days from the date of the original 
demand letter. The lender shall not charge the Agency any servicing fees 
nor are any such fees collectible from the Agency.
    (2) The holder's demand to the Agency must include a copy of the 
written demand made upon the lender. The holder or duly authorized agent 
must also include evidence of the right to require payment from the 
Agency. Such evidence will consist of either the original of the Loan 
Note Guarantee properly endorsed to the Agency or the original of the 
Assignment Guarantee Agreement properly assigned to the Agency without 
recourse including all rights, title, and interest in the loan. The 
Agency will be subrogated to all rights of the holder. The holder must 
include in the demand the amount due including unpaid principal, unpaid 
interest to date of demand, and interest subsequently accruing from the 
date of demand to the proposed payment date. Unless otherwise agreed to 
by the Agency, such proposed payment will not be later than 30 days from 
the date of demand.
    (3) The lender must promptly provide the Agency with the information 
necessary for the Agency's determination of the appropriate amount due 
the holder upon the Agency's notification to the lender of the holder's 
demand for payment. This information must be certified by an authorized 
officer of the lender. Any discrepancy between the amount claimed by the 
holder and the information submitted by the lender must be resolved 
before payment will be approved. The Agency will notify both parties and 
such conflict will suspend the running of the 30-day payment 
requirement.
    (4) Any purchase by the Agency does not change, alter, or modify any 
of the lender's obligations to the Agency arising from the loan or 
guarantee nor does it waive any of the Agency's rights against the 
lender. The Agency may set off against the lender all rights inuring to 
the Agency as the holder of the instrument against the Agency's 
obligation to the lender under the Loan Note Guarantee.
    (c) Repurchase for servicing. When the lender determines that 
repurchase of the guaranteed portion of the loan is necessary to service 
the loan, the holder must sell the guaranteed portion to the lender for 
the unpaid principal and interest balance (less the lender's servicing 
fee). The guarantee does not cover interest accruing after 90 days from 
the date the lender's or Agency's letter requesting the holder to tender 
its guaranteed portion. The lender must not repurchase from the holder 
for arbitrage purposes to further its own financial gain. Any repurchase 
must be made only after the lender obtains the Agency written approval. 
If the lender does not repurchase the portion from the holder, the 
Agency may, at its option, purchase such guaranteed portion for 
servicing purposes.



Sec. 3575.79  [Reserved]



Sec. 3575.80  Interest rate changes after loan closing.

    (a) General. Subject to the restrictions below, the borrower, 
lender, and holder (if any) may collectively effect a permanent 
reduction in the interest rate on the guaranteed loan at any time during 
the life of the loan on written agreement by all of the applicable 
parties. After such a permanent reduction, the Loan Note Guarantee will 
only cover losses of interest at the reduced interest rate. The Agency 
must be notified by the lender, in writing, within 10 calendar days of 
the change. When the Agency is a holder, it will concur only when it is 
demonstrated that the change is more viable than liquidation and that 
the Government's financial interests are not adversely affected. Factors 
which will be considered in making such determination are

[[Page 471]]

the Government's cost of borrowing money and the project's enhancement 
of rural development. The monetary recovery must be greater than the 
liquidation recovery, and a financial feasibility analysis must show the 
project's continued viability.
    (1) Fixed rates cannot be changed to variable rates to reduce the 
interest rate to the borrower unless the variable rate has a ceiling 
which is less than the original fixed rate.
    (2) Variable rates can be changed to a lower fixed rate. In a final 
loss settlement when qualifying rate changes are made with the required 
written agreements and notification, the interest will be calculated for 
the periods the given rates were in effect. The lender must maintain 
records which adequately document the accrued interest claimed.
    (3) The lender is responsible for the legal documentation of 
interest rate changes. However, the lender may not issue a new note.
    (b) Increases. No increases in interest rates will be permitted 
under the loan guarantee except the normal fluctuations in approved 
variable interest rate loans.



Sec. 3575.81  Liquidation.

    Liquidation will occur when the lender concludes that liquidation of 
the guaranteed loan is necessary because of default or third party 
actions that the borrower cannot, or will not, cure or eliminate within 
a reasonable period of time and the Agency concurs with the lender; or 
the Agency, at any time, independently concludes that liquidation is 
necessary. The lender will proceed as expeditiously as possible, 
including giving any notices or taking any legal actions required by the 
security instruments.
    (a) General. If a lender has made a loan guaranteed by the Agency 
under previous regulations, the lender has the option to liquidate the 
loan under the provisions of this subpart or under the provisions of 
previous regulations. The lender will notify the Agency in writing 
within 10 days after its decision to liquidate, which regulatory 
provisions it chooses to use. The lender may not choose some provisions 
of one regulation and other provisions of the other regulation.
    (b) Acquiring property titles. If a lender acquires title to 
property, the Agency may elect to permit the lender the option of 
calculating the final loss settlement using the net proceeds received at 
the time of the ultimate disposition of the property. The lender must 
submit to the Agency a written request to use this option within 15 days 
of acquiring title and the Agency must agree, in writing, prior to the 
lender submitting any request for estimated loss payment.
    (c) Liquidation plan. The lender will (within 30 days after a 
decision to liquidate) submit to the Agency, in writing, a proposed, 
detailed liquidation plan. Upon approval by the Agency of the 
liquidation plan, the lender will commence liquidation. The lender's 
liquidation plan must include, but is not limited to, the following:
    (1) Such proof as the Agency requires to establish the lender's 
ownership of the guaranteed loan notes and related security instruments, 
a copy of the payment ledger or other documentation which reflects the 
outstanding loan balance and accrued interest to date, and the method of 
computing the interest;
    (2) A complete list of collateral;
    (3) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including the recommended action for acquiring and disposing of 
all collateral;
    (4) Necessary steps for preservation of the collateral;
    (5) Copies of the borrower's latest available financial statements;
    (6) An itemized list of estimated liquidation expenses expected to 
be incurred and justification for each expense;
    (7) A schedule to periodically report to the Agency on the progress 
of the liquidation;
    (8) Estimated protective advance amounts with justification;
    (9) Proposed protective bid amounts on collateral to be sold at 
auction and a discussion of how the amounts were determined;

[[Page 472]]

    (10) If a voluntary conveyance is considered, the proposed amount to 
be credited to the guaranteed debt;
    (11) Legal opinions, as needed; and
    (12) If the outstanding balance of principal and interest is less 
than $250,000, the lender will obtain an estimate of fair market and 
potential liquidation value of the collateral. If the outstanding 
balance of principal and interest is $250,000 or more, the lender will 
obtain an independent appraisal report on all collateral securing the 
loan which will reflect the fair market value and potential liquidation 
value. The independent appraiser's fee will be shared equally by the 
Agency and the lender.
    (d) Partial liquidation plan. If actions are necessary to 
immediately preserve and protect the collateral, a partial liquidation 
plan may be submitted and, when approved, must be followed by a complete 
liquidation plan prepared by the lender.
    (e) Disposition of collateral. Disposition of collateral acquired by 
the lender must be approved, in writing, by the Agency when:
    (1) The lender's cost to acquire the collateral of a borrower 
exceeds the potential recovery value of the security and the lender 
proposes abandoning the collateral in lieu of liquidation; or
    (2) The acquired collateral is to be sold to the borrower, 
borrower's stockholders or officers, or the lender or lender's 
stockholders or officers.
    (f) Agency liquidation. The Agency will liquidate at its option only 
when it is a holder and there is reason to believe the lender is not 
likely to initiate liquidation efforts that will result in maximum 
recovery. When the Agency liquidates, reasonable liquidation expenses 
will be assessed against the proceeds derived from the sale of the 
collateral.
    (g) Final loss payment. Final loss payments will be made only after 
all collateral has been properly accounted for and liquidation expenses 
are determined to be reasonable and within approved limits. Any 
estimated loss payments made to the lender will be credited against the 
final loss on the guaranteed loan. The amount of an estimated loss 
payment must be credited as a deduction from the principal balance of 
the loan.



Sec. 3575.82  [Reserved]



Sec. 3575.83  Protective advances.

    Protective advances can only be added to the loan account for 
purposes of requirements to preserve the value of the security. 
Protective advances constitute an indebtedness of the borrower to the 
lender and must be secured by collateral to the same extent as principal 
and interest. Protective advances include, but are not limited to, 
advances made for taxes, annual assessments, ground rent, hazard and 
flood insurance premiums affecting the collateral (including any other 
expenses necessary to protect the collateral). Attorney fees are not a 
protective advance.
    (a) Agency approval. The Agency must approve, in writing, all 
protective advances on loans within its loan approval authority which 
exceed a total cumulative advance amount of $5,000 to the same borrower. 
Protective advances must be reasonable when associated with the value of 
the collateral being preserved.
    (b) Preserving collateral. When considering protective advances, 
sound judgment must be exercised in determining that the additional 
funds advanced will actually preserve collateral and recovery is 
actually enhanced by making the advance.



Sec. 3575.84  Additional loans or advances.

    The lender will not make additional expenditures or new loans to the 
borrower without first obtaining the written approval of the Agency even 
though such expenditures or loans will not be guaranteed.



Sec. 3575.85  Bankruptcy.

    (a) Calculating losses. Report of Loss form (available in any Agency 
office) will be used for calculating estimated and final loss 
determinations.
    (b) Lender responsibility. The lender is responsible for protecting 
the guaranteed loan debt and all the collateral securing it in 
bankruptcy proceedings. These responsibilities include, but are not 
limited to, the following:

[[Page 473]]

    (1) Filing a proof of claim, where necessary, and all necessary 
papers and pleadings;
    (2) Attending and, where necessary, participating in meetings of the 
creditors and all court proceedings;
    (3) Immediately seeking adequate protection of the collateral if it 
is subject to being used by the trustee in bankruptcy or the debtor in 
possession;
    (4) Where appropriate, seeking involuntary conversion of a pending 
chapter 11 case to a liquidation proceeding or seeking dismissal of the 
proceedings; and
    (5) Keeping the Agency adequately and regularly informed, in 
writing, of all aspects of the proceedings.
    (c) Appraisals. In a chapter 9 or chapter 11 reorganization, the 
lender must obtain an independent appraisal of the collateral if the 
Agency believes an independent appraisal is necessary. The Agency and 
the lender will share the appraisal fee equally.
    (d) Liquidation expenses. Only expenses authorized by the court of 
chapter 11 reorganizations, or chapters 11 or 7 liquidation (unless the 
liquidation is by the lender), may be deducted from the collateral 
proceeds.
    (e) Repurchase from the holder. The Agency or the lender, with the 
approval of the Agency, may initiate the repurchase of the unpaid 
guaranteed portion of the loan from the holder. If the lender is the 
holder, an estimated loss payment may be filed at the initiation of a 
chapter 7 proceeding or after a chapter 11 proceeding becomes a 
liquidation proceeding. Any loss payment on loans in bankruptcy must be 
approved by the Agency.
    (f) Chapter 11 bankruptcy. If a borrower has filed for protection 
under chapter 11 of the United States Code for a reorganization (but not 
chapter 13) and all or a portion of the debt has been discharged, the 
lender may request an estimated loss payment of the guaranteed portion 
of the accrued interest and principal discharged by the court. If the 
court approves revisions to the chapter 11 reorganization plan, 
subsequent estimated loss payments may be requested in accordance with 
the court approved changes. Once the reorganization plan has been 
satisfactorily completed, the lender is responsible for submitting the 
documentation necessary for the Agency to review and adjust the 
estimated loss claim to reflect any actual discharge of principal and 
interest and to reimburse the lender for any court ordered interest-rate 
reduction under the terms of the reorganization plan.
    (g) Agency approval of estimated liquidation expenses. The Agency 
must approve, in advance and in writing, the lender's estimated 
liquidation expenses of collateral in a liquidation if the liquidation 
is performed by the lender. These expenses must be reasonable and 
customary and not include in-house expenses of the lender.
    (h) Reconciliation. In the event that the estimated loss payment 
exceeds the actual loss, the lender will reimburse the Agency the amount 
in excess of the actual loss plus interest at the note rate from the 
date of the estimated loss payment.



Secs. 3575.86-3575.87  [Reserved]



Sec. 3575.88  Transfers and assumptions.

    (a) General. For all transfers and assumptions, the lender must 
concur in the plans for disposition of funds in the transferor's debt 
service, reserve, and operation and maintenance account. The Agency will 
approve, in writing, transfers and assumptions of loans to transferees 
who will continue the original purpose of the guaranteed loan subject to 
the following applicable provisions:
    (1) When the transaction is to a member of the borrower's 
organization, it will be at an amount which will not result in a loss to 
the lender.
    (2) Transfers to eligible borrowers will receive preference if 
recovery to the lender from the sale price is not less than it would be 
if the transfer was to an ineligible borrower.
    (3) The present borrower is unable or unwilling to accomplish the 
objectives of the guaranteed loan, and the transfer will be to the 
lender's and Agency's advantage.
    (4) The transferee will assume an amount at least equal to either 
the present market value or the debt, whichever is less.

[[Page 474]]

    (b) Transfers to an eligible borrower. (1) The total indebtedness 
may be transferred to an eligible borrower on the same terms.
    (2) The total indebtedness may be transferred to another eligible 
borrower on different terms not to exceed those terms for which an 
initial guaranteed loan can be made.
    (3) Less than the total indebtedness may be transferred to another 
eligible borrower on the same or different terms and the pro rata share 
of any eligible loss paid to the lender.
    (4) A guaranteed loan for which the transferee is eligible may be 
made in connection with a transfer subject to the policies and 
procedures governing the type of loan being made.
    (5) If the transferor is to receive a payment for the equity, the 
total debt must be assumed.
    (c) Ineligible borrower. Transfers to ineligible borrowers are 
considered only when needed as a method for servicing problem cases when 
an eligible transferee is not available. Transfers should not be 
considered as a means by which members can obtain equity or as a method 
of providing a source of easy credit for purchasers. Transfers must meet 
the following requirements:
    (1) All transfers to ineligible borrowers will include a one-time 
nonrefundable transfer fee to the Agency of no more than one percent. 
Transfer fees will be collected, and payments applied, in accordance 
with paragraph (d) of this section.
    (2) For all loans covered by this subpart, the Agency may approve a 
transfer of indebtedness to, and assumption of, a loan by a transferee 
who does not meet the eligibility requirements for the kind of loan 
being assumed when the ineligible borrower will:
    (i) Make a significant down payment, and
    (ii) Agree to pay the remaining balance within not more than 15 
years. Installments will be at least equal to the amount amortized over 
a period not greater than the remaining life of the debt being 
transferred, and the balance will be due the fifteenth year.
    (3) Interest rates to ineligible transferees will be the rate 
specified in the note of the transferor or the rates customarily charged 
borrowers in similar circumstances in the ordinary course of business 
and are subject to Agency review and approval. The rates may be either 
fixed or variable.
    (i) Transferees must have the ability to repay as determined by the 
lender the debt according to the Assumption Agreement and must have the 
legal authority to enter into the contract. The transferee will submit a 
current balance sheet to the lender. The lender will obtain and analyze 
the credit history of the transferee.
    (ii) The transferor may receive equity payments only when the full 
amount of the debt is assumed. However, equity payments will not be made 
on more favorable terms than those on which the balance of the debt will 
be paid.
    (d) Transfer fees. Transfer fees are a one-time nonrefundable cost 
to be collected by the lender at the time of application or proposal.
    (1) The transfer fees will be a standard fee plus the cost of the 
appraisal.
    (2) The lender will collect and submit the fee to the Agency.
    (3) The Agency may waive the transfer fee if it determines that such 
waiver is in the best interest of the Agency.
    (e) Processing transfers and assumptions. (1) In any transfer and 
assumption case, the transferor (including any guarantor) may be 
released from liability by the lender only with prior Agency written 
concurrence and only when the value of the collateral being transferred 
is at least equal to the amount of the loan, or part of the loan, being 
assumed. If the transfer is for less than the entire debt:
    (i) The Agency must determine that the transferor and any guarantor 
have no reasonable debt-paying ability considering their assets and 
income at the time of transfer, and
    (ii) The lender must certify that the transferor has cooperated in 
good faith, used due diligence to maintain the collateral against loss, 
and has otherwise fulfilled all of the regulations of this subpart to 
the best of the borrower's ability.
    (2) The lender will make, in all cases, a complete credit analysis 
to determine viability of the project (subject to the Agency review and 
approval) including any requirement for deposit in

[[Page 475]]

an escrow account as security to meet the determined equity requirements 
for the project.
    (3) The lender will confirm that the transaction can be properly 
transferred and the conveyance instruments will be filed, registered, or 
recorded as appropriate and legally permissible.
    (4) The assumption will be made on the lender's form of Assumption 
Agreement and will contain the Agency case number of the transferor and 
transferee.
    (5) Loan terms cannot be changed by the Assumption Agreement unless 
previously approved in writing by the Agency with the concurrence of 
holder and the transferor (including guarantor if it has not been 
released from personal liability). Any new loan terms cannot exceed 
those authorized in this subpart. The lender's request will be supported 
by:
    (i) An explanation of the reasons for the proposed change in the 
loan terms, and
    (ii) Certification that the lien position securing the guaranteed 
loan will be maintained or improved, and proper hazard insurance will be 
continued in effect.
    (6) In the case of a transfer and assumption, it is the lender's 
responsibility to see that all such transfers and assumptions will be 
noted on all originals of the Loan Note Guarantee. The lender will 
provide the Agency a copy of the Transfer and Assumption Agreement.
    (7) If a loss should occur upon a complete transfer of assets and 
assumption for less than the full amount of the debt and the transferor-
debtor (including personal guarantor) is released from personal 
liability (as provided in paragraph (e) of this section), the lender (if 
holding the guaranteed portion) may file an estimated Report of Loss to 
recover their pro rata share of the actual loss at that time. Approved 
protective advances and accrued interest made during the arrangement of 
a transfer and assumption, if not assumed by the transferee, will be 
entered on the estimated Report of Loss.



Sec. 3575.89  Mergers.

    (a) General. The Agency may approve mergers or consolidations 
(herein referred to as ``mergers'') when the resulting organization will 
be eligible for an Agency guaranteed loan and assumes all the 
liabilities and acquires all the assets of the merged borrower. Mergers 
may be approved when:
    (1) The merger is in the best interest of the Government and the 
merging borrower;
    (2) The resulting borrower can meet all required conditions as 
contained in specific loan note agreements; and
    (3) All property can be legally transferred to the resulting 
borrower.
    (b) Distinguishing mergers from transfers and assumptions. Mergers 
occur when one entity combines with another entity in such a way that 
the first entity ceases to exist as a separate entity while the other 
continues. In a consolidation, two or more entities combine to form a 
new, consolidated entity with the original entity ceasing to exist. Such 
transactions must be distinguished from transfers and assumptions in 
which a transferor will not necessarily go out of existence, and the 
transferee will not always take all the transferor's assets nor assume 
all the transferor's liabilities.



Sec. 3575.90  Disposition of acquired property.

    (a) General. When the lender acquires title to the collateral and 
the final loss claim is not paid until final disposition, the lender 
must proceed as quickly as possible to develop a plan to fully protect 
the collateral, and the lender must dispose of the collateral without 
delay.
    (b) Re-title collateral. Any collateral accepted by the lender must 
not be titled in the Agency's name in whole or in part. The Agency's 
position is that of a guarantor relating to losses, not a lender.
    (c) Collateral preservation. After acquiring the collateral, the 
lender must protect the collateral from deterioration (weather, 
vandalism, etc.). Hazard insurance in an amount necessary to cover the 
fair market value of the collateral must be maintained.
    (d) Collateral sale. (1) The lender will prepare and submit to the 
Agency a plan on the best method of sale, keeping in mind any 
prospective purchasers. The Agency must approve the

[[Page 476]]

plan in writing. If an existing approved liquidation plan addresses the 
disposition of acquired property, no further review is required unless 
modification of the plan is needed.
    (2) Anytime there is a case when the conversion of collateral to 
cash can reasonably be expected to result in a negative net recovery 
amount, abandonment of the collateral should be considered. The Agency 
must approve abandonment in writing.



Secs. 3575.91-3575.93  [Reserved]



Sec. 3575.94  Determination and payment of loss.

    In all liquidation cases, final settlement will be made with the 
lender after the collateral is liquidated. The Agency will have the 
right to recover losses paid under the guarantee from any liable party.
    (a) General. If the lender takes title to collateral, any loss will 
be based on the collateral value at the time the lender obtains title.
    (b) Loss calculations. The Report of Loss form (available in any 
Agency office) will be used for calculations of all estimated and final 
loss determinations. Estimated loss payments may only be approved after 
the lender has submitted a liquidation plan approved by the Agency.
    (c) Estimated loss payments. When the lender is conducting the 
liquidation and owns any of the guaranteed portion of the loan, it may 
request an estimated loss payment by submitting an estimate of loss that 
will occur in connection with liquidation of the loan. An estimated loss 
payment may be approved after the Agency has approved the liquidation 
plan.
    (1) The lender will prepare and submit a Report of Loss using the 
appraised value in lieu of amount received from sale of collateral.
    (2) The estimated loss payment shall be calculated as of the date of 
such payment. The total amount of the loss payment remitted by the 
Agency will be applied by the lender on the guaranteed portion of the 
loan debt. Such application does not release the borrower from 
liability. At the time of final loss settlement, the lender may notify 
the borrower that the loss payment has been so applied.
    (3) After liquidation has been completed, a final Report of Loss 
will be submitted by the lender to the Agency.
    (d) Final report of loss. In all cases, a final Report of Loss must 
be submitted to the Agency. Before Agency approval of any final loss 
report, the lender must account for all funds obtained, disposition of 
the collateral, all costs incurred, and any other information necessary 
for the successful completion of liquidation. Upon receipt of the final 
accounting and Report of Loss, the Agency may conduct an may audit and 
will determine the final loss. The lender will make its records 
available to, and otherwise assist, the Agency in making any audit it 
requires of the Report of Loss. The documentation accompanying the 
Report of Loss must support the loss claimed.
    (1) The lender must document and show that all of the collateral has 
been accounted for and properly liquidated and that liquidation proceeds 
have been properly accounted for and applied correctly on the loan. The 
Agency must be satisfied that the lender has accomplished this in the 
manner contained herein and that the lender has maximized the 
collections in conducting the liquidation.
    (2) The lender must show a breakdown on any protective advance 
amount as to the payee, purpose of the expenditure, date paid, evidence 
that the amount expended was proper, and that the amount was actually 
paid.
    (3) The lender must show a breakdown of liquidation expenses as to 
the payee, purpose of the expenditure, date paid, evidence that the 
amount expended was proper, and that the amount was actually paid.
    (4) Accrued interest should be supported by attachments showing how 
the amount was accrued by the lender. A copy of the promissory note and 
ledger will be attached. If the interest rate was a variable rate, the 
lender must include documentation of changes in the selected base rate 
and when the changes in the loan rate became effective.
    (e) Liquidation income. Any net rental or other income that has been 
received

[[Page 477]]

by the lender from the collateral will be applied on the guaranteed loan 
debt.
    (f) Liquidation costs. Certain reasonable liquidation costs will be 
allowed during the liquidation process. The liquidation costs must be 
submitted as a part of the liquidation plan. Such costs will be deducted 
from gross proceeds received from the disposition of collateral unless 
the costs have been previously determined by the lender (with Agency 
concurrence) to be protective advances. If changed circumstances after 
submission of the liquidation plan require a revision of liquidation 
costs, the lender will obtain the Agency's written concurrence prior to 
proceeding with the proposed changes. No in-house expenses of the lender 
will be allowed.
    (g) Protective advance losses. In those instances where the lender 
made authorized protective advances, the lender may claim recovery for 
the guaranteed portion of any loss of monies advanced as well as 
interest resulting from such protective advances. These claims shall be 
included in the final Report of Loss.
    (h) Final loss approval. After the final Report of Loss has been 
tentatively approved:
    (1) If the actual loss is greater than any estimated loss payment, 
such loss will be paid by the Agency;
    (2) If the actual loss is less than any estimated loss payment, the 
lender will reimburse the Agency;
    (3) If the Agency conducted the liquidation, it will provide an 
accounting to the lender and will pay the lender in accordance with the 
Loan Note Guarantee.
    (i) Loss limits. The amount payable by the Agency to the lender 
cannot exceed the limits contained in the Loan Note Guarantee. If the 
Agency conducts the liquidation, loss occasioned by accruing interest 
will be covered by the guarantee only to the date the Agency accepts 
this responsibility. When the liquidation is conducted by the lender, 
loss occasioned by accruing interest will be covered to the extent of 
the guarantee to the date of final settlement provided the lender 
proceeds expeditiously with the liquidation plan approved by the Agency.



Sec. 3575.95  Future recovery.

    After a loan has been liquidated and a final loss has been paid by 
the Agency, any future funds which may be recovered by the lender will 
be pro-rated between the Agency and the lender in accordance with the 
guaranteed percentage even if the Loan Note Guarantee has been 
terminated.



Sec. 3575.96  Termination of Loan Note Guarantee.

    The Loan Note Guarantee under this subpart will terminate 
automatically:
    (a) Upon full payment of the guaranteed loan; or
    (b) Upon full payment of any loss obligation or negotiated loss 
settlement except for future recovery provisions; or
    (c) Upon written request from the lender to the Agency, provided 
that the lender holds all of the guaranteed portion and the original 
Loan Note Guarantee is returned to the Agency.



Secs. 3575.97-3575.99  [Reserved]



Sec. 3575.100  OMB control number.

    The report and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget and 
have been assigned OMB control number 0575-0137.

Subpart B [Reserved]

[[Page 479]]



 CHAPTER XXXVI--NATIONAL AGRICULTURAL STATISTICS SERVICE, DEPARTMENT OF 
                               AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3600            Organization and functions..................         481
3601            Availability of information to the public...         483

[[Page 481]]



PART 3600--ORGANIZATION AND FUNCTIONS--Table of Contents




Sec.
3600.1  General.
3600.2  Organization.
3600.3  Functions.
3600.4  Authority to act for the Administrator.

Appendix A to Part 3600--List of State Statistical Offices

    Authority: 5 U.S.C. 301 and 552: and 7 CFR 2.85.

    Source: 60 FR 57534, Nov. 16, 1995, unless otherwise noted.



Sec. 3600.1  General.

    The National Agricultural Statistics Service (NASS) was established 
on April 17, 1986, by Secretary's Memorandum 1020-24, which renamed the 
Statistical Reporting Service concurrent with an internal restructuring. 
Primary NASS responsibilities are development and dissemination of 
national and State agricultural statistics, statistical research, and 
coordination of Department statistical programs.



Sec. 3600.2  Organization.

    The headquarters organization consists of: The Administrator and 
Associate Administrator; Deputy Administrator for Field Operations; Four 
Divisions: Estimates, Survey Management, Research, and Systems and 
Information; and the Agricultural Statistics Board. In the field, each 
of the 45 State Statistical Offices, serving the 50 States, is under a 
State Statistician.



Sec. 3600.3  Functions.

    (a) Administrator. The Administrator is responsible for the 
formulation of current, intermediate, and long-range policies and plans 
to carry out a broad statistical program for the agricultural sector and 
Departmental functions and activities assigned to NASS. Specific 
functions are:
    (1) Administering an agricultural statistics program which includes 
estimates of production, marketings, inventories, and selected economic 
characteristics of the U.S. agricultural and rural economy.
    (2) Administering a methodological research program to improve 
agricultural data collection and processing, data management, 
estimation, and forecasting.
    (3) Administering programs to conduct surveys for other agencies, 
improve statistics through statistical standards for the Department, and 
coordinate statistical methods and techniques within the Federal 
Government.
    (4) Administering statistical programs jointly developed through 
cooperative agreements with State agencies, universities, private 
groups, and other Federal agencies.
    (5) Administering selected international agricultural statistics 
programs which provide foreign technical assistance, training on 
statistical methodology for developing countries, and exchange of 
information.
    (b) Associate Administrator. The Associate Administrator is 
responsible for advising and counseling the Administrator and high-level 
policy officials on matters related to programs of NASS. Major functions 
include:
    (1) Chairing Agricultural Statistics Board activities, designating 
Board membership, presiding at Board sessions, and formulating specific 
procedures.
    (2) Chairing the NASS Strategic Planning Council which coordinates 
long-range planning, information resources management, and research 
reviews.
    (3) Chairing the Resource Management Council which coordinates NASS 
hiring, promotion, and training activities.
    (c) Deputy Administrator for Field Operations. The Deputy 
Administrator manages and coordinates data collection and estimating 
programs carried out by State Statistical Offices. This includes 
supervision of statistical programs with cooperating State and private 
groups, universities, and other Federal agencies. Major functions 
include:
    (1) Formulating policies and programs that relate to functions and 
responsibilities of State Statistical Offices.

[[Page 482]]

    (2) Directing agricultural statistics programs established through 
cooperative agreements with State Departments of Agriculture, Land-Grant 
colleges and universities, or appropriate private organizations.
    (3) Establishing and maintaining relationships with respondents, 
producers, commodity groups, data users, and other interested groups to 
gain cooperation in providing useful, timely, and reliable information.
    (d) Director, Estimates Division. The Director is responsible for 
NASS estimating and forecasting programs. Major functions include:
    (1) Defining input and output requirements, estimators and variances 
to be utilized, statistical standards, editing and summarization 
requirements, and analytic procedures.
    (2) Collaborating with the Chairperson of the Agricultural 
Statistics Board to establish the annual programs of statistical 
reports.
    (3) Developing appropriate systems parameters; processing, 
summarizing, and presenting current survey and related historical data 
for Agricultural Statistics Board analysis; and preparing official 
estimates and forecasts.
    (e) Director, Survey Management Division. The Director is 
responsible for application of survey design and data collection 
methodologies to the agricultural statistics program. Major functions 
include:
    (1) Constructing and maintaining appropriate sampling frames for 
agricultural and rural surveys.
    (2) Designing, testing, and establishing survey techniques and 
standards, including sample design, sample selection, questionnaires, 
data collection methods, survey materials, and training methods for 
NASS.
    (3) Reviewing specifications for special data collection activities 
for programs of other Federal or State agencies.
    (f) Director, Research Division. The Director is responsible for 
researching statistical methodology for survey design, data collection, 
processing, estimating, and forecasting. Major functions include:
    (1) Conducting statistical research to develop new and improved 
sampling techniques, develop improved data collection methods, and 
identify methods of controlling sampling and nonsampling errors.
    (2) Researching statistical computing methods and developing 
efficient uses of computer technology including telecommunications, 
networking, and other applications.
    (3) Developing new statistical theory and models and solving 
statistical problems, including numerical methods involving advanced 
mathematical statistics.
    (g) Director, Systems and Information Division. The Director is 
responsible for NASS information management system and processing 
services. Specific functions are:
    (1) Designing, maintaining, and providing access to an integrated 
and standardized information management system containing sampling 
frames, survey data, estimates, and administrative records utilized by 
NASS.
    (2) Providing appropriate support for assisting users of the 
information management system through documentation, evaluation, 
training, and resolution of information management problems.
    (3) Designing and issuing all reports releasing official State and 
national estimates and forecasts from NASS.
    (h) Chairperson, Agricultural Statistics Board. The Chairperson 
reviews, prepares, and issues on specific dates, following approval by 
the Secretary of Agriculture as provided by law (7 U.S.C. 411a) and 
Departmental Regulation, the official State and national estimates 
relating to crop production, livestock and livestock products, dairy and 
dairy products, poultry and poultry products, stocks of agricultural 
commodities, value of farm products, farm inputs, and other assigned 
agricultural aspects.



Sec. 3600.4  Authority to act for the Administrator.

    In the absence of the Administrator, the following officials are 
designated to serve as Acting Administrator in the order indicated:

Associate Administrator
Deputy Administrator for Field Operations
Director, Estimates Division
Director, Survey Management Division
Director, Systems and Information Division

[[Page 483]]

Director, Research Division

       Appendix A to Part 3600--List of State Statistical Offices

                           Section 1. General

    Information concerning NASS statistics programs and activities 
related to individual States may be obtained from the State 
Statistician, State Statistical Office, NASS, in the locations listed 
below.

                      Section 2. List of Addresses

Alabama, Sterling Centre, Suite 200, 4121 Carmichael Road, Montgomery, 
AL 36106-2872
Alaska, 809 South Chugach Street, Suite 4, Palmer, AK 99645
Arizona, 3003 North Central Avenue, Suite 950, Phoenix, AZ 85012
Arkansas, 3408 Federal Office Building, Little Rock, AR 72201
California, 1220 ``N'' Street, Room 243, Sacramento, CA 95814
Colorado, 645 Parfet Street, Suite W-201, Lakewood, CO 80215-5517
Delaware, Delaware Department of Agriculture Building, 2320 South Dupont 
Highway, Dover, DE 19901
Florida, 1222 Woodward Street, Orlando, FL 32803
Georgia, Stephens Federal Building, Suite 320, Athens, GA 30613
Hawaii, State Department of Agriculture Building, 1428 South King 
Street, Honolulu, HI 96814
Idaho, 2224 Old Penitentiary Road, Boise, ID 83712
Illinois, Illinois Department of Agriculture Building, 801 Sangamon 
Avenue, Room 54, Springfield, IL 62702
Indiana, 1148 AGAD Building, Purdue University, Room 223, West 
Lafayette, IN 47907-1148
Iowa, 833 Federal Building, 210 Walnut Street, Des Moines, IA 50309
Kansas, 632 S.W. Van Buren, Room 200, Topeka, KS 66603
Kentucky, Gene Snyder & Courthouse Building, 601 W. Broadway, Room 645, 
Louisville, KY 40202
Louisiana, 5825 Florida Boulevard, Baton Rouge, LA 70806
Maryland, 50 Harry S Truman Parkway, Suite 202, Annapolis, MD 21401
Michigan, 201 Federal Building, Lansing, MI 48904
Minnesota, 8 East 4th Street, Suite 500, St. Paul, MN 55101
Mississippi, 121 North Jefferson Street, Jackson, MS 39201
Missouri, 601 Business Loop West, Suite 240, Columbia, MO 65203
Montana, Federal Building & U.S. Court House, Room 398, 301 S. Park 
Avenue, Helena, MT 59626
Nebraska, 100 Centennial Mall N., Room 273 Federal Building, Lincoln, NE 
68508
Nevada, Max C. Fleischmann Agriculture Building, Room 232, University of 
Nevada, Reno, NV 89557
New Hampshire, 22 Bridge Street, Room 301, Concord, NH 03301
New Jersey, Health and Agriculture Building, Room 205, CN-330 New Warren 
Street, Trenton, NJ 08625
New Mexico, 2507 North Telshor Boulevard, Suite 4, Las Cruces, NM 88001
New York, Department of Agriculture & Markets, 1 Winners Circle, Albany, 
NY 12235
North Carolina, 2 W. Edenton Street, Raleigh, NC 27601-1085
North Dakota, 1250 Albrecht Boulevard, NDSU, Room 448, Fargo, ND 58105
Ohio, 200 N. High Street, New Federal Building, Room 608, Columbus, OH 
43215
Oklahoma, 2800 North Lincoln Boulevard, Oklahoma City, OK 73105
Oregon, 1220 S.W. Third Avenue, Room 1735, Portland, OR 97204
Pennsylvania, 2301 N. Cameron Street, Room G-19, Harrisburg, PA 17110
South Carolina, 1835 Assembly Street, Room 1008, Columbia, SC 29201
South Dakota, 3528 S. Western Avenue, Sioux Falls, SD 57117
Tennessee, 440 Hogan Road, Holeman Office Building, Ellington 
Agricultural Center, Nashville, TN 37220-1626
Texas, 300 E. 8th Street, Federal Building, Room 504, Austin, TX 78701
Utah, 176 N. 2200 West--Suite 260, Salt Lake City, UT 84116
Virginia, 1100 Bank Street, Room 706, Richmond, VA 23219
Washington, 1111 Washington Street, SE, Olympia, WA 98504
West Virginia, 1900 Kanawha Boulevard E, Charleston, WV 25305
Wisconsin, 2811 Agriculture Drive, Madison, WI 53704
Wyoming, 504 W. 17th Street, Suite 250, Cheyenne, WY 82001



PART 3601--PUBLIC INFORMATION--Table of Contents




Sec.
3601.1  General statement.
3601.2  Public inspection, copying, and indexing.
3601.3  Requests for records.
3601.4  Multitrack processing.
3601.5  Denials.
3601.6  Appeals.
3601.7  Requests for published data and information.

    Authority: 5 U.S.C. 301, 552; 7 CFR part 1, subpart A and appendix A 
thereto.

    Source: 66 FR 57843, Nov. 19, 2001, unless otherwise noted.

[[Page 484]]



Sec. 3601.1  General statement.

    This part is issued in accordance with the regulations of the 
Secretary of Agriculture in part 1, subpart A of this title and appendix 
A thereto, implementing the Freedom of Information Act (FOIA) (5 U.S.C. 
552), and governs the availability of records of the National 
Agricultural Statistics Service (NASS) to the public.



Sec. 3601.2  Public inspection, copying, and indexing.

    5 U.S.C. 552(a)(2) requires that certain materials be made available 
for public inspection and copying and that a current index of these 
materials be published quarterly or otherwise be made available. Members 
of the public may request access to such materials maintained by NASS at 
the following office: Information Staff, ARS, REE, USDA, Room 1-2248, 
Mail Stop 5128, 5601 Sunnyside Avenue, Beltsville, MD 20705-5128; 
Telephone (301) 504-1640 or (301) 504-1655; TTY-VOICE (301) 504-1743. 
Office hours are 8 a.m. to 4:30 p.m. Information maintained in our 
electronic reading room can be accessed at http://www.ars.usda.gov/is/
foia/#Electronic.



Sec. 3601.3  Requests for records.

    Requests for records of NASS under 5 U.S.C. 552(a)(3) shall be made 
in accordance with Sec. 1.5 of this title and submitted to the FOIA 
Coordinator, Information Staff, ARS, REE, USDA, Mail Stop 5128, 5601 
Sunnyside Avenue, Beltsville, MD 20705-5128; Telephone (301) 504-1640 or 
(301) 504-1655; TTY-VOICE (301) 504-1643; Facsimile (301) 504-1648; e-
mail [email protected] or [email protected]. The FOIA 
Coordinator is delegated authority to make determinations regarding such 
requests in accordance with Sec. 1.3(c) of this title.



Sec. 3601.4  Multitrack processing.

    (a) When NASS has a significant number of requests, the nature of 
which precludes a determination within 20 working days, the requests may 
be processed in a multitrack processing system, based on the date of 
receipt, the amount of work and time involved in processing the request, 
and whether the request qualifies for expedited processing.
    (b) NASS may establish as many processing tracks as appropriate; 
processing within each track shall be based on a first-in, first-out 
concept, and rank-ordered by the date of receipt of the request.
    (c) A requester whose request does not qualify for the fastest track 
may be given an opportunity to limit the scope of the request in order 
to qualify for the fastest track. This multitrack processing system does 
not lessen agency responsibility to exercise due diligence in processing 
requests in the most expeditious manner possible.
    (d) NASS shall process requests in each track on a ``first-in, 
first-out'' basis, unless there are unusual circumstances as set forth 
in Sec. 1.16 of this title, or the requester is entitled to expedited 
processing as set forth in Sec. 1.9 of this title.



Sec. 3601.5  Denials.

    If the FOIA Coordinator determines that a requested record is exempt 
from mandatory disclosure and that discretionary release would be 
improper, the FOIA Coordinator shall give written notice of denial in 
accordance with Sec. 1.7(a) of this title.



Sec. 3601.6  Appeals.

    Any person whose request is denied shall have the right to appeal 
such denial. Appeals shall be made in accordance with Sec. 1.13 of this 
title and should be addressed as follows: Administrator, NASS, U.S. 
Department of Agriculture, Washington, DC 20250.



Sec. 3601.7  Requests for published data and information.

    (a) Published data and reports produced by NASS since 1995 are 
available via the NASS Web site at http://www.usda.gov/nass/ or an e-
mail subscription may be established via the website under Publications. 
Searching on the website is available by topic, by title, or by date. 
The titles displayed in the search include NASS's published periodicals 
and annual reports. Full text of all the titles is available at no cost 
(PDF Files beginning 1999). Printed copies and reports published after 
1996 can be purchased from the ERS-

[[Page 485]]

NASS sales desk at the National Technical Information Center at 1 (800) 
999-6779 (8:30 a.m.-5 p.m. Eastern Time, M-F).
    (b) Information on published data, printed subscription rates, and 
historic publications is available from the Secretary, Agricultural 
Statistics Board, NASS, U.S. Department of Agriculture, Washington, DC 
20250. This information is also available from the NASS website under 
Publications, NASS Catalog, NASS Periodicals and Annual Reports. 
Published data, from each State Statistical Office, are available via 
the NASS website under State Information or by e-mail subscription. 
Published data subscription forms are available from the State 
Statistician at each State Statistical Office. Addresses are listed in 
appendix A to part 3600 of this chapter.

[[Page 487]]



  CHAPTER XXXVII--ECONOMIC RESEARCH SERVICE, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3700            Organization and functions..................         489
3701            Public information..........................         491

[[Page 489]]



PART 3700--ORGANIZATION AND FUNCTIONS--Table of Contents




Sec.
3700.1  General.
3700.2  Organization.
3700.3  Functions.
3700.4  Authority to act for the Administrator.

    Authority: 5 U.S.C. 301 and 552, and 7 CFR 2.67.

    Source: 61 FR 1827, Jan. 24, 1996, unless otherwise noted.



Sec. 3700.1  General.

    The Economic Research Service (ERS), originally established in 1961 
under the authority of the Agricultural Marketing Act of 1946 (7 U.S.C. 
1621-1627), was reestablished as an agency of the U.S. Department of 
Agriculture of September 30, 1981 (46 FR 47747), in response to 
Secretary's Memorandum 1000-1 of June 17, 1981, entitled 
``Reorganization of Department.'' The mission of ERS is to provide 
economic and other social science information and analysis for pubic and 
private decisions on agriculture, food, natural resources, and rural 
America. Its primary customers are USDA policy officials and program 
administrators, the Office of the While House, Congress, and 
environmental, consumer, and rural public interest groups, including 
farm groups and industry.



Sec. 3700.2  Organization.

    ERS maintains its offices at 1301 New York Avenue, NW., Washington, 
DC 20005-4788. The organization consists of:
    (a) The Administrator;
    (b) Associate Administrator;
    (c) Five Divisions; Commercial Agriculture Division, Food and 
Consumer Economics Division, Information Services Division, Natural 
Resources and Environment Division, and Rural Economy Division; and
    (d) Office of Energy and New Uses.



Sec. 3700.3  Functions.

    (a) Administrator and Associate Administrator. The Administrator and 
Associate Administrator are responsible for developing and implementing 
policies and plans in support of a program of economic and social 
science research, analysis, and data dissemination. General functions 
are: Conducting research and staff analysis, and developing short to 
long-term outlook analysis and economic indicators.
    (b) Director, Commercial Agriculture Division. The Director, 
Commercial Agriculture Division, is responsible for conducting a program 
of economic research; economic intelligence gathering, analysis, and 
reporting; and data development and dissemination on economic 
conditions, U.S. and foreign policies, and agriculture production, 
trade, and marketing. General functions are:
    (1) Developing and monitoring current intelligence and indicators on 
domestic and international agricultural markets and related farm and 
trade developments and short to long-term forecasts of domestic and 
world agricultural markets.
    (2) Assessing the technological, economic, and institutional forces 
influencing U.S. and world agricultural markets.
    (3) Conducting special analyses of U.S. and world agricultural 
markets for policy officials to assist in policy development and the 
operation of USDA programs.
    (4) Collecting necessary information and performing international, 
national, and regional macroeconomics analysis to estimate the effects 
of macro economic trends and events in the global economy on the 
American farm sector.
    (c) Director, Food and Consumer Economic Division. The Director, 
Food and Consumer Economic Division, is responsible for providing 
economic research, monitoring and statistical indicators, and staff and 
the policy analysis of consumer and food marketing issues, including: 
Consumption determinants and trends; consumer demand for food quality, 
safety, and nutrition; food security; market competition; vertical 
coordination; nutrition education and food assistance programs; and food 
safety regulation. General functions are:
    (1) Analyzing consumer behavior and food choices, including research 
regarding the socio-demographic and economic determinants of food and 
nutrient consumption; consumer valuation

[[Page 490]]

of quality, safety, and nutrition characteristics; and the role of 
information in determining food choices.
    (2) Examining food assistance and nutrition programs, nutritional 
adequacy of diets, and food security, including costs and benefits of 
food assistance and nutrition programs, program and policy alternatives, 
the extent and social cost of good insecurity, and the role of food 
assistance in meeting larger goals of welfare programs.
    (3) Analyzing the food processing and distribution sector, including 
the ability of the sector to meet changing consumer demand; the effect 
of government market interventions to facilitate that response; and the 
effect of government interventions and rapid changes in the sector on 
consumer and producer welfare.
    (4) Analyzing food safety issues, including consumer benefits from 
risk reduction, production tradeoffs in reducing hazards, impact of 
proposed regulations and international harmonization, and policy 
alternatives.
    (5) Developing and monitoring indicators of individual, household, 
and market level food consumption, expenditures, and nutrients; food 
marketing costs, marketing margins, and farm-retail price spreads; and 
food safety hazards, their effects, and mitigation.
    (d) Director, Information Services Division. The Director, 
Information Services Division, is responsible for managing and directing 
agencywide information technology, communications, and administrative 
activities in support of the economic research and analysis mission of 
ERS. General functions are:
    (1) Developing and managing information technology infrastructure 
and training.
    (2) Developing and managing communications, publication, and 
dissemination programs, policies, and procedures.
    (3) Providing operations and management services, including liaison 
with the ARS's Administrative and Financial Management unit.
    (e) Director, Natural Resources and Environment Division. The 
Director, Natural Resources and Environment Division, is responsible for 
providing economic research, monitoring and statistical indicators, and 
staff and policy analysis of agricultural resource and environment 
issues including the relationship between agriculture--its practices, 
technologies, policies, and resource use--and the environment, including 
effects on the sustainability of the natural resource base, preservation 
of species and genetic diversity, and environmental quality. General 
functions are:
    (1) Developing and disseminating data for assessing the use of 
agricultural resources and technologies by agricultural producers. These 
data include use and ownership of land, use of agricultural chemicals 
and equipment, and water use.
    (2) Evaluating the implications of alternative agricultural and 
resource conservation policies and programs on commodity prices, 
consumer welfare, competitiveness, and long-range maintenance of 
agricultural land and water resources.
    (3) Analyzing the costs, benefits, and distributional impacts of 
alternative policies to reduce environmental and health risk 
externalities associated with agriculture.
    (4) Monitoring and analyzing the uses and conditions of the nation's 
water resources and the economic consequences of agricultural and 
environmental policies affecting water supply, use, and quality.
    (5) Analyzing the impacts of national and global developments and 
domestic and international policies on the use and value of land, water, 
capital assets, and other agricultural production decisions.
    (6) Assessing the possible impacts of proposed or anticipated 
domestic policy and program changes on agricultural production 
decisions.
    (7) Assessing the effects of technology on input use and markets and 
evaluating the factors affecting input productivity and technology 
adoption.
    (8) Analyzing the implications of global environmental change and 
sustainable development for U.S. agriculture.
    (f) Director, Rural Economy Division. The Director, Rural Economy 
Division, is responsible for conducting a program of economic and social 
science research

[[Page 491]]

and analysis on national rural and agricultural conditions and trends, 
and identifying and assessing the potential impact of public and private 
sector actions and policies that affect rural areas and the agricultural 
sector. General functions are:
    (1) Analyzing and reporting on current economic and demographic 
issues facing rural areas and agricultural, especially how changes in 
the national and global economies affect rural areas and the agriculture 
sector.
    (2) Determining the effects of economic, social, and governmental 
events and actions on the demand for and supply of rural local 
government services, the quality of such services, and the relationships 
between local services and the viability of rural communities.
    (3) Developing and disseminating information on current trends in 
the non-metropolitan and farm populations, the number, location and 
characteristics of such people, and the factors associated with these 
trends.
    (4) Developing estimates and analyzing labor force trends in rural 
labor markets, including analyses of unemployment and employment by 
industry and occupational groups, including farm labor.
    (5) Developing data on the income situation of rural people and 
evaluating the effectiveness of alternative public policies and programs 
in improving incomes of rural people, especially people in disadvantaged 
groups.
    (6) Monitoring information on and analyzing the development of rural 
portions of geographic regions of the United States, including changes 
in industry mix, impacts of energy costs, credit availability, and other 
economic activities.
    (7) Analyzing and reporting on developments in rural and 
agricultural financial markets and in Federal tax laws, and their 
consequences for agriculture and rural economies.
    (8) Collecting and disseminating financial information on farms and 
farm enterprises, and developing techniques necessary to measure and 
describe the financial condition of the agriculture sector and its 
components.

[61 FR 1827, Jan. 24, 1996, as amended at 64 FR 40736, July 28, 1999]



Sec. 3700.4  Authority to act for the Administrator.

    In the absence of the Administrator, the following officials are 
designated to serve as Acting Administrator in the order indicated:

Associate Administrator
Director, Commercial Agriculture Division
Director, Food and Consumer Economics Division
Director, Natural Resources and Environment Division
Director, Rural Economy Division
Director, Information Services Division
Director, Office of Energy and New Uses



PART 3701--PUBLIC INFORMATION--Table of Contents




Sec.
3701.1  General statement.
3701.2  Public inspection, copying, and indexing.
3701.3  Requests for records.
3701.4  Multitrack processing.
3701.5  Denials.
3701.6  Appeals.
3701.7  Requests for published data and information.

    Authority: 5 U.S.C. 301, 552; 7 CFR part 1, subpart A and appendix A 
thereto.

    Source: 66 FR 57845, Nov. 19, 2001, unless otherwise noted.



Sec. 3701.1  General statement.

    This part is issued in accordance with the regulations of the 
Secretary of Agriculture in part 1, subpart A of this title and appendix 
A thereto, implementing the Freedom of Information Act (FOIA) (5 U.S.C. 
552). The Secretary's regulations, as implemented by the regulations in 
this part, govern the availability of records of the Economic Research 
Service (ERS) to the public.



Sec. 3701.2  Public inspection, copying, and indexing.

    5 U.S.C. 552(a)(2) requires that certain materials be made available 
for public inspection and copying and that a current index of these 
materials be published quarterly or otherwise be made available. Members 
of the public may request access to such materials maintained by ERS at 
the following office: Information Staff, ARS, REE, USDA, Room 1-2248, 
Mail Stop 5128, 5601 Sunnyside Avenue, Beltsville, MD 20705-5128; 
Telephone (301) 504-1640 or

[[Page 492]]

(301) 504-1655; TTY-VOICE (301) 504-1743. Office hours are 8 a.m. to 
4:30 p.m. Information maintained in our electronic reading room can be 
accessed at http://www.ars.usda.gov/is/foia/#Electronic.



Sec. 3701.3  Requests for records.

    Requests for records of ERS under 5 U.S.C. 552(a)(3) shall be made 
in accordance with Sec. 1.5 of this title and submitted to the FOIA 
Coordinator, Information Staff, ARS, REE, USDA, Mail Stop 5128, 5601 
Sunnyside Avenue, Beltsville, MD 20705-5128; Telephone (301) 504-1640 or 
(301) 504-1655; TTY-VOICE (301) 504-1743; Facsimile (301) 504-1648; e-
mail [email protected] or [email protected]. The FOIA 
Coordinator is delegated authority to make determinations regarding such 
requests in accordance with Sec. 1.3(c) of this title.



Sec. 3701.4  Multitrack processing.

    (a) When ERS has a significant number of requests, the nature of 
which precludes a determination within 20 working days, the requests may 
be processed in a multitrack processing system, based on the date of 
receipt, the amount of work and time involved in processing the request, 
and whether the request qualifies for expedited processing.
    (b) ERS may establish as many processing tracks as appropriate; 
processing within each track shall be based on a first-in, first-out 
concept, and rank-ordered by the date of receipt of the request.
    (c) A requester whose request does not qualify for the fastest track 
may be given an opportunity to limit the scope of the request in order 
to qualify for the fastest track. This multitrack processing system does 
not lessen agency responsibility to exercise due diligence in processing 
requests in the most expeditious manner possible.
    (d) ERS shall process requests in each track on a ``first-in, first-
out'' basis, unless there are unusual circumstances as set forth in 
Sec. 1.16 of this title, or the requester is entitled to expedited 
processing as set forth in Sec. 1.9 of this title.



Sec. 3701.5  Denials.

    If the FOIA Coordinator determines that a requested record is exempt 
from mandatory disclosure and that discretionary release would be 
improper, the FOIA Coordinator shall give written notice of denial in 
accordance with Sec. 1.7(a) of this title.



Sec. 3701.6  Appeals.

    Any person whose request is denied shall have the right to appeal 
such denial. Appeals shall be made in accordance with Sec. 1.14 of this 
title and should be addressed as follows: Administrator, ERS, U.S. 
Department of Agriculture, Washington, DC 20250.



Sec. 3701.7  Requests for published data and information.

    Published data and reports produced by ERS since 1996 are available 
on the ERS Web site at http//www.ers.usda.gov. Searching on the website 
is available by topic, by title, or by date. The titles displayed in the 
search include ERS's separately published research reports as well as 
articles in ERS-produced periodicals. Full text of all the titles are 
available at no cost (usually in PDF Files). Printed copies and reports 
published before 1996 (while supplies last) can be purchased from the 
ERS-NASS sales desk at the National Technical Information Center at 1-
800-999-6779 (8:30 a.m.-5 p.m., Eastern Standard Time, M-F).

[[Page 493]]



    CHAPTER XXXVIII--WORLD AGRICULTURAL OUTLOOK BOARD, DEPARTMENT OF 
                               AGRICULTURE




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Part                                                                Page
3800            Organization and functions..................         495
3801            Availability of information to the public...         495

[[Page 495]]



PART 3800--ORGANIZATION AND FUNCTIONS--Table of Contents




Sec.
3800.1  General.
3800.2  Organization.
3800.3  Functions.
3800.4  Authority to act for the Chairperson.

    Authority: 5 U.S.C. 301 and 552, and 7 CFR 2.86, except as otherwise 
stated.

    Source: 53 FR 5358, Feb. 24, 1988, unless otherwise noted.



Sec. 3800.1  General.

    The World Agricultural Outlook Board (WAOB) was established on June 
3, 1977, by Secretary's Memorandum 1920, entitled ``World Food and 
Agricultural Outlook and Situation Board.'' The primary responsibility 
of WAOB is to coordinate and review all commodity and aggregate 
agricultural and food data and analyses used to develop outlook and 
situation material within the Department of Agriculture.



Sec. 3800.2  Organization.

    The central and only office of WAOB is located in Washington, DC, 
and consists of the Chairperson, Deputy Chairperson, and supporting 
staff.



Sec. 3800.3  Functions.

    The WAOB has four major areas of responsibility:
    (a) Agricultural outlook and situation. (1) Coordinate and review 
all crop and commodity data used to develop outlook and situation 
material within the Department of Agriculture.
    (2) Oversee and clear for consistency of analytical assumptions and 
results, all estimates and analyses which significantly relate to 
international and domestic commodity supply and demand. This includes 
such estimates and analyses prepared for public distribution by the 
Foreign Agricultural Service, the Economic Research Service, or by any 
other agency or office of the Department.
    (3) Participate in planning and developing research programs 
relating to improving the Department's forecasting and estimating 
capabilities.
    (4) Provide liaison between the Department and Commodity Futures 
Trading Commission to assure that the futures market serves the best 
interest of agriculture and the public.
    (5) Plan and participate in Departmental, interdepartmental, 
regional and international outlook conferences and briefings, to 
maintain an awareness of current and upcoming economic issues 
significant to the food and agricultural system.
    (b) Interagency commodity estimates. (1) Establish Interagency 
Commodity Estimates Committees to bring together estimates and analyses 
from supporting agencies and to develop official estimates of supply, 
utilization, and prices for commodities.
    (2) Review for consistency of analytical assumptions and results, 
all proposed decisions made by the Interagency Commodity Estimates 
Committee prior to any release outside the Department.
    (c) Weather and climate. (1) Serve as a focal point within the 
Department for coordination of weather, climate, and related crop 
monitoring activities.
    (d) Remote sensing. (1) Provide technical assistance, coordination, 
and guidance to Department agencies in planning, developing, and 
carrying out satellite remote sensing activities to assure full 
consideration and evaluation of advanced technology.
    (2) Coordinate administrative, management, and budget information 
relating to Department's remote sensing activities.



Sec. 3800.4  Authority to act for the Chairperson.

    When the Chairperson is absent or temporarily unavailable, the 
Deputy Chairperson is authorized to act for the Chairperson.



PART 3801--AVAILABILITY OF INFORMATION TO THE PUBLIC--Table of Contents




Sec.
3801.1  General.
3801.2  Public inspection, copying, and indexing.
3801.3  Requests for records.
3801.4  Denials.
3801.5  Appeals.
3801.6  Requests for published data and information.

    Authority: 5 U.S.C. 301 and 552; 7 CFR 1.1-1.23 and Appendix A.

[[Page 496]]


    Source: 53 FR 5358, Feb. 24, 1988, unless otherwise noted.



Sec. 3801.1  General.

    This part is issued in accordance with the regulations of the 
Secretary of Agriculture in Secs. 1.1-1.23 of this title and Appendix A 
thereto, implementing the Freedom of Information Act (FOIA) (5 U.S.C. 
552), and governs the availability of records of the World Agricultural 
Outlook Board (WAOB) to the public.



Sec. 3801.2  Public inspection, copying, and indexing.

    5 U.S.C. 552(a)(2) requires that certain materials be made available 
for public inspection and copying and that a current index of these 
materials be published quarterly or otherwise be made available. WAOB 
does not maintain any materials within the scope of these requirements.



Sec. 3801.3  Requests for records.

    Requests for records of WAOB shall be made in accordance with 
Sec. 1.6 (a) and (b) of this title and addressed to: Economics Agencies 
FOIA Officer, Economics Management Staff, USDA, Room 4310, South 
Building, 12th and Independence Avenue SW., Washington, DC 20250. This 
official is delegated authority to make determinations regarding such 
requests in accordance with Sec. 1.3(a)(3) of this title.



Sec. 3801.4  Denials.

    If the Economics Agencies FOIA Officer determines that a requested 
record is exempt from mandatory disclosure and that discretionary 
release would be improper, the Economics Agencies FOIA Officer shall 
give written notice of denial in accordance with Sec. 1.8(a) of this 
title.



Sec. 3801.5  Appeals.

    Any person whose request is denied shall have the right to appeal 
such denial. Appeals shall be in accordance with Sec. 1.6(e) of this 
title and addressed to the Chairperson, World Agricultural Outlook 
Board, U.S. Department of Agriculture, Washington, DC 20250.



Sec. 3801.6  Requests for published data and information.

    Information on published data, subscription rates, and all WAOB 
programs is available from the Chairperson, World Agricultural Outlook 
Board, U.S. Department of Agriculture, Washington, DC 20250.



                         CHAPTER XLI [RESERVED]



[[Page 497]]



  CHAPTER XLII--RURAL BUSINESS-COOPERATIVE SERVICE AND RURAL UTILITIES 
                   SERVICE, DEPARTMENT OF AGRICULTURE




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


  Editorial Note: Nomenclature changes to chapter XLII appear at 61 FR 
3782, Feb. 2, 1996.
Part                                                                Page
4274            Direct and insured loanmaking...............         499
4279            Guaranteed loanmaking.......................         516
4284            Grants......................................         541
4285            Cooperative agreements......................         555
4287            Servicing...................................         563

[[Page 499]]



PART 4274--DIRECT AND INSURED LOANMAKING--Table of Contents




Subparts A-C [Reserved]

             Subpart D--Intermediary Relending Program (IRP)

Sec.
4274.301  Introduction.
4274.302  Definitions and abbreviations.
4274.303-4274.306  [Reserved]
4274.307  Eligibility requirements--Intermediary.
4274.308  Eligibility requirements--Ultimate recipients.
4274.309-4274.313  [Reserved]
4274.314  Loan purposes.
4274.315-4274.318  [Reserved]
4274.319  Ineligible loan purposes.
4274.320  Loan terms.
4274.321-4274.324  [Reserved]
4274.325  Interest rates.
4274.326  Security.
4274.327-4274.330  [Reserved]
4274.331  Loan limits.
4274.332  Post award requirements.
4274.333-4274.336  [Reserved]
4274.337  Other regulatory requirements.
4274.338  Loan agreements between the Agency and the intermediary.
4274.339-4274.342  [Reserved]
4274.343  Application.
4274.344  Filing and processing applications for loans.
4274.345-4274.349  [Reserved]
4274.350  Letter of conditions.
4274.351-4274.354  [Reserved]
4274.355  Loan approval and obligating funds.
4274.356  Loan closing.
4274.357-4274.360  [Reserved]
4274.361  Requests to make loans to ultimate recipients.
4274.362-4274.372  [Reserved]
4274.373  Appeals.
4274.374-4274.380  [Reserved]
4274.381  Exception authority.
4274.382-4274.399  [Reserved]
4274.400  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1932 note; 7 U.S.C. 1989.

    Source: 63 FR 6053, Feb. 6, 1998, unless otherwise noted.

Subparts A-C [Reserved]



             Subpart D--Intermediary Relending Program (IRP)



Sec. 4274.301  Introduction.

    (a) This subpart contains regulations for loans made by the Agency 
to eligible intermediaries and applies to borrowers and other parties 
involved in making such loans. The provisions of this subpart supersede 
conflicting provisions of any other subpart. The servicing and 
liquidation of such loans will be in accordance with part 1951, subpart 
R, of this title.
    (b) The purpose of the program is to alleviate poverty and increase 
economic activity and employment in rural communities, especially 
disadvantaged and remote communities, through financing targeted 
primarily towards smaller and emerging businesses, in partnership with 
other public and private resources, and in accordance with State and 
regional strategy based on identified community needs. This purpose is 
achieved through loans made to intermediaries that establish programs 
for the purpose of providing loans to ultimate recipients for business 
facilities and community developments in a rural area.
    (c) Proposed intermediaries are required to identify any known 
relationship or association with a USDA Rural Development employee. Any 
processing or servicing Agency activity conducted pursuant to this 
subpart involving authorized assistance to United States Department of 
Agriculture (USDA) Rural Development employees, members of their 
families, close relatives, or business or close personal associates, is 
subject to the provisions of subpart D of part 1900 of this chapter.
    (d) Copies of all forms, regulations, and Agency procedures 
referenced in this subpart are available in the National Office or any 
Rural Development State Office.



Sec. 4274.302  Definitions and abbreviations.

    (a) General definitions. The following definitions are applicable to 
the terms used in this subpart:
    Agency. The Federal agency within the USDA with responsibility 
assigned by the Secretary of Agriculture to administer IRP. At the time 
of publication of this rule, that Agency was the Rural Business-
Cooperative Service (RBS).
    Agency IRP loan funds. Cash proceeds of a loan obtained from the 
Agency through IRP, including the portion of

[[Page 500]]

an IRP revolving fund directly provided by the Agency IRP loan. Agency 
IRP loan funds are Federal funds.
    Agricultural production or agriculture production. The cultivation, 
production, growing, raising, feeding, housing, breeding, hatching, or 
managing of crops, plants, animals, or birds, either for fiber, food for 
human consumption, or livestock feed.
    Initial Agency IRP loan. The first IRP loan made by the Agency to an 
intermediary.
    Intermediary. The entity requesting or receiving Agency IRP loan 
funds for establishing a revolving fund and relending to ultimate 
recipients.
    IRP revolving fund. A group of assets, obtained through or related 
to an Agency IRP loan and recorded by the intermediary in a bookkeeping 
account or set of accounts and accounted for, along with related 
liabilities, revenues, and expenses, as an entity or enterprise separate 
from the intermediary's other assets and financial activities.
    Principals of intermediary. Members, officers, directors, and other 
individuals or entities directly involved in the operation and 
management (including setting policy) of an intermediary.
    Processing office or officer. The processing office for an IRP 
application is the office within the Agency administrative organization 
with assigned authority and responsibility to process the application. 
The processing office is the primary contact for the proposed 
intermediary and maintains the official application case file. The 
processing officer for an application is the person in charge of the 
processing office. The processing officer is responsible for ensuring 
that all regulations and Agency procedures are complied with in regard 
to applications under the office's jurisdiction.
    Revolved funds. The cash portion of an IRP revolving fund that is 
not composed of Agency loan funds, including funds that are repayments 
of Agency IRP loans and including fees and interest collected on such 
loans. Revolved funds shall not be considered Federal funds.
    Rural area. All territory of a State that is not within the outer 
boundary of any city having a population of 25,000 or more, according to 
the latest decennial census.
    Servicing office or officer. The servicing office for an IRP loan is 
the office within the Agency administrative organization with assigned 
authority and responsibility to service the loan. The servicing office 
is the primary contact for the borrower and maintains the official case 
file after the loan is closed. The servicing officer for a loan is the 
person in charge of the servicing office. The servicing officer is 
responsible for ensuring that all regulations and Agency procedures are 
complied with in regard to loans under the office's jurisdiction.
    State. Any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands of the United States, 
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, 
the Republic of Palau, the Federated States of Micronesia, and the 
Republic of the Marshall Islands.
    Subsequent IRP loan. An IRP loan from the Agency to an intermediary 
that has received one or more IRP loans previously.
    Technical assistance. A function performed for the benefit of an 
ultimate recipient or proposed ultimate recipient, which is a problem 
solving activity. The Agency will determine whether a specific activity 
qualifies as technical assistance.
    Ultimate recipient. An entity or individual that receives a loan 
from an intermediary's IRP revolving fund.
    Underrepresented group. U.S. citizens with identifiable common 
characteristics, that have not received IRP assistance or have received 
a lower percentage of total IRP dollars than the percentage they 
represent of the general population.
    United States. The 50 States of the United States of America, the 
District of Columbia, the Commonwealth of Puerto Rico, the Virgin 
Islands of the United States, Guam, American Samoa, the Commonwealth of 
the Northern Mariana Islands, the Republic of Palau, the Federated 
States of Micronesia, and the Republic of the Marshall Islands.
    (b) Abbreviations. The following are applicable to this subpart:


[[Page 501]]


B&I--Business and Industry
IRP--Intermediary Relending Program
OGC--Office of the General Counsel
OIG--Office of Inspector General
OMB--Office of Management and Budget
RBS--Rural Business-Cooperative Service, or any successor agency
RDLF--Rural Development Loan Fund
USDA--United States Department of Agriculture



Secs. 4274.303-4274.306  [Reserved]



Sec. 4274.307  Eligibility requirements--Intermediary.

    (a) The types of entities which may become intermediaries are:
    (1) Private nonprofit corporations.
    (2) Public agencies--Any State or local government, or any branch or 
agency of such government having authority to act on behalf of that 
government, borrow funds, and engage in activities eligible for funding 
under this subpart.
    (3) Indian groups--Indian tribes on a Federal or State reservation 
or other federally recognized tribal groups.
    (4) Cooperatives--Incorporated associations, at least 51 percent of 
whose members are rural residents, whose members have one vote each, and 
which conduct, for the mutual benefit of their members, such operations 
as producing, purchasing, marketing, processing, or other activities 
aimed at improving the income of their members as producers or their 
purchasing power as consumers.
    (b) The intermediary must:
    (1) Have the legal authority necessary for carrying out the proposed 
loan purposes and for obtaining, giving security for, and repaying the 
proposed loan.
    (2) Have a proven record of successfully assisting rural business 
and industry, or, for intermediaries that propose to finance community 
development, a proven record of successfully assisting rural community 
development projects of the type planned.
    (i) Except as provided in paragraph (b)(2)(ii) of this section, such 
record will include recent experience in loan making and servicing with 
loans that are similar in nature to those proposed for the IRP and a 
delinquency and loss rate acceptable to the Agency.
    (ii) The Agency may approve an exception to the requirement for loan 
making and servicing experience provided:
    (A) The proposed intermediary has a proven record of successfully 
assisting (other than through lending) rural business and industry or 
rural community development projects of the type planned; and
    (B) The proposed intermediary will, before the loan is closed, bring 
individuals with loan making and servicing experience and expertise into 
the operation of the IRP revolving fund.
    (3) Have the services of a staff with loan making and servicing 
expertise acceptable to the Agency.
    (4) Have capitalization acceptable to the Agency.
    (c) No loans will be extended to an intermediary unless:
    (1) There is adequate assurance of repayment of the loan based on 
the fiscal and managerial capabilities of the proposed intermediary.
    (2) The loan is not otherwise available on reasonable (i.e., usual 
and customary) rates and terms from private sources or other Federal, 
State, or local programs.
    (3) The amount of the loan, together with other funds available, is 
adequate to assure completion of the project or achieve the purposes for 
which the loan is made.
    (d) At least 51 percent of the outstanding interest or membership in 
any nonpublic body intermediary must be composed of citizens of the 
United States or individuals who reside in the United States after being 
legally admitted for permanent residence.
    (e) Any delinquent debt to the Federal Government by the 
intermediary or any principal of the intermediary shall cause the 
intermediary to be ineligible to receive any IRP loan. Agency loan funds 
may not be used to satisfy the debt.



Sec. 4274.308  Eligibility requirements--Ultimate recipients.

    (a) Ultimate recipients may be individuals, public or private 
organizations, or other legal entities, with authority to incur the debt 
and carry out the purpose of the loan.
    (b) To be eligible to receive loans from the IRP revolving loan 
fund, ultimate recipients;

[[Page 502]]

    (1) Must be citizens of the United States or reside in the United 
States after being legally admitted for permanent residence. In the case 
of an organization, at least 51 percent of the outstanding membership or 
ownership must be either citizens of the United States or residents of 
the United States after being legally admitted for permanent residence.
    (2) Must be located in a rural area of a State.
    (3) Must be unable to finance the proposed project from its own 
resources or through commercial credit or other Federal, State, or local 
programs at reasonable rates and terms.
    (4) Must, along with its principal officers (including their 
immediate family), hold no legal or financial interest or influence in 
the intermediary. Also, the intermediary and its principal officers 
(including immediate family) must hold no legal or financial interest or 
influence in the ultimate recipient. However, this paragraph shall not 
prevent an intermediary that is organized as a cooperative from making a 
loan to one of its members.
    (c) Any delinquent debt to the Federal Government by the ultimate 
recipient or any of its principals shall cause the proposed ultimate 
recipient to be ineligible to receive a loan from Agency IRP loan funds. 
Agency IRP loan funds may not be used to satisfy the delinquency.



Secs. 4274.309-4274.313  [Reserved]



Sec. 4274.314  Loan purposes.

    (a) Intermediaries. Agency IRP loan funds must be placed in the 
intermediary's IRP revolving fund and used by the intermediary to 
provide direct loans to eligible ultimate recipients.
    (b) Ultimate recipients. Loans from the intermediary to the ultimate 
recipient using the IRP revolving fund must be for community development 
projects, the establishment of new businesses, expansion of existing 
businesses, creation of employment opportunities, or saving existing 
jobs. Such loans may include, but are not limited to:
    (1) Business and industrial acquisitions when the loan will keep the 
business from closing, prevent the loss of employment opportunities, or 
provide expanded job opportunities.
    (2) Business construction, conversion, enlargement, repair, 
modernization, or development.
    (3) Purchase and development of land, easements, rights-of-way, 
buildings, facilities, leases, or materials.
    (4) Purchase of equipment, leasehold improvements, machinery, or 
supplies.
    (5) Pollution control and abatement.
    (6) Transportation services.
    (7) Start-up operating costs and working capital.
    (8) Interest (including interest on interim financing) during the 
period before the facility becomes income producing, but not to exceed 3 
years.
    (9) Feasibility studies.
    (10) Debt refinancing.
    (i) A complete review will be made by the intermediary to determine 
whether the loan will restructure debts on a schedule that will allow 
the ultimate recipient to operate successfully and pay off the loan 
rather than merely take over an unsound loan. The intermediary will 
obtain the proposed ultimate recipient's complete debt schedule which 
should agree with the proposed ultimate recipient's latest balance 
sheet; and
    (ii) Refinancing debts may be allowed only when it is determined by 
the intermediary that the project is viable and refinancing is necessary 
to create new or save existing jobs or create or continue a needed 
service; and
    (iii) On any request for refinancing of existing secured loans, the 
intermediary is required, at a minimum, to obtain the previously held 
collateral as security for the loans and must not pay off a creditor in 
excess of the value of the collateral. Additional collateral will be 
required when the refinancing of unsecured loans is unavoidable to 
accomplish the necessary strengthening of the ultimate recipient's 
position.
    (11) Reasonable fees and charges only as specifically listed in this 
paragraph. Authorized fees include loan packaging fees, environmental 
data collection fees, management consultant fees, and other fees for 
services rendered by professionals. Professionals are generally persons 
licensed by States or accreditation associations, such as engineers,

[[Page 503]]

architects, lawyers, accountants, and appraisers. The maximum amount of 
fee will be what is reasonable and customary in the community or region 
where the project is located. Any such fees are to be fully documented 
and justified.
    (12) Hotels, motels, tourist homes, bed and breakfast 
establishments, convention centers, and other tourist and recreational 
facilities except as prohibited by Sec. 4274.319.
    (13) Educational institutions.
    (14) Revolving lines of credit: Provided,
    (i) The portion of the intermediary's total IRP revolving fund that 
is committed to or in use for revolving lines of credit will not exceed 
25 percent at any time;
    (ii) All ultimate recipients receiving revolving lines of credit 
will be required to reduce the outstanding balance of the revolving line 
of credit to zero at least one time each year;
    (iii) All revolving lines of credit will be approved by the 
intermediary for a specific maximum amount and for a specific maximum 
time period, not to exceed two years;
    (iv) The intermediary will provide a detailed description, which 
will be incorporated into the intermediary's work plan and be subject to 
Agency approval, of how the revolving lines of credit will be operated 
and managed. The description will include evidence that the intermediary 
has an adequate system for:
    (A) Interest calculations on varying balances, and
    (B) Monitoring and control of the ultimate recipients' cash, 
inventory, and accounts receivable; and
    (v) If, at any time, the Agency determines that an intermediary's 
operation of revolving lines of credit is causing excessive risk of loss 
for the intermediary or the Government, the Agency may terminate the 
intermediary's authority to use the IRP revolving fund for revolving 
lines of credit. Such termination will be by written notice and will 
prevent the intermediary from approving any new lines of credit or 
extending any existing revolving lines of credit beyond the effective 
date of termination contained in the notice.



Secs. 4274.315-4274.318  [Reserved]



Sec. 4274.319  Ineligible loan purposes.

    Agency IRP loan funds may not be used for payment of the 
intermediary's administrative costs or expenses. The IRP revolving fund 
may not be used for:
    (a) Assistance in excess of what is needed to accomplish the purpose 
of the ultimate recipient's project .
    (b) Distribution or payment to the owner, partners, shareholders, or 
beneficiaries of the ultimate recipient or members of their families 
when such persons will retain any portion of their equity in the 
ultimate recipient.
    (c) Charitable institutions that would not have revenue from sales 
or fees to support the operation and repay the loan, churches, 
organizations affiliated with or sponsored by churches, and fraternal 
organizations.
    (d) Assistance to government employees, military personnel, or 
principals or employees of the intermediary or organizations for which 
such persons are directors or officers or in which they have ownership 
of 20 percent or more.
    (e) A loan to an ultimate recipient which has an application pending 
with or a loan outstanding from another intermediary involving an IRP 
revolving fund if the total IRP loans would exceed the limits 
established in Sec. 4274.331(b).
    (f) Agricultural production.
    (g) The transfer of ownership unless the loan will keep the business 
from closing, or prevent the loss of employment opportunities in the 
area, or provide expanded job opportunities.
    (h) Community antenna television services or facilities.
    (i) Any illegal activity.
    (j) Any project that is in violation of either a Federal, State, or 
local environmental protection law or regulation or an enforceable land 
use restriction unless the assistance given will result in curing or 
removing the violation.
    (k) Lending and investment institutions and insurance companies.
    (l) Golf courses, race tracks, or gambling facilities.

[[Page 504]]



Sec. 4274.320  Loan terms.

    (a) No loan to an intermediary shall be extended for a period 
exceeding 30 years. Interest and principal payments will be scheduled at 
least annually. The initial principal payment may be deferred (during 
the period before the facility becomes income producing) by the Agency, 
but not more than 3 years.
    (b) Loans made by an intermediary to an ultimate recipient from the 
IRP revolving fund will be scheduled for repayment over a term 
negotiated by the intermediary and ultimate recipient. The term must be 
reasonable and prudent considering the purpose of the loan, expected 
repayment ability of the ultimate recipient, and the useful life of 
collateral, and must be within any limits established by the 
intermediary's work plan.



Secs. 4274.321-4274.324  [Reserved]



Sec. 4274.325  Interest rates.

    (a) Loans made by the Agency pursuant to this subpart shall bear 
interest at a fixed rate of 1 percent per annum over the term of the 
loan.
    (b) Interest rates charged by intermediaries to ultimate recipients 
on loans from the IRP revolving fund shall be negotiated by the 
intermediary and ultimate recipient. The rate must be within limits 
established by the intermediary's work plan approved by the Agency. The 
rate should normally be the lowest rate sufficient to cover the loan's 
proportional share of the IRP revolving fund's debt service costs, 
reserve for bad debts, and administrative costs.



Sec. 4274.326  Security.

    (a) Intermediaries. Security for all loans to intermediaries must be 
such that the repayment of the loan is reasonably assured, when 
considered along with the intermediary's financial condition, work plan, 
and management ability. It is the responsibility of the intermediary to 
make loans to ultimate recipients in such a manner that will fully 
protect the interests of the intermediary and the Government.
    (1) Security for such loans may include, but is not limited to:
    (i) Any realty, personalty, or intangible capable of being 
mortgaged, pledged, or otherwise encumbered by the intermediary in favor 
of the Agency; and
    (ii) Any realty, personalty, or intangible capable of being 
mortgaged, pledged, or otherwise encumbered by an ultimate recipient in 
favor of the Agency.
    (2) Initial security will consist of a pledge by the intermediary of 
all assets now in or hereafter placed in the IRP revolving fund, 
including cash and investments, notes receivable from ultimate 
recipients, and the intermediary's security interest in collateral 
pledged by ultimate recipients. Except for good cause shown, the Agency 
will not obtain assignments of specific assets at the time a loan is 
made to an intermediary or ultimate recipient. The intermediary will 
covenant that, in the event the intermediary's financial condition 
deteriorates or the intermediary takes action detrimental to prudent 
fund operation or fails to take action required of a prudent lender, the 
intermediary will provide additional security, execute any additional 
documents, and undertake any reasonable acts the Agency may request to 
protect the Agency's interest or to perfect a security interest in any 
asset, including physical delivery of assets and specific assignments to 
the Agency. All debt instruments and collateral documents used by an 
intermediary in connection with loans to ultimate recipients must be 
assignable.
    (b) Ultimate recipients. Security for a loan from an intermediary's 
IRP revolving fund to an ultimate recipient will be negotiated between 
the intermediary and ultimate recipient, within the general security 
policies established by the intermediary and approved by the Agency.



Secs. 4274.327-4274.330  [Reserved]



Sec. 4274.331  Loan limits.

    (a) Intermediary. (1) No loan to an intermediary will exceed the 
maximum amount the intermediary can reasonably be expected to lend to 
eligible ultimate recipients, in an effective and sound manner, within 1 
year after loan closing.

[[Page 505]]

    (2) The initial Agency IRP loan as defined in Sec. 4274.302(a) will 
not exceed $2 million.
    (3) Intermediaries that have received one or more IRP loans may 
apply for and be considered for subsequent IRP loans provided:
    (i) At least 80 percent of the Agency IRP loan funds approved for 
the intermediary have been disbursed to eligible ultimate recipients;
    (ii) The intermediary is promptly relending all collections from 
loans made from its IRP revolving fund in excess of what is needed for 
required debt service, reasonable administrative costs approved by the 
Agency, and a reasonable reserve for debt service and uncollectable 
accounts;
    (iii) The outstanding loans of the intermediary's IRP revolving fund 
are generally sound; and
    (iv) The intermediary is in compliance with all applicable 
regulations and its loan agreements with the Agency.
    (4) Subsequent loans will not exceed $1 million each and not more 
than one loan will be approved for an intermediary in any one fiscal 
year.
    (5) Total outstanding IRP indebtedness of an intermediary to the 
Agency will not exceed $15 million at any time.
    (b) Ultimate recipients. Loans from intermediaries to ultimate 
recipients using the IRP revolving fund must not exceed the lesser of:
    (1) $250,000; or
    (2) Seventy five percent of the total cost of the ultimate 
recipient's project for which the loan is being made.
    (c) Portfolio. No more than 25 percent of an IRP loan approved may 
be used for loans to ultimate recipients that exceed $150,000. This 
limit does not apply to revolved funds.



Sec. 4274.332  Post award requirements.

    (a) Applicability. Intermediaries receiving loans under this program 
shall be governed by these regulations, the loan agreement, the approved 
work plan, security interests, and any other conditions which the Agency 
may impose in making a loan. Whenever this subpart imposes a requirement 
on loans made from the ``IRP revolving fund,'' such requirement shall 
apply to all loans made by an intermediary to an ultimate recipient from 
the intermediary's IRP revolving fund for as long as any portion of the 
intermediary's IRP loan from the Agency remains unpaid. Whenever this 
subpart imposes a requirement on loans made by intermediaries from 
``Agency IRP loan funds,'' without specific reference to the IRP 
revolving fund, such requirement shall apply only to loans made by an 
intermediary using Agency IRP loan funds, and will not apply to loans 
made from revolved funds.
    (b) Maintenance of IRP revolving fund. For as long as any part of an 
IRP loan to an intermediary remains unpaid, the intermediary must 
maintain the IRP revolving fund. All Agency IRP loan funds received by 
an intermediary must be deposited into an IRP revolving fund. The 
intermediary may transfer additional assets into the IRP revolving fund. 
All cash of the IRP revolving fund shall be deposited in a separate bank 
account or accounts. No other funds of the intermediary will be 
commingled with such money. All moneys deposited in such bank account or 
accounts shall be money of the IRP revolving fund. Loans to ultimate 
recipients are advanced from the IRP revolving fund. The receivables 
created by making loans to ultimate recipients, the intermediary's 
security interest in collateral pledged by ultimate recipients, 
collections on the receivables, interest, fees, and any other income or 
assets derived from the operation of the IRP revolving fund are a part 
of the IRP revolving fund.
    (1) The portion of the IRP revolving fund that consists of Agency 
IRP loan funds, on a last-in-first-out basis, may only be used for 
making loans in accordance with Sec. 4274.314 of this subpart. The 
portion of the IRP revolving fund which consists of revolved funds may 
be used for debt service, reasonable administrative costs, or reserves 
in accordance with this section, or for making additional loans.
    (2) The intermediary must submit an annual budget of proposed 
administrative costs for Agency approval. The amount removed from the 
IRP revolving fund for administrative costs in any year must be 
reasonable, must not exceed the actual cost of operating the

[[Page 506]]

IRP revolving fund, including loan servicing and providing technical 
assistance, and must not exceed the amount approved by the Agency in the 
intermediary's annual budget.
    (3) A reasonable amount of revolved funds must be used to create a 
reserve for bad debts. Reserves must be accumulated over a period of 
years. The total amount should not exceed maximum expected losses, 
considering the quality of the intermediary's portfolio of loans. Unless 
the intermediary provides loss and delinquency records that, in the 
opinion of the Agency, justifies different amounts, a reserve for bad 
debts of 6 percent of outstanding loans must be accumulated over 3 years 
and then maintained.
    (4) Any cash in the IRP revolving fund from any source that is not 
needed for debt service, approved administrative costs, or reasonable 
reserves must be available for additional loans to ultimate recipients.
    (5) All reserves and other cash in the IRP revolving loan fund not 
immediately needed for loans to ultimate recipients or other authorized 
uses will be deposited in accounts in banks or other financial 
institutions. Such accounts will be fully covered by Federal deposit 
insurance or fully collateralized with U.S. Government obligations, and 
must be interest bearing. Any interest earned thereon remains a part of 
the IRP revolving fund.
    (6) If an intermediary receives more than one IRP loan, it need not 
establish and maintain a separate IRP revolving loan fund for each loan; 
it may combine them and maintain only one IRP revolving fund, unless the 
Agency requires separate IRP revolving funds because there are 
significant differences in the loan purposes, work plans, loan 
agreements, or requirements for the loans. The Agency may allow loans 
with different requirements to be combined into one IRP revolving fund 
if the intermediary agrees in writing to operate the combined revolving 
funds in accordance with the most stringent requirements as required by 
the Agency.



Secs. 4274.333-4274.336  [Reserved]



Sec. 4274.337  Other regulatory requirements.

    (a) Intergovernmental consultation. The IRP is subject to the 
provisions of Executive Order 12372 which requires intergovernmental 
consultation with State and local officials. The approval of a loan to 
an intermediary will be the subject of intergovernmental consultation. 
For each ultimate recipient to be assisted with a loan from Agency IRP 
loan funds and for which the State in which the ultimate recipient is to 
be located has elected to review the program under their 
intergovernmental review process, the State Single Point of Contact must 
be notified. Notification, in the form of a project description, must be 
initiated by the intermediary or the ultimate recipient. Any comments 
from the State must be included with the intermediary's request to use 
the Agency loan funds for the ultimate recipient. Prior to the Agency's 
decision on the request, compliance with the requirements of 
intergovernmental consultation must be demonstrated for each ultimate 
recipient. (See RD Instruction 1940-J (available in any Rural 
Development State Office)).
    (b) Environmental requirements. (1) Unless specifically modified by 
this section, the requirements of part 1940, subpart G, of this title 
apply to this subpart. Intermediaries and ultimate recipients must 
consider the potential environmental impacts of their projects at the 
earliest planning stages and develop plans to minimize the potential to 
adversely impact the environment. Both the intermediaries and the 
ultimate recipients must cooperate and furnish such information and 
assistance as the Agency needs to make any of its environmental 
determinations.
    (2) For each application for a loan to an intermediary, the Agency 
will review the application, supporting materials, and any environmental 
information required from the intermediary and complete a Class II 
environmental assessment. This assessment will focus on the potential 
cumulative impacts of the projects as well as any environmental concerns 
or problems that are

[[Page 507]]

associated with individual projects that can be identified at this time. 
Neither the completion of the environmental assessment nor the approval 
of the application is an Agency commitment to the use of loan funds for 
a specific project; therefore, no public notification requirements for a 
Class II assessment will apply to the application.
    (3) For each proposed loan from an intermediary to an ultimate 
recipient using Agency IRP loan funds, the Agency will complete the 
environmental review required by part 1940, subpart G, of this title 
including public notification requirements. The results of this review 
will be used by the Agency in making its decision on concurrence in the 
proposed loan. The Agency will prepare an Environmental Impact Statement 
for any application for a loan from Agency IRP loan funds determined to 
have a significant effect on the quality of the human environment.
    (c) Equal opportunity and nondiscrimination requirements. (1) In 
accordance with title V of Pub. L. 93-495, the Equal Credit Opportunity 
Act, and section 504 of the Rehabilitation Act for Federally Conducted 
Programs and Activities, neither the intermediary nor the Agency will 
discriminate against any employee, intermediary, or proposed ultimate 
recipient on the basis of sex, marital status, race, color, religion, 
national origin, age, physical or mental disability (provided the 
proposed intermediary or proposed ultimate recipient has the capacity to 
contract), because all or part of the proposed intermediary's or 
proposed ultimate recipient's income is derived from public assistance 
of any kind, or because the proposed intermediary or proposed ultimate 
recipient has in good faith exercised any right under the Consumer 
Credit Protection Act, with respect to any aspect of a credit 
transaction anytime Agency loan funds are involved.
    (2) The regulations contained in subpart E of part 1901 of this 
title apply to this program.
    (3) The Administrator will assure that equal opportunity and 
nondiscrimination requirements are met in accordance with the Equal 
Credit Opportunity Act, title VI of the Civil Rights Act of 1964, 
``Nondiscrimination in Federally Assisted Programs,'' 42 U.S.C. 2000d-4, 
Section 504 of the Rehabilitation Act for Federally Conducted Programs 
and Activities, the Age Discrimination Act of 1975, and the Americans 
With Disabilities Act.
    (d) Seismic safety of new building construction. (1) The 
Intermediary Relending Program is subject to the provisions of Executive 
Order 12699 that requires each Federal agency assisting in the 
financing, through Federal grants or loans, or guaranteeing the 
financing, through loan or mortgage insurance programs, of newly 
constructed buildings to assure appropriate consideration of seismic 
safety.
    (2) All new buildings financed with Agency IRP loan funds shall be 
designed and constructed in accordance with the seismic provisions of 
one of the following model building codes or the latest edition of that 
code providing an equivalent level of safety to that contained in the 
latest edition of the National Earthquake Hazard Reduction Programs 
(NEHRP) Recommended Provisions for the Development of Seismic 
Regulations for New Building (NEHRP Provisions):
    (i) 1991 International Conference of Building Officials (ICBO) 
Uniform Building Code;
    (ii) 1993 Building Officials and Code Administrators International, 
Inc. (BOCA) National Building Code; or
    (iii) 1992 Amendments to the Southern Building Code Congress 
International (SBCCI) Standard Building Code.
    (3) The date, signature, and seal of a registered architect or 
engineer and the identification and date of the model building code on 
the plans and specifications shall be evidence of compliance with the 
seismic requirements of the appropriate code.



Sec. 4274.338  Loan agreements between the Agency and the intermediary.

    A loan agreement or a supplement to a previous loan agreement must 
be executed by the intermediary and the Agency at loan closing for each 
loan. The loan agreement will be prepared by the Agency and reviewed by 
the intermediary prior to loan closing.
    (a) The loan agreement will, as a minimum, set out:

[[Page 508]]

    (1) The amount of the loan;
    (2) The interest rate;
    (3) The term and repayment schedule;
    (4) The provisions for late charges. The intermediary shall pay a 
late charge of 4 percent of the payment due if payment is not received 
within 15 calendar days following the due date. The late charge shall be 
considered unpaid if not received within 30 calendar days of the missed 
due date for which it was imposed. Any unpaid late charge shall be added 
to principal and be due as an extra payment at the end of the term. 
Acceptance of a late charge by the Agency does not constitute a waiver 
of default;
    (5) The disbursement procedure. Disbursement of loan funds by the 
Agency to the intermediary shall take place after the loan agreement and 
promissory note are executed, and any other conditions precedent to 
disbursement of funds are fully satisfied. For purposes of computing 
interest, the date of each draw down shall constitute the date the funds 
are advanced under the loan agreement;
    (i) The intermediary may initially draw up to 25 percent of the loan 
funds. If the intermediary does not have loans to ultimate recipients 
ready to close sufficient to use the initial draw, the funds must be 
deposited in an interest bearing account in accordance with 
Sec. 4274.332(b)(5) until needed for such loans. The initial draw must 
be used for loans to ultimate recipients before any additional Agency 
IRP loan funds may be drawn by the intermediary. Any funds from the 
initial draw that have not been used for loans to ultimate recipients 
within 1 year from the date of the draw must be returned to the Agency 
as an extra payment on the loan. Agency IRP loan funds must not be used 
for administrative expenses;
    (ii) After the initial draw of funds, an intermediary may draw down 
only such funds as are necessary to cover a 30-day period in 
implementing its approved work plan. Advances must be requested by the 
intermediary in writing;
    (6) The provisions regarding default. On the occurrence of any event 
of default, the Agency may declare all or any portion of the debt and 
interest to be immediately due and payable and may proceed to enforce 
its rights under the loan agreement or any other instruments securing or 
relating to the loan and in accordance with the applicable law and 
regulations. Any of the following may be regarded as an ``event of 
default'' in the sole discretion of the Agency:
    (i) Failure of the intermediary to carry out the specific activities 
in its loan application as approved by the Agency or comply with the 
loan terms and conditions of the loan agreement, any applicable Federal 
or State laws, or with such USDA or Agency regulations as may become 
applicable;
    (ii) Failure of the intermediary to pay within 15 calendar days of 
its due date any installment of principal or interest on its promissory 
note to the Agency;
    (iii) The occurrence of;
    (A) The intermediary becoming insolvent, or ceasing, being unable, 
or admitting in writing its inability to pay its debts as they mature, 
or making a general assignment for the benefit of, or entering into any 
composition or arrangement with creditors, or;
    (B) Proceedings for the appointment of a receiver, trustee, or 
liquidator of the intermediary, or of a substantial part of its assets, 
being authorized or instituted by or against it;
    (iv) Submission or making of any report, statement, warranty, or 
representation by the intermediary or agent on its behalf to USDA or the 
Agency in connection with the financial assistance awarded hereunder 
which is false, incomplete, or incorrect in any material respect; or
    (v) Failure of the intermediary to remedy any material adverse 
change in its financial or other condition (such as the representational 
character of its board of directors or policymaking body) arising since 
the date of the Agency's award of assistance hereunder, which condition 
was an inducement to Agency's original award.
    (7) The insurance requirements. (i) Hazard insurance with a standard 
mortgage clause naming the intermediary as beneficiary will be required 
by the intermediary on every ultimate recipient's project funded from 
the IRP revolving fund in an amount that is at least the lesser of the 
depreciated replacement value of the property being

[[Page 509]]

insured or the amount of the loan. Hazard insurance includes fire, 
windstorm, lightning, hail, business interruption, explosion, riot, 
civil commotion, aircraft, vehicle, marine, smoke, builder's risk, 
public liability, property damage, flood or mudslide, or any other 
hazard insurance that may be required to protect the security. The 
intermediary's interest in the insurance will be assigned to the Agency, 
upon the Agency's request, in the event of default by the intermediary.
    (ii) Ordinarily, life insurance, which may be decreasing term 
insurance, is required for the principals and key employees of the 
ultimate recipient funded from the IRP revolving fund and will be 
assigned or pledged to the intermediary and subsequently, in the event 
of request by the Agency following default by the intermediary, to the 
Agency. A schedule of life insurance available for the benefit of the 
loan will be included as part of the application.
    (iii) Workmen's compensation insurance on ultimate recipients is 
required in accordance with the State law.
    (iv) Flood insurance. The intermediary is responsible for 
determining if an ultimate recipient funded from the IRP revolving fund 
is located in a special flood or mudslide hazard area. If the ultimate 
recipient is in a flood or mudslide area, then flood or mudslide 
insurance must be provided in accordance with subpart B of part 1806 of 
this chapter.
    (v) Intermediaries will provide fidelity bond coverage for all 
persons who have access to intermediary funds. Coverage may be provided 
either for all individual positions or persons, or through ``blanket'' 
coverage providing protection for all appropriate employees and 
officials. The Agency may also require the intermediary to carry other 
appropriate insurance, such as public liability, workers compensation, 
and property damage.
    (A) The amount of fidelity bond coverage required by the Agency will 
normally approximate the total annual debt service requirements for the 
Agency loans;
    (B) Other types of coverage may be considered acceptable if it is 
determined by the Agency that they fulfill essentially the same purpose 
as a fidelity bond;
    (C) Intermediaries must provide evidence of adequate fidelity bond 
and other appropriate insurance coverage by loan closing. Adequate 
coverage in accordance with this section must then be maintained for the 
life of the loan. It is the responsibility of the intermediary to assure 
and provide evidence that adequate coverage is maintained. This may 
consist of a listing of policies and coverage amounts in reports 
required by paragraph (b)(4) of this section or other documentation.
    (b) The intermediary will agree in the loan agreement:
    (1) Not to make any changes in the intermediary's articles of 
incorporation, charter, or by-laws without the concurrence of the 
Agency;
    (2) Not to make a loan commitment to an ultimate recipient to be 
funded from Agency IRP loan funds without first receiving the Agency's 
written concurrence;
    (3) To maintain a separate ledger and segregated account for the IRP 
revolving fund;
    (4) To Agency reporting requirements by providing:
    (i) An annual audit;
    (A) Dates of audit report period need not necessarily coincide with 
other reports on the IRP. Audit reports shall be due 90 days following 
the audit period. Audits must cover all of the intermediary's 
activities. Audits will be performed by an independent certified public 
accountant. An acceptable audit will be performed in accordance with 
Generally Accepted Government Auditing Standards and include such tests 
of the accounting records as the auditor considers necessary in order to 
express an opinion on the financial condition of the intermediary. The 
Agency does not require an unqualified audit opinion as a result of the 
audit. Compilations or reviews do not satisfy the audit requirement;
    (B) It is not intended that audits required by this subpart be 
separate and apart from audits performed in accordance with State and 
local laws or for other purposes. To the extent feasible, the audit work 
should be done in connection with these audits. Intermediaries covered 
by OMB Circular A-

[[Page 510]]

128 or A-133 should submit audits made in accordance with those 
circulars;
    (ii) Quarterly or semiannual reports (due 30 days after the end of 
the period);
    (A) Reports will be required quarterly during the first year after 
loan closing and, if all loan funds are not utilized during the first 
year, quarterly reports will be continued until at least 90 percent of 
the Agency IRP loan funds have been advanced to ultimate recipients. 
Thereafter, reports will be required semiannually. Also, the Agency may 
require quarterly reports if the intermediary becomes delinquent in 
repayment of its loan or otherwise fails to fully comply with the 
provisions of its work plan or Loan Agreement, or the Agency determines 
that the intermediary's IRP revolving fund is not adequately protected 
by the current sound worth and paying capacity of the ultimate 
recipients.
    (B) These reports shall contain information only on the IRP 
revolving loan fund, or if other funds are included, the IRP loan 
program portion shall be segregated from the others; and in the case 
where the intermediary has more than one IRP revolving fund from the 
Agency a separate report shall be made for each of the IRP revolving 
funds.
    (C) The reports will include, on a form provided by the Agency, 
information on the intermediary's lending activity, income and expenses, 
financial condition, and a summary of names and characteristics of the 
ultimate recipients the intermediary has financed.
    (iii) Annual proposed budget for the following year; and
    (iv) Other reports as the Agency may require from time to time.
    (5) Before the first relending of Agency funds to an ultimate 
recipient, to obtain written Agency approval of;
    (i) All forms to be used for relending purposes, including 
application forms, loan agreements, promissory notes, and security 
instruments;
    (ii) Intermediary's policy with regard to the amount and form of 
security to be required;
    (6) To obtain written approval of the Agency before making any 
significant changes in forms, security policy, or the work plan. The 
servicing officer may approve changes in forms, security policy, or work 
plans at any time upon a written request from the intermediary and 
determination by the Agency that the change will not jeopardize 
repayment of the loan or violate any requirement of this subpart or 
other Agency regulations. The intermediary must comply with the work 
plan approved by the Agency so long as any portion of the intermediary's 
IRP loan is outstanding;
    (7) To secure the indebtedness by pledging the IRP revolving fund, 
including its portfolio of investments derived from the proceeds of the 
loan award, and pledging its real and personal property and other rights 
and interests as the Agency may require;
    (8) In the event the intermediary's financial condition deteriorates 
or the intermediary takes action detrimental to prudent fund operation 
or fails to take action required of a prudent lender, to provide 
additional security, execute any additional documents, and undertake any 
reasonable acts the Agency may request, to protect the agency's interest 
or to perfect a security interest in any assets, including physical 
delivery of assets and specific assignments; and
    (9) That if any part of the loan has not been used in accordance 
with the intermediary's work plan by a date three years from the date of 
the loan agreement, the Agency may cancel the approval of any funds not 
yet delivered to the intermediary and the intermediary will return, as 
an extra payment on the loan, any funds delivered to the intermediary 
that have not been used by the intermediary in accordance with the work 
plan. The Agency, at its sole discretion, may allow the intermediary 
additional time to use the loan funds by delaying cancellation of the 
funds by not more than 3 additional years. If any loan funds have not 
been used by 6 years from the date of the loan agreement, the approval 
will be canceled of any funds that have not been delivered to the 
intermediary and the intermediary will return, as an extra payment on 
the loan, any funds it has received and not used in accordance with the 
work plan. In accordance with the Intermediary Relending Program 
promissory note, regular loan payments will be based on the amount

[[Page 511]]

of funds actually drawn by the intermediary.



Secs. 424.339-4274.342  [Reserved]



Sec. 4274.343  Application.

    (a) The application will consist of:
    (1) An application form provided by the Agency.
    (2) A written work plan and other evidence the Agency requires to 
demonstrate the feasibility of the intermediary's program to meet the 
objectives of this program. The plan must, at a minimum:
    (i) Document the intermediary's ability to administer IRP in 
accordance with the provisions of this subpart. In order to adequately 
demonstrate the ability to administer the program, the intermediary must 
provide a complete listing of all personnel responsible for 
administering this program along with a statement of their 
qualifications and experience. The personnel may be either members or 
employees of the intermediary's organization or contract personnel hired 
for this purpose. If the personnel are to be contracted for, the 
contract between the intermediary and the entity providing such service 
will be submitted for Agency review, and the terms of the contract and 
its duration must be sufficient to adequately service the Agency loan 
through to its ultimate conclusion. If the Agency determines the 
personnel lack the necessary expertise to administer the program, the 
loan request will not be approved;
    (ii) Document the intermediary's ability to commit financial 
resources under the control of the intermediary to the establishment of 
IRP. This should include a statement of the sources of non-Agency funds 
for administration of the intermediary's operations and financial 
assistance for projects;
    (iii) Demonstrate a need for loan funds. As a minimum, the 
intermediary should identify a sufficient number of proposed and known 
ultimate recipients it has on hand to justify Agency funding of its loan 
request, or include well developed targeting criteria for ultimate 
recipients consistent with the intermediary's mission and strategy for 
IRP, along with supporting statistical or narrative evidence that such 
prospective recipients exist in sufficient numbers to justify Agency 
funding of the loan request;
    (iv) Include a list of proposed fees and other charges it will 
assess the ultimate recipients;
    (v) Demonstrate to Agency satisfaction that the intermediary has 
secured commitments of significant financial support from public 
agencies and private organizations;
    (vi) Provide evidence to Agency satisfaction that the intermediary 
has a proven record of obtaining private or philanthropic funds for the 
operation of similar programs to IRP;
    (vii) Include the intermediary's plan (specific loan purposes) for 
relending the loan funds. The plan must be of sufficient detail to 
provide the Agency with a complete understanding of what the 
intermediary will accomplish by lending the funds to the ultimate 
recipient and the complete mechanics of how the funds will get from the 
intermediary to the ultimate recipient. The service area, eligibility 
criteria, loan purposes, fees, rates, terms, collateral requirements, 
limits, priorities, application process, method of disposition of the 
funds to the ultimate recipient, monitoring of the ultimate recipient's 
accomplishments, and reporting requirements by the ultimate recipient's 
management are some of the items that must be addressed by the 
intermediary's relending plan;
    (viii) Provide a set of goals, strategies, and anticipated outcomes 
for the intermediary's program. Outcomes should be expressed in 
quantitative or observable terms such as jobs created for low income 
area residents or self empowerment opportunities funded, and should 
relate to the purpose of IRP (see Sec. 4274.301(b)); and
    (ix) Provide specific information as to whether and how the 
intermediary will ensure that technical assistance is made available to 
ultimate recipients and potential ultimate recipients. Describe the 
qualifications of the technical assistance providers, the nature of 
technical assistance that will be available, and expected and committed 
sources of funding for technical assistance. If other than the 
intermediary

[[Page 512]]

itself, describe the organizations providing such assistance and the 
arrangements between such organizations and the intermediary.
    (3) Environmental information on a form provided by the Agency for 
all projects positively identified as proposed ultimate recipient loans 
that are Class I or Class II actions under subpart G of part 1940 of 
this title;
    (4) Comments from the State Single Point of Contact, if the State 
has elected to review the program under Executive Order 12372;
    (5) A pro forma balance sheet at start-up and projected balance 
sheets for at least 3 additional years; financial statements for the 
last 3 years, or from inception of the operations of the intermediary if 
less than 3 years; and projected cash flow and earnings statements for 
at least 3 years supported by a list of assumptions showing the basis 
for the projections. The projected earnings statement and balance sheet 
must include one set of projections that shows the IRP revolving fund 
only and a separate set of projections that shows the proposed 
intermediary organization's total operations. Also, if principal 
repayment on the IRP loan will not be scheduled during the first 3 
years, the projections for the IRP revolving fund must extend to include 
a year with a full annual installment on the IRP loan;
    (6) A written agreement of the intermediary to the Agency audit 
requirements;
    (7) An agreement on a form provided by the Agency assuring 
compliance with
    Title VI of the Civil Rights Act of 1964;
    (8) Complete organizational documents, including evidence of 
authority to conduct the proposed activities;
    (9) Evidence that the loan is not available at reasonable rates and 
terms from private sources or other Federal, State, or local programs;
    (10) Latest audit report, if available;
    (11) A form provided by the Agency in which the applicant certifies 
its understanding of the Federal collection policies for consumer or 
commercial debts;
    (12) A Department of Agriculture form containing a certification 
regarding debarment, suspension, and other responsibility matters for 
primary covered transactions; and
    (13) A statement on a form provided by the Agency regarding 
lobbying, as required by 7 CFR part 3018.
    (b) Applications from intermediaries that already have an active IRP 
loan may be streamlined as follows:
    (1) The requirements of paragraphs (a)(6), (a)(8), and (a)(10) of 
this section may be omitted;
    (2) A statement that the new loan would be operated in accordance 
with the work plan on file for the previous loan may be submitted in 
lieu of a new work plan; and
    (3) The financial information required by paragraph (a)(5) of this 
section may be limited to projections for the proposed new IRP revolving 
loan fund.



Sec. 4274.344  Filing and processing applications for loans.

    (a) Intermediaries' contact. Intermediaries desiring assistance 
under this subpart may file applications with the state office for the 
state in which the intermediary's headquarters is located. 
Intermediaries headquartered in the District of Columbia may file the 
application with the National Office, Rural Business-Cooperative 
Service, USDA, Specialty Lenders Division, STOP 1521, 1400 Independence 
Avenue SW, Washington, DC 20250-1521.
    (b) Filing applications. Intermediaries must file the complete 
application, in one package. Applications received by the Agency will be 
reviewed and ranked quarterly and funded in the order of priority 
ranking. The Agency will retain unsuccessful applications for 
consideration in subsequent reviews, through a total of four quarterly 
reviews.
    (c) Loan priorities. Priority consideration will be given to 
proposed intermediaries. Points will be allowed only for factors 
indicated by well documented, reasonable plans which, in the opinion of 
the Agency, provide assurance that the items have a high probability of 
being accomplished. The points awarded will be as specified in 
paragraphs (c)(1) through (c)(6) of this section. If an application does 
not fit one of the categories listed, it receives

[[Page 513]]

no points for that paragraph or subparagraph.
    (1) Other funds. Points allowed under this paragraph are to be based 
on documented successful history or written evidence that the funds are 
available.
    (i) The intermediary will obtain non-Federal loan or grant funds to 
pay part of the cost of the ultimate recipients' projects. The amount of 
funds from other sources will average:
    (A) At least 10% but less than 25% of the total project cost--5 
points;
    (B) At least 25% but less than 50% of the total project cost--10 
points; or
    (C) 50% or more of the total project cost--15 points.
    (ii) The intermediary will provide loans to the ultimate recipient 
from its own funds (not loan or grant) to pay part of the costs of the 
ultimate recipients' projects. The amount of non-Agency derived 
intermediary funds will average:
    (A) At least 10% but less than 25% of the total project costs--5 
points;
    (B) At least 25% but less than 50% of total project costs--10 
points; or
    (C) 50% or more of total project costs--15 points.
    (2) Employment. For computations under this paragraph, income data 
should be from the latest decennial census of the United States, updated 
according to changes in the consumer price index. The poverty line used 
will be as defined in section 673 (2) of the Community Services Block 
Grant Act (42 U.S.C. 9902(2)). Unemployment data used will be that 
published by the Bureau of Labor Statistics, U.S. Department of Labor.
    (i) The median household income in the service area of the proposed 
intermediary equals the following percentage of the poverty line for a 
family of four:
    (A) At least 150% but not more than 175%--5 points;
    (B) At least 125% but less than 150%--10 points; or
    (C) Below 125%--15 points.
    (ii) The following percentage of the loans the intermediary makes 
from Agency IRP loan funds will be in counties with median household 
income below 80 percent of the statewide non-metropolitan median 
household income. (To receive priority points under this category, the 
intermediary must provide a list of counties in the service area that 
have qualifying income):
    (A) At least 50% but less than 75%--5 points;
    (B) At least 75% but less than 100%--10 points; or
    (C) 100%--15 points.
    (iii) The unemployment rate in the intermediary's service area 
equals the following percentage of the national unemployment rate:
    (A) At least 100% but less than 125%--5 points;
    (B) At least 125% but less 150%--10 points; or
    (C) 150% or more--15 points.
    (iv) The intermediary will require, as a condition of eligibility 
for a loan to an ultimate recipient from Agency IRP loan funds, that the 
ultimate recipient certify in writing that it will employ the following 
percentage of its workforce from members of families with income below 
the poverty line:
    (A) At least 10% but less than 20% of the workforce--5 points;
    (B) At least 20% but less than 30% of the workforce--10 points; or
    (C) 30% of the workforce or more--15 points.
    (v) The intermediary has a demonstrated record of providing 
assistance to members of underrepresented groups, has a realistic plan 
for targeting loans to members of underrepresented groups, and, based on 
the intermediary's record and plans, it is expected that the following 
percentages of its loans made from Agency IRP loan funds will be made to 
entities owned by members of underrepresented groups:
    (A) At least 10% but less than 20%--5 points;
    (B) At least 20% but less than 30%--10 points; or
    (C) 30% or more--15 points.
    (vi) The population of the service area according to the most recent 
decenial census was lower than that recorded by the previous decenial 
census by the following percentage:
    (A) At least 10 percent but less than 20 percent--5 points;
    (B) At least 20 percent but less than 30 percent--10 points; or
    (C) 30 percent or more--15 points.

[[Page 514]]

    (3) Intermediary contribution. All assets of the IRP revolving fund 
will serve as security for the IRP loan, and the intermediary will 
contribute funds not derived from the Agency into the IRP revolving fund 
along with the proceeds of the IRP loan. The amount of non-Agency 
derived funds contributed to the IRP revolving fund will equal the 
following percentage of the Agency IRP loan:
    (i) At least 5% but less than 15%--15 points;
    (ii) At least 15% but less than 25%--30 points; or
    (iii) 25% or more--50 points.
    (4) Experience. The intermediary has actual experience in making and 
servicing commercial loans, with a successful record, for the following 
number of full years:
    (i) At least 1 but less than 3 years--5 points;
    (ii) At least 3 but less than 5 years--10 points;
    (iii) At least 5 but less than 10 years--20 points; or
    (iv) 10 or more years--30 points.
    (5) Community representation. The service area is not more than 14 
counties and the intermediary utilizes local opinions and experience by 
including community representatives on its board of directors or 
equivalent oversight board. For purposes of this section, community 
representatives are people, such as civic leaders, business 
representatives, or bankers, who reside in the service area and are not 
employees of the intermediary. Points will be assigned as follows:
    (i) At least 10% but less than 40% of the board members are 
community representatives--5 points;
    (ii) At least 40% but less than 75% of the board members are 
community representatives--10 points; or
    (iii) At least 75% of the board members are community 
representatives--15 points.
    (6) Administrative. The Administrator may assign up to 35 additional 
points to an application to account for the following items not 
adequately covered by the other priority criteria set out in this 
section. The items that may be considered are the amount of funds 
requested in relation to the amount of need; a particularly successful 
business development record; a service area with no other IRP coverage; 
a service area with severe economic problems, such as communities that 
have remained persistently poor over the last 60 years or have 
experienced long-term population decline or job deterioration; a service 
area with emergency conditions caused by a natural disaster or loss of a 
major industry; a work plan that is in accord with a strategic plan, 
particularly a plan prepared as part of a request for an Empowerment 
Zone/Enterprise Community designation; or excellent utilization of a 
previous IRP loan.



Secs. 4274.345-4274.349  [Reserved]



Sec. 4274.350  Letter of conditions.

    If the Agency is able to make the loan, it will provide the 
intermediary a letter of conditions listing all requirements for the 
loan. Immediately after reviewing the conditions and requirements in the 
letter of conditions, the intermediary should complete, sign and return 
the form provided by the Agency indicating the intermediary's intent to 
meet the conditions. If certain conditions cannot be met, the 
intermediary may propose alternate conditions to the Agency. The Agency 
loan approval official must concur with any changes made to the 
initially issued or proposed letter of conditions prior to acceptance.



Secs. 4274.351-4274.354  [Reserved]



Sec. 4274.355  Loan approval and obligating funds.

    The loan will be considered approved on the date the signed copy of 
the obligation of funds document is mailed to the intermediary. The 
approving official may request an obligation of funds when available and 
according to the following:
    (a) The obligation of funds document may be executed by the loan 
approving official providing the intermediary has the legal authority to 
contract for a loan and to enter into required agreements, and has 
signed the obligation of funds document.
    (b) An obligation of funds established for an intermediary may be 
transferred to a different (substituted) intermediary provided:

[[Page 515]]

    (1) The substituted intermediary is eligible to receive the 
assistance approved for the original intermediary;
    (2) The substituted intermediary bears a close and genuine 
relationship to the original intermediary; and
    (3) The need for and scope of the project and the purposes for which 
Agency IRP loan funds will be used remain substantially unchanged.



Sec. 4274.356  Loan closing.

    (a) At loan closing, the intermediary must certify to the following:
    (1) No major changes have been made in the work plan except those 
approved in the interim by the Agency.
    (2) All requirements of the letter of conditions have been met.
    (3) There has been no material change in the intermediary nor its 
financial condition since the issuance of the letter of conditions. If 
there have been changes, they must be explained. The changes may be 
waived, at the sole discretion of the Agency.
    (4) That no claim or liens of laborers, materialmen, contractors, 
subcontractors, suppliers of machinery and equipment, or other parties 
are pending against the security of the intermediary, and that no suits 
are pending or threatened that would adversely affect the security of 
the intermediary when the security instruments are filed.
    (b) The processing officer will approve only minor changes which do 
not materially affect the project, its capacity, employment, original 
projections, or credit factors. Changes in legal entities or where tax 
consideration are the reason for change will not be approved.



Secs. 4274.357-4274.360  [Reserved]



Sec. 4274.361  Requests to make loans to ultimate recipients.

    (a) An intermediary may use revolved funds to make loans to ultimate 
recipients without obtaining prior Agency concurrence. When an 
intermediary proposes to use Agency IRP loan funds to make a loan to an 
ultimate recipient, and prior to final approval of such loan, Agency 
concurrence is required.
    (b) A request for Agency concurrence in approval of a proposed loan 
to an ultimate recipient must include:
    (1) Certification by the intermediary that;
    (i) The proposed ultimate recipient is eligible for the loan;
    (ii) The proposed loan is for eligible purposes;
    (iii) The proposed loan complies with all applicable statutes and 
regulations;
    (iv) The ultimate recipient is unable to finance the proposed 
project through commercial credit or other Federal, State, or local 
programs at reasonable rates and terms; and
    (v) The intermediary and its principal officers (including immediate 
family) hold no legal or financial interest or influence in the ultimate 
recipient, and the ultimate recipient and its principal officers 
(including immediate family) hold no legal or financial interest or 
influence in the intermediary except the interest and influence of a 
cooperative member when the intermediary is a cooperative;
    (2) For projects that meet the criteria for a Class I or Class II 
environmental assessment or environmental impact statement as provided 
in subpart G of part 1940 of this title, a completed and executed 
request for environmental information on a form provided by the Agency;
    (3) All comments obtained in accordance with Sec. 4274.337(a), 
regarding intergovernmental consultation;
    (4) Copies of sufficient material from the ultimate recipient's 
application and the intermediary's related files, to allow the Agency to 
determine the:
    (i) Name and address of the ultimate recipient;
    (ii) Loan purposes;
    (iii) Interest rate and term;
    (iv) Location, nature, and scope of the project being financed;
    (v) Other funding included in the project; and
    (vi) Nature and lien priority of the collateral.
    (5) Such other information as the Agency may request on specific 
cases.

[[Page 516]]



Secs. 4274.362-4274.372  [Reserved]



Sec. 4274.373  Appeals.

    Any appealable adverse decision made by the Agency which affects the 
intermediary may be appealed in accordance with USDA appeal regulations 
found at 7 CFR part 11.



Secs. 4274.374-4274.380  [Reserved]



Sec. 4274.381  Exception authority.

    The Administrator may, in individual cases, grant an exception to 
any requirement or provision of this subpart which is not inconsistent 
with any applicable law, provided the Administrator determines that 
application of the requirement or provision would adversely affect 
USDA's interest.



Secs. 4274.382-4274.399  [Reserved]



Sec. 4274.400  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget 
under the provisions of 44 U.S.C. chapter 35 and have been assigned OMB 
control number 0570-0021 in accordance with the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3507).



PART 4279--GUARANTEED LOANMAKING--Table of Contents




                           Subpart A--General

Sec.
4279.1  Purpose.
4279.2  Definitions and abbreviations.
4279.3-4279.14  [Reserved]
4279.15  Exception authority.
4279.16  Appeals.
4279.17-4279.28  [Reserved]
4279.29  Eligible lenders.
4279.30  Lenders' functions and responsibilities.
4279.31-4279.42  [Reserved]
4279.43  Certified Lender Program.
4279.44  Access to records.
4279.45-4279.57  [Reserved]
4279.58  Equal Credit Opportunity Act.
4279.59  [Reserved]
4279.60  Civil Rights Impact Analysis.
4279.61-4279.70  [Reserved]
4279.71  Public  bodies and nonprofit corporations.
4279.72  Conditions of guarantee.
4279.73-4279.74  [Reserved]
4279.75  Sale or assignment of guaranteed loan.
4279.76  Participation.
4279.77  Minimum retention.
4279.78  Repurchase from holder.
4279.79-4279.83  [Reserved]
4279.84  Replacement of document.
4279.85-4279.99  [Reserved]
4279.100  OMB control number.

                 Subpart B--Business and Industry Loans

4279.101  Introduction.
4279.102  Definitions.
4279.103  Exception authority.
4279.104  Appeals.
4279.105-4279.106  [Reserved]
4279.107  Guarantee fee.
4279.108  Eligible borrowers.
4279.109-4279.112  [Reserved]
4279.113  Eligible loan purposes.
4279.114  Ineligible purposes.
4279.115  Prohibition under Agency programs.
4279.116-4279.118  [Reserved]
4279.119  Loan guarantee limits.
4279.120  Fees and charges.
4279.121-4279.124  [Reserved]
4279.125  Interest rates.
4279.126  Loan terms.
4279.127-4279.130  [Reserved]
4279.131  Credit quality.
4279.132-4279.136  [Reserved]
4279.137  Financial statements.
4279.138-4279.142  [Reserved]
4279.143  Insurance.
4279.144  Appraisals.
4279.145-4279.148  [Reserved]
4279.149  Personal and corporate guarantees.
4279.150  Feasibility studies.
4279.151-4279.154  [Reserved]
4279.155  Loan priorities.
4279.156  Planning and performing development.
4279.157-4279.160  [Reserved]
4279.161  Filing preapplications and applications.
4279.162-4279.164  [Reserved]
4279.165  Evaluation of application.
4279.166-4279.172  [Reserved]
4279.173  Loan approval and obligating funds.
4279.174  Transfer of lenders.
4279.175  Domestic lamb industry adjustment assistance program set 
          aside.
4279.176-4279.179  [Reserved]
4279.180  Changes in borrower.
4279.181  Conditions precedent to issuance of Loan Note Guarantee.
4279.182-4279.185  [Reserved]
4279.186  Issuance of the guarantee.
4279.187  Refusal to execute Loan Note Guarantee.
4279.188-4279.199  [Reserved]
4279.200  OMB  control number.

    Authority: 7 U.S.C. 1989.

    Source: 61 FR 67633, Dec. 23, 1996, unless otherwise noted.

[[Page 517]]



                           Subpart A--General



Sec. 4279.1  Purpose.

    (a) This subpart contains general regulations for making and 
servicing Business and Industry (B&I) loans guaranteed by the Agency and 
applies to lenders, holders, borrowers and other parties involved in 
making, guaranteeing, holding, servicing, or liquidating such loans.
    (b) It is the responsibility of the lender to ascertain that all 
requirements for making, securing, servicing, and collecting the loan 
are complied with.
    (c) Copies of all forms, regulations, and Instructions referenced in 
this subpart are available in any Agency office. Whenever a form is 
designated in this subpart, that designation includes predecessor and 
successor forms, if applicable, as specified by the field or National 
Office.



Sec. 4279.2  Definitions and abbreviations.

    (a) Definitions.
    Agency. The Rural Business-Cooperative Service or successor Agency 
assigned by the Secretary of Agriculture to administer the B&I program. 
References to the National Office, Finance Office, State Office or other 
Agency offices or officials should be read as prefaced by Agency or 
``Rural Development'' as applicable.
    Arm's-length transaction. The sale, release, or disposition of 
assets in which the title to the property passes to a ready, willing, 
and able disinterested third party that is not affiliated with or 
related to and has no security, monetary or stockholder interest in the 
borrower or transferor at the time of the transaction.
    Assignment Guarantee Agreement (Business and Industry). Form 4279-6, 
the signed agreement among the Agency, the lender, and the holder 
containing the terms and conditions of an assignment of a guaranteed 
portion of a loan, using the single note system.
    Borrower. All parties liable for the loan except for guarantors.
    Conditional Commitment (Business and Industry). Form 4279-3, the 
Agency's notice to the lender that the loan guarantee it has requested 
is approved subject to the completion of all conditions and requirements 
set forth by the Agency.
    Deficiency balance. The balance remaining on a loan after all 
collateral has been liquidated.
    Deficiency judgment. A monetary judgment rendered by a court of 
competent jurisdiction after foreclosure and liquidation of all 
collateral securing the loan.
    Existing lender debt. A debt not guaranteed by the Agency, but owed 
by a borrower to the same lender that is applying for or has received 
the Agency guarantee.
    Fair market value. The price that could reasonably be expected for 
an asset in an arm's-length transaction between a willing buyer and a 
willing seller under ordinary economic and business conditions.
    Farmers Home Administration (FmHA). The former agency of USDA that 
previously administered the programs of this Agency. Many Instructions 
and forms of FmHA are still applicable to Agency programs.
    Finance office. The office which maintains the Agency financial 
accounting records located in St. Louis, Missouri.
    High-impact business. A business that offers specialized products 
and services that permit high prices for the products produced, may have 
a strong presence in international market sales, may provide a market 
for existing local business products and services, and which is locally 
owned and managed.
    Holder. A person or entity, other than the lender, who owns all or 
part of the guaranteed portion of the loan with no servicing 
responsibilities. When the single note option is used and the lender 
assigns a part of the guaranteed note to an assignee, the assignee 
becomes a holder only when the Agency receives notice and the 
transaction is completed through use of Form 4279-6 or predecessor form.
    Interim financing. A temporary or short-term loan made with the 
clear intent that it will be repaid through another loan. Interim 
financing is frequently used to pay construction and other costs 
associated with a planned project, with permanent financing to be 
obtained after project completion.

[[Page 518]]

    Lender. The organization making, servicing, and collecting the loan 
which is guaranteed under the provisions of the appropriate subpart.
    Lender's Agreement (Business and Industry). Form 4279-4 or 
predecessor form between the Agency and the lender setting forth the 
lender's loan responsibilities when the Loan Note Guarantee is issued.
    Loan agreement. The agreement between the borrower and lender 
containing the terms and conditions of the loan and the responsibilities 
of the borrower and lender.
    Loan Note Guarantee (Business and Industry). Form 4279-5 or 
predecessor form issued and executed by the Agency containing the terms 
and conditions of the guarantee.
    Loan-to-value. The ratio of the dollar amount of a loan to the 
dollar value of the collateral pledged as security for the loan.
    Natural resource value-added product. Any naturally occurring 
product that is processed to add value to the product. For example, 
straw is processed into particle board.
    Negligent servicing. The failure to perform those services which a 
reasonably prudent lender would perform in servicing (including 
liquidation of) its own portfolio of loans that are not guaranteed. The 
term includes not only the concept of a failure to act, but also not 
acting in a timely manner, or acting in a manner contrary to the manner 
in which a reasonably prudent lender would act.
    Parity. A lien position whereby two or more lenders share a security 
interest of equal priority in collateral. In the event of default, each 
lender will be affected on a pro rata basis.
    Participation. Sale of an interest in a loan by the lender wherein 
the lender retains the note, collateral securing the note, and all 
responsibility for loan servicing and liquidation.
    Poor. A community or area is considered poor if, based on the most 
recent decennial census data, either the county, city, or census tract 
where the community or area is located has a median household income at 
or below the poverty line for a family of four; has a median household 
income below the nonmetropolitan median household income for the State; 
or has a population of which 25 percent or more have income at or below 
the poverty line.
    Promissory note. Evidence of debt. ``Note'' or ``Promissory note'' 
shall also be construed to include ``Bond'' or other evidence of debt 
where appropriate.
    Rural Development. The Under Secretary for Rural Development has 
policy and operational oversight responsibilities for RHS, RBS, and RUS.
    Spreadsheet. A table containing data from a series of financial 
statements of a business over a period of time. Financial statement 
analysis normally contains spreadsheets for balance sheet items and 
income statements and may include funds flow statement data and commonly 
used ratios. The spreadsheets enable a reviewer to easily scan the data, 
spot trends, and make comparisons.
    State. Any of the 50 States, the Commonwealth of Puerto Rico, the 
Virgin Islands of the United States, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the Republic of Palau, the 
Federated States of Micronesia, and the Republic of the Marshall 
Islands.
    Subordination. An agreement between the lender and borrower whereby 
lien priorities on certain assets pledged to secure payment of the 
guaranteed loan will be reduced to a position junior to, or on parity 
with, the lien position of another loan in order for the Agency borrower 
to obtain additional financing, not guaranteed by the Agency, from the 
lender or a third party.
    Veteran. For the purposes of assigning priority points, a veteran is 
a person who is a veteran of any war, as defined in section 101(12) of 
title 38, United States Code.
    (b) Abbreviations.

B&I--Business and Industry
CF--Community Facilities
CLP--Certified Lender Program
FSA--Farm Service Agency
FMI--Forms Manual Insert
NAD--National Appeals Division
OGC--Office of the General Counsel
RBS--Rural Business-Cooperative Service
RHS--Rural Housing Service
RUS--Rural Utilities Service
SBA--Small Business Administration
USDA--United States Department of Agriculture

[[Page 519]]



Secs. 4279.3-4279.14  [Reserved]



Sec. 4279.15  Exception authority.

    The Administrator may, in individual cases, grant an exception to 
any requirement or provision of this subpart which is not inconsistent 
with any applicable law provided, the Administrator determines that 
application of the requirement or provision would adversely affect 
USDA's interest.



Sec. 4279.16  Appeals.

    Only the borrower, lender, or holder can appeal an Agency decision 
made under this subpart. In cases where the Agency has denied or reduced 
the amount of final loss payment to the lender, the adverse decision may 
be appealed by the lender only. An adverse decision that only impacts 
the holder may be appealed by the holder only. A decision by a lender 
adverse to the interest of the borrower is not a decision by the Agency, 
whether or not concurred in by the Agency. Appeals will be handled in 
accordance with 7 CFR, part 11. Any party adversely affected by an 
Agency decision under this subpart may request a determination of 
appealability from the Director, National Appeals Division, USDA, within 
30 days of the adverse decision.



Secs. 4279.17-4279.28  [Reserved]



Sec. 4279.29  Eligible lenders.

    (a) Traditional lenders. An eligible lender is any Federal or State 
chartered bank, Farm Credit Bank, other Farm Credit System institution 
with direct lending authority, Bank for Cooperatives, Savings and Loan 
Association, or mortgage company that is part of a bank-holding company. 
These entities must be subject to credit examination and supervision by 
either an agency of the United States or a State. Eligible lenders may 
also include credit unions provided, they are subject to credit 
examination and supervision by either the National Credit Union 
Administration or a State agency, and insurance companies provided they 
are regulated by a State or National insurance regulatory agency. 
Eligible lenders include the National Rural Utilities Cooperative 
Finance Corporation.
    (b) Other lenders. Rural Utilities Service borrowers and other 
lenders not meeting the criteria of paragraph (a) of this section may be 
considered by the Agency for eligibility to become a guaranteed lender 
provided, the Agency determines that they have the legal authority to 
operate a lending program and sufficient lending expertise and financial 
strength to operate a successful lending program.
    (1) Such a lender must:
    (i) Have a record of successfully making at least three commercial 
loans annually for at least the most recent 3 years, with delinquent 
loans not exceeding 10 percent of loans outstanding and historic losses 
not exceeding 10 percent of dollars loaned, or when the proposed lender 
can demonstrate that it has personnel with equivalent previous 
experience and where the commercial loan portfolio was of a similar 
quantity and quality; and
    (ii) Have tangible balance sheet equity of at least seven percent of 
tangible assets and sufficient funds available to disburse the 
guaranteed loans it proposes to approve within the first 6 months of 
being approved as a guaranteed lender.
    (2) A lender not eligible under paragraph (a) of this section that 
wishes consideration to become a guaranteed lender must submit a request 
in writing to the State Office for the State where the lender's lending 
and servicing activity takes place. The National Office will notify the 
prospective lender, through the State Director, whether the lender's 
request for eligibility is approved or rejected. If rejected, the 
reasons for the rejection will be indicated to the prospective lender in 
writing. The lender's written request must include:
    (i) Evidence showing that the lender has the necessary capital and 
resources to successfully meet its responsibilities.
    (ii) Copy of any license, charter, or other evidence of authority to 
engage in the proposed loanmaking and servicing activities. If licensing 
by the State is not required, an attorney's opinion to this effect must 
be submitted.
    (iii) Information on lending experience, including length of time in 
the

[[Page 520]]

lending business; range and volume of lending and servicing activity; 
status of loan portfolio including delinquency rate, loss rate as a 
percentage of loan amounts, and other measures of success; experience of 
management and loan officers; audited financial statements not more than 
1 year old; sources of funds for the proposed loans; office location and 
proposed lending area; and proposed rates and fees, including loan 
origination, loan preparation, and servicing fees. Such fees must not be 
greater than those charged by similarly located commercial lenders in 
the ordinary course of business.
    (iv) An estimate of the number and size of guaranteed loan 
applications the lender will develop.
    (c) Expertise. Loan guarantees will only be approved for lenders 
with adequate experience and expertise to make, secure, service, and 
collect B&I loans.



Sec. 4279.30  Lenders' functions and responsibilities.

    (a) General. (1) Lenders have the primary responsibility for the 
successful delivery of the B&I loan program. All lenders obtaining or 
requesting a B&I loan guarantee are responsible for:
    (i) Processing applications for guaranteed loans,
    (ii) Developing and maintaining adequately documented loan files,
    (iii) Recommending only loan proposals that are eligible and 
financially feasible,
    (iv) Obtaining valid evidence of debt and collateral in accordance 
with sound lending practices,
    (v) Supervising construction
    (vi) Distribution of loan funds,
    (vii) Servicing guaranteed loans in a prudent manner, including 
liquidation if necessary,
    (viii) Following Agency regulations, and
    (ix) Obtaining Agency approvals or concurrence as required.
    (2) This subpart, along with subpart B of this part and subpart B of 
part 4287 of this chapter, contain the regulations for this program, 
including the lenders' responsibilities.
    (b) Credit evaluation. This is a key function of all lenders during 
the loan processing phase. The lender must analyze all credit factors 
associated with each proposed loan and apply its professional judgment 
to determine that the credit factors, considered in combination, ensure 
loan repayment. The lender must have an adequate underwriting process to 
ensure that loans are reviewed by other than the originating officer. 
There must be good credit documentation procedures.
    (c) Environmental responsibilities. Lenders have a responsibility to 
become familiar with Federal environmental requirements; to consider, in 
consultation with the prospective borrower, the potential environmental 
impacts of their proposals at the earliest planning stages; and to 
develop proposals that minimize the potential to adversely impact the 
environment. Lenders must alert the Agency to any controversial 
environmental issues related to a proposed project or items that may 
require extensive environmental review. Lenders must help the borrower 
prepare Form FmHA 1940-20, ``Request for Environmental Information'' 
(when required by subpart G of part 1940 of this title); assist in the 
collection of additional data when the Agency needs such data to 
complete its environmental review of the proposal; and assist in the 
resolution of environmental problems.
    (d) Loan closing. The lender will conduct loan closings.



Secs. 4279.31-4279.42  [Reserved]



Sec. 4279.43  Certified Lender Program.

    (a) General. This section provides policies and procedures for the 
Certified Lender Program (CLP) for loans guaranteed under this part. The 
objectives are to expedite loan approval, making, and servicing.
    (b) CLP eligibility criteria. The lender must meet established 
eligibility criteria as follows:
    (1) Be an ``eligible lender'' as defined in 4279.29 of this subpart 
and authorized to do business in the State in which CLP status is 
desired.
    (2) Demonstrate to the Agency's satisfaction that it has a thorough 
knowledge of commercial lending. The lender will demonstrate such 
knowledge by providing a summary of its guaranteed

[[Page 521]]

and unguaranteed business lending activity. At a minimum, the summary 
must include the dollar amount and number of loans in the lender's 
portfolio, unguaranteed and guaranteed by any Federal agency, with 
information on delinquencies and losses and, if applicable, the 
performance of the lender as a Small Business Administration (SBA) 
certified or preferred lender. A certified lender must be recognized 
throughout the State as a commercial lender and have a track record of 
successfully making at least five commercial loans per year for at least 
the most recent 5 years, with delinquent commercial loans outstanding 
not exceeding 6 percent of commercial loans outstanding and historic 
losses not exceeding 6 percent of dollars loaned, or it must demonstrate 
that it has personnel with equivalent previous experience where the 
commercial loan portfolio was of a similar quantity and quality. The 
lender will provide a written certification to this effect along with a 
statistical analysis of its commercial loan portfolio for the last 3 of 
its fiscal years.
    (3) The percentage of guarantee will not exceed 80 percent.
    (4) If the lender is a bank or savings and loan, it must have a 
financial strength rating in the upper half of possible ratings as 
reported by a lender rating service selected by the Agency.
    (5) Possess loan officers and other appropriate personnel who have 
received training conducted by the Agency. Additional training may be 
required if the lender's contact person changes or if the Agency 
determines further instruction is needed.
    (6) Have committed no action within the most recent 2 years prior to 
requesting CLP status which would be considered cause for revoking CLP 
status under paragraph (e) of this section.
    (c) CLP approval. The Agency may grant CLP status for a period not 
to exceed 5 years by executing Form 4279-8, ``Certified Lender, Business 
and Industry Program,'' with the lender. CLP status will not apply to 
branches or suboffices of the lender unless so specified in the 
agreement. Such branches or suboffices may submit loans as regular 
lenders or apply for their own CLP status. Any lender who desires CLP 
status must prepare a written request to the State Director where it 
desires CLP status. The request must address each of the required 
criteria outlined in paragraph (b) of this section, except paragraph 
(b)(3), and should be accompanied by any other information the lender 
believes will be helpful. The request will also include Form 4279-8 
completed and executed by the lender and an executed Lender's Agreement 
if it does not already have a valid Lender's Agreement on file with the 
Agency. Loans made by the lender and guaranteed by the Agency prior to 
the lender receiving CLP status shall continue to be governed by the 
forms and agreements executed between the lender and the Agency for 
those loans.
    (d) Renewal of CLP status. Renewal of CLP status is not automatic. 
CLP status will lapse upon the expiration date of Form 4279-8 unless the 
lender obtains a renewal. A lender whose CLP status has lapsed may 
continue to submit loan guarantee requests as a regular lender. A new 
Form 4279-8 completed and executed by the lender must be provided, along 
with a written update of the eligibility criteria required by this 
section for CLP approval. This information must be supplied at least 60 
days prior to the expiration of the existing agreement to be assured of 
uninterrupted status. The information must address how the lender is 
complying with each of the required criteria described in paragraph (b) 
of this section. It must include any proposed changes in the designated 
persons for processing guaranteed loans or operating methods used in 
processing and servicing Agency guaranteed loans.
    (e) Revocation of CLP status. The lender's CLP status may be revoked 
at any time for cause. The debarment of a lender is an additional 
alternative the Agency may consider. A lender which has lost its CLP 
status, but has not been debarred and still meets the requirements of 
Sec. 4279.29 of this subpart may continue to submit loan guarantee 
requests as a regular lender. Cause for revoking CLP status includes:
    (1) Failure to maintain status as an eligible lender as set forth in 
Sec. 4279.29 of this subpart;
    (2) Knowingly submitting false information when requesting a 
guarantee or

[[Page 522]]

basing a guarantee request on information known to be false or which the 
lender should have known to be false;
    (3) Making a guaranteed loan with deficiencies which may cause 
losses not to be covered by the Loan Note Guarantee;
    (4) Conviction for acts in connection with any loan transaction 
whether or not the loan was guaranteed by the Agency;
    (5) Violation of usury laws in connection with any loan guaranteed 
by the Agency;
    (6) Failure to obtain the required security for any loan guaranteed 
by the Agency;
    (7) Using loan funds guaranteed by the Agency for purposes other 
than those specifically approved by the Agency in the Conditional 
Commitment;
    (8) Violation of any term of the Lender's Agreement;
    (9) Failure to correct any cited deficiency in loan documents in a 
timely manner;
    (10) Failure to submit reports required by the Agency in a timely 
manner;
    (11) Failure to process Agency guaranteed loans in a reasonably 
prudent manner;
    (12) Failure to provide for adequate construction planning and 
monitoring in connection with any loan to ensure that the project will 
be completed with the available funds and, once completed, will be 
suitable for the borrower's needs;
    (13) Repetitive recommendations for guaranteed loans with marginal 
or substandard credit quality or that do not comply with Agency 
requirements;
    (14) Repetitive recommendations for servicing actions that do not 
comply with Agency requirements;
    (15) Negligent servicing; or
    (16) Failure to conduct any approved liquidation of a loan 
guaranteed by the Agency or its predecessors in a timely and effective 
manner and in accordance with the approved liquidation plan.
    (f) General loan processing and servicing guidelines. All requests 
for guaranteed loans will be processed and serviced under subparts A and 
B of this part and subpart B of part 4287 of this chapter except as 
modified by this section. When determining whether or not to request a 
guarantee for a proposed loan, lenders must consider the priorities set 
forth in Sec. 279.155 of subpart B of this part.
    (1) Prior to processing an application, the CLP lender may give 
written notice to the State Director of its intention to submit an 
application. Upon receipt of such written notice, the Agency will notify 
the CLP lender whether or not there is sufficient guarantee authority 
for the loan. Such guarantee authority will be held for 30 days pending 
receipt of the application. If a complete application for which 
guarantee authority is being held is not received within 30 days of the 
notice of intent to file or is rejected, the guarantee authority for 
this application will no longer be held in reserve. Notwithstanding the 
preceding, no guarantee authority will be held in reserve the last 60 
days of the Agency's fiscal year.
    (2) Refinancing of existing lender debt in accordance with 
Sec. 4279.113(q) of subpart B of this part will not be permitted without 
prior Agency approval.
    (3) CLP lenders will process all guaranteed loans as a ``complete 
application'' by obtaining and completing all items required by 
Sec. 4279.161(b) of subpart B of this part. The CLP lender must maintain 
all information required by Sec. 4279.161(b) in its loan file and 
determine that such material complies with all requirements.
    (4) CLP lenders will make all material relating to any guarantee 
application available to the Agency upon request.
    (5) At the time of the Agency's issuance of the Loan Note Guarantee, 
the CLP lender will provide the Agency with copies of the following 
documents:
    (i) Executed Loan Agreement;
    (ii) Executed Promissory Notes; and
    (iii) Executed security documents including personal and corporate 
guarantees.
    (g) Unique characteristics of the CLP. A proposed loan by a CLP 
lender requires a review by the Agency of the information submitted by 
the lender, plus satisfactory completion of the environmental review 
process by the Agency. The Agency may rely on the lender's credit 
analysis.

[[Page 523]]

    (1) The following will constitute a complete application submitted 
by a CLP lender:
    (i) Form 4279-1, ``Application for Loan Guarantee (Business and 
Industry),'' (marked with the letters ``CLP'' at the top) completed in 
its entirety and executed by the borrower and CLP lender;
    (ii) Copy of the proposed Loan Agreement or a list of proposed 
requirements;
    (iii) Form FmHA 1940-20, completed and signed, with attachments;
    (iv) The lender's complete written analysis of the proposal, 
including spreadsheets of the balance sheets and income statements for 
the 3 previous years (for existing businesses), pro forma balance sheet 
at startup, and 2 years projected yearend balance sheets and income 
statements, with appropriate ratios and comparisons with industry 
standards (such as Dun & Bradstreet or Robert Morris Associates). All 
data must be shown in total dollars and also in common size form, 
obtained by expressing all balance sheet items as a percentage of assets 
and all income and expense items as a percentage of sales. The lender's 
credit analysis must include the borrower's management, repayment 
ability including a cash flow analysis, history of debt repayment, 
necessity of any debt refinancing, and the credit reports of the 
borrower, its principals, and any parent, affiliate, or subsidiary;
    (v) Intergovernmental consultation comments in accordance with 7 CFR 
part 3015, subpart V; and
    (vi) If the loan will exceed $1 million and will increase direct 
employment by more than 50 employees, Form 4279-2, ``Certification of 
Non-Relocation and Market Capacity Information Report,'' must be 
completed by the lender. For such loans, the Agency will submit Form 
4279-2 to the Department of Labor and obtain clearance before a 
Conditional Commitment may be issued.
    (2) The Agency will make the final credit decision based primarily 
on a review of the credit analysis submitted by the lender and approval 
of the Agency's completed environmental analysis, if required, except 
that refinancing of existing lender debt in accordance with 
Sec. 4279.113(q) of subpart B of this part will not be approved without 
a credit analysis by the Agency of the borrower's complete financial 
statements; and completion by the Agency of the environmental analysis. 
The Agency may request such additional information as it determines is 
needed to make a decision.
    (h) Lender loan servicing responsibilities. CLP lenders will be 
fully responsible for all aspects of loan servicing and, if necessary, 
liquidation as described in subpart B of part 4287 of this chapter.



Sec. 4279.44  Access to records.

    The lender will permit representatives of the Agency (or other 
agencies of the United States) to inspect and make copies of any records 
of the lender pertaining to the Agency guaranteed loans during regular 
office hours of the lender or at any other time upon agreement between 
the lender and the Agency.



Secs. 4279.45-4279.57  [Reserved]



Sec. 4279.58  Equal Credit Opportunity Act.

    In accordance with title V of Public Law 93-495, the Equal Credit 
Opportunity Act, with respect to any aspect of a credit transaction, 
neither the lender nor the Agency will discriminate against any 
applicant on the basis of race, color, religion, national origin, sex, 
marital status or age (providing the applicant has the capacity to 
contract), or because all or part of the applicant's income derives from 
a public assistance program, or because the applicant has, in good 
faith, exercised any right under the Consumer Protection Act. The lender 
will comply with the requirements of the Equal Credit Opportunity Act as 
contained in the Federal Reserve Board's Regulation implementing that 
Act (see 12 CFR part 202). Such compliance will be accomplished prior to 
loan closing.



Sec. 4279.59  [Reserved]



Sec. 4279.60  Civil Rights Impact Analysis.

    The Agency is responsible for ensuring that all requirements of FmHA 
Instruction 2006-P, ``Civil Rights Impact

[[Page 524]]

Analysis'' are met and will complete the appropriate level of review in 
accordance with that instruction.



Secs. 4279.61-4279.70  [Reserved]



Sec. 4279.71  Public bodies and nonprofit corporations.

    Any public body or nonprofit corporation that receives a guaranteed 
loan that meets the thresholds established by OMB Circulars A-128 or A-
133 or successor regulations or circulars must provide an audit in 
accordance with the applicable circular or regulation for the fiscal 
year (of the borrower) in which the Loan Note Guarantee is issued. If 
the loan is for development or purchases made in a previous fiscal year 
through interim financing, an audit will also be provided for the fiscal 
year in which the development or purchases occurred. Any audit provided 
by a public body or nonprofit corporation in compliance with OMB 
Circulars A-128 or A-133 or their successors will be considered adequate 
to meet the audit requirements of the B&I program for that year.



Sec. 4279.72  Conditions of guarantee.

    A loan guarantee under this part will be evidenced by a Loan Note 
Guarantee issued by the Agency. Each lender will execute a Lender's 
Agreement. If a valid Lender's Agreement already exists, it is not 
necessary to execute a new Lender's Agreement with each loan guarantee. 
The provisions of this part and part 4287 of this chapter will apply to 
all outstanding guarantees. In the event of a conflict between the 
guarantee documents and these regulations as they exist at the time the 
documents are executed, the regulations will control.
    (a) Full faith and credit. A guarantee under this part constitutes 
an obligation supported by the full faith and credit of the United 
States and is incontestable except for fraud or misrepresentation of 
which a lender or holder has actual knowledge at the time it becomes 
such lender or holder or which a lender or holder participates in or 
condones. The guarantee will be unenforceable to the extent that any 
loss is occasioned by a provision for interest on interest. In addition, 
the guarantee will be unenforceable by the lender to the extent any loss 
is occasioned by the violation of usury laws, negligent servicing, or 
failure to obtain the required security regardless of the time at which 
the Agency acquires knowledge thereof. Any losses occasioned will be 
unenforceable to the extent that loan funds are used for purposes other 
than those specifically approved by the Agency in its Conditional 
Commitment. The Agency will guarantee payment as follows:
    (1) To any holder, 100 percent of any loss sustained by the holder 
on the guaranteed portion of the loan and on interest due on such 
portion.
    (2) To the lender, the lesser of:
    (i) Any loss sustained by the lender on the guaranteed portion, 
including principal and interest evidenced by the notes or assumption 
agreements and secured advances for protection and preservation of 
collateral made with the Agency's authorization; or
    (ii) The guaranteed principal advanced to or assumed by the borrower 
and any interest due thereon.
    (b) Rights and liabilities. When a guaranteed portion of a loan is 
sold to a holder, the holder shall succeed to all rights of the lender 
under the Loan Note Guarantee to the extent of the portion purchased. 
The lender will remain bound to all obligations under the Loan Note 
Guarantee, Lender's Agreement, and the Agency program regulations. A 
guarantee and right to require purchase will be directly enforceable by 
a holder notwithstanding any fraud or misrepresentation by the lender or 
any unenforceability of the guarantee by the lender, except for fraud or 
misrepresentation of which the holder had actual knowledge at the time 
it became the holder or in which the holder participates or condones. In 
the event of material fraud, negligence or misrepresentation by the 
lender or the lender's participation in or condoning of such material 
fraud, negligence or misrepresentation, the lender will be liable for 
payments made by the Agency to any holder.
    (c) Payments. A lender will receive all payments of principal and 
interest on account of the entire loan and will promptly remit to the 
holder its pro

[[Page 525]]

rata share thereof, determined according to its respective interest in 
the loan, less only the lender's servicing fee.



Secs. 4279.73-4279.74  [Reserved]



Sec. 4279.75  Sale or assignment of guaranteed loan.

    The lender may sell all or part of the guaranteed portion of the 
loan on the secondary market or retain the entire loan. The lender shall 
not sell or participate any amount of the guaranteed or unguaranteed 
portion of the loan to the borrower or members of the borrower's 
immediate families, officers, directors, stockholders, other owners, or 
a parent, subsidiary or affiliate. If the lender desires to market all 
or part of the guaranteed portion of the loan at or subsequent to loan 
closing, such loan must not be in default. Loans made with the proceeds 
of any obligation the interest on which is excludable from income under 
26 U.S.C. 103 (interest on State and local banks) or any successor 
section will not be guaranteed.
    (a) Single note system. The entire loan is evidenced by one note, 
and one Loan Note Guarantee is issued. The lender may assign all or part 
of the guaranteed portion of the loan to one or more holders by using 
the Agency's Assignment Guarantee Agreement. The holder, upon written 
notice to the lender and the Agency, may reassign the unpaid guaranteed 
portion of the loan sold under the Assignment Guarantee Agreement. Upon 
notification and completion of the assignment through the use of Form 
4279-6, the assignee shall succeed to all rights and obligations of the 
holder thereunder. If this option is selected, the lender may not at a 
later date cause any additional notes to be issued.
    (b) Multinote system. Under this option the lender may provide one 
note for the unguaranteed portion of the loan and no more than 10 notes 
for the guaranteed portion. When this option is selected by the lender, 
the holder will receive one of the borrower's executed notes and a Loan 
Note Guarantee. The Agency will issue a Loan Note Guarantee for each 
note, including the unguaranteed note, to be attached to the note. An 
Assignment Guarantee Agreement will not be used when the multinote 
option is utilized.
    (c) After loan closing. If a loan is closed using the multinote 
option and at a later date additional notes are desired, the lender may 
cause a series of new notes, so that the total number of notes issued 
does not exceed the total number provided for in paragraph (b) of this 
section, to be issued as replacement for previously issued guaranteed 
notes, provided:
    (1) Written approval of the Agency is obtained;
    (2) The borrower agrees and executes the new notes;
    (3) The interest rate does not exceed the interest rate in effect 
when the loan was closed;
    (4) The maturity date of the loan is not changed;
    (5) The Agency will not bear or guarantee any expenses that may be 
incurred in reference to such reissuances of notes;
    (6) There is adequate collateral securing the notes;
    (7) No intervening liens have arisen or have been perfected and the 
secured lien priority is better or remains the same; and
    (8) All holders agree.
    (d) Termination of lender servicing fee. The lender's servicing fee 
will stop when the Agency purchases the guaranteed portion of the loan 
from the secondary market. No such servicing fee may be charged to the 
Agency and all loan payments and collateral proceeds received will be 
applied first to the guaranteed loan and, when applied to the guaranteed 
loan, will be applied on a pro rata basis.



Sec. 4279.76  Participation.

    The lender may obtain participation in the loan under its normal 
operating procedures; however, the lender must retain title to the notes 
if any of them are unguaranteed and retain the lender's interest in the 
collateral.



Sec. 4279.77  Minimum retention.

    The lender is required to hold in its own portfolio a minimum of 5 
percent of the total loan amount. The amount required to be maintained 
must be of the unguaranteed portion of the loan

[[Page 526]]

and cannot be participated to another. The lender may sell the remaining 
amount of the unguaranteed portion of the loan only through 
participation.



Sec. 4279.78  Repurchase from holder.

    (a) Repurchase by lender. A lender has the option to repurchase the 
unpaid guaranteed portion of the loan from a holder within 30 days of 
written demand by the holder when the borrower is in default not less 
than 60 days on principal or interest due on the loan; or the lender has 
failed to remit to the holder its pro rata share of any payment made by 
the borrower within 30 days of the lender's receipt thereof. The 
repurchase by the lender will be for an amount equal to the unpaid 
guaranteed portion of principal and accrued interest less the lender's 
servicing fee. The holder must concurrently send a copy of the demand 
letter to the Agency. The guarantee will not cover the note interest to 
the holder on the guaranteed loan accruing after 90 days from the date 
of the demand letter to the lender requesting the repurchase. The lender 
will accept an assignment without recourse from the holder upon 
repurchase. The lender is encouraged to repurchase the loan to 
facilitate the accounting of funds, resolve the problem, and prevent 
default, where and when reasonable. The lender will notify the holder 
and the Agency of its decision.
    (b) Agency purchase. (1) If the lender does not repurchase the 
unpaid guaranteed portion of the loan as provided in paragraph (a) of 
this section, the Agency will purchase from the holder the unpaid 
principal balance of the guaranteed portion together with accrued 
interest to date of repurchase, less the lender's servicing fee, within 
30 days after written demand to the Agency from the holder. (This is in 
addition to the copy of the written demand on the lender.) The guarantee 
will not cover the note interest to the holder on the guaranteed loan 
accruing after 90 days from the date of the original demand letter of 
the holder to the lender requesting the repurchase.
    (2) The holder's demand to the Agency must include a copy of the 
written demand made upon the lender. The holder must also include 
evidence of its right to require payment from the Agency. Such evidence 
will consist of either the original of the Loan Note Guarantee properly 
endorsed to the Agency or the original of the Assignment Guarantee 
Agreement properly assigned to the Agency without recourse including all 
rights, title, and interest in the loan. The holder must include in its 
demand the amount due including unpaid principal, unpaid interest to 
date of demand, and interest subsequently accruing from date of demand 
to proposed payment date. The Agency will be subrogated to all rights of 
the holder.
    (3) The Agency will notify the lender of its receipt of the holder's 
demand for payment. The lender must promptly provide the Agency with the 
information necessary for the Agency to determine the appropriate amount 
due the holder. Upon request by the Agency, the lender will furnish a 
current statement certified by an appropriate authorized officer of the 
lender of the unpaid principal and interest then owed by the borrower on 
the loan and the amount then owed to any holder. Any discrepancy between 
the amount claimed by the holder and the information submitted by the 
lender must be resolved between the lender and the holder before payment 
will be approved. Such conflict will suspend the running of the 30 day 
payment requirement.
    (4) Purchase by the Agency neither changes, alters, nor modifies any 
of the lender's obligations to the Agency arising from the loan or 
guarantee nor does it waive any of Agency's rights against the lender. 
The Agency will have the right to set-off against the lender all rights 
inuring to the Agency as the holder of the instrument against the 
Agency's obligation to the lender under the guarantee.
    (c) Repurchase for servicing. If, in the opinion of the lender, 
repurchase of the guaranteed portion of the loan is necessary to 
adequately service the loan, the holder must sell the guaranteed portion 
of the loan to the lender for an amount equal to the unpaid principal 
and interest on such portion less the lender's servicing fee. The 
guarantee will not cover the note interest to the holder on the 
guaranteed loan accruing

[[Page 527]]

after 90 days from the date of the demand letter of the lender or the 
Agency to the holder requesting the holder to tender its guaranteed 
portion. The lender must not repurchase from the holder for arbitrage or 
other purposes to further its own financial gain. Any repurchase must 
only be made after the lender obtains the Agency's written approval. If 
the lender does not repurchase the portion from the holder, the Agency 
may, at its option, purchase such guaranteed portion for servicing 
purposes.



Secs. 4279.79-4279.83  [Reserved]



Sec. 4279.84  Replacement of document.

    (a) The Agency may issue a replacement Loan Note Guarantee or 
Assignment Guarantee Agreement which was lost, stolen, destroyed, 
mutilated, or defaced to the lender or holder upon receipt of an 
acceptable certificate of loss and an indemnity bond.
    (b) When a Loan Note Guarantee or Assignment Guarantee Agreement is 
lost, stolen, destroyed, mutilated, or defaced while in the custody of 
the lender or holder, the lender will coordinate the activities of the 
party who seeks the replacement documents and will submit the required 
documents to the Agency for processing. The requirements for replacement 
are as follows:
    (1) A certificate of loss, notarized and containing a jurat, which 
includes:
    (i) Name and address of owner;
    (ii) Name and address of the lender of record;
    (iii) Capacity of person certifying;
    (iv) Full identification of the Loan Note Guarantee or Assignment 
Guarantee Agreement including the name of the borrower, the Agency's 
case number, date of the Loan Note Guarantee or Assignment Guarantee 
Agreement, face amount of the evidence of debt purchased, date of 
evidence of debt, present balance of the loan, percentage of guarantee, 
and, if an Assignment Guarantee Agreement, the original named holder and 
the percentage of the guaranteed portion of the loan assigned to that 
holder. Any existing parts of the document to be replaced must be 
attached to the certificate;
    (v) A full statement of circumstances of the loss, theft, or 
destruction of the Loan Note Guarantee or Assignment Guarantee 
Agreement; and
    (vi) For the holder, evidence demonstrating current ownership of the 
Loan Note Guarantee and Note or the Assignment Guarantee Agreement. If 
the present holder is not the same as the original holder, a copy of the 
endorsement of each successive holder in the chain of transfer from the 
initial holder to present holder must be included if in existence. If 
copies of the endorsement cannot be obtained, best available records of 
transfer must be submitted to the Agency (e.g., order confirmation, 
canceled checks, etc.).
    (2) An indemnity bond acceptable to the Agency shall accompany the 
request for replacement except when the holder is the United States, a 
Federal Reserve Bank, a Federal corporation, a State or territory, or 
the District of Columbia. The bond shall be with surety except when the 
outstanding principal balance and accrued interest due the present 
holder is less than $1 million verified by the lender in writing in a 
letter of certification of balance due. The surety shall be a qualified 
surety company holding a certificate of authority from the Secretary of 
the Treasury and listed in Treasury Department Circular 580.
    (3) All indemnity bonds must be issued and payable to the United 
States of America acting through the USDA. The bond shall be in an 
amount not less than the unpaid principal and interest. The bond shall 
hold USDA harmless against any claim or demand which might arise or 
against any damage, loss, costs, or expenses which might be sustained or 
incurred by reasons of the loss or replacement of the instruments.
    (4) In those cases where the guaranteed loan was closed under the 
provision of the multinote system, the Agency will not attempt to 
obtain, or participate in the obtaining of, replacement notes from the 
borrower. It will be the responsibility of the holder to bear costs of 
note replacement if the borrower agrees to issue a replacement 
instrument. Should such note be replaced, the terms of the note cannot 
be changed. If the evidence of debt has been lost, stolen, destroyed, 
mutilated or defaced, such evidence of debt must

[[Page 528]]

be replaced before the Agency will replace any instruments.



Secs. 4279.85-4279.99  [Reserved]



Sec. 4279.100  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by OMB and have been assigned OMB control number 
0575-0171. Public reporting burden for this collection of information is 
estimated to vary from 1 hour to 8 hours per response, with an average 
of 4 hours per response, including time for reviewing the collection of 
information. Send comments regarding this burden estimate or any other 
aspect of this collection of information, including suggestions for 
reducing this burden, to the Department of Agriculture, Clearance 
Officer, OIRM, Stop 7630, Washington, D.C. 20250. You are not required 
to respond to this collection of information unless it displays a 
currently valid OMB control number.



                 Subpart B--Business and Industry Loans



Sec. 4279.101  Introduction.

    (a) Content. This subpart contains loan processing regulations for 
the Business and Industry (B&I) Guaranteed Loan Program. It is 
supplemented by subpart A of this part, which contains general 
guaranteed loan regulations, and subpart B of part 4287 of this chapter, 
which contains loan servicing regulations.
    (b) Purpose. The purpose of the B&I Guaranteed Loan Program is to 
improve, develop, or finance business, industry, and employment and 
improve the economic and environmental climate in rural communities. 
This purpose is achieved by bolstering the existing private credit 
structure through the guarantee of quality loans which will provide 
lasting community benefits. It is not intended that the guarantee 
authority will be used for marginal or substandard loans or for relief 
of lenders having such loans.
    (c) Documents. Copies of all forms, regulations, and Instructions 
referenced in this subpart are available in any Agency office.



Sec. 4279.102  Definitions.

    The definitions and abbreviations in Sec. 4279.2 of subpart A of 
this part are applicable to this subpart.



Secs. 4279.103  Exception authority.

    Section 4279.15 of subpart A of this part applies to this subpart.



Sec. 4279.104  Appeals.

    Section 4279.16 of subpart A of this part applies to this subpart.



Sec. 4279.105-4279.106  [Reserved]



Sec. 4279.107  Guarantee fee.

    The guarantee fee will be paid to the Agency by the lender and is 
nonrefundable. The fee may be passed on to the borrower. Except as 
provided in this section, the guarantee fee will be 2 percent multiplied 
by the principal loan amount multiplied by the percent of guarantee and 
will be paid one time only at the time the Loan Note Guarantee is 
issued.
    (a) The guarantee fee may be reduced to 1 percent if the Agency 
determines that the business meets the following criteria:
    (1) High impact business development investment (It is the goal of 
this program to encourage high impact business investment in rural 
areas. The weight given to business investments will be in accordance 
with Sec. 4279.155(b)(5) of this subpart); and
    (2) The business is located in a community that is experiencing long 
term population decline and job deterioration; or
    (3) The business is located in a rural community that has remained 
persistently poor over the last 60 years; or
    (4) The business is located in a rural community that is 
experiencing trauma as a result of natural disaster or that is 
experiencing fundamental structural changes in its economic base.
    (b) Each fiscal year, the Agency shall establish a limit on the 
maximum portion of guarantee authority available for that fiscal year 
that may be used to guarantee loans with a guarantee fee of 1 percent. 
The limit will be announced by publishing a notice in the Federal 
Register. Once the limit has been

[[Page 529]]

reached, the guarantee fee for all additional loans obligated during the 
remainder of that fiscal year will be 2 percent.



Sec. 4279.108  Eligible borrowers.

    (a) Type of entity. A borrower may be a cooperative, corporation, 
partnership, or other legal entity organized and operated on a profit or 
nonprofit basis; an Indian tribe on a Federal or State reservation or 
other Federally recognized tribal group; a public body; or an 
individual. A borrower must be engaged in or proposing to engage in a 
business. Business may include manufacturing, wholesaling, retailing, 
providing services, or other activities that will:
    (1) Provide employment;
    (2) Improve the economic or environmental climate;
    (3) Promote the conservation, development, and use of water for 
aquaculture; or
    (4) Reduce reliance on nonrenewable energy resources by encouraging 
the development and construction of solar energy systems.
    (b) Citizenship. Individual borrowers must be citizens of the United 
States (U.S.) or reside in the U.S. after being legally admitted for 
permanent residence. Citizens and residents of the Republic of Palau, 
the Federated States of Micronesia, and the Republic of the Marshall 
Islands shall be considered U.S. citizens. Corporations or other 
nonpublic body organization-type borrowers must be at least 51 percent 
owned by persons who are either citizens of the U.S. or reside in the 
U.S. after being legally admitted for permanent residence.
    (c) Rural area. The business financed with a B&I Guaranteed Loan 
must be located in a rural area. Loans to borrowers with facilities 
located in both rural and non-rural areas will be limited to the amount 
necessary to finance the facility located in the eligible rural area. 
Rural areas are any areas other than:
    (1) A city or town that has a population of greater than 50,000 
inhabitants; and
    (2) The urbanized area contiguous and adjacent to such a city or 
town, as defined by the U.S. Bureau of the Census using the latest 
decennial census of the United States.
    (d) Other credit. All applications for assistance will be accepted 
and processed without regard to the availability of credit from any 
other source.

[61 FR 67633, Dec. 23, 1996, as amended at 67 FR 78130, Dec. 23, 2002]



Secs. 4279.109-4279.112  [Reserved]



Sec. 4279.113  Eligible loan purposes.

    Loan purposes must be consistent with the general purpose contained 
in Sec. 4279.101 of this subpart. They include but are not limited to 
the following:
    (a) Business and industrial acquisitions when the loan will keep the 
business from closing, prevent the loss of employment opportunities, or 
provide expanded job opportunities.
    (b) Business conversion, enlargement, repair, modernization, or 
development.
    (c) Purchase and development of land, easements, rights-of-way, 
buildings, or facilities.
    (d) Purchase of equipment, leasehold improvements, machinery, 
supplies, or inventory.
    (e) Pollution control and abatement.
    (f) Transportation services incidental to industrial development.
    (g) Startup costs and working capital.
    (h) Agricultural production, when not eligible for Farm Service 
Agency (FSA) farmer program assistance and when it is part of an 
integrated business also involved in the processing of agricultural 
products.
    (1) Examples of potentially eligible production include but are not 
limited to: An apple orchard in conjunction with a food processing 
plant; poultry buildings linked to a meat processing operation; or sugar 
beet production coupled with storage and processing. Any agricultural 
production considered for B&I financing must be owned, operated, and 
maintained by the business receiving the loan for which a guarantee is 
provided. Independent agricultural production operations, even if not 
eligible for FSA farmer programs assistance, are not eligible for the 
B&I program.

[[Page 530]]

    (2) The agricultural-production portion of any loan will not exceed 
50 percent of the total loan or $1 million, whichever is less.
    (i) Purchase of membership, stocks, bonds, or debentures necessary 
to obtain a loan from Farm Credit System institutions and other lenders 
provided that the purchase is required for all of their borrowers. 
Purchase of startup cooperative stock for family-sized farms where 
commodities are produced to be processed by the cooperative.
    (j) Aquaculture, including conservation, development, and 
utilization of water for aquaculture.
    (k) Commercial fishing.
    (l) Commercial nurseries engaged in the production of ornamental 
plants and trees and other nursery products such as bulbs, flowers, 
shrubbery, flower and vegetable seeds, sod, and the growing of plants 
from seed to the transplant stage.
    (m) Forestry, which includes businesses primarily engaged in the 
operation of timber tracts, tree farms, and forest nurseries and related 
activities such as reforestation.
    (n) The growing of mushrooms or hydroponics.
    (o) Interest (including interest on interim financing) during the 
period before the first principal payment becomes due or when the 
facility becomes income producing, whichever is earlier.
    (p) Feasibility studies.
    (q) To refinance outstanding debt when it is determined that the 
project is viable and refinancing is necessary to improve cash flow and 
create new or save existing jobs. Existing lender debt may be included 
provided that, at the time of application, the loan has been current for 
at least the past 12 months (unless such status is achieved by the 
lender forgiving the borrower's debt), the lender is providing better 
rates or terms, and the refinancing is a secondary part (less than 50 
percent) of the overall loan.
    (r) Takeout of interim financing. Guaranteeing a loan after project 
completion to pay off a lender's interim loan will not be treated as 
debt refinancing provided that the lender submits a complete 
preapplication or application which proposes such interim financing 
prior to completing the interim loan. A lender that is considering an 
interim loan should be advised that the Agency assumes no responsibility 
or obligation for interim loans advanced prior to the Conditional 
Commitment being issued.
    (s) Fees and charges for professional services and routine lender 
fees.
    (t) Agency guarantee fee.
    (u) Tourist and recreation facilities, including hotels, motels, and 
bed and breakfast establishments, except as prohibited under ineligible 
purposes.
    (v) Educational or training facilities.
    (w) Community facility projects which are not listed as an 
ineligible loan purpose such as convention centers.
    (x) Constructing or equipping facilities for lease to private 
businesses engaged in commercial or industrial operations.
    (y) The financing of housing development sites provided that the 
community demonstrates a need for additional housing to prevent a loss 
of jobs in the area or to house families moving to the area as a result 
of new employment opportunities.
    (z) Community antenna television services or facilities.
    (aa) Provide loan guarantees to assist industries adjusting to 
terminated Federal agricultural programs or increased foreign 
competition.



Sec. 4279.114  Ineligible purposes.

    (a) Distribution or payment to an individual owner, partner, 
stockholder, or beneficiary of the borrower or a close relative of such 
an individual when such individual will retain any portion of the 
ownership of the borrower.
    (b) Projects in excess of $1 million that would likely result in the 
transfer of jobs from one area to another and increase direct employment 
by more than 50 employees.
    (c) Projects in excess of $1 million that would increase direct 
employment by more than 50 employees, if the project would result in an 
increase in the production of goods for which there is not sufficient 
demand, or if the availability of services or facilities is insufficient 
to meet the needs of the business.

[[Page 531]]

    (d) Charitable institutions, churches, or church-controlled or 
fraternal organizations.
    (e) Lending and investment institutions and insurance companies.
    (f) Assistance to Government employees and military personnel who 
are directors or officers or have a major ownership of 20 percent or 
more in the business.
    (g) Racetracks for the conduct of races by professional drivers, 
jockeys, etc., where individual prizes are awarded in the amount of $500 
or more.
    (h) Any business that derives more than 10 percent of annual gross 
revenue from gambling activity.
    (i) Any illegal business activity.
    (j) Prostitution.
    (k) Any line of credit.
    (l) The guarantee of lease payments.
    (m) The guarantee of loans made by other Federal agencies.
    (n) Owner-occupied housing. Bed and breakfasts, storage facilities, 
et al, are allowed when the pro rata value of the owner's living 
quarters is deleted.
    (o) Projects that are eligible for the Rural Rental Housing and 
Rural Cooperative Housing loans under sections 515, 521, and 538 of the 
Housing Act of 1949, as amended.
    (p) Loans made with the proceeds of any obligation the interest on 
which is excludable from income under 26 U.S.C. 103 or a successor 
statute. Funds generated through the issuance of tax-exempt obligations 
may neither be used to purchase the guaranteed portion of any Agency 
guaranteed loan nor may an Agency guaranteed loan serve as collateral 
for a tax-exempt issue. The Agency may guarantee a loan for a project 
which involves tax-exempt financing only when the guaranteed loan funds 
are used to finance a part of the project that is separate and distinct 
from the part which is financed by the tax-exempt obligation, and the 
guaranteed loan has at least a parity security position with the tax-
exempt obligation.
    (q) The guarantee of loans where there may be, directly or 
indirectly, a conflict of interest or an appearance of a conflict of 
interest involving any action by the Agency.
    (r) Golf courses.



Sec. 4279.115  Prohibition under Agency programs.

    No B&I loans guaranteed by the Agency will be conditioned on any 
requirement that the recipients of such assistance accept or receive 
electric service from any particular utility, supplier, or cooperative.



Secs. 4279.116-4279.118  [Reserved]



Sec. 4279.119  Loan guarantee limits.

    (a) Loan amount. The total amount of Agency loans to one borrower, 
including the guaranteed and unguaranteed portions, the outstanding 
principal and interest balance of any existing Agency guaranteed loans, 
and new loan request, must not exceed $10 million. The Administrator 
may, at the Administrator's discretion, grant an exception to the $10 
million limit under the following circumstances:
    (1) The project to be financed is a high-priority project. Priority 
will be determined in accordance with the criteria contained in 
Sec. 4279.155 of this subpart;
    (2) The lender must document to the satisfaction of the Agency that 
the loan will not be made and the project will not be completed if the 
guarantee is not approved; and
    (3) Under no circumstances will the total amount of guaranteed loans 
to one borrower, including the guaranteed and unguaranteed portions, the 
outstanding principal and interest balance of any existing Agency 
guaranteed loans, and new loan request, exceed $25 million;
    (4) The percentage of guarantee will not exceed 60 percent. No 
exception to this requirement will be approved under paragraph (b) of 
this section for loans exceeding $10 million; and
    (5) Any request for a guaranteed loan exceeding the $10 million 
limit must be submitted to the Agency in the form of a preapplication. 
The preapplication must be submitted to the National Office for review 
and concurrence before encouraging a full application.
    (b) Percent of guarantee. The percentage of guarantee, up to the 
maximum allowed by this section, is a matter of negotiation between the 
lender and the Agency. The maximum percentage of guarantee is 80 percent 
for loans of $5

[[Page 532]]

million or less, 70 percent for loans between $5 and $10 million, and 60 
percent for loans exceeding $10 million. Notwithstanding the preceding, 
the Administrator may, at the Administrator's discretion, grant an 
exception allowing guarantees of up to 90 percent on loans of $10 
million or less under the following circumstances:
    (1) The project to be financed is a high-priority project. Priority 
will be determined in accordance with the criteria contained in 4279.155 
of this subpart;
    (2) The lender must document to the satisfaction of the Agency that 
the loan will not be made and the project will not be completed if the 
higher guarantee percentage is not approved; and
    (3) The State Director may grant an exception for loans of up to 90 
percent on loans of $2 million or less subject to the State Director's 
delegated loan authority and meeting all of the conditions as set forth 
in this section. In cases where the State Director does not have the 
loan approval authority to approve a loan of $2 million or less or the 
proposed percentage, the case must be submitted to the National Office 
for review.
    (4) Each fiscal year, the Agency will establish a limit on the 
maximum portion of guarantee authority available for that fiscal year 
that may be used to guarantee loans with a guarantee percentage 
exceeding 80 percent. The limit will be announced by publishing a notice 
in the Federal Register. Once the limit has been reached, the guarantee 
percentage for all additional loans guaranteed during the remainder of 
that fiscal year will not exceed 80 percent.



Sec. 4279.120  Fees and charges.

    (a) Routine lender fees. The lender may establish charges and fees 
for the loan provided they are similar to those normally charged other 
applicants for the same type of loan in the ordinary course of business.
    (b) Professional services. Professional services are those rendered 
by entities generally licensed or certified by States or accreditation 
associations, such as architects, engineers, packagers, accountants, 
attorneys, or appraisers. The borrower may pay fees for professional 
services needed for planning and developing a project provided that the 
amounts are reasonable and customary in the area. Professional fees may 
be included as an eligible use of loan proceeds.



Secs. 4279.121-4279.124  [Reserved]



Sec. 4279.125  Interest rates.

    The interest rate for the guaranteed loan will be negotiated between 
the lender and the applicant and may be either fixed or variable as long 
as it is a legal rate. Interest rates will not be more than those rates 
customarily charged borrowers in similar circumstances in the ordinary 
course of business and are subject to Agency review and approval. 
Lenders are encouraged to utilize the secondary market and pass 
interest-rate savings on to the borrower.
    (a) A variable interest rate agreed to by the lender and borrower 
must be a rate that is tied to a base rate agreed to by the lender and 
the Agency. The variable interest rate may be adjusted at different 
intervals during the term of the loan, but the adjustments may not be 
more often than quarterly and must be specified in the Loan Agreement. 
The lender must incorporate, within the variable rate Promissory Note at 
loan closing, the provision for adjustment of payment installments 
coincident with an interest-rate adjustment. The lender will ensure that 
the outstanding principal balance is properly amortized within the 
prescribed loan maturity to eliminate the possibility of a balloon 
payment at the end of the loan.
    (b) Any change in the interest rate between the date of issuance of 
the Conditional Commitment and before the issuance of the Loan Note 
Guarantee must be approved in writing by the Agency approval official. 
Approval of such a change will be shown as an amendment to the 
Conditional Commitment.
    (c) It is permissible to have one interest rate on the guaranteed 
portion of the loan and another rate on the unguaranteed portion of the 
loan provided that the rate on the guaranteed

[[Page 533]]

portion does not exceed the rate on the unguaranteed portion.
    (d) A combination of fixed and variable rates will be allowed.



Sec. 4279.126  Loan terms.

    (a) The maximum repayment for loans on real estate will not exceed 
30 years; machinery and equipment repayment will not exceed the useful 
life of the machinery and equipment purchased with loan funds or 15 
years, whichever is less; and working capital repayment will not exceed 
7 years. The term for a loan that is being refinanced may be based on 
the collateral the lender will take to secure the loan.
    (b) The first installment of principal and interest will, if 
possible, be scheduled for payment after the project is operational and 
has begun to generate income. However, the first full installment must 
be due and payable within 3 years from the date of the Promissory Note 
and be paid at least annually thereafter. Interest-only payments will be 
paid at least annually from the date of the note.
    (c) Only loans which require a periodic payment schedule which will 
retire the debt over the term of the loan without a balloon payment will 
be guaranteed.
    (d) A loan's maturity will take into consideration the use of 
proceeds, the useful life of assets being financed, and the borrower's 
ability to repay the loan. The lender may apply the maximum guidelines 
specified above only when the loan cannot be repaid over a shorter term.
    (e) All loans guaranteed through the B&I program must be sound, with 
reasonably assured repayment.



Secs. 4279.127-4279.130  [Reserved]



Sec. 4279.131  Credit quality.

    The lender is primarily responsible for determining credit quality 
and must address all of the elements of credit quality in a written 
credit analysis including adequacy of equity, cash flow, collateral, 
history, management, and the current status of the industry for which 
credit is to be extended.
    (a) Cash flow. All efforts will be made to structure or restructure 
debt so that the business has adequate debt coverage and the ability to 
accommodate expansion.
    (b) Collateral. (1) Collateral must have documented value sufficient 
to protect the interest of the lender and the Agency and, except as set 
forth in paragraph (b)(2) of this section, the discounted collateral 
value will be at least equal to the loan amount. Lenders will discount 
collateral consistent with sound loan-to-value policy.
    (2) Some businesses are predominantly cash-flow oriented, and where 
cash flow and profitability are strong, loan-to-value coverage may be 
discounted accordingly. A loan primarily based on cash flow must be 
supported by a successful and documented financial history.
    (c) Industry. Current status of the industry will be considered and 
businesses in areas of decline will be required to provide strong 
business plans which outline how they differ from the current trends. 
The regulatory environment surrounding the particular business or 
industry will be considered.
    (d) Equity. A minimum of 10 percent tangible balance sheet equity 
will be required for existing businesses at the time the Loan Note 
Guarantee is issued. A minimum of 20 percent tangible balance sheet 
equity will be required for new businesses at the time the Loan Note 
Guarantee is issued. Tangible balance sheet equity will be determined in 
accordance with Generally Accepted Accounting Principles. Modifications 
to the equity requirements may be granted by the Administrator or 
designee. For the Administrator to consider a reduction in the equity 
requirement, the borrower must furnish the following:
    (1) Collateralized personal and corporate guarantees, including any 
parent, subsidiary, or affiliated company, when feasible and legally 
permissible (in accordance with 4279.149 of this subpart), and
    (2) Pro forma and historical financial statements which indicate the 
business to be financed meets or exceeds the median quartile (as 
identified in Robert Morris Associates Annual Statement Studies or 
similar publication) for the current ratio, quick ratio, debt-to-worth 
ratio, debt coverage ratio, and working capital.

[[Page 534]]

    (e) Lien priorities. The entire loan will be secured by the same 
security with equal lien priority for the guaranteed and unguaranteed 
portions of the loan. The unguaranteed portion of the loan will neither 
be paid first nor given any preference or priority over the guaranteed 
portion. A parity or junior position may be considered provided that 
discounted collateral values are adequate to secure the loan in 
accordance with paragraph (b) of this section after considering prior 
liens.
    (f) Management. A thorough review of key management personnel will 
be completed to ensure that the business has adequately trained and 
experienced managers.



Secs. 4279.132-4279.136  [Reserved]



Sec. 4279.137  Financial statements.

    (a) The lender will determine the type and frequency of submission 
of financial statements by the borrower. At a minimum, annual financial 
statements prepared by an accountant in accordance with Generally 
Accepted Accounting Principles will be required.
    (b) If specific circumstances warrant and the proposed guaranteed 
loan will exceed $3 million, the Agency may require annual audited 
financial statements. For example, the need for audited financial 
statements will be carefully considered in connection with loans that 
depend heavily on inventory and accounts receivable for collateral.



Secs. 4279.138-4279.142  [Reserved]



Sec. 4279.143  Insurance.

    (a) Hazard. Hazard insurance with a standard mortgage clause naming 
the lender as beneficiary will be required on every loan in an amount 
that is at least the lesser of the depreciated replacement value of the 
collateral or the amount of the loan. Hazard insurance includes fire, 
windstorm, lightning, hail, explosion, riot, civil commotion, aircraft, 
vehicle, marine, smoke, builder's risk during construction by the 
business, and property damage.
    (b) Life. The lender may require life insurance to insure against 
the risk of death of persons critical to the success of the business. 
When required, coverage will be in amounts necessary to provide for 
management succession or to protect the business. The cost of insurance 
and its effect on the applicant's working capital must be considered as 
well as the amount of existing insurance which could be assigned without 
requiring additional expense.
    (c) Worker compensation. Worker compensation insurance is required 
in accordance with State law.
    (d) Flood. National flood insurance is required in accordance with 7 
CFR, part 1806, subpart B (FmHA Instruction 426.2, available in any 
field office or the National Office).
    (e) Other. Public liability, business interruption, malpractice, and 
other insurance appropriate to the borrower's particular business and 
circumstances will be considered and required when needed to protect the 
interests of the borrower.



Sec. 4279.144  Appraisals.

    Lenders will be responsible for ensuring that appraisal values 
adequately reflect the actual value of the collateral. All real property 
appraisals associated with Agency guaranteed loanmaking and servicing 
transactions will meet the requirements contained in the Financial 
Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 and 
the appropriate guidelines contained in Standards 1 and 2 of the Uniform 
Standards of Professional Appraisal Practices (USPAP). All appraisals 
will include consideration of the potential effects from a release of 
hazardous substances or petroleum products or other environmental 
hazards on the market value of the collateral. For additional guidance 
and information concerning the completion of real property appraisals, 
refer to subpart A of part 1922 of this title and to ``Standard 
Practices for Environmental Site Assessments: Transaction Screen 
Questionnaire'' and ``Phase I Environmental Site Assessment,'' both 
published by the American Society of Testing and Materials. Chattels 
will be evaluated in accordance with normal banking practices and 
generally accepted methods of determining value.

[[Page 535]]



Secs. 4279.145-4279.148  [Reserved]



Sec. 4279.149  Personal and corporate guarantees.

    (a) Personal and corporate guarantees, when obtained, are part of 
the collateral for the loan. However, the value of such guarantee is not 
considered in determining whether a loan is adequately secured for 
loanmaking purposes.
    (b) Personal and corporate guarantees for those owning greater than 
20 percent of the borrower will be required where legally permissible, 
except as provided for in this section. Guarantees of parent, 
subsidiaries, or affiliated companies and secured guarantees may also be 
required.
    (c) Exceptions to the requirements for personal guarantees must be 
requested by the lender and concurred in by the Agency approval official 
on a case-by- case basis. The lender must document that collateral, 
equity, cash flow, and profitability indicate an above average ability 
to repay the loan.



Sec. 4279.150  Feasibility studies.

    A feasibility study by a qualified independent consultant may be 
required by the Agency for start-up businesses or existing businesses 
when the project will significantly affect the borrower's operations. An 
acceptable feasibility study should include, but not be limited to, 
economic, market, technical, financial, and management feasibility.



Secs. 4279.151-4279.154  [Reserved]



Sec. 4279.155  Loan priorities.

    Applications and preapplications received by the Agency will be 
considered in the order received; however, for the purpose of assigning 
priorities as described in paragraph (b) of this section, the Agency 
will compare an application to other pending applications.
    (a) When applications on hand otherwise have equal priority, 
applications for loans from qualified veterans will have preference.
    (b) Priorities will be assigned by the Agency to eligible 
applications on the basis of a point system as contained in this 
section. The application and supporting information will be used to 
determine an eligible proposed project's priority for available 
guarantee authority. All lenders, including CLP lenders, will consider 
Agency priorities when choosing projects for guarantee. The lender will 
provide necessary information related to determining the score, as 
requested.
    (1) Population priority. Projects located in an unincorporated area 
or in a city with under 25,000 population (10 points).
    (2) Community priority. The priority score for community will be the 
total score for the following categories:
    (i) Located in an eligible area of long term population decline and 
job deterioration based on reliable statistical data (5 points).
    (ii) Located in a rural community that has remained persistently 
poor over the last 60 years (5 points).
    (iii) Located in a rural community that is experiencing trauma as a 
result of natural disaster or experiencing fundamental structural 
changes in its economic base (5 points).
    (iv) Located in a city or county with an unemployment rate 125 
percent of the statewide rate or greater (5 points).
    (3) Empowerment Zone/Enterprise Community (EZ/EC). (i) Located in an 
EZ/EC designated area (10 points).
    (ii) Located in a designated Champion Community (5 points). A 
Champion Community is a community which developed a strategic plan to 
apply for an EZ/EC designation, but not selected as a designated EZ/EC 
Community.
    (4) Loan features. The priority score for loan features will be the 
total score for the following categories:
    (i) Lender will price the loan at the Wall Street Journal published 
Prime Rate plus 1.5 percent or less (5 points).
    (ii) Lender will price the loan at the Wall Street Journal published 
Prime Rate plus 1 percent or less (5 points).
    (iii) The Agency guaranteed loan is less than 50 percent of project 
cost (5 points).
    (iv) Percentage of guarantee is 10 or more percentage points less 
than the maximum allowable for a loan of its size (5 points).
    (5) High impact business investment priorities. The priority score 
for high impact business investment will be the

[[Page 536]]

total score for the following three categories:
    (i) Industry. The priority score for industry will be the total 
score for the following, except that the total score for industry cannot 
exceed 10 points.
    (A) Industry that has 20 percent or more of its sales in 
international markets (5 points).
    (B) Industry that is not already present in the community (5 
points).
    (ii) Business. The priority score for business will be the total 
score for the following:
    (A) Business that offers high value, specialized products and 
services that command high prices (2 points).
    (B) Business that provides an additional market for existing local 
business (3 points).
    (C) Business that is locally owned and managed (3 points).
    (D) Business that will produce a natural resource value-added 
product (2 points).
    (iii) Occupations. The priority score for occupations will be the 
total score for the following, except that the total score for job 
quality cannot exceed 10 points:
    (A) Business that creates jobs with an average wage exceeding 125 
percent of the Federal minimum wage (5 points).
    (B) Business that creates jobs with an average wage exceeding 150 
percent of the Federal minimum wage (10 points).
    (6) Administrative points. The State Director may assign up to 10 
additional points to an application to account for such factors as 
statewide distribution of funds, natural or economic emergency 
conditions, or area economic development strategies. An explanation of 
the assigning of these points by the State Director will be appended to 
the calculation of the project score maintained in the case file. If an 
application is considered in the National Office, the Administrator may 
also assign up to an additional 10 points. The Administrator may assign 
the additional points to an application to account for items such as 
geographic distribution of funds and emergency conditions caused by 
economic problems or natural disasters.



Sec. 4279.156  Planning and performing development.

    (a) Design policy. The lender must ensure that all project 
facilities must be designed utilizing accepted architectural and 
engineering practices and must conform to applicable Federal, state, and 
local codes and requirements. The lender will also ensure that the 
project will be completed using the available funds and, once completed, 
will be used for its intended purpose and produce products in the 
quality and quantity proposed in the completed application approved by 
the Agency.
    (b) Project control. The lender will monitor the progress of 
construction and undertake the reviews and inspections necessary to 
ensure that construction conforms with applicable Federal, state, and 
local code requirements; proceeds are used in accordance with the 
approved plans, specifications, and contract documents; and that funds 
are used for eligible project costs.
    (c) Equal opportunity. For all construction contracts in excess of 
$10,000, the contractor must comply with Executive Order 11246, entitled 
``Equal Employment Opportunity,'' as amended by Executive Order 11375, 
and as supplemented by applicable Department of Labor regulations (41 
CFR, part 60). The borrower and lender are responsible for ensuring that 
the contractor complies with these requirements.
    (d) Americans with Disabilities Act (ADA). B&I Guaranteed Loans 
which involve the construction of or addition to facilities that 
accommodate the public and commercial facilities, as defined by the ADA, 
must comply with the ADA. The lender and borrower are responsible for 
compliance.



Secs. 4279.157-4279.160  [Reserved]



Sec. 4279.161  Filing preapplications and applications.

    Borrowers and lenders are encouraged to file preapplications and 
obtain Agency comments before completing an application. However, if 
they prefer, they may file a complete application as the first contact 
with the Agency. Neither preapplications nor applications will be 
accepted or processed unless a

[[Page 537]]

lender has agreed to finance the proposal.
    (a) Preapplications. Lenders may file preapplications by submitting 
the following to the Agency:
    (1) A letter signed by the borrower and lender containing the 
following:
    (i) Borrower's name, organization type, address, contact person, and 
federal tax identification and telephone numbers.
    (ii) Amount of the loan request, percent of guarantee requested, and 
the proposed rates and terms.
    (iii) Name of the proposed lender, address, telephone number, 
contact person, and lender's Internal Revenue Service (IRS) 
identification number.
    (iv) Brief description of the project, products, services provided, 
and availability of raw materials and supplies.
    (v) Type and number of jobs created or saved.
    (vi) Amount of borrower's equity and a description of collateral, 
with estimated values, to be offered as security for the loan.
    (vii) If a corporate borrower, the names and addresses of the 
borrower's parent, affiliates, and subsidiary firms, if any, and a 
description of the relationship.
    (2) A completed Form 4279-2, ``Certification of Non-Relocation and 
Market Capacity Information Report,'' if the proposed loan is in excess 
of $1 million and will increase direct employment by more than 50 
employees.
    (3) For existing businesses, a current balance sheet and a profit 
and loss statement not more than 90 days old and financial statements 
for the borrower and any parent, affiliates, and subsidiaries for at 
least the 3 most recent years.
    (4) For start-up businesses, a preliminary business plan must be 
provided.
    (b) Applications. Except for CLP lenders, applications will be filed 
with the Agency by submitting the following information: (CLP 
applications will be completed in accordance with 4279.43(g)(1) but CLP 
lenders must have the material listed in this paragraph in their files.)
    (1) A completed Form 4279-1, ``Application for Loan Guarantee 
(Business and Industry)''.
    (2) The information required for filing a preapplication, as listed 
above, if not previously filed or if the information has changed.
    (3) Form FmHA 1940-20, ``Request for Environmental Information,'' 
and attachments, unless the project is categorically excluded under 
Agency environmental regulations.
    (4) A personal credit report from an acceptable credit reporting 
company for a proprietor (owner), each partner, officer, director, key 
employee, and stockholder owning 20 percent or more interest in the 
applicant, except for those corporations listed on a major stock 
exchange. Credit reports are not required for elected and appointed 
officials when the applicant is a public body.
    (5) Intergovernmental consultation comments in accordance with 7 
CFR, part 3015, subpart V.
    (6) Appraisals, accompanied by a copy of the appropriate 
environmental site assessment, if available. (Agency approval in the 
form of a Conditional Commitment may be issued subject to receipt of 
adequate appraisals.)
    (7) For all businesses, a current (not more than 90 days old) 
balance sheet, a pro forma balance sheet at startup, and projected 
balance sheets, income and expense statements, and cash flow statements 
for the next 2 years. Projections should be supported by a list of 
assumptions showing the basis for the projections.
    (8) Lender's complete written analysis, including spreadsheets of 
the balance sheets and income statements for the 3 previous years (for 
existing businesses), pro forma balance sheet at startup, and 2 years 
projected yearend balance sheets and income statements, with appropriate 
ratios and comparisons with industrial standards (such as Dun & 
Bradstreet or Robert Morris Associates). All data must be shown in total 
dollars and also in common size form, obtained by expressing all balance 
sheet items as a percentage of assets and all income and expense items 
as a percentage of sales. The lender's credit analysis must address the 
borrower's management, repayment ability including a cash-flow analysis, 
history of debt repayment, necessity of

[[Page 538]]

any debt refinancing, and the credit reports of the borrower, its 
principals, and any parent, affiliate, or subsidiary.
    (9) Commercial credit reports obtained by the lender on the borrower 
and any parent, affiliate, and subsidiary firms.
    (10) Current personal and corporate financial statements of any 
guarantors.
    (11) A proposed Loan Agreement or a sample Loan Agreement with an 
attached list of the proposed Loan Agreement provisions. The Loan 
Agreement must be executed by the lender and borrower before the Agency 
issues a Loan Note Guarantee. The following requirements must be 
addressed in the Loan Agreement:
    (i) Prohibition against assuming liabilities or obligations of 
others.
    (ii) Restriction on dividend payments.
    (iii) Limitation on the purchase or sale of equipment and fixed 
assets.
    (iv) Limitation on compensation of officers and owners.
    (v) Minimum working capital or current ratio requirement.
    (vi) Maximum debt-to-net worth ratio.
    (vii) Restrictions concerning consolidations, mergers, or other 
circumstances.
    (viii) Limitations on selling the business without the concurrence 
of the lender.
    (ix) Repayment and amortization of the loan.
    (x) List of collateral and lien priority for the loan including a 
list of persons and corporations guaranteeing the loan with a schedule 
for providing the lender with personal and corporate financial 
statements. Financial statements on the corporate and personal 
guarantors must be updated at least annually.
    (xi) Type and frequency of financial statements to be required for 
the duration of the loan.
    (xii) The final Loan Agreement between the lender and borrower will 
contain any additional requirements imposed by the Agency in its 
Conditional Commitment.
    (xiii) A section for the later insertion of any necessary measures 
by the borrower to avoid or reduce adverse environmental impacts from 
this proposal's construction or operation. Such measures, if necessary, 
will be determined by the Agency through the completion of the 
environmental review process.
    (12) A business plan, which includes, at a minimum, a description of 
the business and project, management experience, products and services, 
proposed use of funds, availability of labor, raw materials and 
supplies, and the names of any corporate parent, affiliates, and 
subsidiaries with a description of the relationship. Any or all of these 
requirements may be omitted if the information is included in a 
feasibility study.
    (13) Independent feasibility study, if required.
    (14) For companies listed on a major stock exchange or subject to 
the Securities and Exchange Commission (SEC) regulations, a copy of SEC 
Form 10-K, ``Annual Report Pursuant to Section 13 or 15D of the Act of 
1934.''
    (15) For health care facilities, a certificate of need, if required 
by statute.
    (16) A certification by the lender that it has completed a 
comprehensive analysis of the proposal, the applicant is eligible, the 
loan is for authorized purposes, and there is reasonable assurance of 
repayment ability based on the borrower's history, projections and 
equity, and the collateral to be obtained.
    (17) Any additional information required by the Agency.



Secs. 4279.162-4279.164  [Reserved]



Sec. 4279.165  Evaluation of application.

    (a) General review. The Agency will evaluate the application and 
make a determination whether the borrower is eligible, the proposed loan 
is for an eligible purpose, there is reasonable assurance of repayment 
ability, there is sufficient collateral and equity, and the proposed 
loan complies with all applicable statutes and regulations. If the 
Agency determines it is unable to guarantee the loan, the lender will be 
informed in writing. Such notification will include the reasons for 
denial of the guarantee.
    (b) Environmental requirements. The environmental review process 
must be completed, in accordance with subpart G of part 1940 of this 
title, prior to the

[[Page 539]]

issuance of the Conditional Commitment, loan approval, or obligation of 
funds, whichever occurs first.



Secs. 4279.166-4279.172  [Reserved]



Sec. 4279.173  Loan approval and obligating funds.

    (a) Upon approval of a loan guarantee, the Agency will issue a 
Conditional Commitment to the lender containing conditions under which a 
Loan Note Guarantee will be issued.
    (b) If certain conditions of the Conditional Commitment cannot be 
met, the lender and applicant may propose alternate conditions. Within 
the requirements of the applicable regulations and instructions and 
prudent lending practices, the Agency may negotiate with the lender and 
the applicant regarding any proposed changes to the Conditional 
Commitment.



Sec. 4279.174  Transfer of lenders.

    (a) The loan approval official may approve the substitution of a new 
eligible lender in place of a former lender who holds an outstanding 
Conditional Commitment when the Loan Note Guarantee has not yet been 
issued provided, that there are no changes in the borrower's ownership 
or control, loan purposes, or scope of project and loan conditions in 
the Conditional Commitment and the Loan Agreement remain the same.
    (b) The new lender's servicing capability, eligibility, and 
experience will be analyzed by the Agency prior to approval of the 
substitution. The original lender will provide the Agency with a letter 
stating the reasons it no longer desires to be a lender for the project. 
The substituted lender must execute a new part B of Form 4279-1.



Sec. 4279.175  Domestic lamb industry adjustment assistance program set aside.

    A 3-year set aside of B&I Guaranteed Loan Program funds has been 
established in the National Office to fund loans to lamb processors for 
real estate purchases and improvements; working capital; debt 
refinancing; and upgrading, replacing, and installing new processing and 
packaging equipment for domestic lamb packing and processing plants. The 
set aside is $15 million for FY 2001, $5 million for FY 2002, and $5 
million for FY 2003. These funds will be available through the third 
quarter of each respective year and, if not used, will revert for use in 
the general program.

[65 FR 64597, Oct. 30, 2000]



Secs. 4279.176-4279.179  [Reserved]



Sec. 4279.180  Changes in borrower.

    Any changes in borrower ownership or organization prior to the 
issuance of the Loan Note Guarantee must meet the eligibility 
requirements of the program and be approved by the Agency loan approval 
official.



Sec. 4279.181  Conditions precedent to issuance of Loan Note Guarantee.

    The Loan Note Guarantee will not be issued until the lender, 
including a CLP lender, certifies to the following:
    (a) No major changes have been made in the lender's loan conditions 
and requirements since the issuance of the Conditional Commitment, 
unless such changes have been approved by the Agency.
    (b) All planned property acquisition has been or will be completed, 
all development has been or will be substantially completed in 
accordance with plans and specifications, conforms with applicable 
Federal, state, and local codes, and costs have not exceeded the amount 
approved by the lender and the Agency.
    (c) Required hazard, flood, liability, worker compensation, and 
personal life insurance, when required, are in effect.
    (d) Truth-in-lending requirements have been met.
    (e) All equal credit opportunity requirements have been met.
    (f) The loan has been properly closed, and the required security 
instruments have been obtained or will be obtained on any acquired 
property that cannot be covered initially under State law.
    (g) The borrower has marketable title to the collateral then owned 
by the borrower, subject to the instrument securing the loan to be 
guaranteed and to any other exceptions approved in writing by the 
Agency.
    (h) When required, the entire amount of the loan for working capital 
has

[[Page 540]]

been disbursed except in cases where the Agency has approved 
disbursement over an extended period of time.
    (i) When required, personal, partnership, or corporate guarantees 
have been obtained.
    (j) All other requirements of the Conditional Commitment have been 
met.
    (k) Lien priorities are consistent with the requirements of the 
Conditional Commitment. No claims or liens of laborers, subcontractors, 
suppliers of machinery and equipment, or other parties have been or will 
be filed against the collateral and no suits are pending or threatened 
that would adversely affect the collateral when the security instruments 
are filed.
    (l) The loan proceeds have been or will be disbursed for purposes 
and in amounts consistent with the Conditional Commitment and Form 4279-
1. A copy of the detailed loan settlement of the lender must be attached 
to support this certification.
    (m) There has been neither any material adverse change in the 
borrower's financial condition nor any other material adverse change in 
the borrower, for any reason, during the period of time from the 
Agency's issuance of the Conditional Commitment to issuance of the Loan 
Note Guarantee regardless of the cause or causes of the change and 
whether or not the change or causes of the change were within the 
lender's or borrower's control. The lender must address any assumptions 
or reservations in the requirement and must address all adverse changes 
of the borrower, any parent, affiliate, or subsidiary of the borrower, 
and guarantors.
    (n) None of the lender's officers, directors, stockholders, or other 
owners (except stockholders in an institution that has normal stockshare 
requirements for participation) has a substantial financial interest in 
the borrower and neither the borrower nor its officers, directors, 
stockholders, or other owners has a substantial financial interest in 
the lender. If the borrower is a member of the board of directors or an 
officer of a Farm Credit System (FCS) institution that is the lender, 
the lender will certify that an FCS institution on the next highest 
level will independently process the loan request and act as the 
lender's agent in servicing the account.
    (o) The Loan Agreement includes all measures identified in the 
Agency's environmental impact analysis for this proposal (measures with 
which the borrower must comply) for the purpose of avoiding or reducing 
adverse environmental impacts of the proposal's construction or 
operation.



Secs. 4279.182-4279.185  [Reserved]



Sec. 4279.186  Issuance of the guarantee.

    (a) When loan closing plans are established, the lender will notify 
the Agency. Coincident with, or immediately after loan closing, the 
lender will provide the following to the Agency:
    (1) Lender's certifications as required by Sec. 4279.181.
    (2) Executed Lender's Agreement.
    (3) Form FmHA 1980-19, ``Guaranteed Loan Closing Report,'' and 
appropriate guarantee fee.
    (b) When the Agency is satisfied that all conditions for the 
guarantee have been met, the Loan Note Guarantee and the following 
documents, as appropriate, will be issued:
    (1) Assignment Guarantee Agreement. In the event the lender uses the 
single note option and assigns the guaranteed portion of the loan to a 
holder, the lender, holder, and the Agency will execute the Assignment 
Guarantee Agreement; and
    (2) Certificate of Incumbency. If requested by the lender, the 
Agency will provide the lender with a certification on Form 4279-7, 
``Certificate of Incumbency and Signature (Business and Industry),'' of 
the signature and title of the Agency official who signs the Loan Note 
Guarantee, Lender's Agreement, and Assignment Guarantee Agreement.
    (c) The Agency may, at its discretion, request copies of loan 
documents for its file.
    (d) There may be instances when not all of the working capital has 
been disbursed, and it appears practical to disburse the balance over a 
period of time. The State Director, after review of a disbursement plan, 
may amend the Conditional Commitment in accordance with the disbursement 
plan and issue the guarantee.

[[Page 541]]



Sec. 4279.187  Refusal to execute Loan Note Guarantee.

    If the Agency determines that it cannot execute the Loan Note 
Guarantee, the Agency will promptly inform the lender of the reasons and 
give the lender a reasonable period within which to satisfy the 
objections. If the lender requests additional time in writing and within 
the period allowed, the Agency may grant the request. If the lender 
satisfies the objections within the time allowed, the guarantee will be 
issued.



Secs. 4279.188-4279.199  [Reserved]



Sec. 4279.200  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by OMB and have been assigned OMB control number 
0575-0170. Public reporting burden for this collection of information is 
estimated to vary from 30 minutes to 54 hours per response, with an 
average of 27 hours per response, including time for reviewing the 
collection of information. Send comments regarding this burden estimate 
or any other aspect of this collection of information, including 
suggestions for reducing this burden, to the Department of Agriculture, 
Clearance Officer, OIRM, Stop 7630, Washington, DC 20250. You are not 
required to respond to this collection of information unless it displays 
a currently valid OMB control number.



PART 4284--GRANTS--Table of Contents




Subparts A-E [Reserved]

             Subpart F--Rural Cooperative Development Grants

Sec.
4284.501  Purpose.
4284.502  Policy.
4284.503  [Reserved]
4284.504  Definitions.
4284.505  Applicant eligibility.
4284.506-4284.514  [Reserved]
4284.515  Grant purposes.
4284.516  Ineligible grant purposes.
4284.517-4284.526  [Reserved]
4284.527  Other considerations.
4284.528  Application processing.
4284.529-4284.539  [Reserved]
4284.540  Grant selection criteria.
4284.541  Grant approval, fund obligation, grant closing, and third-
          party financial assistance.
4284.542-4284.556  [Reserved]
4284.557  Fund disbursement.
4284.558  Reporting.
4284.559-4284.570  [Reserved]
4284.571  Audit requirements.
4284.572  Grant servicing.
4284.573  Programmatic changes.
4284.574  Subsequent grants.
4284.575  Grant suspension, termination, and cancellation.
4284.576-4284.586  [Reserved]
4284.587  Exception authority.
4284.588-4284.599  [Reserved]
4284.600  OMB control number.

              Subpart G--Rural Business Opportunity Grants

4284.601  Purpose.
4284.602  Policy.
4284.603  Definitions.
4284.604-4284.619  [Reserved]
4284.620  Applicant eligibility.
4284.621  Eligible grant purposes.
4284.622-4284.628  [Reserved]
4284.629  Ineligible grant purposes.
4284.630  Other considerations.
4284.631-4284.637  [Reserved]
4284.638  Application processing.
4284.639  Grant selection criteria.
4284.640  Appeals.
4284.641-4284.646  [Reserved]
4284.647  Grant approval and obligation of funds.
4284.648  Fund disbursement.
4284.649-4284.655  [Reserved]
4284.656  Reporting.
4284.657  Audit requirements.
4284.658-4284.666  [Reserved]
4284.667  Grant servicing.
4284.668  Programmatic changes.
4284.669-4284.683  [Reserved]
4284.684  Exception authority.
4284.685-4284.698  [Reserved]
4284.699  Member delegate clause.
4284.700  OMB control number.

    Authority: 5 U.S.C. 301, 7 U.S.C. 1989, 7 U.S.C. 1991, 16 U.S.C. 
1005.

    Source: 62 FR 42387, Aug. 7, 1997, unless otherwise noted.

Subparts A-E [Reserved]



             Subpart F--Rural Cooperative Development Grants



Sec. 4284.501  Purpose.

    (a) This subpart outlines the Rural Business-Cooperative Service's 
(RBS) policies and authorizations and contains procedures to provide 
grants for

[[Page 542]]

cooperative development in rural areas.
    (b) Grants will be made available to nonprofit corporations and 
institutions of higher education for the purpose of establishing and 
operating centers for rural cooperative development.
    (c) Copies of all forms and Instructions referenced in this subpart 
are available in the RBS National Office or any Rural Development State 
Office.



Sec. 4284.502  Policy.

    The grant program will be used to facilitate the creation or 
retention of jobs in rural areas through the development of new rural 
cooperatives, value-added processing, and rural businesses.



Sec. 4284.503  [Reserved]



Sec. 4284.504  Definitions.

    Agency--Rural Business-Cooperative Service (RBS) or a successor 
agency.
    Approval official--Any authorized agency official.
    Center--The entity established or operated by the grantee for rural 
cooperative development.
    Cooperative--A user-owned and controlled business from which 
benefits are derived and distributed equitably on the basis of use.
    Cooperative development--The startup, expansion, or operational 
improvement of a cooperative to promote development in rural areas of 
services and products, processes that can be used in the production of 
products, or enterprises that can add value to on-farm production 
through processing or marketing activities. Development activities may 
include, but are not limited to, technical assistance, research 
services, educational services, and advisory services. Operational 
improvement includes making the cooperative more efficient or better 
managed.
    Economic development--The growth of an area as evidenced by 
increases in total income, employment opportunities, decreased 
outmigration of populations, value of production, increased 
diversification of industry, higher labor force participation rates, 
increased duration of employment, higher wage levels, or gains in other 
measurements of economic activity, such as land values.
    Nonprofit institution--Any organization or institution, including an 
accredited institution of higher education, no part of the net earnings 
of which inures, or may lawfully inure, to the benefit of any private 
shareholder or individual.
    Project--A planned undertaking by a center which utilizes the funds 
provided to it to promote economic development in rural areas through 
the creation and enhancement of cooperatives.
    Public body--Any state, county, city, township, incorporated town or 
village, borough, authority, district, economic development authority, 
or Indian tribe on federal or state reservations or other federally 
recognized Indian tribe in rural areas.
    RBS--The Rural Business-Cooperative Service, an agency of the United 
States Department of Agriculture, or a successor agency.
    Regionally operated--A regionally operated program includes programs 
that cover or are eligible to cover two or more counties.
    Rural and rural area--Includes all territory of a state that is not 
within the outer boundary of any city having a population of 50,000 or 
more and its immediately adjacent urbanized and urbanizing areas.
    Rural Development--Rural Development mission area.
    Servicing office--Any Rural Development State Office.
    State--Any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands of the United States, 
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, 
the Republic of Palau, the Federated States of Micronesia, and the 
Republic of the Marshall Islands.
    Subcenter--A unit of a center acting under the same direction as and 
having a purpose consistent with that of the center.
    Urbanized area--An area immediately adjacent to a city having a 
population of 50,000 or more with a population density of more than 100 
persons per square mile, as determined by the Secretary of Agriculture 
according to the latest decennial census of the United States which, for 
general social and

[[Page 543]]

economic purposes, constitutes a single community and has a boundary 
contiguous with that of the city. Such community may be incorporated or 
unincorporated to extend from the contiguous boundaries to recognizable 
open country, less densely settled areas, or natural boundaries such as 
forests or water. Minor open spaces such as airports, industrial sites, 
recreational facilities, or public parks shall be disregarded. Outer 
boundaries of an incorporated community extend at least to its legal 
boundaries. Cities which may have a contiguous border with another city, 
but are located across a river from such city, are recognized as a 
separate community.
    Urbanizing area--A community with a population density of more than 
100 persons per square mile, as determined by the Secretary of 
Agriculture according to the latest decennial census of the United 
States, which is not now, or within the foreseeable future not likely to 
be, clearly separate from and independent of a city of 50,000 or more 
population and its immediately adjacent urbanized areas. A community is 
considered ``separate'' when it is separated from the city and its 
immediately adjacent urbanized area by open country, less densely 
settled areas, or natural barriers such as forests or water. Minor open 
spaces such as airports, industrial sites, recreational facilities, or 
public parks shall not be considered as an area to determine if a 
community is separate. A community is considered ``independent'' when 
its social (e.g., government, educational, health, and recreational 
facilities) and economic structure (e.g., business, industry, tax base, 
and employment opportunities) are not primarily dependent on the city 
and its immediately adjacent urbanized areas.



Sec. 4284.505  Applicant eligibility.

    (a) Grants may be made to nonprofit corporations and institutions of 
higher education. Grants may not be made to public bodies.
    (b) An outstanding judgment obtained against an applicant by the 
United States in a Federal Court (other than in the United States Tax 
Court), which has been recorded, shall cause the applicant to be 
ineligible to receive any grant or loan until the judgment is paid in 
full or otherwise satisfied. RBS grant funds may not be used to satisfy 
the judgment.



Secs. 4284.506-4284.514  [Reserved]



Sec. 4284.515  Grant purposes.

    Grant funds may be used to pay up to 75 percent of the costs for 
carrying out relevant projects. Applicant's contribution may be in cash 
or in-kind contribution in accordance with parts 3015 and 3019 of this 
title and must be from nonfederal funds except that a loan from another 
federal source can be used for the applicant's contribution. Grant funds 
may be used for, but are not limited to, the following purposes:
    (a) Applied research, feasibility, environmental and other studies 
that may be useful to individuals, cooperatives, small businesses, and 
other similar entities in rural areas served by the center for the 
purpose of cooperative development.
    (b) Collection, interpretation, and dissemination of principles, 
facts, technical knowledge, or other information that may be useful to 
individuals, cooperatives, small businesses, and other similar entities 
in rural areas served by the center for the purpose of cooperative 
development.
    (c) Providing training and instruction for individuals, 
cooperatives, small businesses, and other similar entities in rural 
areas served by the center for the purpose of cooperative development.
    (d) Providing loans and grants to individuals, cooperatives, small 
businesses, and other similar entities in rural areas served by the 
center for the purpose of cooperative development in accordance with 
this subpart.
    (e) Providing technical assistance, research services, and advisory 
services to individuals, cooperatives, small businesses, and other 
similar entities in rural areas served by the center for the purpose of 
cooperative development.



Sec. 4284.516  Ineligible grant purposes.

    Grant funds may not be used to:
    (a) Pay more than 75 percent of relevant project or administrative 
costs;

[[Page 544]]

    (b) Duplicate current services or replace or substitute support 
previously provided;
    (c) Pay costs of preparing the grant application package;
    (d) Pay costs incurred prior to the effective date of the grant;
    (e) Pay for building construction, the purchase of real estate or 
vehicles, improving or renovating office space, or the repair or 
maintenance of privately-owned property;
    (f) Fund political activities; or
    (g) Pay for assistance to any private business enterprise which does 
not have at least 51 percent ownership by those who are either citizens 
of the United States or reside in the United States after being legally 
admitted for permanent residence.



Secs. 4284.517-4284.526  [Reserved]



Sec. 4284.527  Other considerations.

    (a) Civil rights compliance requirements. All grants made under this 
subpart are subject to the requirements of title VI of the Civil Rights 
Act of 1964, which prohibits discrimination on the basis of race, color, 
and national origin as outlined in part 1901, subpart E of this title. 
In addition, the grants made under this subpart are subject to the 
requirements of section 504 of the Rehabilitation Act of 1973, as 
amended, which prohibits discrimination on the basis of disability; the 
requirements of the Age Discrimination Act of 1975, which prohibits 
discrimination on the basis of age; and title III of the Americans with 
Disabilities Act, which prohibits discrimination on the basis of 
disability by private entities in places of public accommodations.
    (b) Environmental requirements--(1) General applicability. Unless 
specifically modified by this section, the requirements of part 1940, 
subpart G of this title apply to this subpart. For example, the Agency's 
general and specific environmental policies contained in Secs. 1940.303 
and 1940.304 of this title must be complied with. Although the purpose 
of the grant program established by this subpart is to improve business, 
industry, and employment in rural areas, this purpose is to be achieved, 
to the extent practicable, without adversely affecting important 
environmental resources of rural areas such as important farmland and 
forest lands, prime rangelands, wetland, and flood plains. Prospective 
recipients of grants, therefore, must consider the potential 
environmental impacts of their applications at the earliest planning 
stages and develop plans and projects that minimize the potential to 
adversely impact on the environment.
    (2) Technical assistance. An application for a project exclusively 
involving technical assistance is generally excluded from the 
environmental review process by Sec. 1940.310(e)(1) of this title. 
However, as further specified in Sec. 1940.333 of this title, the 
grantee of a technical assistance grant, in the process of providing 
technical assistance, must consider and generally document within their 
plans the potential environmental impacts of the plan and 
recommendations provided to the recipient of the technical assistance.
    (3) Applications for grants to provide other than technical 
assistance to third-party recipients. As part of the preapplication, the 
applicant must provide a complete ``Request for Environmental 
Information,'' for each project specifically identified in its plan to 
provide other than technical assistance to third parties who will 
undertake eligible projects with such assistance. The Agency will review 
the preapplication, supporting materials, and the required ``Request for 
Environmental Information'' and assess the impact of the preapplication. 
This assessment will focus on the potential cumulative impacts of the 
projects as well as any environmental concerns or problems that are 
associated with individual projects that can be identified at this time 
from the information submitted. Because the Agency's approval of this 
type of grant application does not constitute a commitment to the use of 
grant funds for any identified third-party projects (see Sec. 4284.541), 
no public notification requirements will apply to the preapplication. 
After the grant is approved, each third-party project to be assisted 
under the grant will undergo the applicable environmental review and 
public notification requirements in part 1940, subpart G of this title 
prior to the Agency providing its consent to the grantee to assist the

[[Page 545]]

third-party project. If the preapplication reflects only one project 
which is specifically identified as the third-party recipient for 
financial assistance, the Agency may proceed directly to the appropriate 
environmental assessment for the third-party recipient with public 
notification as required. The applicant must be advised that if the 
recipient or project changes after the grant is approved, the project to 
be assisted under the grant will undergo the applicable environmental 
review and public notification requirements.
    (c) Government-wide debarment and suspension (non-procurement) and 
requirements for drug-free workplace. Persons who are disbarred or 
suspended are excluded from federal assistance and benefits including 
grants under this subpart. Grantees must certify that they will provide 
a drug-free workplace.
    (d) Restrictions on lobbying. All grants must comply with the 
lobbying restrictions contained in part 3018 of this title.
    (e) Excess capacity or transfer of employment. If a proposed project 
has financial assistance from all sources for more than $1 million and 
will increase direct employment by more than 50 employees, the applicant 
will be requested to provide written support for an Agency determination 
that the proposal will not result in a project which is calculated to, 
or likely to, result in the transfer of any employment or business 
activity from one area to another. This limitation will not prohibit 
assistance for the expansion of an existing business entity through the 
establishment of a new branch, affiliate, or subsidiary of such entity 
if the expansion will not result in an increase in the unemployment in 
the area of original location or in any other area where such entity 
conducts business operations.
    (f) Management assistance. Grant recipients will be supervised, as 
necessary, to ensure that projects are completed in accordance with 
approved plans and specifications and that funds are expended for 
approved purposes. Grants made under this subpart will be administered 
under, and are subject to, parts 3015, 3017, 3019, and 3051 of this 
title, as appropriate, and established RBS guidelines.
    (g) Uniform Relocation Assistance and Real Property Acquisition 
Policies Act. All projects must comply with the requirements contained 
in part 21 of this title.
    (h) Flood or mudslide hazard area precautions. If the grantee 
financed project is in a flood or mudslide area, flood or mudslide 
insurance must be obtained through the National Flood Insurance Program.
    (i) Termination of federal requirements. Once the grantee has 
provided assistance with project loans in an amount equal to the grant 
provided by RBS, the requirements imposed on the grantee shall not be 
applicable to any new projects thereafter financed from the RCDG funds. 
Such new projects shall not be considered as being derived from federal 
funds. The purposes of such new projects, however, shall be consistent 
with these regulations.
    (j) Intergovernmental review. Grant projects are subject to the 
provisions of Executive Order 12372 which requires intergovernmental 
consultation with state and local officials. A loan fund established in 
whole, or in part, with grant funds will also be considered a project 
for the purpose of intergovernmental review as well as the specific 
projects funded with grant funds from the RCDG funds. For each project 
to be assisted with a grant under this subpart and which the state has 
elected to review under their intergovernmental review process, the 
state point of contact must be notified. Notification, in the form of a 
project description, can be initiated by the grantee. Any comments from 
the state must be included with the grantee's request to use RBS grant 
funds for the specific project. Prior to the RBS decision on the 
request, compliance with requirements of intergovernmental consultation 
must be demonstrated for each project. These requirements should be 
completed in accordance with ``Intergovernmental Review of Department of 
Agriculture Programs and Activities,'' part 3015, subpart V of this 
title.



Sec. 4284.528  Application processing.

    (a) Preapplications. (1) Applicants will file an original and one 
copy of an

[[Page 546]]

``Application for Federal Assistance (For Non-construction),'' with the 
appropriate Rural Development State Office.
    (2) All preapplications shall be accompanied by:
    (i) Evidence of applicant's legal existence and authority to perform 
the proposed activities under the grant.
    (ii) The latest financial information to show the applicant's 
financial capacity to carry out the project. At a minimum, the 
information should include a balance sheet and an income statement. A 
current audited report is preferred where one is reasonably obtainable.
    (iii) An estimated breakdown of total costs, including costs to be 
funded by the applicant or other identified sources. Certification must 
be provided from the applicant that its matching share to the project is 
available and will be used for the project. The matching share must meet 
the requirements of parts 3015 and 3019 of this title as applicable. 
Certifications from an authorized representative of each source of funds 
must be provided indicating that funds are available and will be used 
for the proposed project.
    (iv) A budget and description of the accounting system to be used.
    (v) The area to be served, identifying within that area each 
governmental unit (i.e., town, county, etc.) affected by the proposed 
project. Evidence of support and concurrence from each affected 
governmental unit must be provided by either a resolution or a written 
statement from the chief elected local official.
    (vi) A listing of cooperative businesses to be assisted or created.
    (vii) Applicant's experience with similar projects, including 
experience of key staff members and persons who will be providing the 
proposed services and managing the project.
    (viii) The number of months duration of the project and the 
estimated time it will take from grant approval to beginning of service.
    (ix) The method and rationale used to select the areas or businesses 
that will receive the service.
    (x) A brief description of how the work will be performed and 
whether organizational staff, consultants or contractors will be used.
    (xi) An evaluation method to be used by the applicant to determine 
if objectives of the proposed activity are being accomplished.
    (xii) A brief plan that contains the following provisions and 
describes how the applicant will meet these provisions:
    (A) A provision that substantiates how the applicant will 
effectively serve rural areas in the United States.
    (B) A provision that the primary objective of the applicant will be 
to improve the economic condition of rural areas by promoting 
development of new cooperatives or improvement of existing cooperatives.
    (C) Supporting data from established official independent sources 
along with any explanatory documentation.
    (D) A description of the activities that the applicant will carry 
out to accomplish such objective.
    (E) A description of the proposed activities to be funded under this 
subpart.
    (F) A description of the contributions that the applicant's proposed 
activities are likely to make to the improvement of the economic 
conditions of the rural areas served by the applicant.
    (G) Provisions that the applicant, in carrying out its activities, 
will seek, where appropriate, the advice, participation, expertise, and 
assistance of representatives of business, industry, educational 
institutions, the federal, state, and local governments.
    (H) Provisions that the applicant will consult with any college or 
university administering Extension Service programs and cooperate with 
such college or university in the coordination of the center's 
activities and programs.
    (I) Provisions that the applicant will take all practicable steps to 
develop continuing sources of financial support for the center, 
particularly from sources in the private sector.
    (J) Provisions for:
    (1) Monitoring and evaluating its activities; and
    (2) Accounting for money received and expended by the applicant 
under this subpart.
    (K) Provisions that the applicant will provide for the optimal 
application of

[[Page 547]]

cooperative development in rural areas, especially those areas adversely 
affected by economic conditions, such that local economic conditions can 
be improved through cooperative development.
    (xiii) The agreement proposed to be used between the applicant and 
the ultimate recipients, if grant funds are to be used for the purpose 
of making loans or grants to individuals, cooperatives, small 
businesses, and other similar entities (ultimate recipients) in rural 
areas for eligible purposes under this subpart. This agreement should 
include the following:
    (A) An assurance that the responsibilities of the grantee, as a 
recipient of grant funds under this subpart, are passed on to the 
ultimate recipient and the ultimate recipient understands its 
responsibilities to comply with the requirements contained in this 
subpart and parts 3015 and 3019 of this title, as applicable.
    (B) Provisions that the ultimate recipient will comply with 
debarment and suspension requirements contained in part 3017 of this 
title and will execute a ``Certification Regarding Debarment, 
Suspension, Ineligibility and Voluntary Exclusion--Lower Tier Covered 
Transactions.''
    (C) Provisions that the ultimate recipient will execute an ``Equal 
Opportunity Agreement,'' and an ``Assurance Agreement.''
    (D) Documentation that the ultimate recipient understands its 
responsibilities to the applicant.
    (E) Documentation that the applicant understands its 
responsibilities in monitoring the ultimate recipient's activities under 
the grant and the applicant's plan for such monitoring.
    (F) Documentation, when other references or sources of information 
are used, along with copies, if possible, that provides dates, 
addresses, page numbers and explanations of how interpretations are made 
to substantiate that such things as economically distressed conditions 
do exist.
    (G) Narrative addressing all items in Sec. 4284.540(a) of this 
subpart regarding grant selection criteria.
    (b) Applications. Upon notification that the applicant has been 
selected for funding, the following will be submitted to Rural 
Development by the applicant:
    (1) Proposed scope of work, detailing the proposed activities to be 
accomplished and timeframes for completion of each activity.
    (2) Other information requested by RBS to make a grant award 
determination.
    (c) Applicant response. If the applicant fails to submit the 
application and related material by the date shown on the invitation for 
applications, Rural Development may discontinue consideration of the 
preapplication.



Secs. 4284.529-4284.539  [Reserved]



Sec. 4284.540  Grant selection criteria.

    Grants will be awarded under this subpart on a competitive basis. 
The priorities described in this paragraph will be used by RBS to rate 
preapplications. RBS review of preapplications will include the complete 
preapplication package submitted to the Rural Development State Office. 
Points will be distributed according to ranking as compared with other 
preapplications on hand. All factors will receive equal weight with 
points awarded to each factor on a 5, 4, 3, 2, 1 basis depending on the 
applicant's ranking compared to other applicants.
    (a) Preference will be given to applications that:
    (1) Demonstrate a proven track record in administering a nationally 
coordinated, regionally or State-wide operated project;
    (2) Demonstrate previous expertise in providing technical assistance 
in rural areas;
    (3) Demonstrate the ability to assist in the retention of business, 
facilitate the establishment of cooperatives and new cooperative 
approaches, and generate employment opportunities that will improve the 
economic conditions of rural areas;
    (4) Demonstrate the ability to create horizontal linkages among 
businesses within and among various sectors in rural areas of the United 
States and vertical linkages to domestic and international markets;

[[Page 548]]

    (5) Commit to providing technical assistance and other services to 
underserved and economically distressed rural areas of the United 
States;
    (6) Commit to providing greater than a 25 percent matching 
contribution with private funds and in-kind contributions;
    (7) Evidence transferability or demonstration value to assist rural 
areas outside of project area; and
    (8) Demonstrate that any cooperative development activity is 
consistent with positive environmental stewardship.
    (b) Each preapplication for assistance will be carefully reviewed in 
accordance with the priorities established in this section. A priority 
rating will be assigned to each preapplication. Preapplications selected 
for funding will be based on the priority rating assigned each 
preapplication and the total funds available. All preapplications 
submitted for funding should contain sufficient information to permit 
RBS to complete a thorough priority rating.



Sec. 4284.541  Grant approval, fund obligation, grant closing, and third-party financial assistance.

    The grantee will execute all documents required by RBS to make a 
grant under this subpart. By accepting the grant, the grantee agrees to 
comply with parts 3015 and 3019 of this title.



Secs. 4284.542-4284.556  [Reserved]



Sec. 4284.557  Fund disbursement.

    Grants will be disbursed as follows:
    (a) A ``Request for Advance or Reimbursement,'' will be completed by 
the applicant and submitted to Rural Development not more frequently 
than monthly. Payments will be made by electronic funds transfer 
pursuant to the Debt Collection Improvement Act of 1996 (Pub. L. 104-
134).
    (b) The grantee's share in the cost of the project will be disbursed 
in advance of grant funds or on a pro-rata distribution basis with grant 
funds during the disbursement period.



Sec. 4284.558  Reporting.

    A ``Financial Status Report,'' and a project performance activity 
report will be required of all grantees on a quarterly calendar basis. A 
final project performance report will be required with the last 
``Financial Status Report.'' The final report may serve as the last 
quarterly report. The final report must include a final evaluation of 
the project. Grantees must constantly monitor performance to ensure that 
time schedules are being met, projected work by time periods is being 
accomplished, and other performance objectives are being achieved. 
Grantees are to submit an original of each report to Rural Development. 
The project performance reports shall include, but not be limited to, 
the following:
    (a) A comparison of actual accomplishments to the objectives 
established for that period;
    (b) Reasons why established objectives (if any) were not met;
    (c) Problems, delays, or adverse conditions which will affect 
attainment of overall project objectives, prevent meeting time schedules 
or objectives, or preclude the attainment of particular project work 
elements during established time periods. This disclosure shall be 
accompanied by a statement of the action taken or planned to resolve the 
situation; and
    (d) Objectives and timetable established for the next reporting 
period.



Secs. 4284.559-4284.570  [Reserved]



Sec. 4284.571  Audit requirements.

    The grantee will provide an audit report in accordance with 
Sec. 1942.17 of this title. Audits must be prepared in accordance with 
general accounting principles and standards using the publication, 
``Standards for Audit of Governmental Organizations, Programs, 
Activities and Functions.''



Sec. 4284.572  Grant servicing.

    Grants will be serviced in accordance with part 1951, subpart E of 
this title.



Sec. 4284.573  Programmatic changes.

    The grantee shall obtain prior approval for any change to the scope 
or objectives of the approved project. Failure to obtain prior approval 
of

[[Page 549]]

changes to the scope or budget can result in suspension or termination 
of grant funds.



Sec. 4284.574  Subsequent grants.

    Subsequent grants will be processed in accordance with the 
requirements contained in this subpart. Cooperative development projects 
receiving assistance under this program will be evaluated one year after 
assistance is received. If it is determined to be in the best interests 
of the program, preference may be given to a project or projects for an 
additional grant in the immediately succeeding year.



Sec. 4284.575  Grant suspension, termination, and cancellation.

    Grants may be canceled by RBS by written notice. Grants may be 
suspended or terminated for cause or convenience in accordance with 
parts 3015 and 3019 of this title, as applicable.



Secs. 4284.576-4284.586  [Reserved]



Sec. 4284.587  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this subpart, if the Administrator 
determines that application of the requirement or provision would 
adversely affect the Government's interest.



Secs. 4284.588-4284.599  [Reserved]



Sec. 4284.600  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0570-0006. You are not required to 
respond to this collection of information unless it displays a valid OMB 
control number.



              Subpart G--Rural Business Opportunity Grants

    Source: 64 FR 71986, Dec. 23, 1999, unless otherwise noted.



Sec. 4284.601  Purpose.

    This subpart outlines Agency policies and authorizations and sets 
forth procedures for making grants to provide technical assistance for 
business development and conduct economic development planning in rural 
areas. The purpose of this program is to promote sustainable economic 
development in rural communities with exceptional needs by:
    (a) Promoting economic development that is sustainable over the long 
term through local effort without subsidies or external support and that 
leads to improvements in quality as well as the quantity of economic 
activity in the community;
    (b) Catalyzing economic development projects by providing critical 
investments that enable effective development projects to be undertaken 
by rural communities that, with the Rural Business Opportunity Grants 
(RBOG) assistance, will be able to identify their needs and take full 
advantage of available resources and opportunities;
    (c) Focusing assistance on priority communities (defined in 
Sec. 4284.603); and
    (d) Sponsoring economic development activities with significant 
potential to serve as examples of ``best practices'' that merit 
implementation in rural communities in similar circumstances.



Sec. 4284.602  Policy.

    (a) The grant program will be used to assist in the economic 
development of rural areas.
    (b) Funds allocated for use in accordance with this subpart are also 
to be considered for use by Indian tribes within the State regardless of 
whether State development strategies include Indian reservations within 
the State's boundaries. Indians residing on such reservations must have 
equal opportunity, along with other rural residents, to participate in 
the benefits of these programs.



Sec. 4284.603  Definitions.

    Agency. The Federal agency within the United States Department of 
Agriculture (USDA) with responsibility assigned by the Secretary of 
Agriculture to administer the RBOG Program. At the time of publication, 
that agency is the Rural Business-Cooperative Service.
    Best practice project. An action that has potential applicability in 
other

[[Page 550]]

rural communities and which potentially has instructional value when 
shared with those communities.
    Business support centers. Centers established to provide assistance 
to businesses in such areas as counseling, business planning, training, 
management assistance, marketing information, and locating financing for 
business operations. The centers need not be located in a rural area, 
but must provide assistance to businesses located in rural areas.
    Economic development. The industrial, business and financial 
augmentation of an area as evidenced by increases in total income, 
employment opportunities, value of production, duration of employment, 
or diversification of industry, reduced outmigration, higher labor force 
participation rates or wage levels, or gains in other measurements of 
economic activity, such as land values.
    Long-term. The period of time covered by the three most recent 
decennial censuses of the United States to the present.
    Planning. A process to coordinate economic development activities, 
develop guides for action, or otherwise assist local community leaders 
in the economic development of rural areas.
    Priority communities. Communities targeted for Agency assistance as 
determined by the USDA Under Secretary for Rural Development. Priority 
communities are those that are experiencing trauma due to natural 
disasters or are undertaking or completing fundamental structural 
changes, have remained persistently poor, or have experienced long-term 
population decline or job deterioration.
    Project. The result of the use of grant funds provided under this 
subpart through technical assistance or planning relating to the 
economic development of a rural area.
    Rural and rural area. Any area other than a city or town that has a 
population of greater than 50,000 inhabitants including the urbanized 
area contiguous and adjacent to such a city or town. The population 
figure used must be in accordance with the latest decennial census of 
the United States.
    State. Any of the 50 States, the Commonwealth of Puerto Rico, the 
Virgin Islands of the United States, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the Republic of Palau, the 
Federated States of Micronesia, and the Republic of the Marshall 
Islands.
    Sustainable development. Development planned and designed to 
consider and balance environmental quality, economic needs, and social 
concerns.
    Technical assistance. A nonconstruction, problem solving activity 
performed for the benefit of a business or community to assist in the 
economic development of a rural area. The Agency will determine whether 
a specific activity qualifies as technical assistance.
    United States. The 50 States of the United States of America, the 
District of Columbia, the Commonwealth of Puerto Rico, the Virgin 
Islands of the United States, Guam, American Samoa, the Commonwealth of 
the Northern Mariana Islands, the Republic of Palau, the Federated 
States of Micronesia, and the Republic of the Marshall Islands.

[64 FR 71986, Dec. 23, 1999, as amended at 67 FR 63538, Oct. 15, 2002]



Secs. 4287.604-4287.619  [Reserved]



Sec. 4284.620  Applicant eligibility.

    (a) Grants may be made to public bodies, nonprofit corporations, 
Indian tribes on Federal or State reservations and other Federally 
recognized tribal groups, and cooperatives with members that are 
primarily rural residents and that conduct activities for the mutual 
benefit of the members.
    (b) Applicants must have sufficient financial strength and expertise 
in activities proposed in the application to ensure accomplishment of 
the described activities and objectives.
    (1) Financial strength will be analyzed by the Agency based on 
financial data provided in the application. The analysis will consider 
the applicant's tangible net worth, which must be positive, and whether 
the applicant has dependable sources of revenue or a successful history 
of raising revenue sufficient to meet cash requirements.
    (2) Expertise will be analyzed by the Agency based on the applicant 
staff's training and experience in activities

[[Page 551]]

similar to those proposed in the application and, if consultants will be 
used, on the staff's experience in choosing and supervising consultants.
    (c) Any delinquent debt to the Federal Government shall cause the 
applicant to be ineligible to receive any RBOG funds until the debt has 
been paid.



Sec. 4284.621  Eligible grant purposes.

    (a) Grant funds may be used to assist in the economic development of 
rural areas by providing technical assistance for business development 
and economic development planning. Grant funds may be used for, but are 
not limited to, the following purposes:
    (1) Identify and analyze business opportunities that will use local 
rural materials or human resources. This includes opportunities in 
export markets, as well as feasibility and business plan studies.
    (2) Identify, train, and provide technical assistance to existing or 
prospective rural entrepreneurs and managers;
    (3) Establish business support centers and otherwise assist in the 
creation of new rural businesses;
    (4) Conduct local community or multi-county economic development 
planning;
    (5) Establish centers for training, technology, and trade that will 
provide training to rural businesses in the utilization of interactive 
communications technologies to develop international trade opportunities 
and markets;
    (6) Conduct leadership development training of existing or 
prospective rural entrepreneurs and managers; or
    (7) Pay reasonable fees and charges for professional services 
necessary to conduct the technical assistance, training, or planning 
functions.
    (b) Grants may be made only when there is a reasonable prospect that 
the project will result in the economic development of a rural area.
    (c) Grants may be made only when the proposal includes a basis for 
determining the success or failure of the project and individual major 
elements of the project and outlines procedures that will be taken to 
assess the project's impact at its conclusion.
    (d) Grants may be made only when the proposed project is consistent 
with local and area-wide strategic plans for community and economic 
development, coordinated with other economic development activities in 
the project area and consistent with any USDA Rural Development State 
Strategic Plan.
    (e) A grant may be considered for the amount needed to assist with 
the completion of a proposed project, provided that the project can 
reasonably be expected to be completed within 2 full years after it is 
begun. If grant funds are requested to establish or assist with an 
activity of more than 2 years duration, the amount of a grant approved 
in any fiscal year will be limited to the amount needed to assist with 
no more than 1 full year of operation. Subsequent grant requests may be 
considered in subsequent years, if needed to continue the operation, but 
funding for 1 year provides no assurance of additional funding in 
subsequent years.



Secs. 4284.622-4287.628  [Reserved]



Sec. 4284.629  Ineligible grant purposes.

    Grant funds may not be used to:
    (a) Duplicate current services or replace or substitute support 
previously provided. If the current service is inadequate, however, 
grant funds may be used to expand the level of effort or services beyond 
what is currently being provided;
    (b) Pay costs of preparing the application package for funding under 
this program;
    (c) Pay costs of the project incurred prior to the effective date of 
the grant made under this subpart;
    (d) Fund political activities;
    (e) Pay for assistance to any private business enterprise which does 
not have at least 51 percent ownership by those who are either citizens 
of the United States or reside in the United States after being legally 
admitted for permanent residence;
    (f) Pay any judgment or debt owed to the United States; or
    (g) Pay costs of real estate acquisition or development or building 
construction.

[[Page 552]]



Sec. 4284.630  Other considerations.

    (a) Civil rights compliance requirements. All grants made under this 
subpart are subject to title VI of the Civil Rights Act of 1964 and part 
1901, subpart E of this title.
    (b) Environmental review. All grants made under this subpart are 
subject to the requirements of subpart G of part 1940 of this title. 
Applications for technical assistance or planning projects are generally 
excluded from the environmental review process by Sec. 1940.333 of this 
title provided the assistance is not related to the development of a 
specific site. Applicants for grant funds must consider and document 
within their plans the important environmental factors within the 
planning area and the potential environmental impacts of the plan on the 
planning area, as well as the alternative planning strategies that were 
reviewed.
    (c) Other USDA regulations. This program is subject to the 
provisions of the following regulations, as applicable;
    (1) 7 CFR part 3015, Uniform Federal Assistance Regulations;
    (2) 7 CFR part 3016, Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State and Local Governments;
    (3) 7 CFR part 3017, Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants);
    (4) 7 CFR part 3018, New Restrictions on Lobbying;
    (5) 7 CFR part 3019, Uniform Administrative Requirements for Grants 
and Agreements with Institutions of Higher Education, Hospitals, and 
Other Non-Profit Organizations; and
    (6) 7 CFR part 3052, Audits of States, Local Governments, and Non-
profit Organizations.



Secs. 4284.631-4284.637  [Reserved]



Sec. 4284.638  Application processing.

    (a) Applications. (1) Applicants will file an original and one copy 
of ``Application For Federal Assistance (For Nonconstruction),'' with 
the Agency State Office (available in any Agency office).
    (2) All applications shall be accompanied by:
    (i) Copies of applicant's organizational documents showing the 
applicant's legal existence and authority to perform the activities 
under the grant;
    (ii) A proposed scope of work, including a description of the 
proposed project, details of the proposed activities to be accomplished 
and timeframes for completion of each task, the number of months 
duration of the project, and the estimated time it will take from grant 
approval to beginning of project implementation;
    (iii) A written narrative which includes, at a minimum, the 
following items:
    (A) An explanation of why the project is needed, the benefits of the 
proposed project, and how the project meets the grant selection 
criteria;
    (B) Area to be served, identifying each governmental unit, i.e., 
town, county, etc., to be affected by the project;
    (C) Description of how the project will coordinate economic 
development activities with other economic development activities within 
the project area;
    (D) Business to be assisted, if appropriate; economic development to 
be accomplished;
    (E) An explanation of how the proposed project will result in 
increased or saved jobs in the area and the number of projected new and 
saved jobs;
    (F) Description of the applicant's demonstrated capability and 
experience in providing the proposed project assistance or similar 
economic development activities, including experience of key staff 
members and persons who will be providing the proposed project 
activities and managing the project;
    (G) Method and rationale used to select the areas and businesses 
that will receive the service;
    (H) Brief description of how the work will be performed including 
whether organizational staff or consultants or contractors will be used; 
and
    (I) Other information the Agency may request to assist it in making 
a grant award determination.
    (iv) The latest financial information to show the organization's 
financial capacity to carry out the proposed work. At a minimum, the 
information should include the most recent balance sheet

[[Page 553]]

and an income statement. A current audited report is required if 
available;
    (v) An evaluation method to be used by the applicant to determine if 
objectives of the proposed activity are being accomplished; and
    (vi) Intergovernmental review comments from the State Single Point 
of Contact, or evidence that the State has elected not to review the 
program under Executive Order 12372.
    (b) Letter of conditions. The Agency will notify the approved 
applicant in writing, setting out the conditions under which the grant 
will be made.
    (c) Applicant's intent to meet conditions. Upon reviewing the 
conditions and requirements in the letter of conditions, the applicant 
must complete, sign and return a ``Letter of Intent to Meet 
Conditions,'' to the Agency; or if certain conditions cannot be met, the 
applicant may propose alternate conditions to the Agency. The Agency 
must concur with any changes proposed to the letter of conditions by the 
applicant before the application will be further processed.



Sec. 4284.639  Grant selection criteria.

    Agency officials will select projects to receive assistance under 
this program according to the following criteria:
    (a) A score of 0 to 10 points will be awarded based on the Agency 
assessment of the extent to which economic development resulting from 
the proposed project will be sustainable over the long term by local 
efforts, without the need for continued subsidies by governments or 
other organizations outside the community.
    (b) A score of 0 to 10 points will be awarded based on the Agency 
assessment of the extent to which the project should lead to 
improvements in the quality of economic activity within the community, 
such as higher wages, improved benefits, greater career potential, and 
the use of higher levels of skills than currently are typical within the 
economy.
    (c) If the grant will fund a critical element of a larger program of 
economic development, without which the overall program either could not 
proceed or would be far less effective, or if the program to be assisted 
by the grant will also be partially funded from other sources, points 
will be awarded as follows based on the percentage of the cost of the 
overall program that will be funded by the grant.
    (1) Less than 20 percent--30 points;
    (2) 20 but less than 50 percent--20 points;
    (3) 50 but less than 75 percent--10 points; or
    (4) More than 75 percent--0 points.
    (d) Points will be awarded for each of the following criteria met by 
the community or communities that will receive the primary benefit of 
the grant. However, regardless of the mathematical total of points 
indicated by paragraphs (d)(1) through (d)(5) of this section, total 
points awarded under paragraph (d) must not exceed 40.
    (1) Experiencing trauma due to a major natural disaster that 
occurred not more than 3 years prior to the filing of the application 
for RBOG assistance--15 points;
    (2) Undergoing fundamental structural change in the local economy, 
such as that caused by the closing or major downsizing of a military 
facility or other major employer not more than 3 years prior to the 
filing of the application for RBOG assistance--15 points;
    (3) Has experienced long-term poverty--10 points;
    (4) Has experienced long-term population decline--10 points; and
    (5) Has experienced long-term job deterioration--10 points.
    (e) A score of 0 to 10 points will be awarded based on the Agency 
determination of the extent of the project's usefulness as a new best 
practice as defined in Sec. 4284.603.
    (f) The State Director may assign up to 15 discretionary points to 
an application. If allocation of funds under National Office control is 
being considered, the Agency Administrator may assign up to 20 
additional discretionary points. Assignment of discretionary points by 
either the State Director or the Agency Administrator must include a 
written justification. Permissible justifications are geographic 
distribution of funds, special importance for implementation of a 
strategic plan in partnership with other organizations, or extraordinary 
potential for

[[Page 554]]

success due to superior project plans or qualifications of the grantee.



Sec. 4284.640  Appeals.

    Any appealable adverse decision made by the Agency may be appealed 
in accordance with USDA appeal regulations found at 7 CFR part 11. If 
the Agency makes a determination that a decision is not appealable, a 
request for a determination of appealability may be made to the National 
Appeals Staff.



Secs. 4284.641-4287.646  [Reserved]



Sec. 4284.647  Grant approval and obligation of funds.

    (a) The following statement will be entered in the comment section 
of the Request For Obligation of Funds, which must be signed by the 
grantee:

    The grantee certifies that it is in compliance with and will 
continue to comply with all applicable laws; regulations; Executive 
Orders; and other generally applicable requirements, including those 
contained in 7 CFR part 4284, subpart G, and 7 CFR parts 3015, 3016, 
3017, 3018, 3019, and 3052 in effect on the date of grant approval; and 
the approved Letter of Conditions.

    (b) [Reserved]



Sec. 4284.648  Fund disbursement.

    The Agency will determine, based on 7 CFR parts 3015, 3016, and 
3019, as applicable, whether disbursement of a grant will be by advance 
or reimbursement. A Request for Advance or Reimbursement, (available in 
any Agency office) must be completed by the grantee and submitted to the 
Agency no more often than monthly to request either advance or 
reimbursement of funds.



Secs. 4284.649-4284.655  [Reserved]



Sec. 4284.656  Reporting.

    (a) A Financial Status Report (available in any Agency office) and a 
project performance activity report will be required of all grantees on 
a quarterly basis. The grantee will cause said program to be completed 
within the total sums available to it, including the grant, in 
accordance with the scope of work and any necessary modifications 
thereof prepared by grantee and approved by the Agency. A final project 
performance report will be required with the final Financial Status 
Report. The final report may serve as the last quarterly report. The 
final report must provide complete information regarding the jobs 
created and saved as a result of the grant. Grantees shall constantly 
monitor performance to ensure that time schedules are being met, 
projected work by time periods is being accomplished, and other 
performance objectives are being achieved. Grantees are to submit an 
original of each report to the Agency. The project performance reports 
shall include, but not be limited to, the following:
    (1) A comparison of actual accomplishments to the objectives 
established for that period;
    (2) Problems, delays, or adverse conditions, if any, which have 
affected or will affect attainment of overall project objectives, 
prevent meeting time schedules or objectives, or preclude the attainment 
of particular project work elements during established time periods. 
This disclosure shall be accompanied by a statement of the action taken 
or planned to resolve the situation; and
    (3) Objectives and timetable established for the next reporting 
period.
    (b) Within 1 year after the conclusion of the project, the grantee 
will provide a project evaluation report based on criteria developed in 
accordance with Sec. Sec. 4284.621(c) and 4284.638(a)(2)(v).
    (c) The Agency may also require grantees to prepare a report 
suitable for public distribution describing the accomplishments made 
through the use of the grant and, in the case where the grant funded the 
development or application of a ``best practice,'' to describe that 
``best practice.''
    (d) The grantee will provide for Financial Management Systems which 
will include:
    (1) Accurate, current, and complete disclosure of the financial 
result of each grant.
    (2) Records which identify adequately the source and application of 
funds for grant-supporting activities, together with documentation to 
support the records. Those records shall contain information pertaining 
to grant awards

[[Page 555]]

and authorizations, obligations, unobligated balances, assets, 
liabilities, outlays, and income.
    (3) Effective control over and accountability for all funds. Grantee 
shall adequately safeguard all such assets and shall assure that funds 
are used solely for authorized purposes.
    (e) The grantee will retain financial records, supporting documents, 
statistical records, and all other records pertinent to the grant for a 
period of at least 3 years after grant closing except that the records 
shall be retained beyond the 3-year period if audit findings have not 
been resolved or if directed by the United States. Microfilm copies may 
be substituted in lieu of original records. The Agency and the 
Comptroller General of the United States, or any of their duly 
authorized representatives, shall have access to any books, documents, 
papers, and records of the grantee which are pertinent to the specific 
grant program for the purpose of making audit, examination, excerpts, 
and transcripts.



Sec. 4284.657  Audit requirements.

    Grantees must provide an annual audit in accordance with 7 CFR part 
3052. The audit requirements apply to the years in which grant funds are 
received and years in which work is accomplished that will be paid for 
with grant funds.



Secs. 4284.658-4284.666  [Reserved]



Sec. 4284.667  Grant servicing.

    Grants will be serviced in accordance with part 1951, subparts E and 
O, of this title. Grantees will permit periodic inspection of the 
program operations by a representative of the Agency. All non-
confidential information resulting from the Grantee's activities shall 
be made available to the general public on an equal basis.



Sec. 4284.668  Programmatic changes.

    The Grantee shall obtain prior approval for any change to the scope 
or objectives of the approved project. Failure to obtain prior approval 
of changes to the scope of work or budget may result in suspension, 
termination, and recovery of grant funds.



Secs. 4284.669-4284.683  [Reserved]



Sec. 4284.684  Exception authority.

    The Administrator may, in individual cases, grant an exception to 
any requirement or provision of this subpart provided the Administrator 
determines that application of the requirement or provision would 
adversely affect USDA's interest.



Secs. 4284.685-4284.698  [Reserved]



Sec. 4284.699  Member delegate clause.

    No member of Congress shall be admitted to any share or part of this 
grant or any benefit that may arise therefrom; but this provision shall 
not be construed to bar as a contractor under the grant a publicly held 
corporation whose ownership might include a member of Congress.



Sec. 4284.700  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget 
under the provisions of 44 U.S.C. chapter 35 and have been assigned OMB 
control number 0570-0024 in accordance with the Paperwork Reduction Act 
of 1995. You are not required to respond to this collection of 
information unless it displays a valid OMB control number.



PART 4285--COOPERATIVE AGREEMENTS--Table of Contents




        Subpart A--Federal-State Research on Cooperatives Program

Sec.
4285.1  Objective.
4285.2  Cooperative agreement purposes.
4285.3  Definitions.
4285.4-4285.23  [Reserved]
4285.24  Eligibility.
4285.25  Authorized use of cooperative agreement funds.
4285.26-4285.45  [Reserved]
4285.46  Prohibited use of cooperative agreement funds.
4285.47  Limitations.
4285.48-4285.57  [Reserved]
4285.58  How to apply for cooperative agreement funds.
4285.59-4285.68  [Reserved]
4285.69  Evaluation and disposition of applications.
4285.70  Evaluation criteria.

[[Page 556]]

4285.71-4285.80  [Reserved]
4285.81  Cooperative agreement awards.
4285.82  Use of funds; changes.
4285.83-4285.92  [Reserved]
4285.93  Other Federal statutes and regulations that apply.
4285.94  Other conditions.
4285.95-4285.99  [Reserved]
4285.100  OMB control number.

    Authority: 7 U.S.C. 1623; Public Law 103-111, 107 Stat. 1046; 7 
U.S.C. 2201; USDA Secretary's Memorandum 1020-39, dated September 30, 
1993; and Public Law 103-211, 108 Stat. 3.

    Source: 59 FR 38342, July 28, 1994, unless otherwise noted.



        Subpart A--Federal-State Research on Cooperatives Program



Sec. 4285.1  Objective.

    This subpart sets forth the policies and procedures and delegates 
authority for providing Federal-State Research on Cooperatives 
cooperative agreement funds to finance programs of research on 
cooperatives as authorized under Section 204 (b) of the Agricultural 
Marketing Act of 1946 (7 U.S.C. 1623 (b)). The primary purpose of this 
matching fund program, via cooperative agreements, is to encourage State 
Departments of Agriculture and State Agricultural Experiment Stations in 
conducting research related to agricultural cooperatives.



Sec. 4285.2  Cooperative agreement purposes.

    Rural Development Administration (RDA) or its successor agency may 
enter into a cooperative agreement with a State agency to provide funds 
to the State agency to:
    (a) Conduct marketing research related to agricultural cooperatives.
    (b) Assist other organizations in conducting marketing research 
related to agricultural cooperatives.



Sec. 4285.3  Definitions.

    As used in this part:
    Agreement period. The total period of time approved by the Assistant 
Administrator for Cooperative Services for conducting the proposed 
project as outlined in an approved application. The time period is 
normally no more than 3 years, renewable for cause not to exceed a total 
of 4 fiscal years.
    Agricultural products. Agricultural products include agricultural, 
horticultural, viticultural, and dairy products, livestock and poultry, 
bees, forest products, fish and shellfish, and any products thereof, 
including processed or manufactured products, and any and all products 
raised or produced on farms and any processed or manufactured product 
thereof.
    Assistant Administrator for Cooperative Services. The Assistant 
Administrator for Cooperative Services, Rural Development Administration 
or its successor agency, USDA or any authorized delegate.
    Awarding official. The Assistant Administrator for Cooperative 
Services or authorized delegate.
    Cooperative agreement. A legal instrument reflecting a relationship 
between the United States Government and a State where:
    (1) The principal purpose of the relationship is the transfer of 
money, property, services, or anything of value to the State agency to 
carry out research related to cooperatives; and
    (2) Substantial involvement is anticipated between RDA or its 
successor agency, acting for the Federal Government, and the State or 
other recipient during performance of the research in the agreement.
    Cooperator. The State agency designated in the cooperative agreement 
award document as the responsible legal entity to whom a cooperative 
agreement is awarded under this part.
    Department. The U.S. Department of Agriculture.
    Methodology. The research approach to be followed to carry out the 
project.
    Principal investigator. A single individual who is responsible for 
the scientific and technical direction of the project, as designated by 
the cooperator in the cooperative agreement application and approved by 
the Assistant Administrator for Cooperative Services.
    Project. The particular activity within the scope of one or more of 
the research program areas identified in the annual program solicitation 
that is supported by a cooperative agreement under this part.

[[Page 557]]

    State agencies. State agencies include, among others, State 
Agricultural Experiment Stations and State Departments of Agriculture in 
the 50 States, the Virgin Islands, and Guam, and other appropriate State 
agencies. Final determination of whether certain 1890 or 1862 Land Grant 
institutions qualify as state agencies will be determined on a case-by-
case basis by the Office of the General Counsel (OGC), USDA.



Secs. 4285.4-4285.23  [Reserved]



Sec. 4285.24  Eligibility.

    To enter into a cooperative agreement for these funds, the applicant 
must:
    (a) Be a State Agency as defined in Sec. 4285.3 of this subpart;
    (b) Have the financial, legal, administrative, and actual capacity 
to assume and carry out the responsibilities imposed by the Agreement. 
To meet the requirement of actual capacity it must either:
    (1) Have necessary background and experience with proven ability to 
perform responsibly in the field of economic, business management, or 
other needed research area; or
    (2) Have the necessary administrative and supervisory controls in 
place to assure an agreed upon contracting organization has the proven 
ability to perform responsibly in the field of economic, business 
management, or other needed research area;
    (c) Legally obligate itself to administer cooperative agreement 
funds, provide adequate accounting of the expenditure of such funds, and 
comply with the cooperative agreement;
    (d) Provide at least 50 percent of the funds necessary to conduct 
the research from non-federal funds; and
    (e) Agree to conduct proposed research related to cooperatives and 
agricultural marketing.



Sec. 4285.25  Authorized use of cooperative agreement funds.

    Funds received for research under cooperative agreements in this 
program shall only be used for:
    (a) Payment of salaries and necessary employee benefits of personnel 
as agreed upon in the Cooperative Agreement. Included are salaries and 
benefits of State employees assigned full-time to one or more projects, 
or the percent of the salaries and benefits related to project work for 
State employees assigned part-time to research on one or more projects. 
Salaries and benefits include basic salary, other compensation such as 
holiday pay, sick or annual leave, and personnel benefits (quarters 
allowance, payments to other funds such as employees' life insurance, 
health benefits, retirement, Federal Insurance Contributions Act (FICA), 
accident compensation, and similar payments). For any of the benefit 
items when the State usually pays the employer share, Federal funds may 
be used to pay the proportionate share of such employer contributions.
    (b) Payment of necessary and reasonable office expenses such as 
office rental, office utilities, and office equipment rental. The 
purchase of office equipment is permissible when the cooperator 
determines it to be more economical than renting. However, as a general 
rule, these types of expenses would be classified as indirect costs in 
multiple funded organizations and would not be an allowable expense. 
Planned purchases of equipment costing more than $200 per unit must be 
approved by RDA or its successor agency. Equipment purchased becomes 
State property pursuant to the cooperative agreement.
    (c) Payment of necessary and reasonable costs of printing 
publications of research project results. However, all such publications 
should show the RDA or its successor agency as cooperator in the project 
and bear the following statement: ``State funds for this project 
(publication) were matched with Federal funds under the Federal-State 
Research on Cooperatives Program of the U.S. Department of Agriculture, 
Rural Development Administration or its successor agency, Cooperative 
Services, as provided by the Agricultural Marketing Act of 1946 and 
(appropriate) fiscal year appropriations.''
    (d) Purchase of office supplies (such as paper, pens, pencils, and 
trade magazines) and postage needed for project activities.
    (e) Payment of necessary and reasonable travel expenses.

[[Page 558]]



Secs. 4285.26-4285.45  [Reserved]



Sec. 4285.46  Prohibited use of cooperative agreement funds.

    (a) The Agricultural Marketing Act prohibits the use of Federal 
funds to pay for newspaper or periodical space and radio and television 
time, either directly to the media or indirectly though an advertising 
agency or other firm. County and State fair exhibits, as well as 
commodity months and weeks, are also excluded as the research on 
cooperatives program activities.
    (b) Federal funds cannot be used to purchase products or samples of 
products to give away to the public.
    (c) Federal program funds cannot be used to purchase:
    (1) Promotional pieces such as point-of-sale materials, promotional 
kits, billboard space and signs, streamers, automobile stickers, table 
tents, and placemats; or
    (2) Promotion items of a personal gift nature.
    (d) Cooperative agreement funds cannot be used to conduct general 
publicity or information programs designed to build the image of the 
State's agriculture or of a particular State Department of Agriculture 
or Agricultural Experiment Station.
    (e) Project funds cannot be used to pay for the salary and travel of 
employees of cooperatives, trade associations, commodity groups, and 
other industry organizations, or of State personnel while engaged in 
managing market orders, cooperatives, or other group endeavors.
    (f) Commissioners, Directors, and Secretaries of State Departments 
of Agriculture, Agricultural Experiment Stations, and other State 
agencies cannot charge their salaries and travel to project funds, with 
the exception of travel to workshops or conferences devoted to the 
Federal-State Research On Cooperatives Program.
    (g) Funds made available for this program shall not be subject to 
reduction for indirect costs or for tuition remission.



Sec. 4285.47  Limitations.

    The amount of funds available for the cooperative agreements under 
this program is limited to the amount appropriated for the fiscal year.



Secs. 4285.48-4285.57  [Reserved]



Sec. 4285.58  How to apply for cooperative agreement funds.

    (a) A program solicitation will be prepared and announced through 
publications such as the Federal Register, professional trade journals, 
agency or program handbooks, and/or any other appropriate means, as 
early as practicable each fiscal year in which funds are appropriated 
for the program.
    (b) The annual program solicitation will contain information 
sufficient to enable all eligible applicants to prepare proposals 
including:
    (1) Desired research topics. The FY-94 solicitation will encourage 
studies:
    (i) To improve the efficiency and effectiveness of marketing of 
agricultural cooperatives;
    (ii) To measure the impact of rural cooperatives on the local 
economies;
    (iii) That help identify opportunities to develop cooperatives for 
new or alternative market uses of agricultural products;
    (iv) That help identify ways to develop agricultural marketing 
cooperatives; and
    (v) Addressing other cooperative marketing objectives;
    (2) Explanation of eligibility requirements as outlined in 
Sec. 4285.24 of this subpart;
    (3) The notice of availability of application forms and instructions 
for submission of applications;
    (4) The notice of deadline dates for postmarking proposal packages.
    (c) Format for proposals. Unless otherwise indicated by the 
Department in the annual program solicitation, the following information 
must be submitted for the preparation of proposals under this program:
    (1) Form SF-424, ``Application for Federal Assistance.''
    (2) Form SF-424A, ``Budget Information--Non-Construction Programs.''
    (3) Form SF-424B, ``Assurances--Non-Construction Programs.''
    (4) Statement of Work. The application must include a narrative 
statement describing the nature of the proposed research. The Statement 
of Work must include at least the following:

[[Page 559]]

    (i) Title of the Project. The title of the proposal must be brief, 
yet represent the major thrust of the project.
    (ii) Project Leaders. List the name(s) of the principal 
investigator(s). Minor collaborators or consultants should be so 
designated and not listed as principal investigators.
    (iii) Need for the Project. A concisely worded rationale behind the 
proposed research must be presented. The need for the proposed research 
must be clearly related to marketing and to the needs of agricultural 
cooperatives.
    (iv) Objectives of the project. The specific description of the 
overall project goal(s) and supporting objectives must be presented.
    (v) Procedures for conducting the research. The hypotheses or 
questions being asked and the methodology being applied to the proposed 
project must be described. A description of any subcontracting 
arrangements that will be used for conducting the research must be 
included. A tentative schedule for conducting major steps involved in 
the investigation must also be included.
    (vi) The expected output of the project. A description of how the 
results of the research will be disseminated should be presented. 
Responsibility for publishing any research reports or other types of 
output should also be identified.
    (5) Collaborative arrangements. If the nature of the proposed 
project requires collaboration or subcontractual arrangements with other 
research scientists, corporations, organizations, agencies, or entities, 
the applicant must identify the collaborator(s) and provide a full 
explanation of the nature of the collaboration. Evidence (i.e., letters 
of intent) should be provided to assure reviewers that the collaborators 
involved have agreed to render this service. In addition, the proposal 
must indicate whether or not such a collaborative arrangement(s) has the 
potential for conflict(s) of interest.
    (6) Personnel support. To assist reviewers in assessing the 
competence and experience of the proposed project staff, key personnel 
who will be involved in the proposed project must be identified clearly. 
For each principal investigator involved, and for all senior associates 
and other professional personnel who expect to work on the project, 
whether or not funds are sought for their support, the following must be 
included:
    (i) An estimate of the time commitments necessary;
    (ii) Curriculum Vitae. The curriculum vitae should be limited to a 
presentation of academic and research credentials, e.g., educational, 
employment and professional history, and honors and awards. Unless 
pertinent to the project, it should not include meetings attended, 
seminars given, or personal data such as birth date, martial status, or 
community activities; and
    (iii) Publication List(s). A chronological list of all publications 
in refereed journals during the past five years, including those in 
press, must be provided for each professional project member for whom a 
curriculum vitae is provided. Also list other non-refereed technical 
publications that have relevance to the proposed project. Authors should 
be listed in the same order as they appear on each paper cited, along 
with the title and complete reference as these usually appear in 
journals.



Secs. 4285.59-4285.68  [Reserved]



Sec. 4285.69  Evaluation and disposition of applications.

    (a) Evaluation. (1) All proposals received from eligible applicants 
and postmarked in accordance with deadlines established in the annual 
program solicitation shall be evaluated by the Assistant Administrator 
for Cooperative Services through an RDA or its successor agency staff 
panel. The Assistant Administrator for Cooperative Services will select 
the evaluation panel from staff determined to be highly qualified in the 
subject matter areas that were emphasized in the current year's 
solicitation and from those with no potential conflict of interest with 
the applicants.
    (2) Prior to technical examination, a preliminary review will be 
made for responsiveness to the program solicitation (e.g., relationship 
of proposal to research topic(s) listed in solicitation). Proposals that 
do not fall within the

[[Page 560]]

guidelines as stated in the program solicitation will be eliminated from 
competition and will be returned to the applicant.
    (3) Proposals will be ranked based on evaluation criteria 
established in Sec. 4285.70 of this subpart, and financial support 
levels will be recommended to the Assistant Administrator for 
Cooperative Services by the panel within the limitation of the total 
funding available in the fiscal year. The purpose of these evaluations 
is to provide information upon which the Assistant Administrator for 
Cooperative Services may make informed judgments in selecting proposals. 
Such recommendations are advisory only and are not binding on the 
awarding official of RDA or its successor agency. To ensure a 
comprehensive evaluation, all applications should be written with the 
care and thoroughness accorded papers for publication.
    (b) Disposition. (1) On the basis of the Assistant Administrator for 
Cooperative Services's evaluation of an application in accordance with 
paragraph (a) of this section, the Assistant Administrator for 
Cooperative Services will either:
    (i) Approve support using currently available funds;
    (ii) Defer support due to lack of funds or need for further 
evaluation; or
    (iii) Disapprove support for the proposed project in whole or in 
part.
    (2) With respect to any approved project, the Assistant 
Administrator for Cooperative Services will determine the project period 
during which the project may be funded.
    (3) Any deferral or disapproval of an application will not preclude 
its reconsideration or reapplication during subsequent fiscal years. 
However, applicants must reapply if reconsideration is desired.
    (4) The Assistant Administrator for Cooperative Services will not 
make a cooperative agreement funding award, based upon an application 
covered by this part, unless the application has been properly reviewed 
in accordance with the provisions of this part and unless said reviewers 
have made recommendations concerning the scientific merit and relevance 
to the program of such application.



Sec. 4285.70  Evaluation criteria.

    (a) In evaluating the proposal, the RDA or its successor agency 
staff review panel and the awarding official will take into account the 
degree to which the proposal demonstrates the following:
    (1) Focus on a practical solution to a significant problem involving 
one or more of the following on a cooperative business basis: the 
preparation for market, processing, packaging, handling, storing, 
transporting, distributing, or marketing of agricultural products. (35%)
    (2) Adequacy, soundness, and appropriateness of the proposed 
approach to solve the identified problem. (30%)
    (3) Feasibility and probability of success of project solving the 
problem. (10%)
    (4) Qualifications, experience in related work, competence, and 
availability of project personnel to direct and carry out the project. 
(25%)
    (b) In addition, the cost relative to the expected research results 
will be considered in determining the awarding of the agreements.



Secs. 4285.71-4285.80  [Reserved]



Sec. 4285.81  Cooperative agreement awards.

    (a) General. Within the limit of funds available for such purpose, 
the awarding official shall make awards for cooperative agreements to 
those applicants whose proposals are judged most meritorious in the 
announced program areas under the evaluation criteria and procedures set 
forth in this part. The date specified by the Assistant Administrator 
for Cooperative Services as the beginning of the project period shall be 
no later than September 30 of the Federal fiscal year in which the 
project is approved and funds are appropriated for such purpose, unless 
otherwise permitted by law. All funds awarded under this part shall be 
expended solely in accordance with the methods identified in approved 
application and budget, the regulations of this part, the terms and 
conditions of the award, the applicable Federal cost principles, and the 
Department's ``Uniform Federal Assistance Regulations'' (part 3015 of 
this title) and the Department's ``Uniform

[[Page 561]]

Administrative Requirements for Grants and Cooperative Agreements to 
State and Local Governments'' (part 3016 of this title).
    (b) Cooperative agreement award document and notice of award. (1) 
Cooperative agreement award document. The award document shall include 
at a minimum the following:
    (i) Legal name and address of performing organization or institution 
to whom the Assistant Administrator for Cooperative Services has 
competitively awarded funds under the terms of this part;
    (ii) Title of project;
    (iii) Name(s) and address(es) of principal investigator(s) chosen to 
direct and control approved activities;
    (iv) Identifying cooperative agreement number assigned by RDA or its 
successor agency;
    (v) Project period, specifying the amount of time the Agency intends 
to support the project without requiring recompetition for funds;
    (vi) Total amount of Agency financial assistance approved by the 
Assistant Administrator for Cooperative Services during the project 
period;
    (vii) Legal authority(ies) under which the cooperative agreement is 
awarded;
    (viii) Approved budget plan for categorizing allocable project funds 
to accomplish the stated purpose of the cooperative agreement award; and
    (ix) Other information or provisions deemed necessary by RDA or its 
successor agency to carry out its agreement activities or to accomplish 
the purpose of a particular cooperative agreement.
    (2) Notice of award. The notice of award of funds for the 
cooperative agreement will be in the form of a letter providing 
pertinent instructions or information to the cooperator.
    (c) Types of cooperative agreement instruments. The types of 
cooperative agreements shall be as follows:
    (1) New agreement. This is an agreement instrument by which RDA or 
its successor agency agrees to support a specified level of effort for a 
project not supported previously under this program. This type of 
agreement is approved on the basis of an RDA or its successor agency 
Staff evaluation review and recommendation.
    (2) Renewal agreement. This is an agreement instrument by which RDA 
or its successor agency agrees to provide additional funding for a 
project beyond the period approved in an original or amended agreement, 
provided that the cumulative period does not exceed the statutory 
limitation. When a renewal application is submitted, it must include a 
summary of progress to date from the previous agreement period. A 
renewal agreement shall be based upon new application, de novo review 
and staff evaluation, new recommendation and approval, and a new award 
instrument.
    (3) Supplemental agreement. This is an instrument by which RDA or 
its successor agency agrees to provide small amounts of additional 
funding under a new or renewal cooperative agreement as specified in 
paragraphs (c)(1) and (c)(2) of this section and may involve a short-
term (usually one year or less) extension of the project period beyond 
that approved in an original or amended award, but in no case may the 
cumulative period for the project exceed the statutory limitation. A 
supplement is awarded only if required to assure adequate completion of 
the original scope of work and if there is sufficient justification to 
warrant such action. A request of this nature will not require 
additional review.
    (d) Obligation of the Federal Government. The approval of any 
application or the award of any funds for a cooperative agreement shall 
not commit nor obligate the United States in any way to make any 
renewal, supplemental, continuation, or other award with respect to any 
approved application or portion of an approved application.
    (e) Obligation of the cooperator. The cooperator shall be 
responsible for:
    (1) Making a brief quarterly progress reports at the end of each 
December, March, June and September to the FSROC program staff for the 
duration of the research project;
    (2) Presenting a final administrative report on the project at the 
end of the research project; and

[[Page 562]]

    (3) Preparing and publishing a report(s) of research findings for 
dissemination to interested producers, cooperatives, and agencies. 
Include recognition to financial and other assistance received from the 
FSROC program.



Sec. 4285.82  Use of funds; changes.

    (a) Delegation of fiscal responsibility. The cooperator may not, in 
whole or in part, delegate or transfer to another person, institution, 
or organization the responsibility for use or expenditure of cooperative 
agreement funds.
    (b) Change in project plans. (1) The permissible changes by the 
cooperator, principal investigator(s), or other key project personnel in 
the approved cooperative agreement shall be limited to changes in 
methodology, techniques, or other aspects of the project to expedite 
achievement of the project's approved goals. If the cooperator and/or 
the principal investigator(s) is uncertain whether a particular change 
complies with this provision, the question must be referred to the 
Assistant Administrator for Cooperative Services for a final 
determination.
    (2) Changes in approved goals, or objectives, shall be requested by 
cooperator and approved in writing by the Assistant Administrator for 
Cooperative Services, or authorized delegate, prior to effecting such 
changes. Normally, no requests for such changes outside the scope of the 
original approved project will be approved.
    (3) Changes in approved project leadership or the replacement or 
realignment of other key project personnel shall be requested by the 
cooperator and approved in writing by the Assistant Administrator for 
Cooperative Services, or authorized delegate, prior to effecting such 
changes.
    (4) Transfers of actual performance of the substantive programmatic 
work in whole or in part and provisions for payment of funds, whether or 
not Federal funds are involved, shall be requested by the cooperator and 
approved in writing by the Assistant Administrator for Cooperative 
Services, or authorized delegate, prior to effecting such changes, 
except as may be allowed in the terms and conditions of a cooperative 
agreement award.
    (c) Changes in project period. The project period determined 
pursuant to Sec. 4285.81(b) of this subpart may be extended by the 
Assistant Administrator for Cooperative Services without additional 
financial support, for such additional period(s) as the Assistant 
Administrator for Cooperative Services determines may be necessary to 
complete, or fulfill the purposes of, an approved project. Any 
extension, when combined with the originally approved or amended project 
period, shall not exceed four (4) years and shall be further conditioned 
upon prior request by the cooperator and approval in writing by the 
Assistant Administrator for Cooperative Services, or authorized 
delegate, except as may be allowed in the terms and conditions of a 
cooperative agreement award.
    (d) Changes in approved budget. The terms and conditions of a 
cooperative agreement will prescribe circumstances under which written 
Agency approval must be requested and obtained prior to instituting 
changes in an approved budget.



Secs. 4285.83-4285.92  [Reserved]



Sec. 4285.93  Other Federal statutes and regulations that apply.

    Several other Federal statutes and regulations apply to cooperative 
agreement proposals considered for review or to agreements awarded under 
this part. These include but are not limited to:
    (a) 7 CFR Part 1, Subpart A--USDA implementation of the Freedom of 
Information Act;
    (b) 7 CFR Part 3--USDA implementation of OMB Circular A-129 
regarding debt collection;
    (c) 7 CFR Part 15, Subpart A--USDA implementation of title VI of the 
Civil Rights Act of 1964 in order to assure nondiscrimination;
    (d) 7 CFR Part 1473--National Agricultural, Research, Extension, and 
Teaching Policy Act Amendments of 1981 if the project involves a college 
or university;
    (e) 7 CFR Part 3015--USDA Uniform Federal Assistance Regulations 
implementing OMB directives (i.e., Circular Nos. A-110, A-21, and A-122) 
and incorporating provisions of 31 U.S.C. 6301-

[[Page 563]]

6308 (formerly, the Federal Grant and Cooperative Agreement Act of 1977, 
Pub. L. 95-224, 92 Stat. 3), as well as general policy requirements 
applicable to recipients of Departmental financial assistance;
    (f) 7 CFR Part 3016--USDA Uniform Administrative Requirements for 
Grants and Cooperative Agreements to State and Local Governments;
    (g) 7 CFR Part 3017--USDA implementation of Governmentwide Debarment 
and Suspension (Nonprocurement) and Governmentwide Requirements for 
Drug-Free Workplace (Grants);
    (h) 7 CFR Part 3018--USDA implementation of New Restrictions on 
Lobbying. Imposes new prohibitions and requirements for disclosure and 
certification related to lobbying on recipients of Federal contracts, 
grants, cooperative agreements, and loans;
    (i) 7 CFR Part 3051--Audits of Institutions of Higher Education and 
Other Nonprofit Institutions;
    (j) 29 U.S.C. 794, section 504--Rehabilitation Act of 1973, and 7 
CFR Part 15B prohibiting discrimination based upon physical or mental 
handicap in Federally assisted programs;
    (k) 35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of 
rights to inventions made by employees of small business firms and 
domestic nonprofit organizations, including universities, in Federally 
assisted programs (implementing regulations are contained in 37 CFR part 
401).



Sec. 4285.94  Other conditions.

    Post-award requirements. Upon awarding the cooperative agreement, 
the post-award requirements of subparts C and D of part 3016 of this 
title apply.



Secs. 4285.95-4285.99  [Reserved]



Sec. 4285.100  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and have been assigned OMB control number 0570-0005. Public 
reporting burden for this collection of information is estimated to vary 
from 10 minutes to 36 hours per response with an average of 3.48 hours 
per response, including the time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing the collection of information. Send comments 
regarding this burden estimate or any other aspect of this collection of 
information, including suggestions for reducing this burden, to 
Department of Agriculture, Clearance Officer, OIRM, Ag Box 7630, 
Washington, DC 20250; and to the Office of Management and Budget, 
Paperwork Reduction Project (OMB 0570-0005), Washington, DC 
20503.



PART 4287--SERVICING--Table of Contents




Subpart A [Reserved]

       Subpart B--Servicing Business and Industry Guaranteed Loans

Sec.
4287.101  Introduction.
4287.102  Definitions.
4287.103  Exception authority.
4287.104-4287.105  [Reserved]
4287.106  Appeals.
4287.107  Routine servicing.
4287.108-4287.111  [Reserved]
4287.112  Interest rate adjustments.
4287.113  Release of collateral.
4287.114-4287.122  [Reserved]
4287.123  Subordination of lien position.
4287.124  Alterations of loan instruments.
4287.125-4287.133  [Reserved]
4287.134  Transfer and assumption.
4287.135  Substitution of lender.
4287.136-4287.144  [Reserved]
4287.145  Default by borrower.
4287.146-4287.155  [Reserved]
4287.156  Protective advances.
4287.157  Liquidation.
4287.158  Determination of loss and payment.
4287.159-4287.168  [Reserved]
4287.169  Future recovery.
4287.170  Bankruptcy.
4287.171-4287.179  [Reserved]
4287.180  Termination of guarantee.
4287.181-4287.199  [Reserved]
4287.200  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989

    Source: 61 FR 67648, Dec. 23, 1996, unless otherwise noted.

Subpart A [Reserved]

[[Page 564]]



       Subpart B--Servicing Business and Industry Guaranteed Loans



Sec. 4287.101  Introduction.

    (a) This subpart supplements part 4279, subparts A and B, by 
providing additional requirements and instructions for servicing and 
liquidating all Business and Industry (B&I) Guaranteed Loans. This 
includes Drought and Disaster (D&D), Disaster Assistance for Rural 
Business Enterprises (DARBE), and Business and Industry Disaster (BID) 
loans.
    (b) The lender will be responsible for servicing the entire loan and 
will remain mortgagee and secured party of record notwithstanding the 
fact that another party may hold a portion of the loan. The entire loan 
will be secured by the same security with equal lien priority for the 
guaranteed and unguaranteed portions of the loan. The unguaranteed 
portion of a loan will neither be paid first nor given any preference or 
priority over the guaranteed portion of the loan.
    (c) Copies of all forms, regulations, and Instructions referenced in 
this subpart are available in any Agency office. Whenever a form is 
designated in this subpart, that designation includes predecessor and 
successor forms, if applicable, as specified by the field or National 
Office.



Sec. 4287.102  Definitions.

    The definitions and abbreviations contained in Sec. 4279.2 of 
subpart A of part 4279 of this chapter apply to this subpart.



Sec. 4287.103  Exception authority.

    Section 4279.15 of subpart A of part 4279 of this chapter applies to 
this subpart.



Secs. 4287.104-4287.105  [Reserved]



Sec. 4287.106  Appeals.

    Section 4279.16 of subpart A of part 4279 of this chapter applies to 
this subpart.



Sec. 4287.107  Routine servicing.

    The lender is responsible for servicing the entire loan and for 
taking all servicing actions that a prudent lender would perform in 
servicing its own portfolio of loans that are not guaranteed. The Loan 
Note Guarantee is unenforceable by the lender to the extent any loss is 
occasioned by violation of usury laws, use of loan funds for 
unauthorized purposes, negligent servicing, or failure to obtain the 
required security interest regardless of the time at which the Agency 
acquires knowledge of the foregoing. This responsibility includes but is 
not limited to the collection of payments, obtaining compliance with the 
covenants and provisions in the Loan Agreement, obtaining and analyzing 
financial statements, checking on payment of taxes and insurance 
premiums, and maintaining liens on collateral.
    (a) Lender reports. The lender must report the outstanding principal 
and interest balance on each guaranteed loan semiannually using Form 
FmHA 1980-41, ``Guaranteed Loan Status Report.''
    (b) Loan classification. Within 90 days of receipt of the Loan Note 
Guarantee, the lender must notify the Agency of the loan's 
classification or rating under its regulatory standards. Should the 
classification be changed at a future time, the Agency must be notified 
immediately.
    (c) Agency and lender conference. At the Agency's request, the 
lender will meet with the Agency to ascertain how the guaranteed loan is 
being serviced and that the conditions and covenants of the Loan 
Agreement are being enforced.
    (d) Financial reports. The lender must obtain and forward to the 
Agency the financial statements required by the Loan Agreement. The 
lender must submit annual financial statements to the Agency within 120 
days of the end of the borrower's fiscal year. The lender must analyze 
the financial statements and provide the Agency with a written summary 
of the lender's analysis and conclusions, including trends, strengths, 
weaknesses, extraordinary transactions, and other indications of the 
financial condition of the borrower. Spreadsheets of the new financial 
statements must be included.
    (e) Additional expenditures. The lender will not make additional 
loans to the borrower without first obtaining the prior written approval 
of the Agency,

[[Page 565]]

even though such loans will not be guaranteed.



Secs. 4287.108-4287.111  [Reserved]



Sec. 4287.112  Interest rate adjustments.

    (a) Reductions. The borrower, lender, and holder (if any) may 
collectively initiate a permanent or temporary reduction in the interest 
rate of the guaranteed loan at any time during the life of the loan upon 
written agreement among these parties. The Agency must be notified by 
the lender, in writing, within 10 calendar days of the change. If any of 
the guaranteed portion has been purchased by the Agency, then the Agency 
will affirm or reject interest rate change proposals in writing. The 
Agency will concur in such interest-rate changes only when it is 
demonstrated to the Agency that the change is a more viable alternative 
than initiating or proceeding with liquidation of the loan or continuing 
with the loan in its present state.
    (1) Fixed rates can be changed to variable rates to reduce the 
borrower's interest rate only when the variable rate has a ceiling which 
is less than or equal to the original fixed rate.
    (2) Variable rates can be changed to a fixed rate which is at or 
below the current variable rate.
    (3) The interest rates, after adjustments, must comply with the 
requirements for interest rates on new loans as established by 
Sec. 4279.125 of subpart B of part 4279 of this chapter.
    (4) The lender is responsible for the legal documentation of 
interest-rate changes by an endorsement or any other legally effective 
amendment to the promissory note; however, no new notes may be issued. 
Copies of all legal documents must be provided to the Agency.
    (b) Increases. No increases in interest rates will be permitted 
except the normal fluctuations in approved variable interest rates 
unless a temporary interest-rate reduction had occurred.



Sec. 4287.113  Release of collateral.

    (a) All releases of collateral with a value exceeding $100,000 must 
be supported by a current appraisal on the collateral released. The 
appraisal will be at the expense of the borrower and must meet the 
requirements of Sec. 4279.144 of subpart B of part 4279 of this chapter. 
The remaining collateral must be sufficient to provide for repayment of 
the Agency's guaranteed loan. The Agency may, at its discretion, require 
an appraisal of the remaining collateral in cases where it is determined 
that the Agency may be adversely affected by the release of collateral. 
Sale or release of collateral must be based on an arm's-length 
transaction.
    (b) Within the parameters of paragraph (a) of this section, lenders 
may, over the life of the loan, release collateral (other than personal 
and corporate guarantees) with a cumulative value of up to 20 percent of 
the original loan amount without Agency concurrence if the proceeds 
generated are used to reduce the guaranteed loan or to buy replacement 
collateral.
    (c) Within the parameters of paragraph (a) of this section, release 
of collateral with a cumulative value in excess of 20 percent of the 
original loan or when the proceeds will not be used to reduce the 
guaranteed loan or to buy replacement collateral must be requested in 
writing by the lender and concurred in by the Agency in writing in 
advance of the release. A written evaluation will be completed by the 
lender to justify the release.



Secs. 4287.114-4287.122  [Reserved]



Sec. 4287.123  Subordination of lien position.

    A subordination of the lender's lien position must be requested in 
writing by the lender and concurred in by the Agency in writing in 
advance of the subordination. The subordination must enhance the 
borrower's business and the Agency's interest. After the subordination, 
collateral must be adequate to secure the loan. The lien to which the 
guaranteed loan is subordinated must be for a fixed dollar limit and 
fixed or limited term, after which the guaranteed loan lien priority 
will be restored. Subordination to a revolving line of credit will not 
exceed 1 year. There must be adequate consideration for the 
subordination.

[[Page 566]]



Sec. 4287.124  Alterations of loan instruments.

    The lender shall neither alter nor approve any alterations of any 
loan instrument without the prior written approval of the Agency.



Secs. 4287.125-4287.133  [Reserved]



Sec. 4287.134  Transfer and assumption.

    (a) Documentation of request. All transfers and assumptions must be 
approved in writing by the Agency and must be to eligible applicants in 
accordance with subpart B of part 4279 of this chapter. An individual 
credit report must be provided for transferee proprietors, partners, 
officers, directors, and stockholders with 20 percent or more interest 
in the business, along with such other documentation as the Agency may 
request to determine eligibility.
    (b) Terms. Loan terms must not be changed unless the change is 
approved in writing by the Agency with the concurrence of any holder and 
the transferor (including guarantors) if they have not been or will not 
be released from liability. Any new loan terms must be within the terms 
authorized by 4279.126 of subpart B of part 4279 of this chapter. The 
lender's request for approval of new loan terms will be supported by an 
explanation of the reasons for the proposed change in loan terms.
    (c) Release of liability. The transferor, including any guarantor, 
may be released from liability only with prior Agency written 
concurrence and only when the value of the collateral being transferred 
is at least equal to the amount of the loan being assumed and is 
supported by a current appraisal and a current financial statement. The 
Agency will not pay for the appraisal. If the transfer is for less than 
the debt, the lender must demonstrate to the Agency that the transferor 
and guarantors have no reasonable debt-paying ability considering their 
assets and income in the foreseeable future.
    (d) Proceeds. Any proceeds received from the sale of collateral 
before a transfer and assumption will be credited to the transferor's 
guaranteed loan debt in inverse order of maturity before the transfer 
and assumption are closed.
    (e) Additional loans. Loans to provide additional funds in 
connection with a transfer and assumption must be considered as a new 
loan application under subpart B of part 4279 of this chapter.
    (f) Credit quality. The lender must make a complete credit analysis 
which is subject to Agency review and approval.
    (g) Documents. Prior to Agency approval, the lender must advise the 
Agency, in writing, that the transaction can be properly and legally 
transferred, and the conveyance instruments will be filed, registered, 
or recorded as appropriate.
    (1) The assumption will be done on the lender's form of assumption 
agreement and will contain the Agency case number of the transferor and 
transferee. The lender will provide the Agency with a copy of the 
transfer and assumption agreement. The lender must ensure that all 
transfers and assumptions are noted on all original Loan Note 
Guarantees.
    (2) A new Loan Agreement, consistent in principle with the original 
Loan Agreement, should be executed to establish the terms and conditions 
of the loan being assumed. An assumption agreement can be used to 
establish the loan covenants.
    (3) The lender will provide to the Agency a written certification 
that the transfer and assumption is valid, enforceable, and complies 
with all Agency regulations.
    (h) Loss resulting from transfer. If a loss should occur upon 
consummation of a complete transfer and assumption for less than the 
full amount of the debt and the transferor (including personal 
guarantors) is released from liability, the lender, if it holds the 
guaranteed portion, may file an estimated report of loss to recover its 
pro rata share of the actual loss. If a holder owns any of the 
guaranteed portion, such portion must be repurchased by the lender or 
the Agency in accordance with 4279.78(c) of subpart A of part 4279 of 
this chapter. In completing the report of loss, the amount of the debt 
assumed will be entered as net collateral (recovery). Approved 
protective advances and accrued interest thereon made during the 
arrangement of a

[[Page 567]]

transfer and assumption will be included in the calculations.
    (i) Related party. If the transferor and transferee are affiliated 
or related parties, any transfer and assumption must be for the full 
amount of the debt.
    (j) Payment requests. Requests for a loan guarantee to provide 
equity for a transfer and assumption must be considered as a new loan 
under subpart B of part 4279 of this chapter.
    (k) Cash downpayment. When the transferee will be making a cash 
downpayment as part of the transfer and assumption:
    (1) The lender must have an appropriate appraiser, acceptable to 
both the transferee and transferor and currently authorized to perform 
appraisals, determine the value of the collateral securing the loan. The 
appraisal fee and any other costs will not be paid by the Agency.
    (2) The market value of the collateral, plus any additional property 
the transferee proposes to offer as collateral, must be adequate to 
secure the balance of the guaranteed loans.
    (3) Cash downpayments may be paid directly to the transferor 
provided:
    (i) The lender recommends that the cash be released, and the Agency 
concurs prior to the transaction being completed. The lender may wish to 
require that an amount be retained for a defined period of time as a 
reserve against future defaults. Interest on such account may be paid 
periodically to the transferor or transferee as agreed;
    (ii) The lender determines that the transferee has the repayment 
ability to meet the obligations of the assumed guaranteed loan as well 
as any other indebtedness;
    (iii) Any payments by the transferee to the transferor will not 
suspend the transferee's obligations to continue to meet the guaranteed 
loan payments as they come due under the terms of the assumption; and
    (iv) The transferor agrees not to take any action against the 
transferee in connection with the assumption without prior written 
approval of the lender and the Agency.



Sec. 4287.135  Substitution of lender.

    After the issuance of a Loan Note Guarantee, the lender shall not 
sell or transfer the entire loan without the prior written approval of 
the Agency. The Agency will not pay any loss or share in any costs 
(i.e., appraisal fees, environmental studies, or other costs associated 
with servicing or liquidating the loan) with a new lender unless a 
relationship is established through a substitution of lender in 
accordance with paragraph (a) of this section. This includes cases where 
the lender has failed and been taken over by a regulatory agency such as 
the Federal Deposit Insurance Corporation (FDIC) and the loan is 
subsequently sold to another lender.
    (a) The Agency may approve the substitution of a new lender if:
    (1) The proposed substitute lender:
    (i) Is an eligible lender in accordance with 4279.29 of subpart A of 
part 4279 of this chapter;
    (ii) Is able to service the loan in accordance with the original 
loan documents; and
    (iii) Agrees in writing to acquire title to the unguaranteed portion 
of the loan held by the original lender and assumes all original loan 
requirements, including liabilities and servicing responsibilities.
    (2) The substitution of the lender is requested in writing by the 
borrower, the proposed substitute lender, and the original lender if 
still in existence.
    (b) Where the lender has failed and been taken over by FDIC and the 
guaranteed loan is liquidated by FDIC rather than being sold to another 
lender, the Agency will pay losses and share in costs as if FDIC were an 
approved substitute lender.



Secs. 4287.136-4287.144  [Reserved]



Sec. 4287.145  Default by borrower.

    (a) The lender must notify the Agency when a borrower is 30 days 
past due on a payment or is otherwise in default of the Loan Agreement. 
Form FmHA 1980-44, ``Guaranteed Loan Borrower Default Status,'' will be 
used and the lender will continue to submit this form bimonthly until 
such time as the loan is no longer in default. If a monetary default 
exceeds 60 days, the lender

[[Page 568]]

will arrange a meeting with the Agency and the borrower to resolve the 
problem.
    (b) In considering options, the prospects for providing a permanent 
cure without adversely affecting the risk to the Agency and the lender 
is the paramount objective.
    (1) Curative actions include but are not limited to:
    (i) Deferment of principal (subject to rights of any holder);
    (ii) An additional unguaranteed loan by the lender to bring the 
account current;
    (iii) Reamortization of or rescheduling the payments on the loan 
(subject to rights of any holder);
    (iv) Transfer and assumption of the loan in accordance with 
Sec. 4287.134 of this subpart;
    (v) Reorganization;
    (vi) Liquidation;
    (vii) Subsequent loan guarantees; and
    (viii) Changes in interest rates with the Agency's, the lender's, 
and holder's approval, provided that the interest rate is adjusted 
proportionately between the guaranteed and unguaranteed portion of the 
loan and the type of rate remains the same.
    (2) In the event a deferment, rescheduling, reamortization, or 
moratorium is accomplished, it will be limited to the remaining life of 
the collateral or remaining limits as contained in Sec. 4279.126 of 
subpart B of part 4279 of this chapter, whichever is less.



Secs. 4287.146-4287.155  [Reserved]



Sec. 4287.156  Protective advances.

    Protective advances are advances made by the lender for the purpose 
of preserving and protecting the collateral where the debtor has failed 
to, will not, or cannot meet its obligations. Sound judgment must be 
exercised in determining that the protective advance preserves 
collateral and recovery is actually enhanced by making the advance. 
Protective advances will not be made in lieu of additional loans.
    (a) The maximum loss to be paid by the Agency will never exceed the 
original principal plus accrued interest regardless of any protective 
advances made.
    (b) Protective advances and interest thereon at the note rate will 
be guaranteed at the same percentage of loss as provided in the Loan 
Note Guarantee.
    (c) Protective advances must constitute an indebtedness of the 
borrower to the lender and be secured by the security instruments. 
Agency written authorization is required when cumulative protective 
advances exceed $5,000.



Sec. 4287.157  Liquidation.

    In the event of one or more incidents of default or third party 
actions that the borrower cannot or will not cure or eliminate within a 
reasonable period of time, liquidation may be considered. If the lender 
concludes that liquidation is necessary, it must request the Agency's 
concurrence. The lender will liquidate the loan unless the Agency, at 
its option, carries out liquidation. When the decision to liquidate is 
made, if the loan has not already been repurchased, provisions will be 
made for repurchase in accordance with Sec. 4279.78 of subpart A of part 
4279 of this chapter.
    (a) Decision to liquidate. A decision to liquidate shall be made 
when it is determined that the default cannot be cured through actions 
contained in Sec. 4287.145 of this subpart or it has been determined 
that it is in the best interest of the Agency and the lender to 
liquidate. The decision to liquidate or continue with the borrower must 
be made as soon as possible when any of the following exist:
    (1) A loan has been delinquent 90 days and the lender and borrower 
have not been able to cure the delinquency through one of the actions 
contained in Sec. 4287.145 of this subpart.
    (2) It has been determined that delaying liquidation will jeopardize 
full recovery on the loan.
    (3) The borrower or lender has been uncooperative in resolving the 
problem and the Agency or the lender has reason to believe the borrower 
is not acting in good faith, and it would enhance the position of the 
guarantee to liquidate immediately.
    (b) Liquidation by the Agency. The Agency may require the lender to 
assign the security instruments to the

[[Page 569]]

Agency if the Agency, at its option, decides to liquidate the loan. When 
the Agency liquidates, reasonable liquidation expenses will be assessed 
against the proceeds derived from the sale of the collateral. Form FmHA 
1980-45, ``Notice of Liquidation Responsibility,'' will be forwarded to 
the Finance Office when the Agency liquidates the loan.
    (c) Submission of liquidation plan. The lender will, within 30 days 
after a decision to liquidate, submit to the Agency in writing its 
proposed detailed method of liquidation. Upon approval by the Agency of 
the liquidation plan, the lender will commence liquidation.
    (d) Lender's liquidation plan. The liquidation plan must include, 
but is not limited to, the following:
    (1) Such proof as the Agency requires to establish the lender's 
ownership of the guaranteed loan promissory note and related security 
instruments and a copy of the payment ledger if available which reflects 
the current loan balance and accrued interest to date and the method of 
computing the interest.
    (2) A full and complete list of all collateral including any 
personal and corporate guarantees.
    (3) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including recommended action:
    (i) For acquiring and disposing of all collateral; and
    (ii) To collect from guarantors.
    (4) Necessary steps for preservation of the collateral.
    (5) Copies of the borrower's latest available financial statements.
    (6) Copies of the guarantor's latest available financial statements.
    (7) An itemized list of estimated liquidation expenses expected to 
be incurred along with justification for each expense.
    (8) A schedule to periodically report to the Agency on the progress 
of liquidation.
    (9) Estimated protective advance amounts with justification.
    (10) Proposed protective bid amounts on collateral to be sold at 
auction and a breakdown to show how the amounts were determined.
    (11) If a voluntary conveyance is considered, the proposed amount to 
be credited to the guaranteed debt.
    (12) Legal opinions, if needed.
    (13) If the outstanding balance of principal and accrued interest is 
less than $200,000, the lender will obtain an estimate of fair market 
and potential liquidation value of the collateral. If the outstanding 
balance of principal and accrued interest is $200,000 or more, the 
lender will obtain an independent appraisal report meeting the 
requirements of Sec. 4279.144 of subpartB of part 4279 of this chapter 
on all collateral securing the loan which will reflect the fair market 
value and potential liquidation value. In order to formulate a 
liquidation plan which maximizes recovery, collateral must be evaluated 
for the release of hazardous substances, petroleum products, or other 
environmental hazards which may adversely impact the market value of the 
collateral. The appraisal shall consider this aspect. The independent 
appraiser's fee, including the cost of the environmental site 
assessment, will be shared equally by the Agency and the lender.
    (e) Approval of liquidation plan. The Agency will inform the lender 
in writing whether it concurs in the lender's liquidation plan. Should 
the Agency and the lender not agree on the liquidation plan, 
negotiations will take place between the Agency and the lender to 
resolve the disagreement. When the liquidation plan is approved by the 
Agency, the lender will proceed expeditiously with liquidation.
    (1) A transfer and assumption of the borrower's operation can be 
accomplished before or after the loan goes into liquidation. However, if 
the collateral has been purchased through foreclosure or the borrower 
has conveyed title to the lender, no transfer and assumption is 
permitted.
    (2) A protective bid may be made by the lender, with prior Agency 
written approval, at a foreclosure sale to protect the lender's and the 
Agency's interest. The protective bid will not exceed the amount of the 
loan, including expenses of foreclosure, and should be based on the 
liquidation value considering estimated expenses for holding

[[Page 570]]

and reselling the property. These expenses include, but are not limited 
to, expenses for resale, interest accrual, length of time necessary for 
resale, maintenance, guard service, weatherization, and prior liens.
    (f) Acceleration. The lender, or the Agency if it liquidates, will 
proceed to accelerate the indebtedness as expeditiously as possible when 
acceleration is necessary including giving any notices and taking any 
other legal actions required. A copy of the acceleration notice or other 
acceleration document will be sent to the Agency (or lender if the 
Agency liquidates). The guaranteed loan will be considered in 
liquidation once the loan has been accelerated and a demand for payment 
has been made upon the borrower.
    (g) Filing an estimated loss claim. When the lender is conducting 
the liquidation and owns any or all of the guaranteed portion of the 
loan, the lender will file an estimated loss claim once a decision has 
been made to liquidate if the liquidation will exceed 90 days. The 
estimated loss payment will be based on the liquidation value of the 
collateral. For the purpose of reporting and loss claim computation, the 
lender will discontinue interest accrual on the defaulted loan in 
accordance with Agency procedures, and the loss claim will be promptly 
processed in accordance with applicable Agency regulations.
    (h) Accounting and reports. When the lender conducts liquidation, it 
will account for funds during the period of liquidation and will provide 
the Agency with reports at least quarterly on the progress of 
liquidation including disposition of collateral, resulting costs, and 
additional procedures necessary for successful completion of the 
liquidation.
    (i) Transmitting payments and proceeds to the Agency. When the 
Agency is the holder of a portion of the guaranteed loan, the lender 
will transmit to the Agency its pro rata share of any payments received 
from the borrower; liquidation; or other proceeds using Form FmHA 1980-
43, ``Lender's Guaranteed Loan Payment to FmHA.''
    (j) Abandonment of collateral. There may be instances when the cost 
of liquidation would exceed the potential recovery value of the 
collection. The lender, with proper documentation and concurrence of the 
Agency, may abandon the collateral in lieu of liquidation. A proposed 
abandonment will be considered a servicing action requiring the 
appropriate environmental review by the Agency in accordance with 
subpart G of part 1940 of this title. Examples where abandonment may be 
considered include, but are not limited to:
    (1) The cost of liquidation is increased or the value of the 
collateral is decreased by environmental issues;
    (2) The collateral is functionally or economically obsolete;
    (3) There are superior liens held by other parties in excess of the 
value of the collateral;
    (4) The collateral has deteriorated; or
    (5) The collateral is specialized and there is little or no demand 
for it.
    (k) Disposition of personal or corporate guarantees. The lender 
should take action to maximize recovery from all collateral, including 
personal and corporate guarantees. The lender will seek a deficiency 
judgment when there is a reasonable chance of future collection of the 
judgment. The lender must make a decision whether or not to seek a 
deficiency judgment when:
    (1) A borrower voluntarily liquidates the collateral, but the sale 
fails to pay the guaranteed indebtedness;
    (2) The collateral is voluntarily conveyed to the lender, but the 
borrower and personal and corporate guarantors are not released from 
liability; or
    (3) A liquidation plan is being developed for forced liquidation.
    (l) Compromise settlement. A compromise settlement may be considered 
at any time.
    (1) The lender and the Agency must receive complete financial 
information on all parties obligated for the loan and must be satisfied 
that the statements reflect the true and correct financial position of 
the debtor including all assets. Adequate consideration must be received 
before a release from liability is issued. Adequate consideration 
includes money, additional security, or other benefit to the goals and 
objectives of the Agency.
    (2) Before a personal guarantor can be released from liability, the 
following factors must be considered.

[[Page 571]]

    (i) Cash, either lump sum or over a period of time, or other 
consideration offered by the guarantor;
    (ii) Age and health of the guarantor;
    (iii) Potential income of the guarantor;
    (iv) Inheritance prospects of the guarantor;
    (v) Availability of the guarantor's assets.
    (vi) Possibility that the guarantor's assets have been concealed or 
improperly transferred; and
    (vii) Effect of other guarantors on the loan.
    (3) Once the Agency and the lender agree on a reasonable amount that 
is fair and adequate, the lender can proceed to effect the settlement 
compromise.
    (4) A compromise will only be accepted if it is in the best interest 
of the Agency.



Sec. 4287.158  Determination of loss and payment.

    In all liquidation cases, final settlement will be made with the 
lender after the collateral is liquidated, unless otherwise designated 
as a future recovery or after settlement and compromise of all parties 
has been completed. The Agency will have the right to recover losses 
paid under the guarantee from any party which may be liable.
    (a) Report of loss form. Form FmHA 449-30, ``Loan Note Guarantee 
Report of Loss,'' will be used for calculations of all estimated and 
final loss determinations. Estimated loss payments may only be approved 
by the Agency after the Agency has approved a liquidation plan.
    (b) Estimated loss. In accordance with the requirements of 
Sec. 4287.157(g) of this subpart, an estimated loss claim based on 
liquidation appraisal value will be prepared and submitted by the 
lender.
    (1) The estimated loss payment shall be applied as of the date of 
such payment. The total amount of the loss payment remitted by the 
Agency will be applied by the lender on the guaranteed portion of the 
loan debt. Such application does not release the borrower from 
liability.
    (2) An estimated loss will be applied first to reduce the principal 
balance on the guaranteed loan and the balance, if any, to accrued 
interest. Interest accrual on the defaulted loan will be discontinued.
    (3) A protective advance claim will be paid only at the time of the 
final report of loss payment, except in certain transfer and assumption 
situations as specified in Sec. 4287.134 of this subpart.
    (c) Final loss. Within 30 days after liquidation of all collateral, 
except for certain unsecured personal or corporate guarantees as 
provided for in this section, is completed, a final report of loss must 
be prepared and submitted by the lender to the Agency. The Agency will 
not guarantee interest beyond this 30-day period other than for the 
period of time it takes the Agency to process the loss claim. Before 
approval by the Agency of any final loss report, the lender must account 
for all funds during the period of liquidation, disposition of the 
collateral, all costs incurred, and any other information necessary for 
the successful completion of liquidation. Upon receipt of the final 
accounting and report of loss, the Agency may audit all applicable 
documentation to determine the final loss. The lender will make its 
records available and otherwise assist the Agency in making any 
investigation. The documentation accompanying the report of loss must 
support the amounts shown on Form FmHA 449-30.
    (1) A determination must be made regarding the collectibility of 
unsecured personal and corporate guarantees. If reasonably possible, 
such guarantees should be promptly collected or otherwise disposed of in 
accordance with Sec. 4287.157(k) of this subpart prior to completion of 
the final loss report. However, in the event that collection from the 
guarantors appears unlikely or will require a prolonged period of time, 
the report of loss will be filed when all other collateral has been 
liquidated, and unsecured personal or corporate guarantees will be 
treated as a future recovery with the net proceeds to be shared on a pro 
rata basis by the lender and the Agency.
    (2) The lender must document that all of the collateral has been 
accounted for and properly liquidated and that

[[Page 572]]

liquidation proceeds have been properly accounted for and applied 
correctly to the loan.
    (3) The lender will show a breakdown of any protective advance 
amount as to the payee, purpose of the expenditure, date paid, and 
evidence that the amount expended was proper and that payment was 
actually made.
    (4) The lender will show a breakdown of liquidation expenses as to 
the payee, purpose of the expenditure, date paid, and evidence that the 
amount expended was proper and that payment was actually made. 
Liquidation expenses are recoverable only from collateral proceeds. 
Attorney fees may be approved as liquidation expenses provided the fees 
are reasonable and cover legal issues pertaining to the liquidation that 
could not be properly handled by the lender and its in-house counsel.
    (5) Accrued interest will be supported by documentation as to how 
the amount was accrued. If the interest rate was a variable rate, the 
lender will include documentation of changes in both the selected base 
rate and the loan rate.
    (6) Loss payments will be paid by the Agency within 60 days after 
the review of the final loss report and accounting of the collateral.
    (d) Loss limit. The amount payable by the Agency to the lender 
cannot exceed the limits set forth in the Loan Note Guarantee.
    (e) Rent. Any net rental or other income that has been received by 
the lender from the collateral will be applied on the guaranteed loan 
debt.
    (f) Liquidation costs. Liquidation costs will be deducted from the 
proceeds of the disposition of primary collateral. If changed 
circumstances after submission of the liquidation plan require a 
substantial revision of liquidation costs, the lender will procure the 
Agency's written concurrence prior to proceeding with the proposed 
changes. No in-house expenses of the lender will be allowed. In-house 
expenses include, but are not limited to, employee's salaries, staff 
lawyers, travel, and overhead.
    (g) Payment. When the Agency finds the final report of loss to be 
proper in all respects, it will approve Form FmHA 449-30 and proceed as 
follows:
    (1) If the loss is greater than any estimated loss payment, the 
Agency will pay the additional amount owed by the Agency to the lender.
    (2) If the loss is less than the estimated loss payment, the lender 
will reimburse the Agency for the overpayment plus interest at the note 
rate from the date of payment.
    (3) If the Agency has conducted the liquidation, it will pay the 
lender in accordance with the Loan Note Guarantee.



Secs. 4287.159-4287.168  [Reserved]



Sec. 4287.169  Future recovery.

    After a loan has been liquidated and a final loss has been paid by 
the Agency, any future funds which may be recovered by the lender will 
be pro rated between the Agency and the lender based on the original 
percentage of guarantee.



Sec. 4287.170  Bankruptcy.

    The lender is responsible for protecting the guaranteed loan and all 
collateral securing the loan in bankruptcy proceedings.
    (a) Lender's responsibilities. It is the lender's responsibility to 
protect the guaranteed loan debt and all of the collateral securing it 
in bankruptcy proceedings. These responsibilities include but are not 
limited to the following:
    (1) The lender will file a proof of claim where necessary and all 
the necessary papers and pleadings concerning the case.
    (2) The lender will attend and, where necessary, participate in 
meetings of the creditors and all court proceedings.
    (3) When permitted by the Bankruptcy Code, the lender will request 
modification of any plan of reorganization whenever it appears that 
additional recoveries are likely.
    (4) The Agency will be kept adequately and regularly informed in 
writing of all aspects of the proceedings.
    (5) In a Chapter 11 reorganization, if an independent appraisal of 
collateral is necessary in the Agency's opinion, the Agency and the 
lender will share such appraisal fee equally.
    (b) Reports of loss during bankruptcy. When the loan is involved in 
reorganization proceedings, payment of loss

[[Page 573]]

claims may be made as provided in this section. For a liquidation 
proceeding, only paragraphs (b)(3) and (5) of this section are 
applicable.
    (1) Estimated loss payments. (i) If a borrower has filed for 
protection under Chapter 11 of the United States Code for a 
reorganization (but not Chapter 13) and all or a portion of the debt has 
been discharged, the lender will request an estimated loss payment of 
the guaranteed portion of the accrued interest and principal discharged 
by the court. Only one estimated loss payment is allowed during the 
reorganization. All subsequent claims of the lender during 
reorganization will be considered revisions to the initial estimated 
loss. A revised estimated loss payment may be processed by the Agency, 
at its option, in accordance with any court-approved changes in the 
reorganization plan. Once the reorganization plan has been completed, 
the lender is responsible for submitting the documentation necessary for 
the Agency to review and adjust the estimated loss claim to reflect any 
actual discharge of principal and interest and to reimburse the lender 
for any court-ordered interest-rate reduction under the terms of the 
reorganization plan.
    (ii) The lender will use Form FmHA 449-30 to request an estimated 
loss payment and to revise any estimated loss payments during the course 
of the reorganization plan. The estimated loss claim, as well as any 
revisions to this claim, will be accompanied by documentation to support 
the claim.
    (iii) Upon completion of a reorganization plan, the lender will 
complete a Form FmHA 1980-44 and forward this form to the Finance 
Office.
    (2) Interest loss payments. (i) Interest losses sustained during the 
period of the reorganization plan will be processed in accordance with 
paragraph (b)(1) of this section.
    (ii) Interest losses sustained after the reorganization plan is 
completed will be processed annually when the lender sustains a loss as 
a result of a permanent interest rate reduction which extends beyond the 
period of the reorganization plan.
    (iii) If an estimated loss claim is paid during the operation of the 
Chapter 11 reorganization plan and the borrower repays in full the 
remaining balance without an additional loss sustained by the lender, a 
final report of loss is not necessary.
    (3) Final loss payments. Final loss payments will be processed when 
the loan is liquidated.
    (4) Payment application. The lender must apply estimated loss 
payments first to the unsecured principal of the guaranteed portion of 
the debt and then to the unsecured interest of the guaranteed portion of 
the debt. In the event a bankruptcy court attempts to direct the 
payments to be applied in a different manner, the lender will 
immediately notify the Agency servicing office.
    (5) Overpayments. Upon completion of the reorganization plan, the 
lender will provide the Agency with the documentation necessary to 
determine whether the estimated loss paid equals the actual loss 
sustained. If the actual loss sustained as a result of the 
reorganization is less than the estimated loss, the lender will 
reimburse the Agency for the overpayment plus interest at the note rate 
from the date of payment of the estimated loss. If the actual loss is 
greater than the estimated loss payment, the lender will submit a 
revised estimated loss in order to obtain payment of the additional 
amount owed by the Agency to the lender.
    (6) Protective advances. If approved protective advances were made 
prior to the borrower having filed bankruptcy, these protective advances 
and accrued interest will be considered in the loss calculations.
    (c) Legal expenses during bankruptcy proceedings. (1) When a 
bankruptcy proceeding results in a liquidation of the borrower by a 
trustee, legal expenses will be handled as directed by the court.
    (2) Chapter 11 pertains to a reorganization of a business 
contemplating an ongoing business rather than a termination and 
dissolution of the business where legal protection is afforded to the 
business as defined under Chapter 11 of the Bankruptcy Code. 
Consequently, expenses incurred by the lender in a Chapter 11 
reorganization can never be liquidation expenses unless the proceeding 
becomes a Chapter 11 liquidation. If the proceeding should

[[Page 574]]

become a Liquidating 11, reasonable and customary liquidation expenses 
may be deducted from proceeds of collateral as provided in the Lender's 
Agreement. Chapter 7 pertains to a liquidation of the borrower's assets. 
If, and when, liquidation of the borrower's assets under Chapter 7 is 
conducted by the bankruptcy trustee, then the lender cannot claim 
expenses.



Secs. 4287.171-4287.179  [Reserved]



Sec. 4287.180  Termination of guarantee.

    A guarantee under this part will terminate automatically:
    (a) Upon full payment of the guaranteed loan;
    (b) Upon full payment of any loss obligation; or
    (c) Upon written notice from the lender to the Agency that the 
guarantee will terminate 30 days after the date of notice, provided that 
the lender holds all of the guaranteed portion and the Loan Note 
Guarantee is returned to the Agency to be canceled.



Secs. 4287.181-4287.199  [Reserved]



Sec. 4287.200  OMB control number.

    The information collection requirements contained in this regulation 
have been approved by OMB and have been assigned OMB control number 
0575-0168. Public reporting burden for this collection of information is 
estimated to vary from 15 minutes to 8 hours per response, with an 
average of 4 hours per response, including time for reviewing the 
collection of information. Send comments regarding this burden, estimate 
or any other aspect of this collection of information, including 
suggestions for reducing this burden to the Department of Agriculture, 
Clearance Officer, OIRM, Stop 7630, Washington, DC 20250. You are not 
required to respond to this collection of information unless it displays 
a currently valid OMB control number.


[[Page 575]]



                              FINDING AIDS




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

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected



[[Page 577]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2003)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2 [Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)

[[Page 578]]

    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
    LXXIII  Department of Agriculture (Part 8301)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                          Title 6 [Reserved]

              

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)

[[Page 579]]

        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)

[[Page 580]]

     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Immigration and Naturalization Service, Department of 
                Justice (Parts 1--599)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 1000-
                -1099)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Part 1800)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)

[[Page 581]]

        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

[[Page 582]]

        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  United States Customs Service, Department of the 
                Treasury (Parts 1--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

[[Page 583]]

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 800-
                -899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 1600-
                -1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

[[Page 584]]

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

[[Page 585]]

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Bureau of Alcohol, Tobacco and Firearms, Department of 
                the Treasury (Parts 1--299)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--199)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 0-
                -99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)

[[Page 586]]

        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Pension and Welfare Benefits Administration, 
                Department of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 200-
                -399)
        IV  Secret Service, Department of the Treasury (Parts 400-
                -499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

[[Page 587]]

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Corps of Engineers, Department of the Army (Parts 200-
                -399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

[[Page 588]]

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 300-
                -399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Part 1501)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--799)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Haxard Investigation Board (Parts 
                1600--1699)

[[Page 589]]

       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-70)
       304  Payment from a Non-Federal Source for Travel Expenses 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

[[Page 590]]

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10005)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)

[[Page 591]]

     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Transportation (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 300-
                -399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)

[[Page 592]]

        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)
        54  Defense Logistics Agency, Department of Defense (Part 
                5452)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Transportation (Parts 400--
                499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)

[[Page 593]]

        XI  Bureau of Transportation Statistics, Department of 
                Transportation (Parts 1400--1499)
       XII  Transportation Security Administration, Department of 
                Transportation (Parts 1500--1599)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR



[[Page 595]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2003)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Alcohol, Tobacco and Firearms, Bureau of          27, I
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII

[[Page 596]]

Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs Service, United States                    19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII

[[Page 597]]

  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   5, LIV; 40, I, IV, VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II

[[Page 598]]

Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F

[[Page 599]]

  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Naturalization Service            8, I
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V

[[Page 600]]

  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I, XI; 40, 
                                                  IV
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration and Naturalization Service          8, I
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Pension and Welfare Benefits Administration     29, XXV
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II

[[Page 601]]

Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
   Certain Employees
[[Page 602]]

Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension and Welfare Benefits Administration       29, XXV
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II

[[Page 603]]

  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Security Administration          49, XII
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol, Tobacco and Firearms, Bureau of        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs Service, United States                  19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 605]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Pages numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000'' published in 
11 separate volumes.

                                  2001

7 CFR
                                                                   66 FR
                                                                    Page
Chapter XXXIV
3404  Revised......................................................57842
Chapter XXXVI
3601  Revised......................................................57843
Chapter XXXVII
3701  Revised......................................................57845

                                  2002

7 CFR
                                                                   67 FR
                                                                    Page
Chapter XX
Chapter  XX Established............................................76105
Chapter XXXV
3550.10  Amended; eff. 1-23-03.....................................78329
3550.50  Amended (OMB number); eff. 1-23-03........................78329
3550.52  (b)(1)(i) and (ii) revised; eff. 1-23-03..................78329
3550.53  (h)(1)(ii) through (ix) redesignated as (h)(1)(iii) 
        through (x); (g) introductory text, (h)(1)(i), new (v) and 
        (ix) revised; new (h)(1)(ii) added; eff. 1-23-03...........78330
3550.54  (c)(1) amended; eff. 1-23-03..............................78330
3550.57  (a) introductory text revised; eff. 1-23-03...............78330
3550.59  (a)(2) amended; eff. 1-23-03..............................78330
3550.63  Introductory text and (a) revised; eff. 3-24-03...........78330
3550.66  Revised; eff. 1-23-03.....................................78330
3550.70  Introductory text amended; eff. 1-23-03...................78330
3550.100  Amended (OMB number); eff. 1-23-03.......................78330
3550.101--3550.150 (Subpart C)  Heading revised; eff. 1-23-03......78330
3550.101  Amended; eff. 1-23-03....................................78331
3550.103  (i)(1)(ii) through (viii) redesignated as (i)(1)(iii) 
        through (ix); (i)(1)(i), new (v) and new (viii) revised; 
        new (i)(1)(ii) added; eff. 1-23-03.........................78331
3550.106  (a) amended; eff. 1-23-03................................78331
3550.108  Introductory text amended; (b)(1) revised; eff. 1-23-03 
                                                                   78331
3550.114  Amended; eff. 1-23-03....................................78331
3550.115  Added; eff. 1-23-03......................................78331
3550.116  Added; eff. 1-23-03......................................78331
3550.117  Added; eff. 1-23-03......................................78331
3550.118  Added; eff. 1-23-03......................................78331
3550.119  Added; eff. 1-23-03......................................78331
3550.150  Amended (OMB number); eff. 1-23-03.......................78331
3550.162  (b)(2) revised; eff. 1-23-03.............................78331
3550.163  (b)(2) amended; eff. 1-23-03.............................78331
3550.200  Amended (OMB number); eff. 1-23-03.......................78332
3550.208  (a)(6) added; (b) amended; eff. 1-23-03..................78332
3550.210  (a) revised..............................................69672
3550.211  (c) amended; eff. 1-23-03................................78332

[[Page 606]]

3550.250  Amended (OMB number); eff. 1-23-03.......................78332
3550.251  (c)(5)(i)(A) amended; (c)(4)(1) and (ii) revised; eff. 
        1-23-03....................................................78332
3550.300  Amended (OMB number); eff. 1-23-03.......................78332
3565.3  Amended....................................................16970
3565.209  Revised..................................................16970
3565.214  Removed..................................................16971
3565.403  (b)(2) amended...........................................16971
3565.452  Revised..................................................16971
Chapter XLII
Chapter   XLII Policy statement....................................70529
4279  Authority citation amended...................................78130
4279.108  (c) revised..............................................78130
4284  Authority citation revised...................................63538
4284.603  Amended..................................................63538


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