[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2007 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          7


          Part 2000 to End

                         Revised as of January 1, 2007


          Agriculture
          



________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2007
          With Ancillaries
                    Published by:
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

[[Page ii]]

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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                                 59
          Chapter XXVII--Office of Information Resources 
          Management, Department of Agriculture                     69
          Chapter XXVIII--Office of Operations, Department of 
          Agriculture                                               73
          Chapter XXIX--Office of Energy Policy and New Uses, 
          Department of Agriculture                                 81
          Chapter XXX--Office of the Chief Financial Officer, 
          Department of Agriculture                                105
          Chapter XXXI--Office of Environmental Quality, 
          Department of Agriculture                                279
          Chapter XXXII--Office of Procurement and Property 
          Management, Department of Agriculture                    287
          Chapter XXXIII--Office of Transportation, Department 
          of Agriculture                                           293
          Chapter XXXIV--Cooperative State Research, 
          Education, and Extension Service, Department of 
          Agriculture                                              307

[[Page iv]]

          Chapter XXXV--Rural Housing Service, Department of 
          Agriculture                                              427
          Chapter XXXVI--National Agricultural Statistics 
          Service, Department of Agriculture                       659
          Chapter XXXVII--Economic Research Service, 
          Department of Agriculture                                667
          Chapter XXXVIII--World Agricultural Outlook Board, 
          Department of Agriculture                                673
          Chapter XLI [Reserved]
          Chapter XLII--Rural Business-Cooperative Service and 
          Rural Utilities Service, Department of Agriculture       677
  Finding Aids:
      Table of CFR Titles and Chapters........................     877
      Alphabetical List of Agencies Appearing in the CFR......     895
      List of CFR Sections Affected...........................     905

[[Page v]]





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

                     Cite this Code: CFR
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                       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 
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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

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[[Page vii]]

Many agencies have begun publishing numerous OMB control numbers as 
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[[Page viii]]

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

January 1, 2007.

[[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, 2007.

    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.

    For this volume, Moja N. Mwaniki and Bonnie Fritts were Chief 
Editors. The Code of Federal Regulations publication program is under 
the direction of Frances D. McDonald, assisted by Ann Worley.


[[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 Policy and New Uses, 
  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

[[Page 2]]


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

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 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.



Sec. Sec. 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.



Sec. Sec. 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]



Sec. Sec. 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.



Sec. Sec. 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 section 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]



Sec. Sec. 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.



Sec. Sec. 2003.23-2003.25  [Reserved]



Sec. 2003.26  Functional organization of RBS.

    (a) General. The Secretary established RBS pursuant to section 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.



Sec. Sec. 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]]



Sec. Sec. 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.

    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.
    (c) Persons performing authorized gratuitous services will be held 
to the same standard as regular FmHA or its

[[Page 20]]

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.

[43 FR 3694, Jan. 27, 1978, as amended at 68 FR 61333, Oct. 28, 2003]



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.
    (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.

[[Page 21]]

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




  --------------------------------------------------------------------
Part                                                                Page
2200            Access to local television signals 
                    guaranteed loan program; general 
                    policies and procedures.................          25
2201            Local television loan guarantee program--
                    program regulations.....................          36

[[Page 25]]



PART 2200_ACCESS TO LOCAL TELEVISION SIGNALS GUARANTEED LOAN PROGRAM; 
GENERAL POLICIES AND 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 Restrictions on lobbying.
2200.11 Government-wide debarment and suspension (nonprocurement).
2200.12 Freedom of Information Act.

    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.
    (d) Person means any individual, corporation, cooperative, 
partnership, joint venture, association, joint-stock company, limited 
liability company or partnership, trust, unincorporated organization, 
government entity, agency or instrumentality or any subdivision thereof.

[67 FR 76105, Dec. 11, 2002, as amended at 68 FR 74416, Dec. 23, 2003]



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.

[[Page 26]]

    (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 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  Restrictions on lobbying.

    (a) No funds received through a Loan guaranteed under this Program 
in this chapter may be expended by the recipient of a Federal contract, 
grant, loan,

[[Page 27]]

loan guarantee, or cooperative agreement 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 or loan 
Guarantee, the entering into of any cooperative agreement, and the 
extension, continuation, renewal, amendment, or modification of any 
Federal contract, grant, loan, loan Guarantee, or cooperative agreement.
    (b) 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 the application form, 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.
    (c) 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 Standard Form-LLL 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.
    (d) Each person shall file a certification, contained in the 
application form, and a disclosure form (Standard Form-LLL), 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.
    (e) 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 (c) of this section.
    (f) 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 (d) or (e) 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.

[68 FR 74416, Dec. 23, 2003]



Sec. 2200.11  Government-wide debarment and suspension (nonprocurement).

    (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. The Board shall 
review the List of Debarred entities prior to making final loan 
Guarantee decisions. Suspension or debarment may be a basis for denying 
a loan Guarantee.

[[Page 28]]

    (b) This section applies 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 this 
section such transactions will be referred to as ``covered 
transactions.''
    (1) Covered transaction. For purposes of this section, 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 (b)(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.
    (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 $100,000) 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 may 
include loan officers or chief executive officers acting as principal 
investigators and 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 accepted);
    (iv) Federal employment;
    (v) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (vi) Incidental benefits derived from ordinary governmental 
operations; and
    (vii) Other transactions where the application of this section would 
be prohibited by law.
    (3) Board covered transactions. This section applies to the Board's 
Loan Guarantees, subcontracts and transactions at any tier that are 
charges as direct or indirect costs, regardless of type.
    (c) 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 paragraph (l) of 
this section.
    (d) 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 paragraph (b)(1)(ii) of this section for the 
period of their exclusion).

[[Page 29]]

    (e) 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 accepted);
    (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 this section would 
be prohibited by law.
    (f) Persons who are ineligible are excluded in accordance with the 
applicable statutory, executive order, or regulatory authority.
    (g) Persons who accept voluntary exclusions are excluded in 
accordance with the terms of their settlements. The Board shall, and 
participants may, contact the original action agency to ascertain the 
extent of the exclusion.
    (h) The Board 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. 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 the Executive Order.
    (i) 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.
    (j) 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 paragraph 
(h) of this section.
    (k) Except as permitted under paragraphs (h) or (i) of this section, 
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.
    (l) Violation of the restriction under paragraph (k) 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.
    (m) 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, 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.

[68 FR 74416, Dec. 23, 2003]

[[Page 30]]



Sec. 2200.12  Freedom of Information Act.

    (a) Definitions. All terms used in this section, which are defined 
in 5 U.S.C. 551 or 5 U.S.C. 552 shall have the same meaning in this 
section. In addition the following definitions apply to this section:
    (1) FOIA, as used in this section, means the ``Freedom of 
Information Act,'' as amended, 5 U.S.C. 552.
    (2) Commercial use request means a request from or on behalf of one 
who seeks information for a use or purpose that furthers the commercial, 
trade, or profit interests of the requester or the person on whose 
behalf the request is made.
    (3) Direct costs mean those expenditures that the Board actually 
incurs in searching for, reviewing, and duplicating documents in 
response to a request made under paragraph (c) of this section. Direct 
costs include, for example, the labor costs of the employee performing 
the work (the basic rate of pay for the employee, plus 16 percent of 
that rate to cover benefits). Not included in direct costs are overhead 
expenses such as the costs of space and heating or lighting of the 
facility in which the records are kept.
    (4) Duplication means the process of making a copy of a document in 
response to a request for disclosure of records or for inspection of 
original records that contain exempt material or that otherwise cannot 
be inspected directly. Among others, such copies may take the form of 
paper, microfilm, audiovisual materials, or machine-readable 
documentation (e.g., magnetic tape or disk).
    (5) Educational institution means a preschool, a public or private 
elementary or secondary school, or an institution of undergraduate 
higher education, graduate higher education, professional education, or 
an institution of vocational education that operates a program of 
scholarly research.
    (6) Noncommercial scientific institution refers to an institution 
that is not operated on a ``commercial'' basis (as that term is used in 
this section) and which is operated solely for the purpose of conducting 
scientific research, the results of which are not intended to promote 
any particular product or industry.
    (7) News means information about current events or that would be of 
current interest to the public. Examples of news media entities include, 
but are not limited to, television or radio stations broadcasting to the 
public at large, and publishers of newspapers and other periodicals (but 
only in those instances when they can qualify as disseminators of 
``news'') who make their products available for purchase or subscription 
by the general public. ``Freelance'' journalists may be regarded as 
working for a news organization if they can demonstrate a solid basis 
for expecting publication through that organization, even though not 
actually employed by it.
    (8) Representative of the news media means any person actively 
gathering news for an entity that is organized and operated to publish 
or broadcast news to the general public.
    (9) Review means the process of examining documents, located in 
response to a request for access, to determine whether any portion of a 
document is exempt information. It includes doing all that is necessary 
to excise the documents and otherwise to prepare them for release. 
Review does not include time spent resolving general legal or policy 
issues regarding the application of exemptions.
    (10) Search means the process of looking for material that is 
responsive to a request, including page-by-page or line-by-line 
identification within documents. Searches may be done manually or by 
computer.
    (b) Records available for public inspection and copying--(1) Types 
of records made available. The information in this section is furnished 
for the guidance of the public and in compliance with the requirements 
of the FOIA. This section sets forth the procedures the Board follows to 
make publicly available the materials specified in 5 U.S.C. 552(a)(2). 
These materials shall be made available for inspection and copying at 
the Board's offices pursuant to 5 U.S.C. 552(a)(2). Information 
routinely provided to the public as part of a regular Board activity 
(for example, press releases) may be provided to the public without 
following this section.
    (2) Reading room procedures. Information available under this 
section is

[[Page 31]]

available for inspection and copying, from 9 a.m. to 5 p.m. weekdays, at 
1400 Independence Avenue, SW., Washington, DC.
    (3) Electronic records. Information available under this section 
shall also be available on the Board's Web site found at http://
www.usda.gov/rus/localtvboard.
    (c) Records available to the public on request--(1) Types of records 
made available. All records of the Board that are not available under 
paragraph (b) of this section shall be made available upon request, 
pursuant to the procedures in this section and the exceptions set forth 
in the FOIA.
    (2) Procedures for requesting records. A request for records shall 
reasonably describe the records in a way that enables the Board's staff 
to identify and produce the records with reasonable effort and without 
unduly burdening or significantly interfering with any of the Board's 
operations. The request shall be submitted in writing to the Secretary 
of the Board at LOCAL Television Loan Guarantee Board, 1400 Independence 
Avenue, SW., STOP 1575, Room 2919-S, Washington, DC 20250-1575, or sent 
by facsimile to the Secretary of the Board at (202) 720-2734. The 
request shall be clearly marked FREEDOM OF INFORMATION ACT REQUEST.
    (3) Contents of request. The request shall contain the following 
information:
    (i) The name and address of the requester, and the telephone number 
at which the requester can be reached during normal business hours;
    (ii) Whether the requested information is intended for commercial 
use, or whether the requester represents an educational or noncommercial 
scientific institution, or news media;
    (iii) A statement agreeing to pay the applicable fees, or a 
statement identifying any fee limitation desired, or a request for a 
waiver or reduction of fees that satisfies paragraph (f) of this 
section.
    (d) Processing requests--(1) Priority of responses. The date of 
receipt for any request, including one that is addressed incorrectly or 
that is referred to the Board by another agency, is the date the 
Secretary of the Board actually receives the request. The Secretary of 
the Board shall normally process requests in the order they are 
received. However, in the Secretary of the Board's discretion, the Board 
may use two or more processing tracks by distinguishing between simple 
and more complex requests based on the number of pages involved, or some 
other measure of the amount of work and/or time needed to process the 
request, and whether the request qualifies for expedited processing as 
described in paragraph (d)(2) of this section. When using multitrack 
processing, the Secretary of the Board may provide requesters in the 
slower track(s) with an opportunity to limit the scope of their requests 
in order to qualify for faster processing. The Secretary of the Board 
shall contact the requester by telephone or by letter, whichever is most 
efficient in each case.
    (2) Expedited processing. (i) A person may request expedited access 
to records by submitting a statement, certified to be true and correct 
to the best of that person's knowledge and belief, that demonstrates a 
compelling need for the records, as defined in 5 U.S.C. 552(a)(6)(E)(v).
    (ii) The Secretary of the Board shall notify a requester of the 
determination whether to grant or deny a request for expedited 
processing within ten working days of receipt of the request. If the 
Secretary of the Board grants the request for expedited processing, the 
Board shall process the request for access to information as soon as 
practicable. If the Secretary of the Board denies a request for 
expedited processing, the requester may file an appeal pursuant to the 
procedures set forth in paragraph (e) of this section, and the Board 
shall respond to the appeal within twenty days after the appeal was 
received by the Board.
    (3) Time limits. The time for response to requests shall be 20 
working days, except:
    (i) In the case of expedited treatment under paragraph (d)(2) of 
this section;
    (ii) Where the running of such time is suspended for payment of fees 
pursuant to paragraph (f)(2)(ii) of this section;
    (iii) Where the estimated charge is less than $250, and the 
requester does

[[Page 32]]

not guarantee payment pursuant to paragraph (f)(2)(i) of this section; 
or
    (iv) In unusual circumstances, as defined in 5 U.S.C. 
552(a)(6)(B)(iii), the time limit may be extended for a period of time 
not to exceed 10 working days as provided by written notice to the 
requester, setting forth the reasons for the extension and the date on 
which a determination is expected to be dispatched; or such alternative 
time period as mutually agreed to by the Secretary of the Board and the 
requester when the Secretary of the Board notifies the requester that 
the request cannot be processed in the specified time limit.
    (4) Response to request. In response to a request that satisfies 
paragraph (c) of this section, an appropriate search shall be conducted 
of records in the custody and control of the Board on the date of 
receipt of the request, and a review made of any responsive information 
located. The Secretary of the Board shall notify the requester of:
    (i) The Secretary of the Board's determination of the request and 
the reasons therefore;
    (ii) The information withheld, and the basis for withholding; and
    (iii) The right to appeal any denial or partial denial, pursuant to 
paragraph (e) of this section.
    (5) Referral to another agency. To the extent a request covers 
documents that were created by, obtained from, classified by, or is in 
the primary interest of another agency, the Secretary of the Board may 
refer the request to that agency for a direct response by that agency 
and inform the requester promptly of the referral. The Secretary of the 
Board shall consult with another Federal agency before responding to a 
requester if the Board receives a request for a record in which:
    (i) Another Federal agency subject to the FOIA has a significant 
interest, but not the primary interest; or
    (ii) Another Federal agency not subject to the FOIA has the primary 
interest or a significant interest. Ordinarily, the agency that 
originated a record will be presumed to have the primary interest in it.
    (6) Providing responsive records. (i) A copy of records or portions 
of records responsive to the request shall be sent to the requester by 
regular U.S. mail to the address indicated in the request, unless the 
requester elects to take delivery of the documents at the Board's 
Freedom of Information Office or makes other acceptable arrangements, or 
the Secretary of the Board deems it appropriate to send the documents by 
another means. The Secretary of the Board shall provide a copy of the 
record in any form or format requested if the record is readily 
reproducible in that form or format, but the Secretary of the Board need 
not provide more than one copy of any record to a requester.
    (ii) The Secretary of the Board shall provide any reasonably 
segregable portion of a record that is responsive to the request after 
deleting those portions that are exempt under the FOIA or this section.
    (iii) Except where disclosure is expressly prohibited by statute, 
regulation, or order, the Secretary of the Board may authorize the 
release of records that are exempt from mandatory disclosure whenever 
the Board or designated Board members determine that there would be no 
foreseeable harm in such disclosure.
    (iv) The Board is not required in response to the request to create 
records or otherwise to prepare new records.
    (7) Prohibition against disclosure. Except as provided in this part, 
no officer, employee, or agent of the Board shall disclose or permit the 
disclosure of any unpublished information of the Board to any person 
(other than Board officers, employees, or agents properly entitled to 
such information for the performance of official duties), unless 
required by law.
    (e) Appeals. (1) Any person denied access to Board records requested 
under paragraph (c) of this section, denied expedited processing under 
paragraph (d) of this section, or denied a waiver of fees under 
paragraph (f) of this section may file a written appeal within 30 
calendar days after the date of such denial with the Board. The written 
appeal shall prominently display the phrase FREEDOM OF INFORMATION ACT 
APPEAL on the first page, and shall be addressed to Chairman of the 
Board, LOCAL Television Loan Guarantee Board, 1400 Independence Avenue, 
SW.,

[[Page 33]]

STOP 1575, Room 2919-S, Washington, DC 20250-1575, or sent by facsimile 
to (202) 720-2734. The appeal shall include a copy of the original 
request, the initial denial, if any, and a statement of the reasons why 
the requested records should be made available and why the initial 
denial was in error.
    (2) The Chairman of the Board shall make a determination regarding 
any appeal within 20 working days of actual receipt of the appeal, and 
the determination letter shall notify the appealing party of the right 
to seek judicial review in event of denial.
    (f) Fee schedules and waiver of fees--(1) Fee schedule. The fees 
applicable to a request for records pursuant to paragraph (c) of this 
section are set forth in the uniform fee schedule at the end of this 
paragraph (f).
    (i) Search. (A) Search fees shall be charged for all requests other 
than requests made by educational institutions, noncommercial scientific 
institutions, or representatives of the news media, subject to the 
limitations of paragraph (f)(1)(iv) of this section. The Secretary of 
the Board shall charge for time spent searching even if no responsive 
record is located or if the Secretary of the Board withholds the 
record(s) located as entirely exempt from disclosure. Search fees shall 
be the direct costs of conducting the search by the involved employees.
    (B) For computer searches of records, requesters will be charged the 
direct costs of conducting the search, although certain requesters (as 
provided in paragraph (f)(3) of this section) will be charged no search 
fee and certain other requesters (as provided in paragraph (f)(3)) are 
entitled to the cost equivalent of two hours of manual search time 
without charge. These direct costs include the costs, attributable to 
the search, of operating a central processing unit and operator/
programmer salary.
    (ii) Duplication. Duplication fees will be charged to all 
requesters, subject to the limitations of paragraph (f)(1)(iv) of this 
section. For a paper photocopy of a record (no more than one copy of 
which need be supplied), the fee shall be 15 cents per page. For copies 
produced by computer, such as tapes or printouts, the Secretary of the 
Board shall charge the direct costs, including operator time, of 
producing the copy. For other forms of duplication, the Secretary of the 
Board will charge the direct costs of that duplication.
    (iii) Review. Review fees shall be charged to requesters who make a 
commercial use request. Review fees shall be charged only for the 
initial record review--the review done when the Secretary of the Board 
determines whether an exemption applies to a particular record at the 
initial request level. No charge will be made for review at the 
administrative appeal level for an exemption already applied. However, 
records withheld under an exemption that is subsequently determined not 
to apply may be reviewed again to determine whether any other exemption 
not previously considered applies, and the costs of that review are 
chargeable. Review fees shall be the direct costs of conducting the 
review by the involved employees.
    (iv) Limitations on charging fees. (A) No search fee will be charged 
for requests by educational institutions, noncommercial scientific 
institutions, or representatives of the news media.
    (B) No search fee or review fee will be charged for a quarter-hour 
period unless more than half of that period is required for search or 
review.
    (C) Whenever a total fee calculated under this paragraph is $25 or 
less for any request, no fee will be charged.
    (D) For requesters other than those seeking records for a commercial 
use, no fee will be charged unless the cost of search in excess of two 
hours plus the cost of duplication in excess of 100 pages totals more 
than $25.
    (2) Payment procedures. All persons requesting records pursuant to 
paragraph (c) of this section shall pay the applicable fees before the 
Secretary of the Board sends copies of the requested records, unless a 
fee waiver has been granted pursuant to paragraph (f)(6) of this 
section. Requesters must pay fees by check or money order made payable 
to the Treasury of the United States.
    (i) Advance notification of fees. If the estimated charges are 
likely to exceed $25, the Secretary of the Board shall notify the 
requester of the estimated amount, unless the requester has indicated a 
willingness to pay fees as high

[[Page 34]]

as those anticipated. Upon receipt of such notice, the requester may 
confer with the Secretary of the Board to reformulate the request to 
lower the costs. The processing of the request shall be suspended until 
the requester provides the Secretary of the Board with a written 
guarantee that payment will be made upon completion of the processing.
    (ii) Advance payment. The Secretary of the Board shall require 
advance payment of any fee estimated to exceed $250. The Secretary of 
the Board shall also require full payment in advance where a requester 
has previously failed to pay a fee in a timely fashion. If an advance 
payment of an estimated fee exceeds the actual total fee by $1 or more, 
the difference shall be refunded to the requester. The time period for 
responding to requests under paragraph (d)(4) of this section, and the 
processing of the request shall be suspended until the Secretary of the 
Board receives the required payment.
    (iii) Late charges. The Secretary of the Board may assess interest 
charges when fee payment is not made within 30 days of the date on which 
the billing was sent. Assessment of such interest will commence on the 
31st day following the day on which the billing was sent. Interest is at 
the rate prescribed in 31 U.S.C. 3717.
    (3) Categories of uses. The fees assessed depend upon the fee 
category. In determining which category is appropriate, the Secretary of 
the Board shall look to the identity of the requester and the intended 
use set forth in the request for records. Where a requester's 
description of the use is insufficient to make a determination, the 
Secretary of the Board may seek additional clarification before 
categorizing the request.
    (i) Commercial use requester. The fees for search, duplication, and 
review apply when records are requested for commercial use.
    (ii) Educational, non-commercial scientific institutions, or 
representatives of the news media requesters. The fees for duplication 
apply when records are not sought for commercial use, and the requester 
is a representative of the news media or an educational or noncommercial 
scientific institution, whose purpose is scholarly or scientific 
research. The first 100 pages of duplication, however, will be provided 
free.
    (iii) All other requesters. For all other requests, the fees for 
search and duplication apply. The first two hours of search time and the 
first 100 pages of duplication, however, will be provided free.
    (4) Nonproductive search. Fees for search may be charged even if no 
responsive documents are found. Fees for search and review may be 
charged even if the request is denied.
    (5) Aggregated requests. A requester may not file multiple requests 
at the same time, solely in order to avoid payment of fees. If the 
Secretary of the Board reasonably believes that a requester is 
separating a request into a series of requests for the purpose of 
evading the assessment of fees or that several requesters appear to be 
acting together to submit multiple requests solely in order to avoid 
payment of fees, the Secretary of the Board may aggregate such requests 
and charge accordingly. It is considered reasonable for the Secretary of 
the Board to presume that multiple requests by one requester on the same 
topic made within a 30-day period have been made to avoid fees.
    (6) Waiver or reduction of fees. A request for a waiver or reduction 
of the fees, and the justification for the waiver, shall be included 
with the request for records to which it pertains. If a waiver is 
requested and the requester has not indicated in writing an agreement to 
pay the applicable fees if the waiver request is denied, the time for 
response to the request for documents, as set forth in under paragraph 
(d)(4) of this section, shall not begin until a determination has been 
made on the request for a waiver or reduction of fees.
    (i) Standards for determining waiver or reduction. The Secretary of 
the Board may grant a waiver or reduction of fees where it is determined 
both that disclosure of the information is in the public interest 
because it is likely to contribute significantly to public understanding 
of the operation or activities of the government, and that the 
disclosure of information is not primarily in the commercial interest of

[[Page 35]]

the requester. In making this determination, the following factors shall 
be considered:
    (A) Whether the subject of the records concerns the operations or 
activities of the government;
    (B) Whether disclosure of the information is likely to contribute 
significantly to public understanding of government operations or 
activities;
    (C) Whether the requester has the intention and ability to 
disseminate the information to the public;
    (D) Whether the information is already in the public domain;
    (E) Whether the requester has a commercial interest that would be 
furthered by the disclosure; and, if so,
    (F) Whether the magnitude of the identified commercial interest of 
the requester is sufficiently large, in comparison with the public 
interest in disclosure, that disclosure is primarily in the commercial 
interest of the requester.
    (ii) Contents of request for waiver. A request for a waiver or 
reduction of fees shall include a clear statement of how the request 
satisfies the criteria set forth in paragraph (f)(6)(i) of this section.
    (iii) Burden of proof. The burden shall be on the requester to 
present evidence or information in support of a request for a waiver or 
reduction of fees.
    (iv) Determination by Secretary of the Board. The Secretary of the 
Board shall make a determination on the request for a waiver or 
reduction of fees and shall notify the requester accordingly. A denial 
may be appealed to the Board in accordance with paragraph (e) of this 
section.
    (7) Uniform fee schedule.

------------------------------------------------------------------------
                  Service                               Rate
------------------------------------------------------------------------
(i) Manual search.........................  Actual salary rate of
                                             employee involved, plus 16
                                             percent of salary rate.
(ii) Computerized search..................  Actual direct cost,
                                             including operator time.
(iii) Duplication of records:
    (A) Paper copy reproduction...........  $.15 per page.
    (B) Other reproduction (e.g., computer  Actual direct cost,
     disk or printout, microfilm,            including operator time.
     microfiche, or microform).
(iv) Review of records (includes employee   Actual salary rate of
 preparation for release, i.e. excising).    conducting review, plus 16
                                             percent of salary rate.
------------------------------------------------------------------------

    (g) Request for confidential treatment of business information--(1) 
Submission of request. Any submitter of information to the Board who 
desires confidential treatment of business information pursuant to 5 
U.S.C. 552(b)(4) shall file a request for confidential treatment with 
the Board at the time the information is submitted or a reasonable time 
after submission.
    (2) Form of request. Each request for confidential treatment of 
business information shall state in reasonable detail the facts 
supporting the commercial or financial nature of the business 
information and the legal justification under which the business 
information should be protected. Conclusory statements that release of 
the information would cause competitive harm generally will not be 
considered sufficient to justify confidential treatment.
    (3) Designation and separation of confidential material. All 
information considered confidential by a submitter shall be clearly 
designated ``PROPRIETARY'' or ``BUSINESS CONFIDENTIAL'' in the 
submission and separated from information for which confidential 
treatment is not requested. Failure to segregate confidential commercial 
or financial information from other material may result in release of 
the nonsegregated material to the public without notice to the 
submitter.
    (h) Request for access to confidential commercial or financial 
information--(1) Request for confidential commercial or financial 
information. A request by a submitter for confidential treatment of any 
business information shall be considered in connection with a request 
for access to that information.
    (2) Notice to the submitter. (i) The Secretary of the Board shall 
notify a submitter who requested confidential treatment of information 
pursuant to 5 U.S.C. 552(b)(4), of the request for access.
    (ii) Absent a request for confidential treatment, the Secretary of 
the Board may notify a submitter of a request for

[[Page 36]]

access to submitter's business information if the Secretary of the Board 
reasonably believes that disclosure of the information may cause 
substantial competitive harm to the submitter.
    (iii) The notice given to the submitter by mail, return receipt 
requested, shall be given as soon as practicable after receipt of the 
request for access, and shall describe the request and provide the 
submitter seven working days from the date of notice, to submit written 
objections to disclosure of the information. Such statement shall 
specify all grounds for withholding any of the information and shall 
demonstrate why the information which is considered to be commercial or 
financial information, and that the information is a trade secret, is 
privileged or confidential, or that its disclosure is likely to cause 
substantial competitive harm to the submitter. If the submitter fails to 
respond to the notice within the time specified, the submitter will be 
considered to have no objection to the release of the information. 
Information a submitter provides under this paragraph may itself be 
subject to disclosure under the FOIA.
    (3) Exceptions to notice to submitter. Notice to the submitter need 
not be given if:
    (i) The Secretary of the Board determines that the request for 
access should be denied;
    (ii) The requested information lawfully has been made available to 
the public;
    (iii) Disclosure of the information is required by law (other than 5 
U.S.C. 552); or
    (iv) The submitter's claim of confidentiality under 5 U.S.C. 
552(b)(4) appears obviously frivolous or has already been denied by the 
Secretary of the Board, except that in this last instance the Secretary 
of the Board shall give the submitter written notice of the 
determination to disclose the information at least seven working days 
prior to disclosure.
    (4) Notice to requester. At the same time the Secretary of the Board 
notifies the submitter, the Secretary of the Board also shall notify the 
requester that the request is subject to the provisions of this section.
    (5) Determination by Secretary of the Board. The Secretary of the 
Board's determination whether or not to disclose any information for 
which confidential treatment has been requested pursuant to this section 
shall be communicated to the submitter and the requester immediately. If 
the Secretary of the Board determines to disclose the business 
information over the objection of a submitter, the Secretary of the 
Board shall give the submitter written notice via mail, return receipt 
requested, or similar means, which shall include:
    (i) A statement of reason(s) why the submitter's objections to 
disclosure were not sustained;
    (ii) A description of the business information to be disclosed; and
    (iii) A statement that the component intends to disclose the 
information seven working days from the date the submitter receives the 
notice.
    (6) Notice of lawsuit. The Secretary of the Board shall promptly 
notify any submitter of information covered by this section of the 
filing of any suit against the Board to compel disclosure of such 
information, and shall promptly notify a requester of any suit filed 
against the Board to enjoin the disclosure of requested documents.

[68 FR 74416, Dec. 23, 2003]



PART 2201_LOCAL TELEVISION LOAN GUARANTEE PROGRAM_PROGRAM REGULATIONS
--Table of Contents




                            Subpart A_General

Sec.
2201.1 Definitions.
2201.2-2201.8 [Reserved]
2201.9 Limitation on the applicability of the definition of Local 
          Television Broadcast signals.

                        Subpart B_Loan Guarantees

2201.10 Loan amount and Guarantee percentage.
2201.11 Application requirements.
2201.12 Applicant.
2201.13 Lender.
2201.14 Eligible Loan purposes.
2201.15 Ineligible Loan purposes.
2201.16 Environmental requirements.
2201.17 Submission of applications.
2201.18 Application selection.
2201.19 Loan terms.
2201.20 Collateral.

[[Page 37]]

2201.21 Fees.
2201.22 Issuance of Guarantees.
2201.23 Funding for the Program.
2201.24 Insurance.
2201.25 Performance Agreement.
2201.26 Lender standard of care.
2201.27 Assignment or transfer of Loans.
2201.28 Participation in guaranteed Loans.
2201.29 Supplemental guarantees.
2201.30 Adjustments.
2201.31 Indemnification.
2201.32 Termination of obligations.
2201.33 Defaults.
2201.34 OMB Control Number.

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

    Source: 68 FR 74422, Dec. 23, 2003, unless otherwise noted.



                            Subpart A_General



Sec. 2201.1  Definitions.

    Act means Title X of Public Law 106-553, entitled the Launching Our 
Communities' Access to Local Television (LOCAL TV) Act of 2000, as 
amended.
    Administrator means the Administrator of the Rural Utilities 
Service, U.S. Department of Agriculture, acting pursuant to the Act and 
on behalf of the Board.
    Affiliate means any person or entity that controls, or is controlled 
by, or is under common control with, another person or entity; and may 
include any individual who is a director or senior management officer of 
an Affiliate, a shareholder controlling more than 25 percent of the 
voting securities of an Affiliate, or more than 25 percent of the 
ownership interest in an Affiliate not organized in stock form.
    Agent means that Lender authorized to take such actions, exercise 
such powers, and perform such duties on behalf and in representation of 
all Lenders party to a Guarantee of a single Loan, as is required by, or 
necessarily incidental to, the terms and conditions of the Guarantee.
    Applicant means any party that is seeking financing under the Act in 
order to provide access to Local Television Broadcast Signals for 
households in Nonserved Areas and Underserved Areas.
    Asset means anything owned by the Applicant that has commercial or 
exchange value including, but not limited to, cash flows and rights 
thereto.
    Banking Institution means a bank or bank holding company.
    Board means the LOCAL Television Loan Guarantee Board authorized by 
the Act to approve Guarantees to facilitate access, on a technologically 
neutral basis, to Local Television Broadcast Signals for households 
located in Nonserved Areas and Underserved Areas.
    Borrower means the entity liable for the payment of principal and 
interest on any Loan guaranteed under the Act, where such entity shall 
be a corporation, partnership, joint venture trustee or government 
entity, agency or instrumentality. An individual cannot be a Borrower.
    Collateral means all Assets economically pledged by the Applicant, 
any Affiliate of the Applicant, or both that is required under the 
provisions of the Act or the Loan Documents to secure the repayment of 
the indebtedness of the Borrower under the Loan Documents.
    Default means a failure by a Borrower, other than a Payment Default, 
on its obligations under the Loan Documents which has not been cured by 
the Borrower or duly waived by the Lender within any applicable cure 
period.
    Designated Market Area (DMA) means an area designated as such by 
Nielsen Media Research and published in the most recent Nielsen Station 
Index Directory and Nielsen Station Index United States Television 
Household Estimates.
    Generally Accepted Accounting Principles (GAAP) means a common set 
of accounting standards and procedures that are either promulgated by an 
authoritative accounting rulemaking body or accepted as appropriate due 
to wide-spread application in the United States.
    Guarantee means the written agreement, including all terms and 
conditions and all exhibits thereto, guaranteeing repayment of a 
specified percentage of the principal of a Loan pursuant to the Act.
    Guaranteed Portion means the portion of the principal of a loan that 
is subject to the Guarantee.

[[Page 38]]

    High-Speed Internet means a data connection to the Internet 
providing an information rate exceeding 200 kilobits per second (kbps) 
in the consumer's connection to the network in at least one direction, 
either from the provider to the consumer (downstream) or from the 
consumer to the provider (upstream).
    Lender means an entity that has committed to make a Loan to an 
Applicant, where such entity shall be:
    (1) An entity currently engaged in commercial lending in the normal 
course of its business; or
    (2) A nonprofit corporation, including the National Rural Utilities 
Cooperative Finance Corporation, engaged primarily in commercial 
lending, but does not include any governmental entity or any Affiliate 
thereof, the Federal Agricultural Mortgage Corporation, any institution 
supervised by the Office of Federal Housing Enterprise Oversight, the 
Federal Housing Finance Board, or any Affiliate of such entities.
    Loan means a Loan guaranteed pursuant to the Act and includes the 
funds made available to the Borrower by the Lender.
    Loan Agreement means the contract between the Lender and the 
Borrower, approved by the Board, setting forth the terms applicable to 
the Loan.
    Loan Documents means the Loan Agreement, Guarantee and all other 
instruments, and all documentation between or among the Lender, the 
Borrower, and the Board or Administrator, evidencing the making, 
disbursing, securing, collecting, or otherwise administering of the 
Loan.
    Local Television Broadcast means the signals of all Television 
Broadcast Stations located in a DMA. However, when more than one 
commercial Television Broadcast Station within the same DMA is 
affiliated with a particular Television Network, the signal of any one 
of these commercial Television Broadcast Stations will qualify as the 
Local Television Broadcast Signal of the network at that location, 
unless such stations are licensed to communities in different States, in 
which case both stations must be counted. Even if they are not 
affiliated with the same Television Network, when two or more commercial 
Television Broadcast Stations simultaneously broadcast the identical 
programming for more than 50 percent of the broadcast week, the signal 
of any one of these Television Broadcast Stations will qualify as the 
Local Television Broadcast Signal. When two or more noncommercial 
television stations simultaneously broadcast the same programming for 
more than 50 percent of prime time as defined in 47 CFR 76.5(n), and 
more than 50 percent outside of prime time over a 3-month period, the 
signal of any one of these Television Broadcast Stations will qualify as 
the Local Television Broadcast Signal. In areas not included in a DMA, 
but under the jurisdiction of the Federal Communications Commission 
(FCC), an appropriate set of Local Television Broadcast Signals will be 
determined on a case-by-case basis, subject to the approval of the 
Board.
    Low Power Television Station means a station authorized by the FCC 
under subpart G of part 74 of title 47, Code of Federal Regulations, 
that may retransmit the programs and signals of a Television Broadcast 
Station and that may originate programming in any amount greater than 30 
seconds per hour and/or operates a subscription service.
    Net equity means the value of the total Assets of an entity, less 
the total liabilities of that entity, as recorded under Generally 
Accepted Accounting Principles for the fiscal quarter ended immediately 
prior to the date on which the subject Loan is approved.
    Net Worth Ratio means the book value of equity over total Assets.
    Nonserved Area means any area that is outside the grade B contour 
(as determined using standards employed by the Federal Communications 
Commission (FCC)) of the Local Television Broadcast Signals serving a 
particular Designated Market Area and does not have access to such 
signals by any commercial, for profit, multichannel video provider.
    Offer of Guarantee means the Board's decision to approve an 
application for, and extend a Guarantee under, the LOCAL TV Act.
    Payment Default means any failure of a Borrower to pay any amount of 
principal or interest on the Loan when and

[[Page 39]]

as due under the Loan Agreement (including, without limitation, 
following any acceleration thereunder) which has not been cured within 
any applicable cure period.
    Payment Demand means a request, by the Lender or Agent, following a 
Payment Default, in writing to the Board, for payment under the 
Guarantee in respect of the defaulted principal.
    Performance Agreement means the written agreement between the 
Administrator and the Borrower (and Lender, if applicable), pursuant to 
which the Borrower provides stipulated performance schedules with 
respect to Local Television Broadcast Signals provided through the 
Project.
    Program means the LOCAL Television Loan Guarantee Program (LOCAL TV 
Program) established under the Act.
    Project means a proposal for the acquisition, improvement, 
enhancement, construction, deployment, launch, or rehabilitation of the 
means to deliver Local Television Broadcast Signals to a Nonserved Area 
or Underserved Area.
    Regulatory Capital Ratio means tier 1 and total capital ratios as 
shown on a Banking Institution's balance sheet.
    Security means all Collateral required by the provisions of the Act 
or the Loan Documents to secure repayment of any indebtedness of the 
Borrower under the Loan Documents.
    Separate Tier of Local Television Broadcast Signals means a category 
or package of services provided by the applicant, to include the Local 
Television Broadcast Signals and all over-the-air television broadcast 
signals carried pursuant to the must-carry requirement of the 
Communications Act of 1934, as amended, offered as a distinct and 
separate service choice to the applicant's subscribers at a specified 
lower rate when compared to other program service choices.
    Television Broadcast Station means an over-the-air commercial or 
noncommercial Television Broadcast Station licensed by the FCC under 
subpart E of part 73 of title 47, Code of Federal Regulations, except 
that such term does not include a Low Power Television Station or 
Television Broadcast Translator Station.
    Television Broadcast Translator Station means a station in the 
broadcast service operated for the purpose of retransmitting the 
programs and signals of a Television Broadcast Station, without 
significantly altering any characteristic of the original signal other 
than its frequency and amplitude, for the purpose of providing 
television reception to the general public.
    Television Network means an entity which offers an interconnected 
program service on a regular basis for 15 or more hours per week to at 
least 25 affiliated broadcast stations in 10 or more States.
    Term Sheet means an executed agreement between the Applicant and the 
Lender or Agent that sets forth the key business terms and conditions of 
the proposed Loan. Execution of this agreement represents evidence of 
the commitment between the Applicant and Lender or Agent.
    Underserved Area means any area that is outside the grade A contour 
(as determined using standards employed by the Federal Communications 
Commission) of the Local Television Broadcast Signals serving a 
particular Designated Market Area and has access to such signals from 
not more than one commercial, for profit, multichannel video provider.
    Unguaranteed Portion means the portion of the principal of a Loan 
that is not covered by the Guarantee.



Sec. Sec. 2201.2-2201.8  [Reserved]



Sec. 2201.9  Limitation on the applicability of the definition of Local Television Broadcast Signals.

    Notwithstanding the definition of Local Television Broadcast Signals 
provided in Sec. 2201.1 of this part, if an area is being served by 
either a satellite carrier which rebroadcasts signals of Television 
Broadcast Stations located in the DMA or a cable television system, and 
that satellite carrier or cable television system is currently in 
compliance with the rules administered by the Federal Communications 
Commission (FCC) as described in part 76 of title 47, Code of Federal 
Regulations, the group of signals of Television Broadcast Stations 
located in the DMA being retransmitted by such satellite carrier or 
cable television system will be considered to meet the definition of 
Local Television Broadcast

[[Page 40]]

Signals for the purposes of the regulation.



                        Subpart B_Loan Guarantees



Sec. 2201.10  Loan amount and Guarantee percentage.

    (a) Aggregate Value of Loans. The aggregate value of all Loans for 
which Guarantees are issued under the Program, including the 
Unguaranteed Portions of such Loans, may not exceed $1,250,000,000.
    (b) Guarantee Percentage. (1) A Guarantee approved by the Board may 
not exceed an amount equal to 80 percent of the principal amount of a 
Loan made to finance the acquisition, improvement, enhancement, 
construction, deployment, launch, or rehabilitation of the means by 
which Local Television Broadcast Signals are delivered to a Nonserved 
Area or Underserved Area;
    (2) If only a portion of a Loan is meant to achieve the purposes 
described in paragraph (b)(1) of this section, the Board shall determine 
that portion of the Loan meant to achieve such purpose and may approve a 
Guarantee in an amount not exceeding 80 percent of that portion of the 
Loan.
    (3) The portion of the Loan meant to achieve the purposes described 
in paragraph (b)(1) of this section will not be lowered simply because 
the means by which Local Television Broadcast Signals are delivered to a 
Nonserved Area or Underserved Area also enable either the provision of 
signals other than Local Television Broadcast Signals or the provision 
of signals to areas other than Nonserved or Underserved Areas. However, 
any amounts of a Loan which the Board determines will be used for 
separable costs not essential to funding the means by which Local 
Television Broadcast Signals are delivered to a Nonserved Area or 
Underserved Area, will be excluded from the portion of the Loan eligible 
for a Guarantee.
    (c) Minimum Loan Amount. The Board will not approve a Guarantee for 
a Loan in an amount less than $1,000,000 (inclusive of both the 
Guaranteed and Unguaranteed Portions of the Loan).



Sec. 2201.11  Application requirements.

    A completed application consists of the following information:
    (a) An executive summary of the Project. The Applicant must provide 
the Board with a general Project overview that addresses each of the 
following six categories:
    (1) A general overview of the system to be developed and description 
of the Project including the types of equipment, technologies, and 
facilities to be used;
    (2) An explanation of how the Applicant will provide Local 
Television Broadcast Signals to Nonserved Areas and Underserved Areas;
    (3) A short description of the Applicant including a written 
narrative describing its demonstrated capability and experience in 
providing access to Local Television Broadcast Signals for households;
    (4) An explanation of the total Project cost including a breakdown 
of the Loan required and the source of funding for the remainder of the 
Project, if a portion of the Project is to be paid with non-Loan funds;
    (5) The name of the Lender or Agent (including a listing of other 
participating Lenders, if applicable) and a description of the financing 
structure of the proposed Loan; and
    (6) A general description of the geographic area to be served.
    (b) Background information. General information concerning the 
Applicant, its Affiliates, and its Lender or Agent, including a 
description of any financial and contractual arrangements among the 
parties. Specific information required of all Applicants is as follows:
    (1) Evidence of legal authority and existence of the applicant. The 
Applicant must provide evidence of its legal existence and authority to 
execute the Loan Documents under the proposed Loan and perform the 
activities proposed under the Project. Such evidence must include 
Articles of Incorporation and bylaws for incorporated Applicants; other 
types of Applicants should submit appropriate documentation for their 
forms of organization. If the Applicant is a special purpose entity 
(SPE) formed for the purpose of the Project, then the Applicant must 
provide a copy of the Deed of Partnership or Articles of Organization 
for the SPE.

[[Page 41]]

    (2) Affiliates descriptions. A listing of all Affiliates of the 
Applicant including a description of the nature of the Applicant's 
relationship to each Affiliate. Any existing or proposed contractual 
arrangements with each Affiliate should be described.
    (3) Legal name. The legal name and form of organization of the 
proposed Lender or Agent.
    (4) Cover Form. A signed copy of Standard Form 424.
    (5) Management Credentials. A description of the experience and 
capabilities of the Applicant's management to carry out the Project.
    (c) A business plan. A plan, satisfactory to the Board, presenting 
in detail the fundamentals of the business and providing sufficient 
financial data to indicate that the business will be economically 
sustainable. The business plan should include, at a minimum:
    (1) Risk Assessments. An assessment of the risks related to 
construction, performance, demand, and financing structure, including a 
narrative statement detailing planned risks mitigation strategies;
    (2) Plans. A comprehensive operations and maintenance plan, as well 
as a marketing strategy;
    (3) Economic and Financial Analysis. A review of economic and 
financial factors affecting the business in general and the Project in 
particular. Applicants should refer to economic and financial conditions 
in the past three years, and also discuss expectations of such 
conditions in the future, including:
    (i) The adequacy and stability of the business' customer base. 
Applicants should provide information on the number of subscribers, 
subscriber churn, subscriber acquisition cost or cost per gross added, 
subscriber penetration, geographic concentration of customers, nature of 
the terms of customer contracts, customer technical support, customer 
satisfaction and retention;
    (ii) The demand for services;
    (iii) The sensitivity of the business to economic cycles;
    (iv) Future capital needs;
    (v) The adequacy, competitiveness and affordability of service fees;
    (vi) An overview of the prevailing economic and demographic trends 
in the target service area; and
    (vii) Information on programming content and costs.
    (4) Project Market Analysis. A breakdown of the key elements of the 
Project, including:
    (i) All proposed services to be offered, including High-speed 
Internet Service, and whether a Separate Tier of Local Television 
Broadcast Signals will be provided;
    (ii) The total number of households, by DMA, and by Nonserved and 
Underserved Area, which will have access to Local Television Broadcast 
Signals under the Project;
    (iii) The total number of households, by DMA, and by Nonserved and 
Underserved Area, which will have access under the Project to any other 
services as described pursuant to paragraph (c)(4)(i) of this section, 
including an explanation if this number is greater than the total 
identified in paragraph (c)(4)(ii);
    (iv) Estimates of the number of households identified in paragraphs 
(c)(4)(ii) and (c)(4)(iii) which will subscribe to each of the services 
identified in paragraph (c)(4)(i) of this section by DMA, including a 
breakdown of Nonserved and Underserved households;
    (v) A breakdown of the Applicant's proposed pricing coupled with an 
evaluation of any competitor's services offerings and pricings; and
    (vi) A service deployment plan and a deployment performance 
schedule, by DMA, for the services to access the Local Television 
Broadcast Signals.
    (d) Financial forecast and information. The Applicant must 
demonstrate its financial ability to complete and maintain the Project 
and repay its obligations. The financial data must include the 
following:
    (1) Audited financial statements. Income statements, balance sheets, 
and cash flow statements for at least the last three years or from the 
date of inception if less than three years. If the Applicant is an SPE, 
then the Applicant must provide at least the last three years of audited 
financial statements of the shareholders or partners of the SPE. If an 
Affiliate has been designated by the Applicant as a source of

[[Page 42]]

credit support, then at least three years audited financial statements 
for the Affiliate must be submitted as well.
    (2) Plan of finance. An identification and explanation of all 
sources and uses of funds throughout the proposed loan period, 
including, but not limited to, any payments to Affiliates or 
shareholders of the Applicant, estimated Project costs, and proposed 
terms.
    (3) A Pro-forma financial forecast covering the life of the proposed 
loan, including balance sheets, income statements and cash flow 
statements, with an explanation of assumptions. These Projections must 
be prepared in accordance with Generally Accepted Accounting Principles 
and should discuss such issues as the effects of inflation, competition, 
ongoing repair and replacement needs, technological obsolescence, 
working capital requirements, and other factors that may affect the 
Applicant's ability to meet its debt service obligations.
    (4) Project budget. A detailed cost breakdown of all facilities to 
be constructed as part of the Project. This breakdown should be on a per 
unit basis. It should also clearly show what will be financed with 
guaranteed loan funds and what will be financed with other funds, 
consistent with the plan of finance in paragraph (d)(2) of this section.
    (5) Commitments. The Applicant must disclose all reasonably 
foreseeable financial obligations, contingent liabilities, or other 
commitments that could affect its financial health over the proposed 
financing term. At the Board's request, the Applicant must take all 
reasonable measures to insulate the Project and the Loan from external 
factors that could affect timely payment of principal and interest. The 
Board may ask for additional detailed information on commitments where 
it is deemed necessary.
    (6) Credit enhancement. In cases where an Affiliate provides credit 
enhancement, the Applicant must provide documentation demonstrating the 
Affiliate is sufficiently capitalized and evidencing the strength, 
extent, limitations, and priority of the credit enhancement relative to 
the other obligations of the Affiliate.
    (e) A certified system plan, technical analysis, and design. 
Prepared by qualified personnel on the Applicant's staff or by a 
licensed consulting engineer, consisting of the following:
    (1) A detailed description of the proposed service area including 
maps of the service area;
    (2) A TV Signals Coverage Diagram and detailed description of all 
existing and proposed facilities. The diagram must include proposed 
route miles of cable plant, if applicable, the estimated area served, 
types of facilities to be deployed (terrestrial microwave or satellite 
microwave, wireless, translator, fiber optic cable or coaxial cable, 
electronic equipment, etc.), the capacity of the facilities (number of 
fibers, size of the cables, and intended number of channels, frequencies 
used, bandwidth capacity, etc.), and the serving area of the proposed 
facilities;
    (3) The intended capabilities of the Project's facilities, including 
bandwidth, proposed television signal topology, standards, and 
television signal transmission protocols. In addition, the Applicant 
must explain the manner in which the transmission facilities will 
deliver the proposed Local Television Broadcast Signals, including any 
equipment necessary to receive the signals which will be located at the 
subscribers' premises, and/or, near or on the subscribers' television 
sets;
    (4) A listing of all regulatory approvals required to operate 
facilities, including licenses, permits, and franchises and the status 
of any required approvals not obtained at the time of the application. 
For any approvals not yet received, the Applicant should provide details 
on the nature of the needed approval, the justification for expecting 
such an approval, the track-record of the Applicant in obtaining such 
approvals, and the contingency plan in the event the approval is 
delayed;
    (5) A description of the television signal sources (including, but 
not limited to local, regional and national television signal 
broadcasters, other television signal providers, content providers, 
cable television operators and providers, enhanced service providers, 
providers of satellite services, and the anticipated role of such 
providers in the proposed Project);

[[Page 43]]

    (6) The results of discussions, if any, with local television 
broadcasters serving the Project area;
    (7) An identification of all Local Television Broadcast Signals that 
will be carried by the Project;
    (8) An identification of the digital signal quality and capacity in 
megabits per second (Mb/s) that will be required to digitally broadcast 
all Local Television Broadcast Signals to be provided by the Project;
    (9) An identification of the net usable bandwidth, in Mb/s, that are 
surplus to the provision of the Local Television Broadcast Signals to be 
provided by the Project and that will be used to provide High Speed 
Internet Service; and
    (10) A description of the extent to which the Project will enable 
the delivery of Local Television Broadcast Signals by a means reasonably 
compatible with existing systems or devices predominantly in use for the 
reception of television signals.
    (f) Lender information--(1) Lender. The Application shall include 
the information described in Sec. 2201.13(b), (c) and (d) of this part 
concerning the Lender or Lenders.
    (2) Term Sheet. The Application shall include a signed Term Sheet.
    (3) Lender's Analysis. The Applicant shall submit the Lender's 
detailed analysis of the creditworthiness of the transaction at the time 
of application and any supporting due diligence documentation, including 
a complete underwriting analysis of the Project (assessing Applicant 
creditworthiness and Project feasibility) exercising the Lender's 
standard of care as set forth at Sec. 2201.26(a).
    (4) Certification. The Lender must certify that the information 
provided pursuant to paragraphs (f)(1), (2) and (3) of this section is 
true and accurate.
    (5) Additional Information. The Board will request any other 
information the Board deems material to its assessment of the Lender.
    (g) Other Financial Information--(1) Collateral. The Applicant shall 
provide a detailed description and valuation of all Collateral to be 
used to secure the Loan. This valuation shall be supported by an 
independent, third party appraisal for existing Assets, and/or adequate 
cost substantiation for Assets to be constructed for purposes of the 
Project, and in all cases shall be acceptable to the Board. Such a 
valuation should address, at a minimum, pledged Assets of the Applicant, 
any designated Affiliate of the Applicant, or both as identified in the 
Loan Documents, including primary Assets to be used in the delivery of 
the service for which the Loan sought would be guaranteed. The Applicant 
also must provide a depreciation schedule (as classified under and in 
accordance with GAAP) for the major Assets in order for the Board to 
determine the economically useful life of the primary Assets to be used 
in delivery of the signals concerned. Appraisals of real property must 
be prepared by State licensed or certified appraisers, and be consistent 
with the ``Uniform Standards of Professional Appraisal Practice,'' 
promulgated by the Appraisal Standards Board of the Appraisal 
Foundation.
    (2) Credit Opinion. With respect to applications for a Loan of $15 
million or more, the Applicant is required to obtain and submit to the 
Board a preliminary credit rating opinion letter on the proposed 
transaction at the time of application, prepared by a nationally 
recognized statistical rating organization (rating agency) approved by 
the Board. This preliminary credit rating opinion shall be based on the 
financing structure proposed by the Applicant for the Project absent the 
Federal Guarantee, without regard to recovery expectations. The Board 
will utilize this preliminary credit assessment to assist in evaluating 
the creditworthiness of the proposed transaction and determining whether 
it provides a reasonable assurance of repayment. In addition, applicants 
for loans less than $15 million that have a credit rating shall provide 
that credit rating to the Board. The Board will utilize this preliminary 
credit assessment (for loans over $15 million) or an existing credit 
rating (for loans less than $15 million) to assist in evaluating the 
creditworthiness of the proposed transaction and determining whether it 
provides a reasonable assurance of repayment. The Board may approve a 
Guarantee over $15 million only if it receives a final

[[Page 44]]

credit rating opinion letter from the rating agency on the Loan that is 
in form and substance acceptable to the Board.
    (3) Evidence of Lack of Credit Elsewhere. The Applicant shall 
provide the information required pursuant to Sec. 2201.12(b)(2)(v) of 
this part.
    (h) Compliance with other Federal statutes, regulations and 
Executive Orders. The Applicant must certify compliance with other 
applicable Federal statutes, regulations, and Executive Orders.
    (i) Environmental impact. The Applicant must provide information 
describing the Project's impact on the environment as required pursuant 
to Sec. 2201.16 of this part. The application may be submitted prior to 
final determination of a Project's environmental impacts; however, a 
Guarantee shall not be made and no Loan funds will be advanced prior to 
such determination and demonstrated compliance with all environmental 
statutes, regulations and executive orders.
    (j) Federal debt certification. The Applicant must provide a 
certification that it is not delinquent on any obligation owed to the 
government (7 CFR parts 3016 and 3019). No Guarantee will be made if 
either the Applicant or Lender has an outstanding, delinquent Federal 
debt until:
    (1) The delinquent account has been paid in full;
    (2) A negotiated repayment schedule is established and at least one 
payment has been received; or
    (3) Other arrangements, satisfactory to the agency responsible for 
collecting the debt, are made.
    (k) Supplemental information. The Applicant should provide any 
additional information it considers relevant to the Project and likely 
to be helpful in determining the extent to which the Project would 
further the purposes of the Act.
    (l) Additional information required by the Board. The Applicant must 
provide any additional information the Board determines is necessary to 
adequately evaluate the application.
    (m) Application Fee. For an application to be considered complete, 
the Applicant must submit a check payable to the United States Treasury 
in the amount of the application fee as set forth in Sec. 2201.21(a) of 
this part.
    (n) Incomplete application. An incomplete application, including any 
fee submitted therewith, will be returned to the Applicant without 
action.



Sec. 2201.12  Applicant.

    (a) Eligibility. (1) The Board will make a determination of 
eligibility of an Applicant to be a Borrower under the Program based 
upon the Applicant's ability to directly provide, as a result of 
financing received under the Program, Local Television Broadcast Signals 
to households in Nonserved Areas and/or Underserved Areas and the 
information provided pursuant to paragraph (b) of this section.
    (2) A determination that an Applicant is eligible does not assure 
that the Board will approve a Guarantee sought, or otherwise preclude 
the Board from declining to approve a Guarantee.
    (b) Documentation for Eligibility Determination. (1) An Applicant 
must provide a Term Sheet evidencing a commitment of that Lender or 
Agent, and the Lenders it represents, to make a Loan to the Applicant 
upon an Offer of Guarantee by the Board, subject to the requirements of 
the Act and the regulations set forth in this part.
    (2) An Applicant must provide documentation demonstrating that:
    (i) The Assets, facilities, or equipment covered by the Loan will be 
utilized economically and efficiently;
    (ii) The terms, conditions, security, and schedule and amount of 
repayments of principal and the payment of interest with respect to the 
Loan protect the financial interests of the United States and are 
reasonable;
    (iii) Appropriate and adequate Collateral secures the Loan sought to 
be guaranteed;
    (iv) All necessary and required regulatory and other approvals, 
spectrum licenses, and delivery permissions for the Loan and the Project 
under the Loan have been applied for or obtained (a Guarantee shall not 
be made and no Loan funds will be advanced until all such approvals, 
licenses and permissions have been obtained);
    (v) The Loan would not be available on reasonable terms and 
conditions

[[Page 45]]

without a Guarantee under this Program. To satisfy this requirement, an 
Applicant must provide, with its application, documentation from at 
least one lending institution other than the Lender to which the 
Applicant has applied for financial assistance dated within six months 
of submission of the application, indicating that the Applicant was 
unable to obtain substantially the same Loan it is applying for on 
reasonable terms and conditions; and
    (vi) Repayment of the Loan can reasonably be expected.



Sec. 2201.13  Lender.

    (a) Eligibility. (1) The Board will make a determination of 
eligibility of a Lender to make a Loan to be guaranteed under the 
Program based upon the criteria set forth in paragraphs (b) and (c) of 
this section.
    (2) A determination that a Lender is eligible does not assure that 
the Board will approve a Guarantee sought, or otherwise preclude the 
Board from declining to approve a Guarantee.
    (b) Qualifications. In addition to evaluating an application 
pursuant to Sec. 2201.18, in making a determination to approve a 
Guarantee to a Lender, the Board will assess:
    (1) The Lender's Regulatory Capital Ratios, in the case of Banking 
Institutions, or Net Worth Ratios, in the case of other institutions;
    (2) Whether the Lender possesses the ability to administer the Loan, 
including its experience with loans to telecommunications companies;
    (3) The scope, volume and duration of the Lender's activity in 
administering loans, including federally guaranteed loans;
    (4) The performance of the Lender's loan portfolio, including its 
current delinquency rate;
    (5) The Lender's charge-off rate, expressed as a percentage of 
outstanding loans for its current fiscal year;
    (6) If the Lender intends to sell participation interests in the 
Loan, the plan of syndication; and
    (7) Any other matter the Board deems material to its assessment of 
the Lender.
    (c) A Loan will not be guaranteed unless:
    (1) If the Lender is not a nonprofit corporation and is subject to 
loan-to-one-borrower and Affiliate transaction restrictions under 
applicable law, the Loan is made in accordance with such restrictions;
    (2) If the Lender is not a nonprofit corporation and is not subject 
to the restrictions described in paragraph (c)(1) of this section, the 
Loan is made to a Borrower that is not an Affiliate of the Lender and 
the amount of the Loan, and all outstanding loans by the Lender to the 
Borrower and any of its Affiliates, does not exceed 10 percent of the 
Net Equity of the Lender; and
    (3) If the Lender is a nonprofit corporation, the Board determines 
that:
    (i) Such nonprofit corporation has one or more issues of outstanding 
long-term debt that is rated within the highest 3 rating categories of a 
nationally recognized statistical rating organization, as evidenced by 
written confirmation from the nationally recognized statistical rating 
organization, subject to updating upon request of the Board; and
    (ii) The making of the Loan would not cause a decline in the rating 
of such Lender's long-term debt below the highest 3 rating categories of 
a nationally recognized statistical rating organization, as evidenced by 
written confirmation from the nationally recognized statistical rating 
organization, subject to updating upon request of the Board.
    (d) Agent. (1) An application for a Guarantee of a single Loan that 
includes participation of more than one Lender must identify one of the 
Lenders participating in such Loan to act as Agent for all Lenders. This 
Agent is responsible for administering the Loan and shall have those 
duties and responsibilities required of an Agent, as set forth in the 
Guarantee.
    (2) If more than one Lender is seeking a Guarantee of a single Loan, 
each one of the Lenders on the application must meet the qualifications 
set forth in paragraphs (b) and (c) of this section. However, only the 
Agent must meet the qualifications set forth in paragraph (b)(2) and (3) 
of this section.
    (3) Each Lender, irrespective of any indemnities or other agreements 
between the Lenders and the Agent, shall

[[Page 46]]

be bound by all actions, and/or failures to act, of the Agent. The Board 
and the Administrator shall be entitled to rely upon such actions and/or 
failures to act of the Agent as binding all Lenders.



Sec. 2201.14  Eligible Loan purposes.

    To be guaranteed under the Program, a Loan must be made for the 
purpose of financing the acquisition, improvement, enhancement, 
construction, deployment, launch, or rehabilitation of the means by 
which Local Television Broadcast Signals will be delivered to a 
Nonserved Area or Underserved Area.



Sec. 2201.15  Ineligible Loan purposes.

    (a) The proceeds of the Loan shall not be used for operating, 
advertising, or promotion expenses, or for the acquisition of licenses 
for the use of spectrum in any competitive bidding.
    (b) The Applicant shall not transfer proceeds of the Loan to any 
Affiliate(s).
    (c) The Board will not fund a Project that is designed primarily to 
serve one or more of the top 40 Designated Market Areas.
    (d) The Board will not fund a Project that would alter or remove 
National Weather Service warnings from Local Television Broadcast 
Signals.
    (e) No Guarantee may be granted or used to provide funds to a 
Project that extends, upgrades, or enhances the services provided over 
any cable system to an area that, as of the enactment of the Act, is 
covered by a cable franchise agreement that expressly obligates a cable 
operator to serve such area.



Sec. 2201.16  Environmental requirements.

    (a) General. (1) Environmental assessments of the Board's actions 
will be conducted in accordance with applicable statutes, regulations, 
and other applicable authorities. Therefore, each application for a 
Guarantee under the Program must be accompanied by information necessary 
for the Board to meet the requirements of applicable law.
    (2) Actions requiring compliance with NEPA. (i) The types of actions 
classified as ``major Federal actions'' subject to NEPA procedures are 
discussed in 40 CFR parts 1500 through 1508.
    (ii) With respect to this Program, these actions typically include:
    (A) Any Project, permanent or temporary, that will involve 
construction and/or installations;
    (B) Any Project, permanent or temporary, that will involve ground 
disturbing activities; and
    (C) Any Project supporting renovation, other than interior 
remodeling.
    (3) Environmental information required from the Applicant. (i) 
Environmental data or documentation concerning the use of the proceeds 
of any Loan guaranteed under this Program must be provided by the 
Applicant to the Board to assist the Board in meeting its legal 
responsibilities.
    (ii) Such information includes:
    (A) Documentation for an environmental threshold review from 
qualified data sources, such as a Federal, State or local agency with 
expertise and experience in environmental protection, or other sources, 
qualified to provide reliable environmental information;
    (B) Any previously prepared environmental reports or data relevant 
to the Loan at issue;
    (C) Any environmental review prepared by Federal, State, or local 
agencies relevant to the Loan at issue; and
    (D) Any other information that can be used by the Board to ensure 
compliance with environmental laws.
    (iii) All information supplied by the Applicant is subject to 
verification by the Board.
    (b) The regulations of the Council on Environmental Quality 
implementing NEPA require the Board to provide public notice of the 
availability of Project specific environmental documents such as 
environmental impact statements, environmental assessments, findings of 
no significant impact, records of decision, etc., to the affected 
public. See 40 CFR 1506.6(b). Environmental information concerning 
specific Projects can be obtained from the Board by contacting: 
Secretary, LOCAL Television Loan Guarantee Board, 1400 Independence 
Ave., SW., Room 2919-S, Stop 1575; Washington, DC 20250-1575.
    (c) National Environmental Policy Act--(1) Purpose. The purpose of 
this paragraph (c) is to adopt procedures for

[[Page 47]]

compliance with the National Environmental Policy Act, 42 U.S.C. 4321 et 
seq., by the Board. This paragraph supplements regulations at 40 CFR 
Chapter V.
    (2) Definitions. For purposes of this section, the following 
definitions apply:
    Categorical exclusion means a category of actions which do not 
individually or cumulatively have a significant effect on the human 
environment and for which neither an environmental assessment nor an 
environmental impact statement is required.
    Environmental assessment means a document that briefly discusses the 
environmental consequences of a proposed action and alternatives 
prepared for the purposes set forth in 40 CFR 1508.9.
    EIS means an environmental impact statement prepared pursuant to 
section 102(2)(C) of NEPA.
    FONSI means a finding of no significant impact on the quality of 
human environment after the completion of an environmental assessment.
    NEPA means the National Environmental Policy Act, 42 U.S.C. 4321, et 
seq.
    Working capital loan means money used by an ongoing business concern 
to fund its existing operations.
    (3) Delegations to the Secretary of the Board. (i) All incoming 
correspondence from Council on Environmental Quality (CEQ) and other 
agencies concerning matters related to NEPA, including draft and final 
EIS, shall be brought to the attention of the Secretary of the Board. 
The Secretary of the Board will prepare or, at his or her discretion, 
coordinated replies to such correspondence.
    (ii) With respect to actions of the Board, the Board will:
    (A) Ensure preparation of all necessary environmental assessments 
and EISs;
    (B) Maintain a list of actions for which environmental assessments 
are being prepared;
    (C) Revise this list at regular intervals, and send the revisions to 
the Environmental Protection Agency;
    (D) Make the list available for public inspection;
    (E) Maintain a list of EISs; and
    (F) Maintain a file of draft and final EISs.
    (4) Categorical exclusions. (i) This paragraph describes various 
classes of Board actions that normally do not have a significant impact 
on the human environment and are categorically excluded. The word 
``normally'' is stressed; there may be individual cases in which 
specific factors require contrary action.
    (ii) Subject to the limitations in paragraph (c)(4)(iii) of this 
section, the actions described in this paragraph have been determined 
not to have a significant impact on the quality of the human 
environment. They are categorically excluded from the need to prepare an 
environmental assessment or an EIS under NEPA.
    (A) Guarantees of working capital loans; and
    (B) Guarantees of loans for the refinancing of outstanding 
indebtedness of the Applicant, regardless of the purpose for which the 
original indebtedness was incurred.
    (iii) Actions listed in paragraph (c)(4)(ii) of this section that 
otherwise are categorically excluded from NEPA review are not 
necessarily excluded from review if they would be located within, or in 
other cases, potentially affect:
    (A) A floodplain;
    (B) A wetland;
    (C) Important farmlands, or prime forestlands or rangelands;
    (D) A listed species or critical habitat for an endangered species;
    (E) A property that is listed on or may be eligible for listing on 
the National Register of Historic Places;
    (F) An area within an approved State Coastal Zone Management 
Program;
    (G) A coastal barrier or a portion of a barrier within the Coastal 
Barrier Resources System;
    (H) A river or portion of a river included in, or designated for, 
potential addition to the Wild and Scenic Rivers System;
    (I) A sole source aquifer recharge area;
    (J) A State water quality standard (including designated and/or 
existing beneficial uses and anti-degradation requirements); or

[[Page 48]]

    (K) The release or disposal of regulated substances above the levels 
set forth in a permit or license issued by an appropriate regulatory 
authority.
    (5) Responsibilities and procedures for preparation of an 
environmental assessment. (i) The Board will request that the Lender and 
Applicant prepare an environmental assessment that provides information 
concerning all potentially significant environmental impacts of the 
Applicant's proposed Project. The Board, consulting at its discretion 
with CEQ, will review the information provided by the Lender and 
Applicant. Though no specific format for an environmental assessment is 
prescribed, it shall be a separate document, suitable for public review 
and should include the following in conformance with 40 CFR 1508.9:
    (A) Description of the environment. The existing environmental 
conditions relevant to the Board's analysis determining the 
environmental impacts of the proposed Project should be described. The 
no action alternative also should be discussed;
    (B) Documentation. Citations to information used to describe the 
existing environment and to assess environmental impacts should be 
clearly referenced and documented. These sources should include, as 
appropriate, but not be limited to, local, tribal, regional, State, and 
Federal agencies, as well as, public and private organizations and 
institutions;
    (C) Evaluating environmental consequences of proposed actions. A 
brief discussion should be included of the need for the proposal, of 
alternatives as required by 42 U.S.C. 4332(2)(E) and their environmental 
impacts. The discussion of the environmental impacts should include 
measures to mitigate adverse impacts and any irreversible or 
irretrievable commitments of resources to the proposed Project.
    (ii) An environmental assessment, may:
    (A) Tier upon the information contained in a previous EIS, as 
described in 40 CFR 1502.20;
    (B) Incorporate by reference reasonably available material, as 
described in 40 CFR 1502.21; and/or
    (C) Adopt a previously completed EIS reasonably related to the 
Project for which the proceeds of the Loan sought to be guaranteed under 
the Program will be used, as described in 40 CFR 1506.3.
    (iii) If, on the basis of the environmental assessment, the Board 
determines that an EIS is not required, a FONSI, as described in 40 CFR 
1508.13 will be prepared. The FONSI will include the environmental 
assessment or a summary of it and be available to the public from the 
Board. The Board shall maintain a record of these decisions, making them 
available to interested parties upon request. Requests should be 
directed to LOCAL Television Loan Guarantee Board, 1400 Independence 
Ave., SW., Room 2919-S, Stop 1575; Washington, DC 20250-1575. Prior to a 
final Guarantee decision, a copy of the NEPA documentation shall be sent 
to the Board for consideration.
    (6) Responsibilities and procedures for preparation of an 
environmental impact statement. (i) If after the environmental 
assessment has been completed, the Board determines that an EIS is 
necessary, it and other related documentation will be prepared by the 
Board in accordance with section 102(2)(c) of NEPA, this section, and 40 
CFR parts 1500 through 1508. The Board may seek additional information 
from the Applicant in preparing the EIS. Once the document is prepared, 
the Board will transmit the document to the Environmental Protection 
Agency.
    (ii) EIS. (A) The following procedures, as discussed in 40 CFR parts 
1500 through 1508, will be followed in preparing an EIS:
    (1) The format and contents of the draft and final EIS shall be as 
discussed in 40 CFR part 1502.
    (2) The requirements of 40 CFR 1506.9 for filing of documents with 
the Environmental Protection Agency shall be followed.
    (3) The Board, consulting at its discretion with CEQ, shall examine 
carefully the basis on which supportive studies have been conducted to 
assure that such studies are objective and comprehensive in scope and in 
depth.
    (4) NEPA requires that the decision making ``utilize a systematic, 
interdisciplinary approach that will ensure the integrated use of the 
natural and social sciences and the environmental

[[Page 49]]

design arts.'' 42 U.S.C. 4332(A). If such disciplines are not present on 
the Board staff, appropriate use should be made of personnel of Federal, 
State, and local agencies, universities, non-profit organizations, or 
private industry.
    (B) Until the Board issues a record of decision as provided in 40 
CFR 1502.2 no action concerning the proposal shall be taken which would:
    (1) Have an adverse environmental impact; or
    (2) Limit the choice of reasonable alternatives.
    (3) 40 CFR 1506.10 places certain limitations on the timing of Board 
decisions on taking ``major Federal actions.'' A Guarantee shall not be 
made before the times set forth in 40 CFR 1506.10.
    (iii) A public record of decision stating what the decision was; 
identifying alternatives that were considered, including the 
environmentally preferable one(s); discussing any national 
considerations that entered into the decision; and summarizing a 
monitoring and enforcement program if applicable for mitigating the 
environmental effects of a proposal will be prepared. This record of 
decision will be prepared at the time the decision is made.



Sec. 2201.17  Submission of applications.

    (a) Applications should be submitted as follows:
    (1) Applications for Guarantees shall be submitted to the LOCAL 
Television Loan Guarantee Board, 1400 Independence Avenue, SW., Stop 
1575, Room 2919-S, Washington, DC 20250-1575. Applications should be 
marked Attention: Secretary, LOCAL Television Loan Guarantee Board.
    (2) Applications must be submitted postmarked not later than the 
application filing deadline established by the Board if the applications 
are to be considered during the period for which the application was 
submitted.
    (3) All Applicants must submit an original and two copies of a 
completed application.
    (b) Application deadline. One or more application windows will be 
announced. The duration of each application window for submission of 
applications will be approximately 120 days. Notice of an application 
window will be published in the Federal Register.



Sec. 2201.18  Application selection.

    (a) Application Priority. When evaluating applications to determine 
which Project or combinations of Projects will best facilitate access to 
Local Television Broadcast Signals, the Board shall give priority in the 
approval of Guarantees to the following categories:
    (1) First, to applications for Projects that will serve households 
in Nonserved Areas.
    (2) Second, to applications for Projects that will serve households 
in Underserved Areas.
    (3) Within each category, the Board shall balance applications for 
Projects that will serve the largest number of households with 
applications for Projects that will serve remote, isolated communities 
(including noncontiguous States) in areas that are unlikely to be served 
through market mechanisms. The Board shall consider the Project's 
estimated cost per household and shall give priority to those 
applications for Projects that provide the highest quality service at 
the lowest cost per household.
    (b) Additional Considerations. (1) The Board shall give additional 
consideration to applications for Projects that, in addition to 
providing Local Television Broadcast Signals, also provide High-speed 
Internet service.
    (2) The Board shall consider other factors, which shall include 
applications for Projects that:
    (i) Offer a separate tier of Local Television Broadcast Signals at a 
lower cost to consumers, except where prohibited by applicable Federal, 
State, or local laws or regulations; and
    (ii) Enable the delivery of Local Television Broadcast Signals 
consistent with the purpose of the Act by means reasonably compatible 
with existing systems or devices predominantly in use.
    (c) Other Considerations. All other evaluation factors and priority 
considerations being equal, the Board will give a preference in 
approving Guarantees to those applications for Projects that provide 
greater amounts and higher quality Collateral.

[[Page 50]]

    (d) Protection of United States Financial Interests. The Board may 
not approve the Guarantee of a Loan unless:
    (1) The Board has been given documentation, assurances, and access 
to information, persons, and entities necessary, as determined by the 
Board, to address issues relevant to review of the Loan by the Board for 
purposes of the Act; and
    (2) The Board makes a determination in writing that:
    (i) To the best of its knowledge upon due inquiry, the Assets, 
facilities, or equipment covered by the Loan will be utilized 
economically and efficiently;
    (ii) The terms, conditions, security, and schedule and amount of 
repayments of principal and the payment of interest with respect to the 
Loan protect the financial interests of the United States and are 
reasonable;
    (iii) The value of Collateral provided by an Applicant is at least 
equal to the unpaid balance of the Loan amount; and if the value of 
Collateral provided by an Applicant is less than the Loan amount, 
additional required Collateral is provided by the Applicant or an 
Affiliate designated by the Applicant and acceptable to the Board;
    (iv) All necessary and required regulatory and other approvals, 
spectrum licenses, and delivery permissions have been received for the 
Loan and the Project under the Loan;
    (v) The Loan would not be available on reasonable terms and 
conditions without a Guarantee under the Act; and
    (vi) Repayment of the Loan can be reasonably expected.
    (e) Non approvals. A Guarantee will not be approved if it is 
determined that:
    (1) The Applicant's proposal does not indicate financial 
feasibility, or the Collateral is determined to not adequately secure 
the Loan;
    (2) The Applicant's proposal indicates technical flaws, which, in 
the opinion of the Board, would prevent successful implementation, or 
operation of the Project;
    (3) Any other aspect of the Applicant's proposal fails to adequately 
address any requirements of the Act or the regulations in this part or 
contains inadequacies which would, in the opinion of the Board, 
undermine the ability of the Project to meet the general purpose of the 
Act or comply with requirements in this part; or
    (4) Proceeds for the Loan will be used for any of the ineligible 
purposes set forth in Sec. 2201.15.
    (f ) Impact on Competition. A Loan shall not be guaranteed unless 
the proposed Project, as determined by the Board in consultation with 
the National Telecommunications and Information Administration, is not 
likely to have a substantial adverse impact on competition that 
outweighs the benefits of improving access to Local Television Broadcast 
Signals in a Nonserved Area or Underserved Area and is commercially 
viable.



Sec. 2201.19  Loan terms.

    (a) All Loans guaranteed under the Program shall be due and payable 
in full no later than the earlier of 25 years from date of the closing 
of the Loan or the economically useful life of the primary Assets to be 
used in delivery of the signals concerned, as determined by the Board.
    (b) Loans guaranteed under the Program must:
    (1) Bear a rate of interest determined by the Board to protect the 
financial interests of the United States and to be reasonable. This 
determination will be based on the Board's comparison of the:
    (i) Difference, or interest rate spread, between the interest rate 
on the Loan sought to be guaranteed and the current average yield on 
outstanding marketable obligations of the United States of comparable 
maturity; and
    (ii) The interest rate spread between the rates on recently issued 
and similarly rated and structured obligations and the current yields on 
outstanding marketable obligations of the United States of comparable 
maturity.
    (2) Have terms that, in the judgment of the Board, are consistent in 
material respects with the terms of similar obligations in the private 
capital market.
    (c) So long as any principal and interest is due and payable on a 
Loan guaranteed under the Act, a Borrower shall:

[[Page 51]]

    (1) Maintain Assets, equipment, facilities, and operations on a 
continuing basis;
    (2) Not make any discretionary dividend payments that impair its 
ability to repay obligations guaranteed under the Act;
    (3) Remain sufficiently capitalized; and
    (4) Submit to and cooperate fully with any audit or Collateral 
review required by the Board.



Sec. 2201.20  Collateral.

    (a) Existence of adequate Collateral. An Applicant shall provide the 
Board such documentation as is necessary, in the judgment of the Board, 
to provide satisfactory evidence that appropriate and adequate 
Collateral secures a Loan guaranteed under the Program. Prior to 
approving a Guarantee, the Board shall require that the value of the 
Collateral pledged be at least equal to the unpaid balance of the Loan 
Amount.
    (b) Form of Collateral. Collateral required by paragraph (a) of this 
section shall consist solely of Assets of the Applicant, any Affiliate 
of the Applicant, or both, as identified in the Loan Documents, 
including primary Assets to be used in the delivery of the service for 
which the Loan is guaranteed. Such Assets may include, but are not 
limited to, the following:
    (1) Tangible Assets, including current Assets (such as cash, 
accounts receivable, and inventory), reserve funds, land, buildings, 
machinery, fixtures, and equipment;
    (2) Assignments of all relevant contractual agreements, including 
contractual rights to certain cash flows, marketing arrangements, third-
party guarantees, insurance policies, contractors' bonds, and other 
agreements or rights that may be of value;
    (3) All permits, governmental approvals, franchises and licenses, 
necessary to carry out and operate the required equipment or service; 
and
    (4) Other Assets, which, in the judgment of the Board, possess 
Collateral value suitable for securing the Loan, including a pledge of 
all or part of the Applicant's ownership interest in the Project or 
company, and any after-acquired property.
    (c) Applicant's compliance findings. An Applicant's compliance with 
paragraphs (a) and (b) of this section does not assure a finding of 
reasonable assurance of repayment, or assure the Board's Guarantee of 
the Loan.
    (d) Collateral for entire loan. The same Collateral shall secure the 
entire Loan, including both the Guaranteed Portion and the Unguaranteed 
Portion.
    (e) Review of valuation. The value of Collateral securing a Loan is 
subject to review and approval by the Board, and may be adjusted 
downward by the Board if the Board reasonably believes such adjustment 
is appropriate. The Board's evaluation of the proposed Collateral for 
the Loan will be based on several factors, including but not limited to:
    (1) The expected value of the pledged Collateral in the event of 
defaults with specific consideration given to the residual value of 
Project Assets to third-parties and the liquidity of such Assets;
    (2) The cash flow characteristics of the Project;
    (3) The contractual characteristics of the Project to the extent 
Project-related agreements underpin the Project's estimated cash flows;
    (4) The competitiveness of the Project's economics and the 
associated certainty of cash flows in the future; and
    (5) The creditworthiness of any designated Affiliates(s) that 
provides services to the Applicant or provides any credit support.
    (f) Ongoing Collateral Assessment. The Board shall require that the 
value of the Collateral shall be at all times at least equal to the 
unpaid balance of the Loan Amount. To ensure that the ongoing value of 
the Collateral is properly maintained, the Board may require the 
borrower to have an ongoing third-party inspection and valuation of the 
Collateral that is acceptable to the Board. If the Collateral value at 
the measurement date is less than the unpaid balance of the Loan Amount, 
the Borrower or its designated Affiliates(s) will be required to pledge 
additional acceptable Collateral to cover any deficit.
    (g) Lien on Collateral. (1) Upon the Board's approval of a 
Guarantee, the

[[Page 52]]

Administrator shall have liens on Collateral securing the Loan, which 
shall be superior to all other liens on such Collateral. The value of 
the Collateral (based on a determination satisfactory to the Board) 
shall be at least equal to the unpaid balance of the Loan amount, giving 
significant consideration to the expected value of the Collateral in the 
event of defaults with specific consideration given to the residual 
value of the Project Assets to third-parties and the liquidity of such 
Assets.
    (2) Both the Administrator and the Lender or Agent shall have a 
perfected security interest in the Collateral fully sufficient to 
protect the financial interests of the United States and the Lenders. 
However, the security interest perfected by the Administrator shall 
ensure that the Administrator has first priority in such Collateral.



Sec. 2201.21  Fees.

    (a) Application Fee. The Board shall charge each Applicant for a 
Guarantee under the Program a non-refundable fee, payable to the United 
States Treasury, to cover the costs of making necessary determinations 
and findings with respect to an application for a Guarantee under the 
Program. The amount of the fee is $10,000 for Loans of $1 million up to 
$50 million, $15,000 for Loans of $50 million up to $100 million, 
$30,000 for Loans of $100 million up to $500 million, and $40,000 for 
Loans of $500 million or greater.
    (b) Guarantee Origination Fee. The Board shall charge and collect 
from a Borrower a Guarantee Origination Fee. The amount of such fee will 
be sufficient to cover the administrative costs of the Board associated 
with the Loan. Upon extending an offer of Guarantee, the Board and the 
Borrower shall enter into an agreement providing for the payment of the 
Guarantee Origination Fee; the agreement shall include terms relating to 
the schedule of payments and deposit of such payments into an escrow 
account. The Guarantee Origination Fee must be paid in full no later 
than and as a condition of the closing of any Loan. A Borrower will be 
responsible for paying the administrative costs of the Board regardless 
of whether the Loan actually closes.
    (c) Lender Fees. A Lender or Agent may assess and collect from the 
Borrower such fees and costs associated with the application and 
origination of the Loan as are reasonable and customary, taking into 
consideration the amount and complexity of the credit. The Board may 
take such fees and costs into consideration when determining whether to 
offer a Guarantee.



Sec. 2201.22  Issuance of Guarantees.

    (a) The Board's decision to approve an application and extend an 
Offer of Guarantee under the Program is conditioned upon:
    (1) The Lender or Agent and Applicant obtaining any required 
regulatory or judicial approvals;
    (2) The Lender or Agent and Applicant being legally authorized to 
enter into the Loan under the terms and conditions submitted to the 
Board in the application;
    (3) The Board's receipt of the Loan Documents and any related 
instruments, in form and substance satisfactory to the Board all 
properly executed by the Lender or Agent, Applicant, and any other 
required party other than the Board;
    (4) No material adverse change in the Applicant's ability to repay 
the Loan between the date of the Board's approval and the date the 
Guarantee is to be issued;
    (5) Entering into the Guarantee violates no Loan covenants or 
existing contractual obligations of the Borrower; and
    (6) Such other conditions as determined by the Board.
    (b) The Board may withdraw its approval of an application and 
rescind its Offer of Guarantee if the Board determines that the Lender 
or Agent or the Applicant cannot, or is unwilling to, provide adequate 
documentation and proof of compliance with paragraph (a) of this section 
within the time provided for in the Offer of Guarantee.
    (c) Only after receipt of all the documentation required by this 
section will the Administrator sign and deliver the Guarantee.



Sec. 2201.23  Funding for the Program.

    (a) Costs incurred by the Government. The Act provides funding for 
the costs

[[Page 53]]

incurred by the Government as a result of granting Guarantees under the 
Program. While pursuing the goals of the Act, it is the intent of the 
Board to minimize the cost of the Program to the Government. The Board 
will estimate the risk posed by the guaranteed Loans to the funds 
appropriated for the costs of the Guarantees under the Program and 
operate the Program accordingly.
    (b) Credit Risk Premium--(1) Establishment and approval. The Board 
may establish and approve the acceptance of credit risk premiums with 
respect to a Guarantee under this Act in order to offset the cost, as 
defined in section 502(5) of the Federal Credit Reform Act of 1990, of 
the Guarantee. To the extent that appropriations of budget authority are 
insufficient to cover the cost, as so determined, of a Guarantee, and 
the Board approves such a Guarantee, credit risk premiums shall be 
accepted from a non-Federal source on behalf of a Borrower.
    (2) Credit risk premium amount--(i) General. The Board shall 
determine the amount of any credit risk premium to be accepted with 
respect to a Guarantee on the basis of:
    (A) The financial and economic circumstances of the Borrower, 
including the amount of Collateral offered;
    (B) The proposed schedule of Loan disbursements;
    (C) The business plans of the Borrower;
    (D) Any financial commitment from a broadcast signal provider; and
    (E) The concurrence of the Director of the Office of Management and 
Budget as to the amount of the credit risk premium.
    (ii) Proportionality. To the extent that appropriations of budget 
authority are sufficient to cover the cost, as determined under section 
502(5) of the Federal Credit Reform Act of 1990, of Guarantees, the 
credit risk premium with respect to each Guarantee shall be reduced 
proportionately.
    (iii) Payment of premiums. Credit risk premiums under this paragraph 
shall be paid to an escrow account established in the Treasury, which 
shall accrue interest. Such interest shall be retained by the escrow 
account, subject to paragraph (b)(2)(iv) of this section.
    (iv) Deductions from escrow account. If a liquidation of the 
Collateral occurs pursuant to Sec. 2201.33(h), any shortfall between 
the proceeds of the liquidation net of costs and expenses relating to 
the liquidation, and the guarantee amount paid shall be deducted from 
funds in the escrow account and credited to the Administrator for 
payment of such shortfall. At such time as all Loans guaranteed under 
this Program have been repaid or otherwise satisfied in accordance with 
the Act and the regulations in this part, remaining funds in the escrow 
account, if any, shall be refunded, on a pro rata basis, to Borrowers 
whose Loans guaranteed under the Program were not in Payment Default or 
Default, or where any Payment Default or Default was cured in accordance 
with the terms of the Loan Documents.



Sec. 2201.24  Insurance.

    The Borrower of a Loan guaranteed under the Program shall obtain, at 
its expense, insurance sufficient to protect the financial interests of 
the United States, as determined by the Board.



Sec. 2201.25  Performance Agreement.

    (a) The Borrower of a Loan guaranteed under the Program shall enter 
into a Performance Agreement with the Administrator with respect to the 
Local Television Broadcast Signals to be provided through the Project.
    (b) The Administrator may assess against and collect from a Borrower 
a penalty not to exceed 3 times the interest accrued on the Loan during 
the period of noncompliance if the Borrower fails to meet its stipulated 
Performance Agreement entered into under paragraph (a) of this section.



Sec. 2201.26  Lender standard of care.

    (a) The Lender or Agent shall exercise due care and diligence in 
analyzing and administering the Loan as would be exercised by a 
responsible and prudent Banking Institution when analyzing and 
administering a secured loan of such Banking Institution's own funds 
without a Guarantee. Such standards shall also apply to any and all 
underwriting analysis, approvals,

[[Page 54]]

determinations, permissions, acceptances, requirements, or opinion made, 
given, imposed or reached by Lender.
    (b) The Lender or Agent shall have such other obligations and duties 
to the Board and the Administrator as are set forth in the Act or Loan 
Documents.



Sec. 2201.27  Assignment or transfer of Loans.

    (a) Modifications. The Loan Documents may not be modified, in whole 
or in part, without the prior written approval of the Board.
    (b) Requirements. (1) Subject to the provisions of paragraphs (c) 
and (d) of this section and other provisions of this part, a Lender or 
Agent may assign or transfer the Loan including the Loan Documents to 
another Lender that meets the eligibility requirements of Sec. 2201.13 
of this part.
    (2) Any assignment or transfer of a Loan, or any pledge or other use 
of a Loan as security, including but not limited to any derivatives 
transaction, will require the prior written approval of the Board.
    (c) The provisions of paragraph (b) of this section shall not apply 
to transfers which occur by operation of law.
    (d) The Agent must hold an interest in a Loan guaranteed under the 
Program equal to at least the lesser of $25 million or fifteen percent 
of the aggregate amount of the Loan. Of this amount, the Agent must hold 
an interest in the Unguaranteed Portion of the Loan equal to at least 
the minimum amount of the Loan required to be held by the Agent under 
the preceding sentence multiplied by the percentage of the entire Loan 
that is not guaranteed. A non-Agent Lender must hold an interest in the 
Unguaranteed Portion of the Loan representing no less than five percent 
of such Lender's total interest in the Loan; provided, that a non-Agent 
Lender may transfer its interest in the Unguaranteed Portion after 
payment of the Guaranteed Portion has been made under the Guarantee.
    (e) The Guarantee shall have no force or effect if any part of the 
Guaranteed Portion of the Loan is transferred separate and apart from 
the Unguaranteed Portion of the Loan. At least five percent of any 
assignment or transfer interest in a Loan must be unguaranteed to ensure 
that no part of the Guaranteed Portion of the Loan is transferred 
separate and apart from the Unguaranteed Portion of the Loan.



Sec. 2201.28  Participation in guaranteed Loans.

    (a) Subject to paragraphs (b), (c) and (d) of this section, a Lender 
may distribute the risk of a portion of a Loan guaranteed under the 
Program by sale of participations therein if:
    (1) Neither the Loan note nor the Guarantee is assigned, conveyed, 
sold, or transferred in whole or in part as a result of the sale of such 
participations;
    (2) The Lender remains solely responsible for the administration of 
the Loan as an Agent; and
    (3) The Board's ability to assert any and all defenses available to 
it under the law and under the Loan Documents is not adversely affected.
    (b) The following categories of entities may purchase participation 
interests in Loans guaranteed under the Program:
    (1) Lenders that meet the eligibility requirements of Sec. 2201.13 
of this part;
    (2) Qualified institutional buyers as defined in 17 CFR 230.144A 
(a), known as Rule 144A (a) of the Securities and Exchange Commission 
and issued under the Securities Act of 1933 (15 U.S.C. 77a et seq.); or
    (3) Any other entity approved by the Board on a case-by-case basis.
    (c) An Agent may not grant participations in that portion of its 
interest in a Loan that may not be assigned or transferred under Sec. 
2201.27(d) of this part. A Lender, other than the Agent, may not grant 
participations in that portion of its interest in a Loan that may not be 
assigned or transferred under Sec. 2201.27(d) of this part.
    (d) At least five percent of any participation interest in a Loan 
must be unguaranteed.



Sec. 2201.29  Supplemental guarantees.

    The Board will allow the structure of a guaranteed Loan to include 
one or more supplemental guarantees only from a State or local 
governmental or tribal entity that cover the

[[Page 55]]

Unguaranteed Portion of the Loan, provided that:
    (a) There shall be no supplemental guarantee with respect to the 
Unguaranteed Portion required to be held by the Agent or sole Lender 
pursuant to Sec. 2201.27(d) of this part;
    (b) The Loan Documents relating to any supplemental guarantee shall 
be acceptable in form and substance to the Board; and
    (c) In approving the issuance of a Guarantee, the Board may impose 
any conditions with respect to supplemental guarantee(s) relating to the 
Loan that it considers appropriate.



Sec. 2201.30  Adjustments.

    (a) The Board must approve the adjustment of any term or condition 
of the Loan Documents under this Program, including the rate of 
interest, time of payment of principal or interest, or Collateral 
requirements. Adjustments may be approved by the Board only if:
    (1) The adjustment is consistent with the financial interests of the 
United States;
    (2) Consent has been obtained from the parties to the Loan 
Agreement;
    (3) The adjustment is consistent with the underwriting criteria 
developed for the Program;
    (4) The adjustment does not adversely affect the interest of the 
Federal Government in the Assets or Collateral of the Borrower;
    (5) The adjustment does not adversely affect the ability of the 
Borrower to repay the Loan; and
    (6) The National Telecommunications and Information Administration 
of the Department of Commerce has been consulted by the Board regarding 
the adjustment.
    (b) A Lender's decision to forego remedial action in the event of a 
breach of financial covenants required under the Loan Agreement will not 
constitute an adjustment under this section.



Sec. 2201.31  Indemnification.

    (a) The United States may be indemnified by any Affiliate of a 
Borrower designated in the Loan Documents for any losses that the United 
States incurs as a result of:
    (1) A judgment against the Borrower or any of its Affiliates;
    (2) Any breach by the Borrower or any of its Affiliates of their 
obligations under the Loan Documents;
    (3) Any violation of the provisions of the Act, or the regulations 
in this part, by the Borrower or any of its Affiliates;
    (4) Any penalties incurred by the Borrower or any of its Affiliates 
for any reason, including violation of a performance schedule stipulated 
in a Performance Agreement; and
    (5) Any other circumstances that the Board considers appropriate.
    (b) The Board may require more than one Affiliate of a Borrower to 
make the indemnifications referred to in paragraph (a) of this section.
    (c) The indemnifications referred to in paragraph (a) of this 
section shall be included in the Loan Documents.



Sec. 2201.32  Termination of obligations.

    The Board shall have such rights to terminate the Guarantee as are 
set forth in the Act and Loan Documents.



Sec. 2201.33  Defaults.

    (a) In determining, following any Payment Default or Default, 
whether to accelerate the maturity of any amounts outstanding under the 
Loan Documents or otherwise to declare such amounts to be immediately 
due and payable, or pursue other remedial actions available under the 
Loan Documents, the Agent or Lender, as the case may be, shall act at 
all times in accordance with the standard of care and diligence required 
under Sec. 2201.26(a) of this part.
    (b) Following any Payment Default, the Agent or Lender shall 
promptly notify the Board and be entitled to make a Payment Demand. Any 
Payment Demand shall:
    (1) Identify the amount and due date of the defaulted payment of 
principal and the outstanding amounts of principal and interest under 
the Loan;
    (2) Describe briefly the circumstances leading to the Payment 
Default, including, without limitation,

[[Page 56]]

the nature of any precipitating Default, whether an acceleration has 
occurred, and whether a bankruptcy proceeding has been instituted or 
threatened; and
    (3) Be accompanied by a copy of each of the Loan Documents and all 
notices and other correspondence with the Borrower or other Lender 
relating to the Payment Default and any precipitating Default.
    (c) Following any Payment Demand being made, the Agent or Lender 
shall furnish to the Board promptly upon request from the Board and, in 
any event, not later than ninety (90) days from the date of such 
request, each of the following:
    (1) A written, detailed and reasonable plan for the partial or 
complete foreclosure on and liquidation of the Collateral, including, 
without limitation, detailed estimates by the Agent or Lender of the 
time and reasonable costs of collection anticipated to be necessary in 
order to carry out such plan; and
    (2) A written, detailed and reasonable work-out plan, if such a plan 
is feasible, for the continued operation of the Borrower calculated, in 
the Agent's or Lender's judgment, to assure the best prospect for 
repayment of principal and interest under the Loan without partial or 
complete foreclosure and liquidation of the Collateral, including, 
without limitation, detailed estimates of the time and expense required 
for such work-out and an assessment of the risks to the Agent or Lender 
and the Board associated therewith relative to such risks associated 
with complete foreclosure and liquidation; and, if any partial 
foreclosure and liquidation is a part of such proposed work-out plan, a 
detailed estimate of the time and reasonable costs of collection 
anticipated by the Agent or Lender to be required to effect such partial 
liquidation.
    (d) By making a Payment Demand, the Agent or Lender shall be 
conclusively deemed to have certified, with full knowledge of the 
provisions of 18 U.S.C. 1001 and 31 U.S.C. 3729 including, without 
limitation, the provisions thereof for penalties and damages, to the 
Board that it has fully and timely complied with all material provisions 
and obligations under the Guarantee and the Loan Documents, that the 
amount demanded is past due and owed by the Borrower under the Loan 
Agreement, and that the demand is properly made and required to be 
satisfied by the Board under the terms of the Guarantee.
    (e) Following receipt of any Payment Demand, the Board or, on its 
behalf, any duly authorized representative or designee, may conduct an 
audit and investigation of compliance with all material provisions and 
obligations under the Guarantee. The Agent and/or Lender shall cooperate 
fully and diligently with any such audit and investigation.
    (f) Within a reasonable period of time from receipt by the Board of 
a Payment Demand, the Board shall approve payment of the amount to be 
paid in respect of the unpaid principal amount under the Loan to which 
the Payment Demand relates. The Board may withhold such payment if any 
audit or investigation is pending or if information remains to be 
furnished by the Agent or Lender. Further, payment shall not be made to 
the extent it is determined by the Board, whether as the result of an 
audit, investigation or otherwise, that the Board's payment obligation 
has terminated. Payment shall be made by wire transfer in immediately 
available funds to the bank and account designated by the Agent or 
Lender for such purpose.
    (g) The Board may take, or direct to be taken any action in 
liquidating the Collateral that the Board determines to be necessary or 
proper, consistent with Federal law and regulations.
    (h) Pursuant to the Guarantee, upon Payment Demand by the Agent or 
Lender, and whether the Board has approved any payment under the 
Guarantee or any payment has been made under the Guarantee, the Board, 
through the Administrator, shall have the right to liquidate, or cause 
to be liquidated, the Collateral. The Board, at its sole discretion, 
shall have the right to require that the Agent or Lender, solely or with 
the Administrator, conduct to completion any liquidation of any of the 
Collateral. Such liquidation shall be conducted by the Agent or Lender 
in accordance with the standards of care specified in Sec. 2201.26(a) 
of this part.

[[Page 57]]



Sec. 2201.34  OMB Control Number.

    The information collection requirements in this part are approved by 
the Office of Management and Budget and assigned OMB control number 
0572-0135.

[[Page 59]]



               CHAPTER XXVI--OFFICE OF INSPECTOR GENERAL,






                        DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
2610            Organization, functions, and delegations of 
                    authority...............................          61
2620            Availability of information to the public...          64

[[Page 61]]



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 62]]

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 63]]

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 64]]

          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 65]]

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 67]]



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




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Part                                                                Page
2700            Organization and functions..................          69
2710            Availability of information to the public...          69

[[Page 69]]



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 70]]



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 71]]

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 73]]



                  CHAPTER XXVIII--OFFICE OF OPERATIONS,






                        DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
2810            Organization and functions--Office of 
                    Operations..............................          75
2811            Availability of information to the public...          75
2812            Department of Agriculture guidelines for the 
                    donation of excess research equipment 
                    under 15 U.S.C. 3710(i).................          77

[[Page 75]]



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 76]]

    (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 77]]



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 78]]



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 79]]

    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 81]]



           CHAPTER XXIX--OFFICE OF ENERGY POLICY AND NEW USES,






                        DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
2900            Essential agricultural uses and volumetric 
                    requirements--Natural Gas Policy Act....          83
2901            Administrative procedures for adjustments of 
                    natural gas curtailment priority........          84
2902            Guidelines for designating biobased products 
                    for Federal procurement.................          88
2903            Biodiesel fuel education program............          96

[[Page 83]]



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 84]]

    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 85]]


    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 86]]

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 87]]

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 88]]

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.



PART 2902_GUIDELINES FOR DESIGNATING BIOBASED PRODUCTS FOR FEDERAL
PROCUREMENT--Table of Contents




                            Subpart A_General

Sec.
2902.1 Purpose and scope.
2902.2 Definitions.
2902.3 Applicability to Federal procurements.
2902.4 Procurement programs.
2902.5 Item designation.
2902.6 Providing product information to Federal agencies.
2902.7 Determining biobased content.
2902.8 Determining life cycle costs, environmental and health benefits, 
          and performance.
2902.9 Funding for testing.

Subpart B--Designated Items

2902.10 Mobile equipment hydraulic fluids.
2902.11 Roof coatings.
2902.12 Water tank coatings.
2902.13 Diesel fuel additives.
2902.14 Penetrating lubricants.
2902.15 Bedding, bed linens, and towels.

    Source: 70 FR 1809, Jan. 11, 2005, unless otherwise noted.

    Authority: 7 U.S.C. 8102.



                            Subpart A_General



Sec. 2902.1  Purpose and scope.

    (a) Purpose. The purpose of the guidelines in this part is to assist 
procuring agencies in complying with the requirements of section 9002 of 
the Farm Security and Rural Investment Act of 2002 (FSRIA), Public Law 
107-171, 116 Stat. 476 (7 U.S.C. 8102), as they apply to the procurement 
of the items designated in subpart B of this part.
    (b) Scope. The guidelines in this part designate items that are or 
can be produced with biobased products and whose procurement by 
procuring agencies will carry out the objectives of section 9002 of 
FSRIA.

[71 FR 42575, July 27, 2006]



Sec. 2902.2  Definitions.

    These definitions apply to this part:
    Agricultural materials. Agricultural-based, including plant, animal, 
and marine materials, raw materials or residues used in the manufacture 
of commercial or industrial, nonfood/nonfeed products.
    ASTM International. ASTM International, a nonprofit organization 
organized in 1898, is one of the largest voluntary standards development 
organizations in the world with about 30,000 members in over 100 
different countries. ASTM provides a forum for the development and 
publication of voluntary consensus standards for materials, products, 
systems, and services.
    BEES. An acronym for ``Building for Environmental and Economic 
Sustainability,'' an analytic tool used to determine the environmental 
and health benefits and life cycle costs of items, developed by the U.S. 
Department of Commerce National Institute of Standards and Technology, 
with support from the U.S. Environmental Protection Agency, Office of 
Pollution Prevention and Toxics (BEES 3.0, Building for Environmental 
and Economic Sustainability Technical Manual and User Guide, NISTIR 
6916, National Institute of Standards and Technology, U.S. Department of 
Commerce, October 2002). Also, see http://www.bfrl.nist.gov/oae/

[[Page 89]]

software/bees--USDA.html for a discussion of how biobased feedstocks are 
addressed in the BEES Analysis.
    Biobased components. Any intermediary biobased materials or parts 
that, in combination with other components, are functional parts of the 
biobased product.
    Biobased content. Biobased content shall be determined based on the 
amount of biobased carbon in the material or product as a percent of 
weight (mass) of the total organic carbon in the material or product.
    Biobased product. A product determined by USDA to be a commercial or 
industrial product (other than food or feed) that is composed, in whole 
or in significant part, of biological products or renewable domestic 
agricultural materials (including plant, animal, and marine materials) 
or forestry materials.
    Biodegradability. A quantitative measure of the extent to which a 
material is capable of being decomposed by biological agents, especially 
bacteria.
    Biological products. Products derived from living materials other 
than agricultural or forestry materials.
    Designated item. A generic grouping of biobased products identified 
in subpart B that is eligible for the procurement preference established 
under section 9002 of FSRIA.
    Diluent. A substance used to diminish the strength, scent, or other 
basic property of a substance.
    Engineered wood products. Products produced with a combination of 
wood, food fibers and adhesives.
    EPA-designated recovered content product. A product, designated 
under the Resource Conservation and Recovery Act, that is subject to 
Federal procurement as specified in section 6002 of the Solid Waste 
Disposal Act (42 U.S.C. 6962), whereby Federal agencies must give 
preferred procurement to those products composed of the highest 
percentage of recovered materials practicable, subject to availability, 
cost, and performance.
    Federal agency. Any executive agency or independent establishment in 
the legislative or judicial branch of the Government (except the Senate, 
the House of Representatives, the Architect of the Capitol, and any 
activities under the Architect's direction).
    Filler. A substance added to a product to increase the bulk, weight, 
viscosity, strength, or other property.
    Forest thinnings. Refers to woody materials removed from a dense 
forest, primarily to improve growth, enhance forest health, or recover 
potential mortality. (To recover potential mortality means to remove 
trees that are going to die in the near future.)
    Forestry materials. Materials derived from the practice of planting 
and caring for forests and the management of growing timber. Such 
materials must come from short rotation woody crops (less than 10 years 
old), sustainably managed forests, wood residues, or forest thinnings.
    Formulated product. A product that is prepared or mixed with other 
ingredients, according to a specified formula and includes more than one 
ingredient.
    FSRIA. The Farm Security and Rural Investment Act of 2002, Public 
Law 107-171, 116 Stat. 134 (7 U.S.C. 8102).
    Functional unit. A measure of product technical performance that 
provides a common reference to which all environmental and economic 
impacts of the product are scaled. This reference is necessary to ensure 
comparability of performance results across competing products. 
Comparability of results is critical when competing product alternatives 
are being assessed to ensure that such comparisons are made on a common 
basis. For example, the functional unit for competing interior paint 
products may be defined as ``protecting one square foot of interior wall 
surface for 50 years.''
    Ingredient. A component; part of a compound or mixture; may be 
active or inactive.
    ISO. The International Organization for Standardization, a network 
of national standards institutes from 145 countries working in 
partnership with international organizations, governments, industries, 
business, and consumer representatives.
    Neat product. A product that is made of only one ingredient and is 
not diluted or mixed with other substances.
    Procuring agency means any Federal agency that is using Federal 
funds for procurement or any person contracting

[[Page 90]]

with any Federal agency with respect to work performed under the 
contract.
    Relative price. The price of a product as compared to the price of 
other products on the market that have similar performance 
characteristics.
    Residues. That which remains after a part is taken, separated, 
removed, or designated; a remnant; a remainder; and, for this purpose, 
is from agricultural materials, biological products, or forestry 
materials.
    Secretary. The Secretary of the United States Department of 
Agriculture.
    Small and emerging private business enterprise. Any private business 
which will employ 50 or fewer new employees and has less than $1 million 
in projected annual gross revenues.
    Sustainably managed forests. Refers to the practice of a land 
stewardship ethic that integrates the reforestation, management, 
growing, nurturing, and harvesting of trees for useful products while 
conserving soil and improving air and water quality, wildlife, fish 
habitat, and aesthetics.

[70 FR 1809, Jan. 11, 2005, as amended at 71 FR 13704, Mar. 16, 2006; 71 
FR 42575, July 27, 2006]



Sec. 2902.3  Applicability to Federal procurements.

    (a) Applicability to procurement actions. The guidelines in this 
part apply to all procurement actions by procuring agencies involving 
items designated by USDA in this part, where the procuring agency 
purchases $10,000 or more worth of one of these items during the course 
of a fiscal year, or where the quantity of such items or of functionally 
equivalent items purchased during the preceding fiscal year was $10,000 
or more. The $10,000 threshold applies to Federal agencies as a whole 
rather than to agency subgroups such as regional offices or subagencies 
of a larger Federal department or agency.
    (b) Exception for procurements subject to EPA regulations under the 
Solid Waste Disposal Act. For any procurement by any procuring agency 
that is subject to regulations of the Administrator of the Environmental 
Protection Agency under section 6002 of the Solid Waste Disposal Act as 
amended by the Resource Conservation Act of 1976 (40 CFR part 247), 
these guidelines do not apply to the extent that the requirements of 
this part are inconsistent with such regulations.
    (c) Procuring items composed of highest percentage of biobased 
products. FSRIA section 9002(c)(1) requires procuring agencies to 
procure designated items composed of the highest percentage of biobased 
products practicable or such items that comply with the regulations 
issued under section 103 of Public Law 100-556 (42 U.S.C. 6914b-1), 
consistent with maintaining a satisfactory level of competition, 
considering these guidelines. Procuring agencies may decide not to 
procure such items if they are not reasonably priced or readily 
available or do not meet specified or reasonable performance standards.
    (d) This guideline does not apply to purchases of designated items 
that are unrelated to or incidental to Federal funding; i.e., not the 
direct result of a contract or agreement with persons supplying items to 
a procuring agency or providing support services that include the supply 
or use of items.

[71 FR 42575, July 27, 2006]



Sec. 2902.4  Procurement programs.

    (a) Integration into the Federal procurement framework. The Office 
of Federal Procurement Policy, in cooperation with USDA, has the 
responsibility to coordinate this policy's implementation in the Federal 
procurement regulations. These guidelines are not intended to address 
full implementation of these requirements into the Federal procurement 
framework. This will be accomplished through revisions to the Federal 
Acquisition Regulation.
    (b) Federal agency preferred procurement programs. (1) On or before 
January 11, 2006, each Federal agency shall develop a procurement 
program which will assure that items composed of biobased products will 
be purchased to the maximum extent practicable and which is consistent 
with applicable provisions of Federal procurement laws. Each procurement 
program shall contain:
    (i) A preference program for purchasing designated items,
    (ii) A promotion program to promote the preference program; and

[[Page 91]]

    (iii) Provisions for the annual review and monitoring of the 
effectiveness of the procurement program.
    (2) In developing the preference program, Federal agencies shall 
adopt one of the following options, or a substantially equivalent 
alternative, as part of the procurement program:
    (i) A policy of awarding contracts to the vendor offering a 
designated item composed of the highest percentage of biobased product 
practicable except when such items:
    (A) Are not available within a reasonable time;
    (B) Fail to meet performance standards set forth in the applicable 
specifications, or the reasonable performance standards of the Federal 
agency; or
    (C) Are available only at an unreasonable price.
    (ii) A policy of setting minimum biobased products content 
specifications in such a way as to assure that the biobased products 
content required is consistent with section 9002 of FSRIA and the 
requirements of the guidelines in this part except when such items:
    (A) Are not available within a reasonable time;
    (B) Fail to meet performance standards for the use to which they 
will be put, or the reasonable performance standards of the Federal 
agency; or
    (C) Are available only at an unreasonable price.
    (3) In implementing the preference program, Federal agencies shall 
treat as eligible for the preference biobased products from ``designated 
countries,'' as that term is defined in section 25.003 of the Federal 
Acquisition Regulation, provided that those products otherwise meet all 
requirements for participation in the preference program.
    (c) Procurement specifications. After the publication date of each 
designated item, Federal agencies that have the responsibility for 
drafting or reviewing specifications for items procured by Federal 
agencies shall ensure within a specified time frame that their 
specifications require the use of designated items composed of biobased 
products, consistent with the guidelines in this part. USDA will specify 
the allowable time frame in each designation rule. The biobased content 
of a designated item may vary considerably from product to product based 
on the mix of ingredients used in its manufacture. In procuring 
designated items, the percentage of biobased product content should be 
maximized, consistent with achieving the desired performance for the 
product.

[70 FR 1809, Jan. 11, 2005, as amended at 71 FR 42575, July 27, 2006]



Sec. 2902.5  Item designation.

    (a) Procedure. Designated items are listed in subpart B. In 
designating items, USDA will designate items composed of generic 
groupings of specific products and will identify the minimum biobased 
content for each listed item. As items are designated for procurement 
preference, they will be added to subpart B. Items are generic groupings 
of specific products. Products are specific products offered for sale by 
a manufacturer or vendor. Although manufacturers and vendors may submit 
recommendations to USDA for future item designations at any time, USDA 
does not have a formal process for such submissions or for responding to 
such submissions.
    (b) Considerations. In designating items, USDA will consider the 
availability of such items and the economic and technological 
feasibility of using such items, including life cycle costs. USDA will 
gather information on individual products within an item and extrapolate 
that product information to the item level for consideration in 
designating items. In considering these factors, USDA will use life 
cycle cost information only from tests using the BEES analytical method.
    (c) Exclusions. (1) Motor vehicle fuels and electricity are excluded 
by statute from this program.
    (2) USDA additionally will not designate items for preferred 
procurement that are determined to have mature markets. USDA will 
determine mature market status by whether the item had significant 
national market penetration in 1972.



Sec. 2902.6  Providing product information to Federal agencies.

    (a) Informational Web site. An informational USDA Web site 
implementing

[[Page 92]]

section 9002 can be found at: http://www.biobased.oce.usda.gov. USDA 
will maintain a voluntary Web-based information site for manufacturers 
and vendors of designated items produced with biobased products and 
Federal agencies to exchange product information. This Web site will 
provide information as to the availability, relative price, biobased 
content, performance and environmental and public health benefits of the 
designated items. USDA encourages manufacturers and vendors to provide 
product, business contacts, and product information for designated 
items. Instructions for posting information are found on the Web site 
itself. USDA also encourages Federal agencies to utilize this Web site 
to obtain current information on designated items, contact information 
on manufacturers and vendors, and access to information on product 
characteristics relevant to procurement decisions. In addition to any 
information provided on the Web site, manufacturers and vendors are 
expected to provide relevant information to Federal agencies, upon 
request, with respect to product characteristics, including verification 
of such characteristics if requested.
    (b) Advertising, labeling and marketing claims. Manufacturers and 
vendors are reminded that their advertising, labeling, and other 
marketing claims, including claims regarding health and environmental 
benefits of the product, must conform to the Federal Trade Commission 
Guides for the Use of Environmental Marketing Claims, 16 CFR part 260.



Sec. 2902.7  Determining biobased content.

    (a) Certification requirements. For any product offered for 
preferred procurement, manufacturers and vendors must certify that the 
product meets the biobased content requirements for the designated item 
within which the product falls. Paragraph (c) of this section addresses 
how to determine biobased content. Upon request, manufacturers and 
vendors must provide USDA and Federal agencies information to verify 
biobased content for products certified to qualify for preferred 
procurement.
    (b) Minimum biobased content. Unless specified otherwise in the 
designation of a particular item, the minimum biobased content 
requirements in a specific item designation refer to the biobased 
portion of the product, and not the entire product.
    (c) Determining biobased content. Verification of biobased content 
must be based on third party ASTM/ISO compliant test facility testing 
using the ASTM International Radioisotope Standard Method D 6866. ASTM 
International Radioisotope Standard Method D 6866 determines biobased 
content based on the amount of biobased carbon in the material or 
product as percent of the weight (mass) of the total organic carbon in 
the material or product.
    (d) Products with the same formulation. In the case of products that 
are essentially the same formulation, but marketed under a variety of 
brand names, biobased content test data need not be brand-name specific.



Sec. 2902.8  Determining life cycle costs, environmental and health benefits, and performance.

    (a) Providing information on life cycle costs and environmental and 
health benefits. When requested by Federal agencies, manufacturers and 
vendors must provide information on life cycle costs and environmental 
and health benefits based on tests using either of two analytical 
approaches: The BEES analytical tool along with the qualifications of 
the independent testing entity that performed the tests; or either a 
third-party or an in-house conducted analysis using the ASTM standard 
for evaluating and reporting on environmental performance of biobased 
products D7075. Both BEES and the ASTM standard are in accordance with 
ISO standards, are focused on testing of biobased products, and will 
provide the life cycle assessment and life cycle cost information 
Federal agencies might require. As with biobased content, test data 
using the above analytical methods need not be brand-name specific.
    (b) Performance test information. In assessing performance of 
qualifying biobased products, USDA requires that procuring agencies rely 
on results of performance tests using applicable ASTM, ISO, Federal or 
military specifications, or other similarly authoritative industry test 
standards. Such

[[Page 93]]

testing must be conducted by an ASTM/ISO compliant laboratory. The 
procuring official will decide whether performance data must be brand-
name specific in the case of products that are essentially of the same 
formulation.
    (c) Biodegradability information. If biodegradability is claimed by 
the manufacturer of a qualifying biobased product as a characteristic of 
that product, USDA requires that, if requested by procuring agencies, 
these claims be verified using the appropriate, product-specific ASTM 
biodegradability standard(s). Such testing must be conducted by an ASTM/
ISO-compliant laboratory. The procuring official will decide whether 
biodegradability data must be brand-name specific in the case of 
products that are essentially of the same formulation. ASTM 
biodegradability standards include:
    (1) D5338 ``Standard Test Method for Determining Aerobic 
Biodegradation of Plastic Materials Under Controlled Composting 
Conditions'';
    (2) D5864 ``Standard Test Method for Determining the Aerobic Aquatic 
Biodegradation of Lubricants or Their Components'';
    (3) D6006 ``Standard Guide for Assessing Biodegradability of 
Hydraulic Fluids'';
    (4) D6400 ``Standard Specification for Compostable Plastics'' and 
the standards cited therein;
    (5) D6139 ``Standard Test Method for Determining the Aerobic Aquatic 
Biodegradation of Lubricants or Their Components Using the Gledhill 
Shake Flask'';
    (6) D6868 ``Standard Specification for Biodegradable Plastics Used 
as Coatings on Paper and Other Compostable Substrates''; and
    (7) D7081 ``Standard Specification for Non-Floating Biodegradable 
Plastics in the Marine Environment.''

[70 FR 1809, Jan. 11, 2005, as amended at 71 FR 13704, Mar. 16, 2006; 71 
FR 42575, July 27, 2006]



Sec. 2902.9  Funding for testing.

    (a) USDA use of funds for biobased content and BEES testing. USDA 
will use funds to support testing for biobased content and conduct of 
BEES testing for products within items USDA has selected to designate 
for preferred procurement through early regulatory action. USDA 
initially will focus on gathering the necessary test information on a 
sufficient number of products within an item (generic grouping of 
products) to support regulations to be promulgated to designate an item 
or items for preferred procurement under this program. USDA may accept 
cost sharing for such testing to the extent consistent with USDA product 
testing decisions. During this period USDA will not consider cost 
sharing in deciding what products to test. When USDA has concluded that 
a critical mass of items have been designated, USDA will exercise its 
discretion, in accordance with the competitive procedures outlined in 
paragraph (b) of this section, to allocate a portion of the available 
USDA testing funds to give priority to testing of products for which 
private sector firms provide cost sharing for the testing.
    (b) Competitive program for cost sharing for determining life cycle 
costs, environmental and health benefits, and performance. (1) Subject 
to the availability of funds and paragraph (a) of this section, USDA 
will announce annually the solicitation of proposals for cost sharing 
for life cycle costs, environmental and health benefits, and performance 
testing of biobased products in accordance with the standards set forth 
in Sec. 2902.8 to carry out this program. Information regarding the 
submission of proposals for cost sharing also will be posted on the USDA 
informational Web site, http://www.biobased.oce.usda.gov.
    (2) Proposals will be evaluated and assigned a priority rating. 
Priority ratings will be based on the following criteria:
    (i) A maximum of 25 points will be awarded a proposal based on the 
market readiness;
    (ii) A maximum of 20 points will be awarded a proposal based on the 
potential size of the market for that product in Federal agencies;
    (iii) A maximum of 25 points will be awarded based on the financial 
need for assistance of the manufacturer or vendor;

[[Page 94]]

    (iv) A maximum of 20 points will be awarded a proposal based on the 
product's prospective competitiveness in the market place;
    (v) A maximum of 10 points will be awarded a proposal based on its 
likely benefit to the environment.
    (3) Cost-sharing proposals will be considered first for high 
priority products of small and emerging private business enterprises. If 
funds remain to support further testing, USDA will consider cost sharing 
proposals for products of all other producers of biobased items as well 
as the remaining proposals for products of small and emerging private 
business enterprises. Proposals will be selected based on priority 
rating until available funds for the fiscal year are committed.
    (4)(i) For products selected for life cycle costs and environmental 
and health benefits testing under this paragraph, USDA could provide up 
to 50 percent of the cost of determining the life cycle costs and 
environmental and health effects, up to a maximum of $5,000 of 
assistance per product.
    (ii) For products selected for performance testing under this 
paragraph, USDA could provide up to 50 percent of the cost for 
performance testing, up to $100,000 of assistance per product for up to 
two performance tests (measures of performance) per product.
    (5) For selected proposals, USDA will enter into agreements with and 
provide the funds directly to the testing entities.
    (6) Proposals submitted in one fiscal year, but not selected for 
cost sharing of testing in that year, may be resubmitted to be 
considered for cost sharing in the following year.



                       Subpart B_Designated Items

    Source: 71 FR 13705, Mar. 16, 2006, unless otherwise noted.



Sec. 2902.10  Mobile equipment hydraulic fluids.

    (a) Definition. Hydraulic fluids formulated for general use in non-
stationary equipment, such as tractors, end loaders, or backhoes.
    (b) Minimum biobased content. The minimum biobased content is 44 
percent and shall be based on the amount of qualifying biobased carbon 
in the product as a percent of the weight (mass) of the total organic 
carbon in the finished product.
    (c) Preference effective date. No later than March 16, 2007, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased mobile equipment 
hydraulic fluids. By that date, Federal agencies that have the 
responsibility for drafting or reviewing specifications for items to be 
procured shall ensure that the relevant specifications require the use 
of biobased mobile equipment hydraulic fluids.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the following EPA-designated recovered content 
product: Re-refined Lubricating Oils. USDA is requesting that 
manufacturers of these qualifying biobased products provide information 
on the USDA Web site of qualifying biobased products about the intended 
uses of the product, whether or not the product contains petroleum-based 
ingredients, re-refined oil, and/or any other recovered material, and 
performance standards against which the product has been tested. This 
information will assist Federal agencies in determining whether or not a 
qualifying biobased product overlaps with EPA-designated lubricating 
oils containing re-refined oil and which product should be afforded the 
preference in purchasing.
    (e) Exemptions. The following applications are exempt for the 
preferred procurement requirement for this item:
    (1) Military equipment: Product or system designed or procured for 
combat or combat-related missions.
    (2) Spacecraft systems and launch support equipment.



Sec. 2902.11  Roof coatings.

    (a) Definition. Coatings formulated for use in commercial roof deck 
systems to provide a single-coat monolith coating system.
    (b) Minimum biobased content. The minimum biobased content is 20 
percent and shall be based on the entire product.

[[Page 95]]

    (c) Preference effective date. No later than March 16, 2007, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased roof coatings. By that 
date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased roof coatings.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the following EPA-designated recovered content 
product: Roofing Materials. USDA is requesting that manufacturers of 
these qualifying biobased products provide information on the USDA Web 
site of qualifying biobased products about the intended uses of the 
product, whether or not the product contains any type of recovered 
material, and performance standards against which the product has been 
tested. This information will assist Federal agencies in determining 
whether or not a qualifying biobased product overlaps with recovered 
content roofing materials and which product should be afforded the 
preference in purchasing.



Sec. 2902.12  Water tank coatings.

    (a) Definition. Coatings formulated for use in potable water storage 
systems.
    (b) Minimum biobased content. The minimum biobased content is 59 
percent and shall be based on the entire product.
    (c) Preference effective date. No later than November 20, 2007, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased water tank coatings. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased water tank coatings.

[71 FR 13705, Mar. 16, 2006, as amended at 71 FR 67032, Nov. 20, 2006]



Sec. 2902.13  Diesel fuel additives.

    (a) Definition. (1) Any substance, other than one composed solely of 
carbon and/or hydrogen, that is intentionally added to diesel fuel 
(including any added to a motor vehicle's fuel system) and that is not 
intentionally removed prior to sale or use.
    (2) Neat biodiesel, also referred to as B100, when used as an 
additive. Diesel fuel additive does not mean neat biodiesel when used as 
a fuel or blended biodiesel fuel (e.g., B20).
    (b) Minimum biobased content. The minimum biobased content is 90 
percent and shall be based on the amount of qualifying biobased carbon 
in the product as a percent of the weight (mass) of the total organic 
carbon in the finished product.
    (c) Preference effective date. No later than March 16, 2007, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased diesel fuel additives. By 
that date, Federal agencies that have the responsibility for drafting or 
reviewing specifications for items to be procured shall ensure that the 
relevant specifications require the use of biobased diesel fuel 
additives.
    (d) Exemptions. The following applications are exempt for the 
preferred procurement requirement for this item:
    (1) Military equipment: Product or system designed or procured for 
combat or combat-related missions.
    (2) Spacecraft systems and launch support equipment.



Sec. 2902.14  Penetrating lubricants.

    (a) Definition. Products formulated to provide light lubrication and 
corrosion resistance in close tolerant internal and external 
applications including frozen nuts and bolts, power tools, gears, 
valves, chains, and cables.
    (b) Minimum biobased content. The minimum biobased content is 68 
percent and shall be based on the amount of qualifying biobased carbon 
in the product as a percent of the weight (mass) of the total organic 
carbon in the finished product.
    (c) Preference effective date. No later than March 16, 2007, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased penetrating lubricants. 
By that date, Federal agencies that have the responsibility for drafting 
or reviewing specifications for

[[Page 96]]

items to be procured shall ensure that the relevant specifications 
require the use of biobased penetrating lubricants.
    (d) Determining overlap with an EPA-designated recovered content 
product. Qualifying biobased products that fall under this item may, in 
some cases, overlap with the following EPA-designated recovered content 
product: Re-refined Lubricating Oils. USDA is requesting that 
manufacturers of these qualifying biobased products provide information 
on the USDA Web site of qualifying biobased products about the intended 
uses of the product, whether or not the product contains petroleum-based 
ingredients, re-refined oil, and/or any other recovered material, in 
addition to biobased ingredients, and performance standards against 
which the product has been tested. This information will assist Federal 
agencies in determining whether or not a qualifying biobased product 
overlaps with EPA-designated lubricating oils containing re-refined oil 
and which product should be afforded the preference in purchasing.
    (e) Exemptions. The following applications are exempt for the 
preferred procurement requirement for this item:
    (1) Military equipment: Product or system designed or procured for 
combat or combat-related missions.
    (2) Spacecraft systems and launch support equipment.



Sec. 2902.15  Bedding, bed linens, and towels.

    (a) Definition. (1) Bedding is that group of woven cloth products 
used as coverings on a bed. Bedding includes products such as blankets, 
bedspreads, comforters, and quilts.
    (2) Bed linens are woven cloth sheets and pillowcases used in 
bedding.
    (3) Towels are woven cloth products used primarily for drying and 
wiping.
    (b) Minimum biobased content. The minimum biobased content is 12 
percent and shall be based on the amount of qualifying biobased carbon 
in the finished product as a percent of the weight (mass) of the total 
organic carbon in the finished product. The 12 percent biobased content 
must be of a qualifying biobased feedstock. Cotton, wool, linen, and 
silk are not qualifying biobased feedstocks for the purpose of 
determining the biobased content of bedding, bed linens, and towels.
    (c) Preference effective date. No later than November 20, 2007, 
procuring agencies, in accordance with this part, will give a 
procurement preference for qualifying biobased bedding, bed linens, and 
towels. By that date, Federal agencies that have the responsibility for 
drafting or reviewing specifications for items to be procured shall 
ensure that the relevant specifications require the use of biobased 
bedding, bed linens, and towels.

[71 FR 13705, Mar. 16, 2006, as amended at 71 FR 67032, Nov. 20, 2006]



PART 2903_BIODIESEL FUEL EDUCATION PROGRAM--Table of Contents




                      Subpart A_General Information

Sec.
2903.1 Applicability of regulations.
2903.2 Purpose of the program.
2903.3 Eligibility.
2903.4 Indirect costs.
2903.5 Matching requirements.

                      Subpart B_Program Description

2903.6 Project types.
2903.7 Project objectives.

                 Subpart C_Preparation of an Application

2903.8 Program application materials.
2903.9 Content of an application.
2903.10 Submission of an application.
2903.11 Acknowledgment of applications.

               Subpart D_Application Review and Evaluation

2903.12 Application review.
2903.13 Evaluation criteria.
2903.14 Conflicts of interest and confidentiality.

                     Subpart E_Award Administration

2903.15 General.
2903.16 Organizational management information.
2903.17 Award document and notice of award.

                   Subpart F_Supplementary Information

2903.18 Access to review information.
2903.19 Use of funds; changes.
2903.20 Reporting requirements.
2903.21 Applicable Federal statutes and regulations.

[[Page 97]]

2903.22 Confidential aspects of applications and awards.
2903.23 Definitions.

    Authority: 7 U.S.C. 8104; 5 U.S.C. 301.

    Source: 68 FR 56139, Sept. 30, 2003, unless otherwise noted.



                      Subpart A_General Information



Sec. 2903.1  Applicability of regulations.

    (a) The regulations of this part only apply to Biodiesel Fuel 
Education Program grants awarded under the provisions of section 9004 of 
the Farm Security and Rural Investment Act of 2002 (FSRIA) (7 U.S.C. 
8104) which authorizes the Secretary to award competitive grants to 
eligible entities to educate governmental and private entities that 
operate vehicle fleets, other interested entities (as determined by the 
Secretary), and the public about the benefits of biodiesel fuel use. 
Eligibility is limited to nonprofit organizations and institutions of 
higher education (as defined in sec. 101 of the Higher Education Act of 
1965 (20 U.S.C. 1001)) that have demonstrated both knowledge of 
biodiesel fuel production, use, or distribution and the ability to 
conduct educational and technical support programs. The Secretary 
delegated this authority to the Chief Economist, who in turn delegated 
this authority to the Director of OEPNU.
    (b) The regulations of this part do not apply to grants awarded by 
the Department of Agriculture under any other authority.



Sec. 2903.2  Purpose of the program.

    The Biodiesel Fuel Education Program seeks to familiarize public and 
private vehicle fleet operators, other interested entities, and the 
public, with the benefits of biodiesel, a relatively new fuel option in 
the United States. It will also address concerns previously identified 
by fleet operators and other potential users of this alternative fuel, 
including the need to balance the positive environmental, social and 
human health impacts of biodiesel utilization with the increased per 
gallon cost to the user. It is the Program's goal to stimulate biodiesel 
demand and encourage the further development of a biodiesel industry in 
the United States.



Sec. 2903.3  Eligibility.

    (a) Eligibility is limited to nonprofit organizations and 
institutions of higher education that have demonstrated both knowledge 
of biodiesel fuel production, use, or distribution and the ability to 
conduct educational and technical support programs.
    (b) Award recipients may subcontract to organizations not eligible 
to apply provided such organizations are necessary for the conduct of 
the project.



Sec. 2903.4  Indirect costs.

    (a) For the Biodiesel Fuel Education Program, applicants should use 
the current indirect cost rate negotiated with the cognizant Federal 
negotiating agency. Indirect costs may not exceed the negotiated rate. 
If no indirect cost rate has been negotiated, a reasonable dollar amount 
for indirect costs may be requested, which will be subject to approval 
by USDA. In the latter case, if a proposal is recommended for funding, 
an indirect cost rate proposal must be submitted prior to award to 
support the amount of indirect costs requested.
    (b) A proposer may elect not to charge indirect costs and, instead, 
charge only direct costs to grant funds. Grantees electing this 
alternative will not be allowed to charge, as direct costs, indirect 
costs that otherwise would be in the grantee's indirect cost pool under 
the applicable Office of Management and Budget cost principles. Grantees 
who request no indirect costs will not be permitted to revise their 
budgets at a later date to charge indirect costs to grant funds.



Sec. 2903.5  Matching requirements.

    There are no matching funds requirements for the Biodiesel Fuel 
Education Program and matching resources will not be factored into the 
review process as evaluation criteria.



                      Subpart B_Program Description



Sec. 2903.6  Project types.

    OEPNU intends to award continuation grants to successful Biodiesel 
Fuel Education Program applicants. A continuation grant is a grant 
instrument by which the Department agrees to support a specified level 
of effort for

[[Page 98]]

a predetermined project period 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 government support would be in the best interest of the 
Federal government and the public. If these three elements are met, 
OEPNU plans to provide additional support to the funded project(s).



Sec. 2903.7  Project objectives.

    (a) Successful projects will develop practical indicators or 
milestones to measure their progress towards achieving the following 
objectives:
    (1) Enhance current efforts to collect and disseminate biodiesel 
information;
    (2) Coordinate with other biodiesel educational or promotional 
programs, and with Federal, State and local programs aimed at 
encouraging biodiesel use, including the EPAct program;
    (3) Create a nationwide networking system that delivers biodiesel 
information to targeted audiences, including users, distributors and 
other infrastructure-related personnel;
    (4) Identify and document the benefits of biodiesel (e.g., lifecycle 
costing); and
    (5) Gather data pertaining to information gaps and develop 
strategies to address the gaps.
    (b) [Reserved]



                 Subpart C_Preparation of an Application



Sec. 2903.8  Program application materials.

    OEPNU will publish periodic program announcements to notify 
potential applicants of the availability of funds for competitive 
continuation grants. The program announcement will provide information 
about obtaining program application materials.



Sec. 2903.9  Content of an application.

    (a) Applications should be prepared following the guidelines and the 
instructions in the program announcement. At a minimum, applications 
shall include: a proposal cover page, project summary, project 
description, information about key personnel, documentation of 
collaborative arrangements, information about potential conflicts-of-
interest, budget forms and a budget narrative, information about current 
and pending support, and assurance statements.
    (b) Proper preparation of applications will assist reviewers in 
evaluating the merits of each application in a systematic, consistent 
fashion. Specific instructions regarding additional application content 
requirements and the ordering of application contents will be included 
in the program announcement. These will include instructions about paper 
size, margins, font type and size, line spacing, page numbering, the 
inclusion of illustrations, and electronic submission.



Sec. 2903.10  Submission of an application.

    The program announcement will provide the deadline date for 
submitting an application, the number of copies of each application that 
must be submitted, and the address to which proposals must be submitted.



Sec. 2903.11  Acknowledgment of applications.

    The receipt of all applications will be acknowledged. Applicants who 
do not receive an acknowledgment within 60 days of the submission 
deadline should contact the program contact indicated on the program 
announcement. Once the application has been assigned a proposal number, 
that number should be cited on all future correspondence.



               Subpart D_Application Review and Evaluation



Sec. 2903.12  Application review.

    (a) Reviewers will include government and non-government 
individuals. All reviewers will be selected based upon training and 
experience in relevant scientific, extension, or education fields, 
taking into account the following factors:
    (1) The level of relevant formal scientific, technical education, or 
extension experience of the individual, as well as the extent to which 
an individual is engaged in relevant research, education, or extension 
activities; and

[[Page 99]]

    (2) The need to include as reviewers experts from various areas of 
specialization within relevant scientific, education, or extension 
fields.
    (b) In addition, when selecting non-government reviewers, the 
following factors will be considered:
    (1) The need to include as reviewers other experts (e.g., producers, 
range or forest managers/operators, and consumers) who can assess 
relevance of the applications to targeted audiences and to program 
needs;
    (2) The need to include as reviewers experts from a variety of 
organizational types (e.g., colleges, universities, industry, state and 
Federal agencies, private profit and non-profit organizations) and 
geographic locations;
    (3) The need to maintain a balanced composition of reviewers with 
regard to minority and female representation and an equitable age 
distribution; and
    (4) The need to include reviewers who can judge the effective 
usefulness to producers and the general public of each application.
    (c) Authorized departmental officers will compile application 
reviews and recommend awards to OEPNU. OEPNU will make final award 
decisions.



Sec. 2903.13  Evaluation criteria.

    (a) The following evaluation criteria will be used in reviewing 
applications submitted for the Biodiesel Fuel Education Program:
    (1) Relevance of proposed project to current and future issues 
related to the production, use, distribution, fuel quality, and fuel 
properties of biodiesel, including:
    (i) Demonstrated knowledge about markets, state initiatives, impacts 
on local economies, regulatory issues, standards, and technical issues;
    (ii) Demonstrated knowledge about issues associated with developing 
a biodiesel infrastructure; and
    (iii) Quality and extent of stakeholder involvement in planning and 
accomplishment of program objectives.
    (2) Reasonableness of project proposal, including:
    (i) Sufficiency of scope and strategies to provide a consistent 
message in keeping with existing standards and regulations;
    (ii) Adequacy of Project Description, suitability and feasibility of 
methodology to develop and implement program;
    (iii) Clarity of objectives, milestones, and indicators of progress;
    (iv) Adequacy of plans for reporting, assessing and monitoring 
results over project's duration; and
    (v) Demonstration of feasibility, and probability of success.
    (3) Technical quality of proposed project, including:
    (i) Suitability and qualifications of key project personnel;
    (ii) Institutional experience and competence in providing 
alternative fuel education, including:
    (A) Demonstrated knowledge about programs involved in alternative 
fuel research and education;
    (B) Demonstrated knowledge about other fuels, fuel additives, engine 
performance, fuel quality and fuel emissions;
    (C) Demonstrated knowledge about Federal, State and local programs 
aimed at encouraging alternative fuel use;
    (D) Demonstrated ability in providing educational programs and 
developing technical programs; and
    (E) Demonstrated ability to analyze technical information relevant 
to the biodiesel industry.
    (iii) Adequacy of available or obtainable resources; and
    (iv) Quality of plans to administer and maintain the project, 
including collaborative efforts, evaluation and monitoring efforts.
    (b) [Reserved]



Sec. 2903.14  Conflicts of interest and confidentiality.

    (a) During the peer evaluation process, extreme care will be taken 
to prevent any actual or perceived conflicts of interest that may impact 
review or evaluation. Determinations of conflicts of interest will be 
based on the academic and administrative autonomy of an institution. The 
program announcement will specify the methodology for determining such 
autonomy.
    (b) Names of submitting institutions and individuals, as well as 
application content and peer evaluations, will be

[[Page 100]]

kept confidential, except to those involved in the review process, to 
the extent permitted by law. In addition, the identities of peer 
reviewers will remain confidential throughout the entire review process. 
Therefore, the names of the reviewers will not be released to 
applicants. At the end of the fiscal year, names of reviewers will be 
made available in such a way that the reviewers cannot be identified 
with the review of any particular application.



                     Subpart E_Award Administration



Sec. 2903.15  General.

    Within the limit of funds available for such purpose, the Authorized 
Departmental Officer (ADO) shall make grants to those responsible, 
eligible applicants whose applications are judged most meritorious under 
the procedures set forth in this part. The date specified by the ADO 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 practical so that 
project goals may be attained within the funded project period. All 
funds granted by OEPNU under this program 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 applicable Department assistance regulations (including part 3019 of 
this title).



Sec. 2903.16  Organizational management information.

    Specific management information relating to an applicant shall be 
submitted on a one-time basis as part of the responsibility 
determination prior to the award of a grant identified under this 
program, if such information has not been provided previously. Copies of 
forms recommended for use in fulfilling these requirements will be 
provided as part of the preaward process.



Sec. 2903.17  Award document and notice of award.

    (a) The award document will provide pertinent instructions and 
information including, at a minimum, the following:
    (1) Legal name and address of performing organization or institution 
to whom OEPNU has issued an award under this program;
    (2) Title of project;
    (3) Name(s) and institution(s) of PDs chosen to direct and control 
approved activities;
    (4) Identifying award number assigned by the Department;
    (5) Project period;
    (6) Total amount of Departmental financial assistance approved by 
OEPNU during the project period;
    (7) Legal authority(ies) under which the award is issued;
    (8) Appropriate Catalog of Federal Domestic Assistance (CFDA) 
number;
    (9) Approved budget plan for categorizing allocable project funds to 
accomplish the stated purpose of the award; and
    (10) Other information or provisions deemed necessary by OEPNU and 
the Authorized Departmental Officer to carry out the awarding activities 
or to accomplish the purpose of a particular award.
    (b) [Reserved]



                   Subpart F_Supplementary Information



Sec. 2903.18  Access to review information.

    Copies of reviews, not including the identity of reviewers, and a 
summary of the comments will be sent to the applicant PD after the 
review process has been completed.



Sec. 2903.19  Use of funds; changes.

    (a) Delegation of fiscal responsibility. Unless the terms and 
conditions of the award state otherwise, the awardee may not in whole or 
in part delegate or transfer to another person, institution, or 
organization the responsibility for use or expenditure of award funds.
    (b) Changes in project plans. (1) The permissible changes by the 
awardee, PD(s), or other key project personnel in the approved project 
shall be limited

[[Page 101]]

to changes in methodology, techniques, or other similar aspects of the 
project to expedite achievement of the project's approved goals. If the 
awardee or the PD(s) is uncertain as to whether a change complies with 
this provision, the question must be referred to the Authorized 
Departmental Officer (ADO) for a final determination. The ADO is the 
signatory of the award document, not the program contact.
    (2) Changes in approved goals or objectives shall be requested by 
the awardee 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 
awardee and 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 awardee and 
approved in writing by the ADO prior to effecting such transfers, unless 
prescribed otherwise in the terms and conditions of the award.
    (5) Changes in project period. The project period may be extended by 
OEPNU without additional financial support, for such additional 
period(s) as the ADO determines may be necessary to complete or fulfill 
the purposes of an approved project, but in no case shall the total 
project period exceed five years. Any extension of time shall be 
conditioned upon prior request by the awardee and approval in writing by 
the ADO, unless prescribed otherwise in the terms and conditions of 
award.
    (6) Changes in approved budget. Changes in an approved budget must 
be requested by the awardee and approved in writing by the ADO prior to 
instituting such changes if the revision will involve transfers or 
expenditures of amounts requiring prior approval as set forth in the 
applicable Federal cost principles, Departmental regulations, or award.



Sec. 2903.20  Reporting requirements.

    The award document will give instructions regarding the submission 
of progress reports, including the frequency and required contents of 
the reports.



Sec. 2903.21  Applicable Federal statutes and regulations.

    Several Federal statutes and regulations apply to grant applications 
considered for review and to project grants awarded under this program. 
These include, but are not limited to:
    7 CFR Part 1, subpart A--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 VI of the 
Civil Rights Act of 1964, as amended.
    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 Restrictions on Lobbying. 
Imposes 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 implementation of OMB Circular A-110, Uniform 
Administrative Requirements for Grants and Other Agreements With 
Institutions of Higher Education, Hospitals, and Other Nonprofit 
Organizations.
    7 CFR Part 3052--USDA implementation of OMB Circular No. A-133, 
Audits of States, Local Governments, and Non-profit Organizations. 29 
U.S.C. 794 (sec. 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).

[[Page 102]]



Sec. 2903.22  Confidential aspects of applications and awards.

    When an application results in an award, it becomes a part of the 
record of USDA transactions, available to the public upon specific 
request. Information that the Secretary determines to be of a 
confidential, privileged, or proprietary nature will be held in 
confidence to the extent permitted by law. Therefore, any information 
that the applicant wishes to have considered as confidential, 
privileged, or proprietary should be clearly marked within the 
application. The original copy of an application that does not result in 
an award will be retained by the Agency for a period of one year. Other 
copies will be destroyed. Such an application will be released only with 
the consent of the applicant or to the extent required by law. An 
application may be withdrawn at any time prior to the final action 
thereon.



Sec. 2903.23  Definitions.

    For the purpose of this program, the following definitions are 
applicable:
    Authorized departmental officer or ADO 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 or AOR means the president 
or chief executive officer of the applicant organization or the 
official, designated by the president or chief executive officer of the 
applicant organization, who has the authority to commit the resources of 
the organization.
    Biodiesel means a monoalkyl ester that meets the requirements of an 
appropriate American Society for Testing and Materials Standard.
    Budget period means the interval of time (usually 12 months) into 
which the project period is divided for budgetary and reporting 
purposes.
    Department or USDA means the United States Department of 
Agriculture.
    Education activity means an act or process that imparts knowledge or 
skills through formal or informal training and outreach.
    Grant means the award by the Secretary of funds to an eligible 
recipient for the purpose of conducting the identified project.
    Grantee means the organization designated in the award document as 
the responsible legal entity to which a grant is awarded.
    Institution of higher education, as defined in sec. 101 of the 
Higher Education Act of 1965 (20 U.S.C. 1001), means an educational 
institution in any State that:
    (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 the institution awards 
a bachelor's degree or provides not less than a two-year program that is 
acceptable for full credit toward such a degree;
    (4) Is a public or other nonprofit institution; and
    (5) Is accredited by a nationally recognized accrediting agency or 
association, or if not so accredited, is an institution that has been 
granted preaccreditation status by such an agency or association that 
has been recognized by the Secretary of Education for the granting of 
preaccreditation status, and the Secretary of Education has determined 
that there is satisfactory assurance that the institution will meet the 
accreditation standards of such an agency or association within a 
reasonable time.
    OEPNU means the Office of Energy Policy and New Uses.
    Peer review is an evaluation of a proposed project performed by 
experts with the scientific knowledge and technical skills to conduct 
the proposed work whereby the technical quality and relevance to the 
program are assessed.
    Prior approval means written approval evidencing prior consent by an 
authorized departmental officer (as defined in this section).
    Program means the Biodiesel Fuel Education Program.

[[Page 103]]

    Project means the particular activity within the scope of the 
program supported by a grant award.
    Project director or PD 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, also known 
as a principal investigator for research activities.
    Project period means the period, as stated in the award document and 
modifications thereto, if any, during which Federal sponsorship begins 
and ends.
    Secretary means the Secretary of Agriculture and any other officer 
or employee of the Department to whom the authority involved may be 
delegated.

[[Page 105]]



                         CHAPTER XXX--OFFICE OF






                      THE CHIEF FINANCIAL OFFICER,






                        DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3010            [Reserved]

3011            Availability of information to the public...         107
3015            Uniform Federal assistance regulations......         108
3016            Uniform administrative requirements for 
                    grants and cooperative agreements to 
                    State and local governments.............         158
3017            Governmentwide debarment and suspension 
                    (nonprocurement)........................         186
3018            New restrictions on lobbying................         211
3019            Uniform administrative requirements for 
                    grants and agreements with institutions 
                    of higher education, hospitals, and 
                    other non-profit organizations..........         223
3021            Governmentwide requirements for drug-free 
                    workplace (financial assistance)........         250
3052            Audits of States, local governments, and 
                    non-profit organizations................         256

[[Page 107]]



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 108]]



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 109]]

              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 110]]

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 111]]

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 112]]



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 Sec. Sec. 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 113]]

    (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 114]]



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 115]]

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 116]]

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 117]]

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 118]]

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 119]]

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 120]]

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 Sec. Sec. 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 
Sec. Sec. 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 Sec. Sec. 
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 121]]

    (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 122]]

    (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 123]]



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 124]]

    (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 125]]

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 Sec. Sec. 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 126]]

    (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 127]]



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 128]]

    (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 Sec. Sec. 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 129]]

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 130]]



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 131]]

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 132]]

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 133]]

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 134]]

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 135]]

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 136]]

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 137]]

    (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 138]]

    (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 139]]



                        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

[[Page 140]]

start of an institution's first fiscal 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 141]]

    (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 142]]

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 143]]

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 144]]

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 145]]

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 146]]

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 147]]

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 148]]



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.

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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

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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 151]]

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 Sec. Sec. 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 152]]

    (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 153]]

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 154]]

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 155]]

    (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 156]]

    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 157]]

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 158]]

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

              Reports, Records, Retention, and Enforcement

3016.40 Monitoring and reporting program performance.

[[Page 159]]

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 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

[[Page 160]]

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.
    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

[[Page 161]]

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.
    (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

[[Page 162]]

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 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.

[[Page 163]]

    (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 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:

[[Page 164]]

    (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 
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

[[Page 165]]

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) 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

[[Page 166]]

    (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.
    (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:

[[Page 167]]

    (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:
    (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.

[[Page 168]]

    (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 
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

[[Page 169]]

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 Sec. Sec. 
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 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

[[Page 170]]

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 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.

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    (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 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.

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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.
    (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

[[Page 173]]

$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 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

[[Page 174]]

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

[[Page 175]]

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 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

[[Page 176]]

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 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.

[[Page 177]]

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

[[Page 178]]

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, 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

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

[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

[[Page 180]]

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.
    (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.

[[Page 181]]

    (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.
    (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

[[Page 182]]

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.
    (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.

[[Page 183]]

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 usage 
chargeback rates or composite fringe benefit rates).
    (i) If submitted for negotiation. If the proposal, plan, or other 
computation is required to be submitted to the Federal Government (or to 
the grantee) to form the basis for negotiation of the rate, then the 3-
year retention period for its supporting records starts from the date of 
such submission.

[[Page 184]]

    (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).



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

[[Page 185]]

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 Sec. Sec. 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 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.

[[Page 186]]



Sec. 3016.60  Special procurement provisions.

    (a) Notwithstanding Sec. Sec. 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 
Sec. Sec. 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)--
Table of Contents




Sec.
3017.25 How is this part organized?
3017.50 How is this part written?
3017.75 Do terms in this part have special meanings?

                            Subpart A_General

3017.100 What does this part do?
3017.105 Does this part apply to me?
3017.110 What is the purpose of the nonprocurement debarment and 
          suspension system?
3017.115 How does an exclusion restrict a person's involvement in 
          covered transactions?
3017.120 May we grant an exception to let an excluded person participate 
          in a covered transaction?
3017.125 Does an exclusion under the nonprocurement system affect a 
          person's eligibility for Federal procurement contracts?
3017.130 Does exclusion under the Federal procurement system affect a 
          person's eligibility to participate in nonprocurement 
          transactions?

[[Page 187]]

3017.135 May the Department of Agriculture exclude a person who is not 
          currently participating in a nonprocurement transaction?
3017.140 How do I know if a person is excluded?
3017.145 Does this part address persons who are disqualified, as well as 
          those who are excluded from nonprocurement transactions?

                     Subpart B_Covered Transactions

3017.200 What is a covered transaction?
3017.205 Why is it important to know if a particular transaction is a 
          covered transaction?
3017.210 Which nonprocurement transactions are covered transactions?
3017.215 Which nonprocurement transactions are not covered transactions?
3017.220 Are any procurement contracts included as covered transactions?
3017.225 How do I know if a transaction in which I may participate is a 
          covered transaction?

Subpart C_Responsibilities of Participants Regarding Transactions Doing 
                       Business With Other Persons

3017.300 What must I do before I enter into a covered transaction with 
          another person at the next lower tier?
3017.305 May I enter into a covered transaction with an excluded or 
          disqualified person?
3017.310 What must I do if a Federal agency excludes a person with whom 
          I am already doing business in a covered transaction?
3017.315 May I use the services of an excluded person as a principal 
          under a covered transaction?
3017.320 Must I verify that principals of my covered transactions are 
          eligible to participate?
3017.325 What happens if I do business with an excluded person in a 
          covered transaction?
3017.330 What requirements must I pass down to persons at lower tiers 
          with whom I intend to do business?

            Disclosing Information_Primary Tier Participants

3017.335 What information must I provide before entering into a covered 
          transaction with the Department of Agriculture?
3017.340 If I disclose unfavorable information required under Sec. 
          3017.335, will I be prevented from participating in the 
          transaction?
3017.345 What happens if I fail to disclose the information required 
          under Sec. 3017.335?
3017.350 What must I do if I learn of the information required under 
          Sec. 3017.335 after entering into a covered transaction with 
          the Department of Agriculture?

             Disclosing Information_Lower Tier Participants

3017.355 What information must I provide to a higher tier participant 
          before entering into a covered transaction with that 
          participant?
3017.360 What happens if I fail to disclose the information required 
          under Sec. 3017.355?
3017.365 What must I do if I learn of information required under Sec. 
          3017.355 after entering into a covered transaction with a 
          higher tier participant?

   Subpart D_Responsibilities of Department of Agriculture Officials 
                         Regarding Transactions

3017.400 May I enter into a transaction with an excluded or disqualified 
          person?
3017.405 May I enter into a covered transaction with a participant if a 
          principal of the transaction is excluded?
3017.410 May I approve a participant's use of the services of an 
          excluded person?
3017.415 What must I do if a Federal agency excludes the participant or 
          a principal after I enter into a covered transaction?
3017.420 May I approve a transaction with an excluded or disqualified 
          person at a lower tier?
3017.425 When do I check to see if a person is excluded or disqualified?
3017.430 How do I check to see if a person is excluded or disqualified?
3017.435 What must I require of a primary tier participant?
3017.440 What method do I use to communicate those requirements to 
          participants?
3017.445 What action may I take if a primary tier participant knowingly 
          does business with an excluded or disqualified person?
3017.450 What action may I take if a primary tier participant fails to 
          disclose the information required under Sec. 3017.335?
3017.455 What may I do if a lower tier participant fails to disclose the 
          information required under Sec. 3017.355 to the next higher 
          tier?

                 Subpart E_Excluded Parties List System

3017.500 What is the purpose of the Excluded Parties List System (EPLS)?
3017.505 Who uses the EPLS?
3017.510 Who maintains the EPLS?
3017.515 What specific information is in the EPLS?
3017.520 Who places the information into the EPLS?

[[Page 188]]

3017.525 Whom do I ask if I have questions about a person in the EPLS?
3017.530 Where can I find the EPLS?

   Subpart F_General Principles Relating to Suspension and Debarment 
                                 Actions

3017.600 How do suspension and debarment actions start?
3017.605 How does suspension differ from debarment?
3017.610 What procedures does the Department of Agriculture use in 
          suspension or debarment actions?
3017.615 How does the Department of Agriculture notify a person of a 
          suspension and debarment action?
3017.620 Do Federal agencies coordinate suspension and debarment 
          actions?
3017.625 What is the scope of a suspension or debarment action?
3017.630 May the Department of Agriculture impute the conduct of one 
          person to another?
3017.635 May the Department of Agriculture settle a debarment or 
          suspension action?
3017.640 May a settlement include a voluntary exclusion?
3017.645 Do other Federal agencies know if the Department of Agriculture 
          agrees to a voluntary exclusion?

                          Subpart G_Suspension

3017.700 When may the suspending official issue a suspension?
3017.705 What does the suspending official consider in issuing a 
          suspension?
3017.710 When does a suspension take effect?
3017.715 What notice does the suspending official give me if I am 
          suspended?
3017.720 How may I contest a suspension?
3017.725 How much time do I have to contest a suspension?
3017.730 What information must I provide to the suspending official if I 
          contest a suspension?
3017.735 Under what conditions do I get an additional opportunity to 
          challenge the facts on which the suspension is based?
3017.740 Are suspension proceedings formal?
3017.745 How is fact-finding conducted?
3017.750 What does the suspending official consider in deciding whether 
          to continue or terminate my suspension?
3017.755 When will I know whether the suspension is continued or 
          terminated?
3017.760 How long may my suspension last?
3017.765 How may I appeal my suspension?

                           Subpart H_Debarment

3017.800 What are the causes for debarment?
3017.805 What notice does the debarring official give me if I am 
          proposed for debarment?
3017.810 When does a debarment take effect?
3017.815 How may I contest a proposed debarment?
3017.820 How much time do I have to contest a proposed debarment?
3017.825 What information must I provide to the debarring official if I 
          contest a proposed debarment?
3017.830 Under what conditions do I get an additional opportunity to 
          challenge the facts on which the proposed debarment is based?
3017.835 Are debarment proceedings formal?
3017.840 How is fact-finding conducted?
3017.845 What does the debarring official consider in deciding whether 
          to debar me?
3017.850 What is the standard of proof in a debarment action?
3017.855 Who has the burden of proof in a debarment action?
3017.860 What factors may influence the debarring official's decision?
3017.865 How long may my debarment last?
3017.870 When do I know if the debarring official debars me?
3017.875 May I ask the debarring official to reconsider a decision to 
          debar me?
3017.880 What factors may influence the debarring official during 
          reconsideration?
3017.885 May the debarring official extend a debarment?
3017.890 How may I appeal my debarment?

                          Subpart I_Definitions

3017.900 Adequate evidence.
3017.905 Affiliate.
3017.910 Agency.
3017.915 Agent or representative.
3017.920 Civil judgment.
3017.925 Conviction.
3017.930 Debarment.
3017.935 Debarring official.
3017.940 Disqualified.
3017.945 Excluded or exclusion.
3017.950 Excluded Parties List System.
3017.955 Indictment.
3017.960 Ineligible or ineligibility.
3017.965 Legal proceedings.
3017.970 Nonprocurement transaction.
3017.975 Notice.
3017.980 Participant.
3017.985 Person.
3017.990 Preponderance of the evidence.
3017.995 Principal.
3017.1000 Respondent.
3017.1005 State.
3017.1010 Suspending official.
3017.1015 Suspension.
3017.1020 Voluntary exclusion or voluntarily excluded.

Subpart J [Reserved]

Appendix to Part 3017--Covered Transactions


[[Page 189]]


    Authority: 5 U.S.C. 301; Pub. L. 101-576, 104 Stat. 2838; Sec. 2455, 
Pub. L. 103-355, 108 Stat. 3327 (31 U.S.C. 6101 note); E.O. 12549 (3 
CFR, 1986 Comp., p. 189); E.O. 12698 (3 CFR, 1989 Comp., p. 235); 7 CFR 
2.28.

    Source: 68 FR 66544, 66563, Nov. 26, 2003, unless otherwise noted.



Sec. 3017.25  How is this part organized?

    (a) This part is subdivided into ten subparts. Each subpart contains 
information related to a broad topic or specific audience with special 
responsibilities, as shown in the following table:

------------------------------------------------------------------------
                                             You will find provisions
            In subpart . . .                     related to . . .
------------------------------------------------------------------------
A......................................  general information about this
                                          rule.
B......................................  the types of Department of
                                          Agriculture transactions that
                                          are covered by the
                                          Governmentwide nonprocurement
                                          suspension and debarment
                                          system.
C......................................  the responsibilities of persons
                                          who participate in covered
                                          transactions.
D......................................  the responsibilities of
                                          Department of Agriculture
                                          officials who are authorized
                                          to enter into covered
                                          transactions.
E......................................  the responsibilities of Federal
                                          agencies for the Excluded
                                          Parties List System
                                          (Disseminated by the General
                                          Services Administration).
F......................................  the general principles
                                          governing suspension,
                                          debarment, voluntary exclusion
                                          and settlement.
G......................................  suspension actions.
H......................................  debarment actions.
I......................................  definitions of terms used in
                                          this part.
J......................................  [Reserved]
------------------------------------------------------------------------

    (b) The following table shows which subparts may be of special 
interest to you, depending on who you are:

------------------------------------------------------------------------
             If you are . . .                   See subpart(s) . . .
------------------------------------------------------------------------
(1) a participant or principal in a         A, B, C, and I.
 nonprocurement transaction.
(2) a respondent in a suspension action...  A, B, F, G and I.
(3) a respondent in a debarment action....  A, B, F, H and I.
(4) a suspending official.................  A, B, D, E, F, G and I.
(5) a debarring official..................  A, B, D, E, F, H and I.
(6) a (n) Department of Agriculture         A, B, D, E and I.
 official authorized to enter into a
 covered transaction.
(7) Reserved..............................  J.
------------------------------------------------------------------------



Sec. 3017.50  How is this part written?

    (a) This part uses a ``plain language'' format to make it easier for 
the general public and business community to use. The section headings 
and text, often in the form of questions and answers, must be read 
together.
    (b) Pronouns used within this part, such as ``I'' and ``you,'' 
change from subpart to subpart depending on the audience being 
addressed. The pronoun ``we'' always is the Department of Agriculture.
    (c) The ``Covered Transactions'' diagram in the appendix to this 
part shows the levels or ``tiers'' at which the Department of 
Agriculture enforces an exclusion under this part. However, this diagram 
shows only the general model for the levels or ``tiers'' at which the 
Department of Agriculture enforces an exclusion under this part, and the 
model will vary for certain categories of transactions in accordance 
with the exclusions from covered transactions in Sec. 3017.215 and 
Sec. 3017.220.

[68 FR 66544, 66563, Nov. 26, 2003, as amended at 68 FR 66564, Nov. 26, 
2003]



Sec. 3017.75  Do terms in this part have special meanings?

    This part uses terms throughout the text that have special meaning. 
Those terms are defined in Subpart I of this part. For example, three 
important terms are--
    (a) Exclusion or excluded, which refers only to discretionary 
actions taken by a suspending or debarring official under this part or 
the Federal Acquisition Regulation (48 CFR part 9, subpart 9.4);
    (b) Disqualification or disqualified, which refers to prohibitions 
under specific statutes, executive orders (other than Executive Order 
12549 and Executive Order 12689), or other authorities. 
Disqualifications frequently are not subject to the discretion of an 
agency official, may have a different scope than exclusions, or have 
special conditions that apply to the disqualification; and
    (c) Ineligibility or ineligible, which generally refers to a person 
who is either excluded or disqualified.



                            Subpart A_General



Sec. 3017.100  What does this part do?

    This part adopts a governmentwide system of debarment and suspension 
for Department of Agriculture nonprocurement activities. It also 
provides for reciprocal exclusion of persons who have been excluded 
under the Federal Acquisition Regulation, and provides

[[Page 190]]

for the consolidated listing of all persons who are excluded, or 
disqualified by statute, executive order, or other legal authority. This 
part satisfies the requirements in section 3 of Executive Order 12549, 
``Debarment and Suspension'' (3 CFR 1986 Comp., p. 189), Executive Order 
12689, ``Debarment and Suspension'' (3 CFR 1989 Comp., p. 235) and 31 
U.S.C. 6101 note (Section 2455, Public Law 103-355, 108 Stat. 3327).



Sec. 3017.105  Does this part apply to me?

    Portions of this part (see table at Sec. 3017.25(b)) apply to you 
if you are a(n)--
    (a) Person who has been, is, or may reasonably be expected to be, a 
participant or principal in a covered transaction;
    (b) Respondent (a person against whom the Department of Agriculture 
has initiated a debarment or suspension action);
    (c) Department of Agriculture debarring or suspending official; or
    (d) Department of Agriculture official who is authorized to enter 
into covered transactions with non-Federal parties.



Sec. 3017.110  What is the purpose of the nonprocurement debarment and suspension system?

    (a) To protect the public interest, the Federal Government ensures 
the integrity of Federal programs by conducting business only with 
responsible persons.
    (b) A Federal agency uses the nonprocurement debarment and 
suspension system to exclude from Federal programs persons who are not 
presently responsible.
    (c) An exclusion is a serious action that a Federal agency may take 
only to protect the public interest. A Federal agency may not exclude a 
person or commodity for the purposes of punishment.



Sec. 3017.115  How does an exclusion restrict a person's involvement in covered transactions?

    With the exceptions stated in Sec. Sec. 3017.120, 3017.315, and 
3017.420, a person who is excluded by the Department of Agriculture or 
any other Federal agency may not:
    (a) Be a participant in a(n) Department of Agriculture transaction 
that is a covered transaction under subpart B of this part;
    (b) Be a participant in a transaction of any other Federal agency 
that is a covered transaction under that agency's regulation for 
debarment and suspension; or
    (c) Act as a principal of a person participating in one of those 
covered transactions.



Sec. 3017.120  May we grant an exception to let an excluded person participate in a covered transaction?

    (a) The Secretary of Agriculture or designee may grant an exception 
permitting an excluded person to participate in a particular covered 
transaction. If the Secretary of Agriculture or designee grants an 
exception, the exception must be in writing and state the reason(s) for 
deviating from the governmentwide policy in Executive Order 12549.
    (b) An exception granted by one agency for an excluded person does 
not extend to the covered transactions of another agency.



Sec. 3017.125  Does an exclusion under the nonprocurement system affect a person's eligibility for Federal procurement contracts?

    If any Federal agency excludes a person under its nonprocurement 
common rule on or after August 25, 1995, the excluded person is also 
ineligible to participate in Federal procurement transactions under the 
FAR. Therefore, an exclusion under this part has reciprocal effect in 
Federal procurement transactions.



Sec. 3017.130  Does exclusion under the Federal procurement system affect a person's eligibility to participate in nonprocurement transactions?

    If any Federal agency excludes a person under the FAR on or after 
August 25, 1995, the excluded person is also ineligible to participate 
in nonprocurement covered transactions under this part. Therefore, an 
exclusion under the FAR has reciprocal effect in Federal nonprocurement 
transactions.

[[Page 191]]



Sec. 3017.135  May the Department of Agriculture exclude a person who is not currently participating in a nonprocurement transaction?

    Given a cause that justifies an exclusion under this part, we may 
exclude any person who has been involved, is currently involved, or may 
reasonably be expected to be involved in a covered transaction.



Sec. 3017.140  How do I know if a person is excluded?

    Check the Excluded Parties List System (EPLS) to determine whether a 
person is excluded. The General Services Administration (GSA) maintains 
the EPLS and makes it available, as detailed in subpart E of this part. 
When a Federal agency takes an action to exclude a person under the 
nonprocurement or procurement debarment and suspension system, the 
agency enters the information about the excluded person into the EPLS.



Sec. 3017.145  Does this part address persons who are disqualified, as well as those who are excluded from nonprocurement transactions?

    Except if provided for in Subpart J of this part, this part--
    (a) Addresses disqualified persons only to--
    (1) Provide for their inclusion in the EPLS; and
    (2) State responsibilities of Federal agencies and participants to 
check for disqualified persons before entering into covered 
transactions.
    (b) Does not specify the--
    (1) Department of Agriculture transactions for which a disqualified 
person is ineligible. Those transactions vary on a case-by-case basis, 
because they depend on the language of the specific statute, Executive 
order, or regulation that caused the disqualification;
    (2) Entities to which the disqualification applies; or
    (3) Process that the agency uses to disqualify a person. Unlike 
exclusion, disqualification is frequently not a discretionary action 
that a Federal agency takes.



                     Subpart B_Covered Transactions



Sec. 3017.200  What is a covered transaction?

    A covered transaction is a nonprocurement or procurement transaction 
that is subject to the prohibitions of this part. It may be a 
transaction at--
    (a) The primary tier, between a Federal agency and a person (see 
appendix to this part); or
    (b) A lower tier, between a participant in a covered transaction and 
another person.



Sec. 3017.205  Why is it important if a particular transaction is a covered transaction?

    The importance of a covered transaction depends upon who you are.
    (a) As a participant in the transaction, you have the 
responsibilities laid out in Subpart C of this part. Those include 
responsibilities to the person or Federal agency at the next higher tier 
from whom you received the transaction, if any. They also include 
responsibilities if you subsequently enter into other covered 
transactions with persons at the next lower tier.
    (b) As a Federal official who enters into a primary tier 
transaction, you have the responsibilities laid out in subpart D of this 
part.
    (c) As an excluded person, you may not be a participant or principal 
in the transaction unless--
    (1) The person who entered into the transaction with you allows you 
to continue your involvement in a transaction that predates your 
exclusion, as permitted under Sec. 3017.310 or Sec. 3017.415; or
    (2) A(n) Department of Agriculture official obtains an exception 
from the Secretary of Agriculture or designee to allow you to be 
involved in the transaction, as permitted under Sec. 3017.120.



Sec. 3017.210  Which nonprocurement transactions are covered transactions?

    All nonprocurement transactions, as defined in Sec. 3017.970, are 
covered transactions unless listed in Sec. 3017.215. (See appendix to 
this part.)

[[Page 192]]



Sec. 3017.215  Which nonprocurement transactions are not covered transactions?

    The following types of nonprocurement transactions are not covered 
transactions:
    (a) A direct award to--
    (1) A foreign government or foreign governmental entity;
    (2) A public international organization;
    (3) An entity owned (in whole or in part) or controlled by a foreign 
government; or
    (4) Any other entity consisting wholly or partially of one or more 
foreign governments or foreign governmental entities.
    (b) A benefit 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). For example, if 
a person receives social security benefits under the Supplemental 
Security Income provisions of the Social Security Act, 42 U.S.C. 1301 et 
seq., those benefits are not covered transactions and, therefore, are 
not affected if the person is excluded.
    (c) Federal employment.
    (d) A transaction that the Department of Agriculture needs to 
respond to a national or agency-recognized emergency or disaster.
    (e) A permit, license, certificate, or similar instrument issued as 
a means to regulate public health, safety, or the environment, unless 
the Department of Agriculture specifically designates it to be a covered 
transaction.
    (f) An incidental benefit that results from ordinary governmental 
operations.
    (g) Any other transaction if the application of an exclusion to the 
transaction is prohibited by law.
    (h) An entitlement or mandatory award required by a statute, 
including a lower tier entitlement or mandatory award that is required 
by a statute.
    (i) With respect to the Department of Agriculture's export and 
foreign assistance programs, any transaction below the primary tier 
covered transaction other than a nonprocurement transaction under the 
Market Access Program between a nonprofit trade association or state 
regional group and a U.S. entity, as defined in part 1485 of this title.
    (j) Any transaction under the Department of Agriculture's 
conservation programs, warehouse licensing programs, or programs that 
provide statutory entitlements and make available loans to individuals 
and entities in their capacity as producers of agricultural commodities.
    (k) 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''), which provides separate statutory 
authority to debar.
    (l) 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.
    (m) 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.
    (n) If the person is a State or local government, the provision of 
official grading and inspection services, animal damage control 
services, animal and plant health and safety inspection services.
    (o) The receipt of licenses, permit, or certificates under 
regulatory programs conducted in the interest of ensuring fair trade 
practices.
    (p) Permits, licenses, exchanges and other acquisitions of real 
property, rights of way, and easements under natural resource management 
programs.

[68 FR 66544,66563, Nov. 26, 2003, as amended at 68 FR 66564, Nov. 26, 
2003]



Sec. 3017.220  Are any procurement contracts included as covered transactions?

    (a) Covered transactions under this part--
    (1) Do not include any procurement contracts awarded directly by a 
Federal agency; but
    (2) Do include some procurement contracts awarded by non-Federal 
participants in nonprocurement covered transactions (see appendix to 
this part).

[[Page 193]]

    (b) Specifically, a contract for goods or services is a covered 
transaction if any of the following applies:
    (1) The contract is awarded by a participant in a nonprocurement 
transaction that is covered under Sec. 3017.210, and the amount of the 
contract is expected to equal or exceed $25,000.
    (2) The contract requires the consent of a(n) Department of 
Agriculture official. In that case, the contract, regardless of the 
amount, always is a covered transaction, and it does not matter who 
awarded it. For example, it could be a subcontract awarded by a 
contractor at a tier below a nonprocurement transaction, as shown in the 
appendix to this part.
    (3) The contract is for federally-required audit services.
    (c) A contract for the procurement of ocean transportation in 
connection with the Department of Agriculture's foreign assistance 
programs is a covered transaction. With respect to the Department of 
Agriculture's export and foreign assistance programs, such contracts are 
the only procurement contracts included as covered transactions, 
notwithstanding the provisions in paragraphs (a) and (b) of this 
section.

[68 FR 66544,66563, Nov. 26, 2003, as amended at 68 FR 66564, Nov. 26, 
2003]



Sec. 3017.225  How do I know if a transaction in which I may participate is a covered transaction?

    As a participant in a transaction, you will know that it is a 
covered transaction because the agency regulations governing the 
transaction, the appropriate agency official, or participant at the next 
higher tier who enters into the transaction with you, will tell you that 
you must comply with applicable portions of this part.



    Subpart C_Responsibilities of Participants Regarding Transactions

                    Doing Business With Other Persons



Sec. 3017.300  What must I do before I enter into a covered transaction with another person at the next lower tier?

    When you enter into a covered transaction with another person at the 
next lower tier, you must verify that the person with whom you intend to 
do business is not excluded or disqualified. You do this by:
    (a) Checking the EPLS; or
    (b) Collecting a certification from that person if allowed by this 
rule; or
    (c) Adding a clause or condition to the covered transaction with 
that person.



Sec. 3017.305  May I enter into a covered transaction with an excluded or disqualified person?

    (a) You as a participant may not enter into a covered transaction 
with an excluded person, unless the Department of Agriculture grants an 
exception under Sec. 3017.120.
    (b) You may not enter into any transaction with a person who is 
disqualified from that transaction, unless you have obtained an 
exception under the disqualifying statute, Executive order, or 
regulation.



Sec. 3017.310  What must I do if a Federal agency excludes a person with whom I am already doing business in a covered transaction?

    (a) You as a participant may continue covered transactions with an 
excluded person if the transactions were in existence when the agency 
excluded the person. However, you are not required to continue the 
transactions, and you may consider termination. You should make a 
decision about whether to terminate and the type of termination action, 
if any, only after a thorough review to ensure that the action is proper 
and appropriate.
    (b) You may not renew or extend covered transactions (other than no-
cost time extensions) with any excluded person, unless the Department of 
Agriculture grants an exception under Sec. 3017.120.

[[Page 194]]



Sec. 3017.315  May I use the services of an excluded person as a principal under a covered transaction?

    (a) You as a participant may continue to use the services of an 
excluded person as a principal under a covered transaction if you were 
using the services of that person in the transaction before the person 
was excluded. However, you are not required to continue using that 
person's services as a principal. You should make a decision about 
whether to discontinue that person's services only after a thorough 
review to ensure that the action is proper and appropriate.
    (b) You may not begin to use the services of an excluded person as a 
principal under a covered transaction unless the Department of 
Agriculture grants an exception under Sec. 3017.120.



Sec. 3017.320  Must I verify that principals of my covered transactions are eligible to participate?

    Yes, you as a participant are responsible for determining whether 
any of your principals of your covered transactions is excluded or 
disqualified from participating in the transaction. You may decide the 
method and frequency by which you do so. You may, but you are not 
required to, check the EPLS.



Sec. 3017.325  What happens if I do business with an excluded person in a covered transaction?

    If as a participant you knowingly do business with an excluded 
person, we may disallow costs, annul or terminate the transaction, issue 
a stop work order, debar or suspend you, or take other remedies as 
appropriate.



Sec. 3017.330  What requirements must I pass down to persons at lower tiers with whom I intend to do business?

    Before entering into a covered transaction with a participant at the 
next lower tier, you must require that participant to--
    (a) Comply with this subpart as a condition of participation in the 
transaction. You may do so using any method(s), unless Sec. 3017.440 
requires you to use specific methods.
    (b) Pass the requirement to comply with this subpart to each person 
with whom the participant enters into a covered transaction at the next 
lower tier.

            Disclosing Information--Primary Tier Participants



Sec. 3017.335  What information must I provide before entering into a covered transaction with the Department of Agriculture?

    Before you enter into a covered transaction at the primary tier, you 
as the participant must notify the Department of Agriculture office that 
is entering into the transaction with you, if you know that you or any 
of the principals for that covered transaction:
    (a) Are presently excluded or disqualified;
    (b) Have been convicted within the preceding three years of any of 
the offenses listed in Sec. 3017.800(a) or had a civil judgment 
rendered against you for one of those offenses within that time period;
    (c) Are presently indicted for or otherwise criminally or civilly 
charged by a governmental entity (Federal, State or local) with 
commission of any of the offenses listed in Sec. 3017.800(a); or
    (d) Have had one or more public transactions (Federal, State, or 
local) terminated within the preceding three years for cause or default.



Sec. 3017.340  If I disclose unfavorable information required under Sec. 3017.335, will I be prevented from participating in the transaction?

    As a primary tier participant, your disclosure of unfavorable 
information about yourself or a principal under Sec. 3017.335 will not 
necessarily cause us to deny your participation in the covered 
transaction. We will consider the information when we determine whether 
to enter into the covered transaction. We also will consider any 
additional information or explanation that you elect to submit with the 
disclosed information.



Sec. 3017.345  What happens if I fail to disclose information required under Sec. 3017.335?

    If we later determine that you failed to disclose information under 
Sec. 3017.335 that you knew at the time you entered into the covered 
transaction, we may--

[[Page 195]]

    (a) Terminate the transaction for material failure to comply with 
the terms and conditions of the transaction; or
    (b) Pursue any other available remedies, including suspension and 
debarment.



Sec. 3017.350  What must I do if I learn of information required under Sec. 3017.335 after entering into a covered transaction with the Department of 
          Agriculture?

    At any time after you enter into a covered transaction, you must 
give immediate written notice to the Department of Agriculture office 
with which you entered into the transaction if you learn either that--
    (a) You failed to disclose information earlier, as required by Sec. 
3017.335; or
    (b) Due to changed circumstances, you or any of the principals for 
the transaction now meet any of the criteria in Sec. 3017.335.

             Disclosing Information--Lower Tier Participants



Sec. 3017.355  What information must I provide to a higher tier participant before entering into a covered transaction with that participant?

    Before you enter into a covered transaction with a person at the 
next higher tier, you as a lower tier participant must notify that 
person if you know that you or any of the principals are presently 
excluded or disqualified.



Sec. 3017.360  What happens if I fail to disclose the information required under Sec. 3017.355?

    If we later determine that you failed to tell the person at the 
higher tier that you were excluded or disqualified at the time you 
entered into the covered transaction with that person, we may pursue any 
available remedies, including suspension and debarment.



Sec. 3017.365  What must I do if I learn of information required under Sec. 3017.355 after entering into a covered transaction with a higher tier participant?

    At any time after you enter into a lower tier covered transaction 
with a person at a higher tier, you must provide immediate written 
notice to that person if you learn either that--
    (a) You failed to disclose information earlier, as required by Sec. 
3017.355; or
    (b) Due to changed circumstances, you or any of the principals for 
the transaction now meet any of the criteria in Sec. 3017.355.



   Subpart D_Responsibilities of Department of Agriculture Officials 
                         Regarding Transactions



Sec. 3017.400  May I enter into a transaction with an excluded or disqualified person?

    (a) You as an agency official may not enter into a covered 
transaction with an excluded person unless you obtain an exception under 
Sec. 3017.120.
    (b) You may not enter into any transaction with a person who is 
disqualified from that transaction, unless you obtain a waiver or 
exception under the statute, Executive order, or regulation that is the 
basis for the person's disqualification.



Sec. 3017.405  May I enter into a covered transaction with a participant if a principal of the transaction is excluded?

    As an agency official, you may not enter into a covered transaction 
with a participant if you know that a principal of the transaction is 
excluded, unless you obtain an exception under Sec. 3017.120.



Sec. 3017.410  May I approve a participant's use of the services of an excluded person?

    After entering into a covered transaction with a participant, you as 
an agency official may not approve a participant's use of an excluded 
person as a principal under that transaction, unless you obtain an 
exception under Sec. 3017.120.



Sec. 3017.415  What must I do if a Federal agency excludes the participant or a principal after I enter into a covered transaction?

    (a) You as an agency official may continue covered transactions with 
an excluded person, or under which an excluded person is a principal, if 
the transactions were in existence when

[[Page 196]]

the person was excluded. You are not required to continue the 
transactions, however, and you may consider termination. You should make 
a decision about whether to terminate and the type of termination 
action, if any, only after a thorough review to ensure that the action 
is proper.
    (b) You may not renew or extend covered transactions (other than no-
cost time extensions) with any excluded person, or under which an 
excluded person is a principal, unless you obtain an exception under 
Sec. 3017.120.



Sec. 3017.420  May I approve a transaction with an excluded or disqualified person at a lower tier?

    If a transaction at a lower tier is subject to your approval, you as 
an agency official may not approve--
    (a) A covered transaction with a person who is currently excluded, 
unless you obtain an exception under Sec. 3017.120; or
    (b) A transaction with a person who is disqualified from that 
transaction, unless you obtain a waiver or exception under the statute, 
Executive order, or regulation that is the basis for the person's 
disqualification.



Sec. 3017.425  When do I check to see if a person is excluded or disqualified?

    As an agency official, you must check to see if a person is excluded 
or disqualified before you--
    (a) Enter into a primary tier covered transaction;
    (b) Approve a principal in a primary tier covered transaction;
    (c) Approve a lower tier participant if agency approval of the lower 
tier participant is required; or
    (d) Approve a principal in connection with a lower tier transaction 
if agency approval of the principal is required.



Sec. 3017.430  How do I check to see if a person is excluded or disqualified?

    You check to see if a person is excluded or disqualified in two 
ways:
    (a) You as an agency official must check the EPLS when you take any 
action listed in Sec. 3017.425.
    (b) You must review information that a participant gives you, as 
required by Sec. 3017.335, about its status or the status of the 
principals of a transaction.



Sec. 3017.435  What must I require of a primary tier participant?

    You as an agency official must require each participant in a primary 
tier covered transaction to--
    (a) Comply with subpart C of this part as a condition of 
participation in the transaction; and
    (b) Communicate the requirement to comply with Subpart C of this 
part to persons at the next lower tier with whom the primary tier 
participant enters into covered transactions.



Sec. 3017.440  What method do I use to communicate those requirements to participants?

    To communicate the requirement, you must include a term or condition 
in the transaction requiring the participants' compliance with subpart C 
of this part and requiring them to include a similar term or condition 
in their lower-tier covered transactions.

[68 FR 66565, Nov. 26, 2003]



Sec. 3017.445  What action may I take if a primary tier participant knowingly does business with an excluded or disqualified person?

    If a participant knowingly does business with an excluded or 
disqualified person, you as an agency official may refer the matter for 
suspension and debarment consideration. You may also disallow costs, 
annul or terminate the transaction, issue a stop work order, or take any 
other appropriate remedy.



Sec. 3017.450  What action may I take if a primary tier participant fails to disclose the information required under Sec. 3017.335?

    If you as an agency official determine that a participant failed to 
disclose information, as required by Sec. 3017.335, at the time it 
entered into a covered transaction with you, you may--
    (a) Terminate the transaction for material failure to comply with 
the terms and conditions of the transaction; or
    (b) Pursue any other available remedies, including suspension and 
debarment.

[[Page 197]]



Sec. 3017.455  What may I do if a lower tier participant fails to disclose the information required under Sec. 3017.355 to the next higher tier?

    If you as an agency official determine that a lower tier participant 
failed to disclose information, as required by Sec. 3017.355, at the 
time it entered into a covered transaction with a participant at the 
next higher tier, you may pursue any remedies available to you, 
including the initiation of a suspension or debarment action.



                 Subpart E_Excluded Parties List System



Sec. 3017.500  What is the purpose of the Excluded Parties List System (EPLS)?

    The EPLS is a widely available source of the most current 
information about persons who are excluded or disqualified from covered 
transactions.



Sec. 3017.505  Who uses the EPLS?

    (a) Federal agency officials use the EPLS to determine whether to 
enter into a transaction with a person, as required under Sec. 
3017.430.
    (b) Participants also may, but are not required to, use the EPLS to 
determine if--
    (1) Principals of their transactions are excluded or disqualified, 
as required under Sec. 3017.320; or
    (2) Persons with whom they are entering into covered transactions at 
the next lower tier are excluded or disqualified.
    (c) The EPLS is available to the general public.



Sec. 3017.510  Who maintains the EPLS?

    In accordance with the OMB guidelines, the General Services 
Administration (GSA) maintains the EPLS. When a Federal agency takes an 
action to exclude a person under the nonprocurement or procurement 
debarment and suspension system, the agency enters the information about 
the excluded person into the EPLS.



Sec. 3017.515  What specific information is in the EPLS?

    (a) At a minimum, the EPLS indicates--
    (1) The full name (where available) and address of each excluded or 
disqualified person, in alphabetical order, with cross references if 
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 the action;
    (6) The agency and name and telephone number of the agency point of 
contact for the action; and
    (7) The Dun and Bradstreet Number (DUNS), or other similar code 
approved by the GSA, of the excluded or disqualified person, if 
available.
    (b)(1) The database for the EPLS includes a field for the Taxpayer 
Identification Number (TIN) (the social security number (SSN) for an 
individual) of an excluded or disqualified person.
    (2) Agencies disclose the SSN of an individual to verify the 
identity of an individual, only if permitted under the Privacy Act of 
1974 and, if appropriate, the Computer Matching and Privacy Protection 
Act of 1988, as codified in 5 U.S.C. 552(a).



Sec. 3017.520  Who places the information into the EPLS?

    Federal officials who take actions to exclude persons under this 
part or officials who are responsible for identifying disqualified 
persons must enter the following information about those persons into 
the EPLS:
    (a) Information required by Sec. 3017.515(a);
    (b) The Taxpayer Identification Number (TIN) of the excluded or 
disqualified person, including the social security number (SSN) for an 
individual, if the number is available and may be disclosed under law;
    (c) Information about an excluded or disqualified person, generally 
within five working days, after--
    (1) Taking an exclusion action;
    (2) Modifying or rescinding an exclusion action;
    (3) Finding that a person is disqualified; or
    (4) Finding that there has been a change in the status of a person 
who is listed as disqualified.

[[Page 198]]



Sec. 3017.525  Whom do I ask if I have questions about a person in the EPLS?

    If you have questions about a person in the EPLS, ask the point of 
contact for the Federal agency that placed the person's name into the 
EPLS. You may find the agency point of contact from the EPLS.



Sec. 3017.530  Where can I find the EPLS?

    (a) You may access the EPLS through the Internet, currently at 
http://epls.arnet.gov.
    (b) As of November 26, 2003, you may also subscribe to a printed 
version. However, we anticipate discontinuing the printed version. Until 
it is discontinued, you may obtain the printed version by purchasing a 
yearly subscription from the Superintendent of Documents, U.S. 
Government Printing Office, Washington, DC 20402, or by calling the 
Government Printing Office Inquiry and Order Desk at (202) 783-3238.



   Subpart F_General Principles Relating to Suspension and Debarment 
                                 Actions



Sec. 3017.600  How do suspension and debarment actions start?

    When we receive information from any source concerning a cause for 
suspension or debarment, we will promptly report and investigate it. We 
refer the question of whether to suspend or debar you to our suspending 
or debarring official for consideration, if appropriate.



Sec. 3017.605  How does suspension differ from debarment?

    Suspension differs from debarment in that--

------------------------------------------------------------------------
        A suspending official . . .          A debarring official . . .
------------------------------------------------------------------------
(a) Imposes suspension as a temporary       Imposes debarment for a
 status of ineligibility for procurement     specified period as a final
 and nonprocurement transactions, pending    determination that a person
 completion of an investigation or legal     is not presently
 proceedings.                                responsible.
(b) Must--................................  Must conclude, based on a
(1) Have adequate evidence that there may    preponderance of the
 be a cause for debarment of a person; and.  evidence, that the person
(2) Conclude that immediate action is        has engaged in conduct that
 necessary to protect the Federal interest.  warrants debarment.
(c) Usually imposes the suspension first,   Imposes debarment after
 and then promptly notifies the suspended    giving the respondent
 person, giving the person an opportunity    notice of the action and an
 to contest the suspension and have it       opportunity to contest the
 lifted.                                     proposed debarment.
------------------------------------------------------------------------



Sec. 3017.610  What procedures does the Department of Agriculture use in suspension and debarment actions?

    In deciding whether to suspend or debar you, we handle the actions 
as informally as practicable, consistent with principles of fundamental 
fairness.
    (a) For suspension actions, we use the procedures in this subpart 
and subpart G of this part.
    (b) For debarment actions, we use the procedures in this subpart and 
subpart H of this part.



Sec. 3017.615  How does the Department of Agriculture notify a person of a suspension or debarment action?

    (a) The suspending or debarring official sends a written notice to 
the last known street address, facsimile number, or e-mail address of--
    (1) You or your identified counsel; or
    (2) Your agent for service of process, or any of your partners, 
officers, directors, owners, or joint venturers.
    (b) The notice is effective if sent to any of these persons.



Sec. 3017.620  Do Federal agencies coordinate suspension and debarment actions?

    Yes, when more than one Federal agency has an interest in a 
suspension or debarment, the agencies may consider designating one 
agency as the lead agency for making the decision. Agencies are 
encouraged to establish methods and procedures for coordinating their 
suspension and debarment actions.

[[Page 199]]



Sec. 3017.625  What is the scope of a suspension or debarment?

    If you are suspended or debarred, the suspension or debarment is 
effective as follows:
    (a) Your suspension or debarment constitutes suspension or debarment 
of all of your divisions and other organizational elements from all 
covered transactions, unless the suspension or debarment decision is 
limited--
    (1) By its terms to one or more specifically identified individuals, 
divisions, or other organizational elements; or
    (2) To specific types of transactions.
    (b) Any affiliate of a participant may be included in a suspension 
or debarment action if the suspending or debarring official--
    (1) Officially names the affiliate in the notice; and
    (2) Gives the affiliate an opportunity to contest the action.



Sec. 3017.630  May the Department of Agriculture impute conduct of one person to another?

    For purposes of actions taken under this rule, we may impute conduct 
as follows:
    (a) Conduct imputed from an individual to an organization. We may 
impute the fraudulent, criminal, or other improper conduct of any 
officer, director, shareholder, partner, employee, or other individual 
associated with an organization, to that organization when the improper 
conduct occurred in connection with the individual's performance of 
duties for or on behalf of that organization, or with the organization's 
knowledge, approval or acquiescence. The organization's acceptance of 
the benefits derived from the conduct is evidence of knowledge, approval 
or acquiescence.
    (b) Conduct imputed from an organization to an individual, or 
between individuals. We may impute the fraudulent, criminal, or other 
improper conduct of any organization to an individual, or from one 
individual to another individual, if the individual to whom the improper 
conduct is imputed either participated in, had knowledge of, or reason 
to know of the improper conduct.
    (c) Conduct imputed from one organization to another organization. 
We may impute the fraudulent, criminal, or other improper conduct of one 
organization to another organization when the improper conduct occurred 
in connection with a partnership, joint venture, joint application, 
association or similar arrangement, or when the organization to whom the 
improper conduct is imputed has the power to direct, manage, control or 
influence the activities of the organization responsible for the 
improper conduct. Acceptance of the benefits derived from the conduct is 
evidence of knowledge, approval or acquiescence.



Sec. 3017.635  May the Department of Agriculture settle a debarment or suspension action?

    Yes, we may settle a debarment or suspension action at any time if 
it is in the best interest of the Federal Government.



Sec. 3017.640  May a settlement include a voluntary exclusion?

    Yes, if we enter into a settlement with you in which you agree to be 
excluded, it is called a voluntary exclusion and has governmentwide 
effect.



Sec. 3017.645  Do other Federal agencies know if the Department of Agriculture agrees to a voluntary exclusion?

    (a) Yes, we enter information regarding a voluntary exclusion into 
the EPLS.
    (b) Also, any agency or person may contact us to find out the 
details of a voluntary exclusion.



                          Subpart G_Suspension



Sec. 3017.700  When may the suspending official issue a suspension?

    Suspension is a serious action. Using the procedures of this subpart 
and subpart F of this part, the suspending official may impose 
suspension only when that official determines that--
    (a) There exists an indictment for, or other adequate evidence to 
suspect, an offense listed under Sec. 3017.800(a), or
    (b) There exists adequate evidence to suspect any other cause for 
debarment listed under Sec. 3017.800(b) through (d); and

[[Page 200]]

    (c) Immediate action is necessary to protect the public interest.



Sec. 3017.705  What does the suspending official consider in issuing a suspension?

    (a) In determining the adequacy of the evidence to support the 
suspension, the suspending official considers 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. During this assessment, the suspending 
official may examine the basic documents, including grants, cooperative 
agreements, loan authorizations, contracts, and other relevant 
documents.
    (b) An indictment, conviction, civil judgment, or other official 
findings by Federal, State, or local bodies that determine factual and/
or legal matters, constitutes adequate evidence for purposes of 
suspension actions.
    (c) In deciding whether immediate action is needed to protect the 
public interest, the suspending official has wide discretion. For 
example, the suspending official may infer the necessity for immediate 
action to protect the public interest either from the nature of the 
circumstances giving rise to a cause for suspension or from potential 
business relationships or involvement with a program of the Federal 
Government.



Sec. 3017.710  When does a suspension take effect?

    A suspension is effective when the suspending official signs the 
decision to suspend.



Sec. 3017.715  What notice does the suspending official give me if I am suspended?

    After deciding to suspend you, the suspending official promptly 
sends you a Notice of Suspension advising you--
    (a) That you have been suspended;
    (b) That your suspension is based on--
    (1) An indictment;
    (2) A conviction;
    (3) Other adequate evidence that you have committed irregularities 
which seriously reflect on the propriety of further Federal Government 
dealings with you; or
    (4) Conduct of another person that has been imputed to you, or your 
affiliation with a suspended or debarred person;
    (c) Of any other irregularities in terms sufficient to put you on 
notice without disclosing the Federal Government's evidence;
    (d) Of the cause(s) upon which we relied under Sec. 3017.700 for 
imposing suspension;
    (e) That your suspension is for a temporary period pending the 
completion of an investigation or resulting legal or debarment 
proceedings;
    (f) Of the applicable provisions of this subpart, Subpart F of this 
part, and any other Department of Agriculture procedures governing 
suspension decision making; and
    (g) Of the governmentwide effect of your suspension from procurement 
and nonprocurement programs and activities.



Sec. 3017.720  How may I contest a suspension?

    If you as a respondent wish to contest a suspension, you or your 
representative must provide the suspending official with information in 
opposition to the suspension. You may do this orally or in writing, but 
any information provided orally that you consider important must also be 
submitted in writing for the official record.



Sec. 3017.725  How much time do I have to contest a suspension?

    (a) As a respondent you or your representative must either send, or 
make rrangements to appear and present, the information and argument to 
the suspending official within 30 days after you receive the Notice of 
Suspension.
    (b) We consider the notice to be received by you--
    (1) When delivered, if we mail the notice to the last known street 
address, or five days after we send it if the letter is undeliverable;
    (2) When sent, if we send the notice by facsimile or five days after 
we send it if the facsimile is undeliverable; or

[[Page 201]]

    (3) When delivered, if we send the notice by e-mail or five days 
after we send it if the e-mail is undeliverable.



Sec. 3017.730  What information must I provide to the suspending official if I contest a suspension?

    (a) In addition to any information and argument in opposition, as a 
respondent your submission to the suspending official must identify--
    (1) Specific facts that contradict the statements contained in the 
Notice of Suspension. A general denial is insufficient to raise a 
genuine dispute over facts material to the suspension;
    (2) All existing, proposed, or prior exclusions under regulations 
implementing E.O. 12549 and all similar actions taken by Federal, state, 
or local agencies, including administrative agreements that affect only 
those agencies;
    (3) All criminal and civil proceedings not included in the Notice of 
Suspension that grew out of facts relevant to the cause(s) stated in the 
notice; and
    (4) All of your affiliates.
    (b) If you fail to disclose this information, or provide false 
information, the Department of Agriculture may seek further criminal, 
civil or administrative action against you, as appropriate.



Sec. 3017.735  Under what conditions do I get an additional opportunity to challenge the facts on which the suspension is based?

    (a) You as a respondent will not have an additional opportunity to 
challenge the facts if the suspending official determines that--
    (1) Your suspension is based upon an indictment, conviction, civil 
judgment, or other finding by a Federal, State, or local body for which 
an opportunity to contest the facts was provided;
    (2) Your presentation in opposition contains only general denials to 
information contained in the Notice of Suspension;
    (3) The issues raised in your presentation in opposition to the 
suspension are not factual in nature, or are not material to the 
suspending official's initial decision to suspend, or the official's 
decision whether to continue the suspension; or
    (4) On the basis of advice from the Department of Justice, an office 
of the United States Attorney, a State attorney general's office, or a 
State or local prosecutor's office, that substantial interests of the 
government in pending or contemplated legal proceedings based on the 
same facts as the suspension would be prejudiced by conducting fact-
finding.
    (b) You will have an opportunity to challenge the facts if the 
suspending official determines that--
    (1) The conditions in paragraph (a) of this section do not exist; 
and
    (2) Your presentation in opposition raises a genuine dispute over 
facts material to the suspension.
    (c) If you have an opportunity to challenge disputed material facts 
under this section, the suspending official or designee must conduct 
additional proceedings to resolve those facts.



Sec. 3017.740  Are suspension proceedings formal?

    (a) Suspension proceedings are conducted in a fair and informal 
manner. The suspending official may use flexible procedures to allow you 
to present matters in opposition. In so doing, the suspending official 
is not required to follow formal rules of evidence or procedure in 
creating an official record upon which the official will base a final 
suspension decision.
    (b) You as a respondent or your representative must submit any 
documentary evidence you want the suspending official to consider.



Sec. 3017.745  How is fact-finding conducted?

    (a) If fact-finding is conducted--
    (1) You may present witnesses and other evidence, and confront any 
witness presented; and
    (2) The fact-finder must prepare written findings of fact for the 
record.
    (b) A transcribed record of fact-finding proceedings must be made, 
unless you as a respondent and the Department of Agriculture agree to 
waive it in advance. If you want a copy of the transcribed record, you 
may purchase it.

[[Page 202]]



Sec. 3017.750  What does the suspending official consider in deciding whether to continue or terminate my suspension?

    (a) The suspending official bases the decision on all information 
contained in the official record. The record includes--
    (1) All information in support of the suspending official's initial 
decision to suspend you;
    (2) Any further information and argument presented in support of, or 
opposition to, the suspension; and
    (3) Any transcribed record of fact-finding proceedings.
    (b) The suspending official may refer disputed material facts to 
another official for findings of fact. The suspending official may 
reject any resulting findings, in whole or in part, only after 
specifically determining them to be arbitrary, capricious, or clearly 
erroneous.



Sec. 3017.755  When will I know whether the suspension is continued or terminated?

    The suspending official must make a written decision whether to 
continue, modify, or terminate your suspension within 45 days of closing 
the official record. The official record closes upon the suspending 
official's receipt of final submissions, information and findings of 
fact, if any. The suspending official may extend that period for good 
cause. However, the record will remain open for the full 30 days, as 
called for in Sec. 3017.725, even when you make a submission before the 
30 days expire.

[68 FR 66544, 66563, Nov. 26, 2003, as amended at 68 FR 66565, Nov. 26, 
2003]



Sec. 3017.760  How long may my suspension last?

    (a) If legal or debarment proceedings are initiated at the time of, 
or during your suspension, the suspension may continue until the 
conclusion of those proceedings. However, if proceedings are not 
initiated, a suspension may not exceed 12 months.
    (b) The suspending official may extend the 12 month limit under 
paragraph (a) of this section for an additional 6 months if an office of 
a U.S. Assistant Attorney General, U.S. Attorney, or other responsible 
prosecuting official requests an extension in writing. In no event may a 
suspension exceed 18 months without initiating proceedings under 
paragraph (a) of this section.
    (c) The suspending official must notify the appropriate officials 
under paragraph (b) of this section of an impending termination of a 
suspension at least 30 days before the 12 month period expires to allow 
the officials an opportunity to request an extension.



Sec. 3017.765  How may I appeal my suspension?

    (a) You may file an appeal only after you have exhausted the option 
provided for in Sec. 3017.720 to contest the suspension. You must file 
your appeal within 30 days of receiving the decision required by Sec. 
3017.755 and your filing must specify the basis of the appeal. You must 
submit your appeal in writing to the Hearing Clerk in the Office of 
Administrative Law Judges (OALJ), United States Department of 
Agriculture (USDA), Washington, DC 20250. The assigned appeals officer 
may vacate the decision of the suspending official only 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 the decision solely on the 
administrative record.
    (c) Within 90 days of the date that you file your appeal with USDA's 
OALJ Hearing Clerk, the appeals officer will give written notification 
of the decision to you and to the suspending official who took the 
action being appealed.
    (d) The appeals officer's decision is final and is not appealable 
within USDA.

[68 FR 66565, Nov. 26, 2003]



                           Subpart H_Debarment



Sec. 3017.800  What are the causes for debarment?

    We may debar a person for--
    (a) Conviction of or civil judgment for--

[[Page 203]]

    (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, tax 
evasion, 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 your 
present responsibility;
    (b) Violation of the terms of a public agreement or transaction so 
serious as to affect the integrity of an agency program, such as--
    (1) A willful failure to perform in accordance with the terms of one 
or more public agreements or transactions;
    (2) A history of failure to perform or of unsatisfactory performance 
of one or more public agreements or transactions; or
    (3) A willful violation of a statutory or regulatory provision or 
requirement applicable to a public agreement or transaction;
    (c) Any of the following causes:
    (1) A nonprocurement debarment by any Federal agency taken before 
October 1, 1988, or a procurement debarment by any Federal agency taken 
pursuant to 48 CFR part 9, subpart 9.4, before August 25, 1995;
    (2) Knowingly doing business with an ineligible person, except as 
permitted under Sec. 3017.120;
    (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. 3017.640 or of any settlement of a 
debarment or suspension action; or
    (5) Violation of the provisions of the Drug-Free Workplace Act of 
1988 (41 U.S.C. 701); or
    (d) Any other cause of so serious or compelling a nature that it 
affects your present responsibility.
    (e) Notwithstanding paragraph (c) (1) of this section, within the 
Department of Agriculture a nonprocurement debarment by any Federal 
agency taken before March 1, 1989.

[68 FR 66544, 66563, Nov. 26, 2003, as amended at 68 FR 66565, Nov. 26, 
2003]



Sec. 3017.805  What notice does the debarring official give me if I am proposed for debarment?

    After consideration of the causes in Sec. 3017.800 of this subpart, 
if the debarring official proposes to debar you, the official sends you 
a Notice of Proposed Debarment, pursuant to Sec. 3017.615, advising 
you--
    (a) That the debarring official is considering debarring you;
    (b) Of the reasons for proposing to debar you in terms sufficient to 
put you on notice of the conduct or transactions upon which the proposed 
debarment is based;
    (c) Of the cause(s) under Sec. 3017.800 upon which the debarring 
official relied for proposing your debarment;
    (d) Of the applicable provisions of this subpart, Subpart F of this 
part, and any other Department of Agriculture procedures governing 
debarment; and
    (e) Of the governmentwide effect of a debarment from procurement and 
nonprocurement programs and activities.



Sec. 3017.810  When does a debarment take effect?

    A debarment is not effective until the debarring official issues a 
decision. The debarring official does not issue a decision until the 
respondent has had an opportunity to contest the proposed debarment.



Sec. 3017.815  How may I contest a proposed debarment?

    If you as a respondent wish to contest a proposed debarment, you or 
your

[[Page 204]]

representative must provide the debarring official with information in 
opposition to the proposed debarment. You may do this orally or in 
writing, but any information provided orally that you consider important 
must also be submitted in writing for the official record.



Sec. 3017.820  How much time do I have to contest a proposed debarment?

    (a) As a respondent you or your representative must either send, or 
make arrangements to appear and present, the information and argument to 
the debarring official within 30 days after you receive the Notice of 
Proposed Debarment.
    (b) We consider the Notice of Proposed Debarment to be received by 
you--
    (1) When delivered, if we mail the notice to the last known street 
address, or five days after we send it if the letter is undeliverable;
    (2) When sent, if we send the notice by facsimile or five days after 
we send it if the facsimile is undeliverable; or
    (3) When delivered, if we send the notice by e-mail or five days 
after we send it if the e-mail is undeliverable.



Sec. 3017.825  What information must I provide to the debarring official if I contest a proposed debarment?

    (a) In addition to any information and argument in opposition, as a 
respondent your submission to the debarring official must identify--
    (1) Specific facts that contradict the statements contained in the 
Notice of Proposed Debarment. Include any information about any of the 
factors listed in Sec. 3017.860. A general denial is insufficient to 
raise a genuine dispute over facts material to the debarment;
    (2) All existing, proposed, or prior exclusions under regulations 
implementing E.O. 12549 and all similar actions taken by Federal, State, 
or local agencies, including administrative agreements that affect only 
those agencies;
    (3) All criminal and civil proceedings not included in the Notice of 
Proposed Debarment that grew out of facts relevant to the cause(s) 
stated in the notice; and
    (4) All of your affiliates.
    (b) If you fail to disclose this information, or provide false 
information, the Department of Agriculture may seek further criminal, 
civil or administrative action against you, as appropriate.



Sec. 3017.830  Under what conditions do I get an additional opportunity to challenge the facts on which a proposed debarment is based?

    (a) You as a respondent will not have an additional opportunity to 
challenge the facts if the debarring official determines that--
    (1) Your debarment is based upon a conviction or civil judgment;
    (2) Your presentation in opposition contains only general denials to 
information contained in the Notice of Proposed Debarment; or
    (3) The issues raised in your presentation in opposition to the 
proposed debarment are not factual in nature, or are not material to the 
debarring official's decision whether to debar.
    (b) You will have an additional opportunity to challenge the facts 
if the debarring official determines that--
    (1) The conditions in paragraph (a) of this section do not exist; 
and
    (2) Your presentation in opposition raises a genuine dispute over 
facts material to the proposed debarment.
    (c) If you have an opportunity to challenge disputed material facts 
under this section, the debarring official or designee must conduct 
additional proceedings to resolve those facts.



Sec. 3017.835  Are debarment proceedings formal?

    (a) Debarment proceedings are conducted in a fair and informal 
manner. The debarring official may use flexible procedures to allow you 
as a respondent to present matters in opposition. In so doing, the 
debarring official is not required to follow formal rules of evidence or 
procedure in creating an official record upon which the official will 
base the decision whether to debar.
    (b) You or your representative must submit any documentary evidence 
you want the debarring official to consider.



Sec. 3017.840  How is fact-finding conducted?

    (a) If fact-finding is conducted--

[[Page 205]]

    (1) You may present witnesses and other evidence, and confront any 
witness presented; and
    (2) The fact-finder must prepare written findings of fact for the 
record.
    (b) A transcribed record of fact-finding proceedings must be made, 
unless you as a respondent and the Department of Agriculture agree to 
waive it in advance. If you want a copy of the transcribed record, you 
may purchase it.



Sec. 3017.845  What does the debarring official consider in deciding whether to debar me?

    (a) The debarring official may debar you for any of the causes in 
Sec. 3017.800. However, the official need not debar you even if a cause 
for debarment exists. The official may consider the seriousness of your 
acts or omissions and the mitigating or aggravating factors set forth at 
Sec. 3017.860.
    (b) The debarring official bases the decision on all information 
contained in the official record. The record includes--
    (1) All information in support of the debarring official's proposed 
debarment;
    (2) Any further information and argument presented in support of, or 
in opposition to, the proposed debarment; and
    (3) Any transcribed record of fact-finding proceedings.
    (c) The debarring official may refer disputed material facts to 
another official for findings of fact. The debarring official may reject 
any resultant findings, in whole or in part, only after specifically 
determining them to be arbitrary, capricious, or clearly erroneous.



Sec. 3017.850  What is the standard of proof in a debarment action?

    (a) In any debarment action, we must establish the cause for 
debarment by a preponderance of the evidence.
    (b) If the proposed debarment is based upon a conviction or civil 
judgment, the standard of proof is met.



Sec. 3017.855  Who has the burden of proof in a debarment action?

    (a) We have the burden to prove that a cause for debarment exists.
    (b) Once a cause for debarment is established, you as a respondent 
have the burden of demonstrating to the satisfaction of the debarring 
official that you are presently responsible and that debarment is not 
necessary.



Sec. 3017.860  What factors may influence the debarring official's decision?

    This section lists the mitigating and aggravating factors that the 
debarring official may consider in determining whether to debar you and 
the length of your debarment period. The debarring official may consider 
other factors if appropriate in light of the circumstances of a 
particular case. The existence or nonexistence of any factor, such as 
one of those set forth in this section, is not necessarily determinative 
of your present responsibility. In making a debarment decision, the 
debarring official may consider the following factors:
    (a) The actual or potential harm or impact that results or may 
result from the wrongdoing.
    (b) The frequency of incidents and/or duration of the wrongdoing.
    (c) Whether there is a pattern or prior history of wrongdoing. For 
example, if you have been found by another Federal agency or a State 
agency to have engaged in wrongdoing similar to that found in the 
debarment action, the existence of this fact may be used by the 
debarring official in determining that you have a pattern or prior 
history of wrongdoing.
    (d) Whether you are or have been excluded or disqualified by an 
agency of the Federal Government or have not been allowed to participate 
in State or local contracts or assistance agreements on a basis of 
conduct similar to one or more of the causes for debarment specified in 
this part.
    (e) Whether you have entered into an administrative agreement with a 
Federal agency or a State or local government that is not governmentwide 
but is based on conduct similar to one or more of the causes for 
debarment specified in this part.
    (f) Whether and to what extent you planned, initiated, or carried 
out the wrongdoing.
    (g) Whether you have accepted responsibility for the wrongdoing and

[[Page 206]]

recognize the seriousness of the misconduct that led to the cause for 
debarment.
    (h) Whether you have paid or agreed to pay all criminal, civil and 
administrative liabilities for the improper activity, including any 
investigative or administrative costs incurred by the government, and 
have made or agreed to make full restitution.
    (i) Whether you have cooperated fully with the government agencies 
during the investigation and any court or administrative action. In 
determining the extent of cooperation, the debarring official may 
consider when the cooperation began and whether you disclosed all 
pertinent information known to you.
    (j) Whether the wrongdoing was pervasive within your organization.
    (k) The kind of positions held by the individuals involved in the 
wrongdoing.
    (l) Whether your organization took appropriate corrective action or 
remedial measures, such as establishing ethics training and implementing 
programs to prevent recurrence.
    (m) Whether your principals tolerated the offense.
    (n) Whether you brought the activity cited as a basis for the 
debarment to the attention of the appropriate government agency in a 
timely manner.
    (o) Whether you have fully investigated the circumstances 
surrounding the cause for debarment and, if so, made the result of the 
investigation available to the debarring official.
    (p) Whether you had effective standards of conduct and internal 
control systems in place at the time the questioned conduct occurred.
    (q) Whether you have taken appropriate disciplinary action against 
the individuals responsible for the activity which constitutes the cause 
for debarment.
    (r) Whether you have had adequate time to eliminate the 
circumstances within your organization that led to the cause for the 
debarment.
    (s) Other factors that are appropriate to the circumstances of a 
particular case.



Sec. 3017.865  How long may my debarment last?

    (a) If the debarring official decides to debar you, your period of 
debarment will be based on the seriousness of the cause(s) upon which 
your debarment is based. Generally, debarment should not exceed three 
years. However, if circumstances warrant, the debarring official may 
impose a longer period of debarment.
    (b) In determining the period of debarment, the debarring official 
may consider the factors in Sec. 3017.860. If a suspension has preceded 
your debarment, the debarring official must consider the time you were 
suspended.
    (c) If the debarment is for a violation of the provisions of the 
Drug-Free Workplace Act of 1988, your period of debarment may not exceed 
five years.



Sec. 3017.870  When do I know if the debarring official debars me?

    (a) The debarring official must make a written decision whether to 
debar within 45 days of closing the official record. The official record 
closes upon the debarring official's receipt of final submissions, 
information and findings of fact, if any. The debarring official may 
extend that period for good cause. However, the record will remain open 
for the full 30 days, as called for in Sec. 3017.820, even when you 
make a submission before the 30 days expire.
    (b) The debarring official sends you written notice, pursuant to 
Sec. 3017.615 that the official decided, either--
    (1) Not to debar you; or
    (2) To debar you. In this event, the notice:
    (i) Refers to the Notice of Proposed Debarment;
    (ii) Specifies the reasons for your debarment;
    (iii) States the period of your debarment, including the effective 
dates; and
    (iv) Advises you that your debarment is effective for covered 
transactions and contracts that are subject to the Federal Acquisition 
Regulation (48 CFR chapter 1), throughout the executive branch of the 
Federal Government unless an agency head or an authorized designee 
grants an exception.

[68 FR 66544, 66563, Nov. 26, 2003, as amended at 68 FR 66565, Nov. 26, 
2003]

[[Page 207]]



Sec. 3017.875  May I ask the debarring official to reconsider a decision to debar me?

    Yes, as a debarred person you may ask the debarring official to 
reconsider the debarment decision or to reduce the time period or scope 
of the debarment. However, you must put your request in writing and 
support it with documentation.



Sec. 3017.880  What factors may influence the debarring official during reconsideration?

    The debarring official may reduce or terminate your debarment based 
on--
    (a) Newly discovered material evidence;
    (b) A reversal of the conviction or civil judgment upon which your 
debarment was based;
    (c) A bona fide change in ownership or management;
    (d) Elimination of other causes for which the debarment was imposed; 
or
    (e) Other reasons the debarring official finds appropriate.



Sec. 3017.885  May the debarring official extend a debarment?

    (a) Yes, the debarring official may extend a debarment for an 
additional period, if that official determines that an extension is 
necessary to protect the public interest.
    (b) However, the debarring official may not extend a debarment 
solely on the basis of the facts and circumstances upon which the 
initial debarment action was based.
    (c) If the debarring official decides that a debarment for an 
additional period is necessary, the debarring official must follow the 
applicable procedures in this subpart, and subpart F of this part, to 
extend the debarment.



Sec. 3017.890  How may I appeal my debarment?

    (a) You may file an appeal only after you have exhausted the option 
provided for in Sec. 3017.815 to contest the debarment. You must file 
your appeal within 30 days of receiving the decision required by Sec. 
3017.870 and your filing must specify the basis of the appeal. You must 
submit your appeal in writing to the Hearing Clerk in the Office of 
Administrative Law Judges (OALJ), United States Department of 
Agriculture (USDA), Washington, DC 20250. The assigned appeals officer 
may vacate the decision of the debarring official only 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 the decision solely on the 
administrative record.
    (c) Within 90 days of the date that you file your appeal with USDA's 
OALJ Hearing Clerk, the appeals officer will give written notification 
of the decision to you and to the debarring official who took the action 
being appealed.
    (d) The appeals officer's decision is final and is not appealable 
within USDA.

[68 FR 66565, Nov. 26, 2003]



                          Subpart I_Definitions



Sec. 3017.900  Adequate evidence.

    Adequate evidence means information sufficient to support the 
reasonable belief that a particular act or omission has occurred.



Sec. 3017.905  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. The ways we use to 
determine control include, but are not limited to--
    (a) Interlocking management or ownership;
    (b) Identity of interests among family members;
    (c) Shared facilities and equipment;
    (d) Common use of employees; or
    (e) A business entity which has been organized following the 
exclusion of a person which has the same or similar management, 
ownership, or principal employees as the excluded person.



Sec. 3017.910  Agency.

    Agency means any United States executive department, military 
department, defense agency, or any other

[[Page 208]]

agency of the executive branch. Other agencies of the Federal government 
are not considered ``agencies'' for the purposes of this part unless 
they issue regulations adopting the governmentwide Debarment and 
Suspension system under Executive orders 12549 and 12689.



Sec. 3017.915  Agent or representative.

    Agent or representative means any person who acts on behalf of, or 
who is authorized to commit, a participant in a covered transaction.



Sec. 3017.920  Civil judgment.

    Civil judgment means the disposition of a civil action by any court 
of competent jurisdiction, whether by verdict, decision, settlement, 
stipulation, other disposition which creates a civil liability for the 
complained of wrongful acts, or a final determination of liability under 
the Program Fraud Civil Remedies Act of 1988 (31 U.S.C. 3801-3812).



Sec. 3017.925  Conviction.

    Conviction means--
    (a) A judgment or any other determination of guilt of a criminal 
offense by any court of competent jurisdiction, whether entered upon a 
verdict or plea, including a plea of nolo contendere; or
    (b) Any other resolution that is the functional equivalent of a 
judgment, including probation before judgment and deferred prosecution. 
A disposition without the participation of the court is the functional 
equivalent of a judgment only if it includes an admission of guilt.



Sec. 3017.930  Debarment.

    Debarment means an action taken by a debarring official under 
subpart H of this part to exclude a person from participating in covered 
transactions and transactions covered under the Federal Acquisition 
Regulation (48 CFR chapter 1). A person so excluded is debarred.



Sec. 3017.935  Debarring official.

    (a) Debarring official means an agency official who is authorized to 
impose debarment. A debarring official is either--
    (1) The agency head; or
    (2) An official designated by the agency head.
    (b) The head of an organizational unit within the Department of 
Agriculture (e.g., Administrator, Food and Nutrition Service), who has 
been delegated authority in part 2 of this title to carry out a covered 
transaction, is delegated authority to act as the debarring official in 
connection with such transaction. This authority to act as a debarring 
official may not be redelegated below the head of the organizational 
unit, 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.

[68 FR 66544, 66563, Nov. 26, 2003, as amended at 68 FR 66565, Nov. 26, 
2003]



Sec. 3017.940  Disqualified.

    Disqualified means that a person is prohibited from participating in 
specified Federal procurement or nonprocurement transactions as required 
under a statute, Executive order (other than Executive Orders 12549 and 
12689) or other authority. Examples of disqualifications include persons 
prohibited under--
    (a) The Davis-Bacon Act (40 U.S.C. 276(a));
    (b) The equal employment opportunity acts and Executive orders; or
    (c) The Clean Air Act (42 U.S.C. 7606), Clean Water Act (33 U.S.C. 
1368) and Executive Order 11738 (3 CFR, 1973 Comp., p. 799).



Sec. 3017.945  Excluded or exclusion.

    Excluded or exclusion means--
    (a) That a person or commodity is prohibited from being a 
participant in covered transactions, whether the person has been 
suspended; debarred; proposed for debarment under 48 CFR part 9, subpart 
9.4; voluntarily excluded; or
    (b) The act of excluding a person.



Sec. 3017.950  Excluded Parties List System

    Excluded Parties List System (EPLS) means the list maintained and 
disseminated by the General Services Administration (GSA) containing the 
names and other information about persons who are ineligible. The EPLS 
system includes the printed version entitled,

[[Page 209]]

``List of Parties Excluded or Disqualified from Federal Procurement and 
Nonprocurement Programs,'' so long as published.



Sec. 3017.955  Indictment.

    Indictment means an indictment for a criminal offense. A 
presentment, information, or other filing by a competent authority 
charging a criminal offense shall be given the same effect as an 
indictment.



Sec. 3017.960  Ineligible or ineligibility.

    Ineligible or ineligibility means that a person or commodity is 
prohibited from covered transactions because of an exclusion or 
disqualification.



Sec. 3017.965  Legal proceedings.

    Legal proceedings means any criminal proceeding or any civil 
judicial proceeding, including a proceeding under the Program Fraud 
Civil Remedies Act (31 U.S.C. 3801-3812), to which the Federal 
Government or a State or local government or quasi-governmental 
authority is a party. The term also includes appeals from those 
proceedings.



Sec. 3017.970  Nonprocurement transaction.

    (a) Nonprocurement transaction means any transaction, regardless of 
type (except procurement contracts), including, but not limited to the 
following:
    (1) Grants.
    (2) Cooperative agreements.
    (3) Scholarships.
    (4) Fellowships.
    (5) Contracts of assistance.
    (6) Loans.
    (7) Loan guarantees.
    (8) Subsidies.
    (9) Insurances.
    (10) Payments for specified uses.
    (11) Donation agreements.
    (b) A nonprocurement transaction at any tier does not require the 
transfer of Federal funds.



Sec. 3017.975  Notice.

    Notice means a written communication served in person, sent by 
certified mail or its equivalent, or sent electronically by e-mail or 
facsimile. (See Sec. 3017. 615.)



Sec. 3017.980  Participant.

    Participant means any person who submits a proposal for or who 
enters into a covered transaction, including an agent or representative 
of a participant.



Sec. 3017.985  Person.

    Person means any individual, corporation, partnership, association, 
unit of government, or legal entity, however organized.



Sec. 3017.990  Preponderance of the evidence.

    Preponderance of the evidence means proof by information that, 
compared with information opposing it, leads to the conclusion that the 
fact at issue is more probably true than not.



Sec. 3017.995  Principal.

    Principal means--
    (a) An officer, director, owner, partner, principal investigator, or 
other person within a participant with management or supervisory 
responsibilities related to a covered transaction; or
    (b) A consultant or other person, whether or not employed by the 
participant or paid with Federal funds, who--
    (1) Is in a position to handle Federal funds;
    (2) Is in a position to influence or control the use of those funds; 
or,
    (3) Occupies a technical or professional position capable of 
substantially influencing the development or outcome of an activity 
required to perform the covered transaction.



Sec. 3017.1000  Respondent.

    Respondent means a person against whom an agency has initiated a 
debarment or suspension action.



Sec. 3017.1005  State.

    (a) State means--
    (1) Any of the states of the United States;
    (2) The District of Columbia;
    (3) The Commonwealth of Puerto Rico;
    (4) Any territory or possession of the United States; or
    (5) Any agency or instrumentality of a state.

[[Page 210]]

    (b) For purposes of this part, State does not include institutions 
of higher education, hospitals, or units of local government.



Sec. 3017.1010  Suspending official.

    (a) Suspending official means an agency official who is authorized 
to impose suspension. The suspending official is either:
    (1) The agency head; or
    (2) An official designated by the agency head.
    (b) The head of an organizational unit within the Department of 
Agriculture (e.g., Administrator, Food and Nutrition Service), who has 
been delegated authority in part 2 of this title to carry out a covered 
transaction, is delegated authority to act as the suspending official in 
connection with such transaction. This authority to act as a suspending 
official may not be redelegated below the head of the organizational 
unit, 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.

[68 FR 66544, 66563, Nov. 26, 2003, as amended at 68 FR 66565, Nov. 26, 
2003]



Sec. 3017.1015  Suspension.

    Suspension is an action taken by a suspending official under subpart 
G of this part that immediately prohibits a person from participating in 
covered transactions and transactions covered under the Federal 
Acquisition Regulation (48 CFR chapter 1) for a temporary period, 
pending completion of an agency investigation and any judicial or 
administrative proceedings that may ensue. A person so excluded is 
suspended.



Sec. 3017.1020  Voluntary exclusion or voluntarily excluded.

    (a) Voluntary exclusion means a person's agreement to be excluded 
under the terms of a settlement between the person and one or more 
agencies. Voluntary exclusion must have governmentwide effect.
    (b) Voluntarily excluded means the status of a person who has agreed 
to a voluntary exclusion.

Subpart J [Reserved]

[[Page 211]]

               Appendix to Part 3017--Covered Transactions
[GRAPHIC] [TIFF OMITTED] TR26NO03.000



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, 6746, Feb. 26, 1990, unless otherwise noted.

[[Page 212]]


    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 213]]

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 214]]

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 215]]

    (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 216]]

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 217]]

    (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 218]]

    (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 and submit Standard Form-LLL, 
``Disclosure

[[Page 219]]

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.

[[Page 220]]

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


[[Page 221]]


[GRAPHIC] [TIFF OMITTED] TC13SE91.001


[[Page 222]]


[GRAPHIC] [TIFF OMITTED] TC13SE91.002


[[Page 223]]





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 Sec. Sec. 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 224]]

    (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 225]]

    (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 Sec. Sec. 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

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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 227]]

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 228]]



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

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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 230]]

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

[[Page 231]]

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 232]]

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 233]]

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 234]]

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 
Sec. Sec. 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 235]]

    (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 236]]

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 237]]

provided it observes the provisions of Sec. Sec. 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 238]]

    (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 239]]

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 240]]

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 241]]

    (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 242]]



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

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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

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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

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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

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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

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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

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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 Sec. Sec. 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 Sec. Sec. 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

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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 3021_GOVERNMENTWIDE REQUIREMENTS FOR DRUG-FREE WORKPLACE
(FINANCIAL ASSISTANCE)--Table of Contents




                     Subpart A_Purpose and Coverage

Sec.
3021.100 What does this part do?
3021.105 Does this part apply to me?
3021.110 Are any of my Federal assistance awards exempt from this part?
3021.115 Does this part affect the Federal contracts that I receive?

      Subpart B_Requirements for Recipients Other Than Individuals

3021.200 What must I do to comply with this part?
3021.205 What must I include in my drug-free workplace statement?
3021.210 To whom must I distribute my drug-free workplace statement?
3021.215 What must I include in my drug-free awareness program?
3021.220 By when must I publish my drug-free workplace statement and 
          establish my drug-free awareness program?
3021.225 What actions must I take concerning employees who are convicted 
          of drug violations in the workplace?
3021.230 How and when must I identify workplaces?

        Subpart C_Requirements for Recipients Who Are Individuals

3021.300 What must I do to comply with this part if I am an individual 
          recipient?
3021.301 [Reserved]

[[Page 251]]

    Subpart D_Responsibilities of Department of Agriculture Awarding 
                                Officials

3021.400 What are my responsibilities as a Department of Agriculture 
          awarding official?

           Subpart E_Violations of This Part and Consequences

3021.500 How are violations of this part determined for recipients other 
          than individuals?
3021.505 How are violations of this part determined for recipients who 
          are individuals?
3021.510 What actions will the Federal Government take against a 
          recipient determined to have violated this part?
3021.515 Are there any exceptions to those actions?

                          Subpart F_Definitions

3021.605 Award.
3021.610 Controlled substance.
3021.615 Conviction.
3021.620 Cooperative agreement.
3021.625 Criminal drug statute.
3021.630 Debarment.
3021.635 Drug-free workplace.
3021.640 Employee.
3021.645 Federal agency or agency.
3021.650 Grant.
3021.655 Individual.
3021.660 Recipient.
3021.665 State.
3021.670 Suspension.

    Authority: 5 U.S.C. 301; 41 U.S.C. 701 et seq.; Pub. L. 101-576, 104 
Stat. 2838; 7 CFR Sec. 2.28.

    Source: 68 FR 66557, 66565, Nov. 26, 2003, unless otherwise noted.



                     Subpart A_Purpose and Coverage



Sec. 3021.100  What does this part do?

    This part carries out the portion of the Drug-Free Workplace Act of 
1988 (41 U.S.C. 701 et seq., as amended) that applies to grants. It also 
applies the provisions of the Act to cooperative agreements and other 
financial assistance awards, as a matter of Federal Government policy.



Sec. 3021.105  Does this part apply to me?

    (a) Portions of this part apply to you if you are either--
    (1) A recipient of an assistance award from the Department of 
Agriculture; or
    (2) A(n) Department of Agriculture awarding official. (See 
definitions of award and recipient in Sec. Sec. 3021.605 and 3021.660, 
respectively.)
    (b) The following table shows the subparts that apply to you:

------------------------------------------------------------------------
             If you are . . .                    see subparts . . .
------------------------------------------------------------------------
(1) A recipient who is not an individual..  A, B and E.
(2) A recipient who is an individual......  A, C and E.
(3) A(n) Department of Agriculture          A, D and E.
 awarding official.
------------------------------------------------------------------------



Sec. 3021.110  Are any of my Federal assistance awards exempt from this part?

    This part does not apply to any award that the Secretary of 
Agriculture or designee determines that the application of this part 
would be inconsistent with the international obligations of the United 
States or the laws or regulations of a foreign government.



Sec. 3021.115  Does this part affect the Federal contracts that I receive?

    It will affect future contract awards indirectly if you are debarred 
or suspended for a violation of the requirements of this part, as 
described in Sec. 3021. 510(c). However, this part does not apply 
directly to procurement contracts. The portion of the Drug-Free 
Workplace Act of 1988 that applies to Federal procurement contracts is 
carried out through the Federal Acquisition Regulation in chapter 1 of 
Title 48 of the Code of Federal Regulations (the drug-free workplace 
coverage currently is in 48 CFR part 23, subpart 23.5).



      Subpart B_Requirements for Recipients Other Than Individuals



Sec. 3021.200  What must I do to comply with this part?

    There are two general requirements if you are a recipient other than 
an individual.
    (a) First, you must make a good faith effort, on a continuing basis, 
to maintain a drug-free workplace. You must agree to do so as a 
condition for receiving any award covered by this part. The specific 
measures that you must take in this regard are described in more detail 
in subsequent sections of this subpart. Briefly, those measures are to--

[[Page 252]]

    (1) Publish a drug-free workplace statement and establish a drug-
free awareness program for your employees (see Sec. Sec. 3021.205 
through 3021.220); and
    (2) Take actions concerning employees who are convicted of violating 
drug statutes in the workplace (see Sec. 3021.225).
    (b) Second, you must identify all known workplaces under your 
Federal awards (see Sec. 3021.230).



Sec. 3021.205  What must I include in my drug-free workplace statement?

    You must publish a statement that--
    (a) Tells your employees that the unlawful manufacture, 
distribution, dispensing, possession, or use of a controlled substance 
is prohibited in your workplace;
    (b) Specifies the actions that you will take against employees for 
violating that prohibition; and
    (c) Lets each employee know that, as a condition of employment under 
any award, he or she:
    (1) Will abide by the terms of the statement; and
    (2) Must notify you in writing if he or she is convicted for a 
violation of a criminal drug statute occurring in the workplace and must 
do so no more than five calendar days after the conviction.



Sec. 3021.210  To whom must I distribute my drug-free workplace statement?

    You must require that a copy of the statement described in Sec. 
3021.205 be given to each employee who will be engaged in the 
performance of any Federal award.



Sec. 3021.215  What must I include in my drug-free awareness program?

    You must establish an ongoing drug-free awareness program to inform 
employees about--
    (a) The dangers of drug abuse in the workplace;
    (b) Your policy of maintaining a drug-free workplace;
    (c) Any available drug counseling, rehabilitation, and employee 
assistance programs; and
    (d) The penalties that you may impose upon them for drug abuse 
violations occurring in the workplace.



Sec. 3021.220  By when must I publish my drug-free workplace statement and establish my drug-free awareness program?

    If you are a new recipient that does not already have a policy 
statement as described in Sec. 3021.205 and an ongoing awareness 
program as described in Sec. 3021.215, you must publish the statement 
and establish the program by the time given in the following table:

------------------------------------------------------------------------
                 If . . .                          then you . . .
------------------------------------------------------------------------
(a) The performance period of the award is  must have the policy
 less than 30 days.                          statement and program in
                                             place as soon as possible,
                                             but before the date on
                                             which performance is
                                             expected to be completed.
(b) The performance period of the award is  must have the policy
 30 days or more.                            statement and program in
                                             place within 30 days after
                                             award.
(c) You believe there are extraordinary     may ask the Department of
 circumstances that will require more than   Agriculture awarding
 30 days for you to publish the policy       official to give you more
 statement and establish the awareness       time to do so. The amount
 program.                                    of additional time, if any,
                                             to be given is at the
                                             discretion of the awarding
                                             official.
------------------------------------------------------------------------



Sec. 3021.225  What actions must I take concerning employees who are convicted of drug violations in the workplace?

    There are two actions you must take if an employee is convicted of a 
drug violation in the workplace:
    (a) First, you must notify Federal agencies if an employee who is 
engaged in the performance of an award informs you about a conviction, 
as required by Sec. 3021.205(c)(2), or you otherwise learn of the 
conviction. Your notification to the Federal agencies must--
    (1) Be in writing;
    (2) Include the employee's position title;
    (3) Include the identification number(s) of each affected award;
    (4) Be sent within ten calendar days after you learn of the 
conviction; and
    (5) Be sent to every Federal agency on whose award the convicted 
employee was working. It must be sent to every awarding official or his 
or her official designee, unless the Federal agency has specified a 
central point for the receipt of the notices.
    (b) Second, within 30 calendar days of learning about an employee's 
conviction, you must either--

[[Page 253]]

    (1) Take appropriate personnel action against the employee, up to 
and including termination, consistent with the requirements of the 
Rehabilitation Act of 1973 (29 U.S.C. 794), as amended; or
    (2) Require the employee to participate satisfactorily in a drug 
abuse assistance or rehabilitation program approved for these purposes 
by a Federal, State or local health, law enforcement, or other 
appropriate agency.



Sec. 3021.230  How and when must I identify workplaces?

    (a) You must identify all known workplaces under each Department of 
Agriculture award. A failure to do so is a violation of your drug-free 
workplace requirements. You may identify the workplaces--
    (1) To the Department of Agriculture official that is making the 
award, either at the time of application or upon award; or
    (2) In documents that you keep on file in your offices during the 
performance of the award, in which case you must make the information 
available for inspection upon request by Department of Agriculture 
officials or their designated representatives.
    (b) Your workplace identification for an award must include the 
actual address of buildings (or parts of buildings) or other sites where 
work under the award 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).
    (c) If you identified workplaces to the Department of Agriculture 
awarding official at the time of application or award, as described in 
paragraph (a)(1) of this section, and any workplace that you identified 
changes during the performance of the award, you must inform the 
Department of Agriculture awarding official.



        Subpart C_Requirements for Recipients Who Are Individuals



Sec. 3021.300  What must I do to comply with this part if I am an individual recipient?

    As a condition of receiving a(n) Department of Agriculture award, if 
you are an individual recipient, you must agree that--
    (a) You will not engage in the unlawful manufacture, distribution, 
dispensing, possession, or use of a controlled substance in conducting 
any activity related to the award; and
    (b) If you are convicted of a criminal drug offense resulting from a 
violation occurring during the conduct of any award activity, you will 
report the conviction:
    (1) In writing.
    (2) Within 10 calendar days of the conviction.
    (3) To the Department of Agriculture awarding official or other 
designee for each award that you currently have, unless Sec. 3021.301 
or the award document designates a central point for the receipt of the 
notices. When notice is made to a central point, it must include the 
identification number(s) of each affected award.



Sec. 3021.301  [Reserved]



    Subpart D_Responsibilities of Department of Agriculture Awarding 
                                Officials



Sec. 3021.400  What are my responsibilities as a(n) Department of Agriculture awarding official?

    As a(n) Department of Agriculture awarding official, you must obtain 
each recipient's agreement, as a condition of the award, to comply with 
the requirements in--
    (a) Subpart B of this part, if the recipient is not an individual; 
or
    (b) Subpart C of this part, if the recipient is an individual.

[[Page 254]]



           Subpart E_Violations of this Part and Consequences



Sec. 3021.500  How are violations of this part determined for recipients other than individuals?

    A recipient other than an individual is in violation of the 
requirements of this part if the Secretary of Agriculture or designee 
determines, in writing, that--
    (a) The recipient has violated the requirements of subpart B of this 
part; or
    (b) The number of convictions of the recipient's employees for 
violating criminal drug statutes in the workplace is large enough to 
indicate that the recipient has failed to make a good faith effort to 
provide a drug-free workplace.



Sec. 3021.505  How are violations of this part determined for recipients who are individuals?

    An individual recipient is in violation of the requirements of this 
part if the Secretary of Agriculture or designee determines, in writing, 
that--
    (a) The recipient has violated the requirements of subpart C of this 
part; or
    (b) The recipient is convicted of a criminal drug offense resulting 
from a violation occurring during the conduct of any award activity.



Sec. 3021.510  What actions will the Federal Government take against a recipient determined to have violated this part?

    If a recipient is determined to have violated this part, as 
described in Sec. 3021.500 or Sec. 3021.505, the Department of 
Agriculture may take one or more of the following actions--
    (a) Suspension of payments under the award;
    (b) Suspension or termination of the award; and
    (c) Suspension or debarment of the recipient under 7 CFR part 3017, 
for a period not to exceed five years.

[68 FR 66557, 66565, Nov. 26, 2003, as amended at 68 FR 66566, Nov. 26, 
2003]



Sec. 3021.515  Are there any exceptions to those actions?

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



                          Subpart F_Definitions



Sec. 3021.605  Award.

    Award means an award of financial assistance by the Department of 
Agriculture or other Federal agency directly to a recipient.
    (a) The term award includes:
    (1) A Federal grant or cooperative agreement, in the form of money 
or property in lieu of money.
    (2) A block grant or a grant in an entitlement program, whether or 
not the grant is exempted from coverage under the Governmentwide rule 7 
CFR part 3016 that implements OMB Circular A-102 (for availability, see 
5 CFR 1310.3) and specifies uniform administrative requirements.
    (b) The term award does not include:
    (1) Technical assistance that provides services instead of money.
    (2) Loans.
    (3) Loan guarantees.
    (4) Interest subsidies.
    (5) Insurance.
    (6) Direct appropriations.
    (7) 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).

[68 FR 66557, 66565, Nov. 26, 2003, as amended at 68 FR 66566, Nov. 26, 
2003]



Sec. 3021.610  Controlled substance.

    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.



Sec. 3021.615  Conviction.

    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

[[Page 255]]

Federal or State criminal drug statutes.



Sec. 3021.620  Cooperative agreement.

    Cooperative agreement means an award of financial assistance that, 
consistent with 31 U.S.C. 6305, is used to enter into the same kind of 
relationship as a grant (see definition of grant in Sec. 3021.650), 
except that substantial involvement is expected between the Federal 
agency and the recipient when carrying out the activity contemplated by 
the award. The term does not include cooperative research and 
development agreements as defined in 15 U.S.C. 3710a.



Sec. 3021.625  Criminal drug statute.

    Criminal drug statute means a Federal or non-Federal criminal 
statute involving the manufacture, distribution, dispensing, use, or 
possession of any controlled substance.



Sec. 3021.630  Debarment.

    Debarment means an action taken by a Federal agency to prohibit a 
recipient from participating in Federal Government procurement contracts 
and covered nonprocurement transactions. A recipient so prohibited is 
debarred, in accordance with the Federal Acquisition Regulation for 
procurement contracts (48 CFR part 9, subpart 9.4) and the common rule, 
Government-wide Debarment and Suspension (Nonprocurement), that 
implements Executive Order 12549 and Executive Order 12689.



Sec. 3021.635  Drug-free workplace.

    Drug-free workplace means a site for the performance of work done in 
connection with a specific award at which employees of the recipient are 
prohibited from engaging in the unlawful manufacture, distribution, 
dispensing, possession, or use of a controlled substance.



Sec. 3021.640  Employee.

    (a) Employee means the employee of a recipient directly engaged in 
the performance of work under the award, including--
    (1) All direct charge employees;
    (2) All indirect charge employees, unless their impact or 
involvement in the performance of work under the award is insignificant 
to the performance of the award; and
    (3) Temporary personnel and consultants who are directly engaged in 
the performance of work under the award and who are on the recipient's 
payroll.
    (b) This definition does not include workers not on the payroll of 
the recipient (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).



Sec. 3021.645  Federal agency or agency.

    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.



Sec. 3021.650  Grant.

    Grant means an award of financial assistance that, consistent with 
31 U.S.C. 6304, is used to enter into a relationship--
    (a) The principal purpose of which is to transfer a thing of value 
to the recipient to carry out a public purpose of support or stimulation 
authorized by a law of the United States, rather than to acquire 
property or services for the Federal Government's direct benefit or use; 
and
    (b) In which substantial involvement is not expected between the 
Federal agency and the recipient when carrying out the activity 
contemplated by the award.



Sec. 3021.655  Individual.

    Individual means a natural person.



Sec. 3021.660  Recipient.

    Recipient means any individual, corporation, partnership, 
association, unit of government (except a Federal agency) or legal 
entity, however organized, that receives an award directly from a 
Federal agency.

[[Page 256]]



Sec. 3021.665  State.

    State means any of the States of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, or any territory or 
possession of the United States.



Sec. 3021.670  Suspension.

    Suspension means an action taken by a Federal agency that 
immediately prohibits a recipient from participating in Federal 
Government procurement contracts and covered nonprocurement transactions 
for a temporary period, pending completion of an investigation and any 
judicial or administrative proceedings that may ensue. A recipient so 
prohibited is suspended, in accordance with the Federal Acquisition 
Regulation for procurement contracts (48 CFR part 9, subpart 9.4) and 
the common rule, Government-wide Debarment and Suspension 
(Nonprocurement), that implements Executive Order 12549 and Executive 
Order 12689. Suspension of a recipient is a distinct and separate action 
from suspension of an award or suspension of payments under an award.



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.

    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

[[Page 257]]

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:
    (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;

[[Page 258]]

    (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
    (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). A Federal agency with 
oversight for an auditee may reassign oversight to another Federal 
agency, which provides substantial funding and agrees to be the 
oversight agency for audit. Within 30 days after any reassignment, both 
the old and the new oversight agency for audit shall notify the auditee, 
and, if known, the auditor of the reassignment.
    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;

[[Page 259]]

    (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.
    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.

[62 FR 45949, Aug. 29, 1997, as amended at 70 FR 34986, June 16, 2005]



                            Subpart B_Audits



Sec. 3052.200  Audit requirements.

    (a) Audit required. Non-Federal entities that expend $500,000 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 $500,000 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

[[Page 260]]

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 $500,000. 
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.

[62 FR 45949, Aug. 29, 1997, as amended at 70 FR 34986, June 16, 2005]



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 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

[[Page 261]]

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 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

[[Page 262]]

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.
    (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

[[Page 263]]

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 $500,000 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.

[62 FR 45949, Aug. 29, 1997, as amended at 70 FR 34986, June 16, 2005]



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;
    (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;

[[Page 264]]

    (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 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

[[Page 265]]

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 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

[[Page 266]]

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.
    (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.

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    (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.
    (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

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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 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

[[Page 269]]

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 $50 million in 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. 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 2004, 2009, 
2014, and every fifth year thereafter. For example, audit cognizance for 
periods ending in 2006 through 2010 will be determined based on Federal 
awards expended in 2004. (However, for 2001 through 2005, the cognizant 
agency for audit is determined based on the predominant amount of direct 
Federal awards expended in the recipient's fiscal year ending in 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,

[[Page 270]]

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.
    (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 $500,000 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

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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.

[62 FR 45949, Aug. 29, 1997, as amended at 70 FR 34986, June 16, 2005]



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 
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

[[Page 272]]

    (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.



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

[[Page 273]]

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 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

[[Page 274]]

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.
    (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.

[[Page 275]]



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 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.

[[Page 276]]

    (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 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

[[Page 277]]

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.
    (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

[[Page 278]]

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 279]]



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




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Part                                                                Page
3100            Cultural and environmental quality..........         281

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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 282]]

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 283]]

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 284]]

    (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 285]]

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 287]]



CHAPTER XXXII--OFFICE OF PROCUREMENT AND PROPERTY MANAGEMENT, DEPARTMENT 
                             OF AGRICULTURE




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Part                                                                Page
3200            Department of Agriculture guidelines for the 
                    acquisition and transfer of excess 
                    personal property.......................         289
3201-3299      [Reserved]

[[Page 289]]



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. For 
information on USDA excess personal property, visit the USDA Web site at 
http://www.nfc.usda.gov/propexcs. USDA excess property will first be 
screened by USDA agencies through the Departmental Excess Personal 
Property Coordinator (DEPPC) using the Departmental Property Management 
Information 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 290]]

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''.
    (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:

    ``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 Pub. L. 104-127 (7 U.S.C. 2206a). Also, in accordance 
with these provisions USDA authorizes transfer of title of this property 
to the college/university/institution.''

    (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.

[63 FR 57234, Oct. 27, 1998, as amended at 68 FR 75107, Dec. 30, 2003]



Sec. 3200.5  Dollar limitation.

    There is no dollar limitation on excess personal property obtained 
under these procedures.



Sec. 3200.6  Restrictions.

    (a) Property in the following Federal Supply Groups are prohibited 
from transfer.

                  Ineligible Federal Supply Code Groups
------------------------------------------------------------------------
                 FSC Group                              Name
------------------------------------------------------------------------
10........................................  Weapons.
11........................................  Nuclear ordinance.
13........................................  Ammunition and explosives.
14........................................  Guided missiles.
18........................................  Space vehicles.
------------------------------------------------------------------------

    (b) The property in the FSC's listed below are discouraged from 
transfer and not approved on a routine basis. However, Institutions may 
request items in these FSC groups, but all requests will be referred to 
the Director, Office of Procurement and Property Management for 
consideration and approval:

------------------------------------------------------------------------
                 FSC Group                              Name
------------------------------------------------------------------------
15........................................  Aircraft and airframe
                                             structural components.
16........................................  Aircraft components and
                                             accessories.
17........................................  Aircraft launching, landing
                                             and ground handling
                                             equipment.
20........................................  Ship and marine equipment.
------------------------------------------------------------------------

    (c) 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.
    (d) 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.

[63 FR 57234, Oct. 27, 1998, as amended at 68 FR 75107, Dec. 30, 2003]

[[Page 291]]



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.



Sec. 3200.10  Disposal.

    Once the requirements in Sec. 3200.9 are met for retention and use 
of property by the Institution and title is transferred, Federal excess 
personal property (FEPP) no longer needed by an Institution will be 
disposed of in accordance with the Institution's disposal practices. 
Regardless of ownership, FEPP must never be disposed of in any manner 
which is detrimental or dangerous to public health or safety. Also, any 
costs incurred during the disposal process are the responsibility of the 
Institution.

[68 FR 75108, Dec. 30, 2003]



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 293]]



   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......         295
3305             [Reserved]

[[Page 295]]



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 296]]

    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 297]]

    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 298]]



                 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 299]]

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 300]]

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 301]]

    (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 302]]

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 303]]

    (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 304]]

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 305]]

    (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 306]]

    (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 307]]



  CHAPTER XXXIV--COOPERATIVE STATE RESEARCH, EDUCATION, AND EXTENSION 
                   SERVICE, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3400            Special Research Grants Program.............         309
3401            Rangeland Research Grants Program...........         319
3402            Food and Agricultural Sciences National 
                    Needs Graduate and Postgraduate 
                    Fellowship Grants Program...............         329
3403            Small Business Innovation Research Grants 
                    Program.................................         338
3404            Public information..........................         348
3405            Higher Education Challenge Grants Program...         349
3406            1890 Institution Capacity Building Grants 
                    Program.................................         365
3407            Implementation of National Environmental 
                    Policy Act..............................         395
3411            National Research Initiative Competitive 
                    Grants Program..........................         400
3415            Biotechnology Risk Assessment Research 
                    Grants Program..........................         412
3418            Stakeholder input requirements for 
                    recipients of agricultural research, 
                    education, and extension formula funds..         423
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.....         424

[[Page 309]]



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 310]]

    (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 311]]

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 312]]

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 313]]

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 Sec. Sec. 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 314]]

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 315]]

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 316]]

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 317]]

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 318]]

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 319]]

    (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 320]]

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

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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

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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;

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    (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.)

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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.

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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

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    (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

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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

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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

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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 AND
POSTGRADUATE 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

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          and Postdoctoral Fellowship Grants Program support.
3402.5 Overview of National Needs Graduate and Postdoctoral Fellowship 
          Grants Program.
3402.6 Overview of the special international study and/or thesis/
          dissertation research travel allowance.
3402.7 Fellowship appointments.
3402.8 Fellowship activities.
3402.9 Financial provisions.

                 Subpart C_Preparation of an Application

3402.10 Application package.
3402.11 Proposal cover page.
3402.12 Project summary.
3402.13 National need narrative.
3402.14 Budget and budget narrative.
3402.15 Faculty vitae.
3402.16 Appendix.

          Subpart D_Submission and Evaluation of an Application

3402.17 Where to submit an application.
3402.18 Evaluation criteria.

                   Subpart E_Supplementary Information

3402.19 Terms and conditions of grant awards.
3402.20 Other Federal statutes and regulations that apply.
3402.21 Confidential aspects of applications and awards.
3402.22 Access to peer review information.
3402.23 Documentation of progress on funded projects.
3402.24 Evaluation of program.

    Authority: 7 U.S.C. 3316.

    Source: 69 FR 62537, Oct. 26, 2004, 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). The Act 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(b)(6) 
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 and 
postdoctoral fellowship programs to help meet the Nation's needs for 
development of scientific and professional expertise in the food and 
agricultural sciences. The Graduate 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. 
The postdoctoral Fellowships are intended to provide additional 
mentoring and training to outstanding USDA Graduate Fellows who 
completed their doctoral degrees no more than five (5) years before they 
begin the postdoctoral Fellowships.
    (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

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    (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 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 Federated States of Micronesia, the Republic of the Marshall 
Islands, the Republic of Palau, 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.

    Applications 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 must 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 on-going 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 Graduate Fellowships are specifically intended to support 
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. The postdoctoral 
Fellowships are designed to support academic programs that provide 
additional training and mentoring to USDA Graduate Fellows and have 
notable teaching and research competencies in the CSREES designated 
national need areas. Institutions which currently have excellent 
programs of graduate study and training in the food and agricultural 
sciences dealing with targeted national needs are particularly 
encouraged to apply for all National Needs Fellowships.



                      Subpart B_Program Description



Sec. 3402.4  Food and agricultural sciences areas targeted for National Needs Graduate and Postdoctoral Fellowship Grants Program support.

    Areas of the food and agricultural sciences, including 
multidisciplinary studies, appropriate for Fellowship grant applications 
are those in which developing shortages of expertise have been 
determined and targeted by HEP for National Needs Graduate and 
Postdoctoral Fellowship Grants Program 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 funding opportunity 
announcement announcing the program and soliciting program applications.



Sec. 3402.5  Overview of National Needs Graduate and Postdoctoral Fellowship Grants Program.

    (a) The program will provide funds for a limited number of grants to 
support graduate student stipends and

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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. To 
encourage academic institutions to provide additional training/mentoring 
to outstanding USDA Graduate Fellows who have completed their doctoral 
degrees, the program will also provide postdoctoral Fellowship grants to 
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, postdoctoral 
Fellowships, and/or special international study or thesis/dissertation 
research travel allowances will be held during that fiscal year;
    (2) The degree level(s) to be supported--master's, doctoral and/or 
postdoctoral;
    (3) The proportion of appropriations to be targeted for Fellowship 
stipends for each respective degree level supported;
    (4) The proportion of appropriations to be targeted for the cost-of-
education institutional allowances for each respective 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 degree level supported;
    (6) The allowable stipend amount for each respective degree level 
supported, the cost-of-education institutional allowance for each 
respective degree level supported, and the maximum funds available for 
each special international study or thesis/dissertation research travel 
allowance for each respective degree level supported;
    (7) The activities for which the cost-of-education allowance may be 
used for awards made in that year; and
    (8) 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 application;
    (2) The degree levels for which funding may be requested in a single 
application;
    (3) The minimum and maximum number of fellowships for which an 
institution may apply in a single application; and
    (4) The limits on the total number of applications that can be 
submitted by an institution, college, school, or other administrative 
unit.
    (d) These determinations will be published as a part of the 
solicitation, which will be available at http://www.grants.gov.



Sec. 3402.6  Overview of the special international study and/or thesis/dissertation research travel allowance.

    (a) 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 solicitation. 
Postdoctoral Fellows are not eligible to receive the special 
international study or thesis/dissertation research travel allowance. 
Each application must include a ``Proposal Cover Page'' (Form CSREES-
2002), ``Project Summary'' (Form CSREES-2003), ``Budget'' (Form CSREES-
2004) and National Environmental Policy Act Exclusions Form (Form 
CSREES--2006).
    (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;

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    (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);
    (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 progress 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 the 
page limitation included in the program solicitation.
    (b) All complete requests will be evaluated by professional staff 
from USDA or other Federal agencies, as appropriate. Evaluation criteria 
will be published in the solicitation. HEP will award grants in 
accordance with evaluation criteria and to the extent possible based on 
availability of funds.
    (c) Any current Fellow with sufficient time to complete the 
international experience before the termination date of 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. 3402.7  Fellowship appointments.

    (a)(1) Fellows must be identified and Fellowships must be awarded 
within 18 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). Graduate 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. Postdoctoral Fellowship appointments may be held 
only by persons who pursue full-time traineeship in research, teaching 
or extension in the national need area and are supervised by the mentor 
indicated in the grant application.
    (2) It will be the responsibility of the grantee institution to 
award fellowships to students of superior academic ability.
    (3) Graduate Fellows:
    (i) Must be appointed before completing two semesters or equivalent 
hours of full-time study, as defined by the institution, or immediately 
after passing of candidacy/qualifying examinations, whichever is later;
    (ii) Must be citizens or nationals of the United States as 
determined in accordance with Federal law; and
    (iii) 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.
    (4) Postdoctoral Fellows:
    (i) Must have been USDA Graduate Fellows who successfully completed 
their doctoral degrees in areas of the food and agricultural sciences 
designated by CSREES as national need areas;
    (ii) Must not have obtained their doctoral degrees more than five 
years prior to beginning their postdoctoral Fellowships;
    (iii) Must have strong interest, as judged by the institution, in 
preparing for a career in agricultural research, teaching or extension.
    (5)(i) A doctoral level Graduate Fellow who maintains satisfactory 
progress in his or her course of study is eligible for support for a 
maximum of 36 months within a 42-month period. A master's level Fellow 
who maintains satisfactory progress in his or her course of study is 
eligible for support for a maximum of 24 months during a 30-month 
period. A postdoctoral Fellow who achieves his or her training 
objectives is eligible for support for a maximum of 36 months during a 
60-month

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period. It is the intent of this program that Graduate Fellows pursue 
full-time uninterrupted study or thesis/dissertation research, including 
time spent pursuing USDA-funded special international study or thesis/
dissertation research activities.
    (ii) Postdoctoral Fellowship appointments may be held only by 
persons who pursue full-time traineeship in research, teaching, or 
extension in the national need area and are supervised by the mentor 
indicated in the grant application.
    However, during the period of support, USDA Graduate and 
Postdoctoral Fellows are permitted, at the discretion of their 
institutions, to accept additional supplemental employment that would 
positively contribute to their training or research and provide 
eligibility for tuition waivers (e.g., full or partial tuition waivers 
with research or teaching assignments).
    (iii) For graduate 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 postdoctoral Fellows who terminate the Fellowships 
prematurely, the institution must return all unexpended monies to USDA. 
For USDA Graduate Fellows who complete the program of study early (less 
than 24 months for master's degree or 36 months for doctoral degree) or 
terminate their Fellowships prematurely, the institution may use any 
unexpended monies, within the time remaining on the project grant, to 
support pursuit of a doctoral degree in a discipline in the food and 
agricultural sciences by a master's degree level Fellow at the grantee 
institution; or a replacement Graduate Fellow. Where less than one 
semester/quarter remains before the expiration date of the Graduate 
Fellowship grant, the institution must refund any unexpended monies to 
the granting agency. Such funds cannot be used to increase the annual 
stipend amounts for current USDA Graduate or Postdoctoral Fellows.
    (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 and postdoctoral level in the food and 
agricultural sciences, particularly minorities and women. Throughout a 
USDA Graduate 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 USDA Graduate 
Fellow or a postdoctoral Fellow for insufficient progress or by decision 
on the part of the Fellow, the Fellow may no longer receive funds from 
the active grant. However, termination does not automatically disqualify 
a Fellow from receiving future grant support under this program. If a 
graduate or postdoctoral Fellow finds it necessary to interrupt his or 
her program of study because of health, personal reasons, or outside 
employment, the institution must reserve the funds for the purpose of 
allowing the Fellow to resume funded training any time within a six (6) 
month period. However, a USDA Graduate or Postdoctoral Fellow who finds 
it necessary to interrupt his/her program of training more than one time 
cannot exceed a total of six (6) months' cumulative leave status without 
forfeiting eligibility. For a USDA Graduate Fellowship terminated 
because of insufficient progress, by decision on the part of the Fellow, 
or reserved due to an interrupted program but not resumed within the 
required time period, the institution may use any unexpended monies to 
support, within the time remaining on the project grant, and subject to 
the limitations above, a replacement Fellow at the same master's or 
doctoral levels. For postdoctoral Fellowships terminated because of 
insufficient progress, by decision on the part of the Fellow, or 
reserved due to an interrupted program but not resumed within the 
required time period, the institution must return all the unexpended 
monies to CSREES.

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    (c) Only Fellows enrolled in master's programs of study may be 
supported under master's Fellowship grants. Master's degree level 
Fellows who complete their degree early may be supported under master's 
Fellowship grants, if they are enrolled in Ph.D. programs in areas of 
the food and agricultural sciences designated as national need areas. 
Only Fellows enrolled in doctoral programs of study may be supported 
under doctoral degree Fellowship grants. Only USDA Graduate Fellows who 
have completed their doctoral degrees may be supported under 
postdoctoral Fellowship grants.



Sec. 3402.8  Fellowship activities.

    A USDA Graduate Fellow shall 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 for formal registration during part of 
this tenure may be waived if permitted by the policy of the Fellowship 
institution, provided that the Graduate Fellow is making satisfactory 
progress toward degree completion and remains engaged in appropriate 
full-time Fellowship activities such as thesis/dissertation research. 
Postdoctoral Fellowship appointments may be held only by persons who 
pursue full-time traineeship in research, teaching, or extension in the 
national need area and are supervised by the mentor indicated in the 
grant application. Graduate and postdoctoral 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, USDA Graduate 
and Postdoctoral Fellows are permitted, at the discretion of their 
institutions, to accept additional supplemental employment that would 
positively contribute to their training or research and provide 
eligibility for tuition waivers (e.g., full or partial tuition waivers 
provided with research or teaching assignments). A Fellow may accept 
from any other entity a grant supporting the Fellow's research costs.



Sec. 3402.9  Financial provisions.

    An institution may elect to apply the cost-of-education/training 
institutional allowance to a Fellow's tuition, fees and laboratory 
expenses and to defray other program expenses (e.g., recruitment, 
travel, publications, or salaries of project personnel), unless stated 
otherwise in the solicitation. 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 non-USDA monies. No dependency allowances are provided to any USDA 
Graduate or Postdoctoral Fellows. Stipend payments and special 
international study or thesis/dissertation research travel allowances 
may be made to Fellows by the institution, in accordance with standard 
institutional procedures for graduate and postdoctoral fellowships and 
assistantships.



                 Subpart C_Preparation of an Application



Sec. 3402.10  Application package.

    Applications will be available at http://www.grants.gov and through 
the CSREES Web site. 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.



Sec. 3402.11  Proposal cover page.

    The Proposal Cover Page, Form CSREES-2002, must be completed in its 
entirety, including all authorizing signatures. One copy of each grant 
application must contain the original pen-and-ink signatures, or 
approved electronic equivalent, of:
    (a) The Project Director(s); and
    (b) The Authorized Organizational Representative for the 
institution.

[[Page 336]]



Sec. 3402.12  Project summary.

    Using the Project Summary, Form CSREES-2003, applicants must 
summarize the proposed graduate program of study and/or 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 program of training. The 
summary should not include any reference to the specific number of 
fellowships requested. The information on Form CSREES-2003 will be used 
in assigning the most appropriate panelists to review an application. If 
an application is supported, this Form may be used in program 
publications.



Sec. 3402.13  National need narrative.

    HEP will determine the composition of the narrative for each 
competition, including page limits, font size, the number and the order 
of sections, and other supporting information that may be required. 
Detailed instructions for preparing the narrative will be published in 
the solicitation.



Sec. 3402.14  Budget and budget narrative.

    Applicants must prepare the Budget, Form CSREES-2004, and a budget 
narrative identifying all costs associated with the application. 
Instructions for completing the Budget are provided with the form.



Sec. 3402.15  Faculty vitae.

    This section should include a Summary Vita, no more than 2 pages 
excluding publications listing, for each faculty member contributing 
significantly to institutional competence at the level of graduate study 
for the national need area addressed in the application. Applicants 
should arrange the faculty vitae with the Project Director(s) first, 
followed by the remaining faculty, in alphabetical order.



Sec. 3402.16  Appendix.

    Any additional supporting information deemed essential to enhancing 
the application should be included in an Appendix and referenced in the 
national need narrative.



          Subpart D_Submission and Evaluation of an Application



Sec. 3402.17  Where to submit an application.

    The solicitation will indicate the date for submission of 
applications and the number of application copies required to apply for 
a grant. In addition, the solicitation will provide the address to which 
the application, the required number of accompanying duplicate copies, 
and any other required forms and materials should be sent.



Sec. 3402.18  Evaluation criteria.

    Applications addressing a particular national need area at a 
particular Fellowship level (master's, doctoral or postdoctoral) will be 
evaluated in competition with other applications addressing the same 
national need area at the same level. Both USDA internal staff and the 
panelists will evaluate applications on the basis of the criteria 
published in the solicitation.



                   Subpart E_Supplementary Information



Sec. 3402.19  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 applications are judged most meritorious according to 
evaluation criteria stated in the 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 applicable Federal cost principles, and the Department's 
assistance regulations (parts 3015 and 3019 of 7 CFR).

[[Page 337]]



Sec. 3402.20  Other Federal statutes and regulations that apply.

    Several Federal statutes and regulations apply to grant applications 
considered for review and to grants awarded under this program. These 
include, but are not limited to:

    7 CFR part 1, subpart A--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 VI of the 
Civil Rights Act of 1964, as amended.
    7 CFR part 331 and 9 CFR part 121--USDA implementation of the 
Agricultural Bioterrorism Protection Act of 2002.
    7 CFR part 3015, or any successor rule--USDA Uniform Federal 
Assistance Regulations, as amended, 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. No. 95-224), as well as general policy requirements 
applicable to recipients of Departmental financial assistance.
    7 CFR part 3017--USDA implementation of Government wide Debarment 
and Suspension (Nonprocurement) and Government wide Requirements for 
Drug-Free Workplace (Grants).
    7 CFR part 3018--USDA implementation of New Restrictions on 
Lobbying. Imposes 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 implementation of OMB Circular No. A-110, 
Uniform Administrative Requirements for Grants and Other Agreements with 
Institutions of Higher Education, Hospitals, and Other Nonprofit 
Organizations.
    7 CFR part 3052--USDA implementation of OMB Circular No. A-133, 
Audits of States, Local Governments, and Nonprofit Organizations.
    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. 3402.21  Confidential aspects of applications and awards.

    When an application results in a grant, the application and 
supporting information become part of the record of CSREES transactions, 
and available to the public upon specific request. Information that the 
Secretary determines to be of a confidential, privileged, or proprietary 
nature will be held in confidence to the extent permitted by law. 
Therefore, any information that the applicant wishes to have considered 
as confidential, privileged, or proprietary should be clearly marked 
within the application. The original copy of an application 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 an application will be 
released only with the consent of the applicant or to the extent 
required by law. An application may be withdrawn at any time prior to 
the final action thereon.



Sec. 3402.22  Access to peer review information.

    After final decisions have been announced, HEP will, upon request, 
inform the PD of the reasons for its decision on an application. 
Verbatim copies of summary reviews, not including the identity of the 
reviewers, will be made available to respective PDs upon specific 
request.



Sec. 3402.23  Documentation of progress on funded projects.

    (a) Fellowships/Scholarships Entry/Exit Forms (Form CSREES-2010) are 
available from CSREES upon request. Upon request by HEP, Project 
Directors awarded Graduate Fellowship (excluding supplemental 
international and postdoctoral) grants under the program shall complete 
and submit this form.
    (1) Appointment Information shall be submitted to HEP within 3 
months of appointment of a Fellow;
    (2) The Project Director shall submit an annual update of each 
Fellow's progress to HEP by September 30 each year. Additional progress 
reports may be needed to assess continuing progress of Fellows supported 
by any special

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international study or thesis/dissertation research allowance and/or 
institutional adherence to program guidelines.
    (3) Exit Information shall 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 shall be required at a later date. When a 
final exit report for each Fellow supported by a grant has been accepted 
by HEP, the grantee will have satisfied the requirement of a final 
performance report for the grant. Additional follow-up reports to track 
Fellows' career patterns may be requested.
    (b) All grantees (supplemental international, graduate, and 
postdoctoral) shall submit initial project information and annual and 
summary reports to CSREES' Current Research Information System (CRIS). 
The CRIS database contains narrative project information, progress/
impact statements, and final technical reports that are made available 
to the public. For applications recommended for funding, instructions on 
preparation and submission of project documentation will be provided to 
the applicant by the agency contact. Documentation must be submitted to 
CRIS before CSREES funds will be released. Project reports will be 
requested by the CRIS office when required. For more information about 
CRIS, visit http://cris.csrees.usda.gov.



Sec. 3402.24  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

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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 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.

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    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 
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.

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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 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

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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 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.

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    (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 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

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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 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

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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.
    (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

[[Page 346]]

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 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

[[Page 347]]

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 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

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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).



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

[[Page 349]]

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 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

[[Page 350]]

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 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.

[[Page 351]]

    (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;
    (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

[[Page 352]]

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 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

[[Page 353]]

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 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.

[[Page 354]]

    (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.
    (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.

[[Page 355]]

    (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.
    (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),

[[Page 356]]

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.



                   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.

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    (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.
    (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.

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    (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).
    (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) bjectives. 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

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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 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

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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 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.

[[Page 361]]

    (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 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:

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------------------------------------------------------------------------
               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 of  20 points.
         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 expected  20 points.
         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:
    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 objectives    20 points.
         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 plans    10 points.
         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.)?
------------------------------------------------------------------------


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                   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 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

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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 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.

[[Page 365]]



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 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.

[[Page 366]]

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.

         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

[[Page 367]]

    (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;
    (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

[[Page 368]]

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 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

[[Page 369]]

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.
    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

[[Page 370]]

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.



                      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

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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.



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

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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 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

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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 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

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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.
    (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.

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    (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.);
    (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

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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 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.

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    (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 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

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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 
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:

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    (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;
    (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.

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    (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 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

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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 of  10 points.
         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 expected  15 points.
         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 objectives    15 points.
         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 plans    5 points.
         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 to  10 points.
 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:

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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 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.)?
------------------------------------------------------------------------



              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.).

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    (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.



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

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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.);
    (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.

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    (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 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

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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 
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

[[Page 387]]

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 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

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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.
    (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

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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 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

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``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 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

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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:
    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 opportunity   15 points.
         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 of  10 points.
         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 expected  15 points.
         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 objectives    5 points.
         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 plans    5 points
         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?

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        (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:
    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

[[Page 393]]

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 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

[[Page 394]]

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
    (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);

[[Page 395]]

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.
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.

[[Page 396]]

    (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 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.

[[Page 397]]

    (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:
    (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 Sec. Sec. 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 
Sec. Sec. 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 Sec. Sec. 
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

[[Page 398]]

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 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).

[[Page 399]]



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 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

[[Page 400]]

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.



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 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. In 
accordance with Public Law 104-127, within the Department of 
Agriculture, the Secretary established the National Agricultural 
Research, Extension, Education, and Economics Advisory Board (NAREEEAB) 
to provide overall guidance to the Research, Education and Economics 
mission area on policies and priorities related to programs, including 
NRICGP. In addition to the stakeholder listening sessions NAREEEAB 
sponsors, CSREES receives stakeholder input on policies and priorities 
related to NRICGP from multiple sources including scientific societies; 
the National Research Council of the National Academy of Sciences; 
producers, processors, industry; the land-grant university system; non-
governmental organizations; and other federal agencies; and through 
international coordination. The Administrator of CSREES shall determine 
and announce, through publication of a notice on the CSREES Web site 
(http://www.csrees.usda.gov), the government-wide funding opportunities 
Web site (http://www.grants.gov), or 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 for which proposals will be 
solicited and the extent that funds are made available therefore.
    (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; 71 FR 54896, Sept. 20, 2006]

[[Page 401]]



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, 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) Project Director 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 402]]

    (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; 71 FR 54896, Sept. 20, 
2006]



Sec. 3411.3  Eligibility requirements.

    (a) For research projects, 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 receive a competitive 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) 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 for 
research projects (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 recently have 
received or will soon receive 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 nine months after the 
proposal due date;
    (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, Project Directors 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 or USDA 
NRICGP seed grants.

[[Page 403]]

    (3) Strengthening Awards. Applicants that are eligible for any grant 
under this part may also be eligible for 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) The Project Director listed on the Application For Funding 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.
    (B) Every investigator listed on the Application For Funding 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; 71 FR 54896, Sept. 20, 2006]



Sec. 3411.4  How to apply for a grant.

    (a) Program solicitations will be prepared and announced through 
publication on the government-wide funding opportunities Web site 
(http://www.grants.gov) 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 receipt of proposal packages;
    (5) Submission addresses;
    (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 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

[[Page 404]]

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 18 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 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

[[Page 405]]

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 Project Director 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, conference grants, or postdoctoral fellowships. According to the 
limit included in the annual program solicitation, a postdoctoral 
fellowship applicant may request and receive a reasonable institutional 
allowance.
    (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 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

[[Page 406]]

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 inclusions of 
additional information is necessary to ensure the equitable evaluation 
of the proposal (e.g., photographs which do not reproduce 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

[[Page 407]]

such materials must be identified with the name of the submitting 
organization, and the name(s) of the Project Director(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 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; 71 FR 54897, Sept. 20, 
2006]



Sec. 3411.5  Evaluation and disposition of applications.

    (a) Evaluation. All proposals received from eligible applicants and 
received 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 Sec. Sec. 3411.2(j) and 
3411.2(k). Specific evaluations will be based upon the criteria 
established in Sec. 3411.15, unless CSREES 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) 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

[[Page 408]]

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; 71 FR 54898, Sept. 20, 2006]



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. 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 federal assistance regulations.
    (b) Grant award document. (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 Project Director(s) chosen to 
direct and control approved activities;
    (iv) Identifying grant and proposal numbers 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) [Reserved]
    (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 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 grants shall be 
awarded are as follows:
    (1) Standard grant. This is a funding mechanism whereby the 
Department

[[Page 409]]

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 CSREES, a grantee must submit a 
separate application for continued support for each subsequent fiscal 
year. 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 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, instructions will be sent to the grantee for the completion of 
CRIS Forms AD-416, ``Research Work Unit/Project Description-Research 
Resume'' and AD-417, ``Research Work Unit/Project Description--
Classification of Research.'' Grant funds will not be released until the 
completed forms are received electronically via CRIS.

[56 FR 57952, Nov. 14, 1991. Redesignated and amended at 60 FR 63368, 
63370, Dec. 8, 1995; 71 FR 54898, Sept. 20, 2006]



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, Project Director(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 and/or the Project Director(s) is 
uncertain whether a particular change complies with this provision, the 
question must be referred to the Administrator for 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.

[[Page 410]]

    (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; 71 FR 54898, Sept. 20, 2006]



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-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 (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--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).

[56 FR 57952, Nov. 14, 1991. Redesignated and amended at 60 FR 63368, 
63370, Dec. 8, 1995; 71 FR 54898, Sept. 20, 2006]



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]

[[Page 411]]



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 
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

[[Page 412]]

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.
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,

[[Page 413]]

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 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.

[[Page 414]]

    (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.
    (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

[[Page 415]]

``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 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

[[Page 416]]

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 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.

[[Page 417]]

    (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 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

[[Page 418]]

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.



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

[[Page 419]]

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;
    (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

[[Page 420]]

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.
    (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.

[[Page 421]]

    (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);
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

[[Page 422]]

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 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

[[Page 423]]

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 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

[[Page 424]]

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.



 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.

[[Page 425]]

    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:
    (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.

[[Page 426]]



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 427]]



     CHAPTER XXXV--RURAL HOUSING SERVICE, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3550            Direct single family housing loans and 
                    grants..................................         429
3560            Direct multi-family housing loans and grants         471
3565            Guaranteed Rural Rental Housing Program.....         594
3570            Community programs..........................         623
3575            General.....................................         633

[[Page 429]]



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 and Section 306C Water and Waste 
                             Disposal Grants

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.

[[Page 430]]



                            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 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.

[[Page 431]]



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. 
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.

[[Page 432]]

    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.
    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 or unit that has either been 
previously owner-occupied or has been completed for more than 1 year as 
evidenced by an occupancy permit, certificate of occupancy or similar 
document issued by the local authority.
    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.

[[Page 433]]

    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-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

[[Page 434]]

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 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.
    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 or unit. A dwelling that is to be constructed, or a 
dwelling that is less than 1 year old as evidenced by an occupancy 
permit, certificate of occupancy or similar document issued by the local 
authority and has never been occupied.
    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 Sec. Sec. 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 Sec. Sec. 3550.56 
through 3550.59.

[[Page 435]]

    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.
    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

[[Page 436]]

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 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, as amended at 
67 FR 78329, Dec. 24, 2002; 70 FR 6552, Feb. 8, 2005]



Sec. Sec. 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 0575-0172. 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. You are not required to respond 
to this collection of information unless it displays a currently valid 
OMB control number.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002]



                    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 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

[[Page 437]]

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, 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.
    (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.
    (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:

[[Page 438]]

    (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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002]



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. 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.
    (1) A very low-income applicant is considered to have repayment 
ability when the monthly amount required for 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

[[Page 439]]

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) 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.
    (iii) A foreclosure which has been completed within the last 36 
months.
    (iv) An outstanding Internal Revenue Service tax lien or any other 
outstanding tax liens with no satisfactory arrangement for payment.
    (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.
    (vi) 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.
    (vii) 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.
    (viii) Non-agency debts written off within the last 36 months unless 
paid in full at least 12 months ago.
    (ix) Agency debts that were debt settled within the last 36 months 
or are being considered for debt settlement.
    (x) 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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78330, Dec. 24, 2002]



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;

[[Page 440]]

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 household 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.
    (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:

[[Page 441]]

    (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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002]



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.
    (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

[[Page 442]]

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 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.
    (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 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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002]



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.

[[Page 443]]

    (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 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. 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.
    (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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78330, Dec. 24, 2002]



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. The dwelling and any other essential buildings must be 
insured in an amount that is the lesser of 100% of the insurable value 
(i.e. the cost to restore the property back to its state prior to a 
loss) of the house or the unpaid principal balance.
    (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

[[Page 444]]

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 for required insurance 
coverage may not exceed the higher of 1% of the face value of the policy 
or $1,000 unless state law requires a higher maximum deductible amount.
    (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 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.

[61 FR 59779, Nov. 22, 1996, as amended at 70 FR 6552, Feb. 8, 2005]



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 area loan limit or 
market value limitations specified in paragraphs (a) or (b) of this 
section, whichever is lower. Any loan 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.

[[Page 445]]

    (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.
    (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, as amended at 
67 FR 78330, Dec. 24, 2002]



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 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.

[67 FR 78330, Dec. 24, 2002]



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.

[[Page 446]]

    (c) Ten years for loans not exceeding $2,500.
    (d) Thirty years for manufactured homes.



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 income            1
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 income          6.5
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

[[Page 447]]

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 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 
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 
lesser of the property's appraised value or the applicable maximum load 
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

[[Page 448]]

may limit the total number of conditional commitments issued in any 
locality based on market demand.
    (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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78330, Dec. 24, 2002]



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
    (3) Sell or lease a unit acquired by RHS.

[[Page 449]]

    (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
    (4) Subsequent loans for repairs of units financed under section 
502.

[[Page 450]]

    (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 over a period of up to 20 years with

[[Page 451]]

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.



Sec. Sec. 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 0575-0172. 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. You are not required to respond 
to this collection of information unless it displays a currently valid 
OMB control number.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78330, Dec. 24, 2002]



   Subpart C_Section 504 Origination and Section 306C Water and Waste 
                             Disposal Grants



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. 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).

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002]



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 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

[[Page 452]]

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 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).

[[Page 453]]

    (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) 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.
    (iii) Loss of security due to a foreclosure if the foreclosure has 
been completed within the last 36 months.
    (iv) An outstanding Internal Revenue Service tax lien or any other 
outstanding tax liens with no satisfactory arrangement for payment.
    (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.
    (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 or paid 
in full at least 12 months ago.
    (viii) Agency debts that were debt settled within the last 36 months 
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 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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002]



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.

[[Page 454]]

    (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 market value in excess of the 
applicable maximum loan limit, in accordance with Sec. 3550.63.
    (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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002]



Sec. 3550.107  Ownership requirements.

    The applicant must have an acceptable ownership interest in the 
property as evidenced by one of the following:
    (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

[[Page 455]]

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 $7,500 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 1927, subpart B. These 
requirements need not be followed for:
    (1) Loans where the total RHS indebtedness is less than $7,500; or
    (2) Subsequent loans made for minimal essential repairs necessary to 
protect the Government's interest.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002]



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. The dwelling and any other essential buildings must be 
insured in an amount that is the lesser of 100% of the insurable value 
of the house or the unpaid principal balance.
    (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 for required insurance 
coverage may not exceed the higher of 1% of the face value of the policy 
or $1,000 unless state law requires a higher maximum deductible amount.

[[Page 456]]

    (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.

[61 FR 59779, Nov. 22, 1996, as amended at 70 FR 6552, Feb. 8, 2005]



Sec. 3550.111  Appraisals (loans only).

    An appraisal is required when the section 504 debt to be secured 
exceeds $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 agreement 
was signed.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002]

[[Page 457]]



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.

[67 FR 78331, Dec. 24, 2002]



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.

[67 FR 78331, Dec. 24, 2002]



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.

[67 FR 78331, Dec. 24, 2002]



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.

[67 FR 78331, Dec. 24, 2002]



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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002]

[[Page 458]]



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 0575-0172. 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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002]



                       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.

[[Page 459]]

    (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 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.

[[Page 460]]



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 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.

[[Page 461]]

    (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 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;

[[Page 462]]

    (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 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 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.
    (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.

[[Page 463]]

    (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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002]



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 transfers title to the 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

[[Page 464]]

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 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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]



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

[[Page 465]]

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.
    (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.



Sec. Sec. 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 0575-0172. 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. You are not required to respond 
to this collection of information unless it displays a currently valid 
OMB control number.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 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:

[[Page 466]]

    (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.
    (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.

[[Page 467]]

    (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:
    (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.
    (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.
    (b) Payment term of reamortized loan. Except as noted in paragraph 
(a)(5) 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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]



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 against tax refunds due to RHS debtors under 31 U.S.C. 3720a and 31 
CFR 285.2.

[[Page 468]]

    (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.
    (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.
    (i) Reporting. RHS may report to IRS and credit reporting agencies 
any debt settled through liquidation.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]



Sec. Sec. 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

[[Page 469]]

Management and Budget (OMB) and have been assigned OMB control number 
0575-0172. 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. You are not required to respond to this collection of 
information unless it displays a currently valid OMB control number.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]



                    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 eligible direct or guaranteed single family 
housing loans under this part or part 1980, 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.
    (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

[[Page 470]]

business day are selected in the following order:
    (A) Offers from eligible direct or guaranteed single family housing 
loan 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.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]



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.

[[Page 471]]

    (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.



Sec. Sec. 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 0575-0172. 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 maintaining the data needed, and completing and reviewing 
the collection of information.

[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]



PART 3560_DIRECT MULTI-FAMILY HOUSING LOANS AND GRANTS
--Table of Contents




              Subpart A_General Provisions and Definitions

Sec.
3560.1 Applicability and purpose.
3560.2 Civil rights.
3560.3 Environmental requirements.
3560.4 Compliance with other Federal requirements.
3560.5 State, local or tribal laws.
3560.6 Borrower responsibility and requirements.
3560.7 Delegation of responsibility.
3560.8 Administrator's exception authority.
3560.9 Reviews and appeals.
3560.10 Conflict of interest.
3560.11 Definitions.
3560.12-3560.49 [Reserved]
3560.50 OMB control number.

               Subpart B_Direct Loan and Grant Origination

3560.51 General.
3560.52 Program objectives.
3560.53 Eligible use of funds.
3560.54 Restrictions on the use of funds.
3560.55 Applicant eligibility requirements.
3560.56 Processing section 515 housing proposals.
3560.57 Designated places for section 515 housing.
3560.58 Site requirements.
3560.59 Environmental requirements.
3560.60 Design requirements.
3560.61 Loan security.
3560.62 Technical, legal, insurance, and other services.
3560.63 Loan limits.
3560.64 Initial operating capital contribution.
3560.65 Reserve account.
3560.66 Participation with other funding or financing sources.
3560.67 Rates and terms for section 515 loans.
3560.68 Permitted return on investment (ROI).
3560.69 Supplemental requirements for congregate housing and group 
          homes.
3560.70 Supplemental requirements for manufactured housing.
3560.71 Construction financing.
3560.72 Loan closing.

[[Page 472]]

3560.73 Subsequent loans.
3560.74 Loan for final payments.
3560.75-3560.99 [Reserved]
3560.100 OMB control number.

      Subpart C_Borrower Management and Operations Responsibilities

3560.101 General.
3560.102 Housing project management.
3560.103 Maintaining housing projects.
3560.104 Fair housing.
3560.105 Insurance and taxes.
3560.106-3560.149 [Reserved]
3560.150 OMB control number.

                Subpart D_Multi-Family Housing Occupancy

3560.151 General.
3560.152 Tenant eligibility.
3560.153 Calculation of household income and assets.
3560.154 Tenant selection.
3560.155 Assignment of rental units and occupancy policies.
3560.156 Lease requirements.
3560.157 Occupancy rules.
3560.158 Changes in tenant eligibility.
3560.159 Termination of occupancy.
3560.160 Tenant grievances.
3560.161-3560.199 [Reserved]
3560.200 OMB control number.

                             Subpart E_Rents

3560.201 General.
3560.202 Establishing rents and utility allowances.
3560.203 Tenant contributions.
3560.204 Security deposits and membership fees.
3560.205 Rent and utility allowance changes.
3560.206 Conversion to Plan II (Interest Credit).
3560.207 Annual adjustment factors for Section 8 units.
3560.208 Rents during eviction or failure to recertify.
3560.209 Rent collection.
3560.210 Special note rents (SNRs).
3560.211-3560.249 [Reserved]
3560.250 OMB control number.

                       Subpart F_Rental Subsidies

3560.251 General.
3560.252 Authorized rental subsidies.
3560.253 [Reserved]
3560.254 Eligibility for rental assistance.
3560.255 Requesting rental assistance.
3560.256 Rental assistance payments.
3560.257 Assigning rental assistance.
3560.258 Terms of agreement.
3560.259 Transferring rental assistance.
3560.260 Rental subsidies from non-Agency sources.
3560.261 Improperly advanced rental assistance.
3560.262-3560.299 [Reserved]
3560.300 OMB control number.

                     Subpart G_Financial Management

3560.301 General.
3560.302 Accounting, bookkeeping, budgeting, and financial management 
          systems.
3560.303 Housing project budgets.
3560.304 Initial operating capital.
3560.305 Return on investment.
3560.306 Reserve account.
3560.307 Reports.
3650.308 Annual financial reports.
3560.309 Advancement (loan) of funds to a RRH project by the owner, 
          member of the organization, or agent of the owner.
3560.310-3560.349 [Reserved]
3560.350 OMB control number.

                       Subpart H_Agency Monitoring

3560.351 General.
3560.352 Agency monitoring scope, purpose, and borrower 
          responsibilities.
3560.353 Scheduling of on-site monitoring reviews.
3560.354 Borrower response to monitoring review notifications.
3560.355-3560.399 [Reserved]
3560.400 OMB control number.

                           Subpart I_Servicing

3560.401 General.
3560.402 Loan payment processing.
3560.403 Account servicing.
3560.404 Final loan payments.
3560.405 Borrower organizational structure or ownership interest 
          changes.
3560.406 MFH ownership transfers or sales.
3560.407 Sales or other disposition of security property.
3560.408 Lease of security property.
3560.409 Subordinations or junior liens against security property.
3560.410 Consolidations.
3560.411-3560.449 [Reserved]
3560.450 OMB control number.

Subpart J_Special Servicing, Enforcement, Liquidation, and Other Actions

3560.451 General.
3560.452 Monetary and non-monetary defaults.
3560.453 Workout agreements.
3560.454 Special servicing actions related to housing operations.
3560.455 Special servicing actions related to loan accounts.
3560.456 Liquidation.
3560.457 Negotiated debt settlement.
3560.458 Special property circumstances.
3560.459 Special borrower circumstances.

[[Page 473]]

3560.460 Double damages.
3560.461 Enforcement provisions.
3560.462 Money laundering.
3560.463 Obstruction of Federal audits.
3560.464-3560.499 [Reserved]
3560.500 OMB control number.

    Subpart K_Management and Disposition of Real Estate Owned (REO) 
                               Properties

3560.501 General.
3560.502 Tenant notifications and assistance.
3560.503 Disposition of REO property.
3560.504 Sales price and bidding process.
3560.505 Agency loans to finance purchases of REO properties.
3560.506 Conversion of single family type REO property to MFH use.
3560.507-3560.549 [Reserved]
3560.550 OMB control number.

                    Subpart L_Off-Farm Labor Housing

3560.551 General.
3560.552 Program objectives.
3560.553 Loan and grant purposes.
3560.554 Use of funds restrictions.
3560.555 Eligibility requirements for off-farm labor housing loans and 
          grants.
3560.556 Application requirements and processing.
3560.557 [Reserved]
3560.558 Site requirements.
3560.559 Design and construction requirements.
3560.560 Security.
3560.561 Technical, legal, insurance and other services.
3560.562 Loan and grant limits.
3560.563 Initial operating capital.
3560.564 Reserve accounts.
3560.565 Participation with other funding or financing sources.
3560.566 Loan and grant rates and terms.
3560.567 Establishing the profit base on initial investment.
3560.568 Supplemental requirements for seasonal off-farm labor housing.
3560.569 Supplemental requirements for manufactured housing.
3560.570 Construction financing.
3560.571 Loan and grant closing.
3560.572 Subsequent loans.
3560.573 Rental assistance.
3560.574 Operating assistance.
3560.575 Rental structure and changes.
3560.576 Occupancy restrictions.
3560.577 Tenant priorities for labor housing.
3560.578 Financial management of labor housing.
3560.579 Servicing off-farm labor housing.
3560.580-3560.599 [Reserved]
3560.600 OMB control number.

                     Subpart M_On-Farm Labor Housing

3560.601 General.
3560.602 Program objectives.
3560.603 Loan purposes.
3560.604 Restrictions on use of funds.
3560.605 Eligibility requirements.
3560.606 Application requirements and processing.
3560.607 [Reserved]
3560.608 Site and construction requirements.
3560.609 [Reserved]
3560.610 Security.
3560.611 Technical, legal, insurance and other services.
3560.612 Loan limits.
3560.613 [Reserved]
3560.614 Reserve accounts.
3560.615 Participation with other funding sources.
3560.616 Rates and terms.
3560.617 [Reserved]
3560.618 Supplemental requirements for on-farm labor housing.
3560.619 Supplemental requirements for manufactured housing.
3560.620 Construction financing.
3560.621 Loan closing.
3560.622 Subsequent loans.
3560.623 Housing management and operations.
3560.624 Occupancy restrictions.
3560.625 Maintaining the physical asset.
3560.626 Affirmative Fair Housing Marketing Plan.
3560.627 Response to resident complaints.
3560.628 Establishing and modifying rental charges.
3560.629 Security deposits.
3560.630 Financial management.
3560.631 Agency monitoring.
3560.632-3560.649 [Reserved]
3560.650 OMB control number.

                     Subpart N_Housing Preservation

3560.651 General.
3560.652 Prepayment and restrictive-use categories.
3560.653 Prepayment requests.
3560.654 Tenant notification requirements.
3560.655 Agency requested extension.
3560.656 Incentives offers.
3560.657 Processing and closing incentive offers.
3560.658 Borrower rejection of the incentive offer.
3560.659 Sale or transfer to nonprofit organizations and public bodies.
3560.660 Acceptance of prepayments.
3560.661 Sale or transfers.
3560.662 Restrictive-use provisions and agreements.
3560.663 Post-payment responsibilities for loans subject to continued 
          restrictive-use provisions.
3560.664-3560.699 [Reserved]
3560.700 OMB control number.

[[Page 474]]

                    Subpart O_Unauthorized Assistance

3560.701 General.
3560.702 Unauthorized assistance sources and situations.
3560.703 Identification of unauthorized assistance.
3560.704 Unauthorized assistance determination notice.
3560.705 Recapture of unauthorized assistance.
3560.706 Offsets.
3560.707 Program participation and corrective actions.
3560.708 Unauthorized assistance received by tenants.
3560.709 Demand letter.
3560.710-3560.749 [Reserved]
3560.750 OMB control number.

                          Subpart P_Appraisals

3560.751 General.
3560.752 Appraisal use, request, review, and release.
3560.753 Agency appraisal standards and requirements.
3560.754-3560.799 [Reserved]
3560.800 OMB control number.

    Authority: 42 U.S.C. 1480.

    Source: 69 FR 69106, Nov. 26, 2004, unless otherwise noted.



              Subpart A_General Provisions and Definitions



Sec. 3560.1  Applicability and purpose.

    (a) This part sets forth requirements, policies, and procedures for 
multi-family housing (MFH) direct loan and grant programs to serve 
eligible very-low, low- and moderate income households. The programs 
covered by this part are authorized by title V of the Housing Act of 
1949 and are:
    (1) Section 515 Rural Rental Housing, which includes congregate 
housing, group homes, and Rural Cooperative Housing. Section 515 loans 
may be made to finance multi-family units in rural areas as defined in 
Sec. 3560.11.
    (2) Sections 514 and 516 Farm Labor Housing loans and grants. 
Housing under these programs may be built in any area with a need and 
demand for housing for farm workers.
    (3) Section 521 Rental Assistance. A project-based tenant rent 
subsidy which may be provided to Rural Rental Housing and Farm Labor 
Housing facilities.
    (b) The programs covered by this part provide economically designed 
and constructed rural rental, cooperative, and farm labor housing and 
related facilities operated and managed in an affordable, decent, safe, 
and sanitary manner.
    (c) Internal Agency procedures containing details for Agency 
processing under these regulations can be found in the program 
handbooks, available in any Rural Development office, or from the Rural 
Development Web site.



Sec. 3560.2  Civil rights.

    (a) As per the Fair Housing Act, as amended and section 504 of the 
Rehabilitation Act of 1973, all actions taken by recipients of loans and 
grants will be conducted without regard to race, color, religion, sex, 
familial status, national origin, age, or disability. These actions 
include any actions in the sale, rental, or advertising of the 
dwellings, in the provision of brokerage services, or in residential 
real estate transactions involving Rural Housing Service (RHS) 
assistance. It is unlawful for a borrower or grantee or an agent of a 
borrower or grantee:
    (1) To refuse to make reasonable accommodations in rules, policies, 
practices, or services that would provide a person with a disability an 
opportunity to use or continue to use a dwelling unit and all public and 
common use areas; or
    (2) To refuse to provide a reasonable accommodation at the 
borrower's expense that would not cause an undue financial or 
administrative burden, or to refuse to allow an individual with a 
disability to make reasonable modifications to the unit at their own 
expense with the understanding that the owner may require the tenant to 
return the unit to its original condition when the unit is vacated by 
the tenant making the modifications (see Sec. 3560.104(c)).
    (b) Borrowers and grantees must take reasonable steps to ensure that 
Limited English Proficiency (LEP) persons receive the language 
assistance necessary to afford them meaningful access to USDA programs 
and activities, free of charge. Failure to ensure that LEP persons can 
effectively participate in or benefit from federally-assisted programs 
and activities may violate

[[Page 475]]

the prohibition under Title VI of the Civil Rights Act of 1964, 42 
U.S.C. 2000d and Title VI regulations against national origin 
discrimination. USDA has issued guidance to clarify the responsibilities 
of recipients and subrecipients who receive financial assistance from 
USDA and to assist them in fulfilling their responsibilities to LEP 
persons under Title VI of the Civil Rights Act, as amended, and 
implementing regulations.
    (c) Any tenant/member or prospective tenant seeking occupancy in or 
use of facilities financed by the Agency who believes he or she is being 
discriminated against because of race, color, religion, sex, familial 
status, national origin, or disability may file a complaint in person 
with, or by mail to the U. S. Department of Agriculture's Office of 
Civil Rights, Room 326-W, Whitten Building, 14th and Independence 
Avenue, Washington, DC 20410. Complaints received by Agency employees 
must be directed to the National Office Civil Rights staff through the 
State Civil Rights Manager/Coordinator.
    (d) Borrowers or grantees that fail to comply with the requirements 
of federal civil rights requirements are subject to sanctions authorized 
by law. The following are the major civil rights laws affecting 
multifamily housing loan and grant programs:
    (1) Equal Credit Opportunity Act (ECOA).
    (2) Title VI of the Civil Rights Act of 1964.
    (3) Title VIII of the Civil Rights Act of 1968.
    (4) Section 504 of the Rehabilitation Act of 1973.
    (5) Age Discrimination Act of 1975.
    (6) Title IX of the Education Amendments of 1972.



Sec. 3560.3  Environmental requirements.

    RHS will consider environmental impacts of proposed housing as equal 
with economic, social, and other factors. By working with applicants, 
Federal agencies, Indian tribes, state and local governments, interested 
citizens, and organizations, RHS will formulate actions that advance 
program goals in a manner that protects, enhances, and restores 
environmental quality. Loan and grant processing and servicing actions 
taken by RHS under this part are subject to an environmental review 
conducted in accordance with 7 CFR part 1940, subpart G or any successor 
regulation.



Sec. 3560.4  Compliance with other Federal requirements.

    RHS is responsible for ensuring that the application is in 
compliance with all applicable Federal requirements, including the 
following specific requirements:
    (a) Intergovernmental review. 7 CFR part 3015, subpart V, or any 
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 any 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 40 CFR part 32.
    (d) Historic preservation requirements. The provisions of 7 CFR part 
1901, subpart F or any successor regulation.
    (e) Lead-based paint requirements. The applicable provisions of 24 
CFR part 35, subparts A through D, J, and R, as published by the U.S. 
Department of Housing and Urban Development.



Sec. 3560.5  State, local or tribal laws.

    Borrowers must comply with all applicable state and local laws, and 
laws of Federally-recognized Indian tribes to the extent they are not 
inconsistent with this part.



Sec. 3560.6  Borrower responsibility and requirements.

    (a) Borrower responsibilities and requirements specified in this 
part may be carried out by an individual or entity designated by the 
borrower to act on behalf of the borrower such as a resident manager or 
management agent. Ultimate accountability to the Agency,

[[Page 476]]

however, is with the borrower whether or not the borrower designated 
another person or entity to act on the borrower's behalf.
    (b) Borrowers who have not executed a loan agreement, and who were 
not required to execute a loan agreement by the regulations in effect at 
the time of their loan closing are exempt from the requirements of 
subparts D through G of this part, as long as the borrower is not in 
default of any applicable requirement, security instrument, payment, or 
any other agreement with the Agency. Such borrowers must provide 
evidence of tenant income eligibility in accordance with Sec. 
3560.152(a), except in Farm Labor Housing where the tenant is not paying 
shelter cost.



Sec. 3560.7  Delegation of responsibility.

    The RHS Administrator may delegate, on an individual or other basis, 
any decision-making responsibility for Agency programs, unless otherwise 
noted.



Sec. 3560.8  Administrator's exception authority.

    The RHS Administrator may make an exception to any provision of this 
part or address any omissions provided that the exception is consistent 
with the applicable statute, does not adversely affect the interest of 
the Federal Government, and does not adversely affect the accomplishment 
of the purposes of the MFH programs or application of the requirement 
would result in undue hardship on the tenants. Exception requests 
presented to the RHS Administrator must have the concurrence of a Rural 
Development State Director or a Deputy Administrator for MFH.



Sec. 3560.9  Reviews and appeals.

    Rural Housing Service decisions may be appealed pursuant to 7 CFR 
part 11.



Sec. 3560.10  Conflict of interest.

    To reduce the potential for employee conflict of interest, all RHS 
activities will be conducted in accordance with 7 CFR part 1900, subpart 
D.



Sec. 3560.11  Definitions.

    Unless otherwise noted, terms listed in this part shall be defined 
as follows:
    Administrator. The head of the Rural Housing Service who reports 
directly to the Under Secretary for Rural Development in the U.S. 
Department of Agriculture.
    Agency. The Rural Housing Service within the Rural Development 
mission area of the U.S. Department of Agriculture.
    Amortization. Payment of debt in regular, periodic installments of 
principal and interest, as opposed to interest only payments.
    Applicant. An individual, partnership or limited partnership, 
consumer cooperative, trust, state or local public agency, corporation, 
limited liability company, nonprofit organization, Indian tribe, 
association, or other entity that will be the owner of the project for 
which an application for funding from the Agency is submitted.
    Appraisal. As used by the Agency, a written report developed by a 
qualified appraiser as established in subpart P that concludes an 
opinion of value(s) for a specific real property.
    Assistance. Financial assistance in the form of a loan, grant, 
interest credit, or rental assistance.
    Association of farmers. Two or more farmers acting as a single legal 
entity. Association members may include the individual members of 
farming partnerships or corporations.
    Borrower. An individual, partnership or limited partnership, 
consumer cooperative, trust, state or local public agency, corporation, 
limited liability company, nonprofit organization, Indian tribe, 
association, or other entity that has received a loan from the Agency.
    Capital Needs Assessment. A Capital Needs Assessment is designed to 
capture and report on the immediate and the long-range capital needs of 
an individual property. It includes attention to site features, 
mechanical and electrical systems, building exterior and common area 
systems, and dwelling unit interiors.
    Caretaker. An individual employed by a borrower or a management 
agent to handle routine interior and exterior maintenance and upkeep of 
a MFHMFH project.
    Congregate housing. A housing program authorized by section 515 of 
the

[[Page 477]]

Housing Act of 1949 which provides housing for elderly persons, 
individuals with disabilities, and families who require some supervision 
and central services but are otherwise able to care for themselves. Such 
housing does not include any licensed healthcare facility.
    Consumer cooperative. A corporation organized under the cooperative 
laws of a state or Federally recognized Indian tribe that will own and 
operate the housing on a cooperative basis solely for the benefit of its 
members.
    Conventional rents for comparable units (CRCU). Market rents for 
comparable rental units in conventional housing located in the same 
geographic area as a particular Section 514, 515, or 516 project.
    Current appraisal. An appraisal with a report date that is no more 
than 1 year old.
    Daily Interest Accrual System (DIAS). A system where interest is 
charged daily on outstanding principal. Level loan payments are made by 
the borrower. The amount of interest due on any date is equal to the 
unpaid daily interest that has accrued.
    Default. Failure by a borrower to meet significant monetary or non-
monetary obligations or terms of a loan, grant, or other agreement with 
the Agency which remain unpaid or unperformed for more than 30 days 
after the date such obligation is due or required to be paid or 
performed, or within time periods specified in notices of compliance 
violations.
    Disability. The term disability is considered equivalent to the term 
handicap. Eligibility requirements for fully accessible units are 
contained in Sec. Sec. 3560.154(g)(1)(i) and 3560.155(b). A person is 
considered to have a disability if either of the following two 
situations occur:
    (1) As defined in section 501(b) of the Housing Act of 1949. The 
person is the head of household (or his or her spouse) and is determined 
to have an impairment which:
    (i) Is expected to be of long-continued and indefinite duration;
    (ii) Substantially impedes his or her ability to live independently; 
and
    (iii) Is of such a nature that such ability could be improved by 
more suitable housing conditions, or if such person has a developmental 
disability as defined in section 102(7) of the Developmental Disability 
and Bill of Rights Act (42 U.S.C. 6001(7)).
    (2) As defined in the Fair Housing Act; the Americans with 
Disabilities Act; and section 504 of the Rehabilitation Act of 1973. The 
person has a physical or mental impairment which substantially limits 
one or more of such person's major life activities; a record of such 
impairment; or being regarded as having such an impairment. The term 
does not include current, illegal use of or addiction to a controlled 
substance. As used in this definition, physical or mental impairment 
includes:
    (i) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genito-urinary; hemic and lymphatic; skin; and endocrine;
    (ii) Any mental or psychological disorder, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities. The term ``physical or mental 
impairment'' includes, but is not limited to, such diseases and 
conditions as orthopedic, visual, speech and hearing impairments, 
cerebral palsy, autism, epilepsy, muscular dystrophy, multiple 
sclerosis, cancer, heart disease, diabetes, Human Immunodeficiency Virus 
infection, mental retardation, emotional illness, drug addiction (other 
than addiction caused by current, illegal use of a controlled 
substance), and alcoholism;
    (iii) Major life activities means functions such as caring for one's 
self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working;
    (iv) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities;
    (v) Is regarded as having an impairment means:
    (A) Has a physical or mental impairment that does not substantially 
limit

[[Page 478]]

one or more major life activities but that is treated by the borrower or 
management agent as constituting such a limitation;
    (B) Has a physical or mental impairment that substantially limits 
one or more major life activities only as a result of the attitudes of 
others toward such impairment; or
    (C) Has none of the impairments described in this definition but is 
treated by another person as having such an impairment.
    Disabled domestic farm laborer. An individual with a disability as 
separately defined in this paragraph and who was a domestic farm laborer 
at the time of becoming disabled.
    Domestic farm laborer. A person who, consistent with the 
requirements in Sec. 3560.576(b)(2), receives a substantial portion of 
his or her income from farm labor employment (not self-employed) in the 
United States, Puerto Rico, or the Virgin Islands and either is a 
citizen of the United States or resides in the United States, Puerto 
Rico or the Virgin Islands after being legally admitted for permanent 
residence. This definition may include the immediate family members 
residing with such a person.
    Due diligence on hazardous substances. Due diligence is the process 
of inquiring into the environmental conditions of real estate, in the 
context of a real estate transaction to determine the presence of 
contamination from hazardous substances, and to determine the impact 
such contamination may have on the market value of the property.
    Elderly household or individual with a handicapped household. A 
household in which the tenant or co-tenant of the household is 62 years 
old or older or is an individual with a disability. An elderly household 
may include persons younger than 62 years old and the household of an 
individual with a handicap may include persons without disabilities.
    Elderly person. A person who is at least 62 years old. The term also 
means a person with a disability as separately defined in this 
paragraph, regardless of age.
    Engagement. An Agency defined financial review of a housing 
project's financial status that a borrower will contract with a 
certified public accountant or other qualified individual to perform. An 
engagement will result in annual financial reports for use by the Agency 
as described in Sec. 3560.308.
    Familial status. One or more individuals (who have not attained the 
age of 18 years) being domiciled with a parent or another person having 
legal custody of such individual or individuals; or the designee of such 
parent or other person having such custody, with the written permission 
of such parent or other person. The protections afforded against 
discrimination on the basis of familial status shall apply to any person 
who is pregnant or is in the process of securing legal custody of any 
individual who has not attained the age of 18 years.
    Family farm corporation or partnership. A private corporation or 
partnership involved in agricultural production in which at least 90 
percent of the stock or interest is owned and controlled by persons 
related by blood, which shall include parents, siblings, and children, 
or law. If more than three separate households are supported by the 
farming operation, the family farm corporation or partnership must be:
    (1) Legally organized and authorized to own and operate a farm 
business within the state;
    (2) Legally able to carry out the purposes of the loan; and
    (3) Prohibited from the sale or transfer of 90 percent of the stock 
or interest to other than family members by either the articles of 
incorporation, bylaws or by agreement between the stockholders or 
partners and the corporation or partnership.
    Farm. A tract or tracts of land, improvements, and other 
appurtenances that are used or will be used in the production of crops, 
livestock, or aquaculture products for sale in sufficient quantities so 
that the property is recognized as a farm rather than a rural residence. 
The term ``farm'' also includes the term ``ranch.'' It may also include 
land and improvements and facilities used in a non-eligible enterprise 
or the residence that, although physically separate from the farm 
acreage, is ordinarily treated as part of the farm in the local 
community.

[[Page 479]]

    Farmer. A person who is actually involved in day to day on-site 
operations of a farm and who devotes a substantial amount of time to 
personal participation in the conduct of the operation of a ``farm.''
    Farm labor. Services in connection with cultivating the soil, 
raising or harvesting any agriculture or aquaculture commodity; or in 
catching, netting, handling, planting, drying, packing, grading, 
storing, or preserving in the unprocessed stage, without respect to the 
source of employment (but not self-employed), any agriculture or 
aquaculture commodity; or delivering to storage, market, or a carrier 
for transportation to market or to processing any agricultural or 
aquacultural commodity in its unprocessed stage.
    Farm labor contractor. A person--other than an agricultural 
employer, a member of an agricultural association, or an employee of an 
agricultural employer or agricultural association--who recruits, 
solicits, hires, employs, furnishes, or transports any year-round or 
seasonal migrant farm laborer for money or other valuable consideration.
    Farm labor housing. On-farm or off-farm housing for farm laborers 
authorized by section 514 and section 516 of the Housing Act of 1949.
    Farm owner. A natural person, persons, or legal entity who are the 
owners of a ``farm'' as this term is further defined in this section.
    Foreclosure. A proceeding in or out of court to extinguish all 
rights, title, and interest of the owners of property in order to sell 
the property to satisfy a lien against it.
    General overhead. Includes general operation items necessary for the 
contractor to be in business. They may include, but are not limited to 
the following: tools and minor equipment; worker's compensation and 
employer's liability; unemployment tax; Social Security and Medicare; 
manager's, clerical, and estimator's salaries; pension and bonus plans; 
main office insurance, rental, utilities, miscellaneous expenses; 
general liability insurance; legal, accounting, and data processing; 
automotive and light truck expense; vehicle expenses; depreciation of 
overhead capital expenditures; and office equipment maintenance.
    General requirements. Includes items that are required in the 
construction contract for the contractor to provide for the specific 
project. They do not include items that pertain to a specific trade nor 
overhead expenses of the contractor's general operation. Items may 
include, but are not limited to, the following: Field supervision; field 
engineering such as field office, sheds, toilets, phone; performance and 
payment or latent defects bonds; cost certification; building permits; 
site security; temporary utilities; property insurance; and cleaning or 
rubbish removal.
    Grantee. An entity that has received a grant from the Agency.
    Group home. Housing that is occupied by elderly persons or 
individuals with disabilities who share living space within a rental 
unit and in which a resident assistant may be required.
    Household. The tenant or co-tenant and the persons or dependents 
living with a tenant or co-tenant, but not including a resident 
assistant.
    Household furnishings. Basic durable items such as stoves, 
refrigerators, drapes, drapery rods, tables, chairs, dressers and beds.
    Housing project. A property with two or more affordable, decent, 
safe and sanitary rental units and related facilities operated under one 
management plan and financed with funds appropriated under the authority 
of sections 515, 514, or 516 of the Housing Act of 1949.
    Identity-of-Interest (IOI). A relationship between applicants, 
borrowers, grantees, management agents, or suppliers of materials or 
services described under, but not limited to, any of the following 
conditions:
    (1) There is a financial interest between the applicant, borrower, 
grantee and a management agent or the supplying entity;
    (2) One or more of the officers, directors, stockholders or partners 
of the applicant, borrower, or management agent is also an officer, 
director, stockholder, or partner of the supplying entity;
    (3) An officer, director, stockholder, or partner of the applicant, 
borrower, or management agent has a 10 percent or more financial 
interest in the supplying entity;

[[Page 480]]

    (4) The supplying entity has or will advance funds to an applicant, 
borrower, or management agent;
    (5) The supplying entity provides or pays on behalf of the 
applicant, borrower, or management agent the cost of any materials or 
services in connection with obligations under the management plan or 
management agreement;
    (6) The supplying entity takes stock or a financial interest in the 
applicant, borrower, or management agent as part of the consideration to 
be paid them; or
    (7) There exists or come into being any side deals, agreements, 
contracts or understandings entered into thereby altering, amending, or 
canceling any of the management plan, management agreement documents, 
organization documents, or other legal documents pertaining to the 
property, except as approved by the Agency.
    Indian tribe. The term ``Indian tribe'' means any Indian tribe, 
band, group, and nation, including Alaskan Indians, Aleuts, and Eskimos, 
and any Alaskan-Native Village, which is considered an eligible 
recipient under the Indian Self-Determination and Education Assistance 
Act (Public Law 93-638) or under the State and Local Fiscal Assistance 
Act of 1972 (Public Law 92-512).
    Interest credit. A form of assistance available to eligible 
borrowers that reduces the effective interest rate of the loan.
    Lease. A contract setting forth the rights and obligations of a 
tenant or cooperative member and a property owner, including charges and 
terms under which a tenant or cooperative member will occupy or use the 
housing or related facilities.
    Legal or qualified alien. Legal or qualified 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.
    Letter of Priority Entitlement (LOPE). A letter issued by the Agency 
providing a tenant with priority entitlement to rental units in other 
Agency-financed housing projects for 120 days from the date of the LOPE.
    Life cycle cost. The life cycle cost has 2 purposes: (1) To 
determine the expected usable life (utility) of a building component or 
furnishing and (2) to determine which building components or furnishings 
are the most cost efficient over the life of the building. Cost 
efficient is not to be construed to mean the least initial cost.
    Life cycle cost analysis. Life cycle cost analysis is the comparison 
of different materials to examine anticipated useful life and the cost 
of using a specific material or building component. The analysis has 
multiple uses, such as: (1) To conduct a cost efficiency comparison 
between products, (2) for developing component replacement time tables, 
and (3) for estimating future component replacement costs. Life cycle 
cost analysis can be accomplished through various methods, such as; 
insurance actuary tables or Agency documentation of a component's life 
expectancy. Life cycle cost analysis is conducted by a design 
professional. For Agency financed projects, a life cycle cost analysis 
is to be conducted for specific components: (1) drives and parking, (2) 
roofing system and roofing material, (3) exterior finishes, and (4) 
energy source items.
    Limited Liability Company (LLC). An unincorporated organization of 
one or more persons or entities established in accordance with 
applicable state laws and whose members may actively participate in the 
organization without being personally liable for the debts, obligations 
or liabilities of the organization.
    Limited partnership. An ownership arrangement consisting of general 
and limited partners; general partners manage the business, while 
limited partners are passive and liable only for their own capital 
contributions.
    Loan agreement. A written agreement between the Agency and the 
borrower that sets forth the borrower's responsibilities with respect to 
Agency financing.
    Low-income household. A household that has an adjusted income that 
is greater than the Department of Housing and Urban Development's (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 where the property is or will 
be located).

[[Page 481]]

    Low-Income Housing Tax Credit (LIHTC). A federal tax credit allowed 
for investment in qualified low-income housing administered by the 
Internal Revenue Service (IRS) under section 42 of the Internal Revenue 
Code.
    Management agent. A firm or individual employed or designated by a 
borrower to act on the borrower's behalf in accordance with a written 
management agreement.
    Management agreement. A written agreement between a borrower and a 
management agent setting forth the management agent's responsibilities 
and fees for management services.
    Management fee. The compensation provided to a management agent for 
services provided in accordance with a management agreement.
    Management plan. A detailed description of the policies and 
procedures to be followed by the borrower in managing a MFH project.
    Manufactured housing. Housing, constructed of one or more factory-
built sections, which includes the plumbing, heating, and electrical 
systems contained therein, which is built to comply with the Federal 
Manufactured Home Construction and Safety Standards (FMHCSS), and which 
is designed to be used with a permanent foundation.
    Market area. The geographic or locational delineation of the market 
for a specific project, including outlaying areas that will be impacted 
by the project, i.e., the area in which alternative, similar properties 
effectively compete with the subject property.
    Market rent. The most probable rent that a property should bring in 
a competitive and open market reflecting all conditions and restrictions 
of the specified lease agreement, including term, rental adjustment and 
revaluation, permitted uses, use restrictions, and expense obligations; 
the lessee and lessor each acting prudently and knowledgeably, and 
assuming consummation of a lease contract as a specified date and the 
passing of the leasehold from lessor to lessee.
    Maximum debt limit. The maximum amount that the Agency will lend or 
grant for a MFHMFH project based on the appraised value or total 
development cost excluding costs ineligible for payment from loan or 
grant funds, whichever is less, reduced by all funding available to the 
borrower from sources other than the Agency, multiplied by 95, 97, or 
102 percent depending upon the applicant entity and their use of the 
low-income housing tax credit, in accordance with Sec. 3560.63(b).
    Member or co-member. A stockholder or other person who has executed 
documents or stock pertaining to a cooperative housing type of living 
arrangement and has made a commitment to upholding the cooperative 
concept.
    Migrants or migrant agricultural laborer. A person (and the family 
of such person) who receives a substantial portion of his or her income 
from farm labor employment and who establishes a residence in a location 
on a seasonal or temporary basis, in an attempt to receive farm labor 
employment at one or more locations away from their home base state, 
excluding day-haul agricultural workers whose travels are limited to 
work areas within one day of their residence.
    Minor. An individual under 18 years of age who is a dependent of a 
tenant or an individual age 18 or older who is a full-time student and a 
dependent of a tenant.
    Moderate-income household. A household that has an adjusted income 
that is greater than the HUD-established low-income limit but does not 
exceed the low-income limit by more than $5,500.
    Mortgage or Deed of Trust. A form or security instrument or 
consensual lien on real property.
    Net recovery value. The value realized from the Government's 
acquisition of security property in a default situation after 
subtracting all costs, actual or anticipated, from acquiring, holding, 
and disposing of the security property.
    New construction. A MFHMFH project being constructed to be occupied 
for the first time.
    Nonprofit organization. A private organization that:
    (1) Is organized under state or local laws;
    (2) Has no part of its net earnings inuring to the benefit of any 
member, founder, contributor, or individual; and

[[Page 482]]

    (3) Is approved by the Secretary of Agriculture and considered to be 
financially responsible.
    Nonprofit organization for section 515 program (Prepayment or 
Purchase). To be eligible to purchase properties under the conditions of 
subpart N of this part, nonprofit organizations may not have among their 
officers or directorate any persons or parties with an identity-of-
interest (or any persons or parties related to any person with identity-
of-interest) in loans financed under section 515 that have been prepaid 
or have requested prepayment.
    Nonprofit organization of farm workers. A nonprofit organization, as 
defined in this section, whose membership is composed of at least 51 
percent farm workers.
    Notice of Funding Availability (NOFA). A ``Notice of Funding 
Availability'' issued by the Agency to inform interested parties of the 
availability of assistance and other matters pertinent to the program.
    Occupancy agreement. A contract establishing the rights and 
obligations of the cooperative member and the cooperative, including the 
amount of the monthly occupancy charge and the other terms under which 
the member will occupy the housing.
    Occupancy charge. The amount of money charged a cooperative member 
to cover their proportional share of the cooperative's operating costs 
and cash requirements.
    Off-farm labor housing. Housing for farm laborers in any location 
approved by the Agency but not on the farm where the laborer works.
    Office of the General Counsel (OGC). The USDA Office of the General 
Counsel, including the Regional Attorney, Associate Regional Attorney, 
or Assistant Regional Attorney.
    Office of the Inspector General (OIG). The USDA Office of the 
Inspector General.
    On-farm labor housing. Housing for farm laborers located on the farm 
where they work that is away from service buildings or in the nearby 
community.
    Overage. That portion of a tenant's net tenant contribution that 
exceeds basic rent up to note rent. Full overage is an amount equal to 
the difference between the note rent for a unit and the basic rent.
    Plan I. A type of interest subsidy available to borrowers prior to 
October 27, 1980. Budgets and rental rates developed for Plan I loans 
are based on a 3 percent loan amortization.
    Plan II. A type of interest subsidy available to borrowers operating 
on a limited profit basis. Budgets and rental rates developed for Plan 
II loans are based on both the loan being amortized at the interest rate 
shown on the promissory note and at a 1 percent subsidized rate.
    Predetermined Amortization Schedule System (PASS). A system where 
loan payments are applied based on an amortization schedule.
    Prepayment. Payment in full of the outstanding balance on an Agency 
loan prior to the note's originally scheduled maturity date.
    Program requirements. All provisions related to MFHMFH contained in 
the loan document, grant agreement, statute, regulation, handbook, or 
administrative notice.
    Promissory note. A legal document containing conditions (interest 
rate and timing) for repayment of indebtedness.
    Real estate owned (REO) property. The real estate owned by the 
Agency acquired through voluntary conveyance, foreclosure or other 
action.
    Rehabilitation. Rehabilitation is when the remodeling of a property 
is of a complex nature involving structural repairs or when two or more 
of the life cycle cost components are included in the remodeling of a 
property.
    Related facilities. Facilities in a MFHMFH project that are related 
to the housing and are in addition to rental units, (e.g., community 
rooms or buildings, cafeterias, dining halls, infirmaries, child care 
facilities, assembly halls, and essential service facilities such as 
central heating, sewerage, lighting systems, clothes washing facilities, 
trash disposal and safe domestic water supply).
    Rent. The amount established as a charge for occupancy in a rental 
unit of Agency-financed MFH. Rents must be established at the same rate 
for all similar units in the housing project.

[[Page 483]]

The following terms are used to describe rents for various program 
purposes.
    (1) Note rent is the rental charge established to cover expenses in 
the housing project's approved budget and the required loan payment set 
at the interest rate shown in the promissory note.
    (2) Basic rent is the rental charge established to cover expenses in 
the housing project's approved budget and the required loan payment 
contained in the promissory note reduced by the interest credit 
agreement.
    (3) HUD contract rent is the rental charge established for housing 
receiving project-based Section 8 rental subsidies in accordance with 24 
CFR part 880 or part 884, as applicable.
    (4) Low-income housing tax credit (LIHTC) rent is the rental charge 
established in accordance with LIHTC requirements.
    Rental assistance (RA). The portion of the approved shelter cost 
paid by the Agency to compensate a borrower for the difference between 
the approved shelter cost and the tenant contribution when such 
contribution is less than the basic rent.
    Rental assistance units. Dwelling units in a MFH project qualified 
for rental assistance. There are three types of rental assistance units.
    (1) New construction units are units provided in conjunction with 
initial loans for construction or substantial rehabilitation of the 
MFHMFH projects.
    (2) Replacement units are Agency-funded rental assistance units 
which replace units with expiring rental assistance agreements or which 
replace Section 8 units which have expired under the Section 8 contract.
    (3) Servicing units are units provided to an operational MFHMFH 
project as a part of the Agency's general loan servicing or preservation 
activities.
    Repair and replacement. Repair and replacement is the restoration of 
minor building materials, elements, components, equipment and fixtures. 
Examples include: Painting, carpeting, appliances, cabinets, and other 
fixtures.
    Resident assistant. A person residing in a rental unit who is 
essential to the well-being and care of an elderly person or an 
individual with a disability, but who:
    (1) Is not obligated for the tenant's financial support;
    (2) Would not be living in the unit except to provide the needed 
services;
    (3) May be a family member, but is not a dependent of the tenant for 
tax purposes;
    (4) Is not subject to the eligibility requirements of a tenant; and
    (5) Is not considered a household member in the determination of 
household income.
    Resident or site manager. The individual employed by the borrower 
and who is responsible for the day-to-day operations of the housing.
    Retired domestic farm laborer. An individual who is at least 55 
years of age and who has spent the last 5 years prior to retirement as a 
domestic farm laborer or spent the majority of the last 10 years prior 
to retirement as a domestic farm laborer.
    Return on Investment (ROI). The annual amount of profit an owner 
operating on a limited or full profit basis may withdraw from a project, 
as established in the loan agreement. The amount is calculated as a 
percentage of the owner's investment in the project.
    Rural area. Any open country, or any place, town, village, or city 
which is not (except in the cases of Pajaro, in the State of California, 
and Guadalupe, in the State of Arizona) part of or associated with an 
urban area and which (1) has a population not in excess of 2,500 
inhabitants, or (2) has a population in excess of 2,500 but not in 
excess of 10,000 if it is rural in character, or (3) has a population in 
excess of 10,000 but not in excess of 20,000 and (A) is not contained 
within a standard metropolitan statistical area, and (B) has a serious 
lack of mortgage credit for lower and moderate-income families, as 
determined by the Secretary and the Secretary of Housing and Urban 
Development. For purposes of this title, any area classified as 
``rural'' or a ``rural area'' prior to October 1, 1990, and determined 
not to be ``rural'' or a ``rural area'' as a result of data received 
from or after the 1990 or 2000 decennial census shall continue to be so 
classified until the receipt of data from the decennial census in the 
year 2010, if such

[[Page 484]]

area has a population in excess of 10,000 but not in excess of 25,000, 
is rural in character, and has a serious lack of mortgage credit for 
lower and moderate-income families. Notwithstanding any other provision 
of this section, the city of Plainview, Texas, shall be considered a 
rural area for purposes of this title, and the city of Altus, Oklahoma, 
shall be considered a rural area for purposes of this title until the 
receipt of data from the decennial census in the year 2000.
    Rural Cooperative Housing (RCH). A housing program authorized under 
section 515 of the Housing Act of 1949, in which a consumer cooperative, 
organized and operating on a nonprofit basis, may own and operate a 
MFHMFH development.
    Rural Housing Service (RHS). The Agency within the Rural Development 
mission area of the U.S. Department of Agriculture or its successor 
agency which administers programs authorized by sections 514, 515, 516, 
and 521 of the Housing Act of 1949, as amended.
    Rural Rental Housing (RRH). A housing program authorized by section 
515 of the Housing Act of 1949 to provide rental housing in rural areas 
for persons of very-low, low- and moderate income.
    Seasonal housing. Housing operated on a seasonal basis, typically 
for migrants or migrant agricultural laborers as opposed to year round.
    Security deposit. A one-time fee charged a tenant prior to occupancy 
of a unit to cover possible loss or damage to the housing unit caused by 
the tenant.
    Self-employed. A person who meets the IRS definition of self-
employed at 26 CFR 1.401-10.
    Service agreement. A written agreement between a borrower and a 
service provider establishing the specific service to be provided to a 
MFH project, the cost of the service, and the length of time the service 
will be provided.
    Service plan. A written plan describing how services will be 
provided to a MFH project and which, at a minimum, must specify the 
services to be provided, the frequency of the services, who will provide 
the services, how tenants will be advised of the availability of 
services, and the staff needed to provide the services.
    Service provider. A person who signs a written agreement with a 
borrower to provide services to a MFH project.
    Shelter costs. Basic or note rent plus the utility allowance, when 
used, or the occupancy charge plus the utility allowance. If the utility 
costs are included in the rent, the rent will equal shelter costs.
    Sources and Uses Comprehensive Evaluation (SAUCE). A computer 
software program used by the Agency to analyze the total funds provided 
to a MFH project to ensure that the Agency is not providing excess 
assistance.
    Special note rent (SNR). A rental rate charged at a Plan II project 
experiencing vacancies that is less than note rent but higher than basic 
rent.
    State consolidated plan. A planning document for an individual state 
that includes a housing and homeless needs assessment; a housing market 
analysis; a strategic plan for addressing the state's housing 
challenges; an Action Plan that is an annual description of the state's 
Federal and other resources that are expected to be available to address 
its priority housing needs and how the Federal funds will leverage other 
resources; certifications relating to fair housing, its antidisplacement 
and relocation plan, a drug-free workplace, and other statutory and 
program requirements; and a monitoring plan to ensure that the state is 
using its Federal funds appropriately and effectively.
    Tenant or co-tenant. An individual who signs a lease and occupies or 
will occupy a rental unit in a MFH project. The term tenant or co-tenant 
also refers to a member of cooperative housing occupying or planning to 
occupy a dwelling unit in cooperative housing.
    Tenant contribution. The portion of the approved shelter cost paid 
by the tenant household. The proportion of tenant income and adjusted 
income paid will vary according to the type of subsidy provided to the 
tenant household.
    Total development cost (TDC). The cost of constructing, purchasing, 
improving, altering, or repairing MFH and related facilities, buying 
household furnishings

[[Page 485]]

(for sections 514/516 only), and purchasing or improving the necessary 
land, including architectural, engineering, or legal fees, and charges 
and other technical and professional fees and charges, but excluding 
fees, charges, or commissions such as payments to brokers, negotiators, 
or other persons for the referral of prospective applicants or 
solicitations of loans. Although a developer's fee is part of the 
project's development cost, such fees are not eligible for payment from 
Agency loan or grant funds and are not included in determining the 
Agency authorized development cost.
    Utility allowance. An amount determined by a borrower as the amount 
to be considered a tenant's portion of utility cost in the calculation 
of a tenant's total shelter cost when utility costs are not included in 
the rent.
    Very low-income household. A household that has an adjusted income 
that does not exceed the HUD established very low-income limit 
(generally 50 percent of median income adjusted for household size in 
the county where the property is or will be located).
    Workout agreement. An agreement between a borrower and the Agency 
listing actions to be taken over a period of time to prevent or correct 
a compliance violation or to cure a monetary or non-monetary default.



Sec. Sec. 3560.12-3560.49  [Reserved]



Sec. 3560.50  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



               Subpart B_Direct Loan and Grant Origination



Sec. 3560.51  General.

    This subpart contains the Agency's loan origination requirements for 
multi-family housing (MFH) direct loans for Rural Rental Housing, Rural 
Cooperative Housing, and Farm Labor Housing. Additional requirements for 
farm labor housing loans and grants are contained in subpart L of this 
part for Off-Farm Labor Housing and subpart M of this part for On-Farm 
Labor Housing.



Sec. 3560.52  Program objectives.

    The Agency uses appropriated funds to finance the construction, 
rehabilitation of program properties, or purchase and rehabilitation of 
MFH and related facilities to serve eligible persons in rural areas. The 
Agency encourages the use of such financing in conjunction with funding 
or financing from other sources.



Sec. 3560.53  Eligible use of funds.

    Funds may be used for the following purposes.
    (a) Construct housing. Funds may be used to construct MFH.
    (b) Purchase and rehabilitate buildings. Funds may be used to 
purchase and rehabilitate buildings that have not been previously 
financed by the Agency.
    (1) Rehabilitation must meet the definition of either moderate or 
substantial rehabilitation as defined in 7 CFR part 1924, subpart A.
    (2) The building to be rehabilitated must be structurally sound and 
the improvements to the building must be necessary to meet the 
requirements of decent, safe, and sanitary living units.
    (3) The total development cost (TDC) for the purchase and 
rehabilitation of existing buildings must not be more than the estimated 
TDC for construction of a similar type and unit size property in the 
same area.
    (c) Subsequent loans. Funds may be used to provide subsequent loans 
in accordance with the provisions of Sec. 3560.73.
    (d) Purchase and improve sites. Funds may be used to purchase and 
improve the site on which MFH will be located, provided that the amount 
of loan funds

[[Page 486]]

used to purchase the site does not exceed the appraised market value of 
the site immediately prior to purchase.
    (e) Develop and install necessary systems. Funds may be used to 
install streets, a water supply, sewage disposal, heating and cooling 
systems, electric, gas, solar, or other power sources for lighting and 
other features necessary for the housing. If such facilities are located 
off-site, loan funds may only be used if the following additional 
requirements are met:
    (1) The loan applicant will hold title to the facility or have a 
legal right to use the facility in the form of an easement or other 
instrument acceptable to the Agency for a period of at least 50 percent 
longer than the term of the loan or grant and the title or right is 
transferable to any subsequent owner of the housing.
    (2) The facilities will either be provided for the exclusive use of 
the proposed housing project, or Agency funds are limited to the 
prorated part of the total cost of the facility according to the use and 
benefit to the MFH project. If entities other than the housing project 
financed by the Agency use the facilities on a reimbursable fee basis, 
the loan applicant must agree, in writing, to apply any fees collected 
in excess of operating expenses to their Agency loan account as an extra 
loan payment.
    (f) Landscaping and site development. Funds may be used to provide 
landscaping and site development related to a MFH project such as 
lighting, walks, fences, parking areas, and driveways.
    (g) Tenant-related facilities. Funds may be used to develop tenant-
related facilities appropriate to the size, economics, and prospective 
tenants of a MFH project, such as a community room, development of space 
for education and training purposes for tenants, central laundry 
facility, outdoor seating, space for passive recreation, tot lots, and a 
small emergency care infirmary. In congregate housing and group homes, 
funds may be used for central cooking and dining areas.
    (h) Management-related facilities. Funds may be used to develop 
management-related facilities appropriate to the size and economics of a 
MFH project such as a maintenance workshop, storage facilities, office, 
and living quarters for a resident manager and other personnel.
    (i) Purchase and install equipment and appliances. Funds may be used 
to purchase and install equipment and appliances affixed to the property 
as customary and appropriate for the area in which the housing is 
located.
    (j) Household furnishings (Section 514/516). For farm labor housing 
sections 514 and 516 only, funds may be used to purchase household 
furnishings.
    (k) Initial operating capital. Loan funds equal to 2 percent of 
total development cost or appraised value, whichever is less, may be 
used by a state or political subdivision thereof, Indian tribe, consumer 
cooperative, or any public or private nonprofit borrower who is not 
receiving low-income housing tax credits (LIHTC), to make the initial 
operating capital contribution required by Sec. 3560.64. Other 
borrowers must use their own resources to make the required initial 
operating capital contribution and may not use loan funds for that 
purpose.
    (l) Builder's profit, overhead and general requirements. Subject to 
the following limits, funds may be used for builder's profit, overhead 
and general requirements.
    (1) Up to 10 percent of the construction contract may be used for 
builder's profit.
    (2) Up to 4 percent of the construction contract may be used for 
general overhead.
    (3) Up to 7 percent of the construction contract may be used for 
general requirements.
    (m) Legal, technical and professional services. Funds may be used 
for the costs of legal, technical, and professional services related to 
the borrower's MFH project, including appraisals, environmental 
documentation, and construction plans and specifications.
    (n) Permit and application fees. Funds may be used for required MFH 
permits and application fees.
    (o) Reimbursement to nonprofit organizations and public bodies. 
Funds may be used to reimburse a nonprofit organization or public body 
for up to 2 percent of total development costs for section

[[Page 487]]

515, or up to 4 percent of total development costs for off-farm labor 
housing, for costs that are reasonable and typical for the area, 
including:
    (1) Development and packaging of a loan application and a MFH 
proposal; and
    (2) Legal, technical, and professional fees incurred in the 
formation of the loan application and MFH proposal; or
    (3) Technical assistance from another nonprofit organization to 
assist in the organization's formation and in the development and 
packaging of a loan application and MFH proposal.
    (p) Educational programs. Funds may be used for educational programs 
related to owning and managing a cooperative housing project for the 
board of directors of a housing cooperative during the first year of the 
housing operation. Such funds will be available from the initial 
operating account. The amount of the funds disbursed will be subject to 
Agency approval and availability of financial resources from the 
project.
    (q) Interest and customary charges. Funds may be used for interest 
accrued and customary charges necessary to obtain interim financing.
    (r) Purchase housing from an interim lender. Funds may be used to 
purchase MFH from an interim lender that holds fee simple title to 
Agency-financed housing upon which construction commenced and a letter 
of commitment had been issued by the Agency but the original applicant 
for whom funds were obligated will not or cannot continue with 
construction of the housing. In order for the purchase to take place, 
there must be no outstanding unpaid obligations in connection with the 
housing.
    (s) Uniform Relocation Assistance and Real Property Acquisition Act 
of 1970. Funds may be used for necessary costs incurred to comply with 
the Uniform Relocation Assistance and Real Property Acquisition Act of 
1970.
    (t) Demonstration programs. With the RHS Administrator's approval, 
funds may be used to construct demonstration housing involving 
innovative units and systems which do not meet existing published 
standards, rules, regulations, or policies but meet the intent of 
providing affordable, decent, safe, and sanitary rural housing, and are 
consistent with the requirements of Title V of the Housing Act of 1949.
    (u) Conversion of section 502 properties. In accordance with Sec. 
3560.506, loan funds may be used to finance the conversion of real 
estate owned units originally financed under section 502 of the Housing 
Act of 1949, to MFH authorized by section 515 of the Housing Act of 
1949.



Sec. 3560.54  Restrictions on the use of funds.

    (a) Ineligible uses of funds. Funds may not be used for:
    (1) Housing intended to serve temporary and transient residents, 
with the exception of housing to serve migrant farm workers in 
accordance with Sec. 3560.554;
    (2) Special care facilities or institutional-type homes;
    (3) Facilities which are not in compliance with the design 
requirements specified in Sec. 3560.60;
    (4) Any costs associated with space in a housing project that is 
leased for commercial use or any commercial facilities except essential 
service-type facilities when otherwise not conveniently available;
    (5) Specialized equipment for training and therapy;
    (6) Operating capital for a central dining facility or any items 
which do not become affixed to the real estate security with the 
exception of household furnishings for farm labor housing units financed 
under sections 514 and 516;
    (7) Compensation to a loan applicant for value of land contributed 
in excess of the equity contribution requirements in Sec. 3560.63(c);
    (8) Refinancing of an applicant's debt except when the debt involves 
interim financing or when refinancing is necessary to obtain a release 
of an existing lien on land owned by a nonprofit organization;
    (9) Payment of any fee, charge, or commission to a broker or anyone 
else as a developer's fee or for referral of a prospective loan 
applicant or solicitation of a loan;
    (10) Payment to any officer, director, trustee, stockholder, member, 
or agent of an applicant; or

[[Page 488]]

    (11) Purchasing land for a site in excess of what is needed, except 
when:
    (i) The applicant cannot acquire an alternate site or cannot acquire 
the needed land as a separate parcel;
    (ii) The applicant agrees to sell the excess land as soon as 
practical and to apply the proceeds to the loan; and
    (iii) Program site density requirements are met in accordance with 
the site requirements established under Sec. 3560.58.
    (b) Obligations incurred before loan approval. Funds may not be used 
for expenses incurred by an applicant prior to approval except when all 
the following conditions are met:
    (1) The debts were incurred for eligible purposes;
    (2) Contracts, materials, construction, and any land purchased meet 
Agency standards and requirements;
    (3) Payment of the debts will remove any attached liens and any 
basis for liens that may attach to the property on account of such 
debts; and
    (4) The appropriate level of environmental review in accordance with 
7 CFR part 1940, subpart G has been completed.



Sec. 3560.55  Applicant eligibility requirements.

    Applicants for off-farm labor housing loans and grants should also 
refer to Sec. 3560.555, and applicants for on-farm labor housing loans 
should refer to Sec. 3560.605.
    (a) General. To be eligible for Agency assistance, applicants must 
meet the following requirements:
    (1) Be a U. S. citizen or qualified alien(s); a corporation; a state 
or local public Agency; an Indian tribe as defined in Sec. 3560.11; or 
a limited liability company (LLC), nonprofit organization, consumer 
cooperative, trust, partnership, or limited partnership in which the 
principals are U.S. citizens or qualified aliens;
    (2) Be unable to obtain similar credit elsewhere at rates that would 
allow for rents within the payment ability of eligible residents;
    (3) Possess the legal and financial capacity to carry out the 
obligations required for the loan or grant;
    (4) Be able to maintain, manage, and operate the housing for its 
intended purpose and in accordance with all Agency requirements;
    (5) With the exception of applicants who are a nonprofit 
organization, housing cooperative or public body, be able to provide the 
borrower contribution from their own resources (this contribution must 
be in the form of cash, or land, or a combination thereof);
    (6) Have or be able to obtain a minimum of 2 percent of the total 
development costs for use as initial operating capital (for nonprofit 
organizations, cooperatives, or public bodies, this amount may be 
financed through Agency funds); and
    (7) Not be suspended, debarred, or excluded based on the ``List of 
Parties Excluded from Federal Procurement and Nonprocurement Programs.'' 
The list is available to Federal agencies from the U.S. Government 
Printing Office. Non-federal parties should contact the Superintendent 
of Documents, U.S. Government Printing Office, Washington, DC 20402, 
(202) 512-1800.
    (8) Not delinquent on Federal debt or a Federal judgment debtor, 
with the exception of those debtors described in Sec. 3560.55 (b).
    (b) Additional requirement for applicants with prior debt. If an 
applicant or the managing general partner of a borrower, as well as any 
affiliated entity having a 10 percent or more ownership interest, has a 
prior or existing Agency debt, the following additional requirements 
must be met.
    (1) The applicant must be in compliance with any existing loan or 
grant agreements and with all legal and regulatory requirements or must 
have an Agency-approved workout agreement and be in compliance with the 
provisions of the workout agreement. The Agency may require that 
applicants with monetary or non-monetary deficiencies be in compliance 
with an Agency-approved workout agreement for a minimum of 6 consecutive 
months before becoming eligible for further assistance.
    (2) The applicant must be in compliance with the Title VI of the 
Civil Rights Act of 1964, section 504 of the Rehabilitation Act of 1973, 
and all other applicable civil rights laws.
    (c) Additional requirements for nonprofit organizations. In addition 
to the

[[Page 489]]

eligibility requirements of paragraphs (a) and (b) of this section, 
nonprofit organizations must meet the following criteria:
    (1) The applicant must have received a tax-exempt ruling from the 
IRS designating the applicant as a 501(c)(3) or 501(c)(4) organization.
    (2) The applicant must have in its charter the provision of 
affordable housing.
    (3) No part of the applicant's earnings may benefit any of its 
members, founders, or contributors.
    (4) The applicant must be legally organized under state and local 
law.
    (5) In the case of off-farm labor housing loans and grants, 
nonprofit organizations must be ``broad-based'' nonprofit organizations 
(refer to Sec. 3560.555(a)(1)).
    (d) Additional requirements for limited partnerships. In addition to 
the applicant eligibility requirements of paragraphs (a) and (b) of this 
section, limited partnership loan applicants must meet the following 
criteria:
    (1) The general partners must be able to meet the borrower 
contribution requirements if the partnership is not able to do so at the 
time of loan request.
    (2) The general partners must maintain a minimum 5 percent financial 
interest in the residuals or refinancing proceeds in accordance with the 
partnership organizational documents.
    (3) The partnership must agree that new general partners can be 
brought into the organization only with the prior written consent of the 
Agency.
    (e) Additional requirements for Limited Liability Companies (LLCs). 
In addition to the applicant eligibility requirements of paragraphs (a) 
and (b) of this section, LLC loan applicants must meet the following 
criteria:
    (1) One member who holds at least a 5 percent financial interest in 
the LLC must be designated the authorized agent to act on the LLC's 
behalf to bind the LLC and carry out the management functions of the 
LLC.
    (2) No new members may be brought into the organization without 
prior consent of the Agency.
    (3) The members must commit to meet the equity contribution 
requirements if the LLC is not able to do so at the time of loan 
request.



Sec. 3560.56  Processing section 515 housing proposals.

    Processing requirements for farm labor housing proposals are found 
in subpart L of this part for Off-Farm and subpart M of this part for 
On-Farm.
    (a) Notice of Funding Availability (NOFA) responses. (1) The Agency 
will publish an annual NOFA with deadlines and other information related 
to submission of new construction MFH proposals, including expansion of 
existing MFH in designated places selected in accordance with Sec. 
3560.57.
    (2) To be eligible for funding consideration, MFH proposals must be 
submitted in accordance with the NOFA and must provide information 
requested in the NOFA for the Agency to score and rank the proposals.
    (3) MFH proposals needing rental subsidies must include requests for 
Agency rental assistance or a description of any non-Agency rental 
subsidy to be used with the proposal and must provide information 
required by Sec. 3560.260 (c).
    (4) The Agency will consider housing proposals requesting rental 
assistance in rank order to the extent rental assistance is available. 
When there is no rental assistance available, the Agency will consider 
only those housing proposals in rank order that do not require rental 
assistance.
    (b) Preliminary proposal assessment. The Agency will make a 
preliminary assessment of the application using the following criteria 
and will reject those applications which do not meet all of these 
criteria:
    (1) The proposal was received by the submission deadline specified 
in the NOFA,
    (2) The proposal is complete as specified in the NOFA,
    (3) The proposal is for an authorized purpose, and
    (4) The applicant meets Agency eligibility requirements.
    (c) Scoring and ranking project proposals. The Agency will score and 
rank each housing proposal that meets the criteria of paragraph (b) of 
this section.

[[Page 490]]

    (1) The following criteria will be used to score housing proposals 
as more completely established in the NOFA:
    (i) The presence and extent of leveraged assistance in the proposal 
for the units that will serve tenants meeting Agency income limits at 
basic rents comparable to what the rent would be if the Agency provided 
full financing.
    (ii) The proposal will provide rental units in a colonia, tribal 
land, Rural Economic Area Partnership (REAP) community, Enterprise Zone 
or Empowerment Community (EZ/EC) or in a place identified in the state 
Consolidated Plan or a state needs assessment as a high need community 
for MFH.
    (iii) The proposal supports Agency initiatives announced in the 
NOFA.
    (iv) The proposal uses a donated site which meets the following 
conditions:
    (A) The site is donated by a state, unit of local government, public 
body or a nonprofit organization;
    (B) The site is suitable for the housing proposals and meets Agency 
requirements;
    (C) Site development costs do not exceed what they would be to 
purchase and develop an alternative site;
    (D) The overall cost of the MFH is reduced by the donation of the 
site; and
    (E) A return on investment is not paid to the borrower for the value 
of the donated site nor is the value of the site considered as part of 
the borrower's contribution.
    (2) The Agency will rank housing proposals based on their scoring.
    (i) When proposals have an equal score, preference will be given to 
Indian tribes as defined in Sec. 3560.11 and local nonprofit 
organizations or public bodies whose principal purposes include low-
income housing that meet the conditions of Sec. 3560.55(c) and the 
following conditions.
    (A) Is exempt from Federal income taxes under section 501(c)(3) or 
501(c)(4) of the Internal Revenue code;
    (B) Is not wholly or partially owned or controlled by a for-profit 
or limited-profit type entity;
    (C) Whose members, or the entity, do not share an identity of 
interest with a for-profit or limited-profit type entity;
    (D) Is not co-venturing with another entity; and
    (E) The entity or its members will not be receiving any direct or 
indirect benefits pursuant to LIHTC.
    (ii) A drawing will be held in the event of a tie score, first for 
proposals from applicants who meet the conditions of paragraph (c)(2)(i) 
of this section and next for proposals from applicants for which 
paragraph (c)(2)(i) of this section is not applicable. Each proposal 
will be numbered in the order in which it is drawn.
    (3) The Agency will request initial loan applications from parties 
who submitted the housing proposals with the highest ranking, taking 
into consideration available funds. The Agency will notify non-selected 
parties with the reasons for their non-selection, and the process that 
may be used to seek a review of the non-selection decision.
    (d) Processing initial loan applications. The Agency will review all 
initial loan applications submitted in accordance with Agency 
requirements to further evaluate the eligibility and feasibility of the 
housing proposals. This determination will include:
    (1) A review of the preliminary plans and cost estimates,
    (2) A market feasibility review,
    (3) An Agency site visit to gather preliminary environmental 
information and determine that the proposed site meets the site 
requirements of Sec. 3560.58,
    (4) A review of the Affirmative Fair Housing Marketing Plan,
    (5) An analysis of current credit reports,
    (6) A review of Civil Rights Impact Analysis in accordance with 7 
CFR part 2006, subpart P, and
    (7) Completion of the appropriate level of environmental review in 
accordance with 7 CFR part 1940, subpart G.
    (e) Processing order of initial loan applications. The Agency will 
process initial loan applications in rank order, taking into account 
available funds. If any initial loan applications are withdrawn, 
rejected, or delayed for a period of time that will not permit funding 
in the current funding cycle, the Agency will process, in rank order, 
the next initial loan application as funding levels permit.

[[Page 491]]

    (f) Other assistance. During each stage of loan application 
processing, loan applicants must notify the Agency of all other 
assistance, including other Federal Government assistance proposed or 
approved for use in connection with the loan application.
    (g) Proposal withdrawal or rejection. An applicant may withdraw a 
housing proposal, an initial loan application, or a final loan 
application at any time during the Agency review process with a written 
request. The Agency may reject a housing proposal, an initial loan 
application, or a final loan application at any time during the Agency 
review process when an applicant fails to provide information requested 
by the Agency within the time frame specified by the Agency.
    (h) Final applications. Applicants, with initial loan applications 
that are selected by the Agency for further processing, must submit a 
final application, with any additional information requested by the 
Agency, to confirm and document a housing proposal's eligibility and 
feasibility, including an affirmative fair housing marketing plan. The 
Agency will notify applicants with initial loan applications that are 
not selected for further processing of their non-selection, the reasons 
for their non-selection, and the process that may be used to seek a 
review of the non-selection decision.
    (i) Rural cooperative housing proposals. Rural cooperative housing 
loan proposals will be solicited through a NOFA and will be assessed and 
processed in the same manner described in paragraphs (a) through (h) of 
this section.



Sec. 3560.57  Designated places for section 515 housing.

    (a) Establish a list of designated places. The Agency will establish 
a list of designated places from which loan proposals will be accepted. 
The list is updated each fiscal year and is available when the NOFA is 
published. The NOFA provides information on obtaining the list. This 
list will be developed from a list of rural places which the Agency 
identifies as having the greatest need for multifamily housing based on 
the following factors:
    (1) Qualification as a rural area as defined in Sec. 3560.11,
    (2) Lack of mortgage credit, and
    (3) Demonstrated need for MFH based on:
    (i) The incidence of poverty,
    (ii) The existence of substandard housing,
    (iii) The lack of affordable housing, and
    (iv) The following high need areas:
    (A) Places identified in the state Consolidated Plan or similar 
state plan or needs assessment report,
    (B) Indian reservations or communities located within the boundaries 
of tribal allotted or trust land, and
    (C) EZ/EC or REAP communities.
    (b) Establishing partnership designated place list. The Agency, in 
states with an active leveraging program and formal partnership 
agreement with the state agency, may establish a partnership designated 
place list consisting of places identified by the partnership as high 
need areas based on criteria consistent with the Agency's and the 
state's authorizing statutes. The partnership agreement and partnership 
designated place list must have the concurrence of the Administrator.
    (c) Administrator's discretion. The Administrator may add to the 
list of designated places any place that is determined to have a 
compelling need for MFH, for example, a place that has had a substantial 
increase in population not reflected in the most recent census data, or 
a place that has experienced a loss of affordable housing because of a 
natural disaster.
    (d) Restrictions on loans in certain designated places. (1) Initial 
loan applications will not be requested and final loan applications will 
not be closed for housing proposals in designated places where any of 
the following conditions exist:
    (i) The Agency has selected another MFH proposal in the designated 
place for processing.
    (ii) A previously funded Agency, the U.S. Department of Housing and 
Urban Development (HUD), low-income housing tax credit or other similar 
assisted MFH in the designated place has not been completed or has not 
reached projected occupancy levels.

[[Page 492]]

    (iii) Existing assisted MFH in the designated place is experiencing 
high vacancy levels.
    (iv) A special note rent or other loan servicing tool is pending or 
in effect for other assisted housing in the designated place, or
    (v) The need in the market area is for additional rental assistance 
and not additional rental units.
    (2) Exceptions to the provisions in Sec. 3560.57(d)(1) may be made:
    (i) When a group home is proposed for persons with disabilities in 
an area where the existing MFH is insufficient or unavailable for their 
needs; or
    (ii) There is a compelling need for additional MFH, for example when 
the units that have been approved or are under development represent 
only a small portion of the total units needed in the community.



Sec. 3560.58  Site requirements.

    (a) Location. (1) New construction section 515 loans will be made 
only in designated places selected by the Agency in accordance with the 
requirements of Sec. 3560.57.
    (2) Agency-financed MFH must be located in residential areas as part 
of established rural communities, except as permitted in Sec. 
3560.58(b), and for farm labor housing units financed under sections 514 
and 516, which may be developed in any area where a need for farm labor 
housing exists.
    (3) Communities in which Agency-financed MFH is located must have 
adequate facilities and services to support the needs of tenants.
    (4) Housing complexes will not be located in areas where there are 
undesirable influences such as high activity railroad tracks; adjacent 
to or near industrial sites; bordering sites or structures which are not 
decent, safe, or sanitary; or bordering sites which have potential 
environmental concerns such as processing plants. Sites which are not an 
integral part of a residential community and do not have reasonable 
access, either by location or terrain, to essential community facilities 
such as water, sewerage removal, schools, shopping, employment 
opportunities, medical facilities, may not be acceptable. Consistent 
with Federal law and Departmental Regulation, the Agency must conduct an 
environmental assessment and a civil rights impact analysis before a 
site can be accepted. Sites may be determined by the Agency to be 
unacceptable if any of the adverse conditions described in this 
paragraph exist.
    (b) Structures located in central business areas. The Agency will 
consider financing construction or the purchase and substantial 
rehabilitation of an existing structure located in the central business 
area of a rural community. With prior consent from the Agency, a portion 
of such a structure may be designated for commercial use on a lease 
basis. RHS funds may not be used to finance any cost associated with the 
commercial space.
    (c) Site development costs and standards. The cost of site 
development must be less than or comparable to the cost of site 
development at other available sites in the community and the site must 
be developed in accordance with 7 CFR part 1924, subpart C and any 
applicable standards imposed by a state or local government.
    (d) Densities. Allowable site densities will be determined based on 
the following criteria:
    (1) Compatibility and consistency with the community in which the 
MFH is located;
    (2) Impact on the total development costs; and
    (3) Size sufficient to accommodate necessary site features.
    (e) Flood or mudslide-prone areas. (1) The Agency will not approve 
sites subject to 100-year floods when non-floodplain sites exist. The 
environmental review process will assess the availability of a 
reasonable site outside the 100-year floodplain.
    (2) Sites located within the 100 year floodplain are not eligible 
for federal financial assistance unless flood insurance is available 
through the National Flood Insurance Program (NFIP). The Agency will 
complete Federal Emergency Management Agency (FEMA) Form 81-93, Standard 
Flood Hazard Determination, to document the site's location in relation 
to the floodplain and the availability of insurance under NFIP.

[[Page 493]]



Sec. 3560.59  Environmental requirements.

    Under the National Environmental Policy Act, the Agency is required 
to assess the potential impact of the proposed action on protected 
environmental resources. Measures to avoid or at least mitigate adverse 
impacts to protected resources may require a change in the site or 
project design. Therefore, a site cannot be approved until the Agency 
has completed the environmental review in accordance with 7 CFR part 
1940, subpart G, or any successor regulation. Likewise, the applicant 
should be informed that the environmental review must be completed and 
considered before the Agency can make a commitment of resources to the 
project.



Sec. 3560.60  Design requirements.

    (a) Standards. All Agency-financed MFH will be constructed in 
accordance with 7 CFR part 1924, subpart A and will consist of two or 
more rental units plus appropriate related facilities. Single family 
structures may be used for group homes and cooperative housing. Also, 
manufactured homes may be used to create MFH and single family housing 
originally financed through section 502 of the Housing Act of 1949 may 
be converted to MFH. Maintenance requirements are listed in Sec. 
3560.103(a)(3).
    (b) Residential design. All MFH must be residential in character, 
except as provided for in Sec. 3560.58(b), and must meet the needs of 
eligible residents.
    (c) Economical construction, operation and maintenance. Taking into 
consideration life-cycle costs, all housing must be economical to 
construct, operate, and maintain and must not be of elaborate design or 
materials.
    (1) Economical construction means construction that results in 
housing of at least average quality with amenities that are reasonable 
and customary for the community and necessary to appropriately serve 
tenants.
    (2) Economical operating and maintenance means housing with 
operational and maintenance costs that allow a basic rent structure less 
than or consistent with conventional rents for comparable units in the 
community or in a similar community except that when determined 
necessary by the Agency to allow for decent, safe and sanitary housing 
to be provided in market areas where conventional rents are not 
sufficient to cover necessary operating, maintenance, and reserve costs. 
Basic rents may be allowed to exceed comparable rents for conventional 
units, but in no case may the rent exceed 150% of the comparable rent 
for conventional unit rent level.
    (3) In meeting the Agency objective of economical construction, 
operation and maintenance, housing proposals must:
    (i) Contain costs without jeopardizing the quality and marketability 
of the housing;
    (ii) Employ life-cycle cost analyses acceptable to the Agency to 
determine the types of materials which will reduce overall costs by 
lowering operation and maintenance costs, even though their initial 
costs may be higher; and
    (iii) Provide assurances that costs will be reduced when the Agency 
determines that housing costs are not economical. If assurances cannot 
be provided, funding may be withdrawn.
    (4) The housing proposal will give maximum consideration to energy 
conservation measures and practices.
    (d) Accessibility. All housing will meet the following accessibility 
requirements.
    (1) For new construction of MFH, at least 5 percent of the units 
(but not less than one) must be constructed as fully accessible units to 
persons with disabilities. The Uniform Federal Accessibility Standards 
(UFAS) will be followed. Individual copies of these standards are 
available from the Architectural and Transportation Barriers Compliance 
Board, 1331 F Street, NW, Suite 1000, Washington, DC 20004-1111, 
Telephone: (202) 272-0080, TTY: (202) 272-0082, e-mail address: 
[email protected]. When calculating how many accessible units are 
required, always round up to the next whole number to ensure the 5 
percent requirement is met.
    (2) For existing properties that do not have fully accessible units, 
the 5 percent requirement will apply when making substantial alterations 
as defined by UFAS. The UFAS defines substantial alteration as 
``alteration to

[[Page 494]]

any building or facility is to be considered substantial if the total 
cost for a twelve month period amounts to 50 percent or more of the full 
and fair cash value of the building * * *'' UFAS further defines full 
and fair cash value as ``the assessed valuation of a building or 
facility as recorded in the assessor's office of the municipality and as 
equalized at one hundred percent (100%) valuation, or the replacement 
cost, or the fair market value.'' The 5 percent rule will also apply to 
repair or renovation work on a single unit. For instance, if a unit is 
damaged by fire and extensive repair is necessary, to the extent 
possible the unit is to be converted to a fully accessible unit.
    (3) The variety of bedroom quantities of fully accessible units will 
be comparable to the variety of bedroom quantities of units which are 
not fully accessible. Borrowers will not, however, be required to exceed 
the 5 percent requirement simply to have an accessible unit of each 
bedroom quantity. In addition, accessible units should be distributed 
throughout the complex so not to concentrate the units in one location.
    (4) All MFH must meet:
    (i) The accessibility requirements as contained in section 504 of 
the Rehabilitation Act of 1973;
    (ii) The requirements of the Fair Housing Amendments Act of 1988;
    (iii) The requirements of the Americans with Disabilities Act of 
1990, as applicable; and
    (iv) All other Federal, State, and local requirements. When 
architectural standards differ, the most stringent standard will be 
followed.



Sec. 3560.61  Loan security.

    (a) General. Each loan made by the Agency will be secured in a 
manner that adequately protects the financial interest of the Federal 
Government throughout the period of the loan.
    (b) Lien position. (1) The Agency will seek a first or parity lien 
position on Agency-financed property in all instances. The Agency may 
accept a junior lien position if the Federal Government's interests are 
adequately secured.
    (2) The Agency will seek a first or parity lien on revenue from 
rent; Agency, HUD, state or private rental subsidy payments; chattels; 
assignments; and operating and reserve accounts. The Agency will accept 
a junior lien position if the Federal Government's interests are 
adequately secured.
    (c) Liability. Personal liability will be required of all individual 
borrowers. Personal liability will not be required for the members or 
stockholders of any corporation or trust or any partners in a limited 
partnership.
    (d) Housing and land ownership. Applicants must own the MFH and 
related land for which the loan is being requested, or become the owner 
when the loan is closed or have a leasehold interest in the land. If an 
applicant is not the owner of the housing and the related land, the 
following conditions must be met prior to or at loan closing.
    (1) A recorded mortgage on the improvements is given as collateral.
    (2) The amount of the loan against the collateral does not exceed 
its estimated security value.
    (3) The unexpired term of the lease on the date of loan closing is 
at least 50 percent longer than the term of the loan and rent charged 
for the lease does not exceed the rate being paid for similar leases in 
the area.
    (4) The applicant's leasehold interest is not subject to summary 
foreclosure or cancellation.
    (5) The lease permits:
    (i) The Agency to foreclose the mortgage and to transfer the lease;
    (ii) The Agency to bid at a foreclosure sale or to accept voluntary 
conveyance of the security in lieu of foreclosure;
    (iii) The Agency to occupy the property, sublet the property, or 
sell the leasehold for cash or credit if the leasehold is acquired 
through foreclosure, if the Agency accepts voluntary conveyance in lieu 
of foreclosure, or if the borrower abandons the property; and
    (iv) The applicant, in the event of default or inability to continue 
with the lease and the loan, to transfer the leasehold subject to the 
mortgage to a transferee that will assume the property ownership 
obligations.

[[Page 495]]



Sec. 3560.62  Technical, legal, insurance, and other services.

    (a) Legal services. Applicants must have written contracts for any 
legal services that are to be paid out of Agency loan funds.
    (b) Title clearance. Applicants must obtain title clearance in 
accordance with the provisions of 7 CFR part 1927, subpart B applicable 
to title clearance, which would include title insurance or title 
opinion, unless the loan applicant is leasing the property or is an 
organization or an individual with special title or loan closing 
problems, in which case title clearance and related legal services will 
be obtained in accordance with procedures approved by the Agency.
    (c) Architectural services. Applicants must obtain a written 
contract for architectural services in accordance with the provisions of 
7 CFR part 1924, subpart A.
    (d) Insurance. Applicants must have property and liability coverage 
at loan closing as well as flood insurance, if needed. Fidelity coverage 
must be in force as soon as there are assets within the organization and 
it must be obtained before any loan funds or interim financing funds are 
made available to the borrower. At a minimum, applicants must meet the 
property, liability, flood, and fidelity insurance requirements in Sec. 
3560.105.
    (e) Surety bonding. Applicants must comply with the surety bonding 
provisions of 7 CFR part 1924, subpart A.



Sec. 3560.63  Loan limits.

    (a) Determining the security value. The security value for an Agency 
loan is the lesser of the total development cost (exclusive of any 
developer's fee as provided by paragraph (d)(2) of this section) or the 
housing project's security value as determined by an appraisal conducted 
in accordance with subpart P of this part, minus any prior or parity 
liens on the housing project. For purposes of determining security 
value:
    (1) Total development cost must be calculated excluding costs not 
considered allowable under Sec. 3560.54(a), and excluding costs related 
to compliance with the Uniform Relocation Assistance and Real Property 
Acquisition Act of 1970.
    (2) The appraisal, which will determine the market value, subject to 
restricted rents, will be obtained by the Agency and conducted in 
accordance with subpart P of this part.
    (b) Limitations on loan amounts. The Agency will not make any loans 
without adequate security. The following limitations will be set on loan 
amounts:
    (1) For all loan applicants who will receive benefits from the low-
income housing tax credit program, the amount of Agency financing for 
the housing will not exceed 95 percent of the security value available 
for the Agency loan.
    (2) For all loan applicants who will not receive low-income housing 
tax credit benefits and who are comprised solely of nonprofit 
organizations, consumer cooperatives, or state or local public agencies, 
the amount of the loan will be limited to the security value available 
for the Agency loan, plus the 2 percent initial operating capital and 
any necessary relocation costs incurred.
    (3) For all other loan applicants who will not receive low-income 
housing tax credit benefits, the loan amount will be limited to no more 
than 97 percent of the security value available for the Agency loan.
    (c) Equity contribution. Loan applicants, with the exception of 
nonprofit organizations, consumer cooperatives, or state or local public 
agencies who will not be receiving tax credits, must make an equity 
contribution from their own resources.
    (1) Loan applicants who will receive benefits from the low-income 
housing tax credit program must make an equity contribution in the 
amount of 5 percent of the Agency loan. The maximum Agency loan will be 
determined in accordance with Sec. 3560.63(b).
    (2) Loan applicants who will not receive benefits from the low-
income housing tax credit program and are not nonprofit organizations, 
consumer cooperatives, or state or local public agencies must make an 
equity contribution in the amount of 3 percent of the Agency loan. The 
maximum Agency loan will be determined in accordance with Sec. 
3560.63(b).

[[Page 496]]

    (d) Review of assistance from multiple sources. The Agency will 
analyze Federal Government and other assistance provided to any MFH 
project to establish the maximum loan amount and to assure that the 
assistance is not more than the minimum necessary to make the housing 
affordable, decent, safe, and sanitary to potential tenants.
    (1) Determining minimum assistance. For purposes of determining 
minimum assistance, the total amount paid for builder's profit, 
overhead, and general requirements may not exceed 21 percent of the 
construction contract. Unless specified differently in a Memorandum of 
Understanding between the Agency and the state agency that allocates 
low-income housing tax credits, limits will be those specified in Sec. 
3560.53(l).
    (2) Developer's fee. While, in accordance with Sec. 3560.54(a)(9), 
payment of a developer's fee is not an eligible use of Agency loan 
funds, the Agency will include in total development costs a developer's 
fee paid from other sources when analyzing the Federal Government 
assistance to the housing. The Agency may recognize a developer's fee 
paid from other sources on construction or rehabilitation of up to 15 
percent of the total development costs authorized for low-income housing 
tax credit purposes, or by another Federal Government program. Likewise 
for transfer proposals that include acquisition costs, the developer's 
fee on the acquisition cost may be recognized up to 8 percent of the 
acquisition costs only when authorized under a Federal Government 
program providing assistance. The developer's fee is not included in 
determining the Agency's maximum debt limit and loan amount.
    (e) Limits on equity loans. For equity loans to avert prepayment, 
the amount of the Agency equity loan will be limited to no more than the 
difference between 90 percent of market value of the property when 
appraised as conventional unsubsidized MFH and all current unpaid 
balances. For information on appraisal issues, refer to subpart P of 
this part.
    (f) Cost overruns. (1) All applicants must agree in writing to 
provide funds at no cost to the housing and without pledging the housing 
as security to pay any cost for completing planned construction after 
the maximum debt limit is reached.
    (2) After loan approval, the Agency will only approve cost increases 
for housing proposals involving new construction or major rehabilitation 
when the additional costs will not cause the limits specified in Sec. 
3560.53(l) or the maximum debt limit to be exceeded and the cost 
increases were caused by:
    (i) Unforeseen factors that are determined by the Agency to be 
beyond the borrower's control;
    (ii) Design changes required by the Agency, state, or the local 
government; or
    (iii) Financing changes approved by the Agency.



Sec. 3560.64  Initial operating capital contribution.

    Borrowers are required to make an initial operating capital 
contribution to the general operating account in the amount of at least 
2 percent of the total development cost or appraised value, whichever is 
less.
    (a) Borrowers that are nonprofit organizations, consumer 
cooperatives, or state or local public agencies and are not receiving 
low-income housing tax credits, may use loan funds for their initial 
operating capital contribution. All other borrowers must fund the 
initial operating capital contribution from their own resources.
    (b) Borrowers must provide to the Agency for approval a list of 
materials and equipment to be funded from the general operating account 
for initial operating expenses. As specified in Sec. 3560.304(b), 
initial operating capital may be used only to pay for approved budgeted 
expenses. If total initial operating expenses exceed 2 percent, the 
additional amount must be paid by the borrower from its own resources, 
except that borrowers meeting the provisions of Sec. 3560.64(a) who do 
not have sufficient resources for this purpose may request Agency 
assistance. Withdrawals from the reserve account will not be approved 
for such expenses.
    (c) Borrowers must provide the Agency with documentation of their 
initial operating capital contribution deposited into the general 
operating account prior to the start of construction or

[[Page 497]]

loan closing, whichever comes first, and such funds thereafter, may only 
be used for authorized budgeted purposes.
    (d) If the conditions specified in Sec. 3560.304(c) are met, funds 
contributed as initial operating capital may be returned to the 
borrower.



Sec. 3560.65  Reserve account.

    To meet major capital expenses of a housing project, borrowers must 
establish and fund a reserve account that meets requirements of Sec. 
3560.306. At a minimum, the borrower must agree to make monthly 
contributions to the reserve account at the rate of 1 percent annually 
of the amount of the total development cost until the reserve account 
equals 10 percent of the total development cost.



Sec. 3560.66  Participation with other funding or financing sources.

    (a) General requirements. The Agency encourages the use of funding 
or financing from other sources in conjunction with Agency loans. When 
the Agency is not the sole source of financing for MFH, the following 
conditions must be met.
    (1) The Agency will enter into a participation (or intercreditor) 
agreement with the other participants that clearly defines each party's 
relationship and responsibilities to the others.
    (2) The rental units that will serve tenants eligible for housing 
under the Agency's income standards must meet Agency standards and the 
number of units that will serve the Agency's tenants are at least equal 
to the units financed by the Agency.
    (3) All rental units must be operated and managed in compliance with 
the requirements of the Agency and the other sources. To the extent 
these requirements overlap, the most stringent requirement must be met. 
The Agency may negotiate the resolution of overlapping requirements on a 
case-by-case basis; however, at a minimum, Agency requirements must be 
met.
    (4) If the number of units subject to the LIHTC rent and income 
restrictions is greater than the number of units projected to receive 
Agency rental assistance (RA) or similar tenant subsidy, the market 
feasibility documentation must clearly reflect a need and demand by 
LIHTC income-eligible households financially able to afford the 
projected rents without such a subsidy for the units not receiving RA or 
similar tenant subsidy.
    (b) Rental assistance. The Agency may provide rental assistance with 
MFH loans participating with other sources of funding under the 
following conditions:
    (1) The Agency's loan equals at least 25 percent of the housing's 
total development cost.
    (2) The rental assistance is provided only to those rental units 
where the basic rents do not exceed what basic rents would have been had 
the Agency provided full financing.
    (3) The provisions of subpart F of this part are met.
    (c) Security requirements. The security requirements of Sec. 
3560.61 must be met for all Agency-financed MFH participating with other 
sources of funding.
    (d) Reserve requirements. Reserve account requirements will be 
determined on a case-by-case basis, taking into consideration the 
reserve requirements of the other participating lenders, so that the 
aggregate fully funded reserve account is consistent with the 
requirements of Sec. 3560.65. Reserve requirements and procedures for 
reserve account withdrawals must be agreed upon by all lenders and 
included in the intercreditor or participation agreement.
    (e) Design requirements. Housing and related facilities must be 
planned and constructed in accordance with 7 CFR 1924, subparts A and C. 
If housing includes non-Agency financed common facilities, the following 
conditions must be met:
    (1) The non-Agency-financed common facility's operating and 
maintenance costs must be paid through collection of a user fee from 
residents who use the facility,
    (2) The non-Agency-financed common facility must be designed and 
operated with appropriate safeguards for the health and safety of 
tenants, and
    (3) The facility must be fully available and accessible to all 
tenants.

[[Page 498]]



Sec. 3560.67  Rates and terms for section 515 loans.

    Rates and terms for farm labor housing loans are found in subpart L 
of this part for Off-Farm and subpart M of this part for On-Farm.
    (a) Interest. Loans will be closed at the lower of the interest rate 
in effect at the time of loan approval or the interest rate that is in 
effect at time of loan closing.
    (b) Interest credit. The Agency will provide interest credit to 
subsidize the interest on the Agency loan to a payment rate of 1 percent 
for all of the Agency's initial and subsequent loans.
    (c) Amortization period and term. (1) Except for manufactured 
housing, loans will be amortized over a period not to exceed the lesser 
of the economic life of the housing being financed or 50 years and paid 
over a term not to exceed 30 years from the date of loan. The Agency may 
make a loan to the borrower to finance the final payment of a loan in 
accordance with Sec. 3560.74.
    (2) Loans for manufactured housing will be amortized and paid over a 
term not to exceed 30 years as specified in Sec. 3560.70(c).



Sec. 3560.68  Permitted return on investment (ROI).

    (a) Permitted return. Borrowers operating on a limited profit basis 
will be permitted a return not to exceed 8 percent of their required 
initial investment determined at the time of loan approval in accordance 
with Sec. 3560.63(c).
    (b) Calculation of permitted return. The permitted return will be 
based on the borrower's contributions from their own resources, which, 
when added to the Agency loan amount and all sources of funding or 
financing, do not exceed the security value of the MFH project as 
specified in Sec. 3560.63(a).
    (1) Proceeds received by the borrower from the syndication of low-
income housing tax credit and contributed to the MFH project may be 
considered funds from the borrower's own resources for the portion of 
the proceeds which exceeds:
    (i) The allowable developer's fee determined by the state agency 
administering the low-income housing tax credit, and
    (ii) The borrower's expected contribution to the transaction, as 
determined by the state agency administering the low-income housing tax 
credit.
    (2) A building site contributed by the borrower will be appraised by 
the Agency to determine its market value. A return may not be allowed on 
the amount above the equity contribution required by Sec. 3560.63(c) if 
the market value as determined by the Agency, when added to the loan and 
grant amounts from all sources, exceeds the security value of the MFH 
project as specified in Sec. 3560.63(a).
    (c) Return on additional investment. The initial investment may 
exceed the equity contribution required by Sec. 3560.63(c) and a return 
allowed on the investment if the additional return does not increase 
basic rents and rental assistance costs above what basic rents and 
rental assistance costs would have been with the Agency financing 95 or 
97 percent of the total development cost.
    (d) Compensation to nonprofit organizations. Although nonprofit 
organizations are not eligible to take a return on investment, with 
prior Agency approval, cooperatives and nonprofit organizations may use 
housing project funds to pay asset management expenses directly 
attributable to ownership responsibilities, as described in Sec. 
3560.303(b)(1)(ii).



Sec. 3560.69  Supplemental requirements for congregate housing and group homes.

    (a) General. Congregate housing and group homes must be planned and 
developed in accordance with 7 CFR part 1924, subparts A and C.
    (b) Design criteria. Congregate housing and group homes must be 
designed to accommodate all special services that will be provided.
    (c) Services. Congregate housing and group home loan applicants, as 
part of their loan request, must submit a plan to make affordable 
services available to residents to assist the residents in living 
independently. The plan must address the availability of this assistance 
from service providers throughout the term of the loan.
    (1) For congregate housing, the resident services plan must address 
how

[[Page 499]]

the following services will be provided or made available:
    (i) One cooked meal per day, seven days per week;
    (ii) Transportation to and from the property;
    (iii) Assistance in housekeeping;
    (iv) Personal services;
    (v) Recreational and social activities; and
    (vi) Access to medical services.
    (2) For group homes, the resident services plan must address how 
access to the following services will be provided or made available:
    (i) A common kitchen in which to prepare meals;
    (ii) Transportation;
    (iii) Nearby recreational and social activities which may be 
coordinated by the resident assistant, if applicable; and
    (iv) Medical services as necessary.
    (d) Necessary items. Borrowers must ensure items such as tables, 
chairs, and cookware necessary to furnish common areas are made 
available to congregate housing or group homes. The 2 percent initial 
operating capital may be used to purchase these items.
    (e) Association with other organizations. Congregate housing and 
group homes may coordinate services or training with another 
organization, such as a workshop for the developmentally disabled. 
However, the housing facility must be a separate entity and not 
dependent on the other organization.
    (f) Market feasibility documentation. Market feasibility 
documentation for congregate housing and group homes is subject to the 
following requirements:
    (1) Must address the need for housing with services and include 
information concerning alternative service providers;
    (2) Must contain demographic information pertaining to the 
population that is to be served by the congregate housing or group home 
project; and
    (3) May consider an expanded market area that includes nondesignated 
places, but the facility must be located in a designated place.
    (g) Rental assistance for group homes. A unit in a group home 
consists of a space occupied by a specific tenant household, which may 
be an apartment unit, a bedroom, or a part of a bedroom. Agency rental 
assistance will be made available to tenants sharing a unit so long as 
the total rent for the unit does not exceed conventional rents for 
comparable units in the area or a similar area.



Sec. 3560.70  Supplemental requirements for manufactured housing.

    (a) Design requirements. Manufactured housing must meet the 
requirements of 7 CFR part 1924, subpart A applicable to manufactured 
housing.
    (b) Eligible properties. The manufactured housing must include two 
or more housing units. The applicant will become the first owner 
purchasing the manufactured homes for purposes other than resale. The 
following exceptions may be made to this provision:
    (1) A housing proposal may include the purchase of the real property 
with existing manufactured housing which will be redeveloped with the 
placement of new manufactured homes.
    (2) A housing proposal may include the rehabilitation of existing 
manufactured housing only if the units to be rehabilitated are currently 
financed by the Agency. The proposal will include the results of the 
applicant's consultation with the manufacturer to determine if the 
proposed rehabilitation work will affect the structural integrity of the 
unit and, if so, the statement will include an explanation as to how.
    (c) Terms. The maximum loan amount will be determined in accordance 
with the requirements of Sec. 3560.63. The amortization period and term 
of loans for manufactured housing will not exceed the lesser of the 
economic life of the housing being financed or 30 years.
    (d) Security. A mortgage or deed of trust will be taken on the 
entire property purchased or improved with the loan. The encumbered 
property must be covered under a standard real estate title insurance 
policy or attorney's title opinion that identifies the housing as real 
property and insures or indemnifies against any loss if the manufactured 
home is determined not to be part of the real property. The property 
must be taxed as real estate by the jurisdiction where the housing is 
located

[[Page 500]]

if such taxation is permitted under applicable law when the loan is 
closed.
    (e) Special warranty requirements. The general contractor or dealer-
contractor, as applicable, must provide a warranty in accordance with 
the provisions of 7 CFR part 1924, subpart A.
    (1) The warranty must establish that the manufactured homes, 
foundations, positioning and anchoring of the units to their permanent 
foundations, and all contracted improvements, are constructed in 
conformity with applicable approved plans and specifications.
    (2) The warranty must include provisions that the manufactured homes 
sustained no hidden damage during transportation and, for double-wide 
units, that the sections were properly joined and sealed.
    (3) The general contractor or dealer contractor must warrant that 
the manufacturer's warranty is in addition to and does not diminish or 
limit all other warranties, rights, and remedies that the borrower or 
lender may have.
    (4) The seller of the manufactured homes must deliver to the 
borrower the manufacturer's warranty with an additional copy for RHS. 
The warranty must identify the units by serial number.



Sec. 3560.71  Construction financing.

    (a) Construction financing plan. Prior to loan approval, applicants 
must submit to the Agency for its concurrence a plan for the 
construction financing and securing of the loan.
    (b) Interim financing. Interim financing is required by the Agency 
for any construction, except as noted in paragraph (c) of this section.
    (1) The Agency reserves the right to review and approve the interim 
financing arrangements proposed by the applicant.
    (2) When interim financing is used, the Agency will obligate the 
funds and provide an interim financing letter to the lender that will 
confirm the procedures and conditions for the construction financing. 
The take-out loan will be closed and the interim lender paid off when 
the conditions of the interim financing letter have been met.
    (3) The applicable provisions of 7 CFR part 1924, subpart A will be 
used to monitor the construction.
    (4) An environmental review must be completed in accordance with 7 
CFR part 1940, subpart G, prior to issuance of the interim financing 
letter.
    (c) Multiple advances. When interim financing is not available or 
when it is in the best interest of the Federal Government, the Agency 
may provide for multiple advances of the funds to cover the cost of 
construction.
    (1) The Agency will review and approve the multiple advances 
proposed by the borrower.
    (2) When multiple advances are used, the Agency will close the loan 
prior to any advancement of funds and the relevant provisions of 7 CFR 
part 1924, subpart A will be used to monitor the construction.
    (3) The loan check will be handled in accordance with 7 CFR part 
1902, subpart A.



Sec. 3560.72  Loan closing.

    (a) Requirements. Loans will be closed in accordance with 7 CFR part 
1927, subpart B and any state supplements. In all cases, the borrower 
must:
    (1) Provide evidence that an Agency-approved accounting system is in 
place;
    (2) Execute a restrictive-use contract acceptable to the Agency that 
establishes the borrower's obligation to operate the housing for program 
purposes for the term of the Agency loan;
    (i) For all section 514 loans, except as provided in Sec. 3560.621, 
made pursuant to a contract entered into on or after the effective date 
of this regulation, the following language will be included in the 
mortgage and deed of trust: ``The borrower and any successors in 
interest agree to use the housing for the purpose of housing people 
eligible for occupancy as provided in sections 514 and 516 of title V of 
the Housing Act of 1949, and Rural Housing Service regulations then in 
effect. The restrictions are applicable for a term of 20 years from the 
date on which the last loan was closed. No eligible person occupying the 
housing will be required to vacate nor any eligible person denied 
occupancy for housing prior to the close of such period because of a 
prohibited change in the use of the housing. A tenant or person wishing 
to occupy the housing may

[[Page 501]]

seek enforcement of this provision as well as the Government.''
    (ii) All other loans are subject to restrictive-use provisions as 
outlined in subpart N of this part.
    (3) Provide evidence that construction financing arrangements are 
adequate when interim financing is going to be used;
    (4) Provide evidence that all the funds from other sources as 
proposed in the application are available and that there have been no 
changes in the Sources and Uses Comprehensive Evaluation (SAUCE).
    (5) Provide evidence of the title to all security required by the 
Agency;
    (6) Provide a certification that all construction in the case of 
interim financing has been or, in the case of multiple advances, will be 
paid;
    (7) Provide, in the case of interim financing, a dated and signed 
statement from the owner's architect certifying to substantial 
completion of the housing project;
    (8) Provide a certification that all construction in the case of 
interim financing has been or, in the case of multiple advances, will be 
in accordance with the plans and specifications concurred in by the 
Agency;
    (9) Provide evidence, if applicable, that the conditions of the 
interim financing letter have been met; and
    (10) Attend a pre-occupancy conference with the Agency.
    (b) Cost certification. In all cases, the borrower must report 
actual construction costs. Whenever the State Director determines it 
appropriate, and in all situations where there is an identity of 
interest as defined in 7 CFR 1924.4 (i), the borrower, contractor and 
any subcontractor, material supplier, or equipment lessor having an 
identity of interest must each provide certification as to the actual 
cost of the work performed in connection with the construction contract 
in accordance with 7 CFR part 1924, subpart A. The construction costs 
must also be audited in accordance with Governmental Auditing Standards, 
by a Certified Public Accountant (CPA). In some cases, the Agency will 
contract directly with a CPA for the cost certification. Funds that were 
included in the loan for cost certification and which are ultimately not 
needed because Agency contracts for the cost certification will be 
returned on the loan. Agency personnel will utilize exhibit M of 7 CFR 
part 1924, subpart A to assist in the evaluation of the cost 
certification process.
    (c) Notification of loan cancellation. Loans may be canceled after 
approval and before loan closing. The Agency will notify all parties of 
the cancellation and the reasons for the cancellation in accordance with 
7 CFR part 1927, subpart B.



Sec. 3560.73  Subsequent loans.

    (a) Applicability. The Agency may make a subsequent loan to a 
borrower to complete, improve, repair, or make modifications to MFH 
initially financed by the Agency or for equity for preservation 
purposes. Loan requests to add units to comply with accessibility 
requirements may be processed as a subsequent loan; however, loan 
requests to add units to meet market demand will be processed as an 
initial loan request and must compete under the NOFA.
    (b) Application requirements and processing. Upon receipt of a 
subsequent loan request, the Agency will inform the applicant what 
information is required based on the nature and purpose of the loan 
request. Subsequent loan requests do not have to compete for funding 
against initial loan proposals.
    (c) Amortization and payment period. Subsequent loans will be 
amortized over a period not to exceed the lesser of the economic life of 
the housing being financed or 50 years and paid over a term not to 
exceed the lesser of the economic life of the housing or 30 years from 
the date of the loan.
    (d) Equity contribution. Applicants for subsequent loans must make 
contributions on the loans in the same proportion as outlined in Sec. 
3560.63(c). Loan applicants will not be given consideration for any 
increased equity value that the property may have since the initial 
loan.
    (1) Excess initial investment on an initial loan may be credited 
toward the required investment on a subsequent loan.

[[Page 502]]

    (2) An initial operating capital contribution to the general 
operating account as described in Sec. 3560.64 is required for a 
subsequent loan approved under the conditions set in Sec. 3560.63(f) to 
complete housing construction but is not required for a subsequent loan 
to repair or improve existing housing.
    (e) Environmental requirements. Subsequent loans are subject to the 
completion of an environmental review in accordance with 7 CFR part 
1940, subpart G.
    (f) Design requirements. All improvements, repairs, and 
modifications will be in accordance with 7 CFR part 1924, subparts A and 
C.
    (g) Architectural services. The applicant must obtain architectural 
services when any of the following conditions exist:
    (1) Enclosed space is being added,
    (2) When required by state law, and
    (3) When the Agency determines that the work being proposed requires 
architectural services.
    (h) Restrictive-use requirements. Subsequent loans are subject to 
restrictive-use provisions as outlined in Sec. 3560.662(a) and 
borrowers must execute a restrictive-use contract in accordance with 
Sec. 3560.72(a)(2).
    (i) Designation changes from rural to nonrural. If the designation 
of an area changes from rural to nonrural after the initial loan is 
made, a subsequent loan may be made only to make necessary improvements 
and repairs to the property or for equity when needed to avert 
prepayment.
    (j) Agency's discretion. The Administrator may approve a subsequent 
loan in a place that is not on the list of designated places as a 
servicing action, for example, to replace units destroyed by a natural 
disaster.



Sec. 3560.74  Loan for final payments.

    (a) Use. The Agency may finance final payments for borrowers holding 
existing loans for which the Agency approved an amortization period that 
exceeded the term of the loan.
    (b) Requirements. The Agency may finance final payments if 
documentation regarding the market area shows that a need for low-income 
rental housing still exists for that area and one of the following 
conditions has been met.
    (1) It is more cost efficient and serves the tenant base more 
effectively to maintain existing MFH than to build another property in 
the same location; or
    (2) The MFH has been maintained to such an extent that it can be 
expected to continue providing affordable, decent, safe and sanitary 
housing for 20 years beyond the date of the loan to finance a final 
payment; and
    (3) Funds are available.
    (c) Term. The term of Agency loans to finance final payments will 
not exceed 20 years from the date of the initial loan final payment.



Sec. Sec. 3560.75-3560.99  [Reserved]



Sec. 3560.100  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



      Subpart C_Borrower Management and Operations Responsibilities



Sec. 3560.101  General.

    This subpart sets forth borrower obligations regarding management 
and operations of multi-family housing (MFH) projects financed by the 
Agency. As noted in Sec. 3560.6, the borrower requirements listed in 
this subpart must be complied with by the borrower. The borrower may 
designate in writing a person to act as the borrower's authorized agent.

[[Page 503]]



Sec. 3560.102  Housing project management.

    (a) General. Borrowers hold final responsibility for housing project 
management and must ensure that operations comply with the terms of all 
loan or grant documents, Agency requirements and applicable local, state 
and Federal laws and ordinances. Project operations shall be conducted 
to meet the actual needs and necessary expenses of the property or for 
any other purpose authorized under Agency regulations. Any party not 
meeting these responsibilities may be subject to penalties. It is 
expected that only typical and reasonable expenses be incurred for the 
services rendered. Consequently, methods to inflate, duplicate, obscure, 
or failure to disclose the true nature and cost of work performed for 
the services rendered will cause the Agency to deny budget requests for 
the services or issue a demand for recovery and reimbursement for 
unauthorized actions.
    (b) Management plan. Borrowers must develop and maintain a 
management plan for each housing project covered by their loan or grant. 
The management plan must establish the systems and procedures necessary 
to ensure that housing project operations comply with Agency 
requirements.
    (1) At a minimum, management plans must address the following items:
    (i) Maintenance systems, including procedures for routine 
maintenance, capital item repair and replacement, and effective energy 
conservation practices;
    (ii) Personnel policies, job descriptions, staffing plans, training 
procedures for on-site staff. The Borrower will include specific duties 
and responsibilities of each property manager, site manager and 
caretaker;
    (iii) Front-line management functions to be performed by off-site 
staff;
    (iv) Plans and procedures for providing supplemental services 
including laundry, vending, and security;
    (v) Plans for accounting, record keeping and meeting Agency 
reporting requirements;
    (vi) Procurement procedures;
    (vii) Rent and occupancy charge collection procedures, and 
procedures for requesting and implementing changes in rents, utility 
allowances, or occupancy charges;
    (viii) Plans and procedures for marketing rental units and 
maintaining compliance with the Affirmative Fair Housing Marketing Plan 
in accordance with Sec. 3560.104;
    (ix) Unit leases and leasing policies and procedures, including 
procedures for maintaining and purging waiting lists, determining 
applicant eligibility, certifying and recertifying income, tenant 
selection, and occupancy policies such as security deposit amounts, 
occupancy rules, termination of leases or occupancy agreements and 
eviction;
    (x) Plans for allowing tenant participation in property operations 
and for fostering tenant relationships with management;
    (xi) Procedures for applicant and tenant appeals; and
    (xii) Describe how management will make known to tenants and 
applicants that management will provide reasonable accommodations under 
the Fair Housing Act, section 504 of the Rehabilitation Act of 1973, and 
regulations implemented thereunder at the borrower's expense unless to 
do so would cause an undue financial or administrative burden, how such 
requests are to be made, and who within management will have the 
authority to approve or disapprove a request for an accommodation.
    (2) Loan or grant applicants must submit a management plan before 
the Agency will give final approval to the loan or grant application. 
The plan must address the required items identified in paragraph (b)(1) 
of this section in sufficient detail to enable the Agency to monitor 
housing project performance.
    (c) Management plan effective period. A management plan remains in 
effect as long as it accurately reflects housing project operations and 
the housing project is in compliance with the Agency requirements.
    (1) Borrowers must submit an updated management plan to the Agency 
if operations change or are no longer consistent with the management 
plan on file with the Agency.
    (2) When there are no changes in operations, borrowers must submit a 
certification to the Agency every 3 years

[[Page 504]]

stating that operations are consistent with the management plan and the 
plan is adequate to assure compliance with the loan and grant documents 
and Agency requirements or applicable local, state and Federal laws.
    (3) If the Agency determines that operations are in compliance with 
Agency requirements, loan or grant agreements, or applicable local, 
state, and Federal laws, but are not consistent with the management 
plan, the Agency will require the borrower to:
    (i) Revise the management plan to accurately reflect housing 
operations;
    (ii) Take actions to ensure the management plan is followed; or
    (iii) Advise the Agency in writing of the action taken.
    (4) When a housing project is being transferred from one borrower to 
another, the transferee must submit a management plan that addresses the 
required items identified in paragraph (b)(1) of this section in 
sufficient detail to enable the Agency to give final approval of the 
transfer.
    (d) Housing projects with compliance violations. Upon receiving 
notice of compliance violations in accordance with Sec. 3560.354, 
borrowers must submit to the Agency:
    (1) Revisions to the management plan establishing the changes in 
housing operations that will be made to restore compliance;
    (2) If the borrower determines the compliance violations were due to 
a failure to follow the management plan, the borrower must certify to 
the Agency that the management plan is adequate to assure compliance 
with the applicable requirements of this part and submit a written 
description of the actions they will take to ensure the management plan 
is followed; or
    (3) If the Agency discovers continued discrepancies between a 
management plan and housing project operations or compliance violations, 
the Agency may require the borrower to install a different management 
agent acceptable to the Agency as described in paragraph (e) of this 
section.
    (e) Acceptable management agents. Borrowers must obtain Agency 
approval of the agent proposed to manage a housing project prior to 
entering into any formal agreement with the agent and prior to allowing 
the agent to assume responsibility for housing project operations. 
Borrowers that plan to self-manage a housing project also must receive 
Agency approval before assuming responsibility for housing operations.
    (1) Borrowers must submit a written request for Agency approval of 
the proposed management agent at least 45 days prior to the date the 
agent is to assume responsibility for operations. This request must 
include a profile of the proposed management agent that provides 
sufficient information to allow the Agency to evaluate whether the agent 
is acceptable.
    (2) The Agency will deny approval of any proposed management agent 
that cannot provide evidence of at least two years of experience and 
satisfactory performance in directing and overseeing the management of 
similar federally-assisted MFH.
    (3) The Agency may issue approval of a management agent that does 
not meet the requirements of Sec. 3560.102(e)(2) if the management 
agent can provide evidence that indicates the ability to successfully 
manage a MFH project in accordance with Agency requirements.
    (4) If a borrower enters into an agreement with a management agent 
or begins to self-manage prior to receiving Agency approval, the Agency 
will place the borrower in non-monetary default status and will require 
the borrower to immediately terminate the contract with the management 
agent.
    (f) Self-management. Borrowers may self-manage a housing project but 
must receive Agency approval before assuming responsibility for housing 
operations. Borrowers that plan to self-manage must meet all 
requirements of Sec. 3560.102, except for paragraph (h) of this 
section.
    (g) Identity-of-interest disclosure. Borrowers and management agents 
must disclose to the Agency all identity-of-interest relationships which 
they have with firms and must receive Agency approval to use such firms 
prior to entering into any contractual relationships with such entities 
that involve Agency funds.
    (1) This disclosure must include any identity-of-interest 
relationships between:

[[Page 505]]

    (i) The borrower and the management agent;
    (ii) The borrower or management agent and the providers of supplies 
and services to the housing project; and
    (iii) The borrower or the management agent and employees of any of 
the above.
    (2) Failure to disclose such relationships may subject the borrower, 
the management agent, and the other firms or employees found to have an 
identity of interest relationship to suspension, debarment, or other 
remedies available to the Agency.
    (3) After disclosure of an identity-of-interest relationship:
    (i) The borrower, management agent, and supplier of goods and 
services must provide documentation proving that use of identity-of-
interest firms is in the best interest of the housing project;
    (ii) Any supplier of goods and services must certify in writing to 
the Agency that the individual or organization has a viable, on-going 
trade or business qualified and licensed, if appropriate, to do the work 
for which a contract is being proposed;
    (iii) The borrower, management agent, and supplier of goods and 
services must agree, in writing, that all records related to the housing 
project will be made available to the Agency, Office of the Inspector 
General (OIG), General Accountability Office (GAO), or a representative 
of the Agency, upon request; and
    (iv) The Agency will deny the use of an identity-of-interest firm 
when the Agency determines such use is not in the best interest of the 
Federal Government or the tenants.
    (h) Management agreement. Borrowers contracting with a management 
agent must execute a management agreement that establishes:
    (1) The management agent's responsibility to comply with Agency 
requirements and local, state, and Federal laws;
    (2) That the management fee is payable out of the housing project's 
general operating account consistent with the requirements of paragraph 
(i) of this section; and
    (3) The Agency's authority to terminate the agreement for failure to 
operate the housing project in accordance with Agency requirements or 
local, state, or Federal laws.
    (i) Management fees. Management fees will be an allowable expense to 
be paid from the housing project's general operating account only if the 
fee is approved by the Agency as a reasonable cost to the housing 
project and documented on the management certification. Management fees 
must be developed in accordance with the following:
    (1) The management fee may compensate the management entity only for 
the specifically identified bundle of services to be provided to the 
housing project. Costs and services to be paid as part of the bundle of 
services include:
    (i) Supervision by the management agent and its staff (time, 
knowledge, and expertise) of overall operations and capital improvements 
of the site.
    (ii) Hiring, supervision, and termination of on-site staff.
    (iii) General maintenance of project books and records (general 
ledger, accounts payable and receivable, payroll, etc.). Preparation and 
distribution of payroll for all on-site employees, including the costs 
of preparing and submitting all appropriate tax reports and deposits, 
unemployment and workers' compensation reports, and other IRS- or state-
required reports.
    (iv) Training provided to on-site staff at the project site.
    (v) Preparation and submission of proposed annual budgets and 
negotiation of approval with the Agency, other governmental agencies and 
the borrowers.
    (vi) Preparation and distribution of the Agency or other 
governmental agency forms and routine financial reports to borrowers.
    (vii) Preparation and distribution of required year-end reports to 
the Agency or other governmental agency and borrowers.
    (viii) Preparation of requests for reserve withdrawals, rent 
increases, or other required adjustments.
    (ix) Arranging for preparation by outside contractors of energy 
audits and utility allowance analysis. Implement appropriate changes.
    (x) Preparation and implementation of Affirmative Fair Housing 
Marketing

[[Page 506]]

Plans as well as general marketing plans and efforts.
    (xi) Review of tenant certifications and submission of monthly 
rental assistance requests, and overage. Submission of payments where 
required.
    (xii) Preparation, approval, and distribution of operating 
disbursements; oversight of project receipts; and reconciliation of 
deposits.
    (xiii) Overhead of management agent, including:
    (A) Establish, maintain, and control an accounting system sufficient 
to carry out accounting supervision responsibilities.
    (B) Maintain agent office arrangements, staff, equipment, furniture, 
and services necessary to communicate effectively with the properties, 
the Agency or other governmental agency and with the borrowers.
    (C) Postage expenses related to the normal responsibility for 
mailings to the properties, the Agency or other governmental agency, the 
tenants, the vendors, and the owners.
    (D) Expense of telephone and facsimile communication to the 
properties, tenants, the Agency or other governmental agency, and the 
borrowers.
    (E) Direct costs of insurance (fidelity bonds covering central 
office staff, computer and data coverage, general liability, etc.) 
directly related to protection of the funds and records of the borrower.
    (F) Central office staff training and ongoing certifications.
    (G) Maintenance of all required profession and business licenses and 
permits. (This does not include project site office permits or 
licenses.)
    (H) Insurance coverage for agent's office and operations (Property, 
Auto, Liability, E&O, Casualty, Workers Compensation, etc.)
    (I) Travel of agent staff to the properties for on-site inspection, 
training, or supervision activities.
    (J) Agent bookkeeping for their own business.
    (xiv) Attendance at meetings (including travel) with tenants, 
owners, and the Agency or other governmental agency.
    (xv) Development, preparation, and revision of management plans or 
agreements.
    (xvi) Coordination of U.S. Department of Housing and Urban 
Development (HUD) certifications or vouchers with tenants, including all 
reporting to all pertinent agencies and borrowers.
    (xvii) Directing the investment of project funds into required 
accounts.
    (xviii) Maintenance of bank accounts and monthly reconciliations.
    (xix) Preparation, request for, and disbursement of borrower's 
initial operating capital (for new projects) as well as administration 
of annual owner's return on investment.
    (xx) Account maintenance, settlement, and disbursement of security 
deposits.
    (xxi) Working with third party auditors for initial set-up of audits 
and annually thereafter for audit preparation and review. Assistance 
with supplemental letters and preparation of Agency financial reports or 
other governmental agency reports.
    (xxii) Storage of records and adherence to records retention 
requirements.
    (xxiii) Assist on-site staff with tenant relations and problems. 
Provide assistance to on-site staff in severe actions (eviction, death, 
insurance loss, etc.).
    (xxiv) Oversight of general and preventive maintenance procedures 
and policies.
    (xxv) Development and oversight of asset replacement plans.
    (xxvi) Oversight of preparation of section 504 reviews, development 
of plans, and implementation of improvements necessary to comply with 
plans and section 504 requirements.
    (xxvii) Reporting to general and limited partners and State agencies 
for Low Income Housing Tax Credit (LIHTC)-compliance purposes.
    (2) Management fees may consist of a base per occupied unit fee and 
add-on fees for specific housing project characteristics. Management 
entities may be eligible to receive the full base per occupied unit fee 
for any month or part of a month during which the unit is occupied.
    (i) Periodically, the Agency will develop a range of base per 
occupied unit fees that will be paid in each state. The

[[Page 507]]

Agency will develop the fees based on a review of housing industry data. 
The final base for occupied unit fees for each state will be made 
available to all borrowers.
    (ii) Periodically, the Agency will develop the amount and 
qualifications to receive add-on fees. The final set of qualifications 
will be made available to all borrowers.
    (3) Allowable Administrative Expenses. (i) Identifying the Type of 
Administrative Expense. Management Plans and Agreements must describe if 
administrative expenses are to be paid from the management fee or paid 
for as a project cost.
    (A) A management plan is required for all projects. The management 
plan should describe administrative expenses paid from management agent 
fees or project operations. The management plan should provide job 
descriptions for the site manager, the management agent and other 
personnel. It is important that these documents accurately reflect the 
duties being performed by the various personnel. The management plan 
must meet the standards set out in this rule.
    (B) A task list should be used to identify which services are 
included in the management fee, which services are included in project 
operations, and which are pro-rated along with the methodology used to 
pro-rating of expenses between management agent fees and project 
operations. Some property responsibilities are completed at the property 
and some offsite. Agent responsibilities may be performed at the 
property, the management office, or at some other location.
    (C) Disputes may arise as to who performs certain services. The 
management plan and job descriptions should normally provide sufficient 
clarity to avoid or resolve any such disputes; however, sometimes 
clarifications and supporting materials may be required to resolve 
disputes. The decision must be made based on the most complete 
evaluation of the facts presented.
    (ii) Allowable Administrative Expenses. Payroll related 
administrative expenses are allowable expenses. Postage expense to mail 
out rental applications, third-party (asset income and adjustments to 
income) verifications, application processing correspondence (acceptance 
or denial letters), mailing project invoice payments, required 
correspondence, and report submittals to various regulatory authorities 
for the managed property are allowable project expenses no matter what 
location or point of origin the mail is generated. Photocopying or 
printing expense related to actual production of project brochures, 
marketing pieces, forms, reports, notices, and newsletters are allowable 
project expenses no matter what location or point of origin the work is 
performed including outsourcing the work to a professional printer. 
Correspondence or reports required for record retention or project 
compliance are allowable project expenses. The cost or expense of 
equipment and any related equipment service contract is a management 
agent direct expense, unless the machine becomes the property of the 
project after purchase.
    (iii) Determining if Expenses are Reasonable. Generally, expenses 
charged to project operations, whether for management agent services or 
other expenses, must be reasonable, typical, necessary and show a clear 
benefit to the residents of the property. Services and expenses charged 
to the property must show value added and be for authorized purposes. If 
such value is not apparent, the service or expense should be examined.
    (A) Administrative expenses for project operations exceeding 23 
percent, or those typical for the area, of gross potential basic rents 
and revenues (i.e., referred to as gross potential rents in industry 
publications) highlight a need for closer review for unnecessary 
expenditures. Budget approval is required and project resources may not 
always permit an otherwise allowable expense to be incurred if it is not 
fiscally prudent in the market.
    (B) Excessive administrative expenses can result in inadequate funds 
to meet other essential project needs, including expenditures for repair 
and maintenance needed to keep the project in sound physical condition. 
Actions that are improper or not fiscally prudent may warrant budget 
disapproval and/or a demand for recovery action.

[[Page 508]]

    (4) Unallowable Administrative Expenses.
    (i) Certain expenses are not allowable such as legal fees, 
association dues, bonuses or monetary performance awards, parties, 
computer hardware and some software, and telephone purchases.
    (ii) It is inappropriate to charge for legal services to represent 
any interest other than the borrower's interest (i.e., representing a 
general partner or limited partner to defend their individual owner 
interest is not allowable). Where there is no finding of a borrower's 
fault, commercially reasonable legal expenses and costs for defending or 
settling lawsuits (without admission of liability) are allowable.
    (iii) Charging for payment of penalties, including opposition legal 
fees resulting from an award finding improper actions on the part of the 
owner or management agent is generally an inappropriate project expense. 
The party responsible generally pays such expenses for violating the 
standards or by their insurance carriers.
    (iv) Association dues to be paid by the project should only be 
related to training for site managers or management agents. To the 
extent that association dues can document training for site managers or 
management agents related to project activities by actual cost or pro-
ration, a reasonable expense may be billed to the project.
    (v) It is inappropriate for the project to pay for bonuses or 
monetary performance awards to site managers or management agents that 
are not clearly provided for by the site manager salary contract.
    (vi) Billing the project for parties that are large or unreasonable, 
such as renting expensive party halls or hotel rooms and payment for 
alcoholic beverages or gifts to management agent staff are also 
inappropriate.
    (vii) It is inappropriate to bill the project for computer hardware, 
some software, and internal connections that are beyond the scope and 
size reasonably needed for the services supplied (i.e., purchasing 
equipment or software for use by a site manager that is clearly beyond 
that needed to support project operations). Note that computer learning 
center activities benefiting tenants are not covered in this 
prohibition.
    (viii) It is inappropriate to bill the project for practices that 
are inefficient such as routine use of collect calls from a site manager 
to a management agent office.
    (j) Management certification. (1) As a condition of approval of the 
management agent and the management fee, the borrower and the management 
agents must execute an Agency-approved certification establishing an 
allowable management fee to be paid out of the housing project's general 
operating account and certifying that:
    (i) The borrower and management agent agree to operate the housing 
project in accordance with the management plan;
    (ii) The borrower and the management agent will comply with Agency 
requirements, loan or grant agreements, applicable local, state and 
Federal laws and ordinances, and contract obligations, will certify that 
no payments have been made to anyone in return for awarding the 
management contract to the management agent, and will agree that such 
payments will not be made in the future;
    (iii) The borrower and the management agent will comply with Agency 
notices or other policy directives that relate to the management of the 
housing project;
    (iv) The management agreement between the borrower and management 
agent complies with the requirements of this section;
    (v) The borrower and the management agent will comply with Agency 
requirements regarding management fees as specified in paragraph (i) of 
this section, and allocation of management costs between the management 
fee and the housing project financial accounts specified in Sec. 
3560.302(c)(3);
    (vi) The borrower and the management agent will not purchase goods 
and services from entities that have an identity-of-interest (IOI) with 
the borrower or the management agent until the IOI relationship has been 
disclosed to the Agency according to paragraph (g) of this section, not 
denied by the Agency under paragraph (d)(3) of this section, and it has 
been determined that the costs are as low as or lower

[[Page 509]]

than arms-length, open-market purchases; and
    (vii) The borrower and the management agent agree that all records 
related to the housing project are the property of the housing project 
and that the Agency, OIG, or GAO may inspect the housing records and the 
records of the borrower, management agent, and suppliers of goods and 
services having an IOI with the borrower or with a management agent 
acting as an agent of the borrower upon demand.
    (2) A certification will be executed each time a management agent is 
proposed and a management agreement is executed or renewed. Any 
amendment to a management certification must be approved by the Agency 
and the borrower.
    (k) Procurement. The borrower and the agents of the borrower must 
obtain contracts, materials, supplies, utilities, and services at a 
reasonable cost and seek the most advantageous terms to the housing 
project. Any discounts, rebates, fees, proceeds, or commissions 
obtainable with respect to purchases, service contracts, or other 
transactions must be credited to the housing project.
    (l) Electronic Submission of Data to Agency. For properties with 
eight or more housing units, the Agency may specify that borrowers 
submit information required by this part electronically.



Sec. 3560.103  Maintaining housing projects.

    (a) Physical maintenance. (1) The purposes of physical maintenance 
are the following:
    (i) Provide decent, safe, and sanitary housing; and
    (ii) Maintain the security of the property.
    (2) Borrowers are responsible for the long-term, cost-effective 
preservation of the housing project.
    (3) At all times, borrowers must maintain housing projects in 
compliance with local, state and federal laws and regulations and 
according to the following Agency requirements for affordable, decent, 
safe, and sanitary housing. Agency design requirements are discussed in 
Sec. 3560.60. The Agency acknowledges that property maintenance is an 
ongoing process and will not penalize borrowers for less than 100 
percent compliance as long as it is evident that the borrower is 
striving to achieve the standards listed in this paragraph. In addition, 
the Agency understands that although its multifamily housing portfolio 
is relatively homogeneous, no one standard is appropriate for all 
properties.
    (i) Utilities. The housing project must have an adequate and safe 
water supply, a functional and safe waste disposal system, and must be 
free of hazardous waste material.
    (ii) Drainage and erosion control. The housing project must have 
drainage that effectively protects the housing project from water damage 
from standing water and erosion. Units, basements, and crawl spaces must 
be free of water seepage.
    (iii) Landscaping and grounds. The housing project must be 
landscaped attractively. Lawns, plants and shrubs must be maintained and 
must allow air to windows, vents, and sills. Recreation areas must be 
maintained in a safe and clean manner and trash collection areas must be 
adequately sized, screened, and maintained.
    (iv) Drives, parking services and walks. The housing project must 
have drives, parking lots, and walks that are free of holes and 
deterioration. Walks with changes in height between slabs of 
approximately \1/2\ inch or greater will be considered unacceptable.
    (v) Exterior signage. All signs at the housing project, including 
those related to the housing project name, buildings, parking spaces, 
unit numbers and other informational directions must be visible and 
well-kept. Sign requirements must conform to Sec. 3560.104(d).
    (vi) Fences and retaining walls. The housing project must have fence 
lines that are free of trash, weeds, vines, and other vegetation. Fences 
must be free of holes and damaged or loose sections. The bases of all 
retaining walls must be erosion free and drainage weep holes must be 
cleaned out to prevent excessive pressure behind the retaining wall.
    (vii) Debris and graffiti. The housing project, including common 
areas, must

[[Page 510]]

be free of trash, litter, and debris. Public walkways, walls of 
buildings and common areas must be free of graffiti.
    (viii) Lighting. The housing project must have functional exterior 
lighting and functional interior lighting in common areas which permits 
safe access and security.
    (ix) Foundation. The housing project must have a foundation that is 
free of evidence of structural failure, such as uneven settlement 
indicated by horizontal cracks or severe bowing of the foundation wall. 
Structural members must not have evidence of rot or insect or rodent 
infestation.
    (x) Exterior walls and siding. The housing project must have walls 
that are free from deterioration which allows elements to infiltrate the 
structure, eaves, gables, and window trim that are free from 
deterioration, exterior wall coverings that are intact, securely 
attached, and in good condition. Brick veneers must be free of missing 
mortar or bricks.
    (xi) Roofs, flashing, and gutters. The housing project must have 
gutters and downspouts, where appropriate for climatic conditions, that 
are securely attached, clean, and finished or painted properly with 
splash blocks or extenders that direct water flow away from the 
building. The housing project must have a roof that is free of leaks, 
defective covering, curled or missing shingles and which is not sagging 
or buckling. Fascia and soffits must be intact.
    (xii) Windows, doors, and exterior structures. The housing project 
must have screens that are free of tears, breaks and rips and windows 
that are unbroken. Window thermopane seals must be unbroken and caulking 
on the exterior of windows and doors must be continuous and free of 
cracks. Doors must be weather tight, free of holes, and provide security 
with functional locks. Porches, balconies, and exterior stairs must be 
free of broken, missing, or rotting components.
    (xiii) Common area accessibility. The housing project must have 
accessible, designated handicapped parking spaces with handicapped space 
signs properly posted. Common areas must be accessible through walks, 
ramps, porches, and thresholds. The laundry room must have accessible 
appliances and mailboxes must be at an accessible level. Elevators or 
mechanical lifts must be functional and kept in good repair.
    (xiv) Common area signage. The following must be posted in a 
conspicuous place in a common area: ``Justice for All'' poster, HUD 
equal housing opportunity poster including the Spanish version if there 
are Hispanic Limited English Proficiency tenants or applicants, current 
affirmative fair housing marketing plan, the tenant grievance and appeal 
procedure, housing project occupancy rules, office hours and phone 
number, and emergency hours and phone number.
    (xv) Flooring. If a housing project has carpeting, the carpet must 
be clean, without excessive wear, and seams that are secure and 
stretched properly. If the housing project has resilient flooring, the 
flooring must be clean, unstained, free of tears and breaks, and seams 
that are secure.
    (xvi) Walls, floors, and ceilings. The housing project must have 
walls, floors, and ceilings that are free of holes, evidence of current 
water leaks, and free of material that appears in danger of falling. The 
housing project must have wallboard joints that are secure and free of 
cracks.
    (xvii) Doors and windows. The housing project must have doors that 
are free of holes, secure, unbroken and easily operable hardware, 
deadbolt locks which are in place and secure, and, if doors are metal, 
free of rust. The housing project must have windows which are easily 
operated, free of bent blinds or torn curtains, and window interiors 
must be free of evidence of moisture damage.
    (xviii) Electrical, air conditioning and heating. The housing 
project must have heating and cooling units that are free of bare wires 
and which are functioning properly, including thermostats. The housing 
project must not have uncovered outlets or other evident safety hazards, 
switches which work improperly, or light fixtures which are broken and 
inoperable.
    (xix) Water heaters. The housing project must have water heaters 
which are operating properly, free of leaks, supply adequate hot water, 
and are fitted with temperature and pressure relief valves.

[[Page 511]]

    (xx) Smoke alarms. The housing project must have smoke alarms which 
are properly located according to local code and which operate properly.
    (xxi) Emergency call system. If a housing project has an emergency 
call system, the switches must be located in the bathroom and bedroom, 
furnished with a pull cord, with the down position set to ``ON'', and 
must operate properly.
    (xxii) Insect or vermin infestation. The housing project must have 
all units free of visible signs of insects or rodents and must be free 
of signs of insect or rodent damage.
    (xxiii) Range and range hood. The housing project must have range 
units in which all elements are operable, electrical connections are 
secure and insulated, doors and drawers which are secure, control knobs 
and handles which are in place and secure, and housing which is sound 
and the finish is free of chips, damage, or signs of rust. The range 
hood fan and light must be operable.
    (xxiv) Refrigerator. The housing project must have refrigerators in 
which the cooler and freezer are operating properly, the shelves and 
door containers are secure and free of rust, door gaskets are in good 
condition and functioning properly, and the housing is sound and the 
finish is free of chips, damage, or signs of rust.
    (xxv) Sinks. The housing project must have sinks in which the 
fittings work properly and are free of leaks, plumbing connections under 
the cabinet which are free of leaks, the finish is free of chips, 
damage, or signs of rust, the strainer is in good condition and in 
place, and which are secured to a wall, counter, or vanity top.
    (xxvi) Cabinets. The housing project must have cabinets and vanities 
which are secure to walls or floor and have faces, doors, and drawer 
fronts that are in good condition and free of breaks and peeling. 
Shelving must be in place, fastened securely, and free of warps. The 
housing project must have counter tops which are secure and free of burn 
marks or chips, bottoms under sinks which are free of evidence of 
warping, breaks, or being water soaked. Kitchen counter, vanity tops, 
and back splashes must be properly caulked.
    (xxvii) Water closets. The housing project must have the base of the 
water closets at the floor properly caulked. The tanks must be free of 
cracks or leaks and have a lid which fits and is in good condition. The 
seats must be secure and in good condition, and the flushing mechanisms 
must be in good condition and operating properly. The stools must be 
free of cracks and breaks and be securely fastened to the floor.
    (xviii) Bathtub and shower stalls. The housing project must have 
tubs or shower stalls which are free of cracks, breaks, and leaks, and a 
strainer in good condition and in place. The housing project must have 
walls and floors of the bathtubs which are properly caulked, tops and 
sides of shower stalls must be properly caulked, and the finish is free 
of chips, damage, or signs of rust.
    (4) The Agency expects that upon discovery of a condition not in 
compliance with the standards listed in this section that the borrower 
will remedy the situation in a timeframe required by the Agency. The 
Borrower must provide documentation and justification for any failure to 
meet such timeframe. Properties with deficiencies in the process of 
being addressed will not be deemed to be out of compliance unless there 
are so many deficiencies that it would result in a declaration of 
substantial noncompliance and call into questions the viability of the 
property and the effectiveness of the borrower's maintenance program. 
Failure to make such corrections or repairs constitutes a non-monetary 
default under Sec. 3560.452(e).
    (b) Maintenance systems. Borrowers must establish the following 
maintenance systems and must describe these systems in their management 
plan.
    (1) A system for routine maintenance, including:
    (i) Regular maintenance tasks that can be prescheduled or planned; 
and
    (ii) Tasks performed on a regular basis to maintain compliance with 
the standards established in paragraph (a)(3) of this section.
    (2) A system for responsive maintenance including:
    (i) A process for responding to requests for maintenance from 
tenants;

[[Page 512]]

    (ii) A process for responding to unexpected malfunctions of 
equipment or damages to building systems such as a furnace breakdown or 
a water leak; and
    (iii) A ``work order'' process for managing and tracking responses 
to maintenance requests and the performance of maintenance tasks.
    (3) A system for preventive maintenance including:
    (i) Maintenance of mechanical systems, building exteriors, 
elevators, and heating and cooling systems which require specially 
trained personnel; and
    (ii) Maintenance that supports energy-efficient operation of the 
housing project.
    (4) A system for correcting deficiencies identified by periodic 
inspections, which must include:
    (i) A move-in inspection;
    (ii) A move-out inspection; and
    (iii) An annual inspection of occupied units.
    (c) Capital budgeting and planning. (1) Borrowers must develop a 
capital budget as part of their annual housing project budget required 
under Sec. 3560.303. The capital budget must include anticipated 
expenditures on the long-term capital needs of the housing project to 
assure adequate maintenance and replacement of capital items.
    (2) If the borrower requests an increase in the project's reserve 
for replacement account, the borrower must have a capital needs 
assessment prepared and submitted to the Agency to reflect anticipated 
needs of the housing project for replacement of capital equipment and 
systems. The cost for preparation of a capital needs assessment will be 
approved by the Agency as an eligible housing project expense provided 
the capital needs assessment is reasonable in cost and meets Agency 
requirements.
    (3) [Reserved]
    (4) As a part of the annual budget process, borrowers may request an 
increase in the amount to be contributed and held in the housing project 
reserve account to fund the needs identified in an Agency-approved 
capital needs assessment.
    (5) At any time, borrowers may request and the Agency may approve 
amendments to loan or grant documents to increase the amount of funds to 
be contributed and held in a reserve account to cover the cost of 
capital improvements based on the needs identified in an Agency approved 
capital needs assessment. Borrowers must assure improvements are 
performed as specified in the capital needs assessment.



Sec. 3560.104  Fair housing.

    (a) General. Borrowers must comply with the requirements of the Fair 
Housing Amendments Act of 1988, and this section to meet their fair 
housing responsibilities.
    (b) Affirmative Fair Housing Marketing Plan. (1) Borrowers with 
housing projects that have four or more rental units must prepare and 
maintain an Affirmative Fair Housing Marketing Plan (AFHMP) as defined 
in 24 CFR part 200, subpart M.
    (2) Loan or grant applicants must submit an AFHMP for Agency 
approval prior to loan closing or grant approval. Plans must be updated 
by the borrower whenever components of the plan change.
    (3) Borrowers must post the approved AFHMP for public inspection at 
the housing project site, rental office, or at any other location where 
tenant applications for the project are received.
    (4) When developing the plan, the following items must be considered 
by the borrower:
    (i) Direction of marketing activities. The plan should be designed 
to attract applications for occupancy from all potentially eligible 
groups of people in the housing marketing area, regardless of race, 
color, religion, sex, age, familial status, national origin, or 
disability. The plan must show which efforts will be made to reach very 
low-income or low-income groups who would least likely be expected to 
apply without special outreach efforts.
    (ii) Marketing program. The applicant or borrower should determine 
which methods of marketing such as radio, newspaper, TV, signs, etc., 
are best suited to reach those very low-income or low-income groups who 
are in the market area but who are least likely to apply for occupancy. 
Marketing must not rely on ``word of mouth'' advertising.

[[Page 513]]

    (A) Advertising. (1) Frequency. The borrower should advertise 
availability of housing units in advance of their availability to allow 
time to receive and process applications. Advertising by newsprint or 
electronic media must occur at least annually to promote project 
visibility, even if there is an adequate waiting list.
    (2) Posters, brochures, etc. Any radio, TV or newspaper 
advertisement, pamphlets, or brochures used must identify that the 
complex is operated on an equal housing opportunity basis. This must be 
done through the use of the equal housing opportunity statement, slogan, 
or logo type. Copies of the proposed material must be sent when 
requesting approval of the plan.
    (B) Community contacts. Community leaders and special interest 
groups such as community, public interest, religious organizations, and 
organizations for the disabled must be contacted. Owners and managers of 
projects with fully accessible apartments must adopt suitable means to 
ensure that information regarding the availability of accessible units 
reaches eligible persons with disabilities. In addition, owners and 
managers of elderly housing must ensure that information regarding 
eligibility reaches people who are less than 62 years old but who are 
eligible because they are disabled. Appropriate contacts are with 
physical rehabilitation centers, hospitals, workshops for the disabled, 
commissions on aging, and veterans organizations.
    (C) Rental staff. All staff persons responsible for renting the 
units must have had training provided on Federal, state, and local fair 
housing laws and regulations and in the requirements of fair housing 
marketing and in those actions necessary to carry out the marketing 
plan. Copies of instructions to the staff regarding fair housing and a 
summary of the training they have received must be attached to the plan 
when requesting approval.
    (iii) Marketing records. Records must be maintained by the borrower 
reflecting efforts to fulfill the plan. These records will be reviewed 
by the Agency during civil rights compliance reviews. Plans will be 
updated as needed.
    (c) Accommodations and communication. The borrower must take 
appropriate steps to ensure effective communication with applicants, 
tenants, and members of the public with disabilities. At a minimum, the 
following steps must be taken:
    (1) Furnish appropriate auxiliary aids (electronic, mechanical, or 
personal assistance) where necessary, to afford an individual with 
disabilities an equal opportunity to participate in and enjoy the 
benefits of Agency financed housing.
    (i) In determining what auxiliary aids are necessary, the borrower 
must give primary consideration to the requests of individuals with 
disabilities.
    (ii) The borrower is not required to provide individually prescribed 
devices, readers for personal use or study, or other devices of a 
personal nature.
    (2) Where a borrower communicates with applicants and tenants by 
telephone, telecommunication devices for deaf persons or equally 
effective communication systems must be available for use.
    (3) The borrower must implement procedures to ensure that interested 
persons, including persons with impaired vision or hearing, can obtain 
information concerning the existence and location of accessible 
services, activities, and facilities in the housing project and 
community.
    (4) The borrower is required to provide reasonable accommodations at 
the project's expense unless doing so would result in undue financial or 
administrative burden on the project. Examples of reasonable 
accommodations may include such items as the installation of grab bars, 
ramps, and roll-in showers. Reasonable accommodations may also include 
the modification of rules or policies such as permitting a disabled 
tenant to have a two-bedroom unit to accommodate a resident assistant or 
to permit a disabled tenant to have a companion animal. The decision 
whether the requested accommodation is reasonable or unreasonable or 
whether to provide the accommodation would cause an undue financial or 
administrative burden lies with the borrower and would be for the 
borrower to defend should a complaint subsequently be filed. Borrowers 
may wish to consult with their legal counsel

[[Page 514]]

prior to denying a request. If the borrower takes the position that 
providing an accommodation would cause an undue financial or 
administrative burden, the borrower must permit the tenant to make 
reasonable modifications at the tenant's expense. Requests for 
reasonable accommodations must be handled in accordance with the 
management plan.
    (d) Housing sign requirements. (1) A permanent sign identifying the 
housing project is required for all housing projects approved on or 
after September 13, 1977. Permanent signs are recommended for all 
housing projects approved prior to September 13, 1977. The sign must 
meet the following requirements:
    (i) Must be located at the primary site entrance and be readable and 
recognizable from the roadside;
    (ii) Must be located near the site manager's office when the housing 
project has multiple sites and portable signs must be placed where 
vacancies exist at other site locations of a ``scattered site'' housing 
project;
    (iii) May be of any shape;
    (iv) Must be not less than 16 square feet of area for housing 
projects with 8 or more rental units (smaller housing projects may have 
smaller signs);
    (v) Must be made of durable material including its supports;
    (vi) Must include the housing project name;
    (vii) Must show rental contact information including but not limited 
to the office location of the housing project and a telephone number 
where applicant inquiries may be made;
    (viii) Must show either the equal housing opportunity logotype (the 
house and equal sign, with the words equal housing opportunity 
underneath the house); the equal housing opportunity slogan ``equal 
housing opportunity''; or the equal housing opportunity statement, ``We 
are pledged to the letter and spirit of U.S. policy for the achievement 
of equal housing opportunity throughout the nation. We encourage and 
support an affirmative advertising and marketing program in which there 
are no barriers to obtaining housing because of race, color, religion, 
sex, handicap, familial status, or national origin.'' If the logotype is 
used, the size of the logo must be no less than 5 percent of the total 
size of the project sign.
    (ix) May display the Agency or Department logotype; and
    (x) Must comply with state and local codes.
    (2) Accessible parking spaces must be reserved for individuals with 
disabilities by a sign showing the international symbol of 
accessibility. The sign must be mounted on a post at a height that is 
readily visible from an occupied vehicle. In snow areas, the sign must 
be visible above piled snow. If there is an office, the designated 
parking space must be van accessible.
    (3) When the continuous unobstructed ingress or egress disabled 
accessibility route to a primary building entrance is other than the 
usual or obvious route, the alternate route for disabled accessibility 
must be clearly marked with international accessibility symbols and 
directional signs to aid a disabled person's ingress or egress to the 
building, through an accessible entrance, and to the accessible common 
use and public and living areas.



Sec. 3560.105  Insurance and taxes.

    (a) General. Borrowers must purchase and maintain property insurance 
on all buildings included as security for an Agency loan. Also, 
borrowers must furnish fidelity coverage, liability insurance, and any 
other insurance coverage required by the Agency in accordance with this 
paragraph to protect the security of the asset. Failure to maintain 
adequate insurance coverage or pay taxes may lead to a non-monetary 
default under Sec. 3560.452(c).
    (b) General insurance requirements. All insurance policies must meet 
the requirements established by the loan documents and this section.
    (1) At loan closing, prior to loan approval, applicants must provide 
documentary evidence that insurance requirements have been met. The 
borrower must maintain insurance in accordance with requirements of 
their loan or grant documents and this section until the loan is repaid 
or the terms of the grant expire.
    (2) Insurance companies must meet the requirements of paragraph (e) 
of this section.

[[Page 515]]

    (3) Insurance coverage amount, terms, and conditions must meet the 
requirements of paragraph (f) of this section.
    (4) The Agency must be named as loss co-payee on all property 
insurance policies where it holds first lien position. The Agency must 
be named as an additional insured if its lien position is other than 
first.
    (c) Borrower failure or inability to meet insurance requirements. 
The Agency will take the following actions in cases where a borrower is 
unwilling or unable to meet the Agency's insurance requirements:
    (1) The Agency will obtain insurance for Agency financed property if 
the borrower fails to do so. If borrowers refuse to pay the insurance 
premium, the Agency will pay the insurance premium and charge the 
premium payment amount to the borrower's Agency account and will place 
the borrower in default as described in Sec. 3560.452(c).
    (2) If borrowers habitually fail to pay premiums in a timely manner, 
the Agency will require borrowers to escrow amounts appropriate to pay 
insurance premiums.
    (3) If insurance that meets the Agency's specified requirements is 
not available (e.g. flood or hurricane insurance), the Agency may accept 
the insurance policy that most nearly conforms to established 
requirements.
    (4) If the best insurance policy a borrower can obtain at the time 
the borrower receives the loan or grant contains a loss deductible 
clause greater than that allowed by paragraph (f)(8) of this section, 
the insurance policy and an explanation of the reasons why more adequate 
insurance is not available must be submitted to the Agency prior to loan 
or grant approval.
    (d) Credits, refunds, or rebates. Borrowers must credit any refund 
or rebate from an insurance company to the project's general operating 
account or reserve account.
    (e) Insurance company requirements. All insurers, insurance agents, 
and brokers must meet the following requirements:
    (1) Be licensed or authorized to do business in the state or 
jurisdiction where the housing project is located; and
    (2) Be deemed reputable and financially sound as determined by the 
Agency.
    (f) Property insurance. The following conditions apply to property 
insurance purchased for Agency-financed housing projects.
    (1) At a minimum, borrowers must obtain the following types of 
property insurance:
    (i) Hazard insurance. A policy which generally covers loss or damage 
by fire, smoke, lightning, hail, explosion, riot, civil commotion, 
aircraft, and vehicles. These policies may also be known as ``Fire and 
Extended Coverage,'' ``Homeowners,'' ``All Physical Loss,'' or ``Broad 
Form'' policies.
    (ii) Flood insurance. This coverage is required for properties 
located in Special Flood Hazard Areas (SFHA) as defined in 44 CFR part 
65, as determined by the Federal Emergency Management Agency (FEMA).
    (iii) Builder's risk insurance. A policy that insures dwellings 
under construction or rehabilitation.
    (iv) Elevators, boiler, and machinery coverage. This coverage is 
required for properties that operate elevators, steam boilers, turbines, 
engines, or other pressure vessels.
    (2) Other types of insurance that the Agency may require:
    (i) Windstorm Coverage.
    (ii) Earthquake Coverage.
    (iii) Sinkhole Insurance or Mine Subsidence Insurance.
    (3) For property insurance, the minimum coverage amount must equal 
the ``Total Estimated Reproduction Cost of New Improvements,'' as 
reflected in the housing project's most recent appraisal. At a minimum, 
property insurance coverage must be adequate to cover the lesser of the 
depreciated replacement value of essential buildings or the unpaid 
balance of all secured debt, unless such coverage is financially 
unfeasible for the housing project.
    (i) If the cost of the minimum level of property insurance coverage 
exceeds what the housing project can reasonably afford, the borrower, 
with Agency concurrence, must obtain the maximum amount of property 
insurance coverage that the housing project can afford.

[[Page 516]]

    (ii) If the coverage amount is less than the depreciated replacement 
value of all essential buildings, borrowers must obtain coverage on one 
or more of the most essential buildings, as determined by the Agency.
    (iii) When required, the coverage amount for flood insurance must 
equal the outstanding loan balance or the maximum coverage allowed by 
FEMA's ``National Flood Insurance Program.''
    (4) Except for flood insurance, property insurance is not required 
if the housing project:
    (i) Has a depreciated replacement value of $2,500 or less; or
    (ii) Is in a condition which the Agency determines makes insurance 
coverage not economical.
    (5) Policies for several buildings or properties located on 
noncontiguous sites are acceptable if the insurer provides proof that 
each secured building or property related to the housing project is as 
fully protected as if a separate policy were issued.
    (6) Borrowers must notify the Agency and their insurance company 
agents of any loss or damage to insured property and collect the amount 
of the loss.
    (7) When the Agency is in the first lien position and an insurance 
settlement represents a satisfactory adjustment of a loss, the insurance 
settlement will be deposited in the housing project's general operating 
account unless the settlement exceeds $5,000. If the settlement exceeds 
$5,000, the funds will be placed in the reserve account for the housing 
project.
    (i) Insurance settlement funds which remain after all repairs, 
replacements, and other authorized disbursements have been made retain 
their status as housing project funds.
    (ii) If the indebtedness secured by the insured property has been 
paid in full or the insurance settlement is in payment for loss of 
property on which the Agency has no claim; a loss draft which includes 
the Agency as co-payee may be endorsed by the Agency without recourse 
and delivered to the borrower.
    (8) When the Agency is not in the first lien position and the 
insurance settlement represents satisfactory adjustment of the loss, the 
Agency will release the settlement funds to the primary mortgagee upon 
agreement of all parties to the provisions contained in agreements 
between the Agency and the primary lienholder.
    (9) Allowable deductible amounts are as follows:
    (i) Hazard/Property Insurance. (A) $1,000 on any housing project 
with an insurable value under $200,000; or
    (B) One-half of one percent (0.0050) of the insurable value, up to 
$10,000 on housing projects with insurance values over $200,000.
    (ii) Flood Insurance. The Agency allows a maximum deductible of 
$5,000 per building.
    (iii) Windstorm Coverage. When windstorm coverage is excluded from 
the ``All Risk'' policy, the deductible must not exceed five percent of 
the total insured value.
    (iv) Earthquake Coverage. In the event that the borrower obtains 
earthquake coverage, the Agency is to be named as a loss payee. The 
deductible should be no more than 10 percent of the coverage amount.
    (v) Sinkhole Insurance or Mine Subsidence Insurance. The deductible 
for sinkhole insurance or mine subsidence insurance should be similar to 
what would be required for earthquake insurance.
    (10) Deductible amounts (excluding flood, windstorm, earthquake and 
sinkhole insurance or mine subsidence insurance) must be accounted for 
in the replacement reserve account. Borrowers who wish to increase the 
deductible amount must deposit an additional amount to the reserve 
account equal to the difference between the Agency's maximum deductible 
and the requested new deductible. The Borrower will be required to 
maintain this additional amount so long as the higher deductible is in 
force.
    (g) Liability insurance. The borrower must carry comprehensive 
general liability insurance with coverage amounts that meet or exceed 
Agency requirements. This coverage must insure all common areas, 
commercial space, and public ways in the security premises. Coverage may 
also include borrower exposure to certain risks such as errors and 
omissions, environmental damages, or protection against discrimination 
claims. The insurer's limit of liability per occurrence for personal

[[Page 517]]

injury, bodily injury, or property damage under the terms of coverage 
must be at least $1 million.
    (h) Fidelity coverage. Borrowers must provide fidelity coverage on 
any personnel entrusted with the receipt, custody, and disbursement of 
any housing monies, securities, or readily salable property other than 
money or securities. Borrowers must have fidelity coverage in force as 
soon as there are assets within the organization and it must be obtained 
before any loan funds or interim financing funds are made available to 
the borrower. In addition, the following conditions apply to fidelity 
insurance:
    (1) Fidelity insurance coverage must be documented on a bond form 
acceptable to the Agency.
    (2) Fidelity coverage policies must declare in the insuring 
agreements that the insurance company will provide protection to the 
insured against the loss of money, securities, and property other than 
money and securities, through any criminal or dishonest act or acts 
committed by any employee, whether acting alone or in collusion with 
others, not to exceed the amount of indemnity stated in the declaration 
of coverage.
    (i) The fidelity insurance policy, at a minimum, must include an 
insuring agreement that covers employee dishonesty.
    (ii) Fidelity coverage amounts and deductible:

------------------------------------------------------------------------
                                                              Deductible
                     Fidelity coverage                          level
------------------------------------------------------------------------
Under $50,000..............................................       $1,000
In the area of $100,000....................................        2,500
In the area of $250,000....................................        5,000
In the area of $500,000....................................       10,000
In the area of $1,000,000..................................       15,000
------------------------------------------------------------------------

    (3) Blanket crime insurance coverage or fidelity bonds are 
acceptable types of fidelity coverage.
    (4) At a minimum, borrowers must provide an endorsement, listing all 
of the borrower's Agency financed properties and their locations covered 
under the policy or bond as evidence of required fidelity insurance. The 
policy or bond may also include properties or operations other than 
Agency financed properties on separate endorsement listings.
    (5) Individual or organizational borrowers must have fidelity 
coverage when they have employees with access to the MFH complex assets. 
Borrowers who use a management agent with exclusive access to housing 
assets must require the agent to have fidelity coverage on all 
principals and employees with access to the housing assets. If active 
management reverts to the borrower, the borrower must obtain fidelity 
coverage, as a first course of business.
    (6) Fidelity coverage is not required under the following 
circumstances:
    (i) The borrower is an individual or a general partnership and the 
individual or general partner will be responsible for the financial 
activities of the housing project.
    (ii) In the case of a land trust where the beneficiary is 
responsible for management, the beneficiary will be treated as an 
individual.
    (iii) A limited partnership (or its general partners) unless one or 
more of its general partners perform financial acts within the scope of 
the usual duties of an ``employee.''
    (7) The premium for fidelity coverage of employees and general 
partners at a housing project is an eligible operating account expense.
    (i) The premium of a management agent's fidelity coverage for the 
agent's principals and employees will be the management agent's business 
expense (i.e., it is included within the management fee).
    (ii) When a housing project employee is covered under the 
``umbrella'' of the management agent's fidelity coverage, the premium 
may be prorated among the housing projects covered.
    (8) Borrowers must review fidelity coverage annually and adjust it 
as necessary to comply with the requirements of this section.
    (i) Taxes. The borrower is responsible for paying all taxes and 
assessments on a housing project before they become delinquent.
    (1) An exception to the above may be made if the borrower has 
formally contested the amount of the property assessment and escrowed 
the amount of taxes in question in a manner approved by the Agency.

[[Page 518]]

    (2) Failure to pay taxes and assessments when due will be considered 
a default. If a borrower fails to pay outstanding taxes and assessments, 
the Agency will pay the outstanding balance and charge the tax or 
assessment amount, assessed penalties, and any additional incurred costs 
to the borrower's Agency account.
    (3) The Agency will require borrowers who have demonstrated an 
inability to pay taxes in a timely manner to escrow amounts sufficient 
to pay taxes.



Sec. Sec. 3560.106-3560.149  [Reserved]



Sec. 3560.150  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                Subpart D_Multi-Family Housing Occupancy



Sec. 3560.151  General.

    (a) Applicability. This subpart contains borrower and tenant 
requirements and Agency responsibilities related to occupancy of Agency-
financed multi-family housing (MFH) projects. Occupancy eligibility 
requirements apply to the following:
    (1) Family housing projects, including farm labor housing;
    (2) Elderly housing projects; and
    (3) Congregate housing or group homes for persons with special 
needs.
    (b) Civil rights requirements. All occupancy policies must meet 
applicable civil rights requirements, as stated in Sec. 3560.2.



Sec. 3560.152  Tenant eligibility.

    (a) General requirements. Except as specified in paragraph (b) of 
this section, a tenant eligible for occupancy in Agency-financed housing 
must either:
    (1) Be a United States citizen or qualified alien, and
    (2) Qualify as a very low-, low-, or moderate-income household; or
    (3) Be eligible under the requirements established to qualify for 
housing benefits provided by sources other than the Agency, such as U.S. 
Department of Housing and Urban Development (HUD) Section 8 assistance 
or Low Income Housing Tax Credit (LIHTC), when a tenant receives such 
housing benefits.
    (b) Exception. Households with incomes above the moderate-income 
level may occupy housing projects with an Agency loan approved prior to 
1968 with a loan agreement that does not restrict occupancy by income.
    (c) Requirements for elderly housing, elderly units in mixed 
housing, congregate housing, and group homes. In addition to the 
requirements of paragraph (a) of this section, the following occupancy 
requirements apply to elderly housing, elderly units in mixed housing, 
and congregate housing or group homes:
    (1) For elderly housing, elderly units in mixed housing, and 
congregate housing the following provisions apply:
    (i) Households must meet the definition of an elderly household in 
Sec. 3560.11 to be eligible for occupancy in elderly or congregate 
housing.
    (ii) If non-elderly persons are members of a household where the 
tenant or co-tenant is an elderly person, the non-elderly persons are 
eligible for occupancy in the tenant's or co-tenant's rental unit.
    (iii) Applicants who will agree to participate in the services 
provided by a congregate housing project may be given occupancy 
priority.
    (2) For group homes, the following provisions apply:
    (i) Occupancy may be limited to a specific group of tenants, such as 
elderly persons or persons with developmental disabilities, or mental 
impairments, if such an occupancy limitation is contained in the 
borrower's management plan.
    (ii) Tenants must be able to demonstrate a need for the special 
services provided by the group home.

[[Page 519]]

    (iii) Tenants cannot be required to participate in an ongoing 
training or rehabilitation program.
    (iv) Tenants must be selected from the market area prior to 
considering applicants from other areas.
    (d) Ineligible tenant waiver. The Agency may authorize the borrower 
in writing, upon receiving the borrower's written request with the 
necessary documentation, to rent vacant units to ineligible persons for 
temporary periods to protect the financial interest of the Government. 
Likewise, this provision may extend to a cooperative. This authority 
will be for the entire project for periods not to exceed one year. 
Within the period of the lease, the tenant may not be required to move 
to allow an eligible applicant to obtain occupancy, should one become 
available. The Agency must make the following determinations:
    (1) There are no eligible persons on a waiting list.
    (2) The borrower provided documentation that a diligent but 
unsuccessful effort to rent any vacant units to an eligible tenant 
household has been made. Such documentation may consist of 
advertisements in appropriate publications, posting notices in several 
public places, including places where persons seeking rental housing 
would likely make contacts, holding open houses, making appropriate 
contacts with public housing agencies and organizations, Chambers of 
Commerce, and real estate agencies.
    (3) The borrower agrees to continue with aggressive efforts to 
locate eligible tenants and retain documentation of all marketing.
    (4) The borrower is temporarily unable to achieve or maintain a 
level of occupancy sufficient to prevent financial default and 
foreclosure. The Agency's approval of the waiver would then be for a 
limited duration.
    (5) The lease agreement will not be more than 12 months and at its 
expiration will convert to a month-to-month lease. The monthly lease 
will require that the unit be vacated upon 30 days notice when an 
eligible applicant is available.
    (6) Tenants residing in Rural Rental Housing (RRH) units who are 
ineligible because their adjusted annual income exceeds the maximum for 
the RRH project will be charged the Rural Housing Service (RHS) approved 
note rent for the size of unit occupied in a Plan II RRH project. In 
projects operated under Plan I, ineligible tenants will be charged a 
rental surcharge of 25 percent of the approved note rent.
    (e) Tenant certification and verification. Tenants and borrowers 
must execute an Agency-approved tenant certification form establishing 
the tenant's eligibility prior to occupancy. In addition, tenant 
households must be recertified and must execute a tenant certification 
form at least annually or whenever a change in household income of $100 
or more per month occurs. Borrowers must recertify for changes of $50 
per month, if the tenant requests that such a change be made.
    (1) Tenant requirements. (i) Tenants must provide borrowers with the 
necessary income and other household information required by the Agency 
to determine eligibility.
    (ii) Tenants must authorize borrowers to verify information provided 
to establish their eligibility or determination of tenant contribution.
    (iii) Tenants must report all changes in household status that may 
affect their eligibility to borrowers.
    (iv) Tenants who fail to comply with tenant certification and 
recertification requirements will be considered ineligible for occupancy 
and will be subject to unauthorized assistance claims, if applicable, as 
specified in subpart O of this part.
    (2) Borrower requirements. (i) Borrowers must verify household 
income and other information necessary to establish tenant eligibility 
for the requested rental unit type, in a format approved by the Agency, 
prior to a tenant's initial occupancy and prior to annual or other 
recertifications.
    (ii) Borrowers must review all reported changes in household status 
and assess the impact of these changes on the tenant's eligibility or 
tenant contribution.
    (iii) Borrowers must submit initial or updated tenant certification 
forms to the Agency within 10 days of the effective date of an initial 
certification or any changes in a tenant's status. The effective date of 
an initial or updated

[[Page 520]]

tenant certification form will always be a first day of the month.
    (iv) Since tenant certifications are used to document interest 
credit and rental assistance eligibility and are a basic responsibility 
of the borrower under the loan documents, borrowers who fail to submit 
annual or updated tenant certification forms within the time period 
specified in paragraph (e)(2)(iii) of this section will be charged 
overage, as specified in Sec. 3560.203(c). Unauthorized assistance, if 
any, will be handled in accordance with subpart O of this part.
    (v) Borrowers must submit tenant certification forms to the Agency 
using a format approved by the Agency.
    (vi) Borrowers must retain executed tenant certification forms and 
any supporting documentation in the tenant file for at least 3 years or 
until the next Agency monitoring visit or compliance review, whichever 
is longer.
    (3) The Agency maintains the right to independently verify tenant 
eligibility information.

    Effective Date Note: At 70 FR 8503, Feb. 22, 2005, in Sec. 
3560.152(a)(1), implementation of the words ``Be a United States citizen 
or qualified alien, and'' was delayed indefinitely.



Sec. 3560.153  Calculation of household income and assets.

    (a) Annual income will be calculated in accordance with 24 CFR 
5.609.
    (b) Adjusted income will be calculated in accordance with 24 CFR 
5.611.



Sec. 3560.154  Tenant selection.

    (a) Application for occupancy. Borrowers must use tenant application 
forms that collect sufficient information to properly determine 
household eligibility and to enable the Agency to monitor compliance 
with the Fair Housing Act, section 504 of the Rehabilitation Act of 
1973, and title VI of the Civil Rights Act of 1964 during compliance 
reviews. At a minimum, borrowers must use application forms that collect 
the following information:
    (1) Name of the applicant and present address;
    (2) Number of household members and their birthdates;
    (3) Annual income information calculated in accordance with Sec. 
3560.153(a);
    (4) Adjustments to income calculated in accordance with Sec. 
3560.153(b);
    (5) Net assets calculated in accordance with Sec. 3560.153(c);
    (6) Indication of a need for a unit accessible to individuals with 
disabilities and any disability adjustments to income;
    (7) Certification by the applicant that the unit will serve as the 
household's primary residence, and a certification that the applicant is 
a U.S. citizen or a qualified alien as defined in Sec. 3560.11;
    (8) Signature of the applicant and date;
    (9) Race, ethnicity, and sex designation. The following disclosure 
notice shall be used:

    ``The information regarding race, ethnicity, and sex designation 
solicited on this application is requested in order to assure the 
Federal Government, acting through the Rural Housing Service, that the 
Federal laws prohibiting discrimination against tenant applications on 
the basis of race, color, national origin, religion, sex, familial 
status, age, and disability are complied with. You are not required to 
furnish this information, but are encouraged to do so. This information 
will not be used in evaluating your application or to discriminate 
against you in any way. However, if you choose not to furnish it, the 
owner is required to note the race, ethnicity, and sex of individual 
applicants on the basis of visual observation or surname,'' and

    (10) Social security number.
    (b) Additional information. Applicants are to be provided a list of 
any additional information that must be submitted with the application 
for the application to be considered complete (an application will be 
considered complete without verification of the applicant information). 
The list of information will be restricted to the same items for all 
Agency-assisted properties of a particular type, such as a family or 
elderly complex.
    (c) Application submission. Borrowers must establish when 
applications may be submitted. Information on the place and times for 
tenant application submission must be documented in the housing 
project's management plan and Affirmative Fair Housing Marketing Plan.

[[Page 521]]

    (d) Selection of eligible applicants. (1) Applicants may be 
determined ineligible for occupancy based on selection criteria other 
than Agency requirements only if such criteria are contained in the 
borrower's management plan. Borrower established selection criteria may 
not contain arbitrary or discriminatory rejection criteria, but may 
consider an applicant's past rental and credit history and relations 
with other tenants.
    (2) Borrowers with projects receiving low-income housing tax credits 
(LIHTCs), may leave a housing unit vacant if they are required to rent 
the available unit to an LIHTC-eligible applicant, and none of the 
applicants on the waiting list meet the applicable LIHTC eligibility 
requirements.
    (e) Recordkeeping. Borrowers must retain all tenant application 
forms for at least 3 years. The Agency may require borrowers to submit 
application information for Agency review.
    (f) Waiting lists. (1) When an applicant has submitted an 
application form the borrower must place the applicant on the waiting 
list. All applications, whether complete, eligible, or ineligible, will 
be placed on the list. The waiting list will document the final 
disposition of all applications (rejected, withdrawn, or placed in a 
unit).
    (2) The date and time a complete application was submitted will be 
recorded on the waiting list and will establish priority for selection 
from the list. If an applicant submits an incomplete application (see 
paragraph (a) of this section), they must be notified in writing within 
10 days of the items that are needed for the application to be 
considered complete and that priority will not be established until the 
additional items are received.
    (3) The race and the ethnicity of each applicant shall be recorded 
on the waiting list. This information shall be collected for statistical 
purposes only and must not be used when making eligibility 
determinations or in any other discriminatory manner. The information 
shall be recorded using the race and ethnicity codes that are utilized 
on the Agency tenant certification form available in the servicing 
office.
    (4) Within 10 days of receipt of a complete application, the 
Borrower must notify the applicant in writing that he has been selected 
for immediate occupancy, placed on a waiting list, or rejected.
    (5) Selections from the completed applications on the waiting list 
shall be made in the following priority order:
    (i) Very low-income applicants;
    (ii) Low-income applicants; and
    (iii) Moderate-income applicants.
    (g) Priorities and preferences for admission. (1) Eligible 
applicants that meet the following conditions must be given priority for 
occupancy over all other tenants regardless of income. Such applicants, 
however, will be ranked among themselves by income level, giving 
priority first to very low-income households, then to low-income 
households, and finally to moderate-income households.
    (i) Persons who require the special design features of a unit 
accessible to individuals with disabilities will have priority only for 
units with these features.
    (ii) In congregate housing facilities, persons who agree to use the 
services provided by the facility will have priority over other 
applicants.
    (2) Eligible applicants that meet any of the following conditions 
must be given priority over other applicants in their same income 
category.
    (i) The applicant has a Letter of Priority Entitlement (LOPE) issued 
in accordance with Sec. 3560.660(c).
    (ii) The applicant was displaced from Agency-financed housing but 
was not issued a LOPE.
    (iii) The applicant was displaced in a Federally declared disaster 
area.
    (3) Borrowers receiving Section 8 project-based assistance may 
establish preferences in accordance with U.S. Department of Housing and 
Urban Development (HUD) regulations. The use of such preferences must be 
documented in the project's management plan.
    (h) Notices of ineligibility or rejection. Borrowers must provide 
written notification to applicants who are determined to be ineligible 
or who are rejected for occupancy. Notices of ineligibility or rejection 
must give specific reasons for the ineligibility determination or 
rejection and, in accordance with Sec. 3560.160, the notice must advise 
the applicant of ``the right to respond

[[Page 522]]

to the notice within ten calendar days after receipt'' and of ``the 
right to a hearing in accordance with Sec. 3560.160 which is available 
upon request.'' When an applicant is rejected based on the information 
from a credit bureau report, the source of the credit bureau report must 
be revealed to the applicant in accordance with the Fair Credit 
Reporting Act.
    (i) Purging waiting list. Procedures used by borrowers to purge 
waiting list must be documented in the project's management plan and 
must be based on the length of the waiting list or the extent of time an 
applicant will be expected to wait for housing. At a minimum, borrowers 
must document removal of any names from the waiting list with the time 
and date of the removal. If an electronic waiting list is used, 
borrowers must periodically print out electronic waiting lists or 
preserve backup copies showing how the waiting list appeared before and 
after the removal of each name.
    (j) Criminal activity. Borrowers may deny admission for criminal 
activity or alcohol abuse by household members in accordance with the 
provisions of 24 CFR 5.854, 5.855, 5.856, and 5.857.

    Effective Date Note: At 70 FR 8503, Feb. 22, 2005, in Sec. 
3560.154(a)(7), implementation of the words ``* * * and a certification 
that the applicant is a U.S. citizen or a qualified alien as defined in 
Sec. 3560.11 * * *'' was delayed indefinitely.



Sec. 3560.155  Assignment of rental units and occupancy policies.

    (a) General. Available rental units are assigned in accordance with 
the requirements of this section and the priorities and preferences 
outlined in Sec. 3560.154.
    (b) Rental units accessible to individuals with disabilities. If a 
rental unit accessible to individuals with disabilities is available and 
there are no applicants that require the features of the unit, borrowers 
may rent the unit to a non-disabled tenant subject to the inclusion of a 
lease provision that requires the tenant to vacate the unit within 30 
days of notification from management that an eligible individual with 
disabilities requires the unit and provided the accessible unit has been 
marketed as an accessible unit, outreach has been made to organizations 
representing the disabled, and marketing of the unit as an accessible 
unit continues after it has been rented to a tenant who is not in need 
of the special design features.
    (c) Transfer of existing tenants within a housing project. When a 
rental unit becomes available for occupancy and an eligible tenant in 
the housing project is either over housed or under housed as provided 
for in paragraph (e) of this section, the borrower must use the 
available unit for the over housed or under housed tenant, if suitable, 
prior to selecting an eligible applicant from the waiting list.
    (d) Applicant placement. When a specific rental unit type becomes 
available for occupancy, borrowers must select eligible applicants 
suitable for the available unit according to the priorities established 
in Sec. 3560.154.
    (e) Occupancy policies. Borrowers must establish occupancy policies 
for each housing project. Households living in a rental unit with more 
bedrooms than persons in the household will be considered over housed 
and must be relocated in accordance with paragraph (c) of this section. 
Households under housed as defined by the project's occupancy standards 
must be relocated in accordance with paragraph (c) of this section. 
Borrowers with no one-bedroom units in a housing project may make an 
exception to this requirement in their occupancy policies. In addition, 
a borrower's occupancy policies must establish:
    (1) Reasonable standards for determining when a tenant household is 
considered under housed. The standards will describe the maximum number 
of persons that may occupy units of a given size based on occupancy 
guidelines provided by the Agency or another governmental source;
    (2) The order in which eligible applicants and existing tenants will 
be housed or re-housed; and
    (3) How fair housing requirements will be met, including how 
reasonable accommodations will be made for applicants and tenants with 
disabilities.
    (f) Agency concurrence. The Agency must concur with a borrower's 
occupancy rules prior to initial occupancy

[[Page 523]]

of the housing project. All modifications to occupancy rules must be 
posted for tenant comment in accordance with Sec. 3560.160 and receive 
Agency concurrence prior to implementation.



Sec. 3560.156  Lease requirements.

    (a) Agency approval. Borrowers must use a lease approved by the 
Agency. The lease must be consistent with Agency requirements and the 
requirements of all programs participating in the housing project. Prior 
to submitting the lease to the Agency for approval, borrowers must have 
their attorney certify that the lease complies with state and local 
laws, Agency requirements, and the requirements of all programs 
participating in the housing project. If there are conflicting 
requirements the borrower shall notify the Agency of the conflict and 
request guidance. Borrowers must execute their Agency approved lease 
with each tenant household prior to tenant occupancy of a rental unit.
    (b) Lease requirements. (1) All leases must be in writing.
    (2) Initial leases must be for a 1-year period.
    (3) If the tenant is not subject to occupancy termination according 
to Sec. 3560.158 and Sec. 3560.159, a renewal lease or lease extension 
must be for a 1-year period.
    (4) In areas with a concentration of non-English speaking 
populations, leases (including the occupancy rules) must be available in 
both English and the non-English language.
    (5) Leases must give the address of the management agent to which 
tenants may direct complaints.
    (6) Leases must include a statement of the terms and conditions for 
modifying the lease.
    (c) Required items and provisions. (1) Leases for tenants who hold a 
Letter of Priority Entitlement (LOPE) issued according to Sec. 
3560.655(d) and are temporarily occupying a unit for which they are not 
eligible must include a clause establishing the tenant's responsibility 
to move when a suitable unit becomes available in the housing project.
    (2) Leases must contain a clause permitting escalation in the tenant 
contribution when there is an Agency-approved change in basic or note 
rate rents prior to the expiration of the lease. The escalation clause 
also must specify that the tenant contribution may be changed prior to 
expiration of the lease if the change is due to changes in tenant 
status, as documented on the tenant certification form, or the tenant's 
failure to properly recertify.
    (3) Leases must specify that no change in the tenant contribution 
will occur due to monetary or non-monetary default or when rental 
assistance or interest credit, is suspended, canceled, or terminated due 
to the borrower's fault. For information on tenant contributions when a 
borrower prepays the Agency loan, refer to subpart N of this part.
    (4) Leases must contain a requirement that tenants make restitution 
when unauthorized assistance is received due to applicant or tenant 
fraud or misrepresentation and a statement advising tenants that 
submission of false information could result in legal action.
    (5) Leases must include a statement that the housing project is 
financed by the Agency and that the Agency has the right to further 
verify information provided by the applicant.
    (6) Leases must state that the housing project is subject to:
    (i) Title VI of the Civil Rights Act of 1964;
    (ii) Title VIII of the Fair Housing Act;
    (iii) Section 504 of the Rehabilitation Act of 1973; and
    (iv) The Age Discrimination Act of 1975.
    (7) Leases must establish the tenant's responsibility according to 
the housing project's occupancy rules to move to the next available 
appropriately sized rental unit if the household becomes over housed or 
under housed in the unit they occupy.
    (8) Leases must include provisions that establish when a guest will 
be considered a member of the household and be required to be added to 
the tenant certification.
    (9) Leases must include a provision stating that tenancy continues 
until the tenant's possessions are removed from the housing either 
voluntarily or

[[Page 524]]

by legal means, subject to state and local law.
    (10) Leases must include a requirement that tenants who are no 
longer eligible for occupancy under the housing project's occupancy 
rules or do not meet the criteria set forth in Sec. 3560.155(c) and (e) 
must vacate the property within 30 days of being notified by the 
borrower that they are no longer eligible for occupancy or at the 
expiration of their lease, or whichever is greater, unless the 
conditions cited in Sec. 3560.158(c) exist;
    (11) Leases for rental units receiving rental assistance must 
include clauses that specify that the tenant's monthly tenant 
contribution and a description of the circumstances under which the 
tenant's contribution may change.
    (12) Leases must include a requirement that tenants notify borrowers 
when changes occur in their income or assets, their qualifications for 
adjustments to income, their citizenship status, or the number of 
persons living in the unit.
    (13) A requirement that tenants agree to fulfill the tenant income 
verification and certification requirements established under Sec. 
3560.152.
    (14) Leases for tenants living in Plan II interest credit rental 
units must include provisions establishing the net monthly tenant 
contribution.
    (15) Leases, including renewals, must include the following 
language:

    ``It is understood that the use, or possession, manufacture, sale, 
or distribution of an illegal controlled substance (as defined by local, 
State, or federal law) while in or on any part of this apartment complex 
or cooperative is an illegal act. It is further understood that such 
action is a material lease violation. Such violations (hereafter called 
a ``drug violation'') may be evidenced upon the admission to or 
conviction of the use, possession, manufacture, sale, or distribution of 
a controlled substance (as defined by local, state, or Federal law) in 
any local, state, or Federal court.
    The landlord may require any lessee or other adult member of the 
tenant household occupying the unit (or other adult or non-adult person 
outside the tenant household who is using the unit) who commits a drug 
violation to vacate the leased unit permanently, within timeframes set 
by the landlord, and not thereafter to enter upon the landlord's 
premises or the lessee's unit without the landlord's prior consent as a 
condition for continued occupancy by the remaining members of the 
tenant's household. The landlord may deny consent for entry unless the 
person agrees to not commit a drug violation in the future and is either 
actively participating in a counseling or recovery program, complying 
with court orders related to a drug violation, or has successfully 
completed a counseling or recovery program.
    The landlord may require any lessee to show evidence that any non-
adult member of the tenant household occupying the unit, who committed a 
drug violation, agrees not to commit a drug violation in the future, and 
to show evidence that the person is either actively seeking or receiving 
assistance through a counseling or recovery program, complying with 
court orders related to a drug violation, or has successfully completed 
a counseling or recovery program within timeframes specified by the 
landlord as a condition for continued occupancy in the unit. Should a 
further drug violation be committed by any non-adult person occupying 
the unit the landlord may require the person to be severed from tenancy 
as a condition for continued occupancy by the lessee.
    If a person vacating the unit, as a result of the above policies, is 
one of the lessees, the person shall be severed from the tenancy and the 
lease shall continue among any other remaining lessees and the landlord. 
The landlord may also, at the option of the landlord, permit another 
adult member of the household to be a lessee.
    Should any of the above provisions governing a drug violation be 
found to violate any of the laws of the land the remaining enforceable 
provisions shall remain in effect. The provisions set out above do not 
supplant any rights of tenants afforded by law.''

    (16) Leases for rental units accessible to individuals with 
disabilities occupied by those not needing the accessibility features 
must establish the tenant's responsibility to move to another unit when 
an appropriate unit becomes available or when the unit is needed by an 
eligible individual with disabilities. Additionally, the lease clause 
must require the borrower to provide tenants written notification of the 
date by which they must move to another unit in the project.
    (17) If loan prepayment occurs and the housing project is subject to 
restrictive use provisions, leases and renewals must be amended to 
include a clause specifying the tenant protections required under 
subpart N of this part.
    (18) All leases must contain the following information and 
provisions:

[[Page 525]]

    (i) The name of the tenant, any co-tenants, and all members of the 
household residing in the rental unit;
    (ii) The identification of the rental unit;
    (iii) The amount and due date of monthly tenant contributions, any 
late payment penalties, and security deposit amounts;
    (iv) The utilities, services, and equipment to be provided for the 
tenant;
    (v) The tenant's utility payment responsibility;
    (vi) The certification process for determining tenant occupancy 
eligibility and contribution;
    (vii) The limitations of the tenant's right to use or occupancy of 
the dwelling;
    (viii) The tenant's responsibilities regarding maintenance and 
consequences if the tenant fails to fulfill these responsibilities;
    (ix) The agreement of the borrower to accept the tenant contribution 
toward rent charges prior to payment of other charges that the tenant 
owes and a statement that borrowers may seek legal remedy for collecting 
other charges accrued by the tenant;
    (x) The maintenance responsibilities of the borrower in buildings 
and common areas, according to state and local codes, Agency 
regulations, and Federal fair housing requirements;
    (xi) The responsibility of the borrowers at move-in and move-out to 
provide the tenant with a written statement of rental unit's condition 
and provisions for tenant participation in inspection;
    (xii) The provision for periodic inspections by the borrower and 
other circumstances under which the borrower may enter the premises 
while a tenant is renting;
    (xiii) The tenant's responsibility to notify the borrower of an 
extended absence;
    (xiv) A provision that tenants may not assign the lease or sublet 
the property;
    (xv) A provision regarding transfer of the lease if the housing 
project is sold to an Agency-approved buyer;
    (xvi) The procedures that must be followed by the borrower and the 
tenant in giving notices required under terms of the lease including 
lease violation notices;
    (xvii) The good-cause circumstances under which the borrower may 
terminate the lease and the length of notice required;
    (xviii) The disposition of the lease if the housing project becomes 
uninhabitable due to fire or other disaster, including rights of the 
borrower to repair building or terminate the lease;
    (xix) The procedures for resolution of tenant grievances consistent 
with the requirements of Sec. 3560.160;
    (xx) The terms under which a tenant may, for good cause, terminate 
their lease, with 30 days notice, prior to lease expiration; and
    (xxi) The signature and date clause indicating that the lease has 
been executed by the borrower and the tenant.
    (d) Prohibited provisions. Borrowers are prohibited from including 
any of the following clauses in the lease:
    (1) Clauses prohibiting families with children under 18;
    (2) Clauses requiring prior consent by tenant to any lawsuit that 
borrowers may bring against the tenant in connection with the lease;
    (3) Clauses authorizing borrowers to hold any of a tenant's property 
until the tenant fulfills an obligation;
    (4) Clauses in which tenants agree not to hold borrowers liable for 
anything they may do or fail to do;
    (5) Clauses in which tenants agree that borrowers may institute suit 
without any notice to the tenant that the suit has been filed;
    (6) Clauses in which tenants agree that borrowers may evict the 
tenant or sell their possessions whenever borrowers determine that a 
breach or default has occurred;
    (7) Clauses authorizing the borrower's attorneys to appear in court 
on behalf of the tenant, and to waive the tenant's right to a trial by 
jury;
    (8) Clauses authorizing the borrower's attorneys to waive the 
tenant's right to appeal or to file suit; and
    (9) Clauses requiring the tenant to agree to pay legal fees and 
court costs whenever the borrower takes action against the tenant, even 
if the court finds in favor of the tenant.
    (e) Housing projects and units receiving HUD assistance. (1) In 
housing projects

[[Page 526]]

receiving Section 8 project-based assistance, borrowers may use the HUD 
model lease. The provisions of the HUD model lease will prevail, unless 
they conflict with Agency lease requirements in accordance with this 
section. If there is conflict between HUD requirements and Agency 
requirements, the provision that will be enforced will be the one that 
is most favorable to the tenant.
    (2) For units occupied by Section 8 certificate and voucher holders, 
borrowers may use:
    (i) A standard HUD-approved lease;
    (ii) A HUD-approved lease that includes a number of modifications 
from the standard HUD-approved lease; or
    (iii) An Agency-approved lease may be used if acceptable by HUD or 
the local housing authority.
    (f) State and local requirements. Borrowers must use a lease that is 
consistent with state and local requirements.
    (1) If any lease provision is in violation of state or local law, 
the lease may be modified to the extent needed to comply with the law, 
but any changes must be consistent with the provisions established in 
paragraph (c) of this section.
    (2) Leases must include a procedure for handling tenant's abandoned 
property, as provided by state or local law.

    Effective Date Note: At 70 FR 8503, Feb. 22, 2005, in Sec. 
3560.156(c)(12), implementation of the words ``* * * their citizenship 
status, * * *'' was delayed indefinitely.



Sec. 3560.157  Occupancy rules.

    (a) General. The purpose of a borrower's occupancy rules is to 
outline the basis for the tenant and management relationship. Prior to 
Agency approval of occupancy rules, borrowers must provide written 
certification from their attorney that the housing project's occupancy 
rules are consistent with applicable Federal, state, and local laws, as 
well as Agency requirements, and the requirements of all programs 
participating in the housing project. Borrowers must obtain Agency 
approval of the occupancy rules prior to initial occupancy and obtain 
Agency approval prior to the implementation date of any subsequent 
modifications to the rules.
    (b) Requirements. The occupancy rules must be in writing and posted 
for easy tenant access. A copy of these rules must be attached to the 
tenant's lease upon initial occupancy. At a minimum, the occupancy rules 
must address:
    (1) The tenant's rights and responsibilities under the lease or 
occupancy agreement;
    (2) The rent payment or occupancy charge policies;
    (3) The policies regarding periodic inspection of units;
    (4) The system for responding to tenant complaints;
    (5) The maintenance request and work order procedures;
    (6) The housing services and facilities available to tenants or 
members;
    (7) The office locations, hours, and emergency telephone numbers;
    (8) The restrictions on storage and prohibitions on non-functional 
vehicles in the housing project area;
    (9) Other requirements related to a subsidy provided to a tenant 
from non-Agency sources;
    (10) When a guest becomes a member of the tenant household; and
    (11) The procedures tenants must follow to request reasonable 
accommodations.
    (c) Modification of occupancy rules. The Agency must concur with any 
modification to the occupancy rules prior to implementation. Proper 
notice must be given to each tenant at least 30 days in advance of 
implementation of such rules in accordance with Sec. 3560.160.
    (d) Federal, state and local requirements. The occupancy rules must 
be consistent with Federal, state, and local law.
    (e) Pets/Assistance Animals. All housing projects should establish 
reasonable written pet rules. No rules may be promulgated that would 
prevent occupancy by a household member who requires a service or 
assistance animal. In elderly housing, borrowers must not prohibit 
tenants from keeping domestic animals in their rental units as pets.
    (f) Tenant organizations. Borrowers must not infringe on the rights 
of tenants to organize an association of tenants. Borrowers (or a 
designated management representative) should be

[[Page 527]]

available and willing to work with a tenant organization.
    (g) Community rooms. Borrowers may not place unreasonable 
restrictions on tenants that desire to use a community room.



Sec. 3560.158  Changes in tenant eligibility.

    (a) General requirements. Tenants must continue to meet the 
requirements of Sec. 3560.152 to remain eligible for occupancy.
    (b) Tenants no longer eligible. Tenants who are no longer eligible 
for occupancy under the housing project's occupancy rules or do not meet 
the criteria set forth in Sec. 3560.155(c) and (e) must vacate the 
property within 30 days of being notified by the borrower that they are 
no longer eligible for occupancy or at the expiration of their lease, 
whichever is greater, unless the conditions specified in paragraph (c) 
of this section exist.
    (c) Temporary continuation of tenancy. If conditions described in 
Sec. 3560.454(b) or the following conditions exist, borrowers may 
permit tenants who are no longer eligible for occupancy to continue to 
reside at the housing project with prior approval of the Agency.
    (1) The waiting list for the specific rental unit type has no 
eligible applicants; or
    (2) The required time period for vacating the rental unit would 
create a hardship on the tenant household.
    (d) Surviving and remaining household members. (1) Members of a 
household may continue to reside in a housing project after the 
departure or death of the tenant or co-tenant, provided that:
    (i) They are eligible with respect to adjusted income;
    (ii) They occupied a rental unit in the housing project at the time 
of the departure or death of the tenant or co-tenant;
    (iii) They execute a tenant certification form establishing their 
own tenancy; and
    (iv) They have the legal ability to sign a lease for the rental 
unit, except where a legal guardian may sign when the tenant or member 
is otherwise eligible.
    (2) Surviving or remaining members of the household may remain in 
the housing project, taking into consideration the conditions of 
paragraph (d)(1) of this section, but must move to a suitably sized 
rental unit within 30 days of its availability.
    (3) After the death of a tenant or co-tenant in elderly housing, the 
surviving members of the household, regardless of age but taking into 
consideration the conditions of paragraph (d)(1) of this section, may 
remain in the rental unit in which they were residing at the time of the 
tenant's or co-tenant's death, even if the household is over housed 
according to the housing project's occupancy rules as follows:
    (i) Continued occupancy of the rental unit will not be allowed when 
in either situation of paragraph (d)(1) or (d)(3) of this section, the 
rental unit has accessibility features for individuals with 
disabilities, the household no longer has a need for such accessibility 
features, and the housing project has a tenant application from an 
individual with a need for the accessibility features;
    (ii) If the housing project does not have a tenant application from 
an individual with a need for the accessibility features, the household 
may remain in the rental unit with such features until the housing 
project receives an application from an individual with a need for 
accessibility features. The household in the unit with accessibility 
features will be required to move within 30 days of the housing 
project's receipt of a tenant application requiring accessibility 
features if another suitably sized unit without accessibility features 
is available in the project. If a suitably sized unit is not available 
in the project within 30 days, the tenant may remain in the unit with 
accessibility features until the first available unit in the project 
becomes available and then must move within 30 days.



Sec. 3560.159  Termination of occupancy.

    (a) Tenants in violation of lease. Borrowers, in accordance with 
lease agreements, may terminate or refuse to renew a tenant's lease only 
for material non-compliance with the lease provisions, material non-
compliance with the occupancy rules, or other good causes. Prior to 
terminating a lease, the borrower must give the tenant

[[Page 528]]

written notice of the violation and give the tenant an opportunity to 
correct the violation. Subsequently, termination may only occur when the 
incidences related to the termination are documented and there is 
documentation that the tenant was given notice prior to the initiation 
of the termination action that their activities would result in 
occupancy termination.
    (1) Material non-compliance with lease provisions or occupancy 
rules, for purposes of occupancy termination by a borrower, includes 
actions such as:
    (i) Violations of lease provisions or occupancy rules that are 
substantial and/or repeated;
    (ii) Non-payment or repeated late payment of rent or other financial 
obligations due under the lease or occupancy rules; or
    (iii) Admission to or conviction for use, attempted use, possession, 
manufacture, selling, or distribution of an illegal controlled substance 
when such activity occurred on the housing project's premises by the 
tenant, a member of the tenant's household, a guest of the tenant, or 
any other person under the tenant's control at the time of the activity.
    (2) Good causes, for purposes of occupancy terminations by a 
borrower, include actions such as:
    (i) Actions by the tenant or a member of the tenant's household 
which disrupt the livability of the housing by threatening the health 
and safety of other persons or the right of other persons to enjoyment 
of the premises and related facilities;
    (ii) Actions by the tenant or a member of the tenant's household 
which result in substantial physical damage causing an adverse financial 
effect on the housing or the property of other persons; or
    (iii) Actions prohibited by state and local laws.
    (b) Lease expiration or tenant eligibility. A tenant's occupancy in 
an Agency-financed housing project may not be terminated by a borrower 
when the lease agreement expires unless the tenant's actions meet the 
conditions described in paragraph (a) of this section, or the tenant is 
no longer eligible for occupancy in the housing. Borrowers must handle 
terminations of occupancy due to a change in tenant eligibility status 
in accordance with Sec. 3560.158. At a minimum, the occupancy 
termination notice must include the following information:
    (1) A specific date by which lease termination will occur;
    (2) A statement of the basis for lease termination with specific 
reference to the provisions of the lease or occupancy rules that, in the 
borrower's judgment, have been violated by the tenant in a manner 
constituting material non-compliance or good cause; and
    (3) A statement explaining the conditions under which the borrower 
may initiate judicial action to enforce the lease termination notice.
    (c) Other terminations. If occupancy is terminated due to conditions 
which are beyond the control of the tenant, such as a condition related 
to required repair or rehabilitation of the building, or a natural 
disaster, the tenants who are affected by such a circumstance are 
entitled to benefits under the Uniform Relocation Act and may request a 
Letter of Priority Entitlement (LOPE) from the Agency. If tenants need 
additional time to secure replacement housing, the Agency may, at the 
tenant's request, extend the LOPE entitlement period.
    (d) Criminal activity. Borrowers may terminate tenancy for criminal 
activity or alcohol abuse by household members in accordance with the 
provisions of 24 CFR 5.858, 5.859, 5.860, and 5.861.



Sec. 3560.160  Tenant grievances.

    (a) General. (1) The requirements established in this section are 
designed to ensure that there is a fair and equitable process for 
addressing tenant or prospective tenant concerns and to ensure fair 
treatment of tenants in the event that an action or inaction by a 
borrower, including anyone designated to act for a borrower, adversely 
affects the tenants of a housing project.
    (2) Any tenant/member or prospective tenant/member seeking occupancy 
in or use of Agency facilities who believes he or she is being 
discriminated against because of age, race, color, religion, sex, 
familial status, disability, or national origin may file a complaint in

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person with, or by mail to the U.S. Department of Agriculture's Office 
of Civil Rights, Room 326-W, Whitten Building, 14th and Independence 
Avenue, SW., Washington DC 20250-9410 or to the Office of Fair Housing 
and Equal Opportunity, U.S. Department of Housing and Urban Development 
(HUD), Washington, DC 20410. Complaints received by Agency employees 
must be directed to the National Office Civil Rights Staff through the 
State Civil Rights Manager/Coordinator.
    (b) Applicability. (1) The requirements of this section apply to a 
borrower action regarding housing project operations, or the failure to 
act, that adversely affects tenants or prospective tenants.
    (2) This section does not apply to the following situations:
    (i) Rent changes authorized by the Agency in accordance with the 
requirements of Sec. 3560.203(a);
    (ii) Complaints involving discrimination which must be handled in 
accordance with Sec. 3560.2(b) and paragraph (a)(2) of this section;
    (iii) Housing projects where an association of all tenants has been 
duly formed and the association and the borrower have agreed to an 
alternative method of settling grievances;
    (iv) Changes required by the Agency in occupancy rules or other 
operational or management practices in which proper notice and 
opportunity have been given according to law and the provisions of the 
lease;
    (v) Lease violations by the tenant that would result in the 
termination of tenancy and eviction;
    (vi) Disputes between tenants not involving the borrower; and
    (vii) Displacement or other adverse actions against tenant as a 
result of loan prepayment handled according to subpart N of this part.
    (c) Borrower responsibilities. Borrowers must permanently post 
tenant grievance procedures that meet the requirements of this section 
in a conspicuous place at the housing project. Borrowers also must 
maintain copies of the tenant grievance procedure at the housing 
project's management office for inspection by the tenants and the Agency 
upon request. Each tenant must receive an Agency summary of tenant's 
rights when a lease agreement is signed. If a housing project is located 
in an area with a concentration of non-English speaking individuals, the 
borrower must provide grievance procedures in both English and the non-
English language. The notice must include the telephone number and 
address of USDA's Office of Civil Rights and the appropriate Regional 
Fair Housing and Enforcement Agency.
    (d) Reasons for grievance. Tenants or prospective tenants may file a 
grievance in writing with the borrower in response to a borrower action, 
or failure to act, in accordance with the lease or Agency regulations 
that results in a denial, significant reduction, or termination of 
benefits or when a tenant or prospective tenant contests a borrower's 
notice of proposed adverse action as provided in paragraph (e) of this 
section. Acceptable reasons for filing a grievance may include:
    (1) Failure to maintain the premises in such a manner that provides 
decent, safe, sanitary, and affordable housing in accordance with Sec. 
3560.103 and applicable state and local laws;
    (2) Borrower violation of lease provisions or occupancy rules;
    (3) Modification of the lease;
    (4) Occupancy rule changes;
    (5) Rent changes not authorized by the Agency according to Sec. 
3560.205; or
    (6) Denial of approval for occupancy.
    (e) Notice of adverse action. In the case of a proposed action that 
may have adverse consequences for tenants or prospective tenants such as 
denial of admission to occupancy and changes in the occupancy rules or 
lease, the borrower must notify the tenant or prospective tenant in 
writing. In the case of a Borrower's proposed adverse action including 
denial of admission to occupancy, the Borrower shall notify the 
applicant/tenant in writing. The notice must be delivered by certified 
mail return receipt requested, or a hand-delivered letter with a signed 
and dated acknowledgement of receipt from the applicant/tenant, The 
notice must give specific reasons for the proposed action. The notice 
must also advise the tenant or prospective tenant of ``the right to 
respond to the notice within ten calendar days after date of the 
notice'' and of ``the right to a hearing in

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accordance with Sec. 3560.160 (f), which is available upon request.'' 
The notice must contain the information specified in paragraph (a)(2) of 
this section. For housing projects in areas with a concentration of non-
English speaking individuals, the notice must be in English and the non-
English language.
    (f) Grievances and responses to notice of adverse action. The 
following procedures must be followed by tenants, prospective tenants, 
or borrowers involved in a grievance or a response to an adverse action.
    (1) The tenant or prospective tenant must communicate to the 
borrower in writing any grievance or response to a notice within 10 
calendar days after occurrence of the adverse action or receipt of a 
notice of intent to take an adverse action.
    (2) Borrowers must offer to meet with tenants to discuss the 
grievance within 10 calendar days of receiving the grievance. The Agency 
encourages borrowers and tenants or prospective tenants to make an 
effort to reach a mutually satisfactory resolution to the grievance at 
the meeting.
    (3) If the grievance is not resolved during an informal meeting to 
the tenant or prospective tenant's satisfaction, the borrower must 
prepare a summary of the problem and submit the summary to the tenant or 
prospective tenant and the Agency within 10 calendar days The summary 
should include: The borrower's position; the applicant/tenant's 
position; and the result of the meeting. The tenant also may submit a 
summary of the problem to the Agency.
    (g) Hearing process. The following procedures apply to a hearing 
process.
    (1) Request for hearing. If the tenant or prospective tenant desires 
a hearing, a written request for a hearing must be submitted to the 
borrower within 10 calendar days after the receipt of the summary of any 
informal meeting.
    (2) Selection of hearing officer or hearing panel. In order to 
properly evaluate grievances and appeals, the borrower and tenant must 
select a hearing officer or hearing panel. If the borrower and the 
tenant cannot agree on a hearing officer, then they must each appoint a 
member to a hearing panel and the members selected must appoint a third 
member. If within 30 days from the date of the request for a hearing, 
the tenant and borrower have not agreed upon the selection of a hearing 
officer or hearing panel, the borrower must notify the Agency by mail of 
the situation. The Agency will appoint a person to serve as the sole 
hearing officer. The Agency may not appoint a hearing officer who was 
earlier considered by either the borrower or the tenant, in the interest 
of ensuring the integrity of the process.
    (3) Standing hearing panel. In lieu of the procedure contained in 
paragraph (g)(2) of this section for each grievance or appeal presented, 
a borrower may ask the Agency to approve a standing hearing panel for 
the housing project.
    (4) Examination of records. The borrower must allow the tenant the 
opportunity, at a reasonable time before a hearing and at the expense of 
the tenant, to examine or copy all documents, records, and policies of 
the borrower that the borrower intends to use at a hearing unless 
otherwise prohibited by law or confidentiality agreements.
    (5) Scheduling of hearing. If a standing hearing panel has been 
approved, a hearing will be scheduled within 15 calendar days after 
receipt of the tenant's or prospective tenant's request for a hearing. 
If a hearing officer or hearing panel must be selected, a hearing will 
be scheduled within 15 calendar days after the selection or appointment 
of a hearing panel or a hearing officer. All hearings will be held at a 
time and place mutually convenient to both parties. If the parties 
cannot agree on a meeting place or time, the hearing officer or hearing 
panel will designate the place and time.
    (6) Escrow deposits. If a grievance involves a rent increase not 
authorized by the Agency, or a situation where a borrower fails to 
maintain the property in a decent, safe, and sanitary manner, rental 
payments may be deposited by the tenant into an escrow account, provided 
the tenant's rental payments are otherwise current.
    (i) The escrow account deposits must continue until the complaint is 
resolved through informal discussion or by the hearing officer or panel.

[[Page 531]]

    (ii) The escrow account must be in a Federally-insured institution 
or with a bonded independent agent.
    (iii) Failure to make timely rent payments into the escrow account 
will result in a termination of the tenant grievance and appeals 
procedure and all sums will immediately become due and payable under the 
lease.
    (iv) Receipts of escrow account deposits must be available for 
examination by the borrower.
    (7) Failure to request a hearing. If the tenant or prospective 
tenant does not request a hearing within the time provided by paragraph 
(f)(1) of this section, the borrower's disposition of the grievance or 
appeal will become final.
    (h) Requirements governing the hearing. The following requirements 
will govern the hearing process.
    (1) Subject to paragraph (f)(2) of this section, the hearing will 
proceed before a hearing officer or hearing panel at which evidence may 
be received without regard to whether that evidence could be used in 
judicial proceedings.
    (2) The hearing must be structured so as to provide basic due 
process safeguards for both the borrower and the tenants or prospective 
tenants, which must protect:
    (i) The right of both parties to be represented by counsel or 
another person chosen as their representative;
    (ii) The right of the tenant or prospective tenant to a private 
hearing unless a public hearing is requested;
    (iii) The right of the tenant or prospective tenant to present oral 
or written evidence and arguments in support of their grievance or 
appeal and to cross-examine and refute the evidence of all witnesses on 
whose testimony or information the borrower relies; and
    (iv) The right of the borrower to present oral and written evidence 
and arguments in support of the decision, to refute evidence relied upon 
by the tenant or prospective tenant, and to confront and cross-examine 
all witnesses in whose testimony or information the tenant or 
prospective tenant relies.
    (3) At the hearing, the tenant or prospective tenant must present 
evidence that they are entitled to the relief sought, and the borrower 
must present evidence showing the basis for action or failure to act 
against that which the grievance or appeal is directed.
    (4) The hearing officer or hearing panel must require that the 
borrower, the tenant or prospective tenant, counsel, and other 
participants or spectators conduct themselves in an orderly manner. 
Failure to comply may result in exclusion from the proceedings or in a 
decision adverse to the interests of the disorderly party and granting 
or denial of the relief sought, as appropriate.
    (5) If either party or their representative fails to appear at a 
scheduled hearing, the hearing officer or hearing panel may make a 
determination to postpone the hearing for no more than five days or may 
make a determination that the absent party has waived their right to a 
hearing under this subpart. If the determination is made that the absent 
party has waived their rights, the hearing officer or hearing panel will 
make a decision on the grievance. Both the tenant or prospective tenant 
and the borrower must be notified in writing of the determination of the 
hearing officer or hearing panel.
    (i) Decision. Hearing decisions must be issued in accordance with 
the following requirements.
    (1) The hearing officer or hearing panel has the authority to affirm 
or reverse a borrower's decision.
    (2) The hearing officer or hearing panel must prepare a written 
decision, together with the reasons thereof based solely and exclusively 
upon the facts presented at the hearing within 10 calendar days after 
the hearing. The notice must state that the decision is not effective 
for 10 calendar days to allow time for an Agency review as specified in 
paragraphs (i)(3) and (i)(4) of this section.
    (3) The hearing officer or hearing panel must send a copy of the 
decision to the tenant, or prospective tenant, borrower, and the Agency.
    (4) The decision of the hearing officer or hearing panel shall be 
binding upon the parties to the hearing unless the parties to the 
hearing are notified within 10 calendar days by the Agency that the 
decision is not in compliance with Agency regulations.
    (5) Upon receipt of written notification from the hearing officer or 
hearing

[[Page 532]]

panel, the borrower and tenant must take the necessary action, or 
refrain from any actions, specified in the decision.



Sec. Sec. 3560.161-3560.199  [Reserved]



Sec. 3560.200  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                             Subpart E_Rents



Sec. 3560.201  General.

    This subpart sets forth the requirements for establishing and 
collecting rents charged to occupants of multi-family housing (MFH) 
projects financed by the Agency.



Sec. 3560.202  Establishing rents and utility allowances.

    (a) General. Rents and utility allowances for rental units in 
Agency-financed housing projects are set by the borrower and must be 
based on the operating, management and maintenance expenses and other 
costs related to the housing project including loan payment amounts due 
to the Agency.
    (b) Agency approval. All rents and utility allowances set by 
borrowers are subject to Agency approval.
    (c) Rents. As applicable, borrowers must establish the following 
rents:
    (1) Note rent;
    (2) Basic rent;
    (3) U.S. Department of Housing and Urban Development (HUD) contract 
rents; and
    (4) Low-income housing tax credit (LIHTC) rents.
    (d) Utility allowances. In projects where tenants pay the utilities, 
borrowers must establish utility allowances for each size and type of 
rental unit in the housing project based on estimated utility costs. 
Borrowers must review utility allowances annually, adjust for accuracy, 
and submit any utility allowance changes to the Agency for approval. If 
no changes are needed, the borrower must notify the Agency that no 
changes were made. Documentation to justify utility allowances must be 
maintained in the housing project files.
    (e) Funds contributed to reduce rents. If borrowers use funds 
contributed from sources other than the Agency (e.g., state or local 
grants, private contributions) to reduce general operating and 
management expenses, housing project rents must be reduced to reflect 
the funding being used to offset housing project expenses. When funds 
contributed from sources other than the Agency are used for housing 
project expenses, the borrower must certify to the Agency, in writing, 
that the funds provided will not need to be repaid with Agency funds. 
Funds from borrower contributions or rehabilitation loans will not be 
counted towards reducing rents.
    (f) Rents for resident manager, caretaker, or owner-occupied unit. 
(1) If approved as a part of a management plan, a borrower may occupy a 
rental unit in a housing project when they are acting as a management 
agent or resident manager as specified in Sec. 3560.102(e).
    (2) If the rental unit being occupied by a borrower or resident 
manager is designated as a revenue-producing unit, borrowers must 
calculate the rental charge to the borrower or resident manager in the 
same manner as tenant contributions.
    (3) If the rental unit being occupied by a borrower or resident 
manager is designated as a non-revenue producing unit, borrowers must 
treat the cost of providing the unit the same as other non-revenue 
producing portions of the housing project.
    (g) LIHTC. Borrowers who receive LIHTCs may establish rents in 
accordance with LIHTC requirements. However, borrowers are obligated to 
ensure that sufficient annual funds are available to cover expenses in 
the housing project's approved budget, including

[[Page 533]]

the required payments on the borrower's Agency loan. Borrowers must not 
use housing project funds to make up any difference between rents 
required under Agency program requirements and the maximum allowed rents 
under the LIHTC program.



Sec. 3560.203  Tenant contributions.

    (a) Tenant contributions. A tenant's contribution to rent charged 
for a rental unit in an Agency financed housing project is based on the 
tenant's income, as calculated on the Agency's tenant certification 
forms, and the availability of Agency or non-Agency rental subsidies.
    (1) Tenant contributions. Borrowers must set tenant contributions to 
rent at the highest of the following standards but never more than the 
note rent:
    (i) Thirty percent of monthly adjusted income;
    (ii) Ten percent of gross monthly income;
    (iii) An amount equal to the portion of an assistance payment 
specifically designated to meet the household's shelter costs if the 
household is receiving assistance payments from a public agency; or
    (iv) The basic rent, unless RHS rental assistance is provided to the 
household.
    (2) Tenant contribution surcharge. Tenants in a Plan I housing 
project with incomes above the eligibility standards set in Sec. 
3560.152(a)(1) must pay a 25 percent surcharge in addition to note rent.
    (b) Adjustment of tenant contribution. Borrowers must adjust the 
tenant contribution whenever there is a change in tenant household 
status or income sufficient to generate a revised tenant certification 
in accordance with Sec. 3560.152(e) or an Agency approved rent or 
utility allowance change that affects the tenant contribution amount.
    (c) Overage. If a tenant's tenant contribution is higher than basic 
rent, borrowers must remit to the Agency the rent collected in excess of 
the basic rent and up to the note rent.



Sec. 3560.204  Security deposits and membership fees.

    (a) General. Borrowers may collect security deposits when it is 
reasonable and customary for the area in which the housing is located. 
Borrowers must hold security deposits in a separate bank or bookkeeping 
account in accordance with Sec. 3560.302(c)(3).
    (b) Allowable amounts. Borrowers may charge security deposits that 
are typical for the area in which the housing is located, as long as the 
security deposit charged a tenant does not exceed that tenant's net 
contribution for one month's rent or basic rent, whichever is greater.
    (1) As noted in Sec. 3560.102(b)(1)(viii) and Sec. 
3560.156(c)(18)(iii), borrowers must specify in the housing project's 
management plan how the amount to be charged as a security deposit will 
be established and must specify the amount to be charged to individual 
tenants in the lease to be signed by the tenant.
    (2) Borrowers may charge security deposits to households receiving 
HUD assistance in accordance with HUD requirements.
    (3) Members of a cooperative shall be required to pay a membership 
fee no greater than one month's occupancy charge.
    (4) Additional security deposits for pets may be charged as long as 
the additional deposit is not greater than basic rent for 1 month. No 
additional security deposit for assistance animals is allowed where an 
assistance animal is necessary for the normal functioning of a household 
member with a disability.
    (5) Borrowers must not charge additional security deposits based on 
disabilities of tenants or other personal characteristics.
    (c) Payment plans. Borrowers must offer, for persons who are 
eligible for rental assistance or Section 8 assistance, the option of 
paying the security deposit on an installment payment plan. Should 
installments not be met, the total charge may become due and payable in 
full.
    (d) Charges for damage or loss. Borrowers may charge tenants for 
damage or loss caused or allowed by the tenant equal to the cost of the 
damage or loss.
    (1) Borrowers must consider expenses due for addressing normal wear 
and tear as normal operating expenses and must not charge tenants a fee 
or withhold security deposits to pay for such costs.

[[Page 534]]

    (2) Borrowers may withhold security deposits and may charge tenants 
for damage or loss costs above security deposit amounts.
    (e) State and local security deposit requirements. Borrowers must 
follow all state and local laws and other requirements governing the 
handling and disposition of security deposits.
    (1) Resolution of any security deposit disputes must be handled in 
accordance with state and local law.
    (2) Any interest earned on security deposits will accrue in 
accordance with state law.
    (f) Unclaimed security deposits. Any funds in the housing project's 
security deposit account unclaimed by a tenant must be deposited into 
the housing project's general operating account.



Sec. 3560.205  Rent and utility allowance changes.

    (a) General. Borrowers must fully document that changes to rents and 
utility allowances are necessary to cover housing or utility costs 
allowed under the approved budget for the housing. Any changes must 
apply to all similar units in the housing project.
    (b) Agency approval. Borrowers must submit a fully documented 
request to the Agency to effect any rent or utility allowance change.
    (1) Borrowers must obtain written consent or approval from the 
Agency as specified in paragraph (e) of this section before implementing 
any changes in the rents or utility allowances.
    (2) If a borrower implements an unauthorized rent or utility 
allowance charge, the Agency will require the borrower to roll back 
rents to the last authorized rent charge, and the borrower must 
reimburse tenants for any unauthorized rents collected.
    (c) Timing of request for changes. Borrowers must submit rent and 
utility allowance change requests in conjunction with the annual budget 
submission as required under Sec. 3560.303(d). The effective dates of 
any approved changes will coincide with the start of the housing 
project's fiscal year or the start of the season for seasonally occupied 
farm labor housing. However, the Agency will accept borrower requests 
for rent or utility allowance changes anytime during the year if a 
change is necessary to preserve the financial integrity of the housing 
complex and the financial distress is due to circumstances beyond the 
borrower's control.
    (d) Tenant notification. Borrowers must notify tenants and solicit 
their comments to proposed rent or utility allowance change requests 
that are submitted to the Agency at the same time that the initial 
request is made to the Agency.
    (1) Tenants will be given 20 calendar days to provide their comments 
to the Agency.
    (2) Borrowers must deliver the proposed rent or utility allowance 
change request notice to each tenant and post at least one copy of the 
notice at the housing project site in a visible location frequented by 
tenants.
    (e) Approval. If the Agency approves a rent or utility allowance 
increase request on which the comments were solicited, the borrower will 
deliver a notice announcing the rent or utility allowance change to the 
tenants to be effective 30 calendar days from the date of the 
notification.
    (f) Denial of change request. The Agency may deny a rent or utility 
allowance increase request in the following circumstances.
    (1) The Agency determines that the borrower did not provide 
sufficient information to justify operating costs.
    (2) The borrower is out of compliance with Agency requirements 
including any corrective action requirements agreed to in a workout 
agreement developed according to subpart J of this part.
    (3) Sufficient funds are being collected under existing rents to 
meet approved expenses.
    (g) Notice of denial. If the rent change will not be approved as 
requested, the Agency will notify the borrower of the denial in 
accordance with Sec. 3560.303(d).



Sec. 3560.206  Conversion to Plan II (Interest Credit).

    The Agency encourages any borrower not on Plan II to convert to Plan 
II to provide more favorable rent costs to very-low, low, and moderate-
income households.

[[Page 535]]



Sec. 3560.207  Annual adjustment factors for Section 8 units.

    (a) General. For rental units receiving project-based Section 8 
assistance, the Agency will review rents annually without regard to 
HUD's automatic annual adjustment.
    (b) Establishing rents in housing with HUD rent assistance. 
Borrowers will set note and basic rents for housing receiving HUD 
project based Section 8 assistance, as specified in Sec. 
3560.202(c)(3).
    (1) Borrowers must notify the Agency of any HUD rent changes.
    (2) If allowed by the interest credit agreement, the borrower will 
remit the amount collected in excess of the basic rent up to the note 
rent to the Agency as overage.
    (3) When HUD contract rents exceed note rents, borrowers must 
deposit HUD funds equal to the difference between the Agency approved 
note rent and the HUD approved rent into the reserve account for the 
housing project.
    (c) Excess HUD rents. When permitted by the Agency interest credit 
agreement, the Agency may reduce or cancel the interest credit on the 
housing, if excess HUD rents deposited in the reserve account result in 
the reserve account being funded beyond the fully funded level approved 
by the Agency.



Sec. 3560.208  Rents during eviction or failure to recertify.

    (a) Rents during eviction. If a tenant is appealing an eviction and 
the borrower refuses to accept rent payment during the appeal of the 
eviction, the tenant must escrow required rent payments to safeguard 
their occupancy, unless State or local laws specify otherwise.
    (b) Rents when tenants fail to recertify. If a borrower can document 
that a tenant received a notice specifying a tenant recertification date 
and the tenant fails to comply by the specified date or fails to 
cooperate with verification or other procedures related to the tenant's 
recertification so that the tenant recertification cannot be completed 
by the recertification date, the borrower, within 10 days of the 
recertification date, shall give the tenant and the Agency written 
notification that:
    (1) Termination proceedings are being initiated, in accordance with 
Sec. 3560.159; and
    (2) The tenant will be charged note rent until the tenant's lease is 
terminated.
    (c) Unauthorized assistance due to tenant recertification failure. 
Any unauthorized assistance received because of the tenant's failure to 
be recertified will be collected in accordance with the provisions of 
subpart O of this part.
    (d) Rents when borrowers fail to recertify tenants. If a borrower 
cannot document that a tenant received a recertification notice, and a 
tenant is not recertified within 12 months of the most recently executed 
tenant certification, tenants shall continue to make net tenant 
contributions to rent based on their most recent tenant certification 
and the borrower must remit to the Agency full overage as if the tenant 
was paying the note rent until the tenant is recertified.
    (e) Unauthorized assistance due to borrower recertification failure. 
Any unauthorized assistance received as a result of the borrower's 
failure to recertify a tenant will be collected from the borrower in 
accordance with the provisions of subpart O of this part and may not be 
paid from housing project funds or funds collected from the tenant.



Sec. 3560.209  Rent collection.

    (a) General. Borrowers must collect rents on a monthly basis and 
maintain a system for collecting and tracking rents.
    (b) Fees for late rent payments. Borrowers may adopt a late fee 
schedule for overdue rental payments. Late fee schedules must be 
submitted to the Agency for approval as part of the housing project's 
management plan, be in accordance with State and local law, and 
consistent with the following requirements:
    (1) A grace period of 10 days from the rental payment due date must 
be allowed for all tenants.
    (2) The late fee must not exceed the higher of $10 or an amount 
equal to 5 percent of the tenant's gross tenant contribution.
    (3) Tenants receiving housing benefits from sources other than the 
Agency may be subject to the late rent fee requirements of the other 
funding sources.

[[Page 536]]

    (c) Improperly advanced rents. Improperly advanced interest credit 
or rental assistance is considered unauthorized assistance and is 
subject to recapture in accordance with subpart O of this part.



Sec. 3560.210  Special note rents (SNRs).

    When a Plan II housing project is experiencing severe vacancies due 
to market conditions, the Agency may allow the borrower to charge an 
SNR, which is less than note rent but higher than basic rent, to attract 
or retain tenants whose income level would require them to pay special 
note rent. The requirements for requesting and receiving an SNR are 
established under Sec. 3560.454.



Sec. Sec. 3560.211-3560.249  [Reserved]



Sec. 3560.250  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                       Subpart F_Rental Subsidies



Sec. 3560.251  General.

    This subpart contains policies for borrower administration and 
tenant use of rental subsidies in Agency financed multi-family housing 
(MFH) projects.



Sec. 3560.252  Authorized rental subsidies.

    (a) General. The purpose of rental subsidies is to reduce amounts 
paid by tenants for rent. Rental subsidies equal the difference between 
the approved shelter costs and tenant contributions as calculated in 
accordance with Sec. 3560.203(a)(1).
    (b) Forms of rental subsidies. Rental subsidies may be in the form 
of:
    (1) Agency rental assistance;
    (2) HUD section 8 assistance, including project-based and vouchers;
    (3) Private rental subsidies; or
    (4) State or local government rental subsidies.
    (c) Multiple rent subsidies. (1) Multiple types of rent subsidies 
may be used in the same MFH project.
    (2) Tenants with subsidies from sources other than the Agency may be 
eligible for Agency rental assistance if the following conditions are 
met.
    (i) The tenant qualifies for Agency rental assistance.
    (ii) The rental subsidy the tenant is receiving is not a HUD 
voucher.
    (iii) The rental subsidy being received by the tenant is less than 
the full amount of Agency rental assistance for which the tenant would 
qualify. In such cases, the Agency may provide the difference between 
the subsidy received by the tenant and the amount of Agency rental 
assistance for which the tenant qualifies.
    (d) Agency rental assistance (RA). Agency RA is obligated to MFH 
projects on a rental unit basis. The obligation is composed of a number 
of rental units and associated dollar amounts of RA specified in a RA 
agreement with a borrower. The following types of Agency RA may be 
obligated to a housing project.
    (1) Renewal units. RA may be assigned to a housing project to 
replace existing rental unit obligations because funds associated with 
the units have been fully disbursed.
    (2) New construction units. RA may be provided in conjunction with 
initial Agency loans for construction or substantial rehabilitation of 
MFH projects.
    (3) Servicing units. Additional RA may be provided to operational 
MFH projects as a part of the Agency's general loan servicing or 
preservation activities.



Sec. 3560.253  [Reserved]



Sec. 3560.254  Eligibility for rental assistance.

    (a) Eligible housing. Housing projects eligible for Agency RA 
include the following types of projects.

[[Page 537]]

    (1) Housing projects that operate under an Interest Credit Plan II 
RA agreement.
    (2) Housing projects financed with an Agency off-farm labor housing 
loan or grant. On-farm labor housing is not eligible for rental 
assistance.
    (3) Housing projects financed with a direct or insured Rural Rental 
Housing loan approved prior to August 1, 1968, and operated under an 
interest credit agreement that identifies the housing project as a Plan 
RA project.
    (4) Housing projects financed from Agency and other sources if the 
conditions of Sec. 3560.66 are met.
    (b) Eligible units. Borrowers may not request RA for rental units 
that the Agency determines are not habitable in accordance with Sec. 
3560.103.
    (c) Eligible households. Households eligible for rental assistance 
are those:
    (1) With very low-or low-incomes who are eligible to live in MFH;
    (2) Whose net tenant contribution to rent determined in accordance 
with Sec. 3560.203(a)(2) is less than the basic rent for the unit;
    (3) Whose head of the household is a U.S. citizen or a legal alien 
as defined in Sec. 3560.11;
    (4) Who meet the occupancy rules established by the borrower in 
accordance with Sec. 3560.155(e); and
    (5) Who have a signed, unexpired tenant certification form on file 
with the borrower.

    Effective Date Note: At 70 FR 8503, Feb. 22, 2005, in Sec. 
3560.254(c)(3), implementation of the words ``Whose head of the 
household is a U.S. citizen or a legal alien as defined in Sec. 
3560.11.'' was delayed indefinitely.



Sec. 3560.255  Requesting rental assistance.

    (a) Submitting requests. Borrowers seeking an allocation of rental 
assistance for MFH must request the rental assistance from the Agency as 
follows.
    (1) Renewal rental assistance. To the extent sufficient funds are 
available, the Agency will automatically renew expiring rental 
assistance agreements at the existing number of units.
    (2) New construction units. Loan applicants proposing to use Agency 
rental assistance must include their request for rental assistance in 
their loan proposal in accordance with Sec. 3560.56.
    (3) Servicing units. Borrowers requesting rental assistance must 
have tenants or eligible tenant applicants on a waiting list who are RA 
eligible.
    (b) Denial of requests. (1) If a rental assistance request is denied 
due to the loan applicant's or borrower's ineligibility, the Agency will 
send the loan applicant or borrower written notification of the decision 
with an explanation of the denial.
    (2) If a rental assistance request to renew expiring rental 
assistance agreements is denied because funding is not available, the 
Agency will notify the borrower and the borrower must notify the tenants 
of rent increases in accordance with their lease and state and local 
law. Tenants losing rental assistance due to a lack of Agency funding 
may quit the lease and vacate the housing without penalty in accordance 
with the terms of their lease.
    (3) Loan applicants or borrowers determined to be eligible for RA as 
a result of an appeal or funding review will receive RA, if RA funding 
is available, beginning with the month following the date of the appeal 
or funding review decision or beginning in the first month that RA 
funding becomes available.



Sec. 3560.256  Rental assistance payments.

    (a) Borrower submission requirements. The borrower must submit 
monthly requests for RA payments to the Agency based on occupancy as of 
the first day of the month previous to the month in which the request is 
being made.
    (b) Basis of RA requests. Borrower requests for RA payments must be 
based on the difference between the basic rent plus utility allowances 
for each rental unit eligible for RA and the net tenant contribution of 
the tenant.
    (c) Payments to borrower. Prior to making RA payments to a borrower, 
the Agency will deduct from the approved RA payment amount any unpaid 
loan payments, late fees, and other amounts which the borrower owes to 
the Agency.
    (d) Utility payments to tenants. The borrower must pay tenants the 
difference between the utility allowance and the tenant's net 
contribution to rent when a tenant receiving RA is

[[Page 538]]

billed directly for utilities and the utility allowance exceeds the net 
tenant contribution to rent. Such utility payments to tenants must be 
made on a monthly basis.
    (e) Administrative errors. Borrowers are responsible for correcting 
borrower errors made in regard to RA requests for payments. In 
accordance with subpart O of this part, borrowers will be required to 
repay the Agency for any unauthorized RA received or any unauthorized 
use of RA except in certain cases of tenant error or fraud.



Sec. 3560.257  Assigning rental assistance.

    (a) Priorities for rental assistance. (1) Borrowers must use the 
following priorities when assigning available rental assistance.
    (i) First priority is to eligible very low-income tenants paying the 
highest percentage of their adjusted annual income for Agency approved 
shelter costs.
    (ii) Second priority, if the housing project has vacant rental 
units, is to eligible very low-income applicants on the waiting list.
    (iii) Third priority is to eligible low-income tenants paying the 
highest percentage of their adjusted annual income for Agency approved 
shelter costs.
    (iv) Fourth priority, if the housing project has vacant rental 
units, is to eligible low-income applicants on the waiting list.
    (v) Fifth priority is to households which are residing in a rental 
unit for which they do not qualify on the basis of an occupancy waiver 
or other special approval situations.
    (2) In order to provide rental assistance to the third, fourth, and 
fifth priority categories, a borrower must fully document either that 
there are no very low-income households on the housing project's waiting 
list or that occupancy by low-income households is limited as follows:
    (i) For housing occupied on or after November 30, 1983, no more than 
5 percent of the units in the housing are occupied by low-income 
households; or
    (ii) For housing occupied before November 30, 1983, no more than 25 
percent of the units in the housing are occupied by low-income 
households.
    (b) Continued eligibility. Tenants receiving rental assistance may 
continue to do so as long as they remain eligible for occupancy and for 
rental assistance under Sec. 3560.254(c), and as long as rental 
assistance units are available.
    (c) Assignment of rental assistance. Except as provided in Sec. 
3560.454(c) and using the priorities given in paragraph (a) of this 
section, borrowers must assign available rental assistance units as soon 
as rental assistance units become available.
    (1) When a rental assistance unit is assigned to an eligible 
existing tenant on a day other than the first day of a month, the Agency 
will not provide the borrower rental assistance for the newly assigned 
existing tenant and the tenant will not pay reduced rental charges until 
the first of the month following the assignment of the rental 
assistance.
    (2) When an eligible applicant moves into a rental assistance unit 
on a day other than the first day of a month, they will pay a prorated 
rent based on the number of days they occupy the rental assistance unit 
and the amount of rental assistance they will be receiving.
    (d) Incorrectly assigned rental assistance. Incorrectly assigned 
rental assistance is viewed as unauthorized assistance and handled in 
accordance with subpart O of this part.



Sec. 3560.258  Terms of agreement.

    (a) Term of agreement. Rental assistance agreements will be 
consistent with available funding. Rental assistance agreements expire 
when the funds obligated for rental assistance units are fully disbursed 
in accordance with the conditions of the agreement.
    (b) Replacing expiring obligations. To the extent funds are 
available for replacement units, the Agency will renew rental assistance 
agreements.



Sec. 3560.259  Transferring rental assistance.

    (a) Agency authority. The Agency may transfer rental assistance in 
the following instances:
    (1) To accompany the transfer of a housing project to a different 
borrower;
    (2) After a voluntary conveyance or a foreclosure sale;

[[Page 539]]

    (3) After a liquidation or prepayment;
    (4) To the extent permitted by law, when any rental assistance units 
have not been used for a 6-month period; or
    (5) When the loan cannot be closed.
    (b) Agency review before transferring rental assistance. The Agency 
must perform a review to determine if all eligible tenants in the 
project are receiving rental assistance before the Agency transfers it 
to another project.
    (c) Transferring rental assistance for displaced tenants. The Agency 
may transfer rental assistance from one housing project to another 
eligible housing project for a tenant who is moving due to displacement 
as a result of prepayment, liquidation, or a natural disaster. The 
tenant must begin using the rental assistance within 4 months of the 
transfer or the RA will become available for use by the next rental 
assistance eligible tenant in the housing project.



Sec. 3560.260  Rental subsidies from non-Agency sources.

    (a) General. The Agency may authorize the use of rental subsidies 
from sources other than the Agency in Agency financed housing projects. 
The Agency will make no commitment to providing Agency rental assistance 
at the expiration of the rental subsidies from other sources.
    (b) HUD vouchers. For tenants with HUD vouchers, the borrower must 
set the rental unit rent at the basic rent or the rent standard set by 
the public housing authority, whichever is less. The public housing 
authority distributing the HUD vouchers may set the utility allowance.
    (c) Loan proposals using non-Agency rental subsidy. Loan applicants 
or borrowers proposing to use rental subsidy from sources other than the 
Agency must provide:
    (1) Documentation demonstrating that a market exists for households 
eligible for the subsidy and the households are at income levels that 
would benefit from the amount of rental subsidy that will be provided;
    (2) A plan describing actions to be taken when the rental subsidy 
expires to minimize the impact on tenants losing the rental assistance 
and to avoid displacement; and
    (3) A copy of the project-based rental assistance agreement to be 
signed by the borrower and the provider of the rental assistance.
    (d) Rental subsidy agreement. The borrower and the provider of 
rental subsidies from sources other than the Agency must execute a 
rental subsidy agreement and submit a copy of the agreement to the 
Agency. At a minimum, the rental subsidy agreement between the borrower 
and the source of the rental subsidy must include the following 
provisions:
    (1) A description of how the subsidy will be paid. The rental 
subsidy payments may be paid directly to the tenants, to the borrower on 
behalf of the tenants, or deposited to a separate account established 
for the subsidy. The tenants must be advised of the amount and source of 
the subsidy through the lease or a supplement to the lease.
    (2) The life of a project-based rental subsidy agreement with a non-
Agency source must be similar to existing or current Agency rental 
assistance funding levels and sufficient funds must be set aside to 
assure availability of the rental subsidy for this term. The method of 
supplying the funds must be clearly established.



Sec. 3560.261  Improperly advanced rental assistance.

    Improperly advanced RHS rental assistance resulting from tenant or 
borrower error or fraud constitutes unauthorized assistance and the 
provisions of subpart O of this part apply.



Sec. Sec. 3560.262-3560.299  [Reserved]



Sec. 3560.300  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required

[[Page 540]]

to respond to a collection of information unless it displays a currently 
valid OMB control number.



                     Subpart G_Financial Management



Sec. 3560.301  General.

    This subpart contains requirements for the financial management of 
Agency-financed multi-family housing (MFH) projects, including accounts, 
budgets, reports, and engagements. Financial management systems and 
procedures must cover all housing operations and provide adequate 
documentation to ensure that program objectives are met.



Sec. 3560.302  Accounting, bookkeeping, budgeting, and financial management systems.

    (a) General. Borrowers must establish the accounting, bookkeeping, 
budgeting and financial management procedures necessary to conduct 
housing project operations in a financially safe and sound manner. 
Borrowers must maintain records in a manner suitable for an engagement 
and must be able to report accurate operational results to the Agency 
from these accounts and records.
    (b) Acceptable methods of accounting. (1) Borrowers may use a cash, 
accrual, or modified accrual method of accounting, bookkeeping, and 
budget preparations as long as the method is consistent with the 
statements required by the engagement in accordance with the standards 
identified in Sec. 3560.308.
    (2) Borrowers must describe their accounting, bookkeeping, budget 
preparation, and financial reporting procedures, including Agency-
approved engagements, in their management plan.
    (3) Borrowers must notify the Agency of any changes in their 
accounting, bookkeeping, budget preparation, and financial management 
reporting systems through a revision of their management plan.
    (c) Account requirements. (1) As used in this paragraph, the term 
account is used interchangeably to mean a bookkeeping account (ledger) 
or a bank account.
    (2) At a minimum, borrowers must maintain the accounts required by 
their loan agreement or resolution.
    (3) The following list identifies the financial accounts that are 
required for each housing project. Additional accounts may be required 
by third-party lenders. Accounts are to be funded in the following 
priority order, except that paragraphs (c)(3)(iv), (v), and (vi) of this 
section are funded directly by tenant security deposits or patron 
capital receipts respectively:
    (i) General operating account;
    (ii) Real estate tax and insurance account (if not part of the 
general operating account);
    (iii) Reserve account;
    (iv) Tenant security deposit account;
    (v) Membership fee account for cooperative housing; and
    (vi) For cooperative housing only, a patron capital account.
    (4) Amounts escrowed for taxes and insurance may be kept in the 
general operating account as long as the accounting system reflects the 
amount escrowed.
    (5) Regardless of the number or types of accounts established, the 
borrower must meet the following requirements:
    (i) All housing project funds must be held only in financial 
institution accounts insured by an agency of the Federal Government, 
backed by collateral provided by the bank, or held in securities meeting 
the conditions in this subpart.
    (ii) Funds maintained in an institution may not exceed the limit 
established for Federal deposit insurance. If funds exceed the amount 
covered by Federal deposit insurance, borrowers must obtain a collateral 
pledge from the institution to cover all funds or must move funds to an 
institution that will insure the funds.
    (iii) All funds and proceeds in any account must be used only for 
authorized purposes as described in Agency's regulations, loan or grant 
documents. Use of funds for non-program purposes constitutes non-
monetary default as described in Sec. 3560.452(c).
    (iv) All funds received and held in any account, except the tenant 
security deposit, membership fee, and patron capital accounts, must be 
held in

[[Page 541]]

trust by the borrower for the loan obligation until used and serve as 
security for the Agency loan or grant.
    (v) Borrowers must be able to account for housing project funds with 
accounting methods or practices that maintain the proprietary identity 
of the funds for each project. A borrower may operate one account for 
multiple projects as long as the funds for each project themselves are 
accounted for separately.
    (vi) Each borrower must have access to at least one demand deposit 
or checking account.
    (vii) Housing project funds may not be pledged as collateral for 
debts without Agency approval. If such a need arises for an eligible 
program purpose, the borrower must obtain prior Agency approval.
    (6) Tenant security deposit accounts or membership fee accounts and 
patron capital accounts must be maintained in a separate account in 
trust for the tenants or members and handled in a manner consistent with 
state and local laws.
    (d) Documentation of separate accountability. Housing project funds 
may be combined in one or more bank accounts for two or more housing 
projects as long as the borrower's accounting system segregates and 
tracks funds for each project separately.
    (1) When borrowers request Agency approval of an accounting system 
that combines funds from two or more housing projects, they must 
demonstrate to the Agency that the accounting systems are structured to 
segregate and maintain separate accountability for each housing project. 
Such demonstration must include a statement issued by a Certified Public 
Accountant (CPA) stating that the accounting system is structured to 
meet this principle of separate accountability.
    (2) The accounting system and management plan must document the 
method for prorating revenue and expenses that are not clearly 
identifiable as being associated with a particular housing project.
    (3) Funds for housing projects managed by the same management 
company must not be co-mingled.
    (e) Records. (1) Borrowers must retain all housing project financial 
records, books, and supporting material for at least three years after 
the issuance of the engagement and financial reports. Upon request, 
these materials will immediately be made available to the Agency, its 
representatives, the USDA Office of the Inspector General (OIG), or the 
General Accountability Office (GAO).
    (2) Borrower accounts and records will be kept or made available in 
a location with reasonable access for inspection, review, and copying by 
the Agency, other authorized representatives of the USDA, OIG, or GAO.
    (3) Automated records may be used if they meet the conditions of 
paragraph (f) of this section.
    (f) Forms generated by automated systems. (1) The forms and formats 
approved for use by borrowers may be prepared on automated systems when 
they meet the requirements of this paragraph.
    (2) Forms may be automated if they meet the following requirements:
    (i) The identical wording and nomenclature of an official form must 
be included in the automated version of the form, including the Office 
of Management and Budget (OMB) approval number.
    (ii) The logic or mathematical calculation of an official form must 
be the same in an automated version of the form.
    (iii) The name or logo of the source of the automated form must be 
visible on each output of the automated form.
    (iv) Output size must be 8\1/2\ x 11 inches.
    (v) Nominal spacing adjustment and colored paper are allowed.
    (g) Farm Labor Housing. Borrowers with on-farm labor housing units 
will be considered in compliance with this section by virtue of 
completing the record keeping and reporting requirements outlined in 
subpart M of this part.



Sec. 3560.303  Housing project budgets.

    (a) General requirements. (1) Using an Agency-approved format, 
borrowers must submit to the Agency for approval a proposed annual 
housing project budget prior to the start of the housing project's 
fiscal year. The capital budget section of the annual

[[Page 542]]

project budget must include anticipated expenditures on the project's 
long-term capital needs as specified in Sec. 3560.103(c).
    (2) Budget projections regarding income, expenses, vacancies, and 
contingencies must be realistic given the housing project's history, 
current circumstances, and market conditions.
    (3) Borrowers must document that the operating expenses included in 
the budget accurately reflect reasonable and necessary costs to operate 
the housing project in a manner consistent with the objectives of the 
loan and in accordance with the applicable Agency requirements.
    (4) Borrower must submit supporting documentation to justify housing 
project utility allowances.
    (5) Upon Agency request, borrowers must submit any additional 
documentation necessary to establish that applicable Agency requirements 
have been met.
    (b) Allowable and unallowable project expenses. Expenses charged to 
project operations, whether for management agent services or other 
expenses, must be reasonable, typical, necessary and show a clear 
benefit to the residents of the property. Services and expenses charged 
to the property must show value added and be for authorized purposes.
    (1) Allowable expenses. Allowable expenses include those expenses 
that are directly attributable to housing project operations and are 
necessary to carry out successful operations.
    (i) Housing project expenses must not duplicate expenses included in 
the management fee as defined in Sec. 3560.102(i).
    (ii) Actual costs for direct personnel costs of permanent and part-
time staff assigned directly to the project site. This includes 
managers, maintenance staff, and temporary help including their:
    (A) Gross salary;
    (B) Employer FICA contribution;
    (C) Federal unemployment tax;
    (D) State unemployment tax;
    (E) Workers compensation insurance;
    (F) Health insurance premiums;
    (G) Cost of fidelity or comparable insurance;
    (H) Leasing, performance incentive or annual bonuses;
    (I) Direct costs of travel to off-site locations by on-site staff 
for property business or training; and/or
    (J) Retirement benefits.
    (iii) Legal fees directly related to the operation and management of 
the property including tenant lease enforcement actions, property tax 
appeals and suits, and the preparation of all legal documents.
    (iv) All outside account and auditing fees, if required by the 
Agency, directly related to the preparation of the annual audit, 
partnership tax returns and 401-K's, as well as other outside reports 
and year-end reports to the Agency, or other governmental agency.
    (v) All repair and maintenance costs for the project including:
    (A) Maintenance staffing costs and related expenses.
    (B) Maintenance supplies.
    (C) Contract repairs to the projects (e.g., heating and air 
conditioning, painting, roofing).
    (D) Make ready expenses including painting and repairs, flooring 
replacement and appliance replacement as well as drapery or mini-blind 
replacement. (Turnover maintenance).
    (E) Preventive maintenance expenses including occupied unit repairs 
and maintenance as well as common area systems repairs and maintenance.
    (F) Snow removal.
    (G) Elevator repairs and maintenance contracts.
    (H) Section 504 and other Fair Housing compliance modifications and 
maintenance.
    (I) Landscaping maintenance, replacements, and seasonal plantings.
    (J) Pest control services.
    (K) Other related maintenance expenses.
    (vi) All operational costs related to the project including:
    (A) The costs of obtaining and receiving credit reports, police 
reports, and other checks related to tenant selection criteria for 
prospective residents.
    (B) The cost of duplicating forms for those properties not owning a 
copier. This will include the costs of producing or purchasing forms and 
mailing or delivering those forms to the project site.

[[Page 543]]

    (C) All bank charges related to the property including purchases of 
supplies (e.g., checks, deposit slips, returned check fees, service 
fees).
    (D) Costs of site-based telephone including initial installation, 
basic services, directory listings, and long-distances charges.
    (E) All advertising costs related specifically to the operations of 
that project. This can include advertising for applicants or employees 
in newspapers, newsletters, radio, cable TV, and telephone books.
    (F) Postage and delivery costs from the site including expenses to 
the Agency or other governmental agencies, tenants, verifying third 
parties, central management offices, etc.
    (G) Partnership or corporate business expenses including state taxes 
and other mandated state or local fees as well as other relevant 
expenses required for operation of the property by a third-party 
governmental unit. Costs of continuation financing statements and site 
license and permit costs.
    (H) Expenses related to site utilities including actual costs and 
surcharges as well as deposits and expense of utility bonds in lieu of 
bonds.
    (I) Site office furniture and equipment including site based 
computer and copiers. Service agreements and warranties for copiers, 
telephone systems and computers are also included (if approved by the 
Agency).
    (J) Real estate taxes (personal tangible property and real property 
taxes) and expenses related to controlling or reducing taxes.
    (K) All costs of insurance including property liability and casualty 
as well as fidelity or crime and dishonesty coverage for on-site 
employees and the owners.
    (L) Costs of collecting rents on-site including bookkeeping supplies 
and recordkeeping items.
    (M) Costs of preparing and maintaining tenant files and processing 
tenant certifications including all office supplies, copies and other 
associated expenses.
    (N) Public relations expense relative to maintaining positive 
relationships between the local community and the tenants with the 
management staff and the borrowers. Chamber of Commerce dues, 
contributions to local charity events, and sponsorship of tenant 
activities, are examples.
    (O) Tax Credit Compliance Monitoring Fees imposed by HFAs.
    (P) All insurance deductibles as well as adjuster expenses.
    (Q) Professional service contracts (audits and compilations, tax 
returns, energy audits, utility allowances, architectural, construction, 
rehabilitation and inspection contracts, etc.)
    (R) On-site training pre-approved by the Agency provided by outside 
training vendors.
    (S) Site manager salary for additional hours associated with 
congregate housing.
    (vii) With prior Agency approval, cooperatives and nonprofit 
organizations may use housing project funds to pay asset management 
expenses directly attributable to ownership responsibilities. Such 
expenses may include:
    (A) Errors and omissions insurance policy for the Board of 
Directors.
    (B) Board of Director review and approval of proposed Agency's 
annual operating budgets, including proposed repair and replacement 
outlays and accruals.
    (C) Board of Director review and approval of capital expenditures, 
financial statements, and consideration of any management comments 
noted.
    (D) Long-term asset management reviews.
    (2) Unallowable expenses. Housing project funds may not be used for 
any of the following:
    (i) Equity skimming as defined in 42 U.S.C. 543 (a).
    (ii) Purposes unrelated to the housing project.
    (iii) Reimbursement of inaccurate or false claims.
    (iv) Settlement agreements, court ordered decrees, legal fees, or 
other costs that result from the filing of civil rights complaints or 
legal action alleging the borrower, or a representative of the borrower, 
has committed a civil rights violation.
    (v) Fines, penalties, and legal fees where the borrower or a 
borrower's representative has been found guilty of violating laws, 
including, but not limited to, civil rights, and building codes.

[[Page 544]]

    (vi) Association dues to be paid by the project should be related to 
training for site managers or management agents. To the extent that 
association dues can document training for site managers or management 
agents related to project activities by actual cost or pro-ration, a 
reasonable expense may be billed to the project.
    (vii) Pay for bonuses or monetary performance awards to site 
managers or management agents that are not clearly provided for by the 
site manager salary contract.
    (viii) Billing for parties that are large or unreasonable, such as 
renting expensive party halls or hotel rooms and payment for alcoholic 
beverages or gifts to management agent staff.
    (ix) Billing for practices that are inefficient such as routine use 
of collect calls from a site manager to a management agent office.
    (c) Priorities. The priority order of planned and actual budget 
expenditures will be:
    (1) Senior position lienholder, if any;
    (2) Operating and maintenance expenses, including taxes and 
insurance;
    (3) Agency debt payments;
    (4) Reserve account requirements;
    (5) Other authorized expenditures; and
    (6) Return on owner investment.
    (d) Agency review and approval. (1) The Agency will only approve 
housing project budgets that meet the requirements of paragraphs (a), 
(b) and (c) of this section.
    (2) If no rent change is requested, borrowers must submit budget 
documents for Agency approval 60 calendar days prior to the start of the 
housing project's fiscal year. The Agency will notify borrowers if the 
budget submission does not meet the requirements of paragraphs (a), (b), 
and (c) of this section. The borrower will have 10 days to submit the 
additional material.
    (3) If a rent change is requested, the borrower must submit budget 
documents to the Agency and notify tenants of the requested rent change 
at least 90 calendar days prior to the start of the housing project's 
fiscal year.
    (i) The Agency will notify borrowers if the budget submission does 
not meet the requirements of paragraphs (a), (b), and (c) of this 
section, or if the rent and utility allowance request has been denied in 
accordance with Sec. 3560.205(f). The borrower will have 10 days to 
submit the additional material to address any issues raised by the 
Agency.
    (ii) The rent change is not approved until the Agency issues a 
written approval. If there is no response from the Agency within the 30-
day period, the rent change is considered automatic. The following 
budgets are not eligible for automatic approval:
    (A) Budgets with rent increases above $25 per unit; and
    (B) Budgets that are submitted late or that miss other deadlines set 
by the Agency.
    (4) If the Agency denies the budget approval, the Agency will notify 
the borrower in writing.
    (5) If budget approval is denied, the borrower shall continue to 
operate the housing project on the basis of the most recently approved 
budget.



Sec. 3560.304  Initial operating capital.

    (a) Purpose. To provide a source of capital for start-up costs, such 
as the purchase of equipment, and paying operating, maintenance, and 
debt service expenses. Borrowers are required to make an initial 
operating capital contribution to the general operating account as 
described in Sec. 3560.64.
    (b) Authorized uses of initial operating capital. Initial operating 
capital may be used only to pay for approved budgeted expenses.
    (c) Withdrawal of initial operating capital. Initial operating 
capital funds may be withdrawn by a borrower if:
    (1) The initial operating capital was provided from the borrower's 
own funds;
    (2) The borrower requests the withdrawal after the second year of 
housing project operations and prior to the 7th year of operations;
    (3) The housing project has had a 90 percent occupancy rate for a 
period of 12 months prior to the withdrawal request;
    (4) The withdrawal will not affect the financial viability of the 
housing project;
    (5) Contributions to the reserve account are at authorized levels;
    (6) The withdrawal request will not result in rent increases; and

[[Page 545]]

    (7) There are no outstanding deficiencies in management's physical 
maintenance of the housing project.



Sec. 3560.305  Return on investment.

    (a) Borrower's return on investment. Borrowers may receive a return 
on their investment (ROI) in accordance with the terms of their loan 
agreement and the following:
    (1) If there is a positive net cash flow in housing project 
operations, the ROI may be taken by the borrower after the housing 
project's fiscal year, provided that the balance of the reserve account 
is equal to or greater than required deposits minus authorized 
withdrawals. If the annual financial reports indicate that an ROI should 
not have been taken, borrowers will be required to return any 
unauthorized ROI.
    (2) If there is negative cash flow in housing project operations, 
the Agency may authorize the borrower to take the ROI only after the 
Agency has reviewed the housing project's annual financial reports and 
determines:
    (i) Surplus cash exists in either the general operating account as 
defined in Sec. 3560.306(d)(1) or the reserve account, if the balance 
is greater than the required deposits minus authorized withdrawals.
    (ii) The housing project has sufficient funds to address identified 
capital or operational needs.
    (b) Unpaid return on investment. An earned, but unpaid ROI for the 
previous year only may be requested by the borrower and authorized by 
the Agency under the provisions of Sec. 3560.305(a)(2) provided the 
current year's ROI has been paid first and a rent increase is not 
required to generate funds to pay the unpaid ROI.



Sec. 3560.306  Reserve account.

    (a) Purpose. To meet the major capital expense needs of a housing 
project, borrowers must establish and maintain a reserve account.
    (b) Financial management of the reserve account. Borrower management 
of the reserve account is subject to the requirements of 7 CFR part 
1902, subpart A regarding supervised bank accounts.
    (c) Funding of the reserve account. Borrowers must make payments to 
the reserve account in the amount established in loan documents, 
beginning with the first loan payment or a date specified in loan 
documents.
    (d) Transfer of surplus general operating account funds. (1) The 
general operating account will be deemed to contain surplus funds when 
the balance at the end of the housing project's fiscal year, after all 
payables, exceeds 20 percent of the operating and maintenance expenses. 
If the borrower is escrowing taxes and insurance premiums, include the 
amount that should be escrowed by year end and subtract such tax and 
insurance premiums from operating and maintenance expenses used to 
calculate 20 percent of the operating and maintenance expenses.
    (2) If a housing project's general operating account has surplus 
funds at the end of the housing project's fiscal year, the Agency will 
require the borrower to use the surplus funds to address capital needs, 
make a deposit in the housing project's reserve account, reduce the debt 
service on the borrower's loan, or reduce rents in the following year. 
At the end of the borrower's fiscal year, if the borrower is required to 
transfer surplus funds from the general operating account to the reserve 
account, the transfer does not change the future required contributions 
to the reserve account.
    (e) Account requirements. Borrowers must establish and maintain the 
reserve account according to Sec. 3560.65, Sec. 3560.302(c)(5), and 
the following requirements:
    (1) Reserve accounts must be deposited in interest-bearing accounts 
or securities; and
    (2) Reserve accounts must be supervised accounts that require Agency 
countersignatures on all withdrawals.
    (f) Funds invested in securities. In addition to the requirements 
specified in paragraph (e) of this section, the following requirements 
apply when reserve funds are invested in securities:
    (1) The reserve account must be held either at a Federally insured 
domestic institution such as a bank, savings and loan association, 
credit union, or at a domestic institution authorized to sell 
securities.
    (2) The borrower must record the price actually paid for the 
securities. When designated as a reserve deposit,

[[Page 546]]

the price paid must equal the required contribution to reserves.
    (3) Borrowers must be knowledgeable about industry practices and 
consider the impact of typical fees and charges for purchases and sales 
and maintenance of an account when making investment decisions. Such 
fees may be paid for out of reserves, only with the consent of the 
Agency. Housing project funds may not be used to pay for a financial 
advisor.
    (g) Use of the reserve account. (1) Borrowers must request Agency 
approval of reserve account withdrawals prior to the withdrawal. 
Borrowers must inform the Agency of planned uses of reserve accounts in 
their annual capital budget if known at budget planning time. Any item 
on the approved capital budget does not require additional pre-approval 
by the Agency.
    (2) The Agency will indicate any conditions governing withdrawals 
from a reserve account at the time it approves the withdrawal.
    (3) In emergency situations, the Agency may specify special 
procedures to provide an expedited approval process for the use of the 
reserve account.
    (4) The Agency may approve the use of reserve funds for operating 
costs when circumstances that are determined by the Agency to be beyond 
the borrower's control have resulted in a shortfall in the housing 
project's general operating account.
    (h) Allowable uses. Allowable uses of reserve funds include the 
following:
    (1) Major capital improvements and replacements.
    (2) Housing project operating expenses provided the requirement of 
paragraph (g)(4) of this section has been met, including:
    (i) Payments due on the loan, or
    (ii) Payment of a return on investment at the end of the borrower's 
fiscal year if such payment comes from surplus operating funds in the 
reserve account.
    (3) With Agency approval, borrowers operating on a for-profit or a 
limited profit basis may make an annual withdrawal from the reserve 
account, equal to no more than 25 percent of the interest earned on a 
reserve account during the prior year.
    (4) For other purposes, which in the judgment of the Agency will 
promote the loan purposes, strengthen the security or facilitate, 
improve, or maintain the housing and the orderly collection of the loan 
without jeopardizing the loan or impairing the adequacy of the security.
    (i) Records. Borrowers must maintain records documenting all 
expenses that were paid by withdrawals from the reserve account.
    (j) Changes to reserve requirements. (1) As projects age, the 
required reserve account level may be adjusted to meet anticipated 
``life-cycle'' needs, including equipment and facility replacement 
costs, by amending the loan agreement/resolution.
    (2) The Agency may approve a change in the reserve account funding 
level based on the findings of an approved capital needs assessment. The 
approval to increase reserve account funding levels will take into 
consideration the housing project's approved budget and the housing 
project's ability to support increased reserve account deposits without 
causing basic rents to exceed conventional rents for comparable units in 
the area.
    (k) Excess reserves. Amounts in the reserve account which exceed the 
total required by the loan or grant agreement must be used, at the 
direction of the Agency, for any of the following:
    (1) Pay for expenses specified in a long-term capital plan;
    (2) Make payments and reamortize the Agency loan;
    (3) Reduce rents by a transfer to the general operating account;
    (4) Fund preservation incentives authorized in subpart N of this 
part; or
    (5) Cover other expenditures determined to be related to the purpose 
of the housing project and in the best interest of the Federal 
Government.
    (l) Procurement. The requirements of Sec. 3560.102(g), (j), and 
(k), and all other Agency requirements relating to procurement, bidding, 
identity-of-interest, cost-reasonableness, and construction management 
apply to any work or services paid out of reserve funds. Structural 
repairs and other significant work on major building systems such as 
heating or air conditioning must be done in accordance with the

[[Page 547]]

requirements of 7 CFR part 1924, subpart A.



Sec. 3560.307  Reports.

    (a) Required reports. Borrowers must submit required reports using 
Agency-approved formats.
    (b) Quarterly and monthly reports. The Agency may require quarterly 
or monthly reports to monitor financial progress when closer supervision 
is warranted.



Sec. 3560.308  Annual financial reports.

    (a) General. Borrowers must submit annual financial reports that 
meet the requirements of this section. The annual financial reports to 
be submitted are the Multi-Family Housing (MFH) Project Budget with 
actual expenditures and the MFH Balance Sheet. Annual financial reports 
are due to the Agency within 90 days of the end of the borrower's fiscal 
year.
    (1) Borrowers with 16 or more units in their housing project must 
base their annual financial reports on an engagement report completed 
according to agreed upon procedures established by the Agency as 
specified in paragraph (b) of this section. Borrowers must include the 
engagement report with their annual financial reports submitted to the 
Agency.
    (2) Borrowers with less than 16 units in their housing project must 
submit annual financial reports using a limited scope engagement based 
on Agency approved procedures and certify that the housing meets the 
performance standards established in paragraph (c) of this section. 
Borrowers may use a CPA to prepare this report. For properties that 
prepare a limited scope engagement, the Agency may undertake random 
audits, once every two or three years.
    (3) If a third party requires it, the borrower may have a CPA 
prepare an audit in accordance with generally accepted government 
auditing standards (GAGAS). Costs incurred to obtain this audit are an 
allowable project expense.
    (b) Engagement requirements. Borrowers required to submit annual 
financial reports based on an engagement performed by a CPA must meet 
the following requirements:
    (1) Borrowers must use an Agency approved engagement letter. 
Borrowers must submit the results of an engagement that examines 
specific records using agreed upon procedures established by the Agency 
and that describes the borrower's performance in meeting the standards 
described in paragraph (c) of this section.
    (2) The engagement will be initiated by the borrower using the 
Agency's engagement letter, which will specify the engagement program 
and establish the reporting requirements for the engagement.
    (3) The engagement must be conducted by a CPA in accordance with 
American Institute of Certified Public Accountant (AICPA) Standards and 
Agency requirements.
    (4) All engagement reports must be prepared for use by the Agency.
    (c) Performance standards. Borrowers must ensure that:
    (1) Required accounts are properly maintained and tracked 
separately;
    (2) Payments from operating accounts are disclosed and accurately 
represented on financial reports;
    (3) The reserve amount is at the authorized level and there are no 
encumbrances;
    (4) Tenant security deposit accounts are fully-funded and are 
maintained in separate accounts and meet state and local requirements;
    (5) Amount of payment of owner return was consistent with the terms 
of the applicable loan agreement;
    (6) The borrower has maintained proper insurance in accordance with 
the requirements of Sec. 3560.105(b); and
    (7) All financial records are adequate and suitable for examination.
    (d) Other financial reports. (1) Nonprofit and public borrower 
entities must submit audits in accordance with 7 CFR part 3052 that must 
also include the requirements set forth in the limited scope engagement.
    (2) The Agency may require additional opinions of financial 
condition and compliance, such as audits, to assure the security of the 
asset, determine whether the housing project is being operated at a 
reasonable cost, or to detect fraud, waste, or abuse.

[[Page 548]]

    (3) Any audits independently obtained by the borrower also must be 
submitted to the Agency.



Sec. 3560.309  Advancement (loan) of funds to a RRH project by the owner, member of the organization, or agent of the owner.

    (a) Prior written approval by the Servicing Office is required. Such 
advances may be authorized when justified by unusual short-term 
conditions. When conditions are not short-term in nature, a servicing 
plan may be developed and advances may be approved in accordance with 
the provisions set out in Sec. 3560.453 of this part. Justification 
will be based on the following:
    (1) A review of the documented circumstances and the project 
operating budget before any funds are advanced (loaned). The financial 
position of the project must not be jeopardized.
    (2) Funds are not immediately available from any of the following 
sources:
    (i) Reserve funds;
    (ii) Initial operating capital; and
    (iii) An imminent rent increase.
    (b) The funds will be applied to ordinary project operating and 
maintenance expenses.
    (c) Interest may be charged or paid on the loan from project income; 
however, interest must be reasonable. The proposal may be denied if 
Rural Development financing can be provided to resolve the problem in a 
more cost-effective manner.
    (d) No lien in connection with the loan will be filed against the 
property securing the Rural Development loan or against project income. 
The advance may show as an unsecured project liability on financial 
statements prepared for year-end reports until such time as it is 
authorized to be repaid.
    (e) The payback of the advance (loan) may be permitted by the 
Servicing Official provided the terms and conditions were mutually 
agreed to by the borrower and Rural Development at the time of the 
advance and the financial position of the project will not be 
jeopardized. Payback should only be permitted on the advance when the 
Rural Development debt is current and the reserve requirements are being 
maintained at the authorized levels.



Sec. Sec. 3560.310-3560.349  [Reserved]



Sec. 3560.350  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                       Subpart H_Agency Monitoring



Sec. 3560.351  General.

    This subpart contains policies for Agency monitoring of operations 
and management at multi-family housing (MFH) projects.



Sec. 3560.352  Agency monitoring scope, purpose, and borrower responsibilities.

    (a) Scope of Agency monitoring activities. The Agency will review 
reports, records, and other materials related to the housing project, 
including borrower financial reports, housing project records, and other 
communications. The Agency also will review material related to a 
housing project submitted by a tenant or other source. To assess 
conditions such as a housing project's physical condition, record 
keeping procedures, and operations and management activities, including 
borrower compliance with Federal, state, and local laws and Agency 
requirements, the Agency will conduct periodic on-site monitoring 
reviews of a housing project.
    (b) Purpose of Agency monitoring activities. Agency monitoring 
activities are designed to assess borrower and tenant compliance with 
Agency requirements, and to:
    (1) Ensure housing projects are managed in accordance with the goals 
and

[[Page 549]]

objectives of the Agency's MFH programs and are maintained in accordance 
with Agency requirements for affordable, decent, safe, and sanitary 
housing;
    (2) Preserve the value of the Agency-financed housing projects;
    (3) Detect waste, fraud, and abuse in housing project operations or 
management and to ensure the cost of operations and management are 
necessary and reasonable;
    (4) Verify compliance with Affirmative Fair Housing Marketing 
requirements, Title VI of the Civil Rights Act of 1964, Title VIII of 
the Civil Rights Act of 1968, as amended, section 504 of the 
Rehabilitation Act of 1973, the Age Discrimination Act of 1975, 
Americans with Disabilities Act of 1990, other applicable Federal laws, 
and Agency requirements related to occupancy and tenant eligibility.
    (c) Borrower responsibilities. The borrower is responsible for 
cooperating fully and promptly with Agency monitoring activities. Agency 
monitoring activities do not diminish borrower operation and management 
responsibilities and do not relieve borrowers from any Agency 
requirements including, but not limited to, borrower requirements to 
comply with:
    (1) The terms of all agreements with the Agency, including the loan 
or grant agreement, assurance agreement, loan resolution, promissory 
note, mortgage, interest credit agreement, rental assistance agreement, 
mitigation measures contained in the environmental review document, and 
workout agreement;
    (2) The requirements contained in this part;
    (3) The requirements of Title VI of the Civil Rights Act of 1964, 
Title VIII of the Civil Rights Act of 1968, as amended; section 504 of 
the Rehabilitation Act of 1973, the Age Discrimination Act of 1975, 
Americans with Disabilities Act of 1990; and
    (4) Applicable Federal, state, and local laws.



Sec. 3560.353  Scheduling of on-site monitoring reviews.

    Generally, the Agency will provide the borrower prior notice of an 
on-site monitoring review and will conduct the on-site monitoring review 
in the presence of the borrower. However, the Agency may visit a housing 
project, without prior notice, to observe physical conditions, 
operations and management activities, or other borrower or tenant 
activities. In addition, the Agency may conduct on-site reviews without 
the presence of the borrower, the management agent, or other designated 
representative of the borrower.



Sec. 3560.354  Borrower response to monitoring review notifications.

    The Agency will notify borrowers, in writing, whenever Agency 
monitoring activities result in deficiency findings or compliance 
violations. The monitoring review notification will describe the 
deficiencies findings or compliance violations and will specify a time 
period by which corrective action must be taken by the borrower. The 
notification will offer borrowers an opportunity to discuss the reported 
deficiency findings or compliance violations with the Agency and will 
explain enforcement actions that the Agency may take if corrective 
action is not taken within the time period specified in the monitoring 
review notification. When civil rights non-compliance is found, the 
State Civil Rights Coordinator or Manager (SCRC/M) will be notified. If 
voluntary compliance cannot be obtained, appropriate enforcement or 
remedial action will be taken.



Sec. Sec. 3560.355-3560.399  [Reserved]



Sec. 3560.400  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.

[[Page 550]]



                           Subpart I_Servicing



Sec. 3560.401  General.

    (a) Purpose. This subpart contains actions the Agency may take to 
service and collect loans or other debts owed by multi-family housing 
(MFH) borrowers. The loan servicing and other actions set forth are 
designed to protect Agency and tenant interests and assist borrowers in 
meeting program objectives.
    (b) General servicing policies. Borrowers must repay loans or other 
amounts due to the Agency according to provisions specified in 
promissory notes, loan agreements and resolutions, mortgages, deeds-of-
trust, assumption agreements, reamortization agreements, or other 
agreements executed between the borrower and the Agency.
    (c) Special servicing actions. The Agency will not agree to any 
proposal for loan servicing or debt collection action other than actions 
consistent with this section, debt instruments, and other agreements. 
When payments due to the Agency from a borrower remain unpaid for more 
than 30 days after the due date, past due, after the Agency may initiate 
the special servicing actions described in subpart J of this part.



Sec. 3560.402  Loan payment processing.

    (a) Predetermined Amortization Schedule System (PASS) requirements. 
All loans, except the loans specified in paragraph (c) of this section, 
must be closed and serviced using the PASS.
    (b) Required conversion to PASS. Borrowers with Daily Interest 
Accrual System (DIAS) accounts must convert to PASS whenever a loan 
servicing action on the account involves a change in the loan rates or 
terms or whenever a subsequent loan to the borrower is closed.
    (c) Exceptions. Seasonal farm labor housing loans and on-farm labor 
housing loans may be closed on DIAS, monthly, or annual payment 
schedules.



Sec. 3560.403  Account servicing.

    (a) Payment due dates. Loan or other payments due to the Agency are 
due on the first day of each month unless otherwise established in the 
debt instrument or other agreement executed with the Agency.
    (b) Payment application order. Loan payments will be applied to the 
borrower's account in the following order of priority:
    (1) Amortized audit receivables. (i.e., amounts due to the Agency, 
over a period of time, as a result of a finding from an audit or other 
monitoring activity.)
    (2) Unamortized audit receivables. (i.e., amounts due to the Agency, 
in a lump sum payment, as a result of a finding from an audit or other 
monitoring activity.)
    (3) Late fees. (i.e., amounts due to the Agency as a result of late 
payments.)
    (4) Amortized recoverable costs. (i.e., amounts due to the Agency, 
over a period of time, as a result of Agency payments made on behalf of 
a borrower for housing project related expenses such as taxes or 
insurance premiums.)
    (5) Unamortized recoverable costs. (i.e., amounts due to the Agency, 
in a lump sum payment, as a result of Agency payments made on behalf of 
a borrower for housing project related expenses such as taxes or 
insurance premiums.)
    (6) Overage. (i.e., amounts due to the Agency as a result of a 
tenant's tenant contribution being higher than basic rent.)
    (7) Interest. (i.e., amounts due to the Agency as a result of 
scheduled interest on a loan and as a result of interest charged on 
unpaid delinquent principal amounts.)
    (8) Principal. (i.e., amounts due to the Agency as the loan 
principal.)
    (9) Advance payments. (Any funds remaining after disbursement of a 
payment to all other payment priorities will be applied to the 
borrower's account as an advance regular payment unless a borrower 
specifically designates, in writing, another application.)
    (c) Late fees. If payments on a borrower's account, under PASS, are 
more than $15 delinquent after the close of business on the 10th day 
after the payment due date, a late fee will be charged to the borrower's 
account.
    (1) Late fees charged to a borrower's account will equal 6 percent 
of the total regular payments due as specified

[[Page 551]]

in any promissory notes, assumption agreements, or reamortization 
agreements related to the borrower's account.
    (2) Late fees are a borrower expense and must not be paid from 
housing project funds.
    (3) The Agency may waive late fees for circumstances beyond a 
borrower's control and when a waiver is determined by the Agency to be 
in the best financial interest of the Federal Government.
    (d) Interest on unpaid overdue principal. On the first day of the 
month following a payment due date, the Agency will charge interest at 
the note rate on any unpaid principal payment due according to the 
loan's amortization schedule (i.e., interest will be charged on 
delinquent principal). The interest charged on the unpaid principal 
payment due will be charged to the borrower in addition to the scheduled 
interest due on payments according to the loan's amortization schedule.



Sec. 3560.404  Final loan payments.

    (a) Payoff statements. At the borrower's request, the Agency will 
provide a statement indicating the pay off amount necessary to pay the 
borrower's account in full.
    (b) Final payments. A borrower's final loan payment must include 
repayment of all outstanding obligations to the Agency.
    (1) Any supervised funds being held by the Agency will be applied to 
the borrower's account or, at the borrower's option, will be returned to 
the borrower following acceptance of final payment on all outstanding 
obligations.
    (2) If a balance due remains on a borrower's account after Agency 
acceptance of a final payment, due to borrower error or fraud or Agency 
error, the Agency will initiate collection action in accordance with the 
unauthorized assistance collection procedures described in subpart O of 
this part.
    (c) Final payment loans. Borrowers with loans for which the Agency 
approved an amortization period that exceeded the term of the loan may 
request a loan to finance the final payment in accordance with the 
requirements of Sec. 3560.74.
    (d) Loan prepayment requests. If prepayment of an Agency loan is 
requested, the applicable preservation requirements of subpart N of this 
part, including the execution of any appropriate restrictive-use 
agreements, must be met prior to the Agency's acceptance of a final loan 
payment under the prepayment request.
    (e) Payment forms. Final payments may be made by cashier's check, 
certified check, money order, bank draft, or other withdrawal 
instruments approved by the Agency.
    (1) If borrowers use forms of payment requiring special handling, 
the borrower is responsible for the cost of the special handling.
    (2) When payment is provided in a form that is not the equivalent of 
cash, the Agency will consider the payment to be received at the time 
the payment has been converted to cash and funds have been transferred 
to the Agency.
    (f) Release of security instruments. The Agency will release 
security instruments, subject to applicable restrictive-use agreements 
referenced in subpart N of this part, when full payment of all 
outstanding obligations to the Agency has been received, accepted, and 
the funds have been transferred to the Agency.
    (1) If the Agency and the borrower agree to settle an account for 
less than the full amount owed, the Agency will release security 
instruments when the borrower has paid in full all agreed upon 
obligations.
    (2) Recording costs for the release of the security instruments will 
be the responsibility of the borrower, except where state law requires 
the mortgagee to record or file the satisfaction.
    (g) Special circumstances--Refund of entire principal. If the entire 
principal of the loan is refunded after the loan is closed, the borrower 
must pay interest from the date of the note to the date of receipt of 
the refund.



Sec. 3560.405  Borrower organizational structure or ownership interest changes.

    (a) General. The requirements of this section apply to changes in a 
borrower entity's organizational structure or to

[[Page 552]]

a change in a borrower entity's controlling interest. If 100 percent of 
a borrower entity's ownership interest is transferred, within a 12-month 
period, the change will be considered a housing project transfer and the 
provisions of Sec. 3560.406, which covers transfers or sales of housing 
projects, will apply.
    (b) Agency requirements. Borrowers must notify the Agency prior to 
the implementation of any changes in a borrower entity's organizational 
structure. The Agency must give its consent prior to the implementation 
of changes in a borrower entity's controlling interest.
    (1) Borrowers must submit written requests for Agency consent to the 
Agency at least 45 days prior to the anticipated effective date of the 
proposed organizational change. The request must document that the 
proposed changes will not adversely affect the program purposes or 
security interest of the Agency and will not adversely affect tenants.
    (2) If the controlling interest change involves a transfer of 
interest to an entity not previously holding an ownership interest in 
the borrower entity, the request for consent must include a written 
certification, executed by the party receiving the ownership interest, 
certifying that the recipient of the ownership interest agrees to assume 
responsibilities and obligations required of a borrower as established 
in Agency program requirements including requirements in the promissory 
note, loan agreement, or other document related to Agency loans held by 
the borrower entity.
    (3) The Agency will not take a consent request for a controlling 
interest change under consideration if the borrower's request fails to 
meet the requirements specified in paragraph (b)(2) of this section.
    (c) Documentation of organizational structures and ownership 
interest. Borrowers must annually document their organizational 
structure and ownership.
    (1) Documentation must be submitted with the annual financial 
reports required by Sec. 3560.308 and must reflect any changes made 
during the 12-month period preceding the submission of the annual 
financial reports.
    (2) If no changes in a borrower entity's organizational structure or 
ownership were made during the 12-month period prior to submission of 
the annual financial reports, borrowers are not required to submit 
documentation, but must submit a statement certifying that no changes 
have been made in the documents on file with the Agency.
    (3) Organizational structure and ownership documentation must 
include the following items:
    (i) A current organization description reflecting all approved 
changes in the organizational structure of the borrower entity and 
listing the names, addresses, and tax identification numbers of all 
parties with an ownership interest in the borrower entity; and
    (ii) A written statement by the borrower certifying that the changes 
in the borrower entity's organizational structure or ownership interests 
were completed in compliance with state and local laws and in accordance 
with organizational requirements of the borrower entity.



Sec. 3560.406  MFH ownership transfers or sales.

    (a) General. The provisions of this section apply to ownership 
transfers or sales (e.g., title transfers) involving an Agency financed 
housing project. The provisions cover situations where Agency loans are 
being assumed as a part of a housing project transfer or sale.
    (b) Agency consent requirements. Agency consent must be obtained 
prior to an ownership transfer or sale and Agency consent will only be 
given when the transfer or sale is in the best interest of the Federal 
Government. Any ownership transfer or sale without the consent of the 
Agency will be considered a default and will be handled in accordance 
with subpart J of this part.
    (1) Priority consideration will be given to ownership transfers or 
sales needed to remove a hardship to the borrower that was caused by 
circumstances beyond the borrower's control.
    (2) Ownership transfers or sales with an assumption of debt at an 
amount less than the borrower's debt amount will only be approved by the 
Agency

[[Page 553]]

when all persons in the borrower entity who are transferring their 
ownership interest or are involved in the selling of the property are 
not part of the transferee organization.
    (c) Consent request requirements. Borrowers must submit written 
requests for Agency consent to an ownership transfer or sale of a 
housing project to the Agency at least 45 days prior to proposed 
ownership transfer or sale date. The consent request must document that 
the proposed transfer or sale meets the requirements of paragraph (d) of 
this section and must include the following items:
    (1) A statement disclosing any identity-of-interest between the 
borrower and the party to which the housing project ownership is being 
transferred or sold.
    (2) A statement certifying that the housing project's financial 
accounts are funded at required levels, less authorized withdrawals, and 
that payments due for operation and maintenance expenses, tax 
assessments, insurance premiums, any required tenant security deposit 
accounts, and other obligations incurred as a part of the housing 
project operations are paid in full with no overdue balances or a 
statement explaining the housing project's financial situation and the 
reasons for overdue payments or under funded accounts.
    (3) A proposed housing project budget covering the partial year, if 
applicable, and first full year operation following the ownership 
transfer or housing project sale.
    (4) A written statement, signed by the proposed transferee or buyer, 
certifying that the transferee or buyer will assume the borrower 
responsibilities and obligations specified in Agency program 
requirements including requirements in a promissory note, loan agreement 
or other documents related to Agency loans held by the borrower entity.
    (5) A certification from the borrower and the proposed transferee or 
buyer that the borrower does not and will not have a reversionary 
interest in the housing project.
    (d) Requirements for ownership transfers or sales. An ownership 
transfer or sale of a housing project with an assumption of Agency loans 
by the transferee or buyer must comply with the following conditions:
    (1) The transferee or buyer must be an eligible borrower under the 
requirements established by subpart B of this part;
    (2) The transferee or buyer must agree to set basic rents at the 
housing project covered by the assumed loans at levels that do no exceed 
conventional rents for comparable units in the area, except that when 
determined necessary by the Agency to allow for decent, safe and 
sanitary housing to be provided in market areas where conventional rents 
are not sufficient to cover necessary operating, maintenance, and 
reserve costs. Basic rents may be allowed to exceed comparable rents for 
conventional units, but in no case by more than 150% of the comparable 
rent for conventional unit rent level; and
    (3) The value of the housing project covered by the loans to be 
assumed, at the time of an ownership transfer or sale, must be 
sufficient to ensure that all Agency loans being assumed and all 
subsequent loans being offered as a part of the transfer or sale can be 
secured to a level that fully protects the Agency's interest. Loans from 
third-party sources that are not dependent on project revenue for 
payment will not be included in this determination.
    (i) If the total value of the loans being offered as a part of an 
ownership transfer or sale is $100,000 or less, the security value of 
the housing project may be determined through either: An Agency review 
of monitoring reports conducted in accordance with the requirements in 
subpart H of this part or an appraisal paid for by the borrower and 
conducted in accordance with subpart P of this part.
    (ii) If the total value of the loans being offered as a part of an 
ownership transfer or sale exceeds $100,000, the security value of the 
housing project must be determined through an appraisal obtained by the 
Agency and conducted in accordance with subpart P of this part.
    (iii) The Agency may approve a loan write-down, in accordance with 
Sec. 3560.455, prior to an ownership transfer or sale to reduce the 
amount of debt

[[Page 554]]

being assumed by the transferee or buyer.
    (4) Prior to Agency approval of an ownership transfer or sale, an 
environmental review, as required under the National Environmental 
Policy Act and in accordance with 7 CFR part 1940, subpart G, must be 
conducted on all property related to the ownership transfer or sale. If 
contamination from hazardous substances or petroleum products is found 
on the property, the finding must be disclosed to the Agency and the 
transferee or buyer and must be taken into consideration in the 
determination of the housing project's value.
    (5) All immediate and long-term repair and rehabilitation needs must 
be identified by a capital needs assessment. The reserve requirements 
for the housing project will be reviewed by the Agency and adjusted, if 
necessary, to adequately cover the cost of addressing the property's 
capital needs. The Agency may approve the release of the current reserve 
amount to the transferor provided the transferee agrees to deposit the 
amount to cover the project's immediate needs into the reserve account 
at closing.
    (6) The borrower and transferee must disclose to the Agency all 
terms, conditions, or other considerations related to the ownership 
transfer or sale. All side or other agreements must be disclosed and all 
sources and uses of funds related to the ownership transfer or sale must 
be disclosed.
    (7) An agreement must be signed between the borrower and the 
transferee listing all repairs known by the borrower to be necessary to 
bring the housing project into compliance with Agency requirements for 
decent, safe, and sanitary housing as listed in subpart C of this part.
    (i) The agreement must include repairs required to correct 
compliance violations cited in a compliance violation notice issued by 
the Agency.
    (ii) The agreement must specify whether each repair listed will be 
completed by the borrower prior to the ownership transfer or by the 
transferee in accordance with a workout agreement developed in 
accordance with the requirements of Sec. 3560.453 and executed between 
the transferee or buyer and the Agency.
    (8) A civil rights compliance review, as required by 7 CFR part 
1901, subpart E, will be conducted by the Agency prior to the ownership 
transfer or sale.
    (9) During or immediately after the transfer, a review of the 
property must be conducted to ensure that it complies with or will 
comply with section 504(c) of the Americans with Disabilities Act (ADA), 
which covers accessibility requirements, and the Title VI of the Fair 
Housing Act of 1968.
    (10) A transferee must ensure that tenant certifications in 
compliance with subpart D of this part for all occupied rental units are 
on file with the Agency.
    (11) A transferee must comply with insurance and bonding 
requirements established in subpart C of this part at the time of the 
transfer.
    (12) A transferee must agree to submit financial reports to the 
Agency according to subpart G of this part.
    (13) A transferee must establish that there are no liens, judgments, 
or other claims against the housing project other than those by the 
Agency and those to which the Agency has previously agreed.
    (14) A limited profit Rural Rental Housing transferee's initial 
investment and return on investment will remain the same as that 
originally provided to the transferor unless:
    (i) The property is transferred to a non-profit entity and the 
return on investment is eliminated; or
    (ii) The transferee contributes additional funds for repair or 
rehabilitation and the Agency agrees to recognize a higher initial 
investment.
    (e) Equity payments. The Agency will withhold any equity payment due 
to the borrower, as part of an ownership transfer or sale, if any of the 
following conditions exist:
    (1) The borrower's indebtedness to the Agency has not been paid in 
full or is not being assumed by the transferee. The Agency will require 
that all or part of an equity payment be applied against other Agency 
loans owed by the borrower if payments on the other loans are not 
current.

[[Page 555]]

    (2) Any non-Agency prior liens against a housing project are not 
paid in full.
    (3) Any housing project financial accounts are not funded at 
required levels, less authorized withdrawals, or any payments due for 
operation and maintenance expenses, tax assessments, insurance premiums, 
tenant security deposits or other obligations incurred as a part of 
housing project operations are not paid in full.
    (4) Any management deficiencies cited in a compliance violation 
notice issued by the Agency to the borrower have not been corrected or 
the housing project is not operating under an approved management plan 
or, if applicable, an approved management agreement.
    (5) Any operation and maintenance deficiencies cited in compliance 
violation notices issued by the Agency have not been corrected or are 
not scheduled for correction in a workout agreement developed in 
accordance with the requirements of Sec. 3560.453.
    (6) The borrower entity is, at the time of the ownership transfer or 
sale, cited by the Agency or other Federal, state, or local agencies for 
violations of Fair Housing or Equal Opportunity requirements.
    (7) The borrower entity is, at the time of the ownership transfer or 
sale, cited by the Agency or any other entity involved in the financing 
of the housing project for misappropriation of funds.
    (f) Equity payment funding sources. Equity may be provided in cash 
or through a loan. If a full equity payment to the transferor is not 
paid at the time of the ownership transfer or sale or has not been paid 
through an Agency equity loan or third-party equity loan approved by the 
Agency to the borrower, the transferee must certify that equity payments 
due to the borrower will be paid from sources other than housing 
project's funds and must identify the sources of such payments.
    (g) Restrictive-use requirement. Transferees assuming Agency loans, 
including loans approved prior to December 21, 1979, will be required to 
execute a restrictive-use agreement that contains the language specified 
in Sec. 3560.662. The restrictive-use agreement will require the 
housing project to be used for program purposes for a specified period 
of time beyond the date that the ownership transfer or sale is closed. 
When an equity loan is involved at the time of transfer, the 
restrictions will be for 30 years.
    (h) Subsequent loans. The Agency may approve a subsequent loan or 
permit a loan from a third-party source in conjunction with an ownership 
transfer or sale of a housing project. The subsequent loan may be in the 
form of a junior or parity lien.
    (1) Subsequent loans on a housing project proposed in conjunction 
with an ownership transfer or sale must be requested and processed in 
accordance with the Agency loan origination requirements in subpart B of 
this part.
    (2) The Agency may amortize the subsequent loan over a period not to 
exceed the remaining economic life of the housing or 50 years, whichever 
is less.
    (3) The Agency may extend the term of the existing loan to a period 
not to exceed 30 years or the remaining economic life of the housing, 
whichever is less.
    (i) Loan assumption interest rates. The interest rate for Agency 
loans assumed in conjunction with an ownership transfer or sale will be 
determined as follows:
    (1) The interest rate for all loans, except farm labor housing 
loans, will be set at the lower of:
    (i) The note rate of the existing Agency loan;
    (ii) The Agency note rate on the day the transfer is approved;
    (iii) The Agency note rate on the day the transfer is closed; or
    (iv) If the rents are increased due to a transfer, the transfer will 
be done under new rates and terms when the Agency determines that it is 
in the best interest of the government. Subsequent loan may be in the 
form of a senior, junior or parity lien or soft second.
    (2) The interest rate on farm labor housing loans will be the rate 
specified in the note, except that loans transferred to public bodies, 
nonprofit organizations of farm workers, and broadly-based nonprofit 
corporations for farm labor housing purposes may be at a one

[[Page 556]]

percent interest rate regardless of the rate specified in the note if 
the Agency determines that such a reduction is necessary to maintain 
affordable rental rates for tenants.
    (j) Loan assumption terms. The amount of the loan balance that may 
be assumed through an ownership transfer or sale must not exceed the 
security value of the housing project determined according to Sec. 
3560.406(d)(3)(i).
    (1) The Agency may reamortize a loan assumed through an ownership 
transfer or sale over a period not to exceed the remaining economic life 
of the housing or 50 years, whichever is less.
    (2) The Agency may extend the term of the loan to a period not to 
exceed 30 years or the remaining economic life of the housing, whichever 
is less.
    (3) When loans assumed through an ownership transfer or sale are 
amortized on an annual payment basis, the loans will be converted, at 
the time of the transfer or sale, to a monthly payment amortization and 
will be made subject to PASS. When on- or off-farm labor housing 
projects are involved in an ownership transfer or sale, the related 
loans may be transferred on a DIAS basis or converted to PASS if the 
Agency determines that such a conversion will not be detrimental to the 
operation of the farm labor housing.
    (k) Processing ownership transfers or sales. (1) At the time of the 
transfer, the Agency will require the borrower to transfer all 
equipment, related facilities, and housing project financial accounts to 
the transferee including the operation and maintenance account, reserve 
account, tenant security deposit account, tax and insurance escrow 
accounts.
    (i) Any funds remaining in a rental assistance contract not 
dispersed by the transferor will be assigned to the transferee unless 
the rental assistance is not needed for tenants or another form of 
rental subsidy is to be used.
    (ii) Any rental assistance determined to be unnecessary will be 
reassigned to other housing projects in accordance with the provisions 
of subpart F of this part.
    (2) The Agency will require that appropriate loan documents are 
executed by the transferee. The Agency may require such documents to be 
referenced in security instruments (e.g., mortgage or deed of trust).
    (3) If all of a borrower's outstanding Agency debt is not assumed or 
paid off at the time of the transfer or sale, the Agency will not 
release a borrower from liability unless the Agency determines that the 
borrower is unable to pay the remaining debt from assets taken as 
security through the debt settlement procedure in accordance with Sec. 
3560.457.
    (l) Ownership transfers or sales under special rates, terms, and 
conditions. Housing projects may be transferred or sold to entities that 
do not meet borrower eligibility requirements for the type of loans 
being assumed. However, such a transfer or sale will only be considered 
when it is determined by the Agency to be in the best interest of the 
Federal Government and the objectives of the original loan can no longer 
be met. The following special rates, terms, and conditions will apply to 
such situations.
    (1) The transferee makes a down payment of at least 10 percent of 
the remaining loan balance to be assumed.
    (2) The transferee has the ability to pay the Agency debt.
    (3) Monthly or annual installments will be amortized over the term 
of the loan and the interest rate will be at a rate of interest at least 
one percent higher than the interest rate offered to eligible borrowers 
as specified in paragraphs (i)(1) or (2) of this section.



Sec. 3560.407  Sales or other disposition of security property.

    (a) General. Borrowers must obtain Agency approval prior to selling 
or exchanging all or a part of, or an interest in, property serving as 
security for Agency loans. Agency approval also must be requested and 
received prior to the granting or conveyance of rights-of-way through 
property serving as security property. An environmental review must be 
completed in accordance with 7 CFR part 1940, subpart G, before the 
Agency approves all such sales or other dispositions of security 
property.
    (b) Request requirements. Requests for Agency approval of 
transactions related to security property must document that the 
following conditions will be met.

[[Page 557]]

    (1) The borrower's ability to repay the Agency debt will not be 
impaired;
    (2) The transaction will not interfere with the successful operation 
of the housing project or prevent the borrower from carrying out the 
purpose for which the loan was made.
    (3) The monetary or other consideration offered in the transaction 
is equal to or greater than the market value of the security property 
being disposed of or the rights being granted, except that right-of-way 
easements may be granted or conveyed with minimal or no consideration 
being offered if:
    (i) The value of the security property will not be reduced;
    (ii) The suitability of the security property for the intended 
purpose will not be impaired; and
    (iii) The easement is granted to allow the borrower to develop 
additional lots or units that will be integrated into the housing 
project or for enhancement of streets, utilities or other services 
provided by a public body.
    (4) The property that will remain as security for Agency loans, 
after any transaction related to security property, will fully secure 
the borrower's debt to the Agency.
    (5) Borrowers must report to the Agency the total of all proceeds 
derived from the sale or other disposition of property serving as 
security for Agency loans. The proceeds from the disposition of the 
security property will be used for purposes approved by the Agency.



Sec. 3560.408  Lease of security property.

    (a) General. Borrowers must obtain Agency approval prior to entering 
into a lease agreement related to any property serving as security for 
Agency loans. An environmental review must be completed in accordance 
with 7 CFR part 1940, subpart G, before the Agency can give lease 
approval for real property serving as security for Agency loans.
    (b) Leases to public housing authorities. Borrowers may not lease 
all or part of their housing facilities to a housing authority. Lease 
agreements in place prior to the effective date of this regulation may 
be continued provided that leases are in a form acceptable to the 
housing authority and are on terms that will enable the borrower to 
comply with Agency program requirements, to meet Agency program 
objectives, and make loan and other required payments to the Agency on 
an Agency approved schedule.
    (c) Lease of a portion of the security property. The Agency may, 
subject to the applicable provisions governing loan purposes found in of 
Sec. 3560.53, Sec. 3560.553 and Sec. 3560.603, approve the leasing of 
facilities related to a housing project (e.g., central kitchens, 
recreation facilities, laundry rooms, and community rooms) when the 
borrower will continue to operate the facilities for the purposes for 
which the loan was made. Agency approval is not required for leases with 
a term of less than 30 days. The Agency will only approve a lease with a 
term over 30 days if the following conditions are met:
    (1) The lease is in the best interest of the borrower, the tenants, 
and the Federal Government.
    (2) The amount of the consideration agreed to in the lease is 
adequate to pay all prorated operating and maintenance expenses, a 
prorated share of the annual reserve deposit, and the prorated part of 
the loan amortization at the note rate of interest.
    (3) All compensation and considerations, whether payments, a share 
of proceeds, or improvements to the property paid for by the lessee, 
must be disclosed to the Agency. No payments or compensation for 
entering into a lease shall flow to the borrower or any identity-of-
interest related to the borrower.
    (4) The lease provides at its termination for the restoration of the 
leased space to its original condition or a condition acceptable to the 
owner and the Federal Government.
    (5) Consent to the lease will not exceed 3 years at a time unless 
the Agency determines that a longer lease is advantageous to the 
borrower, the tenants, and the Federal Government.
    (6) When another lienholder's mortgage requires that lienholder's 
consent to a lease, the borrower must obtain written consent from the 
lienholder before the Agency will consider approving the lease.

[[Page 558]]

    (d) Mineral leases. Mineral leases will be handled according to 7 
CFR 3550.159 except that all references to County Supervisor will be 
construed to mean District Director when applied to the MFH Programs.



Sec. 3560.409  Subordinations or junior liens against security property.

    (a) General. Borrowers must obtain Agency consent prior to entering 
into any financial transaction that will require a subordination of the 
Agency security interest in the property (i.e., granting of a prior 
interest to another lender.) An environmental review must be completed 
in accordance with 7 CFR part 1940, subpart G, before the Agency can 
consent to a subordination or junior lien against the property. 
Borrowers must use an Agency approved subordination agreement.
    (1) If a lien is placed against property serving as security for an 
Agency loan without prior Agency consent, the Agency will declare the 
borrower to be in default and will pursue liquidation of the borrower's 
loans in accordance with the procedures specified in Sec. 3560.457, 
unless an agreement can be reached between the borrower and the Agency 
to work out removal of the lien or post approve the lien.
    (2) Subordinations or junior liens need not encompass the entire 
site, (e.g., a subordination or junior lien requested to permit an 
interim lender to advance construction funds may only cover the portion 
of the site proposed for construction.)
    (3) The subordination or junior lien must be for a specific amount.
    (4) The subordination or junior lien must not adversely impact the 
Agency's ability to service the loan according to the requirements of 
this part.
    (b) Consent request requirements. Borrowers proposing to have the 
Agency subordinate its interest to another lender or to give a creditor 
a junior lien against property serving as security for an Agency loan 
must submit a consent request to the Agency. The consent request must 
document the following:
    (1) The action will enable the borrower to obtain financial 
resources for improvements or repairs on the security property that are 
consistent with the purposes of the Agency loan secured by the property.
    (2) The action will not adversely impact the borrower's financial 
condition and the borrower's ability to repay the Agency loan being 
secured by the property.
    (3) The action will not result in basic rents at the security 
property that exceed conventional rents for comparable units in the 
area.
    (4) The terms and conditions of the credit to be secured by the 
subordination or junior lien are not expected to adversely affect the 
borrowers ability to meet the terms and conditions of the Agency loan 
secured by the property.
    (5) The proposed use of the funds obtained through the granting of a 
subordination or junior lien will not adversely affect the borrower's 
ability to meet Agency program requirements or to operate and manage the 
housing project in a manner consistent with program objectives.
    (6) The creditor receiving the ``subordination'' of interest in the 
property or the junior lien will agree that a foreclosure or acceptance 
of a deed-in-lieu of foreclosure will not be initiated without at least 
30 days prior notice to the Agency.
    (7) The subordination or junior lien is not being secured with any 
funding from housing project financial accounts.
    (8) The ``subordination'' of interest or junior lien will not cause 
the debt from all sources to exceed the value of the security property.
    (9) The transaction related to the placement of a ``subordination'' 
of interest or junior lien against the property serving as security for 
an Agency loan is in the best interest of the Federal Government.
    (c) Required conditions for subordinations and junior liens. 
Subordinations of interest in or junior liens against property serving 
as security for an Agency loan may be approved by the Agency only if 
they improve a borrower's financial condition and allow for improvements 
or repairs that are consistent with the purposes of the Agency loan 
secured by the property.

[[Page 559]]

    (1) Farm Labor Housing loans on farm tracts may be subordinated for 
essential farm improvements and operations.
    (2) Any proposed development must be planned and performed according 
to 7 CFR part 1924, subpart A, or in a manner directed by the other 
lienholder that meets the objectives of 7 CFR part 1924, subpart A.
    (d) Other liens against a property or other assets. (1) Borrowers 
must not enter into any agreements to place a lien on a housing project 
or any equipment related to a housing project without prior Agency 
approval and unless the following conditions are met:
    (i) The transaction will not adversely affect the Agency's security 
position;
    (ii) The lien is not related to a non-program eligible action;
    (iii) The items to be acquired by the funding related to the lien is 
needed for the operation of the property; and
    (iv) The financing arrangements are otherwise sound.
    (2) In cases where the above criteria are met, borrowers must 
complete and provide the Agency a copy of the financing statement, loan 
document, or contract, as applicable, as well as a security agreement 
acceptable to the Agency.



Sec. 3560.410  Consolidations.

    (a) General. With Agency approval, loans, loan agreements, or loan 
resolutions may be consolidated to reduce the administrative burden 
(i.e., record keeping, budgeting), to improve the cost effectiveness and 
efficiencies of housing project operations, and to effectively utilize 
facilities common to housing projects.
    (b) Loan consolidations. Loan consolidations will only be considered 
when:
    (1) Multiple loans to the one borrower entity are being transferred 
to a different borrower entity in accordance with Sec. 3560.406, or
    (2) One borrower entity has an initial loan and one or more 
subsequent loans for the same housing project and all the loans were 
closed on the same date and with the same rates and terms.
    (c) Loan agreement or loan resolution consolidations. Loan 
agreements or loan resolutions may be consolidated, even if the loans 
related to the agreement or resolution are not consolidated, to allow 
borrowers to comply with reporting, accounting, and other Agency 
requirements as a single housing project.
    (1) The loan agreements or loan resolutions may only be consolidated 
when they are related to loans made for the same purposes, to the same 
borrower, and operating under the same type of interest credit, if 
applicable.
    (2) All of a borrower's loan accounts must be current after the loan 
agreement or loan resolution consolidation is processed, unless 
otherwise approved by the Agency.



Sec. Sec. 3560.411-3560.449  [Reserved]



Sec. 3560.450  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



Subpart J_Special Servicing, Enforcement, Liquidation, and Other Actions



Sec. 3560.451  General.

    This subpart contains special servicing, enforcement, liquidation, 
and other actions that the borrower may request or the Agency may 
implement when compliance violations, monetary defaults, or non-monetary 
defaults cannot be resolved through regular servicing.
    (a) Agency obligations. The Agency is under no obligation to offer 
or agree to any special servicing actions.
    (b) Relationship to workout agreements. Special servicing actions 
may be implemented either as a part of a workout agreement, developed in 
accordance with Sec. 3560.453, or as an action approved by the Agency 
separate from a

[[Page 560]]

workout agreement unless indicated otherwise in this subpart.



Sec. 3560.452  Monetary and non-monetary defaults.

    (a) General. Borrowers are in default when they have received a 
compliance violation notice, issued in accordance with Sec. 3560.354, 
and have failed to correct the compliance violation identified in the 
compliance violation notice within the time period specified in the 
notice. Compliance violations include, but are not limited to, 
violations of promissory note provisions, loan or grant agreement 
provisions, regulatory, or other Agency requirements, including 
requirements imposed on a borrower through a workout agreement developed 
in accordance with Sec. 3560.453.
    (b) Monetary defaults. A monetary default exists when any amount due 
to the Agency or a third party (such as real estate taxes and insurance) 
under a promissory note, loan or grant agreement, workout agreement, or 
other agreement remains due more than 30 days after the due date.
    (c) Nonmonetary defaults. A nonmonetary default exists when a 
borrower fails to correct a compliance violation, other than a monetary 
amount past due, within the time period specified in a compliance 
violation notice issued in accordance with Sec. 3560.354. Nonmonetary 
defaults include, but are not limited to, failure to:
    (1) Operate and manage a housing project in accordance with the 
Agency approved management plan or Agency requirements;
    (2) Maintain the physical condition of a housing project in a 
decent, safe, and sanitary manner and in accordance with Agency 
requirements;
    (3) Keep general operating expense, reserve, and other financial 
accounts related to a housing project at required funding levels;
    (4) Occupy rental units with eligible tenants, unless granted an 
exception by the Agency;
    (5) Charge correct rents or to correctly calculate net tenant 
contributions, utility allowances, or rental assistance payments or to 
properly administer the Agency rental assistance assigned to the housing 
project;
    (6) Submit required annual financial reports to the Agency within 
time periods specified in Sec. 3560.308;
    (7) Submit management plans, leases, occupancy rules, and other 
required materials to the Agency in accordance with Agency requirements; 
and,
    (8) Comply with applicable Federal laws including laws related to 
civil rights, fair housing, disabilities, and environmental conditions.
    (d) Default notice. When borrowers are in default, the Agency will 
notify borrowers, in writing, that they are in default. The default 
notice will identify the compliance violation that led to the default, 
will specify actions necessary to cure the default, and will establish a 
date by which the default must be cured to preclude Agency initiation of 
enforcement actions, liquidation, or other actions.
    (e) Agency action. If a borrower fails to cure a default within the 
time period specified in the default notice, the Agency may initiate the 
enforcement actions described in Sec. 3560.461 or liquidation as 
described in Sec. 3560.456. Also, Agency compliance violation notices 
and related default notices may be referred to Federal, state, and local 
agencies with jurisdictions related to the violations for handling, in 
accordance with their requirements.



Sec. 3560.453  Workout agreements.

    (a) General. (1) Prevention or resolution of compliance violations 
or default cures are a borrower's responsibility.
    (2) A borrower may develop and submit to the Agency for approval a 
workout agreement that proposes actions to be taken over a period of 
time to prevent or correct a compliance violation or to cure a monetary 
or non-monetary default.
    (3) A borrower developed workout agreement may propose, but is not 
limited to, the following actions:
    (i) A combination of one or more of the special servicing actions 
outlined in Sec. Sec. 3560.454 and 3560.455;
    (ii) A change in operations and management at a housing project; or
    (iii) A commitment of additional financial resources to the housing 
project with the amount and source of

[[Page 561]]

the additional resources to be committed to the housing project 
specifically identified.
    (b) Workout agreement approval. (1) The Agency is under no 
obligation to approve a workout agreement as submitted by a borrower or 
to act with forbearance when a housing project is in monetary or non-
monetary default.
    (2) Borrower developed workout agreements may not be implemented 
until the borrower receives written approval from the Agency.
    (3) The Agency will only approve a workout agreement if the Agency 
determines that the actions proposed are likely to prevent or correct 
compliance violations or cure a default and approval is in the best 
interest of the Federal Government and tenants.
    (4) The Agency will only approve a workout agreement if the proposed 
actions are consistent with the borrower's management plan. If proposed 
actions are not consistent with the borrower's management plan, 
applicable revisions to the borrower's management plan must be made 
before approval of the workout agreement is given.
    (c) Workout agreement required content. (1) Workout agreements 
submitted to the Agency for approval must be in writing and signed by 
the borrower. Workout agreements must describe proposed actions in 
sufficient detail to demonstrate the likelihood of the actions to 
prevent or correct compliance violations or cure defaults.
    (2) At a minimum, workout agreements must include the following.
    (i) The name and address of the housing project, project number, 
borrower's tax identification number, and other information necessary to 
identify the housing project.
    (ii) A description of the potential or actual compliance violation 
or default situation, including an explanation of related causes, such 
as cash flow concerns, budget revisions, deferred maintenance, 
vacancies, or violations of statutes.
    (iii) A definition and description of the housing project's market 
area, including information on housing availability, rents, and vacancy 
rates in the market area.
    (iv) A description of the proposed actions to prevent or correct 
compliance violations or to cure defaults along with a date specific 
schedule indicating when interim and final actions will be taken to 
correct the compliance violation or cure the default.
    (v) A description of financial and other resources necessary to 
prevent or correct the compliance violation or cure the default 
including an identification of the sources for such resources.
    (d) Workout agreement budgets. Budget revisions submitted as a part 
of a workout agreement for a housing project experiencing cash flow 
problems must prioritize cash disbursements in the following order:
    (1) Prior lienholder, if any;
    (2) Critical operating and maintenance expenses, including taxes and 
insurance;
    (3) Agency debt payments;
    (4) Reserve account requirements; and
    (5) Other authorized expenditures.
    (e) Workout agreement terms and cancellation. (1) Workout agreements 
shall be in effect for no longer than a 2-year time period, beginning on 
the date of Agency approval. If an approved workout agreement calls for 
actions that extend beyond a 2-year period, borrowers must submit an 
updated and, if necessary, revised workout agreement to the Agency for 
approval. The updated workout agreement must be submitted to the Agency, 
30 days prior to the expiration of the workout agreement in effect.
    (2) The Agency may cancel a workout agreement at any time if the 
borrower fails to comply with the terms of the agreement. The Agency 
will provide notice to the borrower upon cancellation of the workout 
agreement.



Sec. 3560.454  Special servicing actions related to housing operations.

    (a) Changing rents or revising budgets. The Agency may approve a 
borrower request for a rent change, rent incentives, or a revised 
budget, at any time during a housing project's fiscal year.
    (b) Occupancy waivers. If the Agency determines that a housing 
project with

[[Page 562]]

high vacancies could be kept operationally and financially viable by 
allowing the borrower to accept as tenants persons with incomes above 
the income eligibility standards specified in Sec. 3560.152(a), the 
Agency, in writing, may grant the borrower an occupancy waiver to allow 
such persons as tenants. Occupancy waivers will be in effect only during 
the time period specified by the Agency when the waiver is granted. In 
addition, borrowers must rent to all eligible applicants on the housing 
projects waiting list prior to accepting persons with incomes above the 
Agency standards as tenants.
    (c) Additional rental assistance (RA). If the Agency determines that 
a housing project with high vacancies could be kept operationally and 
financially viable by increasing the amount of RA allocated to the 
housing project, the Agency, subject to available funds, may offer the 
housing project RA as a means of preventing or correcting a compliance 
violation or curing a default.
    (d) Special note rents. When a Plan II housing project is 
experiencing severe vacancies due to market conditions, the Agency may 
approve a rent less than the note rent to attract and keep tenants whose 
incomes, according to the formula in Sec. 3560.203, would require them 
to pay the note rent. The reduced rent is called a Special Note Rent 
(SNR) and, as noted in Sec. 3560.210, approval of an SNR may affect 
approvals of loan proposals submitted to the Agency for the market area 
where the SNR is in effect.
    (1) An SNR rent may only be requested as a part of a proposed 
workout agreement and must include documentation of market conditions, 
the housing project's vacancy rates, evidence of marketing efforts, and 
other concerns necessitating the request for an SNR.
    (2) Borrowers must forego the annual return to owner for each 
housing project's fiscal year that an SNR is in effect for all or part 
of a fiscal year at a housing project.
    (3) SNR's may be increased, decreased, or terminated any time during 
a housing project's fiscal year when market conditions, vacancy rates, 
or other concerns that necessitated the SNR warrant a change.
    (4) In addition to any state lease law requirements that might be 
related to the implementation of an SNR, the borrower must notify each 
tenant of any change in rents or utility allowances that result from 
approval of an SNR, in accordance with Sec. 3560.205(c) and must submit 
the appropriate budget changes to the Agency for approval.
    (e) Termination of management agreement. If the Agency determines 
that a compliance violation or loan default was caused, in full or in 
part, by actions or inactions of the housing project's management agent, 
the Agency will require the borrower to terminate the management 
agreement with that agent, or in the case of a borrower managed housing 
project, to enter an agreement with a third-party non-identity of 
interest management agent, unless the borrower and the Agency agree on a 
written plan to prevent reoccurrence of the violation. Housing project 
funds may not be used to pay a management fee to a management agent 
after the Agency has directed the borrower to terminate a management 
agreement with that agent, except during an Agency approved transition 
period.



Sec. 3560.455  Special servicing actions related to loan accounts.

    (a) General. To prevent or correct a compliance violation or to 
prevent or cure a default in a situation that cannot be resolved through 
regular servicing, the Agency may approve a deferral of loan payments or 
a loan restructuring. Nothing herein precludes the Agency from 
initiating appropriate legal action to correct a compliance violation if 
the Agency determines such action is more in the Government's interest 
than entering into a special servicing agreement as provided for in this 
section. Procedures for debt collection are discussed in Sec. 3560.460. 
As part of a workout agreement, the Agency may agree to accept less than 
full monthly payment installments due on an Agency loan for a specified 
period of time, not to exceed the effective period of the workout 
agreement.

[[Page 563]]

    (b) Loan reamortizations. A loan reamortization is a restructuring 
of loan terms and conditions over a period of time that does not exceed 
the remaining useful life of the housing project.
    (1) Loan reamortizations will only be approved when they are in the 
best interest of the Federal Government and tenants and when the 
following conditions are met.
    (i) The Agency determines that the borrower will be unable to meet 
their obligations without a reduction in monthly payment installments; 
and
    (ii) The Agency is satisfied that the security, including the 
potential income for debt service, will be adequate to protect the 
Agency's interest over the term of the reamortization and that the 
reamortization will not adversely affect the Federal Government's lien 
priority.
    (2) If the Agency approves a reamortization of a loan under this 
section, it will be at the existing note rate, or the current interest 
rate at the time of reamortization closing or approval, whichever is 
less.
    (3) Loan reamortization may be used to:
    (i) Restructure loan repayments to prevent or correct a compliance 
violation or cure a default caused by circumstances beyond the 
borrower's control in situations where the borrower is otherwise in 
compliance with Agency requirements;
    (ii) Repay principal, outstanding interest, overage, and advances 
made by the Agency for recoverable cost items when less than full 
payments were authorized under the provisions of an Agency approved 
workout agreement;
    (iii) Restructure a borrower's loan payments in conjunction with an 
incentive package developed in accordance with Sec. 3560.656 to prevent 
prepayment of the loan;
    (iv) Restructure an existing loan in conjunction with a subsequent 
loan for rehabilitation; or
    (v) Restructure remaining debt when a portion of the property 
serving as loan security is sold and there is a need to reestablish the 
financial stability of the housing project.
    (c) Loan writedowns. A loan writedown is a reduction of a borrower's 
debt approved by the Agency.
    (1) Loan writedowns will only be approved when they are in the best 
interest of the Federal Government and when the following conditions 
exist:
    (i) Sound management of the housing project is evident or sound 
management practices are proposed for correction in accordance with an 
Agency approved workout agreement; and
    (ii) The housing project's financial stability is being affected by 
conditions beyond the borrower's control, such as market weaknesses, 
unforeseen site problems, or natural disasters.
    (2) Prior to Agency approval for a loan writedown, the borrower must 
obtain an appraisal of the housing project that concludes the `` `as-is' 
market value,'' subject to restricted rents, conducted in accordance 
with subpart P of this part. The Agency will not approve a loan write-
down unless the appraisal indicates the Federal Government's interests 
are secured at the proposed writedown level.
    (3) Any writedown will be conditioned on a finding that the borrower 
does not have the ability to pay a higher loan payment, even if the loan 
is reamortized.
    (4) Loan writedowns may be used to allow for a loan transfer and 
assumption for less than the total amount of outstanding debt.



Sec. 3560.456  Liquidation.

    Prior to any servicing action which might lead to the acquisition of 
real property by the Agency, the Agency must complete a due diligence 
report to assess any potential contamination of the property from 
hazardous substances, hazardous wastes, or petroleum products. The 
borrower must cooperate with the Agency in the development of this 
report.
    (a) Before acceleration. Before accelerating a project loan, the 
Agency will consider the possibility that the borrower is forcing an 
acceleration to circumvent the prepayment process. If it is found that 
this is the borrower's motivation, the Agency will consider alternatives 
to acceleration, such as suing for specific performance under loan and 
management documents.
    (b) Acceleration. When a borrower is in monetary or non-monetary 
default,

[[Page 564]]

the Agency will accelerate the loan unless the Agency decides other 
enforcement measures are more appropriate.
    (1) If the borrower does not pay the full account balance and meet 
the other terms of the acceleration notice within the time period set 
forth in the acceleration notice, the Agency will foreclose or acquire 
the security property through deed in lieu of foreclosure.
    (2) The Agency will suspend interest credit and rental assistance.
    (3) The Agency will not accept partial payment of an accelerated 
loan unless required by state law.
    (c) Voluntary liquidation. After acceleration, borrowers may 
voluntarily liquidate through either of the following mechanisms:
    (1) 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.
    (2) 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 after all appeal rights have expired.
    (d) Foreclosure. (1) The Agency will initiate foreclosure when a 
borrower is in monetary or non-monetary default and foreclosure is in 
the best interest of the Federal Government.
    (2) When a junior lienholder foreclosure does not result in payment 
in full of the Agency debt but the property is sold subject to the 
Agency lien, the Agency will liquidate the account.
    (e) Acquisition of chattel properties. (1) The Agency will accept 
voluntary conveyance of chattel property only when the borrower can 
convey ownership free of other liens and the Agency has agreed to 
release the borrower from further liability on the account.
    (2) If the Agency decides to accept an offer of voluntary conveyance 
of chattel property, the borrower must provide an itemized listing of 
each chattel property item being conveyed and provide title to vehicles 
or other equipment, where applicable.



Sec. 3560.457  Negotiated debt settlement.

    (a) Borrower proposals to settle debt. A borrower who cannot pay the 
full amount of loan payments may propose an offer to settle an 
outstanding debt for less than the full amount of that debt. The Agency 
may approve a negotiated debt settlement only in cases where a default 
is evident and doing so is in the best interest of the Federal 
Government and tenants.
    (b) Required information. Borrowers requesting debt settlement must 
submit complete and accurate information from which a full determination 
of financial condition can be made. Debt settlement offers will not be 
approved by the Agency unless the financial information submitted by the 
borrower indicates that the borrower will be able to make the debt 
settlement payments as proposed.
    (c) Effective date of approval. Debt settlement offers will not be 
accepted until the borrower receives written approval from the Agency.
    (d) Appraisal requirement. No debt settlement offer will be accepted 
for less than the net recovery value of the security as determined by a 
licensed appraiser or other qualified official, and concurred in by the 
Agency's qualified appraisal review official or other qualified 
official.
    (e) Disposition of security prior to offer. Borrowers are not 
required to dispose of security prior to making a debt settlement offer. 
However, if a borrower has disposed of security prior to making a debt 
settlement offer, the proceeds from the disposed security must be 
applied to the borrower's account prior to any negotiations on the debt 
settlement offer.
    (f) Final release condition. Upon full payment of the approved debt 
settlement, the Agency will release the borrower from liability.



Sec. 3560.458  Special property circumstances.

    (a) Abandonment. When the Agency determines that a borrower has 
abandoned security for a loan under this part, the Agency will take the 
steps necessary to protect the Federal Government's interest in the 
security. Costs associated with managing abandoned property are the 
responsibility

[[Page 565]]

of the borrower and will be charged to the borrower's account until 
liquidation is completed.
    (b) Other security. The Agency will service security such as 
collateral assignments, assignments of rents, Housing Assistance 
Payments Contracts, and notices of lienholder interest according to 
acceptable practices in the respective states.
    (c) Taking of additional security to protect Agency interests. The 
Agency may require borrowers to provide additional security in the form 
of real estate, cash reserves, letters of credit, or other security when 
needed to improve the chances that the Agency will not suffer a loss, 
and when:
    (1) The account is in default; or
    (2) The property has not been properly managed or maintained.
    (d) Due diligence. When the Agency has completed an environmental 
review in accordance with 7 CFR part 1940, subpart G, and decides not to 
acquire security property through liquidation action or chooses to 
abandon its security interest in real property, whether due in whole or 
in part, to the presence of contamination from hazardous substances, 
hazardous wastes, or petroleum products, the Agency will provide the 
appropriate environmental authorities with a copy of its due diligence 
report.



Sec. 3560.459  Special borrower circumstances.

    (a) Deceased borrower, bankruptcy, insolvency, and divorce actions. 
The Agency will address borrower accounts affected by special 
circumstances such as death, bankruptcy, insolvency, and divorce on a 
case-by-case basis. The Agency will make servicing decisions in such 
cases on the basis of best interest to the Federal Government and 
tenants. The Agency will bring a legal action to establish the legal 
capacity of the borrower to administer the project if found necessary to 
protect the government's interests. In order for the Agency to make 
servicing decisions in such cases, the borrower or the borrower's 
representative will provide to the Agency:
    (1) On the part of the heirs or executor of the borrower's estate, 
evidence of legal action due to a will or court actions that establish 
who is to become the owner;
    (2) The financial status of the borrower and any member pledging 
additional security for the debt;
    (3) The status of the security property; and
    (4) The impact of the identified actions on the operation of the 
project.
    (b) Membership liability agreements. If a borrower's note is 
endorsed by individuals other than the borrower or a borrower has 
security agreements with members of the organization for the purchase of 
shares of stock or for the payment of a pro rata share of the loan in 
the event of default, or has individual liability agreements, which are 
usually assigned to and held by the Agency as additional security for 
the loan, the security and liability agreements must be adequate to 
protect the Agency's interest.
    (c) Security issues in participation loans. When a multi-family 
housing (MFH) project is receiving financing or a subsidy from sources 
other than the Agency, the Agency will service the account in accordance 
with the participation agreements made with the Agency and the other 
funding sources under Sec. 3560.65.



Sec. 3560.460  Double damages.

    (a) Action to recover assets or income. (1) The Agency may request 
to the Attorney General to bring an action in a United States district 
court to recover any assets or income used by any person in violation of 
the provisions of a loan made by the Agency under this section or in 
violation of any applicable statute or regulation.
    (2) For the purposes of this section, a use of assets or income in 
violation of the applicable loan, statute, or regulation includes any 
use for which the documentation in the books and accounts does not 
establish that the use was made for a reasonable operating expense or 
necessary repair of the project or for which the documentation has not 
been maintained in accordance with the requirements of the Agency and in 
reasonable condition for proper audit.
    (3) For the purposes of this section, the term ``person'' means:

[[Page 566]]

    (i) Any individual or entity that borrows funds in accordance with 
programs authorized by this section;
    (ii) Any individual or entity holding 25 percent or more interest in 
any entity that the Agency funds in accordance with programs authorized 
by this section; and
    (iii) Any officer, director, or partner of an entity that borrows 
funds in accordance with programs authorized by this section.
    (b) Amount recoverable. (1) In any judgment favorable to the United 
States entered under this section, the Attorney General may recover 
double the value of the assets and income of the project that the court 
determines to have been used in violation of the provisions of a loan 
made by the Agency under this section or any applicable statute or 
regulation, plus all costs related to the actions, including reasonable 
attorney and auditing fees.
    (2) Notwithstanding any other provisions of law, the Agency may use 
amounts recovered under this section for activities authorized under 
this section and such funds must remain available for such use until 
expended.
    (c) Time limitation. Notwithstanding any other provisions of law, an 
action under this section may be commenced at any time during the six-
year period beginning on the date that the Agency discovered or should 
have discovered the violation of the provisions of this section or any 
related statutes or regulations.
    (d) Continued availability of other remedies. The remedy provided in 
this section is in addition to and not in substitution of any other 
remedies available to the Agency or the United States.



Sec. 3560.461  Enforcement provisions.

    (a) Equity skimming--(1) Criminal penalty. Whoever, as an owner, 
agent, employee, or manager, or is otherwise in custody, control, or 
possession of property that is security for a loan made under this 
title, willfully uses, or authorizes the use, of any part of the rents, 
assets, proceeds, income, or other funds derived from such property, for 
any purpose other than to meet actual, reasonable, and necessary 
expenses of the property, or for any other purpose not authorized by 
this title or the regulations adopted pursuant to this title, must be 
fined under title 18, United States Code, or imprisoned not more than 
five years, or both.
    (2) Civil sanctions. An entity or individual who as an owner, 
operator, employee, or manager, or who acts as an agency for a property 
that is security for a loan made under this title where any part of the 
rents, assets, proceeds, income, or other funds derived from such 
property are used for any purpose other than to meet actual, reasonable, 
and necessary expenses of the property, or for any other purpose not 
authorized by this title of the regulations adopted pursuant to this 
title, must be subject to a fine of not more than $25,000 per violation. 
The sanctions provided in this paragraph may be imposed in addition to 
any other civil sanctions or civil monetary penalties authorized by law.
    (b) Civil monetary penalties--(1) When civil monetary penalties may 
be imposed. The Agency may, after notice and opportunity for a hearing, 
impose a civil monetary penalty in accordance with this section against 
any individual or entity, including its owners, officers, general 
partners, limited partners, or employees, who knowingly and materially 
violate, or participate in the violation of, the provisions of this 
title, the regulation issued by the Agency pursuant to this title, or 
agreements made in accordance to this title by:
    (i) Submitting information to the Agency that is false.
    (ii) Providing the Agency with false certifications.
    (iii) Failing to submit information requested by the Agency in a 
timely manner.
    (iv) Failing to maintain the property subject to loans made under 
this title in good repair and condition, as determined by the Agency.
    (v) Failing to provide management for a project that received a loan 
made under this title that is acceptable to the Agency.
    (vi) Failing to comply with the provisions of applicable civil 
rights statutes and regulations.
    (2) Amount. (i) The amount of a civil penalty imposed under this 
section must not exceed the greater of twice the damages the Agency or 
the project

[[Page 567]]

that is secured for a loan under this section suffered or would have 
suffered as a result of the violation, or $50,000 per violation.
    (ii) Determination. In determining the amount of a civil monetary 
penalty under this section, the Agency must take into consideration:
    (A) The gravity of the offense;
    (B) Any history of prior offenses by the violator (including 
offenses occurring prior to the enactment of this section);
    (C) Any injury to tenants;
    (D) Any injury to the public;
    (E) Any benefits received by the violator as a result of the 
violation;
    (F) Deterrence of future violations; and
    (G) Such other factors as the Agency may establish by regulation.
    (3) Payment of penalties. No payment of a penalty assessed under 
this section may be made from funds provided under this title or from 
funds of a project which serve as security for a loan made under this 
title.
    (4) Remedies for noncompliance. (i) Judicial intervention. If a 
person or entity fails to comply with a final determination by the 
Agency imposing a civil monetary penalty, the Agency may request the 
Attorney General of the United States to bring an action in an 
appropriate district court to obtain a monetary judgment against such an 
individual or entity and such other relief as may be available. The 
monetary judgment may, in the court's discretion, include attorney's 
fees and other expenses incurred by the United States in connection with 
the action.
    (ii) Reviewability of determination. In an action under this 
paragraph, the validity and appropriateness of a determination by the 
Agency imposing the penalty must not be subject to review.
    (c) Conditions for renewal extension. The Agency may require that 
expiring loan or assistance agreements entered into under this title 
must not be renewed or extended unless the owner executes an agreement 
to comply with additional conditions prescribed by the Agency, or 
executes a new loan or assistance agreement in the form prescribed by 
the Agency.



Sec. 3560.462  Money laundering.

    The Agency will act in accordance with U.S. Code Title 18, part I, 
chapter 95, section 1956(c)(7)(D).



Sec. 3560.463  Obstruction of Federal audits.

    The Agency will act in accordance with U.S. Code Title 18, part I, 
chapter 73, section 1516(a).



Sec. Sec. 3560.464-3560.499  [Reserved]



Sec. 3560.500  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



    Subpart K_Management and Disposition of Real Estate Owned (REO) 
                               Properties



Sec. 3560.501  General.

    This subpart contains Agency procedures and other policies related 
to the management and disposition of multi-family housing (MFH) projects 
in the Agency's inventory (Real Estate Owned (REO) property). Housing 
projects will not be accepted into the Agency's inventory unless one of 
the following has occurred:
    (a) The borrower has abandoned the housing project and the Agency 
has performed the required steps to take the housing project into 
custody.
    (b) The housing project title has been transferred to the Agency as 
a result of foreclosure, voluntary conveyance, redemption, or other 
action.

[[Page 568]]



Sec. 3560.502  Tenant notifications and assistance.

    Each tenant in an REO property designated to be sold as a non-
program property will be notified by the Agency, in writing, of the 
housing projects' non-program designation and will be given an 
opportunity to obtain a Letter Of Priority Entitlement (LOPE) as 
specified in Sec. 3560.159(c).



Sec. 3560.503  Disposition of REO property.

    (a) Preference will be given to offers from bidders who are 
determined eligible by the Agency to purchase REO property designated to 
be sold as program property. It is the Agency's priority that property 
previously operated as program property prior to becoming REO inventory 
property be sold as program property. However, REO property may be sold 
under whatever Agency program is most appropriate for the property and 
the community needs regardless of the program under which the property 
was originally financed or whether the property was being used to secure 
loans under more than one Agency program.
    (b) When the Agency determines that the REO property to be sold is 
not decent, safe, and sanitary and/or does not meet cost effective 
energy conservation standards, it will disclose the basis for this 
determination to prospective purchasers. 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 
Agency's cost effective conservation standards. The Agency will also 
notify any potential purchaser of any known lead based paint hazards.



Sec. 3560.504  Sales price and bidding process.

    (a) The loan documents related to REO property sold for program 
purposes must contain the restrictive-use language specified in Sec. 
3560.662(a).
    (b) Entities bidding on REO property designated to be sold as 
program property must submit a loan application package that meets the 
requirements specified in subpart B of this part.
    (1) Bidders on REO property designated to be sold as program 
property must meet the eligibility requirements established under Sec. 
3560.55.
    (2) Bidders determined by the Agency to be ineligible to purchase 
REO property designated to be sold as program property will be notified 
in writing. The bidding process will continue regardless of pending 
appeals.
    (3) All offers from bidders determined to be eligible to purchase 
REO property designated to be sold as program property will be 
considered in the bidding process and must provide evidence of financial 
stability and credit worthiness.
    (c) The Agency will determine the successful bidder on REO property 
designated to be sold as program property by conducting a drawing of 
sealed bids.
    (1) The Agency may authorize the sale of an REO property by sealed 
bid or public auction when it is in the best interest of the Government. 
The Agency will publicly solicit requests for sealed bids and publicize 
auctions. If the highest bid is lower than the minimum acceptable bid 
established by the Agency, or if no acceptable bids are received, the 
Agency may negotiate a sale without further public notice.
    (2) Bidders who desire to withdraw their bids must do so prior to 
the drawing date.
    (d) Property designated to be sold as non-program property may be 
sold to entities that do not meet the Agency's eligible borrower 
requirements specified in Sec. 3560.55, and must be sold for cash or on 
terms approved by the Agency. Cash sales will be given first preference 
and will be drawn before any sales on terms.



Sec. 3560.505  Agency loans to finance purchases of REO properties.

    (a) Agency loans to finance the purchase of REO property designated 
to be sold as program property must meet the same requirements as 
specified in subparts A and B of this part. In addition, the following 
provisions apply.
    (1) At the borrower's option, the interest rate will be the 
prevailing rate at the time of loan approval or the prevailing rate at 
loan closing.
    (2) Purchasers may pay closing costs from their own funds or, if 
allowable under subparts B, L, or M of this part,

[[Page 569]]

as applicable, may finance such costs as part of the Agency loan.
    (b) Agency loans to finance the purchase of REO property designated 
to be sold as non-program property must meet the following terms.
    (1) A down payment of not less than 10 percent of the purchase price 
is required at closing.
    (2) The interest rate will equal the lesser of the prevailing 
interest rate at the time of loan approval or loan closing for MFH loans 
plus one-half percent.
    (3) The note amount will be amortized over a period not to exceed 10 
years. If the Agency determines that more favorable terms are necessary 
to facilitate the sale, the note amount may be amortized using a 30-year 
factor with payment in full due no later than 10 years from the date of 
closing (balloon payment). In no case will the term be longer than the 
useful life of the property.
    (4) Agency loans to finance the purchase of non-program REO property 
are subject to the availability of funds.
    (c) Loan limits and allowable uses of loan funds specified in 
subparts B, L, and M of this part, as applicable, are applicable to any 
Agency-financed (credit) sale of REO property.
    (d) Title clearance and loan closing for an Agency financed sale and 
any subsequent loan to be closed simultaneously with the sale must meet 
the requirements in subpart B of this part for an initial loan, with the 
following exceptions:
    (1) A ``Quit Claim'' or other non-warranty deed will be used; and
    (2) The buyer must pay attorney's fees, insurance costs, recording 
fees and other customary fees unless they are included in a subsequent 
loan and the subsequent loan is for purposes other than closing costs 
and fees.
    (e) After approval of an Agency-financed sale of occupied REO 
property designated to be sold as program property, but prior to 
closing, the purchaser must prepare a budget for housing operations in 
accordance with subpart B of this part. If a rent increase is necessary, 
procedures specified in subparts E and F of this part for calculating 
rents, net tenant contributions, and rental assistance will be followed 
by the borrower.



Sec. 3560.506  Conversion of single family type REO property to MFH use.

    Single family type REO property may be sold for conversion to MFH 
program use under the following conditions:
    (a) The Agency will allow nonprofit organizations, public bodies, or 
for-profit entities to purchase single family type REO property for 
conversion to MFH program use. When the Agency finances the sale of 
single family-type REO property for conversion to rural rental housing 
program use (i.e., MFH including group homes and homes for the elderly 
or disabled, farm labor housing, or rural cooperative housing), the sale 
price will be the lesser of the Federal Government's investment or an 
amount based on the ``as-is'' market value of the housing project as 
determined by an appraisal conducted in accordance with subpart P of 
this part.
    (b) The Agency will only accept written offers to purchase two or 
more single family type REO properties for conversion to rural rental 
housing from nonprofit organizations, public bodies, or for-profit 
entities with a good record of providing housing under the Agency's MFH 
programs. The single family type properties are not required to be 
contiguous, however, they must be located in close enough proximity so 
that management capabilities are not diminished because of distance.



Sec. Sec. 3560.507-3560.549  [Reserved]



Sec. 3560.550  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required

[[Page 570]]

to respond to a collection of information unless it displays a currently 
valid OMB control number.



                    Subpart L_Off-Farm Labor Housing



Sec. 3560.551  General.

    This subpart establishes the requirements for making loans and 
grants for off-farm labor housing and for ongoing operations of this 
housing. Unless otherwise specified in this subpart, the requirements of 
subparts A through K, N, O, and P of this part will apply in addition to 
the requirements in this subpart.



Sec. 3560.552  Program objectives.

    (a) In addition to the objectives stated in Sec. 3560.52, off-farm 
labor housing loan and grant funds will be used to increase:
    (1) The supply of affordable housing for farm labor; and
    (2) The ability of communities to attract farm labor by providing 
housing which is affordable, decent, safe and sanitary.
    (b) Under section 516(i) of the Housing Act of 1949 (42 U.S.C. 
1486(i)), the Agency may award technical assistance grants to encourage 
the development of farm labor housing.



Sec. 3560.553  Loan and grant purposes.

    (a) In addition to the purposes stated in Sec. 3560.53, off-farm 
labor housing loan and grant funds may be used to provide facilities for 
seasonal or temporary residential use with appropriate furnishings and 
equipment. A temporary residence is a dwelling which is used for 
occupancy, usually for a short period of time, but is not the legal 
domicile for the occupant.
    (b) The Agency may award technical assistance grants to eligible 
private and public nonprofit agencies. These grant recipients will, in 
turn, assist other organizations to obtain loans and grants for the 
construction of farm labor housing.
    (c) Technical assistance services may not be used to reimburse a 
nonprofit or public body applicant for technical services provided by a 
nonprofit organization, with housing and/or community development 
experience, to assist the nonprofit applicant entity in the development 
and packaging of its loan/grant docket and project. In addition, 
technical assistance will not be funded by the Agency when an identity 
of interest exists between the technical assistance provider and the 
loan or grant applicant.



Sec. 3560.554  Use of funds restrictions.

    Off-farm labor housing loan and grant funds may not be used for any 
purpose prohibited by Sec. 3560.54 except Sec. 3560.54(a)(1). Off-farm 
labor housing may be used to serve migrant farmworkers.



Sec. 3560.555  Eligibility requirements for off-farm labor housing loans and grants.

    (a) Eligibility for loans. Applicants for off-farm labor housing 
loans must be:
    (1) A broad-based nonprofit organization, a nonprofit organization 
of farmworkers, a federally recognized Indian tribe, a community 
organization, or an agency or political subdivision of State or local 
government, and must meet the requirements of Sec. 3560.55, excluding 
Sec. 3560.55(a)(6). A broad-based nonprofit organization is a nonprofit 
organization that has a membership that reflects a variety of interests 
in the area where the housing will be located; or
    (2) A limited partnership with a non-profit general partner which 
meets the requirements of Sec. 3560.55(d).
    (b) Eligibility for grants. To be eligible for off-farm labor 
housing grants, applicants must:
    (1) Meet the requirements in Sec. 3560.555(a)(1); and
    (2) Be able to contribute at least one-tenth of the total farm labor 
housing development cost from its own or other resources. The 
applicant's contribution must be available at the time of grant closing. 
An off-farm labor housing loan financed by RHS may be used to meet this 
requirement.
    (c) Limitation. Limited partnerships eligible under paragraph (a)(2) 
of this section are not eligible for farm labor housing grants.



Sec. 3560.556  Application requirements and processing.

    Off-farm loans and grants will be available under a Notice of 
Funding

[[Page 571]]

Availability (NOFA) that will be published in the Federal Register each 
fiscal year.



Sec. 3560.557  [Reserved]



Sec. 3560.558  Site requirements.

    The requirements established in Sec. 3560.58 apply to all 
applications for off-farm labor housing loans and grants except that 
off-farm labor housing are not limited to rural areas.



Sec. 3560.559  Design and construction requirements.

    (a) General. The requirements established in Sec. 3560.60 apply to 
all applications for off-farm labor housing loans and grants except that 
seasonal off-farm labor housing that will be occupied for eight months 
or less per year by migrant farmworkers while they are away from their 
residence, may be constructed in accordance with Exhibit I of 7 CFR part 
1924, subpart A.
    (b) Additional requirements. In addition to the requirements 
established in Sec. 3560.60, it is encouraged that the design of off-
farm labor housing incorporate outdoor shower, boot washing station, 
and/or hose bibb facilities as necessary to protect the resident and the 
asset from excess dirt and chemical exposure.
    (c) Davis-Bacon wage requirements. Construction financed with the 
assistance of a Section 516 grant will be subject to the provisions of 
the Davis-Bacon Act (40 U.S.C. 276(a)-276(a)(7)), and the implementing 
regulations published by the Department of Labor at 29 CFR parts 1, 3, 
and 5.



Sec. 3560.560  Security.

    The security requirements established in Sec. 3560.61 will apply to 
all applications for off-farm labor housing loans.



Sec. 3560.561  Technical, legal, insurance and other services.

    The requirements established under Sec. 3560.62 apply to all 
applications for off-farm labor housing loans and grants.



Sec. 3560.562  Loan and grant limits.

    (a) Determining the security value. The requirements established 
under Sec. 3560.63(a) apply to off-farm labor housing loans.
    (b) Maximum amount of loan. The requirements established in Sec. 
3560.63(c)(1) and (2), regarding borrower equity contribution apply to 
all applications for off-farm labor housing loans. (For applicants 
eligible under Sec. 3560.555(a)(2), the amount of Agency financing for 
the housing will not exceed 95 percent of the total development cost or 
95 percent of the security value available for the Agency loan, 
whichever is lower.) In determining the amount of the loan, the Agency 
will also review the capacity of the applicant to amortize such loan, 
considering any rental assistance provided for use in the housing, and 
any rents anticipated to be paid by farmworkers expected to occupy the 
housing.
    (c) Maximum amount of grant. The amount of any off-farm labor 
housing grant must not exceed the lesser of:
    (1) Ninety percent of the total development cost, or
    (2) That portion of the total development cost which exceeds the sum 
of any amount provided by the applicant from their own resources plus 
the amount of any loans approved for the applicant, considering the 
capacity of the applicant to amortize the loan.



Sec. 3560.563  Initial operating capital.

    The requirements for Sec. 3560.64 apply to all applications for 
off-farm labor housing loans and grants.



Sec. 3560.564  Reserve accounts.

    The requirements for Sec. 3560.65 apply to all applications for 
off-farm labor housing loans and grants.



Sec. 3560.565  Participation with other funding or financing sources.

    The requirements established in Sec. 3560.66 apply to all 
applications for off-farm labor housing loans and grants, except that 
the 25 percent requirements stated in paragraph Sec. 3560.66(b)(1) may 
consist of loan and/or grant funds.

[[Page 572]]



Sec. 3560.566  Loan and grant rates and terms.

    (a) Amortization period. The loan will be amortized over a period 
not to exceed 33 years. The amortization schedule will take into account 
the depreciation of the security and ensure that the loan will be 
adequately secured.
    (b) Interest rate. The effective interest rate will be 1 percent.
    (c) Term of grant agreement. The grant agreement will remain in 
effect for so long as there is a need for farm labor housing.



Sec. 3560.567  Establishing the profit base on initial investment.

    The requirements established under Sec. 3560.68 apply to applicants 
eligible under Sec. 3560.555(a)(2) and operating as a limited 
partnership with a nonprofit general partner.



Sec. 3560.568  Supplemental requirements for seasonal off-farm labor housing.

    For off-farm labor housing operating on a seasonal basis, the 
management plan must establish specific opening and closing dates. 
During the off-season, off-farm labor housing may be used as defined in 
subpart A of this part under short-term lease provisions. Where rents 
are charged on a per-unit basis and family income qualifies the 
household for rental assistance, rental assistance may be used.



Sec. 3560.569  Supplemental requirements for manufactured housing.

    The requirements established in Sec. 3560.70 apply to all 
applications for off-farm labor housing loans and grants.



Sec. 3560.570  Construction financing.

    The requirements established in Sec. 3560.71 apply to all 
applications involving off-farm labor housing loans and grants. In 
addition, the following requirements apply.
    (a) Equity contributions being made by a borrower or grantee must be 
contributed and disbursed prior to any disbursement of interim loan 
funds and any loan or grant funds from the Agency.
    (b) If the Agency is providing both loan and grant funds, loan funds 
must be fully released and expended prior to the release of grant funds 
by the Agency.
    (c) If construction is financed with a Labor Housing grant, it is 
subject to the provisions of the Davis-Bacon Act (published in the 
Department of Labor regulations 29 CFR parts 1, 2, and 5).



Sec. 3560.571  Loan and grant closing.

    The requirements established in Sec. 3560.72 apply to all 
applications for off-farm labor housing loans and grants. In addition, 
the following requirements apply.
    (a) A nonprofit organization will have its Board of Directors adopt 
an Agency-approved loan and/or grant resolution, which is required as 
part of the loan docket before loan and/or grant approval. All other 
loan applicants will execute an Agency-approved loan agreement.
    (b) For grants, an Agency approved grant agreement, must be executed 
by the applicant on the date of grant closing.
    (c) The obligations incurred by the applicant, as a condition of 
accepting the grant, will be in accordance with the off-farm labor 
housing grant agreement.
    (d) Off-farm labor housing loans used to build or acquire new units 
made pursuant to a contract entered into on or after the effective date 
of this regulation, will be subject to the restrictive-use provision 
stated in Sec. 3560.72(a)(2)(ii). All other off-farm labor housing 
loans are subject to the restrictive-use provisions contained in their 
loan documents and as outlined in subpart N of this regulation. Such 
restrictions must be included in the mortgage and deed of trust.



Sec. 3560.572  Subsequent loans.

    The requirements established in Sec. 3560.73 will apply to all 
applications for subsequent off-farm labor housing loans.



Sec. 3560.573  Rental assistance.

    (a) Rental assistance may be provided to income eligible tenants 
living in off-farm labor housing in accordance with subpart F of this 
part. The requirements established in Sec. 3560.252 apply to all 
tenants receiving rental assistance.

[[Page 573]]

    (b) For dormitory style facilities operating on a per bed basis, 
rental assistance will be made available to the housing on a per unit 
basis, but may be pro-rated to tenants on a per bed basis. However, 
total rent charged for a unit must not exceed conventional rent for 
comparable units in the area or a similar area and per bed rents must be 
comparable to per bed rents in the market.



Sec. 3560.574  Operating assistance.

    Operating assistance may be used in lieu of tenant-specific rental 
assistance in off-farm labor housing projects financed under section 514 
or section 516(i) of the Housing Act of 1949 (U.S.C. 1486(i)) that serve 
migrant farmworkers. Owners of eligible projects may choose tenant-
specific rental assistance as described in Sec. 3560.573 or operating 
assistance, or a combination of both, however, any tenant or unit 
assisted under this section may not receive rental assistance under 
Sec. 3560.572. The objective of this program is to provide assistance 
toward the cost of operating the project so that rents may be set at 
rates that are affordable to very low and low-income migrant 
farmworkers.
    (a) Project eligibility requirements. To be eligible for the 
operating assistance program, projects must be:
    (1) Off-farm labor housing projects financed under section 514 or 
section 516 with units that are for migrant farmworkers. Housing units 
for year-round farmworker households are ineligible; and
    (2) Eligible for the Agency's rental assistance program as defined 
in Sec. 3560.573.
    (b) Operating assistance limits. The amount of operating assistance 
requested by the owner must be based on the project's actual income and 
expenses and must be approved by the Agency. In the case of a mixed 
project, the amount of operating assistance must be based on the portion 
of actual income and expenses that are attributable to the units that 
are for migrant farmworkers. In no instance may the annual amount of 
operating assistance exceed 90 percent of the annual operating costs 
that are attributable to the migrant units.
    (c) Owner responsibilities--(1) Requesting for operating assistance 
program. Owners of off-farm labor housing projects with units for 
migrant farmworkers may request operating assistance by submitting a 
request to the Agency, which must include a budget. The budget must 
include:
    (i) Estimated operating costs for the migrant units, including 
authorized expenditures such as reserve deposits;
    (ii) Proposed rental rates for the migrant units to generate 
sufficient funds for operating costs of those units, taking into 
consideration all other sources of project income; and
    (iii) Estimated rental income from tenants, based on a tenant 
contribution of 30 percent of the average adjusted monthly income of 
migrant farmworker households in the area.
    (2) Requesting operating assistance payments. Each month, the owner 
will submit a request for operating assistance to the Agency.
    (3) Verifying tenant income eligibility. Owners are responsible for 
verifying tenant income eligibility. Only very low or low-income 
households are eligible for the operating assistance rents. Households 
with incomes above the low-income limits must pay the full rent.
    (4) Reporting requirements. (i) Owners will complete and submit to 
the Agency tenant certifications to document tenant income and 
eligibility.
    (ii) Owners will complete and submit monthly to the Agency a project 
worksheet for operating assistance.
    (iii) Owners must submit an annual planning budget to the Agency 
prior to the project's fiscal year.



Sec. 3560.575  Rental structure and changes.

    Off-farm labor housing is subject to the tenant contribution and 
rental unit rent requirements for Plan II housing established under 
subpart E of this part, except where seasonal housing will be occupied 
for less than a 3-month period. In such instances the best available and 
practical income verification methods may be used with prior approval of 
the Agency.

[[Page 574]]



Sec. 3560.576  Occupancy restrictions.

    (a) Restrictions on conditions of occupancy. (1) No borrower or 
grantee will be permitted to require that an occupant work on any 
particular farm or for any particular owner or interest as a condition 
of occupancy of the housing.
    (2) Tenant selection should be in accordance with the loan 
agreement, subpart D of this part and Sec. 3560.577.
    (3) No borrower or grantee will discriminate, or permit 
discrimination by any agent, lessee, or other operator in the use or 
occupancy of the housing or related facilities because of race, color, 
religion, sex, age, disability, familial status, or national origin.
    (b) Eligible households. To be eligible for occupancy in off-farm 
labor housing, households must meet the following requirements.
    (1) Occupational. An eligible household must include a domestic 
tenant or co-tenant farm laborer, a retired domestic farm laborer, or a 
disabled domestic farm laborer.
    (2) Income. The household must meet the definition of income 
eligible as established in Sec. 3560.152 and the tenant or co-tenant 
must receive a substantial portion of income from farm labor employment. 
To determine if a substantial portion of income is from farm labor 
employment, the following measures will be used.
    (i) For housing rented to farm laborers and owned by public bodies, 
public or private nonprofit organizations, and limited partnerships when 
charging rent.
    (A) Actual dollars earned from farm labor by domestic farm laborers 
other than migrant farmworkers must equal at least 65 percent of the 
annual income limits indicated for the Standard Federal regions as 
published by the Agency for their particular region of the country. For 
migrant farmworkers living in seasonal housing the actual dollars earned 
from farm labor by a domestic farm laborer must equal at least 50 
percent of annual income limits indicated for the Standard Federal 
regions, as published by the Agency.
    (B) An alternate measure for determining substantial portion of 
income when actual earnings are not available may be the duration of 
time a farm laborer worked on a farm or other farming enterprise as a 
domestic farmworker during the preceding 12 months. In order to be 
considered as substantial the farm laborer must have worked at least 110 
whole days in farm work. For purposes of this section one whole day is 
the equivalent of at least 7 hours. When using a period of more than 1 
year, a yearly average must amount to at least 110 days per year.
    (ii) For housing owned by a farmer, family-farm partnership, family-
farm corporation, or an association of farmers which was initially 
provided on a non-rental basis, a substantial portion of income is 
earned when housing is provided by the owner as part of employment 
compensation for farm labor.
    (iii) When a natural disaster has occurred, such as a drought, 
flood, freeze, etc., figures for the 12 months preceding such disaster 
will be used to determine substantial portion of income under paragraph 
(b)(2) of this section.
    (iv) The tenant who qualifies as a domestic farm laborer residing in 
a property with a nonrestrictive farm labor clause in the mortgage 
covenants must not have adjusted income which exceeds the moderate 
income limit for the appropriate household size and appropriate 
geographical area.
    (3) Occupancy. The household must remain in compliance with the 
borrower's occupancy policy as established in Sec. 3560.155.
    (c) Tenant eligibility requirements for operating assistance rents. 
To be eligible for operating assistance rents, tenants must meet the 
rental assistance eligibility requirements described in Sec. 3560.573 
and in Sec. 3560.252.
    (d) Ineligible tenants. Tenants who, at any time, fail to meet all 
the requirements in paragraph (b) of this section will be deemed 
ineligible for occupancy in off-farm labor housing. Ineligible tenants 
in off-farm labor housing will be addressed in accordance with the 
requirements of Sec. 3560.158.
    (e) Non-farm laborer tenants. When there is a diminished need for 
housing for persons or families in the above categories, units in off-
farm labor housing complexes may be made available to persons or 
families eligible for occupancy under Sec. 3560.152. Eligible tenants 
under this section may occupy the

[[Page 575]]

labor housing until such time the units are again needed by persons or 
families eligible under paragraph (b) of this section. As the basis for 
Agency approval or disapproval of the borrower's determination of 
diminished need, the borrower must submit a current analysis of need and 
demand to the Agency, identical to the market analysis that is required 
of loan applicants in the loan origination process. The borrower's 
determination and the State Director's recommendation should be 
forwarded to the National Office for concurrence. The procedures 
specified in Sec. 3560.158 shall be followed when tenants are required 
to vacate housing to allow for occupancy by persons eligible under 
paragraph (b) of this section.



Sec. 3560.577  Tenant priorities for labor housing.

    Tenant occupancy in off-farm labor housing is based on eligible farm 
labor certified through the income certification process required by 
Sec. 3560.152 and is prioritized in the following order.
    (a) First priority is to be given to eligible active farm laborer 
households with first priority going to very low-income households, next 
priority to low-income households, and last to moderate-income 
households.
    (b) Second priority is given to retired domestic farm laborer 
households and disabled domestic farm laborer households who were active 
in the local farm labor market area at the time of retiring or becoming 
disabled. Occupancy priority will be given in accordance with paragraph 
(a) of this section.
    (c) Third priority is to be given to retired domestic farm laborer 
households and disabled domestic farm laborer households who were not 
active in the local farm labor market at the time of retiring or 
becoming disabled. Occupancy priority will be given in accordance with 
paragraph (a) of this section.



Sec. 3560.578  Financial management of labor housing.

    The requirements established in subpart G of this part will apply to 
all off-farm labor housing.



Sec. 3560.579  Servicing off-farm labor housing.

    The requirements established in subparts I and J of this part will 
apply to all off-farm labor housing. Servicing according to subparts I 
and J of this part shall apply throughout the term of the loan or grant, 
whichever is longer.



Sec. Sec. 3560.580-3560.599  [Reserved]



Sec. 3560.600  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                     Subpart M_On-Farm Labor Housing



Sec. 3560.601  General.

    This subpart contains the requirements for making loans for on-farm 
labor housing and for ongoing operation and management of on-farm labor 
housing. Unless otherwise specified in this subpart, the requirements of 
subparts A through K, N, O, and P of this part will apply in addition to 
requirements given in this subpart.



Sec. 3560.602  Program objectives.

    In addition to the objectives stated in Sec. 3560.52, on-farm labor 
housing funds will be used to increase:
    (a) The supply of affordable housing for farm labor; and
    (b) The ability of the farmer to provide affordable, decent, safe 
and sanitary housing for farm workers.



Sec. 3560.603  Loan purposes.

    On-farm labor housing loans may be made only for the purposes 
established

[[Page 576]]

in Sec. 3560.553. Grants are not available for on-farm labor housing.



Sec. 3560.604  Restrictions on use of funds.

    On-farm labor housing loans may not be used for any purpose 
prohibited by Sec. 3560.54 except Sec. 3560.54(a)(1). On-farm labor 
housing may be used to serve migrant workers. In addition, on-farm labor 
housing loan funds may not be used to provide housing for members of the 
immediate family of the applicant when the applicant is an individual 
farm owner, family farm corporation, family farm partnership, or a 
member of an association of farmers. Immediate family includes mother, 
father, brothers, sisters, sons, and daughters of the applicant and 
spouse.



Sec. 3560.605  Eligibility requirements.

    (a) To be eligible for an on-farm labor housing loan, the applicant 
must meet the requirements of Sec. 3560.55(a) with the exception of 
Sec. 3560.55(a)(1), (5), and (6) and the following requirements.
    (1) The applicant must be a farm owner, family farm partnership, 
family farm corporation, or an association of farmers engaged in 
agricultural or aquacultural farming operations whose farming operations 
demonstrate a need for on-farm labor housing and who will own the 
housing and operate it on a nonprofit basis.
    (2) The applicant must agree to use the labor housing to engage in 
the farming operations of the individual farm owner applicant, or in the 
farming operations of its members if it is a family farm corporation or 
partnership, or an association of farmers.
    (3) The applicant must, as determined by the Agency, be unable to 
provide the necessary housing from the applicant's own resources and be 
unable to obtain credit from any other source upon terms and conditions 
which the applicant could reasonably be expected to fulfill. If the 
applicant is an association of farmers or family farm corporation or 
partnership, the individual members, individually and jointly, must be 
unable to provide the necessary housing by utilizing their own resources 
and be unable, by pledging their personal liability, to obtain other 
credit that would enable them to provide housing for farm workers at 
rental rates they can afford to pay. The individual resources of family 
farm corporation or partnership members with less than a 10 percent 
corporate or partnership interest should not be considered when 
determining if the applicant can obtain credit elsewhere.
    (b) The Agency may make an exception to the requirement that an 
individual farm owner, family farm corporation, family farm partnership 
or an association of farmers be unable to obtain the necessary credit 
elsewhere when all of the following conditions exist:
    (1) There is a housing need in the area for domestic farmworkers who 
are migrants and the applicant will provide such housing; and
    (2) There are no qualified state or political subdivisions or public 
or private nonprofit organizations available, or likely to become 
available within 12 months of the application, that are willing and able 
to provide the housing.
    (c) When an applicant is determined eligible under paragraph (b) of 
this section, the interest rate for such loans will be determined in 
accordance with 7 CFR part 1810, subpart A.
    (d) On-farm labor housing that consists of buildings with less than 
three units is not subject to the requirement that five percent of the 
units be constructed as fully accessible units, as described in Sec. 
3560.60(d).



Sec. 3560.606  Application requirements and processing.

    (a) On-farm labor housing loan applications will be processed 
according to 7 CFR part 1940, subpart L. Applicants must submit an 
application in an Agency-approved format that adequately documents the 
need for the housing and the eligibility of the applicant.
    (b) The applicant must certify that the farm workers for which the 
housing is intended are or will be involved in the applicant's 
agricultural or aquacultural farming operations.
    (c) The applicant must certify that housing operations will be 
conducted in a non-profit manner such that income from the housing does 
not exceed eligible expenses associated with the housing. Eligible 
expenditures for the housing include, but are not limited to

[[Page 577]]

housing repairs and upkeep, payment of installments on the loan, taxes, 
insurance and reserves and other essential uses needed for success of 
the operations.



Sec. 3560.607  [Reserved]



Sec. 3560.608  Site and construction requirements.

    (a) General. Cost and development standards for on-farm labor 
housing will be consistent with the requirements, standards, and cost 
limits specified in subpart B of this part, if the housing is a multi-
family housing type structure, or consistent with section 502 of the 
Housing Act of 1949, if the housing is a single family type structure.
    (b) Permanent units. On-farm labor housing occupied for 8 months or 
more of the year will be required to meet the following requirements.
    (1) Housing may be multi-family or single family in type and may be 
located on the farm away from farm service buildings, or in the nearby 
community. Single-family type housing is defined as an individual or a 
group of individual single family detached dwelling units. All sites and 
housing shall be planned and constructed in accordance with 7 CFR part 
1924, subparts A and C.
    (2) Sites must be accessible from a public road, when feasible.
    (c) Seasonal units. On-farm labor housing occupied for less than 8 
months of the year will be considered seasonal housing. Such housing 
must meet the following requirements.
    (1) Housing designed for seasonal occupancy may be either single 
family or multi-family.
    (2) Seasonal housing may be constructed in accordance with exhibit I 
of 7 CFR part 1924, subpart A. If constructed in accordance with exhibit 
I, the housing must be suitable to allow for conversion to full-year 
occupancy if the need for migrant farmworkers in the area declines.
    (d) Accessibility. On-farm labor housing that consists of buildings 
with less than three units, need not meet the requirement that five 
percent of the units be constructed as fully accessible units, as 
described in Sec. 3560.60(d). This does not, however, eliminate any 
other accessibility requirements.



Sec. 3560.609  [Reserved]



Sec. 3560.610  Security.

    (a) Security instruments must meet the requirements established 
under Sec. 3560.560.
    (b) When feasible, the on-farm labor housing will be located on a 
tract of land that is surveyed such that, for security purposes, it is 
considered separate and distinct from the farm. The security for the 
loan must include a lien on the tract of land where the on-farm labor 
housing is located and the security must have adequate value to protect 
the Federal government's interest. The Agency will seek a first or 
parity lien position on Agency-financed property in all instances, 
however, the Agency may accept a junior lien position if the Federal 
government's interests are adequately secured.
    (c) The Agency will determine the value of the security for the loan 
in accordance with 7 CFR part 1922, subpart B if the farm is used as 
security or in accordance with section 502 of the Housing Act of 1949, 
if only the on-farm labor housing and related land is used for security.
    (d) If necessary to provide adequate security for the loan, the 
Agency may require that any household furnishings purchased with loan 
funds also be secured.
    (e) Personal liability and recourse will be required of all 
borrowers, including the individual members, stockholders or partners of 
an association of farmers, family farm corporations or partnerships, 
respectively.



Sec. 3560.611  Technical, legal, insurance and other services.

    When technical, legal, insurance, or services are required for 
development of on-farm labor housing, applicants must comply with the 
applicable requirements of Sec. 3560.62. Regarding insurance coverage, 
the requirements of Sec. 3560.62(d) apply to on-farm labor housing.

[[Page 578]]



Sec. 3560.612  Loan limits.

    The maximum loan amount will be 100 percent of the allowable total 
development costs of on-farm labor housing and related facilities 
subject to Sec. Sec. 3560.603, 3560.604 and 3560.608.



Sec. 3560.613  [Reserved]



Sec. 3560.614  Reserve accounts.

    When on-farm labor housing operations include 12 or more units, the 
Agency will require such properties to comply with the reserve account 
requirements in Sec. 3560.65.



Sec. 3560.615  Participation with other funding sources.

    The Agency encourages the use of other funding sources in 
conjunction with on-farm labor housing loans. Use of such financing in 
conjunction with an on-farm labor housing loan is subject to the 
approval of the Agency and must comply with the requirements of Sec. 
3560.66.



Sec. 3560.616  Rates and terms.

    (a) The interest rate for on-farm labor housing loans will be 1 
percent.
    (b) The term of the on-farm labor housing loan will not exceed 33 
years.
    (c) Loan amortization for on-farm labor housing may be on a monthly 
or an annual basis.



Sec. 3560.617  [Reserved]



Sec. 3560.618  Supplemental requirements for on-farm labor housing.

    The management plan for on-farm labor housing operated on a seasonal 
basis must have specific opening and closing dates. During the off-
season, on-farm labor housing may be used under short-term lease 
provisions.



Sec. 3560.619  Supplemental requirements for manufactured housing.

    On-farm labor housing loan funds used for manufactured housing must 
comply with Sec. 3560.70. Manufactured housing located on-farm may 
consist of individual units.



Sec. 3560.620  Construction financing.

    The requirements established in Sec. 3560.71 apply to all 
applications involving on-farm labor housing loans.



Sec. 3560.621  Loan closing.

    Applicants for on-farm labor housing loans must execute an Agency-
approved loan agreement. In addition, if determined appropriate by the 
Agency, on-farm labor housing loans made on or after the effective date 
of this regulation may be subject to the restrictive-use provisions as 
stated in Sec. 3560.72(a)(2)(ii). All other on-farm labor housing loans 
are subject to the restrictive-use provisions contained in their loan 
documents and as outlined in subpart N of this regulation.



Sec. 3560.622  Subsequent loans.

    The requirements established in Sec. 3560.572 apply to all 
applications for on-farm labor housing subsequent loans.



Sec. 3560.623  Housing management and operations.

    Borrowers with on-farm labor housing loans must:
    (a) Develop and submit to the Agency a management plan in a format 
specified by the Agency. At a minimum, the management plan will detail 
the borrower's operational and occupancy policies, how the borrower will 
deal with resident complaints, and how repairs will be completed; and
    (b) Maintain a lease or employment contract with each tenant 
specifying employment with the borrower as a condition for continued 
occupancy.



Sec. 3560.624  Occupancy restrictions.

    (a) The immediate relatives of the borrowers are ineligible 
occupants for on-farm labor housing.
    (b) Occupants must meet the definition of a domestic farm laborer, 
as defined in Sec. 3560.11.
    (a) Occupancy of on-farm labor housing is restricted to employees of 
the borrower unless otherwise approved by the Agency.
    (d) With prior written permission of the Agency, on-farm labor 
housing may be occupied by ineligible tenants on a short-term basis. The 
permission of the Agency must also be for a limited duration.

[[Page 579]]



Sec. 3560.625  Maintaining the physical asset.

    On-farm labor housing must meet state and local building and 
occupancy codes.



Sec. 3560.626  Affirmative Fair Housing Marketing Plan.

    On-farm labor housing must meet the requirements of Sec. 3560.104.



Sec. 3560.627  Response to resident complaints.

    The management plan submitted in accordance with Sec. 3560.623 (a) 
will include a provision for dealing with resident complaints.



Sec. 3560.628  Establishing and modifying rental charges.

    If it becomes necessary to establish or modify a shelter cost, the 
borrower must obtain Agency approval as specified in subpart E of this 
part.



Sec. 3560.629  Security deposits.

    Borrowers that require security deposits to be paid by the tenants 
will be required to comply with the requirements of Sec. 3560.204.



Sec. 3560.630  Financial management.

    Financial information must be submitted in an Agency-approved format 
and will show operation of the housing in a non-profit manner.



Sec. 3560.631  Agency monitoring.

    A compliance review and physical inspection will be conducted by the 
Agency at least once every 3 years. The purpose of this review will be 
to inspect:
    (a) Tenant eligibility documentation;
    (b) Financial information on the operation and management of the 
labor housing, including relevant borrower financial materials;
    (c) Payment of taxes, insurance and hazard insurance;
    (d) Compliance with the security deposit requirements;
    (e) Compliance with the operating plan;
    (f) Compliance with the loan agreement;
    (g) Compliance with Agency requirements for affordable, decent, 
safe, and sanitary housing; and
    (h) Compliance with civil rights requirements.



Sec. Sec. 3560.632-3560.649  [Reserved]



Sec. 3560.650  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                     Subpart N_Housing Preservation



Sec. 3560.651  General.

    (a) This subpart contains the Agency's housing preservation 
requirements as related to prepayment requests and restrictive-use 
provisions (RUPs). The requirements of this subpart support the Agency's 
commitment to the preservation of decent, safe, sanitary, and affordable 
multi-family housing (MFH) for very low-, low-, and moderate-income 
households.
    (b) The Agency will coordinate, direct, and monitor the Agency's MFH 
preservation activities from the National Office level.



Sec. 3560.652  Prepayment and restrictive-use categories.

    (a) Loans with prepayment prohibitions include:
    (1) Initial section 515 loans made on or after December 15, 1989, 
and
    (2) Subsequent loans made on or after December 15, 1989, for 
additional rental units.
    (b) Loans without prepayment prohibitions but with restrictive-use 
provisions include:
    (1) All loans made after December 21, 1979, but prior to December 
15, 1989;
    (2) Subsequent loans made on or after December 15, 1989, for 
purposes other than additional rental units; or

[[Page 580]]

    (3) Loans subsequently restricted by servicing actions including 
transfers.
    (c) Loans without prepayment prohibitions or restrictive-use 
provisions include all loans made on or before December 21, 1979 or 
loans that had restrictive-use provisions that have expired. Such loans 
are eligible to receive incentives subject to the provisions of this 
subpart.
    (d) Loans may be prepaid if another loan or grant from the Agency 
imposes the same or more stringent restrictive-use provisions on the 
housing project covered by the loan being prepaid.



Sec. 3560.653  Prepayment requests.

    (a) Borrowers seeking to prepay an Agency loan must submit a written 
prepayment request to the Agency at least 180 days in advance of the 
anticipated prepayment date and must obtain Agency approval before the 
Agency will accept prepayment.
    (b) Prior to submitting a prepayment request, borrowers must take 
whatever actions are necessary to provide the following items:
    (1) A clear description of the loan to be prepaid, the housing 
project covered by the loan being prepaid, and the requested date of 
prepayment.
    (2) A statement documenting the borrower's ability to prepay under 
the terms specified.
    (3) A certification that the borrower will comply with any federal, 
state, or local laws or regulations which may relate to the prepayment 
request and a statement of actions needed to assure such compliance.
    (4) A copy of lease language to be used during the period between 
the submission date and the final resolution of the prepayment request 
notifying tenant applicants that the housing project has submitted a 
prepayment request to the Agency and explaining the potential affect of 
the request on the lease.
    (5) Borrowers are required to submit a signed release of information 
form along with the prepayment request. The Agency will notify nonprofit 
organizations and public bodies involved in providing affordable housing 
or financial assistance to tenants of the receipt of a borrower's 
request to prepay their MFH (MFH) loan(s). Additionally, the Agency is 
to notify nonprofit organizations and public bodies whenever a borrower, 
who has requested prepayment, is required or elects to offer their 
property for sale to a nonprofit or public body.
    (6) A certification that the borrower has notified all governmental 
entities involved in providing affordable housing or financial 
assistance to tenants in the project of the prepayment request and a 
statement specifying how long financial assistance from such parties 
will be provided to tenants after prepayment.
    (7) A statement affirming that units in the property applying for 
prepayment will continue to be available for rent by eligible residents 
during the prepayment process.
    (c) The Agency will review complete requests to determine if:
    (1) The loan is eligible for prepayment under Sec. 3560.652(b);
    (2) The borrower has the ability to prepay; and
    (3) The borrower has complied or has the ability to comply with 
applicable Federal, state, and local laws related to the prepayment 
request.
    (d) If a prepayment request lacks full and complete information on 
any item, the Agency will return the prepayment request to the borrower 
with a letter citing the deficiencies in the prepayment request. The 
Agency will offer borrowers an opportunity, within 30 days following the 
date of the return, to address the reasons given by the Agency for the 
return of the prepayment request and will allow the borrower to submit a 
revised prepayment request.
    (e) If the Agency determines that the prepayment request 
appropriately satisfies all the conditions listed in paragraph (d) of 
this section, the Agency will process the prepayment request and make a 
reasonable effort to enter into a new restrictive-use agreement with the 
borrower in accordance with Sec. 3560.662 or Sec. 3560.655. If the 
Agency determines that a loan is ineligible for prepayment or the 
borrower does not have the ability to prepay, the Agency will return the 
prepayment request to the borrower with a written explanation of the 
Agency's determinations.

[[Page 581]]



Sec. 3560.654  Tenant notification requirements.

    (a) Within 30 calendar days of receiving a complete prepayment 
request, the Agency will send a prepayment request notice to each tenant 
in the housing project. Borrowers must post the Agency's prepayment 
request notice in public areas throughout the housing project from the 
date of the notice until the final resolution of the prepayment request. 
The prepayment request notice will establish a date and place where 
tenants may meet with the Agency to discuss the prepayment request and 
will advise tenants that:
    (1) They may review all information submitted with the prepayment 
request except financial information regarding the borrower entity, 
which the Agency will withhold from tenant review unless given written 
permission for the release of the information from the borrower; and,
    (2) They have 30 days from the date of the prepayment request notice 
to give the Agency comments on the prepayment request.
    (b) Borrowers may provide a prepayment request notice of their own 
directly to tenants and may establish a date and place where tenants may 
meet with the borrower to discuss the prepayment request. The Agency and 
other providers of housing assistance for very-low, low, and moderate-
income households may attend a borrower's prepayment request meeting 
with tenants.
    (c) If the Agency agrees to accept prepayment on a loan, the Agency 
will send a prepayment acceptance notice to each tenant in the housing 
project at least 60 days prior to the prepayment date. Borrowers must 
post copies of the Agency's prepayment acceptance notice in public areas 
throughout the housing project until prepayment is made. If the 
prepayment acceptance was based on a borrower's agreement to comply with 
restrictive-use provisions, the notice will describe the restrictive-use 
provisions that will apply to the housing project after prepayment and 
the tenant's rights to enforcement of the provisions.
    (d) If the borrower withdraws the prepayment request, the Agency 
will provide a prepayment request cancellation notice to each tenant in 
the housing project. Borrowers must post copies of the prepayment 
request cancellation notice in the public areas throughout the housing 
project for a period of 60 days following the date of the prepayment 
request cancellation notice.
    (e) If the borrower agrees to accept incentives and restrictive-use 
provisions, the Agency will notify each tenant, in writing, of the 
agreement and provide a description of the restrictive-use provision.
    (f) If a borrower agrees to sell a housing project involved in a 
prepayment request to a nonprofit organization or public body, the 
Agency will notify each tenant, in writing, of the proposed sale to a 
nonprofit organization or public body and will explain the timeframes 
involved with the proposed sale, any potential impact on tenants, and 
the actions tenants may take to alleviate any adverse impact. Borrowers 
must post copies of the Agency's proposed sale notice in public areas 
throughout the housing project until the housing project is sold or the 
offer to sell is withdrawn.
    (g) If a tenant applicant signs a lease in a housing project for 
which a prepayment request has been submitted, the borrower must provide 
the tenant with copies of all notifications provided to tenants by the 
Agency or the borrower prior to the tenant's occupancy in the housing 
project.
    (h) If a borrower is unable to sell a housing project involved in a 
prepayment request to a nonprofit organization or public body within 180 
days as specified in Sec. 3560.659, the Agency will send a notice to 
each tenant in the housing project explaining the potential impact of 
the borrower's inability to sell the housing project on tenants and the 
actions tenants may take to alleviate any adverse impact. Borrowers must 
post the Agency's notice in public areas throughout the housing project 
for a period of 60 days following the date of the notice.



Sec. 3560.655  Agency requested extension.

    Before accepting an offer to prepay from a borrower with a 
restricted loan, the Agency must first make a reasonable effort to enter 
into a new restrictive-use agreement with the borrower.

[[Page 582]]

Under this agreement, the borrower would make a binding commitment to 
extend the low-income use of the housing and related facilities for 20 
years for loans with interest credit, beginning on the date on which the 
new agreement is executed. If the borrower is unwilling to enter into a 
new restrictive-use provisions and restrictive-use agreement, the Agency 
should proceed to take the actions described in Sec. 3560.658.



Sec. 3560.656  Incentives offers.

    (a) The Agency will offer a borrower, who submits a prepayment 
request meeting the conditions of Sec. 3560.653(d), incentives to agree 
to the restrictive-use period in Sec. 3560.662 if the following 
conditions are met:
    (1) The market value of the housing project is determined by the 
Agency, based on an appraisal conducted in accordance with subpart P of 
this part.
    (2) There are no restrictive-use agreements or prepayment 
prohibitions in affect.
    (b) Specific incentives offered will be based on the Agency's 
assessment of:
    (1) The value of the housing project as determined by the Agency 
based on an ``as-is'' market value appraisal conducted in accordance 
with subpart P of this part;
    (2) An incentive amount that will provide a fair return to the 
borrower;
    (3) An incentive amount that will not cause basic rents at the 
housing project to exceed conventional rents for comparable units; 
except that when determined necessary by the Agency to allow for decent, 
safe and sanitary housing to be provided in market areas where 
conventional rents are not sufficient to cover necessary operating, 
maintenance, and reserve costs. Basic rents may be allowed to exceed 
comparable rents for conventional units, but in no case by more than 
150% of the comparable rent for conventional unit rent level; and
    (4) An incentive amount that will be the least costly alternative 
for the Federal Government while being consistent with the Agency's 
commitment to the preservation of housing for very-low, low, and 
moderate income households in rural areas.
    (c) The Agency may offer the following incentives:
    (1) The Agency may increase the borrower's annual return on equity 
by one of the following two methods. The actual withdrawal of the return 
remains subject to the procedures and conditions for withdrawal 
specified in subpart G of this part.
    (i) The Agency may recognize the borrower's current equity in the 
housing project. The equity will be determined using an Agency accepted 
appraisal based on the housing project's value as unsubsidized 
conventional housing.
    (ii) When a current appraisal indicates an equity loan can not be 
made, the Agency may recognize the borrower's current equity in the 
housing project at the higher of the original rate of return or the 
current 15-year Treasury bond rate plus 2 percent rounded to the nearest 
one-quarter percent. The equity will be determined using the most recent 
Agency accepted appraisal of the housing project prior to receiving the 
prepayment request.
    (2) The Agency may agree to convert projects without interest credit 
or with Plan I interest credit to Plan II interest credit or increase 
the interest credit subsidy for loans with Section 8 assistance to lower 
the interest rate on the loan and make basic rents more financially 
feasible.
    (3) The Agency may offer additional rental assistance, or an 
increase in assistance provided under existing contracts under 
Sec. Sec. 521(a)(2), 521(a)(5) of the Housing Act of 1949 (42 U.S.C. 
1490a(a)(2)) or section 8 of the United States Housing Act of 1937 (42 
U.S.C. Sec. 1437f).
    (4) The Agency may make an equity loan to the borrower. The equity 
loan must not adversely affect the borrower's ability to repay other 
Agency loans held by the borrower and must be made in conformance with 
the following requirements:
    (i) The equity loan must not exceed the difference between the 
current unpaid loan balance and 90 percent of the housing project's 
value as determined by an ``as-is'' market value appraisal conducted in 
accordance with subpart P of this part.

[[Page 583]]

    (ii) Borrowers with farm labor housing loans are not eligible to 
receive equity loans as incentives.
    (iii) If an incentive offer for an equity loan is accepted, the 
equity loan may be processed and closed with the borrower or any 
eligible transferee.
    (iv) Excess reserve funds will be used to reduce the amount of an 
equity loan offered to a borrower.
    (v) Equity loans may not be offered unless the Agency determines 
that other incentives are not adequate to provide a fair return on the 
investment of the borrower to prevent prepayment of the loan or to 
prevent displacement of project tenants.
    (5) The Agency will offer rental assistance to protect tenants from 
rent overburden caused by any rent increase as a result of a borrower's 
acceptance of an incentive offer or tenants who are currently 
overburdened.
    (6) In housing projects with project-based section 8 assistance, the 
Agency may permit the borrower to receive rents in excess of the amounts 
determined necessary by the Agency to defray the cost of long-term 
repair or maintenance of such a project.
    (d) The Agency must determine that the combination of assistance 
provided is necessary to provide a fair return on the investment of the 
borrower and is the least costly alternative for the Federal Government.
    (e) At the time the incentive is developed, the Agency must take 
into consideration the costs of any deferred maintenance, items in the 
housing project's operating budget, and any expected long-term repair or 
replacement costs based on a capital needs assessment developed in 
accordance with Sec. 3560.103(c). Deferred maintenance may include 
specific items identified in previous Agency inspections where the 
borrower has had the opportunity and resources available to take 
corrective actions and did not.
    (1) Deferred maintenance does not include routine repair and 
replacement that results from normal wear and tear of the physical 
asset. The amount required for the reserve account to be considered 
fully funded will be adjusted accordingly. To determine if basic rents 
exceed conventional rents for comparable units in the area, monthly 
contributions necessary to obtain the adjusted fully funded reserve 
account will be included in the calculation of basic rents.
    (2) Deferred maintenance including any deficiencies identified in 
project compliance with section 504 of the Rehabilitation Act of 1973 
must be addressed as part of the development of the incentive and must 
be completed as part of an acceptance agreement of any incentive.
    (f) Existing loans must be consolidated, provided consolidation 
retains the Agency's lien position, and reamortized in accordance with 
subparts I and J of this part, provided it maintains feasibility of the 
housing for the tenants or reduces the debt service or the level of 
monthly rental assistance.
    (g) The borrower must accept or reject the incentive offer within 30 
days. If no answer to the offer is received within 30 days, the Agency 
may consider the incentive offer to be rejected.
    (1) If the borrower accepts the incentive offer, procedures outlined 
in Sec. 3560.657 must be followed.
    (2) If the borrower rejects the incentive offer, the borrower must 
comply with requirements listed in Sec. 3560.658.



Sec. 3560.657  Processing and closing incentive offers.

    (a) Borrower responsibilities. If a borrower accepts the Agency's 
offer of incentives, the borrower must complete the following actions:
    (1) Subject to the Agency's approval, the borrower must legally 
restrict the use of the project in accordance with and for the number of 
years stated in Sec. 3560.662.
    (2) If the incentive offer accepted includes an equity loan, the 
borrower must complete an application for the equity loan, and the 
borrower must continue to qualify as an eligible borrower or transferee 
in accordance with subpart B of this part.
    (3) If the incentive offer accepted includes rent increases, the 
borrower must follow the rent increase requirements established in 
subpart E of this part.
    (b) Waiting lists. If funds for components of incentive offers are 
limited, the Agency will establish a waiting list of accepted incentive 
offers for funding

[[Page 584]]

in the date order that the complete prepayment request was received.
    (c) Unfunded incentive offers. If the borrower accepts the incentive 
offer but the Agency is unable to fund the incentive within 15 months, 
the borrower may choose one of the following actions:
    (1) The borrower may offer to sell the housing project in accordance 
with Sec. 3650.659. In this case the borrower will be removed from the 
list of borrowers awaiting incentives.
    (2) The borrower may stay on the list of borrowers awaiting 
incentives until the borrower's incentive offer is funded. The Agency 
will not negotiate the incentive offer; but, at a borrower's request, 
may adjust the incentive amount to reflect an updated appraisal, loan 
balance, and terms of third party financing.
    (3) The borrower may withdraw the prepayment request and be removed 
from the list of borrowers awaiting incentives and either continue 
operating the housing project for program purposes and in accordance 
with Agency requirements or continue processing their prepayment process 
in accordance with Sec. 3560.658. If the borrower chooses to withdraw 
their request, the borrower may resubmit an updated prepayment request, 
at any time, and repeat the prepayment process in accordance with this 
subpart.
    (4) The borrower may elect to obtain a third-party equity loan 
provided rents will not exceed comparable rents in the market area.



Sec. 3560.658  Borrower rejection of the incentive offer.

    (a) If a borrower rejects the incentive package offered by the 
Agency or an Agency request to extended restrictive-use provisions, made 
in accordance with Sec. 3560.662, the loan will only be prepaid if the 
borrower elects to agree to the following:
    (1) The borrower agrees to sign restrictive-use provisions to extend 
restrictive-use by 10 years from the date of prepayment, and at the end 
of the restrictive-use period offer to sell the housing to a qualified 
nonprofit organization or public body in accordance with Sec. 3560.659.
    (2) If restrictive-use provisions are in place, the borrower will 
agree to sign the restrictive-use provisions, as determined by the 
Agency, and at the end of the restrictive-use period offer to sell the 
housing to a qualified nonprofit organization or public body in 
accordance with Sec. 3560.659.
    (3) If restrictive-use provisions are not in place prior to 
prepayment, the borrower will offer to sell the housing to a qualified 
nonprofit organization or public body in accordance with Sec. 3560.659.
    (b) If the borrower does not elect or agree to enter an agreement in 
accordance with paragraph (a) of this section, then the Agency will 
assess the impact of prepayment on two factors: housing opportunities 
for minorities and the supply of decent, safe, sanitary, and affordable 
housing in the market area. The Agency will review relevant information 
to determine the availability of comparable affordable housing for 
existing tenants in the market area and if minorities in the project, on 
the waiting list or in the market area will be disproportionately 
adversely affected by the loss of the affordable rental housing units.
    (1) If the Agency determines that prepayment will have an adverse 
impact on minorities, then the borrower must offer to sell to a 
qualified nonprofit organization or public body in accordance with the 
provisions of paragraph (a) of this section.
    (2) If the Agency determines that the prepayment will not have an 
adverse effect on housing opportunities for minorities but there is not 
an adequate supply of decent, safe, and sanitary rental housing 
affordable to program eligible tenant households in the market area, the 
loan may be prepaid only if the borrower agrees to sign restrictive-use 
provisions, as determined by the Agency, to protect tenants at the time 
of prepayment.
    (3) If the Agency determines that there is no adverse impact on 
minorities and there is an adequate supply of decent, safe, and sanitary 
rental housing affordable to program eligible tenant households in the 
market area the prepayment will be accepted with no further restriction.

[[Page 585]]

    (c) If the borrower agrees to the restrictive-use provisions, as 
determined by the Agency, the applicable language must be included in 
the release documents and the borrower must execute a restrictive-use 
agreement acceptable to the Agency and a deed restriction.
    (d) If the borrower will not agree to applicable restrictive-use 
provisions, as determined by the Agency, the borrower must offer to sell 
to a nonprofit or public body in accordance with Sec. 3560.659 or 
withdraw their prepayment request.



Sec. 3560.659  Sale or transfer to nonprofit organizations and public bodies.

    (a) Sales price. For the purposes of establishing a sales price when 
a borrower is required or elects to sell a housing project to a 
nonprofit organization or public body, two independent appraisals will 
be ordered, one by the Agency and one by the borrower. Both appraisals 
will conclude market value and be in accordance with subpart P of this 
part. If the borrower's assessment of the Agency's appraised market 
value indicates that no further appraisal is needed, the borrower may 
agree to accept the Agency's appraisal.
    (1) The expense of the borrower's appraisal shall be borne by the 
borrower. The appraiser selected may not have an identity of interest 
with the borrower.
    (2) If the two appraisers fail to agree on the market value, the 
Agency and the borrower will jointly select an appraiser whose appraisal 
will be binding on the Agency and the borrower. The Agency and the 
borrower shall jointly fund the cost of the appraisal.
    (b) Marketing to nonprofit organizations and public bodies. If a 
borrower must offer the property for sale to a nonprofit organization or 
public body under this paragraph, the borrower must take the following 
actions to inform appropriate entities of the sale:
    (1) The borrower must advertise and offer to sell the project for a 
minimum of 180 days. The borrower may choose to suspend advertising and 
other sales efforts while eligibility of an interested purchaser is 
determined. If the purchaser is determined to be ineligible, the 
borrower must resume advertising for the balance of the required 180 
days.
    (2) The Agency will assist the borrower in initially notifying 
nonprofit organizations and public bodies.
    (3) The borrower must provide the nonprofit organizations and public 
bodies contacted with sufficient information regarding the housing 
project and its operations for interested purchasers to make an informed 
decision. The information provided must include the minimum value of the 
housing project based on the market value determined in accordance with 
paragraph (a) of this section.
    (4) If an interested purchaser requests additional information 
concerning the housing project, the borrower must promptly provide the 
requested materials.
    (c) Preference for local nonprofit and public bodies. Local 
nonprofit organizations and public bodies have priority over regional 
and national nonprofit organizations and public bodies. The Agency may 
determine that no local nonprofit organizations or public bodies are 
available to purchase the housing project. After this determination, the 
borrower may accept an offer from a regional or national nonprofit 
organization or public body.
    (d) Eligible nonprofit organizations. To be eligible to purchase 
properties under the conditions of this subpart, nonprofit organizations 
may not have among its officers or directorate any persons or parties 
with an identity-of-interest (or any persons or parties related to any 
person with identity-of-interest) in loans financed under section 515 
that have been prepaid. In addition to local nonprofit organizations, 
eligible nonprofit organizations include regional or national nonprofit 
organizations or public bodies provided no part of the net earnings of 
which accrue to the benefit of any member, founder, contributor or 
individual.
    (e) Requirements for nonprofit organizations and public bodies. To 
purchase and operate a housing project, a nonprofit organization or 
public body must meet the following requirements:
    (1) The purchaser must agree to maintain the housing project for 
very low- and low-income families or persons for the remaining useful 
life of the housing and related facilities. However,

[[Page 586]]

currently eligible moderate-income tenants will not be required to move.
    (2) The purchaser must agree that no subsequent transfer of the 
housing project will be permitted for the remaining useful life of the 
housing project unless the Agency determines that the transfer will 
further the provision of housing for low-income households, or there is 
no longer a need for the housing project. Language to be included in the 
deed, conveyance instrument, loan resolution, and assumption agreement 
(as applicable) is provided in Sec. 3560.662.
    (3) The purchaser must demonstrate financial feasibility of the 
housing project including anticipated funding.
    (4) The purchaser must certify to the Agency that no identity-of-
interest relationships in accordance with Sec. 3560.102(g). The 
purchaser must not have any identity of interest with the seller or any 
borrower that has previously prepaid or requested prepayment of an 
Agency MFH loan.
    (5) The purchaser must complete an Agency-approved application and 
obtain Agency approval in accordance with subpart B of this part.
    (6) The purchaser must make a bona fide offer taking into 
consideration the value of the housing project as determined in 
accordance with paragraph (a) of this section.
    (f) Selection priorities. If more than one qualified nonprofit 
organization or public body submits an offer to purchase the project at 
the same time, priority will be given to local nonprofit organizations 
and public bodies over regional and national nonprofit organizations or 
public bodies. When selecting between offers equally meeting all other 
criteria, the borrower will first consider the success of the nonprofit 
organization's or public body's previous experience in developing and 
maintaining subsidized housing, with preference given to the most 
successful. If the offers continue to be equal, the borrower will then 
consider the number of years experience that the nonprofit organization 
or public body has had in developing and maintaining subsidized housing, 
with preference given to the greater number of years.
    (g) Loans made by the Agency or other sources to nonprofit 
organizations and public bodies. Agency loans to nonprofit organizations 
or public bodies may be made for the purposes described in this 
paragraph. Agency loans will be processed in accordance with subpart B 
of this part. Loans from other sources will be approved by the Agency in 
accordance with subpart I of this part.
    (1) Agency loans to nonprofit organizations or public bodies for the 
purchase of a housing project will be based on the appraised value 
determined in accordance with paragraph (a) of this section.
    (2) With proper justification, an Agency loan may be made to help 
the nonprofit organization or public body meet the housing project's 
first year operating expenses if there are insufficient funds in the 
housing project's general operating and expense account to meet such 
expenses. An Agency loan, for the purpose of covering first year 
operating expenses, may not exceed 2 percent of the housing project's 
appraised value determined in accordance with paragraph (c) of this 
section.
    (h) Advances for nonprofit organizations and public bodies. The 
Agency may make advances, in accordance with section 502(c)(5)(c)(i), 
not in excess of limits established by Congress to nonprofit 
organizations or public bodies that are purchasing housing under this 
subpart. Grant funds may be used to cover any direct costs other than 
the purchase price, incurred by nonprofit organizations or public bodies 
in purchasing and assuming responsibility for the housing project.
    (i) Waiting list. If funds for sales to nonprofit organizations and 
public bodies are limited, the Agency will add the funding requests to 
the waiting list for incentives and follow the process established in 
Sec. 3560.657(b) and (c).
    (j) Withdrawal from sales process. A borrower may withdraw the 
prepayment request at any time prior to the sale of the property. The 
borrower will be responsible for any damages associated with breaking a 
sales contract established with a nonprofit organization or public body.
    (k) When no offer to purchase is received. Prepayment with no 
further restriction may be accepted by the Agency when the borrower 
agrees to offer

[[Page 587]]

the housing project for sale to a nonprofit organization or public body 
in accordance with Sec. 3560.659 and no good faith offer is received 
within 180 days from the date that the housing project was advertised 
for sale to a nonprofit organization or public body, or a good faith 
offer was received within 180 days from the advertisement date but the 
offeror was unable to fulfill the terms of the offer within 24 months of 
the offer date, provided the owner cooperated with the potential 
purchaser.



Sec. 3560.660  Acceptance of prepayments.

    (a) When the Agency agrees to accept prepayment, the Agency will 
notify borrowers, in writing, of the conditions under which the Agency 
will accept prepayment including the specific restrictive-use provisions 
to which the borrower has agreed and the date by which the borrower must 
make the prepayment.
    (1) Prepayment must be made 180 days from the date of the Agency's 
prepayment acceptance notice to the borrower.
    (2) If the borrower's prepayment is not received within 180 days of 
the prepayment acceptance notice and the Agency has not agreed to an 
alternative date based on a written request from the borrower, the 
Agency may cancel the prepayment acceptance agreement.
    (b) Tenants will be notified of the prepayment acceptance agreement 
in accordance with Sec. 3560.654(c). If a prepayment is anticipated to 
result in increased net tenant contributions, displacements or 
involuntary relocations, the tenants, who are affected by such a 
circumstance, may request a Letter Of Priority Entitlement (LOPE) in 
accordance with Sec. 3560.159(c). Tenants must request a LOPE within 
one year of the prepayment acceptance notice date.
    (c) Owners will provide certification stating that they will meet 
state and local laws prior to prepayment acceptance.



Sec. 3560.661  Sale or transfers.

    (a) If a sale or transfer is to take place in conjunction with the 
Agency incentive offer, the sale or transfer must comply with the 
processing provisions of subpart I of this part.
    (b) If a proposed transferee is determined not to be eligible for 
the transfer and assumption, the borrower will be given an additional 45 
days to find another transferee.
    (c) In cases where the existing owner is in program non-compliance 
or default, the Agency may make an offer of incentives contingent on the 
successful transfer of the housing to an acceptable purchaser. The 
Agency may offer a smaller incentive or no incentive if the borrower 
does not agree to transfer the project to an acceptable purchaser, or if 
the transfer does not take place.



Sec. 3560.662  Restrictive-use provisions and agreements.

    All restrictions require Agency approval and must be in accordance 
with the following restrictions:
    (a) The undersigned, and any successors in interest, agree to use 
the property (described herein) in compliance with 42 U.S.C. 1484 or 
1485, whichever is applicable, and applicable regulations and the 
subsequent amendments, for the purpose of housing:
    (1) Very low-, or low-income households when required by Sec. 
3560.658(a)(3), or
    (2) Very low-, low-, or moderate-income households.
    (b) The period of the restriction will be inserted in accordance 
with the following:
    (1) 10 years if required by Sec. 3560.658(a)(1);
    (2) The last existing tenant (that occupied the property on the date 
of prepayment) voluntarily vacates if required by Sec. 3560.658(b)(2);
    (3) 30 years if required by Sec. 3560.406(g);
    (4) Remaining period of existing restrictive-use provisions and any 
agreed extension if required by Sec. 3560.655 or Sec. 3560.658 (a)(2);
    (5) The remaining useful life of the housing and related facilities 
if required by Sec. 3560.658(a)(3); and
    (6) 20 years in all other cases.
    (c) When required by Sec. 3560.658(a)(1) or (a)(2), the undersigned 
agrees that at the end of the expiration of the period described in 
paragraph (b) of this section, the property will be offered for

[[Page 588]]

sale to a qualified nonprofit organization or public body, in accordance 
with previously cited statutes and regulations.
    (d) The Agency and eligible tenants or applicants may enforce these 
restrictions.
    (e) The undersigned also agrees to:
    (1) To set rents, other charges, and conditions of occupancy in a 
manner to meet these restrictions;
    (2) To post an Agency approved notice of this restriction for the 
tenants of the property;
    (3) To adhere to applicable local, state, and Federal laws; and
    (4) To obtain Agency concurrence for any rental procedures that 
deviate from those approved at the time of prepayment, prior to 
implementation.
    (f) The undersigned will be released from these obligations before 
the termination period in paragraph (b) of this section only when the 
Agency determines that there is no longer a need for the housing or that 
financial assistance provided the residents of the housing will no 
longer be provided due to no fault, action or lack of action on the part 
of the borrower.



Sec. 3560.663  Post-payment responsibilities for loans subject to continued restrictive-use provisions.

    (a) If a borrower prepays a loan and the housing project remains 
subject to restrictive-use provisions, the requirements of this section 
apply after prepayment.
    (b) Owners of prepaid housing projects will be responsible for 
ensuring that the restrictive-use provisions agreed to as a condition of 
prepayment are observed.
    (c) Owners must maintain appropriate documentation to demonstrate 
compliance with the restrictive-use provisions and must make the 
documentation and the housing project site available for Federal 
Government inspection upon request.
    (1) Owners must document rent increases in accordance with subpart G 
of this part.
    (2) Owners must document tenant eligibility in accordance with Sec. 
3560.152.
    (3) In an Agency approved format, owners must provide the agency 
with a signed and dated certification within 30 days of the beginning of 
each calendar year for the full period of the restrictive-use provisions 
establishing that the restrictive-use provisions are being met.
    (d) Owners must observe Agency policies on tenant grievances as 
described in Sec. 3560.160. The Agency may enforce restrictive-use 
provisions through administrative and legal actions. Tenants may enforce 
the restrictive-use provisions by contacting the Agency or through legal 
action. The Agency will release the restrictive-use provisions when the 
Agency conditions have been met.



Sec. Sec. 3560.664-3560.699  [Reserved]



Sec. 3560.700  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                    Subpart O_Unauthorized Assistance



Sec. 3560.701  General.

    (a) This subpart contains the policies for recapturing unauthorized 
assistance when the Agency determines that a borrower or tenant was 
ineligible for, or improperly used, assistance received from the Agency.
    (b) The Agency may seek repayment of any unauthorized assistance 
provided to a borrower or tenant, plus the cost of collection, 
regardless of whether the unauthorized assistance was due to errors by 
the Agency, the borrower, or the tenant.

[[Page 589]]



Sec. 3560.702  Unauthorized assistance sources and situations.

    (a) Unauthorized assistance can be received by a borrower or tenant 
in the form of loans, grants, interest credit, rental assistance, or 
other assistance provided by the Agency including assistance received as 
a result of an incorrect interest rate being applied to an Agency loan. 
Agency officials may pursue identification and recapture of unauthorized 
assistance through any legal remedies available.
    (b) Unauthorized assistance may result from situations such as:
    (1) Assistance being provided to an ineligible borrower or tenant;
    (2) Assistance to an eligible borrower or tenant being used for an 
unauthorized purpose;
    (3) Assistance being obtained as a result of inaccurate, incomplete, 
or fraudulent information provided by a borrower or tenant; or
    (4) Assistance being obtained as a result of errors by the Agency, 
borrower, or tenant.



Sec. 3560.703  Identification of unauthorized assistance.

    (a) The Agency will use all available means to identify unauthorized 
assistance, including Agency monitoring activities, OIG reports, GAO 
reports, and reports from any source, if the information provided can be 
substantiated by the Agency.
    (b) Borrowers have the primary responsibility for identifying 
repayment of unauthorized assistance received by tenants.



Sec. 3560.704  Unauthorized assistance determination notice.

    (a) The Agency will notify borrowers, in writing, when a 
determination has been made that unauthorized assistance was received by 
the borrower. Borrowers will notify tenants, in writing, when a 
determination is made that unauthorized assistance was received by the 
tenant and will simultaneously send the Agency of copy of the written 
notice to the tenant.
    (b) The unauthorized assistance determination notice is a 
preliminary notice, not a demand letter. The unauthorized assistance 
determination notice will:
    (1) Specify the reasons the assistance was determined to be 
unauthorized;
    (2) State the amount of unauthorized assistance to be repaid and 
specify the party responsible for repayment of the unauthorized 
assistance (i.e., the tenant or borrower) according to the provision of 
Sec. 3560.708;
    (3) Establish a place and time when the person receiving the 
unauthorized assistance determination notice may meet with the Agency 
or, in the case of tenants, may meet with the borrower, to discuss 
issues related to the unauthorized assistance notice such as the 
establishment of a repayment schedule; and
    (4) Advise the borrower or tenant that they may present facts, 
figures, written records, or other information within a specified period 
of time which might alter the determination that the assistance received 
was unauthorized.
    (c) Upon request, the Agency or borrower, in the case of tenants, 
will grant additional time for discussions related to an unauthorized 
assistance determination notice. Borrowers must notify the Agency of 
schedule revisions when additional time is granted to a tenant in 
unauthorized assistance claims.



Sec. 3560.705  Recapture of unauthorized assistance.

    (a) The Agency will seek repayment of all unauthorized assistance 
received by a borrower or tenant, plus the cost of collection, to the 
fullest extent permitted by law. Agency efforts to collect unauthorized 
assistance may include offsets, the use of private or public collection 
agents, and any other remedies available. Agency findings related to 
unauthorized assistance determinations will be referred to credit 
reporting bureaus and other federal, state, or local agencies with 
jurisdictions related to the unauthorized assistance findings for 
suspension, debarment, civil or criminal action to the fullest extent 
permitted by law.
    (b) If a borrower or tenant agrees to repay unauthorized assistance, 
the amount due will be the amount stated in the unauthorized assistance 
determination notice unless another amount has been approved by the 
Agency.

[[Page 590]]

    (c) Repayment may be made either with a lump sum payment or through 
payments made over a period of time. If a borrower or tenant agrees to 
repay unauthorized assistance, the borrower or tenant proposed repayment 
schedule must be approved by Agency prior to implementation. Agency 
approval of a repayment schedule will take into consideration the best 
interest of the borrower, the tenant, and the Federal Government.
    (d) Borrowers must retain copies of all correspondence and a record 
of all conversations between the borrower and a tenant regarding 
unauthorized assistance received by a tenant.
    (e) When a tenant, who has received unauthorized assistance due to 
tenant error or fraud as determined by the Agency, moves out of a 
housing project, the borrower is no longer responsible for recapturing 
the unauthorized assistance provided that the borrower notifies the 
Agency of the tenant's move and transfers all records related to the 
tenant's unauthorized assistance to the Agency within 30 days of the 
tenant's move. The Agency will pursue collection of the unauthorized 
assistance from the tenant.
    (f) If a borrower refuses to enter into an unauthorized assistance 
repayment schedule with the Agency, the Agency will initiate liquidation 
procedures, in accordance with Sec. 3560.456, or other enforcement 
actions, such as suspension, debarment, civil, or criminal penalties, in 
accordance with Sec. 3560.461. If a tenant refuses to enter into an 
unauthorized assistance repayment schedule, the Agency will initiate 
recovery actions against the tenant.
    (g) Borrowers may not use housing project funds to pay amounts due 
to the Agency as a result of unauthorized assistance due to borrower 
fraud.



Sec. 3560.706  Offsets.

    Offsets and any other available remedies may be used by the Agency 
to recapture unauthorized assistance. Guidance concerning use of offsets 
can be found at 7 CFR 3550.210.



Sec. 3560.707  Program participation and corrective actions.

    (a) With Agency approval, a borrower or tenant, who has received 
unauthorized assistance, may continue to participate in the project if 
they have the legal and financial capabilities to do so. Approval 
considerations for such forbearance and repayment are in Sec. 3560.705.
    (b) A borrower or tenant who was responsible for the circumstances 
causing the unauthorized assistance must take appropriate action to 
correct the problem within 90 days of the unauthorized assistance 
determination notice date, unless an alternative date is agreed to by 
the Agency.
    (c) When the interest rate shown in a debt instrument resulted in 
the receipt of unauthorized assistance, the debt instrument will be 
modified to the correct interest rate. All payments made by the borrower 
at the incorrect interest rate will be reapplied at the correct interest 
rate, and remaining payments due on the loan will be recalculated on the 
basis of the correct interest rate, plus any amounts due to the Agency 
as a result of the use of an incorrect interest rate, unless the Agency 
agrees to a separate repayment process.



Sec. 3560.708  Unauthorized assistance received by tenants.

    (a) Tenant actions that require tenant repayment of unauthorized 
assistance received by tenants include, but are not limited to:
    (1) Knowingly or mistakenly misrepresenting income, assets, 
adjustments to income, or household status to the borrower as required 
under subpart D of this part; or
    (2) Failure to properly report changes in income, assets, 
adjustments to income, or household status to the borrower as required 
in subpart D of this part.
    (b) Borrower actions that require borrower repayment of unauthorized 
assistance received by tenants include, but are not limited to:
    (1) Incorrect determination of tenant income or household status by 
the borrower, resulting in rental assistance or interest credit that is 
not allowable under the provisions of subparts D, E, or F of this part, 
as applicable; or
    (2) Assignment of rental assistance to a household that is 
ineligible under the requirements of subpart F of this part.

[[Page 591]]

    (c) When it is determined that a tenant has received unauthorized 
assistance, the borrower shall notify the tenant and the Agency through 
the procedure specified in Sec. 3560.704.
    (d) Borrowers may not charge tenants to pay amounts due to the 
Agency as a result of unauthorized assistance to tenants through 
borrower error.
    (e) Borrowers must notify the Agency of all collections from tenants 
as repayments for unauthorized assistance and must remit or credit the 
amounts collected to applicable housing project accounts.
    (f) When rental assistance was improperly assigned to a tenant, for 
any reason, the rental assistance benefit must be canceled and 
reassigned.
    (1) Before a borrower notifies a tenant of rental assistance 
cancellation, the borrower must request Agency approval. If the Agency 
determines that the unauthorized rental assistance was received by the 
tenant due to borrower fraud or error, the borrower must give the tenant 
30 days notice, in writing, that the unit was assigned in error and that 
the rental assistance benefit will be canceled effective on date that 
the next monthly rental payment is due after the end of the 30-day 
notice period.
    (2) Tenants also must be notified, in writing, that they may cancel 
their lease without penalty at the time the rental assistance is 
canceled. Tenants must be offered an opportunity to meet with a borrower 
to discuss the rental assistance cancellation.



Sec. 3560.709  Demand letter.

    (a) If a borrower fails to respond to an unauthorized assistance 
determination notice or fails to agree to a repayment schedule, the 
Agency will send the borrower a demand letter specifying:
    (1) The amount of unauthorized assistance to be repaid and the basis 
for the unauthorized assistance determination; and
    (2) The actions to be taken by the Agency if repayment is not made 
by a specified date.
    (b) If a tenant fails to respond to the unauthorized assistance 
determination notice or fails to agree to a repayment schedule, the 
borrower will send the tenant a demand letter specifying:
    (1) The amount of unauthorized assistance to be repaid and the basis 
for the unauthorized assistance determination;
    (2) The actions to be taken if repayment is not made by a specified 
date, including termination of tenancy; and
    (3) The appeal rights of the tenant as specified in Sec. 3560.160.
    (c) A demand letter may be sent to a borrower or tenant, in lieu of 
an unauthorized assistance determination notice, when the evidence 
documenting the unauthorized assistance determination is deemed to be 
conclusive by the Agency or borrower sending the letter.



Sec. Sec. 3560.710-3560.749  [Reserved]



Sec. 3560.750  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



                          Subpart P_Appraisals



Sec. 3560.751  General.

    This subpart sets forth appraisal policies for Agency-financed 
multi-family housing (MFH) projects consisting of five or more rental 
units. Agency-financed housing projects with fewer than five rental 
units may be appraised in accordance with the Agency's single family 
housing appraisal policies established under 7 CFR 3550.62.



Sec. 3560.752  Appraisal use, request, review, and release.

    (a) Appraisal uses. The Agency will use appraisals to determine 
whether the security offered by an applicant or

[[Page 592]]

borrower is adequate to secure a loan or determine appropriate servicing 
or preservation decisions. Appraisals used for Agency decision-making 
must be current, unless the Agency and the applicant, or borrower, 
mutually agree to the use of an appraisal that is not current. A current 
appraisal is an appraisal with a report date that is not more than one 
year old.
    (b) Appraisal requests. Appraisal requests must be in writing and 
must specify the client and other intended users, the intended use, the 
purpose, and the scope of work of the appraisal, including the type and 
definition of the value(s) to be developed.
    (1) Type of Value. The appraisal request must indicate whether the 
``market value'', the ``market value, subject to restricted rents'', or 
any other type of value of the housing project and related facilities is 
to be concluded.
    (i) A request for ``market value, subject to restricted rents'' 
means the appraisal will take into consideration any rent limits, rent 
subsidies, expense abatements, or restrictive-use conditions that will 
affect the property as a result of an agreement with the Agency or any 
other financing source. Each type of financing involved, including, but 
not limited to, interest credit subsidy, low-interest loans from other 
sources, tax-exempt bond financing, tax credits, and grants, must be 
valued separately in the appraisal.
    (ii) A request for ``market value'' means the appraisal will take 
into consideration the most probable price which a property should bring 
in a competitive and open market under all conditions requisite to a 
fair sale, the buyer and seller each acting prudently and knowledgeably, 
and assuming the price is not affected by undue stimulus. Implicit in 
this definition is the consummation of a sale as of a specified date and 
the passing of title from seller to buyer under conditions whereby:
    (A) Buyer and seller are typically motivated;
    (B) Both parties are well informed or well advised and acting in 
what they consider their best interests;
    (C) A reasonable time is allowed for exposure in the open market;
    (D) Payment is made in terms of cash in United States dollars or in 
terms of financial arrangements comparable thereto; and
    (E) The price represents the normal consideration for the property 
sold unaffected by special or creative financing or sales concessions 
granted by anyone associated with the sale.
    (2) `` `As-is' Value'' or ``Prospective Value''. The appraisal 
request must indicate whether the ```as-is' value'' or ``prospective 
value'' of the housing is to be concluded.
    (i) `` `As-is' value'' means the value of the housing and related 
facilities as of the effective date of the appraisal. It relates to what 
physically exists and is legally permissible at the time of the 
appraisal and excludes all hypothetical conditions.
    (ii) ``Prospective value'' means the forecasted value of the housing 
and related facilities as of a specified future date. For Agency 
appraisals, this date will typically be the projected completion date of 
proposed new construction or rehabilitation.
    (3) Section 8 project-based assistance. Depending on the intended 
use of the appraisal, the Agency will specify whether or not section 8 
project-based assistance will be considered in the valuation of the 
housing. The remaining term of the section 8 contract and the 
probability of subsequent renewal terms being authorized will be taken 
into consideration when making this determination.
    (4) Low-Income Housing Tax Credit (LIHTC) and other financing 
sources. Depending on the intended use of the appraisal, the Agency will 
specify whether or not tax credits and other financing sources involved 
in the housing will be considered in the valuation of the housing.
    (c) Appraisal review. All MFH appraisals that were not written by an 
Agency appraiser will be reviewed by an Agency appraiser, who will write 
and file a technical review report that complies with the Uniform 
Standards of Professional Appraisal Practice (USPAP) and Agency 
requirements.
    (d) Release of appraisals. MFH appraisals procured by the Agency 
will be released to owners/applicants, from their own files, upon their 
request.

[[Page 593]]



Sec. 3560.753  Agency appraisal standards and requirements.

    (a) General. The Agency recognizes USPAP as the basic standards for 
appraisals. Appraisals used by the Agency must comply with USPAP and 
this subpart.
    (b) Appraisers. MFH appraisals prepared for the Agency will be 
written by Agency appraisers or independent fee appraisers who are state 
certified general appraisers, certified in the state where the property 
is located. Technical review reports will be written by Agency state 
certified general appraisers.
    (c) Appraisal report. The appraisal report format may be a form 
appraisal or a narrative appraisal. The Agency will specify the 
appraisal format that is most appropriate for the scope of work involved 
when the appraisal is requested.
    (1) Form appraisal reports. The Agency will accept appraisal report 
forms that meet generally accepted industry standards, comply with 
USPAP, and have been approved by the Agency.
    (2) Narrative appraisal reports. Narrative appraisal reports must, 
at a minimum, contain the following items:
    (i) Transmittal letter;
    (ii) Factual information about the property;
    (iii) Regional and neighborhood data;
    (iv) Description of the subject property;
    (v) Description of existing and planned improvements;
    (vi) A highest and best use analysis;
    (vii) A statement regarding any environmental issues, such as 
potential contamination of the property from hazardous substances, 
hazardous wastes, or petroleum products;
    (viii) A cost approach analysis (if applicable);
    (ix) A sales comparison approach analysis (if applicable);
    (x) An income approach analysis (if applicable);
    (xi) A reconciliation of the value indications derived from the 
included approaches to value; and
    (xii) A signed and dated certification of value.
    (3) At the time an appraisal is requested, the Agency will specify 
either a complete or a limited appraisal and one of the following types 
of appraisal reports, based upon the complexity of the appraisal 
assignment.
    (i) A self-contained report that comprehensively describes all 
information significant to the solution of the appraisal problem;
    (ii) A summary report that summarizes all information significant to 
the solution of the appraisal problem; or
    (iii) A restricted use report, intended for Agency use only, that 
briefly states all information significant to the solution of the 
appraisal problem.
    (d) Highest and best use statement and analysis. The highest and 
best use is to be concluded for the subject site as though it was 
vacant, and for the subject property as improved, if improvements have 
been made. If the highest and best use of a subject property is for 
something other than MFH, the appraisal report must provide this 
information to the Agency for consideration in the loan process. In 
addition to being reasonably probable and appropriately supported, the 
highest and best use of both the land as though vacant and the property 
as improved must meet four implicit criteria. The highest and best use 
must be:
    (1) Physically possible;
    (2) Legally permissible;
    (3) Financially feasible; and
    (4) Maximally productive.
    (e) Valuation methods and variances. The final opinion of value 
presented in an appraisal report must have considered a cost approach, a 
sales comparison approach, and an income approach. If one of these 
standard approaches is not used, the reconciliation narrative will 
provide a full and complete explanation of the reasons the approach was 
excluded. The reconciliation will fully discuss and reconcile variances 
in the value indications concluded by each approach.
    (f) Real estate history. Appraisals must contain a 5-year ownership 
and sales history for the housing project being appraised.
    (g) Reserve accounts. Funds in the housing project's reserve account 
will not be considered in the valuation of the housing project.

[[Page 594]]

    (h) Escrow accounts. Short-term prepaid escrow accounts for general 
operating expenses, such as taxes and insurance, shall not be considered 
in the valuation of the housing project.
    (i) Rental rates comparison. The appraisal report must document 
whether the housing project's basic rents are less than, equal to, or 
greater than market rents for comparable conventional, or non-
subsidized, units in the area where the housing is located.
    (j) Description of housing and property rights. The appraisal report 
must identify and describe both the real estate, which is the land and 
improvements, and the real property, or property rights, being 
appraised.
    (k) Exclusion of rental units from valuation. The Agency will 
provide appraisers with instructions and supporting information on any 
rental units that do not produce rental income at the time of the 
appraisal.
    (l) Non-contiguous sites. When a housing project has real property 
located on non-contiguous sites, a separate appraisal must be developed 
for each site.



Sec. Sec. 3560.754-3560.799  [Reserved]



Sec. 3560.800  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 0575-0189. Public reporting burden for 
this collection of information is estimated to vary from 15 minutes to 
18 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. A 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number.



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 Conditions of 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.

[[Page 595]]

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.

                      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 loans or mortgage servicing.
3565.405 Repurchase of guaranteed loans.
3565.406-3565.449 [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.

   Subpart K_Agency Guaranteed Loans That Back Ginnie Mae Guaranteed 
                               Securities

3565.501 Applicability.
3565.502 Incontestability.
3565.503 Repurchase.
3565.504 Transfers.
3565.505 Liability.
3565.506-3565.549 [Reserved]
3565.550 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.

[[Page 596]]

    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 
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.
    Ginnie Mae. Ginnie Mae is a reference to the Government National 
Mortgage Association.
    Government National Mortgage Association. The Government National 
Mortgage Association (Ginnie Mae) is a government corporation within the 
Department of Housing and Urban Development. Ginnie Mae guarantees 
privately issued securities backed by mortgages or loans which are 
insured or guaranteed by the Federal Housing Administration (FHA), the 
Department of Veterans Affairs (VA), or the Rural Housing Service (RHS) 
and certain other loans or mortgages guaranteed or insured by the 
Government.

[[Page 597]]

    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.
    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 or all 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 an assignment guarantee 
agreement form approved by the Agency.
    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 Applicable Long 
Term Monthly 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 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

[[Page 598]]

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.
    Negligent servicing or origination. Negligent servicing or 
origination is a failure to perform those services which a reasonably 
prudent lender would perform in servicing or originating its own 
portfolio and includes not only the failure to act but also the failure 
to act in a timely manner.
    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 permanent loan is defined as a mortgage loan 
usually covering development costs, interim loans, construction loans, 
financing expenses, marketing, administrative, legal, and other Agency 
approved costs. This loan differs from the construction loan in that 
financing goes into place after the project is completely constructed 
and open for occupancy. It is a long-term obligation, generally for a 
period of no less than 25 years and no more than 40 years.
    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, 
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

[[Page 599]]

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; 
70 FR 2930, Jan. 19, 2005]



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 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,

[[Page 600]]

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]



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

[[Page 601]]

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.



Sec. Sec. 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 publicized by notices in the Federal Register.



Sec. Sec. 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

[[Page 602]]

loan that is not a combination construction and permanent loan.



Sec. 3565.52  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.
    (a) Rights and liabilities. A guarantee under this part is backed by 
the full faith and credit of the United States and is incontestable 
except for fraud or misrepresentation of which the lender had knowledge 
at the time the lender acquired the guarantee or assigned the loan, or 
in which a lender participates or condones. The guarantee will be 
unenforceable by the lender to the extent any loss is occasioned by a 
violation of usury laws, negligent servicing or origination by the 
lender, including a failure to acquire required security, or as a result 
of a use of loan funds for purposes other than those authorized by the 
Agency. The acts in the previous sentence constitute grounds for the 
refusal to make full payment under the guarantee to the lender, and will 
not be taken until the Agency gives the lender notice of the acts or 
omissions that it considers to constitute such grounds, specifying the 
applicable provisions of the Statute, Regulations, Loan Note Guarantee, 
or Lender's Agreement; the lender has not cured the acts or omissions 
within 90 calendar days after such notice; and the acts or omissions can 
reasonably be expected to have a material adverse effect on the credit 
quality of the guaranteed mortgage or the physical condition of the 
property securing the guaranteed mortgage. If such acts or omissions 
cannot be cured within a 90 calendar day period, the 90 calendar day 
cure period automatically shall be extended so long as curative 
activities are commenced during the 90 calendar day period. At no time 
shall the curative period extend more than 270 calendar days from the 
expiration of the original 90 calendar day cure period. 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.
    (b) Liability of the Holder. The Holder shall not be liable for the 
actions of the lender including, but not limited to, negligence, fraud, 
abuse, misrepresentation or misuse of funds, and its rights under the 
guarantee shall be fully enforceable notwithstanding the actions of the 
lender, unless the Holder has knowledge of fraud, misrepresentation or 
misuse of funds when it becomes the Holder or condones or participates 
in such actions.
    (c) Guarantee percentage and payment. Both permanent loans and 
combination construction and permanent loans are eligible for a guaranty 
subject to the following limitations:
    (1) Permanent loans. The Agency will issue a permanent loan 
guarantee after a minimum level of acceptable occupancy of 90% for 90 
consecutive days is attained or an additional operating reserve equal to 
2% of the appraised value of the project or total development costs, 
whichever is greater, is set aside. This cash contribution is an 
additional amount, over and above the required initial operating and 
maintenance reserve contribution. In either case, the permanent 
guarantee will be issued when the 2% additional reserve amount is set 
aside prior to closing the construction loan or the minimum level of 
occupancy is attained prior to the expiration of the Conditional 
Commitment, including any extensions thereto. The maximum guarantee 
payment for a permanent loan will be 90 percent of the unpaid principal 
and interest up to default and accrued interest 90 calendar days from 
the date the liquidation plan is approved by the Agency, as defined in 
Sec. 3565.452. Penalties incurred as a result of default are not 
covered by the guarantee. The Agency may provide a lesser guarantee 
percentage based upon its evaluation of the credit quality 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

[[Page 603]]

loan, up to the maximum amount specified in the Loan Note Guarantee.
    (2) Combination construction and permanent loans. For combination 
construction and permanent loans, the Agency will guarantee advances 
during the construction loan period, which cannot exceed 24 months. The 
guarantee of construction loan advances will cover a permanent loan once 
the minimum level of acceptable occupancy of 90% for 90 consecutive days 
is attained or an additional operating reserve equal to 2% of the 
appraised value of the project or total development costs, whichever is 
greater, is set aside prior to closing the construction loan. This cash 
contribution is an additional amount, over and above the required 
initial operating and maintenance reserve contribution. The maximum 
guarantee of construction advances related to a combination construction 
and permanent loan will not at any time exceed the lesser of 90 percent 
of the amount of principal and interest up to default advanced for 
eligible uses of loan proceeds or 90 percent of the original principal 
amount and interest up to default of the combination loan. Penalties 
incurred as a result of default are not covered by the guarantee. The 
Agency may provide a lesser guarantee percentage based upon its 
evaluation of the credit quality of the loan. Conversion to a permanent 
loan guarantee will become effective when the Agency provides the lender 
with written confirmation of the conversion date.
    In addition, the lender shall require credit enhancements to protect 
the Government's guarantee. Acceptable credit enhancements include:
    (i) Surety bonding or performance and payment bonding (the preferred 
credit enhancement);
    (ii) An irrevocable letter of credit acceptable to the Agency; or
    (iii) A pledge by the lender of acceptable collateral.
    (3) Maximum loss payment. The maximum loss payment to a lender or 
Holder is as follows:
    (i) 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.
    (ii) To the lender, the lesser of:
    (A) Any loss sustained by the lender on the guaranteed portion, 
including principal, interest and accrued interest up to 90 days 
evidenced by the notes or assumption agreements and secured advances for 
protection and preservation of collateral made with the Agency's 
authorization; or
    (B) The guaranteed principal advanced to or assumed by the borrower 
and any interest and accrued interest up to 90 days due thereon.

[70 FR 2930, Jan. 19, 2005]



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.



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.

[[Page 604]]



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.



Sec. Sec. 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, Freddie 
Mac or Ginnie Mae to make multifamily housing loans that are to be sold 
to or securitized by 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
    (3) Have documented procedures for carrying out servicing and asset 
management responsibilities.

[63 FR 39458, July 22, 1998, as amended at 70 FR 2931, Jan. 19, 2005]



Sec. 3565.103  Approval requirements.

    The Agency will establish and maintain a ``list of approved 
lenders''. To be an approved lender, eligible lenders

[[Page 605]]

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, Ginnie Mae 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; 
70 FR 2931, Jan. 19, 2005]



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 and permanent loan, must demonstrate an ability to 
originate and service construction loans, in addition to meeting the 
other requirements of this subpart.

[[Page 606]]



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.



Sec. Sec. 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 607]]

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.



Sec. Sec. 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
    (ii) The lender's determination of value not to exceed the appraised 
value of the housing and facilities.

[[Page 608]]

    (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 3560.63 
(d) or successor provision.

[63 FR 39458, July 22, 1998, as amended at 69 FR 69176, Nov. 26, 2004]



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;
    (12) Technical assistance to and by non-profit entities to assist in 
the formation, development, and packaging of

[[Page 609]]

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.



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

[[Page 610]]

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.

[63 FR 39458, July 22, 1998, as amended at 70 FR 2931, Jan. 19, 2005]



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.



Sec. Sec. 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 parcels of land, all sites must meet each of the following 
requirements:
    (1) Located in one market area;

[[Page 611]]

    (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 rehabilitation of 
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 will 
guarantee proposals for new construction or acquisition with moderate or 
substantial rehabilitation of at least $6,500 per dwelling unit. The 
portion of guaranteed funds available for acquisition with 
rehabilitation may be limited in the annual Notice of Fund Availability.

[70 FR 2931, Jan. 19, 2005]



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.



Sec. Sec. 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 612]]

    (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 613]]

    (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.



Sec. Sec. 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 614]]

    (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 3560, subpart D 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 615]]

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; 
69 FR 69176, Nov. 26, 2004]



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.



Sec. Sec. 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.

[[Page 616]]

    (a) Funds management. The lender must have a funds management system 
to receive and process borrower payments, including the following.
    (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) Repurchase from Holder. For securitized loans, the Holder may 
require the lender or Government to repurchase the security in 
accordance with the provisions of Sec. 3565.405.
    (b) 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.
    (c) 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.
    (d) 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.
    (e) Displacement prevention. The actions of the lender must not harm 
the

[[Page 617]]

property's tenants through displacement.

[63 FR 39458, July 22, 1998, as amended at 67 FR 16971, April 9, 2002; 
70 FR 2931, Jan. 19, 2005]



Sec. 3565.404  Transfer of loans or 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.



Sec. 3565.405  Repurchase of guaranteed loans.

    (a) Repurchase by lender. The Holder may make written demand on the 
lender to repurchase the unpaid guaranteed portion of the loan when the 
borrower is in default not less than 60 calendar 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 
calendar days of receipt by the lender. The Holder must concurrently 
send a copy of the demand letter to the Agency. The lender will notify 
the Holder and the Agency of its decision to repurchase within 10 
business days from the date of the written demand letter by the Holder. 
The lender may agree to repurchase the unpaid portion of the entire loan 
from the Holder, even though the guarantee does not cover any 
unguaranteed portion of the loan held by the Holder. If the lender 
decides to repurchase, the lender has 30 calendar days from the date of 
the Holder's written demand letter to do so. The guarantee does not 
cover any unguaranteed portion of the loan or the note interest to the 
Holder on the guaranteed loan accruing after 90 calendar days from the 
date of the Holder's demand letter to the lender requesting the 
repurchase. The lender may deduct the lender's servicing fee from the 
repurchase amount. 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 problems, and to 
prevent default where and when reasonable.
    (b) Repurchase by Agency. (1) If the lender does not repurchase 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 calendar days after written demand to 
the Agency from the Holder. The guarantee will not cover the note 
interest to the Holder on the guaranteed loan accruing after 90 calendar 
days from the date of the original demand letter of the Holder to the 
lender requesting the repurchase.
    Holders of Loan Note Guarantees that have been issued prior to the 
effective date of this final rule may opt to adhere to the terms and 
conditions of the Loan Note Guarantee then in effect. In case of loan 
default, the Holder of a Loan Note Guarantee issued prior to the 
effective date of this final rule will stipulate, in a written demand 
for repurchase, its preference for repurchase in accordance with the 
Loan Note Guarantee issued prior to the effective date of this final 
rule. If the demand for repurchase does not stipulate a preference for 
repurchase in accordance with the Loan Note Guarantee issued prior to 
the effective date of this final rule, the Agency will process the 
demand for repurchase as stated in this final rule. The Holder must 
stipulate a preference for repurchase in accordance with the Loan Note 
Guarantee issued prior to the effective date of this final rule in the 
first demand for repurchase. The Holder of the Loan Note Guarantee 
issued prior to the effective date of this final rule cannot make a 
subsequent demand for repurchase changing the preference stipulated in 
the original demand for repurchase.
    (2) The Holder's demand to the Agency must include a copy of the 
written demand made to 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 an Agency approved assignment 
guarantee agreement, properly assigned to the Agency without recourse 
including all rights, title, and interest in the loan. The Holder must

[[Page 618]]

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 provide the Agency with the 
information necessary for the Agency to determine the appropriate amount 
due the Holder within 10 business days from the date of the written 
demand letter to the lender from the Holder requesting repurchase of the 
guaranteed portion. The lender will furnish a current statement 
certified by an appropriate authorized officer of the lender stating 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. The Agency will coordinate the resolution of the discrepancy. 
Such conflict will suspend the running of the 30 calendar day payment 
requirement.
    (4) 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. As Holder, the Agency will have the right to set-off any 
payments the Agency owes the lender.

[70 FR 2931, Jan. 19, 2005]



Sec. Sec. 3565.406-3565.449  [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 
or it has been determined that it is in the best interest of the Agency 
and the lender to liquidate. For interest accrual purposes, interest 
will accrue for 90 calendar days after the date the liquidation plan is 
approved by the Agency. If within 20 calendar days of the Agency's 
receipt of the liquidation plan, the

[[Page 619]]

Agency fails to respond to the lender's proposal or advise the lender to 
make revisions to the plan that was submitted, the liquidation plan will 
be approved by default, and the 90 calendar day period for interest 
accrual will commence.
    (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, as amended at 70 FR 2932, Jan. 19, 2005]



Sec. 3565.453  Disposition of the property.

    (a) Submission of the liquidation plan. The lender will, within 30 
calendar days after a decision to liquidate, submit to the Agency in 
writing, its proposed detailed plan of liquidation. The Agency will 
inform the lender, in writing, whether the Agency 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. The liquidation plan submitted to the Agency by the lender 
shall include:
    (1) Satisfactory proof of the lender's ownership of the guaranteed 
loan promissory note and related security instruments.
    (2) A copy of the payment ledger or equivalent which reflects the 
current loan balance and accrued interest to date and the method of 
computing the interest.
    (3) A full and complete list of all collateral including any 
personal and corporate guarantees.
    (4) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including recommended actions for:
    (i) Obtaining an appraisal of the collateral;
    (ii) Acquiring and disposing of all collateral;
    (iii) Collecting from guarantors;
    (iv) Setting the proposed date of foreclosure; and
    (v) Setting the proposed date of liquidation.
    (5) Necessary steps for protection of the tenants and preservation 
of the collateral.
    (6) Copies of the borrower's latest available financial statements.
    (7) Copies of the guarantor's latest available financial statements.
    (8) An itemized list of estimated liquidation expenses expected to 
be incurred along with justification for each expense.
    (9) A schedule to periodically report to the Agency on the progress 
of liquidation.
    (10) Estimated protective advance amounts with justification.
    (11) Proposed protective bid amounts on collateral to be sold at 
auction and a breakdown to show how the amounts were determined.
    (12) If a voluntary conveyance is considered, the proposed amount to 
be credited to the guaranteed debt.
    (13) Any legal opinions supporting the decision to liquidate.
    (14) The lender will obtain a complete appraisal report on all 
collateral securing the loan, which will reflect the fair market value 
and potential liquidation value, and an examination of the title on the 
collateral. In order to formulate a liquidation plan, which maximizes 
recovery, collateral must be evaluated for hazardous substances, 
petroleum products, or other environmental hazards, which may adversely 
impact the market value of the collateral.
    (b) A transfer and assumption of the borrower's operation can be 
accomplished before or after the loan goes

[[Page 620]]

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.
    (c) 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 and 
reselling the property. These expenses include, but are not limited to, 
expenses for resale, interest accrual, length of weatherization, and 
prior liens.
    (d) 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 with the liquidation 
plan if the lender expects liquidation to exceed 90 calendar days. The 
estimated loss payment will be based on the outstanding loan amount 
minus the liquidation value of the collateral. For the purpose of 
reporting and loss claim computation, the loss claim will be promptly 
processed in accordance with applicable Agency regulations, as set forth 
in this section. The loss claim calculation will include 90 calendar 
days of interest accrual on the defaulted loan at the time the estimated 
loss claim is paid by the Agency. If the lender estimates that there 
will be no loss after considering the costs of liquidation, the lender 
submits an estimated loss claim of zero. Interest accrual will cease 90 
calendar days after the date the liquidation plan is approved by the 
Agency.
    (e) 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 in 7 CFR part 1944, subpart L or 
successor regulation.
    (f) Accounting and reports. When the lender conducts liquidation, 
the lender will account for funds during the period of liquidation and 
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.
    (g) 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 elsewhere.

[70 FR 2932, Jan. 19, 2005]



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

[[Page 621]]

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 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.

    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.
    (a) Report of loss form. An Agency approved form will be used for 
calculations of all estimated and final loss determinations. Estimated 
loss payments will only be paid by the Agency after it has approved a 
liquidation plan.
    (b) Estimated loss. 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 paid by the Agency 
will be applied by the lender on the loan debt. Such application does 
not release the borrower from liability.
    (2) The Government's written authorization is required for all 
protective advances in excess of $5,000. Protective advances include, 
but are not limited to, advances made for property taxes, annual 
assessments, ground rent, hazard or flood insurance premiums affecting 
the collateral, and other expenses necessary to preserve or protect the 
security. Attorney fees are not a protective advance. 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 with Agency 
approval.
    (c) Final loss. Within 30 calendar 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 on a form approved by the Agency must be prepared and 
submitted by the lender to the Agency. 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 the report of loss form.
    (1) A determination must be made regarding the collectibility of 
unsecured personal and corporate guarantees. If reasonably possible, 
such guarantees should be promptly collected 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 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

[[Page 622]]

was proper and that payment was actually made. Liquidation expenses are 
recoverable only from collateral proceeds.
    (5) Accrued interest will be supported by documentation as to how 
the amount was accrued.
    (6) Loss payments will be paid by the Agency within 60 calendar days 
after the receipt of the final loss report and accounting of the 
collateral.
    (7) Should there be a circumstance where the lender cannot or will 
not sign a final report of loss, the State Director may complete the 
final report of loss and submit it to the Finance Office without the 
lender's signature. Before this action can be taken, all collateral must 
be disposed of or accounted for; there must be no evidence of fraud, 
misrepresentation, or negligent servicing by the lender; and all efforts 
to obtain the cooperation of the lender must have been exhausted and 
documented.
    (d) 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.
    (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 after paying operating expenses of the property.
    (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.
    (g) Payment. When the Agency finds the final report of loss to be 
proper in all respects, it will approve the form 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.
    (3) If the Agency determines that it is in the Government's best 
interest to take assignment of the loan and conduct liquidation, as 
stipulated in 42 U.S.C. 1490(i)(3), Assignment by Secretary, the Agency 
will pay the lender in accordance with the Loan Note Guarantee.
    (h) Date of loss. The date of loss is the date on which the 
collateral will be liquidated 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.
    (i) 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 owning 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 of the property; and
    (iv) 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.
    (j) 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.

[70 FR 2933, Jan. 19, 2005]

[[Page 623]]



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.



Sec. Sec. 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.



   Subpart K_Agency Guaranteed Loans That Back Ginnie Mae Guaranteed 
                               Securities

    Source: 70 FR 2934, Jan. 19, 2005, unless otherwise noted.



Sec. 3565.501  Applicability.

    The provisions of this subpart apply when Agency guaranteed loans 
are used to back Ginnie Mae securities. In instances where this subpart 
applies, the provisions of this subpart prevail over any other 
provisions of this part.



Sec. 3565.502  Incontestability.

    In the case of loans that back Ginnie Mae securities or loans that 
are acquired by Ginnie Mae as a consequence of its guaranty, the Agency 
guarantee under this part is incontestable except that the guarantee may 
not be enforced by a lender who commits fraud or misrepresentation or by 
a lender who had knowledge of the fraud or misrepresentation at the time 
such a lender acquired the guarantee or was assigned the loan.



Sec. 3565.503  Repurchase.

    Lenders and security Holders must comply with Ginnie Mae 
requirements regarding the repurchase of loans from pools backing Ginnie 
Mae guaranteed securities.



Sec. 3565.504  Transfers.

    (a) Loans and/or mortgage servicing on loans backing Ginnie Mae 
guaranteed securities may only be transferred to a Ginnie Mae issuer and 
may only be transferred with prior Ginnie Mae approval.
    (b) Agency approval shall not be required for transfer of the 
servicing on the guaranteed mortgages to Ginnie Mae.



Sec. 3565.505  Liability.

    (a) Ginnie Mae shall not be liable for the actions of the lender 
including, but not limited to, negligence, fraud, abuse, 
misrepresentation or misuse of funds, property condition, or violations 
of usury laws.
    (b) Ginnie Mae's rights under the guarantee shall be fully 
enforceable notwithstanding the actions of the lender.



Sec. Sec. 3565.506-3565.549  [Reserved]



Sec. 3565.550  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.
3570.69 Environmental review, intergovernmental review, and public 
          notification.
3570.70 Other considerations.

[[Page 624]]

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 625]]

    (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 626]]

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 the State's nonmetropolitan counties and portions of 
metropolitan counties outside of cities, towns or places of 50,000 or 
more population.
    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.

[64 FR 32388, June 17, 1999, as amended at 69 FR 65519, Nov. 15, 2004]



Sec. Sec. 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

[[Page 627]]

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 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

[[Page 628]]

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.
    (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

[[Page 629]]

    (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
    (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:

[[Page 630]]

    (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 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.

[[Page 631]]



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), 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.''



Sec. Sec. 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.



Sec. Sec. 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.



Sec. Sec. 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.

[[Page 632]]

    (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 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).

[[Page 633]]



Sec. Sec. 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.



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

[[Page 634]]

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 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

[[Page 635]]

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.
    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

[[Page 636]]

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 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.



Sec. Sec. 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

[[Page 637]]

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 Agency approval of the applicant's request or any 
commitment of Agency resources.



Sec. Sec. 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.



Sec. Sec. 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.



Sec. Sec. 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.

[[Page 638]]

    (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.
    (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

[[Page 639]]

for portions of existing systems or facilities that were developed under 
different financing, rates, terms, or conditions do not necessarily 
constitute inequities.



Sec. Sec. 3575.21-3575.23  [Reserved]



Sec. 3575.24  Eligible loan purposes.

    (a) Funds may be used to construct, enlarge, extend, or otherwise 
improve 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:

[[Page 640]]

    (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.
    (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;

[[Page 641]]

    (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 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.

[[Page 642]]

    (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.
    (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.



Sec. Sec. 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

[[Page 643]]

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 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.



Sec. Sec. 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.



Sec. Sec. 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

[[Page 644]]

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 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.



Sec. Sec. 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

[[Page 645]]

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, 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.



Sec. Sec. 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.



Sec. Sec. 3575.54-3575.58  [Reserved]



Sec. 3575.59  Review of requirements.

    (a) Lender and borrower. The lender and borrower must complete and 
sign

[[Page 646]]

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.
    (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.



Sec. Sec. 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

[[Page 647]]

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 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.

[[Page 648]]



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 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.



Sec. Sec. 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.



Sec. Sec. 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,

[[Page 649]]

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 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.



Sec. Sec. 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

[[Page 650]]

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. 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

[[Page 651]]

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 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;

[[Page 652]]

    (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;
    (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

[[Page 653]]

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:
    (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.



Sec. Sec. 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

[[Page 654]]

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.
    (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

[[Page 655]]

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 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

[[Page 656]]

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 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.



Sec. Sec. 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

[[Page 657]]

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 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.



Sec. Sec. 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 659]]



 CHAPTER XXXVI--NATIONAL AGRICULTURAL STATISTICS SERVICE, DEPARTMENT OF 
                               AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3600            Organization and functions..................         661
3601            Availability of information to the public...         663

[[Page 661]]



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 662]]

    (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 663]]

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 664]]



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-NASS sales desk at the National 
Technical Information Center at 1 (800) 999-

[[Page 665]]

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 667]]



  CHAPTER XXXVII--ECONOMIC RESEARCH SERVICE, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3700            Organization and functions..................         669
3701            Public information..........................         671

[[Page 669]]



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 670]]

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 671]]

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 672]]

(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 673]]



    CHAPTER XXXVIII--WORLD AGRICULTURAL OUTLOOK BOARD, DEPARTMENT OF 
                               AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
3800            Organization and functions..................         675
3801            Availability of information to the public...         675

[[Page 675]]



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 676]]


    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 Sec. Sec. 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 677]]



  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...............         679
4279            Guaranteed loanmaking.......................         696
4280            Loans and grants............................         724
4284            Grants......................................         785
4285            Cooperative agreements......................         810
4287            Servicing...................................         818
4290            Rural Business Investment Company (``RBIC'') 
                    Program.................................         828

[[Page 679]]



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 680]]

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.
    Statewide Nonmetropolitan Median Household Income (SNMHI). Median 
household income of the State's nonmetropolitan counties and portions of 
metropolitan counties outside of cities, towns or places of 50,000 or 
more population.
    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

[[Page 681]]

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:

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

[63 FR 6053, Feb. 6, 1998, as amended at 69 FR 65519, Nov. 15, 2004]



Sec. Sec. 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.

[[Page 682]]



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;
    (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.



Sec. Sec. 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

[[Page 683]]

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, 
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.



Sec. Sec. 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.

[[Page 684]]

    (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.



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.



Sec. Sec. 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.
    (3) In addition to normal security documents, a first lien interest 
in the intermediary's revolving fund account will be accomplished by a 
control agreement satisfactory to RBS. The control agreement does not 
have to require RBS signature for withdrawals. The depository bank shall 
waive its offset and recoupment rights against the

[[Page 685]]

depository account to RBS and subordinate any liens it may have against 
the IRP depository bank account. The use of Form RD 402-1, ``Deposit 
Agreement,'' or similar form developed by the State Regional Office of 
the General Counsel is acceptable.
    (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.

[63 FR 6053, Feb. 6, 1998, as amended at 70 FR 38572, July 5, 2005]



Sec. Sec. 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.
    (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 each of an intermediary's IRP loans, 
except those earmarked for special purposes, must have been disbursed to 
eligible ultimate recipients or the subsequent loan will serve a 
geographic area not included in an area currently served.
    (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 by the Agency for an intermediary in any 
single fiscal year unless the request is from an IRP earmark.
    (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.

[63 FR 6053, Feb. 6, 1998, as amended at 70 FR 38573, July 5, 2005]



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

[[Page 686]]

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 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.



Sec. Sec. 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

[[Page 687]]

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 an initial 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 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. An application for a subsequent loan to 
an intermediary may be considered a categorical exclusion for 
environmental review, rather than a Class II action, provided the 
service area, eligibility requirements, and eligible purposes for loans 
to ultimate recipients will be the same for the subsequent loan as were 
considered in the previous environmental assessment, and the purpose of 
the loan is not environmentally controversial.
    (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

[[Page 688]]

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.

[63 FR 6053, Feb. 6, 1998, as amended at 70 FR 38573, July 5, 2005]



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:
    (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 or, the intermediary must have at least one ultimate recipient 
loan application ready to close. Upon requesting a disbursement, the 
intermediary must provide documentation showing that its equity 
contribution has been deposited into the IRP revolving loan fund 
account. The initial draw must be deposited in an interest bearing 
account in accordance with Sec. 4274.332(b)(5) until needed and must be 
used for loans to ultimate recipients before any additional Agency IRP 
loan funds may be drawn by the intermediary.
    (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,

[[Page 689]]

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 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

[[Page 690]]

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-133 should submit audits made in accordance with that 
circular.
    (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;

[[Page 691]]

    (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 of 
funds actually drawn by the intermediary.

[63 FR 6053, Feb. 6, 1998, as amended at 70 FR 38573, July 5, 2005]



Sec. Sec. 4274.339-4274.342  [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

[[Page 692]]

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 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:

[[Page 693]]

    (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. A point system will be used to determine an 
eligible applicant's priority for available loan funds. 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 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 ultimate recipients from 
its project contribution funds to pay part of the costs of ultimate 
recipient projects. Project contribution funds must be separate and 
distinct from any loan or grant dollars provided to the intermediary 
under the IRP, as well as the intermediary's equity contribution. When 
evaluating an application for initial or supplemental funding, the 
Agency will consider the level of the applicant's project contribution 
and award points as follows:
    (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

[[Page 694]]

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.
    (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

[[Page 695]]

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.

[63 FR 6053, Feb. 6, 1998, as amended at 70 FR 38573, July 5, 2005]



Sec. Sec. 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.



Sec. Sec. 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:
    (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.



Sec. Sec. 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.

[[Page 696]]

    (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.



Sec. Sec. 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.



Sec. Sec. 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.



Sec. Sec. 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]

[[Page 697]]

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 fees.
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 guarantee.
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: 5 U.S.C. 301, 7 U.S.C. 1989 and 7 U.S.C. 1932(a).

    Source: 61 FR 67633, Dec. 23, 1996, unless otherwise noted.



                            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.
    Adjusted tangible net worth. Tangible balance sheet equity plus 
allowed tangible asset appreciation and subordinated owner debt.
    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.
    Allowed tangible asset appreciation. The difference between the 
current net book value recorded on the financial statements (original 
cost less cumulative depreciation) of real property assets and the 
lesser of their current market value or original cost, where current 
market value is determined using an appraisal satisfactory to the 
Agency.
    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

[[Page 698]]

borrower or transferor at the time of the transaction.
    Assignment Guarantee Agreement (Business and Industry). Form RD 
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.
    Biogas. Biomass converted to gaseous fuel.
    Biomass. Any organic material that is available on a renewable or 
recurring basis including agricultural crops, trees grown for energy 
production, wood waste and wood residues, plants, including aquatic 
plants and grasses, fibers, animal waste and other waste materials, 
fats, oils, greases, including recycled fats, oils and greases. It does 
not include paper that is commonly recycled or unsegregated solid waste.
    Borrower. All parties liable for the loan except for guarantors.
    Commercially available. Energy projects utilizing technology that 
has a proven operating history, and for which there is an established 
industry for the design, installation, and service (including spare 
parts) of the equipment.
    Conditional Commitment (Business and Industry). Form RD 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.
    Energy projects. Commercially available projects that produce or 
distribute energy or power and/or produce biomass or biogas fuel. 
Commercially available energy projects that utilize technology that has 
a proven operating history, and for which there is an established 
industry for the design, installation, and service (including spare 
parts) of the equipment.
    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.
    Farmer's 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 the use of Form RD 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.
    Lender. The organization making, servicing, and collecting the loan 
which is guaranteed under the provision of the appropriate subpart.
    Lender's Agreement (Business and Industry). Form RD 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

[[Page 699]]

loan and the responsibilities of the borrower and lender.
    Loan Note Guarantee (Business and Industry). Form RD 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.
    Qualified Intellectual Property. Trademarks, patents or copyrights 
included on current (within one year) audited balance sheets for which 
an audit opinion has been received that states the financial reports 
fairly represent the values therein and the reported value has been 
arrived at in accordance with GAAP standards for valuing intellectual 
property. The supporting work papers must be satisfactory to the 
Administrator.
    Refinancing loan. A loan, all of the proceeds of which are applied 
to extinguish the entire balance of an outstanding debt.
    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.
    Subordinated owner debt. Debt owed by the borrower to one or more of 
the owner(s) that is subordinated to debt owed by the borrower to the 
Agency or guaranteed by the Agency (aggregate B&I loan exposure) 
pursuant to a subordination agreement satisfactory to the Agency. The 
debt must have been issued in exchange for cash loaned to the borrower 
for the benefit of the borrower's business. The terms of the 
subordination agreement must provide that repayment will not commence 
until the earlier of the date all aggregate B&I loan exposure has been 
repaid or when a period of three consecutive years has passed during 
which the borrower has met all loan covenants and evidenced operating 
profit sufficient to commence partial repayment of this subordinated 
debt after giving effect to the annual debt service requirements of the 
aggregate B&I loan exposure. The partial repayment schedule in the case 
of the latter scenario is subject to

[[Page 700]]

annual Agency concurrence and may not be more accelerated than the rate 
of the debt repayment schedule in effect for the Agency's aggregate B&I 
loan exposure.
    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.
    Tangible balance sheet equity. Total equity less the value of 
intangible assets recorded on the financial statements, as determined 
from balance sheets prepared in accordance with generally accepted 
accounting principles (GAAP), plus qualified intellectual property.
    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 Lenders 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

    (c) Accounting terms not otherwise defined in this part shall have 
the definition ascribed to them under GAAP.

[71 FR 33187, June 8, 2006]



Sec. Sec. 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.



Sec. Sec. 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:

[[Page 701]]

    (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 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.

[[Page 702]]

    (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.



Sec. Sec. 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 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

[[Page 703]]

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 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

[[Page 704]]

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.
    (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

[[Page 705]]

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.



Sec. Sec. 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 Analysis'' are met and will 
complete the appropriate level of review in accordance with that 
instruction.



Sec. Sec. 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:

[[Page 706]]

    (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 rata share thereof, determined according to its 
respective interest in the loan, less only the lender's servicing fee.



Sec. Sec. 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:

[[Page 707]]

    (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 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

[[Page 708]]

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 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.



Sec. Sec. 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

[[Page 709]]

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 be replaced before the 
Agency will replace any instruments.



Sec. Sec. 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.



Sec. Sec. 4279.103  Exception authority.

    Section 4279.15 of subpart A of this part applies to this subpart.

[[Page 710]]



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 fees.

    For all new loans there are two types of non-refundable guarantee 
fees to be paid by the lender. The fees may be passed on to the 
borrower. The fees may be forwarded to the Agency through an electronic 
funds transfer system or, at the Agency's discretion, by a check payable 
to USDA using a USDA-approved form.
    (a) Initial guarantee fee. The initial fee is paid at the time the 
Loan Note Guarantee is issued. The fee may be included as an eligible 
loan purpose in the guaranteed loan. The fee will be the rate (a 
specified percentage not to exceed 2 percent) multiplied by the 
principal loan amount, multiplied by the percent of guarantee. Subject 
to specified annual limits set by the Agency, the initial guarantee fee 
may be reduced to 1 percent if the borrower's business supports value-
added agriculture and results in farmers benefiting financially, or
    (1) Is a high impact business development investment in accordance 
with Sec. 4279.155(b)(5), and
    (2) Is located in a rural community that:
    (i) Is experiencing long-term population decline and job 
deterioration, or
    (ii) Has remained persistently poor over the last 60 years, or
    (iii) Is experiencing trauma as a result of natural disaster, or
    (iv) Is experiencing fundamental structural changes in its economic 
base.
    (b) Annual renewal fee. The annual renewal fee is paid once a year 
and is required to maintain the enforceability of the guarantee as to 
the lender.
    (1) The rate of the annual renewal fee (a specified percentage) is 
established by Rural Development in an annual notice published in the 
Federal Register, multiplied by the outstanding principal loan balance 
as of December 31 of each year, multiplied by the percent of guarantee. 
The rate is the rate in effect at the time the loan is obligated, and 
will remain in effect for the life of the loan.
    (2) Annual renewal fees are due on January 31. Payments not received 
by April 1 are considered delinquent and, at the Agency's discretion, 
may result in cancellation of the guarantee to the lender. Holders' 
rights will continue in effect as specified in the Loan Note Guarantee 
and Assignment Guarantee Agreement. Any delinquent annual renewal fees 
will bear interest at the note rate and will be deducted from any loss 
payment due the lender. For loans where the Loan Note Guarantee is 
issued between October 1 and December 31, the first annual renewal fee 
payment will be due January 31 of the second year following the date the 
Loan Note Guarantee was issued.

[70 FR 57486, Oct. 3, 2005]



Sec. 4279.108  Eligible borrowers.

    (a) Type of entity. A borrower may be a cooperative organization, 
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 cooperative organization is a cooperative or an 
entity, not chartered as a cooperative, that operates as a cooperative 
in that it is owned and operated for the benefit of its members, 
including the manner in which it distributes its dividends and assets. 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 and other 
renewable energy systems (including wind energy systems, geothermal 
energy systems, and anaerobic digesters for the purpose of energy 
generation).
    (b) Citizenship. Individual borrowers must be citizens of the United 
States

[[Page 711]]

(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, except for cooperative organizations 
financed in accordance with paragraph (d)(3) of this section. Loans to 
borrowers with facilities located in both rural and non-rural areas will 
be limited to the amount necessary to finance the facility in the 
eligible rural area, except for cooperative organizations financed in 
accordance with paragraph (d)(3) of this section. 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) Loans to cooperative organizations. (1) B&I loans to eligible 
cooperative organizations may be made in principal amounts up to $40 
million if the project is located in a rural area, the cooperative 
facility being financed provides for the value-added processing of 
agricultural commodities, and the total amount of loans exceeding $25 
million does not exceed 10 percent of the funds available for the fiscal 
year.
    (2) Cooperative organizations that are headquartered in a non-rural 
area may be eligible for a B&I loan if the loan is used for a project or 
venture that is located in a rural area.
    (3) B&I loans to eligible cooperative organizations may also be made 
in non-rural areas provided:
    (i) The primary purpose of the loan is for a facility to provide 
value-added processing for agricultural producers that are located 
within 80 miles of the facility;
    (ii) The applicant satisfactorily demonstrates that the primary 
benefit of the loan will be to provide employment for rural residents;
    (iii) The principal amount of the loan does not exceed $25 million; 
and
    (iv) The total amount of loans guaranteed under this section does 
not exceed 10 percent of the funds available for the fiscal year.
    (4) An eligible cooperative organization may refinance an existing 
B&I loan provided that the existing loan is current and performing, the 
existing loan is not and has not been in payment default (more than 30 
days late) or the collateral of which has not been converted, and there 
is adequate security or full collateral for the new B&I loan.
    (e) 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; 
69 FR 64830, Nov. 9, 2004]



Sec. Sec. 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.

[[Page 712]]

    (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.
    (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.
    (j) Purchase of cooperative stock by individual farmers or ranchers 
in a farmer or rancher cooperative established for the purpose of 
processing an agricultural commodity.
    (1) The cooperative may contract for services to process 
agricultural commodities or otherwise process value-added agricultural 
products during the 5-year period beginning on the operation startup 
date of the cooperative in order to provide adequate time for the 
planning and construction of the processing facility of the cooperative.
    (2) Notwithstanding Sec. Sec. 4279.131(d) and 4279.137, the 
individual farmer or rancher may provide financial information in the 
manner that is generally required by commercial agricultural lenders in 
order to obtain a loan.
    (k) Aquaculture, including conservation, development, and 
utilization of water for aquaculture.
    (l) Commercial fishing.
    (m) 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.
    (n) Forestry, which includes businesses primarily engaged in the 
operation of timber tracts, tree farms, and forest nurseries and related 
activities such as reforestation.
    (o) The growing of mushrooms or hydroponics.
    (p) 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.
    (q) Feasibility studies.
    (r) 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. Except as provided for in Sec. 
4279.108(d)(4) of this subpart, existing lender debt may be included 
provided that, at the time of the 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) and the lender is providing better 
rates or terms. Subordinated owner debt is not eligible under this 
paragraph. Unless the amount to be refinanced is owed directly to the 
Federal government or is Federally guaranteed, the refinancing must be a 
secondary part (less than 50 percent) of the overall loan.
    (s) 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.
    (t) Fees and charges for professional services and routine lender 
fees.
    (u) Agency guarantee fee.
    (v) Tourist and recreation facilities, including hotels, motels, and 
bed and breakfast establishments, except as prohibited under ineligible 
purposes.
    (w) Educational or training facilities.
    (x) Community facility projects which are not listed as an 
ineligible loan purpose such as convention centers.

[[Page 713]]

    (y) Constructing or equipping facilities for lease to private 
businesses engaged in commercial or industrial operations.
    (z) 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.
    (aa) Community antenna television services or facilities.
    (bb) Provide loan guarantees to assist industries adjusting to 
terminated Federal agricultural programs or increased foreign 
competition.
    (cc) To finance energy projects. Commercially available energy 
projects that produce biomass fuel or biogas as an output must have 
completed two operating cycles at design performance levels submitted to 
the Agency. Projects that produce steam or electricity as an output must 
have met or exceeded acceptance test performance criteria submitted to 
the Agency and be successfully interconnected with the purchaser of the 
output. Performance or acceptance test requirements for all other energy 
projects will be determined by the Agency on a case by case basis. 
Financing for energy projects will only be allowed when the facility has 
been constructed according to plans and specifications and is producing 
at the quality and quantity projected in the application.

[61 FR 67633, Dec. 23, 1996, as amended at 69 FR 64831, Nov. 9, 2004; 71 
FR 33189, June 8, 2006]



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.
    (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

[[Page 714]]

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.



Sec. Sec. 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, except as outlined in 
paragraphs (a)(1) and (2) of this section.
    (1) The Administrator may, at the Administrator's discretion, grant 
an exception to the $10 million limit for loans of $25 million or less 
under the following circumstances:
    (i) 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;
    (ii) 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;
    (iii) 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
    (iv) 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.
    (2) The Secretary, whose authority may not be redelegated, may 
approve guaranteed loans in excess of $25 million, at the Secretary's 
discretion, for rural cooperative organizations that process value-added 
agricultural commodities in accordance with Sec. 4279.108(d)(1) of this 
subpart.
    (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 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.

[61 FR 67633, Dec. 23, 1996, as amended at 69 FR 64831, Nov. 9, 2004]

[[Page 715]]



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.



Sec. Sec. 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 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.

[[Page 716]]



Sec. Sec. 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. (1) A minimum of 10 percent tangible balance sheet 
equity will be required for existing businesses at loan closing. A 
minimum of 20 percent tangible balance sheet equity will be required for 
new businesses at loan closing. For energy projects, the minimum 
tangible balance sheet equity requirement range will be between 25 
percent and 40 percent. Criteria for considering the minimum equity 
required for an individual application will be based on: existing 
businesses with successful financial and management history vs. start-up 
businesses; personal/corporate guarantees offered; contractual 
relationships with suppliers and buyers; credit rating; and strength of 
the business plan/feasibility study. Where the application is a request 
to refinance outstanding Federal direct or guaranteed loans, without any 
new financing, the equity requirement may be determined using adjusted 
tangible net worth. An application that combines a refinancing guarantee 
request with a new loan guarantee request is subject to the standard, 
unadjusted, equity requirement except as provided in paragraphs 
(d)(1)(i) or (d)(1)(ii) of this section. Increases or decreases in the 
equity requirements may be imposed or granted as follows:
    (i) A reduction in the equity requirement for existing businesses 
may be permitted by the Administrator. In order for a reduction to be 
considered, the borrower must furnish the following:
    (A) Collateralized personal and corporate guarantees, including any 
parent, subsidiary, or affiliated company, when feasible and legally 
permissible (in accordance with Sec. 4279.149 of this subpart), and
    (B) Pro forma and historical financial statements that indicate the 
business to be financed meets or exceeds the median quartile (as 
identified in the Risk Management Association's Annual Statement Studies 
or similar publication) for the current ratio, quick ratio, debt-to-
worth ratio, debt coverage ratio, and working capital.
    (ii) The approval official may require more than the minimum equity 
requirements provided in this paragraph if the official makes a written 
determination that special circumstances necessitate this course of 
action.
    (2) The equity requirement must be met in the form of either cash or 
tangible earning assets contributed to the business and reflected on the 
balance sheet.
    (3) The lender must certify that the equity requirement was 
determined using balance sheets prepared in accordance with GAAP and met 
upon giving effect to the entirety of the loan in the calculation, 
whether or not the loan itself is fully advanced, as of the date the 
guaranteed loan is closed.
    (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.

[[Page 717]]

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.

[61 FR 67633, Dec. 23, 1996, as amended at 71 FR 33189, June 8, 2006]



Sec. Sec. 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.



Sec. Sec. 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). In accordance 
with USPAP, the Agency will require documentation that the appraiser has 
the necessary experience and competency to appraise the property in 
question. 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 ``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.

[69 FR 64831, Nov. 9, 2004]

[[Page 718]]



Sec. Sec. 4279.145-4279.148  [Reserved]



Sec. 4279.149  Personal and corporate guarantee.

    (a) Unconditional personal and corporate guarantees are part of the 
collateral for the loan, but are not considered in determining whether a 
loan is adequately secured for loanmaking purposes. Agency approved 
personal and corporate guarantees for the full term of the loan and at 
least equal to the guarantor's percent interest in the borrower, times 
the loan amount are required from those owning greater than a 20 percent 
interest in the borrower, unless the lender documents to the Agency's 
satisfaction that collateral, equity, cashflow, and profitability 
indicate an above-average ability to repay the loan. The guarantors will 
execute an Agency approved unconditional guarantee form. When warranted 
by an Agency assessment of potential financial risk, Agency approved 
guarantees may also be required of parent, subsidiaries, or affiliated 
companies (owning less than a 20 percent interest in the borrower) and 
require security for any guarantee provided under this section.
    (b) Exceptions to the requirement for personal guarantees must be 
requested by the lender and concurred by the Agency approval official on 
a case-by-case basis. The lender must document that collateral, equity, 
cashflow, and profitability indicate an above-average ability to repay 
the loan.

[71 FR 67033, Nov. 20, 2006]



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.



Sec. Sec. 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).

[[Page 719]]

    (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 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.

[[Page 720]]



Sec. Sec. 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 lender has agreed to finance the 
proposal. Guaranteed loans of $600,000 and less may be processed under 
paragraph (b) or (c) of this section, but guaranteed loans exceeding 
$600,000 must be processed under paragraph (b) of this section.
    (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

[[Page 721]]

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 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.
    (c) Applications of $600,000 and less. Guaranteed loan applications 
may be processed under this paragraph if the request does not exceed 
$400,000. Beginning in fiscal year 2004, this limit may be increased on 
a case-by-case basis to $600,000 provided that the Agency determines 
that there is not a significant

[[Page 722]]

increased risk of a default on the loan. Applications may be resubmitted 
under paragraph (b) of this section when the application under this 
paragraph contains insufficient information for the Agency to guarantee 
the loan. Applications submitted under this paragraph must use the 
Agency's short application form and include the information contained in 
paragraphs (b)(3), (5), (7), (8), and (11) of this section. The lender 
must have the documentation identified in paragraph (b) of this section, 
with the exception of paragraphs (b)(1), (2), (14), and (15), available 
in its file for review.

[61 FR 67633, Dec. 23, 1996, as amended at 69 FR 64831, Nov. 9, 2004]



Sec. Sec. 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 issuance of the Conditional Commitment, loan 
approval, or obligation of funds, whichever occurs first.



Sec. Sec. 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]



Sec. Sec. 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.

[[Page 723]]



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 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.



Sec. Sec. 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

[[Page 724]]

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.



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.



Sec. Sec. 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 4280_LOANS AND GRANTS--Table of Contents




Subpart A [Reserved]

 Subpart B_Renewable Energy Systems and Energy Efficiency Improvements 
                                 Program

Sec.
4280.101 Purpose.
4280.102 General.
4280.103 Definitions.
4280.104 Exception authority.
4280.105 Appeals.
4280.106 Conflict of interest.
4280.107 Applicant eligibility.
4280.108 Project eligibility.

                            Section A. Grants

4280.109 Qualification for simplified applications.
4280.110 Grant funding.
4280.111 Application and documentation.
4280.112 Evaluation of grant applications.
4280.113 Insurance requirements.
4280.114 Laws that contain other compliance requirements.
4280.115 Construction planning and performing development.
4280.116 Grantee requirements.
4280.117 Servicing grants.
4280.118-4280.120 [Reserved]

                       Section B. Guaranteed Loans

4280.121 Borrower eligibility.
4280.122 Project eligibility.
4280.123 Guaranteed loan funding.
4280.124 Interest rates.

[[Page 725]]

4280.125 Terms of loan.
4280.126 Guarantee/annual renewal fee percentages.
4280.127 [Reserved]
4280.128 Application and documentation.
4280.129 Evaluation of guaranteed loan applications.
4280.130 Eligible lenders.
4280.131 Lender's functions and responsibilities.
4280.132 Access to records.
4280.133 Conditions of guarantee.
4280.134 Sale or assignment of guaranteed loan.
4280.135 Participation.
4280.136 Minimum retention.
4280.137 Repurchase from holder.
4280.138 Replacement of document.
4280.139 Credit quality.
4280.140 Financial statements.
4280.141 Appraisals.
4280.142 Personal and corporate guarantees.
4280.143 Loan approval and obligation of funds.
4280.144 Transfer of lenders.
4280.145 Changes in borrower.
4280.146 Conditions precedent to issuance of Loan Note Guarantee.
4280.147 Issuance of the guarantee.
4280.148 Refusal to execute Loan Note Guarantee.
4280.149 Requirements after project construction.
4280.150 Insurance requirements.
4280.151 Laws that contain other compliance requirements.
4280.152 Servicing guaranteed loans.
4280.153 Substitution of lender.
4280.154 Default by borrower.
4280.155 Protective advances.
4280.156 Liquidation.
4280.157 Determination of loss and payment.
4280.158 Future recovery.
4280.159 Bankruptcy.
4280.160 Termination of guarantee.

                         Section C. Direct Loans

4280.161 Direct loan process.
4280.162-4280.192 [Reserved]

                       Section D. Combined Funding

4280.193 Combined funding.
4280.194-4280.199 [Reserved]
4280.200 OMB control number.

Appendix A to Part 4280--Technical Reports for Projects with Total 
          Eligible Project Costs of $200,000 or Less
Appendix B to Part 4280--Technical Reports for Projects with Total 
          Eligible Project Costs of Greater than $200,000

    Source: 70 FR 41303, July 18, 2005, unless otherwise noted.

Subpart A [Reserved]



 Subpart B_Renewable Energy Systems and Energy Efficiency Improvements 
                                 Program



Sec. 4280.101  Purpose.

    (a) The purpose of this subpart is to provide financial assistance 
to agricultural producers and rural small businesses for the purpose of 
purchasing and installing renewable energy systems and energy efficiency 
improvements in rural areas. Financial assistance to any single entity 
may be provided as a direct loan, guaranteed loan or grant, or a 
combination of a loan and grant. This subpart contains the procedures 
and requirements for providing such financial assistance.
    (b) The Agency will allocate funds between the direct, guaranteed, 
and grant programs each year, including any other terms such as the 
transfer of funds between these allocations.



Sec. 4280.102  General.

    (a) Sections 4280.103 through 4280.106 discuss definitions, 
exception authority, appeals, and conflict of interest, which are 
applicable to all of the funding programs under this subpart.
    (b) Eligibility is discussed in terms of both applicants and 
projects. Section 4280.107 contains the eligibility requirements for 
applicants and Sec. 4280.108 contains the eligibility requirements for 
projects.
    (c) Section A, Sec. Sec. 4280.109 through 4280.117, discusses 
grants. Section 4280.109 discusses the circumstances under which an 
applicant may qualify to submit a simplified application for a grant. 
Sections 4280.110 through 4280.114 address grant funding, grant 
application procedures, required documentation, the evaluation process, 
and post-grant Federal requirements for both the simplified and full 
application processes. Sections 4280.115 through 4280.117 address 
project planning, development, and completion as related to grant 
servicing.
    (d) Section B, Sec. Sec. 4280.121 through 4280.160, discusses 
guaranteed loans. Sections 4280.121 through 4280.126 discuss procedures 
and requirements for

[[Page 726]]

making and processing loans guaranteed by the Agency. Section 4280.128 
addresses the application and documentation requirements, separating the 
requirements for loans over $600,000 and for loans of $600,000 or less. 
Section 4280.129 addresses the evaluation of guaranteed loan 
applications. Sections 4280.130 through 4280.160 provide guaranteed loan 
origination and servicing requirements. These requirements apply to 
lenders, holders, and other parties involved in making, guaranteeing, 
holding, servicing, or liquidating such loans.
    (e) Section D presents the process by which the Agency will make 
direct loans.
    (f) Section E presents the process by which the Agency will make 
combined loan and grant funding available.
    (g) Appendix A contains the Technical Report requirements for 
projects with total eligible project costs of $200,000 or less and 
Appendix B contains the Technical Report requirements for projects with 
total eligible project costs greater than $200,000.



Sec. 4280.103  Definitions.

    Terms used in this subpart are defined in either Sec. 4279.2 of 
this chapter or in this section. If a term is defined in both Sec. 
4279.2 and this section, it will have, for purposes of this subpart 
only, the meaning given in this section.
    Agency. The Rural Business-Cooperative Service or successor Agency 
assigned by the Secretary of Agriculture to administer the 9006 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.
    Agricultural producer. An individual or entity directly engaged in 
the production of agricultural products, including crops (including 
farming); livestock (including ranching); forestry products; 
hydroponics; nursery stock; or aquaculture, whereby 50 percent or 
greater of their gross income is derived from the operations.
    Anaerobic digester project. A renewable energy system that uses 
animal waste and other organic substrates to produce thermal or 
electrical energy via anaerobic digestion.
    Annual receipts. The total income or gross income (sole 
proprietorship) plus cost of goods sold.
    Applicant. The agricultural producer or rural small business that is 
seeking a grant, guaranteed loan, or direct loan, or a combination of a 
grant and loan, under this subpart.
    Assignment guarantee agreement (Form RD 4279-6) or successor form. A 
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.
    Bioenergy project. A renewable energy system that produces fuel, 
thermal energy, or electric power from a biomass source, other than an 
anaerobic digester project.
    Biogas. Biomass converted to gaseous fuels.
    Biomass. Any organic material that is available on a renewable or 
recurring basis, including agricultural crops; trees grown for energy 
production; wood waste and wood residues; plants, including aquatic 
plants and grasses; fibers; animal waste and other waste materials; and 
fats, oils, and greases, including recycled fats, oils, and greases. It 
does not include paper that is commonly recycled or unsegregated solid 
waste.
    Borrower. Any party or parties liable for a direct or guaranteed 
loan made under this subpart except guarantors.
    Capacity. The maximum load that an apparatus or heating unit is able 
to meet on a sustained basis as rated by the manufacturer.
    Commercially available. A system that has a proven operating history 
specific to the proposed application. Such a system is based on 
established design, and installation procedures and practices. 
Professional service providers, trades, large construction equipment 
providers, and labor are familiar with installation procedures and 
practices. Proprietary and balance of system equipment and spare parts 
are readily available. Service is readily available to properly maintain 
and operate the system. An established warranty exists for parts, labor, 
and performance.
    Conditional Commitment (Form RD 4279-3) or successor form. Agency 
notice to the lender that the loan guarantee is approved subject to the 
completion of

[[Page 727]]

all conditions and requirements set forth by the Agency.
    Default. The condition where a borrower or grantee is not in 
compliance with one or more loan covenants or grant conditions as 
stipulated in the Letter of Conditions, Conditional Commitment, or Loan 
or Grant Agreement.
    Delinquent loan. A loan for which a scheduled loan payment has not 
been received by the due date or within any grace period as stipulated 
in the promissory note and loan agreement.
    Demonstrated financial need. The demonstration by an applicant that 
the applicant is unable to finance the project from its own and 
commercially available resources without grant assistance, or that the 
project proposed by the applicant cannot achieve the income and 
cashflows to sustain it financially over the long term without grant 
assistance.
    Design/build method. A method of project development whereby all 
design, engineering, procurement, construction, and other related 
project activities are performed under a single contract. The prime 
contractor is solely responsible and accountable for successful delivery 
of the project to the owner.
    Eligible project costs. The total project costs that are eligible to 
be paid with program funds.
    Energy assessment. A report conducted by an experienced energy 
assessor, certified energy manager or professional engineer assessing 
energy cost and efficiency by analyzing energy bills and briefly 
surveying the target building, machinery, or system. The report 
identifies and provides a savings and cost analysis of low-cost/no-cost 
measures. The report will estimate the overall costs and expected energy 
savings from these improvements, and dollars saved per year. The report 
will estimate weighted-average payback period in years.
    Energy assessor. An individual or entity that conducts an energy 
assessment.
    Energy audit. A report conducted by a Certified Energy Manager or 
Professional Engineer that focuses on potential capital-intensive 
projects and involves detailed gathering of field data and engineering 
analysis. The report will provide detailed project costs and savings 
information with a high level of confidence sufficient for major capital 
investment decisions. It will estimate costs, expected energy savings 
from the subject improvements, and dollars saved per year. The report 
will estimate weighted-average payback period in years.
    Energy auditor. An individual or entity that conducts an energy 
audit.
    Energy efficiency improvement. Improvements to a facility, building, 
or process that reduces energy consumption, or reduces energy consumed 
per square foot.
    Existing business. A business that has completed at least one full 
business cycle.
    Fair market value of equity in real property. Fair market value of 
real property, as established by appraisal, less the outstanding balance 
of any mortgages, liens, or encumbrances.
    Feasibility study. An analysis of the economic, market, technical, 
financial, and management feasibility of a proposed project or business.
    Financial feasibility. The ability of a project or business to 
achieve the income, credit, and cashflows to financially sustain a 
project over the long term. The concept of financial feasibility 
includes assessments of the cost-accounting system, the availability of 
short-term credit for seasonal businesses, and the adequacy of raw 
materials and supplies.
    Geothermal, direct use. A system that uses thermal energy directly 
from a geothermal source.
    Geothermal, electric generation. A system that uses geothermal 
energy to produce high pressure steam for electric power production.
    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 the use of Form RD 4279-6.
    Hydrogen project. A renewable energy system that produces hydrogen 
or, a renewable energy system that uses mechanical or electric power or 
thermal

[[Page 728]]

energy from a renewable resource using hydrogen as an energy transport 
medium.
    In-kind contributions. Applicant or third-party real or personal 
property or services benefiting the Federally assisted project or 
program that are contributed by the applicant or a third-party entity. 
The identifiable value of goods and services must directly benefit the 
project.
    Interconnection agreement. The terms and conditions governing the 
interconnection and parallel operation of the grantee's or borrower's 
electric generation equipment and the utility's electric power system.
    Interim financing. A temporary or short-term loan made with the 
clear intent that it will be repaid through another loan, cash, or other 
financing mechanism. 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.
    Large solar, electric. Large solar electric systems are those for 
which the rated power of the system is larger than 10 kilowatts (kW). 
Large solar electric systems are either stand-alone (off grid) or 
interconnected to the grid (on grid).
    Large solar, thermal. Large solar thermal systems are those for 
which the rated storage volume of the system is greater than 240 gallons 
or that have a collector area of more than 1,000 square feet.
    Large wind system. A wind energy project for which the rated power 
of the individual wind turbine(s) is larger than 100kW.
    Lender. The organization making, servicing, and collecting the loan 
that is guaranteed under the provisions of this subpart.
    Lender's agreement (Form RD 4279-4) or successor form. Agreement 
between the Agency and the lender setting forth the lender's loan 
responsibilities.
    Loan Note Guarantee (Form RD 4279-5) or successor 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 discounted collateral pledged as security for the 
loan.
    Matching funds. The funds needed to pay for the portion of the 
eligible project costs not funded or guaranteed by the Agency through a 
grant, direct loan, or guaranteed loan under this program. Unless 
authorized by statute, matching funds cannot include grants from any 
Federal grant program.
    Necessary capital improvement. A capital improvement required to 
keep an existing system in compliance with regulations or to maintain 
technical or operational feasibility.
    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 is affected on a pro rata basis.
    Participation. The sale of 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.
    Passive investor. An equity investor that does not actively 
participate in management and operation decisions of the business entity 
as evidenced by a contractual arrangement.
    Post-application. The date that the Agency receives an essentially 
completed application. An ``essentially completed'' application is an 
application that contains all parts necessary for the Department of 
Agriculture (USDA) to determine applicant and project eligibility, to 
score the application, and to conduct the technical evaluation.
    Power purchase arrangement. The terms and conditions governing the 
sale and transportation of electricity produced by the grantee or 
borrower to another party.
    Pre-commercial technology. Technology that has emerged through the 
research and development process and has technical and economic 
potential for commercial application, but is not yet commercially 
available.
    Promissory Note. Evidence of debt. A note that a borrower signs 
promising to pay a specific amount of money at a stated time or on 
demand.
    Qualified consultant. A third-party entity possessing the knowledge, 
expertise, and experience to perform in an efficient, effective, and 
authoritative manner the specific task required.

[[Page 729]]

    Qualified party. An entity possessing the knowledge, expertise, and 
experience to perform a specific task.
    Renewable energy. Energy derived from a wind, solar, biomass, or 
geothermal source; or hydrogen derived from biomass or water using wind, 
solar, biomass, or geothermal energy sources.
    Renewable energy system. A system that produces or produces and 
delivers usable energy from a renewable energy source.
    Rural. Any area other than a city or town that has a population of 
greater than 50,000 inhabitants and the urbanized area contiguous and 
adjacent to such a city or town according to the latest decennial census 
of the United States.
    Simplified application. An application that conforms to the criteria 
and procedures specified in Sec. 4280.109.
    Small business. An entity is considered a small business in 
accordance with the Small Business Administration's (SBA) small business 
size standards by the North American Industry Classification System 
(NAICS) found in Title 13 CFR part 121. A private entity, including a 
sole proprietorship, partnership, corporation, cooperative (including a 
cooperative qualified under section 501(c)(12) of the Internal Revenue 
Code), and an electric utility, including a Tribal or governmental 
electric utility, that provides service to rural consumers on a cost-of-
service basis without support from public funds or subsidy from the 
Government authority establishing the district, provided such utilities 
meet SBA's definition of small business. These entities must operate 
independent of direct Government control. With the exception of the 
entities described above, all other non-profit entities are excluded.
    Small solar, electric. Small solar electric projects are those for 
which the rated power of the system is 10kW or smaller. Small solar 
electric projects are either stand-alone (off grid) or interconnected to 
the grid at less than 600 volts (on grid).
    Small solar, thermal. Small solar thermal projects are those for 
which the rated storage volume of the system is 240 gallons or smaller 
or that have a collector area of 1,000 square feet or less.
    Small wind system. Wind energy system for which the rated power of 
the wind turbine is 100kW or smaller and with a generator hub height of 
120 feet or less. A small wind system is either stand-alone or connected 
to the local electrical system at less than 600 volts.
    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 sheets and income 
statements and may include cashflow 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 
District of Columbia, 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.
    Total project cost. The sum of all costs associated with a completed 
project.
    Used equipment. Any equipment that has been used in any previous 
application and is provided in an ``as is'' condition.
    Very small business. A business with fewer than 15 employees and 
less than $1 million in annual receipts.



Sec. 4280.104  Exception authority.

    The Administrator may, on a case-by-case basis, make an exception to 
any requirement or provision of this subpart that is not inconsistent 
with any authorizing statute or applicable law, if the Administrator 
determines that application of the requirement or provision would 
adversely affect the USDA's interest.



Sec. 4280.105  Appeals.

    Only the grantee, 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

[[Page 730]]

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. An adverse decision regarding 
a grant or direct loan application may be appealed by the applicant 
only. Appeals will be handled in accordance with 7 CFR part 11 of this 
title. 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.



Sec. 4280.106  Conflict of interest.

    No conflict of interest or appearance of conflict of interest will 
be allowed. For purposes of this subpart, conflict of interest includes, 
but is not limited to, distribution or payment of grant, loan, and 
guaranteed loan funds or award of project contracts to an individual 
owner, partner, stockholder, or beneficiary of the applicant or borrower 
or a close relative of such an individual when such individual will 
retain any portion of the ownership of the applicant or borrower.



Sec. 4280.107  Applicant eligibility.

    (a) To receive a grant or loan under this subpart, an applicant must 
meet each of the criteria, as applicable, as set forth in paragraphs 
(a)(1) through (5) of this section.
    (1) The applicant must be an agricultural producer or rural small 
business.
    (2) Individuals must be citizens of the United States (U.S.) or 
reside in the U.S. after being legally admitted for permanent residence.
    (3) Entities must be at least 51 percent owned, directly or 
indirectly, by individuals who are either citizens of the U.S. or reside 
in the U.S. after being legally admitted for permanent residence.
    (4) Applicants and owners will be ineligible to receive funds under 
this subpart as discussed in paragraphs (a)(4)(i) and (ii) of this 
section.
    (i) If an applicant or owner has an outstanding judgment obtained by 
the U.S. in a Federal Court (other than in the United States Tax Court), 
is delinquent in the payment of Federal income taxes, or is delinquent 
on a Federal debt, the applicant is not eligible to receive a grant, 
direct loan, or guaranteed loan until the judgment is paid in full or 
otherwise satisfied or the delinquency is resolved.
    (ii) If an applicant has been debarred from receiving Federal 
assistance, the applicant is not eligible to receive a grant, direct 
loan, or guaranteed loan under this subpart.
    (5) A grant applicant must have demonstrated financial need.
    (b) An applicant that has received one or more grants and/or loans 
under this program must make satisfactory progress, as determined by the 
Agency, toward completion of any previously funded projects before it 
will be considered for subsequent funding.



Sec. 4280.108  Project eligibility.

    For a renewable energy system or energy efficiency improvement 
project to be eligible to receive a grant or loan under this subpart, 
the proposed project must meet each of the criteria, as applicable, in 
paragraphs (a) through (g) of this section.
    (a) The project must be for the purchase of a renewable energy 
system or to make energy efficiency improvements.
    (b) The project must be for a pre-commercial or commercially 
available, and replicable technology.
    (c) The project must have technical merit, as determined using the 
procedures specified in Sec. 4280.112(d).
    (d) The project must be located in a rural area, as defined in Sec. 
4280.103.
    (e) The applicant must be the owner of the project and control the 
revenues and expenses of the project, including operation and 
maintenance. A third-party under contract to the owner may be used to 
control revenues and expenses and manage the operation and/or 
maintenance of the project.
    (f) Sites must be controlled by the agricultural producer or small 
business for the financing term of any associated Federal loans or loan 
guarantees.
    (g) Satisfactory sources of revenue in an amount sufficient to 
provide for the operation, management, maintenance, and debt service of 
the project must be available for the life of the project.

[[Page 731]]

                            Section A. Grants



Sec. 4280.109  Qualification for simplified applications.

    When applying for a grant, applicants may qualify for the simplified 
application process. In order to use the simplified application process, 
each of the conditions specified in paragraphs (a)(1) through (8) of 
this section must be met.
    (a) Simplified application criteria. (1) The applicant must be 
eligible in accordance with Sec. 4280.107.
    (2) The project must be eligible in accordance with Sec. 4280.108.
    (3) Total eligible project costs must be $200,000 or less.
    (4) The proposed project must use commercially available renewable 
energy systems or energy efficiency improvements.
    (5) Construction planning and performing development must be 
performed in compliance with Sec. 4280.115. The applicant or the 
applicant's prime contractor must assume all risks and responsibilities 
of project development.
    (6) The applicant or the applicant's prime contractor is responsible 
for all interim financing.
    (7) The proposed project is scheduled to be completed within 24 
months after entering into a grant agreement. The Agency may extend this 
period if the Agency determines, at its sole discretion, that the 
applicant is unable to complete the project for reasons beyond the 
applicant's control.
    (8) The applicant agrees not to request reimbursement from funds 
obligated under this program until after project completion, including 
all operational testing and certifications acceptable to the Agency.
    (b) Application processing and administration--(1) Application 
documents. Application documents shall be submitted in accordance with 
Sec. 4280.111 or, if applying for a combined grant and loan, also in 
accordance with Sec. 4280.193(c).
    (2) Demonstrated financial need. The applicant must certify that it 
meets the definition of demonstrated financial need, as defined in Sec. 
4280.103. The Agency may require the applicant to provide supplemental 
information that will allow the Agency to make its own determination of 
the applicant's financial need.
    (3) Project development. Section 4280.115 applies, except as 
follows:
    (i) Any grantee may participate in project development without 
direct compensation subject to the approval in writing by the prime 
contractor, provided that all applicable construction practices, 
manufacturer instructions, and all safety codes and standards are 
followed during construction and testing, and the work product meets all 
applicable manufacture specifications, and all applicable codes and 
standards. The prime contractor remains responsible for all the overall 
successful completion of the project, including any work done by the 
grantee, or
    (ii) A grantee who can demonstrate to the Agency that the grantee 
has the necessary experience and other resources to successfully 
complete the project may serve as the prime contractor/installer. 
Projects where the grantee serves as the prime contractor will need to 
secure the services of an independent, professionally responsible, 
qualified consultant to certify testing specifications, procedures, and 
testing results.
    (4) Project completion. The project is complete when the applicant 
has provided a written final project development, testing, and 
performance report acceptable to the Agency. Upon notification of 
receipt of an acceptable project completion report, the applicant may 
request grant reimbursement. The Agency reserves the right to observe 
the testing.
    (5) Insurance. Section 4280.113 applies, except business 
interruption insurance is not required.



Sec. 4280.110  Grant funding.

    (a) The amount of grant funds that will be made available to an 
eligible project under this subpart will not exceed 25 percent of total 
eligible project costs. Eligible project costs are specified in 
paragraph (c) of this section.
    (b) The applicant is responsible in securing the remainder of the 
total eligible project costs not covered by grant funds. The amount 
secured by the applicant must be the remainder of total eligible project 
costs.

[[Page 732]]

    (1) Without specific statutory authority, other Federal grant funds 
and applicant in-kind contributions cannot be used to meet the matching 
fund requirement. Third-party, in-kind contributions are limited to 10 
percent of the matching fund requirement of the grant. The Agency will 
advise if the proposed third-party, in-kind contributions are acceptable 
in accordance with 7 CFR part 3015 of this title.
    (2) Passive third-party equity contributions are acceptable for 
renewable energy system projects, including those that are eligible for 
Federal production tax credits, provided the applicant meets the 
requirements of Sec. 4280.107.
    (c) Eligible project costs are only those costs associated with the 
items identified in paragraphs (c)(1) through (9) of this section, as 
long as the items are an integral and necessary part of the renewable 
energy system or energy efficiency improvement.
    (1) Post-application purchase and installation of equipment (new, 
refurbished, or remanufactured), except agricultural tillage equipment, 
used equipment, and vehicles.
    (2) Post-application construction or improvements, except 
residential.
    (3) Energy audits or assessments.
    (4) Permit and license fees.
    (5) Professional service fees, except for application preparation.
    (6) Feasibility studies and Technical Reports.
    (7) Business plans.
    (8) Retrofitting.
    (9) Construction of a new energy efficient facility only when the 
facility is used for the same purpose, is approximately the same size, 
and based on the energy audit will provide more energy savings than 
improving an existing facility. Only costs identified in the energy 
audit for energy efficiency improvements are allowed.
    (d) The maximum amount of grant assistance to one individual or 
entity will not exceed $750,000 per Federal fiscal year. For those 
applicants that have not received a grant award during the previous 2 
Federal fiscal years, additional points will be added to their priority 
score.
    (e) Applications for renewable energy system grants will be accepted 
for a minimum grant request of $2,500 up to a maximum of $500,000.
    (f) Applications for energy efficiency improvement grants will be 
accepted for a minimum grant request of $1,500 up to a maximum of 
$250,000.
    (g) In determining the amount of a grant awarded, the Agency will 
take into consideration the following six criteria:
    (1) The type of renewable energy system to be purchased;
    (2) The estimated quantity of energy to be generated by the 
renewable energy system;
    (3) The expected environmental benefits of the renewable energy 
system;
    (4) The extent to which the renewable energy system will be 
replicable;
    (5) The amount of energy savings expected to be derived from the 
activity, as demonstrated by an energy audit comparable to an energy 
audit under 7 U.S.C. 8105; and
    (6) The estimated length of time it would take for the energy 
savings generated by the activity to equal the cost of the activity.



Sec. 4280.111  Application and documentation.

    The requirements in this section apply to grant applications under 
this subpart.
    (a) General. Separate applications must be submitted for renewable 
energy system and energy efficiency improvement projects. Applicants may 
only submit one application for each type of project per Federal fiscal 
year. An original and one complete copy of each application are required 
that follow the outline below. Each application must include a Table of 
Contents with clear pagination and chapter identification.
    (b) Grant application content. Applications and documentation for 
projects using the simplified application process, as described in Sec. 
4280.109, must provide the required information organized pursuant to 
the Table of Contents in a chapter format presented in the order shown 
in paragraphs (b)(1) through (3) and (b)(5) through (7) of this section; 
paragraph (b)(4) of this section does not apply for projects using the 
simplified application process. Applications and documentation

[[Page 733]]

for projects not using the simplified application process must provide 
the required information organized pursuant to the Table of Contents in 
a chapter format presented in the order shown in paragraphs (b)(1) 
through (8) of this section.
    (1) Forms, certifications, and organizational documents. Each 
application must contain the items identified in paragraphs (b)(1)(i) 
through (iii) in this section.
    (i) Project specific forms. (A) Form SF-424, ``Application for 
Federal Assistance.''
    (B) Form SF-424C, ``Budget Information--Construction Programs.'' A 
more detailed budget breakdown is required in the Technical Report.
    (C) Form SF-424D, ``Assurances--Construction Programs.''
    (D) Form RD 1940-20, ``Request for Environmental Information.''
    (ii) Certifications. (A) AD-1049, ``Certification Regarding Drug-
Free Workplace Requirements (Grants) Alternative 1--For Grantees Other 
than Individuals.''
    (B) AD-1048, ``Certification Regarding Debarment, Suspension, 
Ineligibility and Voluntary Exclusion--Lower Tiered Covered 
Transactions.''
    (C) Exhibit A-1 of RD Instruction 1940-Q, ``Certification for 
Contracts, Grants and Loans,'' required by 7 CFR 3018.110 if the grant 
exceeds $100,000.
    (D) Form SF-LLL, ``Disclosure of Lobbying Activities,'' must be 
completed if the applicant or borrower has made or agreed to make 
payment using funds other than Federal appropriated funds to influence 
or attempt to influence a decision in connection with the application.
    (E) AD-1047, ``Certification Regarding Debarment, Suspension, and 
Other Responsibility Matters--Primary Covered Transactions.''
    (F) Form RD 400-1, ``Equal Opportunity Agreement.''
    (G) Form RD 400-4, ``Assurance Agreement.''
    (H) Intergovernmental consultation comments in accordance with 7 CFR 
part 3015, subpart V, of this title.
    (I) Applicants and borrowers must provide a certification indicating 
whether or not there is a known relationship or association with an 
Agency employee.
    (J) Applicants must provide certification that they meet the 
definition of demonstrated financial need, as defined in Sec. 4280.103.
    (iii) Organizational documents. Except for sole proprietors, each 
applicant must submit, with the application, a copy of the legal 
organizational documents.
    (2) Table of Contents. Include page numbers for each component of 
the application in the table of contents. Begin pagination immediately 
following the Table of Contents.
    (3) Project Summary. Provide a concise summary of the project 
proposal and applicant information, project purpose and need, and 
project goals that includes the following:
    (i) Title. Provide a descriptive title of the project (identified on 
SF 424).
    (ii) Applicant eligibility. Describe how each of the applicable 
criteria identified in Sec. 4280.107(a)(1) through (5) is met.
    (iii) Project eligibility. Describe how each of the criteria, as 
applicable, in Sec. 4280.108(a) through (g) is met. Clearly state 
whether the application is for the purchase of a renewable energy system 
or to make energy efficiency improvements. The response to Sec. 
4280.108(a) must include a brief description of the system or 
improvement. This description must be sufficient to provide the reader 
with a frame of reference when reviewing the rest of the application. 
Additional project description information may be needed later in the 
application.
    (iv) Operation description. Describe the applicant's total farm/
ranch/business operation and the relationship of the proposed project to 
the applicant's total farm/ranch/business operation. Provide a 
description of the ownership of the applicant, including a list of 
individuals and/or entities with ownership interest, names of any 
corporate parents, affiliates, and subsidiaries, as well as a 
description of the relationship, including products, between these 
entities.
    (v) Financial information for size determination. Provide financial 
information to allow the Agency to determine the

[[Page 734]]

applicant's size. All information submitted under this paragraph must be 
substantiated by authoritative records.
    (A) Rural small businesses. Provide sufficient information to 
determine total annual receipts for and number of employees of the 
business and any parent, subsidiary, or affiliates at other locations. 
Voluntarily providing tax returns is one means of satisfying this 
requirement. The information provided must be sufficient for the Agency 
to make a determination of business size as defined by SBA.
    (B) Agricultural producers. Provide the gross market value of your 
agricultural products, gross agricultural income, and gross nonfarm 
income of the applicant for the calendar year preceding the year in 
which you submit your application.
    (4) Financial information. Financial information is required on the 
total operation of the agricultural producer/rural small business and 
its parent, subsidiary, or affiliates at other locations. All 
information submitted under this paragraph must be substantiated by 
authoritative records.
    (i) Historical financial statements. Provide historical financial 
statements prepared in accordance with Generally Accepted Accounting 
Practices (GAAP) for the past 3 years, including income statements and 
balance sheets. If agricultural producers are unable to present this 
information in accordance with GAAP, they may instead present financial 
information for the past years in the format that is generally required 
by commercial agriculture lenders.
    (ii) Current balance sheet and income statement. Provide a current 
balance sheet and income statement prepared in accordance with GAAP and 
dated within 90 days of the application. Agricultural producers should 
present financial information in the format that is generally required 
by commercial agriculture lenders.
    (iii) Pro forma financial statements. Provide pro forma balance 
sheet at start-up of the agricultural producer's/rural small business' 
business that reflects the use of the loan proceeds or grant award; and 
3 additional years, indicating the necessary start-up capital, operating 
capital, and short-term credit; and projected cashflow and income 
statements for 3 years supported by a list of assumptions showing the 
basis for the projections.
    (iv) Demonstration of Financial Need. Provide sufficient information 
or documentation that allows the Agency to make its own determination of 
the applicant's financial need.
    (5) Matching funds. Submit a spreadsheet identifying sources of 
matching funds, amounts, and status of matching funds. The spreadsheet 
must also include a directory of matching funds source contact 
information. Attach any applications, correspondence, or other written 
communication between applicant and matching fund source.
    (6) Self-Evaluation Score. Self-score the project using the 
evaluation criteria in Sec. 4280.112(e). To justify the score, submit 
the total score along with appropriate calculations and attached 
documentation, or specific cross-references to information elsewhere in 
the application.
    (7) Renewable Energy and Energy Efficiency Improvements Technical 
Report. A Technical Report must be submitted as part of the application 
to allow the Agency to determine the overall technical merit of the 
renewable energy system or energy efficiency improvement project.
    (i) Simplified applications. Simplified applications, which are 
submitted for renewable energy projects or energy efficiency improvement 
projects with total eligible project costs of $200,000 or less, must 
include a Technical Report prepared in accordance with the requirements 
specified in paragraphs (b)(7)(i)(A) through (C) of this section.
    (A) The Technical Report must be prepared in accordance with 
Appendix A of this subpart. If a renewable energy project does not fit 
one of the technologies identified in Appendix A, the applicant must 
submit a Technical Report in accordance with paragraph (b)(7)(ii) of 
this section. The information in all Technical Reports must be of 
sufficient detail to allow the Agency to score the project and evaluate 
its technical feasibility.
    (B) Either an energy assessment or an energy audit is required for 
energy efficiency improvement projects. For energy efficiency 
improvement

[[Page 735]]

projects with total eligible project costs greater than $50,000, an 
energy audit must be conducted; it must be conducted by or reviewed and 
certified by an energy auditor. For energy efficiency improvement 
projects with total eligible project costs of $50,000 or less, an energy 
assessment or an energy audit may be conducted by either an energy 
assessor or an energy auditor.
    (C) Technical Reports prepared prior to the applicant's selection of 
a prime contractor may be modified after selection, pursuant to input 
from the prime contractor, and submitted to the Agency, provided the 
overall scope of the project is not materially changed as determined by 
the Agency. Changes in the report must be accompanied by an updated Form 
RD 1940-20.
    (ii) Full applications. Full applications, which must be submitted 
for applications for renewable energy projects or energy efficiency 
improvement projects with total eligible project costs greater than 
$200,000, must include a full Technical Report prepared in accordance 
with Appendix B of this subpart and with paragraphs (b)(7)(ii)(A) 
through (G) of this section, as applicable.
    (A) The Technical Report must demonstrate that the renewable energy 
system or energy efficiency improvement project can be installed and 
perform as intended in a reliable, safe, cost-effective, and legally 
compliant manner.
    (B) Either an energy assessment or an energy audit is required for 
energy efficiency improvement projects. For energy efficiency 
improvement projects with total eligible project costs greater than 
$50,000, an energy audit must be conducted; it must be conducted by or 
reviewed and certified by an energy auditor. For energy efficiency 
improvement projects with total eligible project costs of $50,000 or 
less, an energy assessment or an energy audit may be conducted by either 
an energy assessor or an energy auditor.
    (C) For renewable energy projects with total eligible project costs 
greater than $400,000 and for energy efficiency improvement projects 
with total eligible project costs greater than $200,000, the design 
review, installation monitoring, testing prior to commercial operation, 
and project completion certification will require the services of a 
licensed professional engineer (PE) or team of licensed PEs.
    (D) For projects with total eligible project costs greater than 
$1,200,000, the Technical Report must be reviewed and include an opinion 
and recommendation by an independent qualified consultant.
    (E) Technical Reports prepared prior to the applicant's selection of 
a final design, equipment vendor, or prime contractor, or other 
significant decision may be modified and resubmitted to the Agency, 
provided the overall scope of the project is not materially changed as 
determined by the Agency. Changes in the Technical Report must be 
accompanied by an updated Form RD 1940-20.
    (F) All information provided in the Technical Report will be 
evaluated against the requirements provided in Appendix B of this 
subpart. Any Technical Report not prepared in the following format and 
in accordance with Appendix B, where applicable, will be penalized under 
scoring for technical merit.
    (G) All Technical Reports shall follow the outline presented below 
and shall contain the information described in paragraphs 
(b)(7)(ii)(G)(1) through (10) of this section and Appendix B, if the 
technology is identified in Appendix B for the particular project. If 
none of the Technical Reports in Appendix B apply to the proposed 
technology, the applicant may submit a Technical Report that conforms to 
the overall outline and subjects specified in paragraph (b)(7)(ii)(G) of 
this section. For Technical Reports prepared for technologies not 
identified in Appendix B, the Agency will review the reports and notify, 
in writing, the applicant of the changes to the report required in order 
for the Agency to accept the report.
    (1) Qualifications of the project team. Describe the project team, 
their professional credentials, and relevant experience. The description 
must support that the project team service, equipment, and installation 
providers have the necessary professional credentials,

[[Page 736]]

licenses, certifications, or relevant experience to develop the proposed 
project.
    (2) Agreements and permits. Describe the necessary agreements and 
permits required for the project and the anticipated schedule for 
securing those agreements and permits. For example, interconnection 
agreements and purchase power arrangements are necessary for all 
renewable energy projects electrically interconnected to the utility 
grid. The applicant must demonstrate that the applicant is familiar with 
the regulations and utility policies and that these arrangements will be 
secured in a reasonable timeframe.
    (3) Energy or resource assessment. Describe the quality and 
availability of the renewable resource, and an assessment of expected 
energy savings through the deployment of the proposed system or 
increased production created by the system.
    (4) Design and engineering. Describe the intended purpose of the 
project and the design, engineering, testing, and monitoring needed for 
the proposed project. The description must support that the system will 
be designed, engineered, tested, and monitored so as to meet its 
intended purpose, ensure public safety, and comply with applicable laws, 
regulations, agreements, permits, codes, and standards. In addition, the 
applicant must identify all the major equipment that is proprietary 
equipment and justify how this unique equipment is needed to meet the 
requirements of the proposed design.
    (5) Project development. Describe the overall project development 
method, including the key project development activities and the 
proposed schedule for each activity. The description must identify each 
significant historical and projected activity, its beginning and end, 
and its relationship to the time needed to initiate and carry the 
activity through to successful project completion. The description must 
address applicant project development cashflow requirements. Details for 
equipment procurement and installation shall be addressed in paragraphs 
(b)(7)(ii)(G) (7) and (8) of this section.
    (6) Project economic assessment. Describe the financial performance 
of the proposed project. The description must address project costs, 
energy savings, and revenues, including applicable investment and 
production incentives. Cost centers include, but are not limited to, 
administrative and general, fuel supply, operations and maintenance, 
product delivery and debt service. Revenues to be considered must accrue 
from the sale of energy, offset or savings in energy costs, byproducts, 
and green tags. Incentives to be considered must accrue from government 
entities.
    (7) Equipment procurement. Describe the availability of the 
equipment required by the system. The description must support that the 
required equipment is available and can be procured and delivered within 
the proposed project development schedule.
    (8) Equipment installation. Describe the plan for site development 
and system installation, including any special equipment requirements. 
In all cases, the system or improvement must be installed in conformance 
with manufacturer's specifications and design requirements, and comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards.
    (9) Operations and maintenance. Describe the operations and 
maintenance requirements of the system, including major rebuilds and 
component replacements necessary for the system to operate as designed 
over the design life. All systems or improvements must have a warranty. 
The warranty must cover and provide protection against both breakdown 
and a degradation of performance. The performance of the renewable 
energy system or energy efficiency improvement must be monitored and 
recorded as appropriate to the specific technology.
    (10) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives. The budget for and any unique 
concerns associated with the dismantling and disposal of project 
components and their wastes must also be described.
    (8) Business-level feasibility study for renewable energy systems. 
For each application for a renewable energy system project, with total 
eligible project

[[Page 737]]

costs greater than $200,000, a business-level feasibility study by an 
independent, qualified consultant will be required by the Agency for 
start-up businesses or existing businesses. An acceptable business-level 
feasibility study must at least include an evaluation of economic, 
market, technical, financial, and management feasibility.



Sec. 4280.112  Evaluation of grant applications.

    (a) General review. The Agency will evaluate each application and 
make a determination as to whether the applicant is eligible, the 
proposed grant is for an eligible project, and the proposed grant 
complies with all applicable statutes and regulations.
    (b) Ineligible applications. If either the applicant or the project 
is ineligible, the Agency will inform the applicant in writing of the 
decision, reasons therefore, and any appeal rights. No further 
evaluation of the application will occur.
    (c) Incomplete applications. If the application is incomplete, the 
Agency will return it to the applicant to provide the applicant the 
opportunity to resubmit the application. The Agency will identify those 
parts of the application that are incomplete. Upon receipt of a complete 
application, the Agency will complete its evaluation of the application.
    (d) Technical merit. The Agency's determination of a project's 
technical merit will be based on the information provided by the 
applicant. The Agency may engage the services of other government 
agencies or other recognized industry experts in the applicable 
technology field, at its discretion, to evaluate and rate the 
application. The Agency may use this evaluation and rating to determine 
the level of technical merit of the proposed project. Projects that the 
Agency determines are without technical merit shall be deemed 
ineligible.
    (e) Evaluation criteria. Agency personnel will score and fund each 
application based on the evaluation criteria specified in paragraphs 
(e)(1) through (9) of this section.
    (1) Quantity of energy replaced, produced, or saved. Points may only 
be awarded for energy replacement, energy savings, or energy generation. 
Points will not be awarded for more than one category.
    (i) Energy replacement. If the proposed renewable energy system is 
intended primarily for self-use by the agricultural producer or rural 
small business and will provide energy replacement of greater than zero, 
but equal to or less than 25 percent, 5 points will be awarded; greater 
than 25 percent, but equal to or less than 50 percent, 10 points will be 
awarded; or greater than 50 percent, 15 points will be awarded. Energy 
replacement is to be determined by dividing the estimated quantity of 
renewable energy to be generated over a 12-month period by the estimated 
quantity of energy consumed over the same 12-month period during the 
previous year by the applicable energy application. The estimated 
quantities of energy must be converted to either British thermal units 
(BTUs), Watts, or similar energy equivalents to facilitate scoring. If 
the estimated energy produced equals more than 150 percent of the energy 
requirements of the applicable process(es), the project will be scored 
as an energy generation project.
    (ii) Energy savings. If the estimated energy expected to be saved by 
the installation of the energy efficiency improvements will be from 20 
percent up to, but not including 30 percent, 5 points will be awarded; 
30 percent up to, but not including 35 percent, 10 points will be 
awarded; or, 35 percent or greater, 15 points will be awarded. Energy 
savings will be determined by the projections in an energy assessment or 
audit. Projects with total eligible project costs of $50,000 or less 
that opt to obtain a professional energy audit will be awarded an 
additional 5 points.
    (iii) Energy generation. If the proposed renewable energy system is 
intended primarily for production of energy for sale, 10 points will be 
awarded.
    (2) Environmental benefits. If the purpose of the proposed system 
contributes to the environmental goals and objectives of other Federal, 
State, or local programs, 10 points will be awarded. Points will only be 
awarded for this paragraph if the applicant is able to provide 
documentation from an appropriate authority supporting this claim.

[[Page 738]]

    (3) Commercial availability. If the proposed system or improvement 
is currently commercially available and replicable, 5 points will be 
awarded. If the proposed system or improvement is commercially available 
and replicable and is also provided with a 5-year or longer warranty 
providing the purchaser protection against system degradation or 
breakdown or component breakdown, 10 points will be awarded.
    (4) Technical merit score. The Technical Merit of each project will 
be determined using the procedures specified in paragraphs (e)(4)(i) and 
(ii) of this section. The procedures specified in paragraph (e)(4)(i) 
will be used to score paragraphs (e)(4)(i)(A) through (J) of this 
section. The final score awarded will be calculated using the procedures 
described in paragraph (e)(4)(ii) of this section.
    (i) Technical merit. Each subparagraph has its own maximum possible 
score and will be scored according to the following criteria: If the 
description in the subparagraph has no significant weaknesses and 
exceeds the requirements of the subparagraph, 100 percent of the total 
possible score for the subparagraph will be awarded. If the description 
has one or more significant strengths and meets the requirements of the 
subparagraph, 80 percent of the total possible score will be awarded for 
the subparagraph. If the description meets the basic requirements of the 
subparagraph, but also has several weaknesses, 60 percent of the points 
will be awarded. If the description is lacking in one or more critical 
aspects, key issues have not been addressed, but the description 
demonstrates some merit or strengths, 40 percent of the total possible 
score will be awarded. If the description has serious deficiencies, 
internal inconsistencies, or is missing information, 20 percent of the 
total possible score will be awarded. If the description has no merit in 
this area, 0 percent of the total possible score will be awarded. The 
total possible points for Technical Merit is 35 points.
    (A) Qualifications of the project team (maximum score of 10 points). 
The applicant has described the project team service providers, their 
professional credentials, and relevant experience. The description 
supports that the project team service, equipment, and installation 
providers have the necessary professional credentials, licenses, 
certifications, or relevant experience to develop the proposed project.
    (B) Agreements and permits (maximum score of 5 points). The 
applicant has described the necessary agreements and permits required 
for the project and the schedule for securing those agreements and 
permits.
    (C) Energy or resource assessment (maximum score of 10 points). The 
applicant has described the quality and availability of a suitable 
renewable resource or an assessment of expected energy savings for the 
proposed system.
    (D) Design and engineering (maximum score of 30 points). The 
applicant has described the design, engineering, and testing needed for 
the proposed project. The description supports that the system will be 
designed, engineered, and tested so as to meet its intended purpose, 
ensure public safety, and comply with applicable laws, regulations, 
agreements, permits, codes, and standards.
    (E) Project development schedule (maximum score of 5 points). The 
applicant has described the development method, including the key 
project development activities and the proposed schedule for each 
activity. The description identifies each significant task, its 
beginning and end, and its relationship to the time needed to initiate 
and carry the project through to successful completion. The description 
addresses grantee or borrower project development cashflow requirements.
    (F) Project economic assessment (maximum score of 20 points). The 
applicant has described the financial performance of the proposed 
project, including the calculation of simple payback. The description 
addresses project costs and revenues, such as applicable investment and 
production incentives, and other information to allow the assessment of 
the project's cost effectiveness.
    (G) Equipment procurement (maximum score of 5 points). The applicant 
has described the availability of the equipment required by the system. 
The description supports that the required

[[Page 739]]

equipment is available, and can be procured and delivered within the 
proposed project development schedule.
    (H) Equipment installation (maximum score of 5 points). The 
applicant has described the plan for site development and system 
installation.
    (I) Operation and maintenance (maximum score of 5 points). The 
applicant has described the operations and maintenance requirements of 
the system necessary for the system to operate as designed over the 
design life.
    (J) Dismantling and disposal of project components (maximum score of 
5 points). The applicant has described the requirements for dismantling 
and disposing of project components at the end of their useful life and 
associated wastes.
    (ii) Calculation of Technical Merit Score. To determine the actual 
points awarded a project for Technical Merit, the following procedure 
will be used: The score awarded for paragraphs (e)(4)(i)(A) through (J) 
of this section will be added together and then divided by 100, the 
maximum possible score, to achieve a percentage. This percentage will 
then be multiplied by the total possible points of 35 to achieve the 
points awarded for the proposed project for Technical Merit.
    (5) Readiness. If the applicant has written commitments from the 
source(s) confirming commitment of 50 percent up to but not including 75 
percent of the matching funds prior to the Agency receiving the complete 
application, 5 points will be awarded. If the applicant has written 
commitments from the source(s) confirming commitment of 75 percent up to 
but not including 100 percent of the matching funds prior to the Agency 
receiving the complete application, 10 points will be awarded. If the 
applicant has written commitments from the source(s) of matching funds 
confirming commitment of 100 percent of the matching funds prior to the 
Agency receiving the complete application, 15 points will be awarded.
    (6) Small agricultural producer/very small business. If the 
applicant is an agricultural producer producing agricultural products 
with a gross market value of less than $600,000 in the preceding year, 5 
points will be awarded. If the applicant is an agricultural producer 
producing agricultural products with a gross market value of less than 
$200,000 in the preceding year or is a very small business, as defined 
in Sec. 4280.103, 10 points will be awarded.
    (7) Simplified application/low cost projects. If the applicant is 
eligible for and uses the simplified application process or the project 
has total eligible project costs of $200,000 or less, 5 points will be 
awarded.
    (8) Previous grantees and borrowers. If an applicant has not been 
awarded a grant or loan under this program within the 2 previous Federal 
fiscal years, 5 points will be awarded.
    (9) Return on investment. If the proposed project will return the 
cost of the investment in less than 4 years, 10 points will be awarded; 
4 years up to but not including 8 years, 4 points will be awarded; or 8 
years up to 11 years, 2 point will be awarded.



Sec. 4280.113  Insurance requirements.

    Agency approved insurance coverage must be maintained for the life 
of the grant unless this requirement is waived or modified by the Agency 
in writing.
    (a) National flood insurance is required in accordance with 7 CFR 
part 1806, subpart B, of this title, if applicable.
    (b) Business interruption insurance is required except for projects 
with total eligible project costs of $200,000 or less.



Sec. 4280.114  Laws that contain other compliance requirements.

    (a) Equal employment opportunity. For all construction contracts and 
grants in excess of $10,000, the contractor must comply with Executive 
Order 11246, as amended by Executive Order 11375, and as supplemented by 
applicable Department of Labor regulations (41 CFR part 60). The 
applicant is responsible for ensuring that the contractor complies with 
these requirements.
    (b) Equal opportunity and nondiscrimination. The Agency will ensure 
that equal opportunity and nondiscriminatory requirements are met in 
accordance with the Equal Credit Opportunity Act and 7 CFR 15d, 
Nondiscrimination in Programs and Activities, conducted by USDA. The 
Agency

[[Page 740]]

will not discriminate against applicants on the basis of race, color, 
religion, national origin, sex, marital status, or age (provided that 
the applicant has the capacity to contract); to the fact that all or 
part of the applicant's income derives from public assistance program; 
or to the fact that the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act.
    (c) Civil rights compliance. Recipients of grants must comply with 
the Americans with Disabilities Act of 1990, Title VI of the Civil 
Rights Act of 1964, and Section 504 of the Rehabilitation Act of 1973. 
This may include collection and maintenance of data on the race, sex, 
and national origin of the recipient's membership/ownership and 
employees. These data must be available to conduct compliance reviews in 
accordance with 7 CFR part 1901, subpart E, Sec. 1901.204 of this 
title. Initial reviews will be conducted after Form RD 400-4 is signed 
and all subsequent reviews every 3 years thereafter for loans. The last 
review shall occur 3 years after the date of loan closing. Grants will 
require one subsequent compliance review after the last disbursement of 
grant funds have been made, and the facility has been in full operation 
for 90 days.
    (d) Environmental analysis. Subpart G of part 1940 of this title 
outlines environmental procedures and requirements for this subpart. 
Prospective applicants are advised to contact the Agency to determine 
environmental requirements as soon as practicable after they decide to 
pursue any form of financial assistance directly or indirectly available 
through the Agency.
    (1) Any required environmental review must be completed by the 
Agency prior to the Agency obligating any funds.
    (2) The applicant will be notified of all specific compliance 
requirements, including, but not limited to, the publication of public 
notices, and consultation with State Historic Preservation Offices and 
the U.S. Fish and Wildlife Service.
    (3) A site visit by the Agency may be scheduled, if necessary, to 
determine the scope of the review.
    (4) The applicant taking any actions or incurring any obligations 
during the time of application or application review and processing that 
would either limit the range of alternatives to be considered or that 
would have an adverse effect on the environment, such as the initiation 
of construction, will result in project ineligibility.
    (e) Executive Order 12898. When a project is proposed and financial 
assistance requested, the Agency will conduct a Civil Rights Impact 
Analysis (CRIA) with regards to environmental justice. The CRIA must be 
conducted and the analysis documented utilizing Form RD 2006-38, ``Civil 
Rights Impact Analysis Certification.'' This certification must be done 
prior to loan approval, obligation of funds, or other commitments of 
Agency resources, including issuance of a Letter of Conditions or Form 
RD 4279-3 of guarantee, whichever occurs first.
    (f) Uniform Federal assistance regulations. Grants will be 
administered in accordance with 7 CFR part 3015 of this title.



Sec. 4280.115  Construction planning and performing development.

    The requirements of this section apply for planning, designing, 
bidding, contracting, and constructing renewable energy systems and 
energy efficiency improvement projects as applicable. For contracts of 
$200,000 or less, the simple contract method, as specified in paragraph 
(e) of this section, may be used. Contracts greater than $200,000 shall 
use the contract method specified in paragraph (g) of this section.
    (a) Technical services. Applicants are responsible for providing the 
engineering, architectural, and environmental services necessary for 
planning, designing, bidding, contracting, inspecting, and constructing 
their facilities. Services may be provided by the applicant's ``in-
house'' engineer or architect or through contract, subject to Agency 
concurrence. Engineers and architects must be licensed in the State 
where the facility is to be constructed.
    (b) Design policies. Facilities funded by the Agency will meet the 
requirements of 7 CFR subpart C of part 1780, Sec. 1780.57(b), (c), 
(d), and (o) of this title.

[[Page 741]]

Final plans and specifications must be reviewed by the Agency and 
approved prior to the start of construction.
    (c) Owners accomplishing work. In some instances, owners may wish to 
perform a part of the work themselves. For an owner to perform project 
development work, the owner must meet the experience requirements of 7 
CFR subpart C of part 1780, Sec. 1780.67 of this title. For an owner to 
provide a portion of the work, with the remainder to be completed by a 
contractor, a clear understanding of the division of work must be 
established and delineated in the contract. In such cases, the 
contractor will be required to inspect the owner's work and accept it. 
Owners are not eligible for payment for their own work as it is not an 
eligible project cost. See Sec. 4280.110(c) of this subpart for further 
details on eligible project costs.
    (d) Equipment purchases. Equipment purchases of less than $200,000 
will not require a performance and payment bond, unless required by the 
applicant, as long as the contract purchase is a lump sum payment and 
the manufacturer provides the required warranties on the equipment as 
outlined in paragraph (i) in the applicable section found in Appendices 
A and B of this subpart. Payment shall be certified by copies of the 
Manufacturer's paid invoices and warranty documents.
    (e) Simple contract method. The simple contract method may be used 
for small projects with a contract not greater than $200,000. In smaller 
projects, Agency funds will typically be used to reimburse project costs 
upon completion of the work as a lump sum payment. Partial payments will 
be made in accordance with Form RD 4280-2, ``Grant Agreement,'' and Form 
RD 1924-6, ``Construction Contract,'' or other Agency approved contract. 
All construction work will be performed under a written contract, as 
described below. A design/build method, where the same person or entity 
provides design and engineering work, as well as construction or 
installation, may be used under this method.
    (1) Contracting requirements threshold. For contracts above 
$100,000, certain Federal requirements, including surety, must be met. 
An attachment to the contract may be used to incorporate language for 
these requirements.
    (2) Forms used. Form RD 1924-6 or other Agency approved contract 
must be used. Other contracts must be approved by the Agency and may be 
used only if they are customarily used in the area and protect the 
interest of the applicant and the Government with respect to compliance 
with items such as the drawings, specifications, payments for work, 
inspections, completion, nondiscrimination in construction work and 
acceptance of the work. The Agency will not become a party to a 
construction contract or incur any liability under it. No contract shall 
become effective until concurred in writing by the Agency. Such 
concurrence statement shall be attached to and made a part of the 
contract.
    (3) Contract provisions. Contracts will have a listing of 
attachments and the minimum provisions of the contract will include:
    (i) The contract sum;
    (ii) The dates for starting and completing the work;
    (iii) The amount of liquidated damages to be charged;
    (iv) The amount, method, and frequency of payment;
    (v) Whether or not surety bonds will be provided. If not, a latent 
defects bond may be required, as described in paragraph (e)(4) of this 
section;
    (vi) The requirement that changes or additions must have prior 
written approval of the Agency; and
    (vii) The warranty period to be provided in accordance with 
Appendices A and B, sections 1 through 10, paragraph (i)(1).
    (4) Surety. Surety per 7 CFR subpart C of part 1780, Sec. 
1780.75(c) of this title will be required, and made a part of the 
contract, if the applicant requests it, or if the contractor requests 
partial payments for construction work. If the contractor will receive a 
lump sum payment at the end of work, the Agency will not require surety. 
In such cases where no surety is provided and the project involves pre-
commercial technology, first of its type in the U.S.,

[[Page 742]]

or new designs without sufficient operating hours to prove their merit, 
a latent defects bond may be required to cover the work.
    (5) Equal opportunity. Section 1901.205 of subpart E of part 1901 of 
this title applies to all financial assistance involving construction 
contracts and subcontracts in excess of $10,000. Language for this 
requirement is included in Form RD 1924-6. If this form is not used, 
such language must be made a part of the Agency approved contract.
    (6) Obtaining bids and selecting a contractor. (i) The applicant may 
select a contractor and negotiate a contract or contact several 
contractors and request each to submit a bid. The applicant will provide 
a statement to the Agency describing the process for obtaining the 
bid(s) and what alternatives were considered.
    (ii) When a price has already been negotiated by an applicant and a 
contractor, the Agency will review the proposed contract. If the 
contractor is qualified to perform the development and provide a 
warranty of the work and the price compares favorably with the cost of 
similar construction in the area, further negotiation is unnecessary. If 
the Agency determines the price is too high or otherwise unreasonable, 
the applicant will be required to negotiate further with the contractor. 
If a reasonable price cannot be negotiated or if the contractor is not 
qualified, the applicant will be required to negotiate with another 
contractor.
    (iii) When an applicant has proposed development with no contractor 
in mind, competition will be required. The applicant must obtain bids 
from as many qualified contractors, dealers, or trades people as 
feasible depending on the method and type of construction.
    (iv) If the award of the contract is by competitive bidding, Form RD 
1924-5, ``Invitation for Bid (Construction Contract),'' or another 
similar Agency approved invitation bid form containing the requirements 
of subpart E of part 1901 of this title may be used. All contractors 
from whom bids are requested should be informed of all conditions of the 
contract, including the time and place of opening bids. Conditions shall 
not be established which would give preference to a specific bidder or 
type of bidder. When applicable, copies of Forms RD 1924-6 and RD 400-6, 
``Compliance Statement,'' also should be provided to the prospective 
bidders.
    (7) Awarding the contract. The applicant, with the concurrence of 
the Agency, will consider the amount of the bids or proposals, and all 
conditions listed in the invitation. On the basis of these 
considerations, the applicant will select and notify the lowest 
responsible bidder. The contract will be awarded using Form RD 1924-6 or 
similar Agency approved document as described in this section.
    (8) Final payments. Prior to making final payment on the contract 
when a surety bond is not used, the Agency will be provided with Form RD 
1924-9, ``Certificate of Contractor's Release,'' and Form RD 1924-10, 
``Release by Claimants,'' executed by all persons who furnished 
materials or labor in connection with the contract. The applicant should 
furnish the contractor with a copy of Form RD 1924-10 at the beginning 
of the work in order that the contractor may obtain these releases as 
the work progresses.
    (f) Design/build contracts. The design/build method, where the same 
person or entity provides design and engineering work, as well as 
construction or installation, may be used with Agency written approval. 
If the design/build contract amount is $200,000 or less, development and 
contracting will follow paragraph (e) of this section. If the design/
build contract amount is greater than $200,000, Agency prior concurrence 
must be obtained as described below, and the remaining requirements of 
this section apply.
    (1) Concurrence information. The applicant will request Agency 
concurrence by providing the Agency at least the information specified 
in paragraphs (f)(1)(i) through (viii) of this section.
    (i) The owner's written request to use the design/build method with 
a description of the proposed method.
    (ii) A proposed scope of work describing in clear, concise terms the 
technical requirements for the contract. It

[[Page 743]]

should include a nontechnical statement summarizing the work to be 
performed by the contractor and the results expected, and a proposed 
construction schedule showing the sequence in which the work is to be 
performed.
    (iii) A proposed firm-fixed-price contract for the entire project 
which provides that the contractor shall be responsible for any extra 
cost which may result from errors or omissions in the services provided 
under the contract, as well as compliance with all Federal, State, and 
local requirements effective on the contract execution date.
    (iv) Where noncompetitive negotiation is proposed, an evaluation of 
the contractor's performance on previous similar projects in which the 
contractor acted in a similar capacity.
    (v) A detailed listing and cost estimate of equipment and supplies 
not included in the construction contract but which are necessary to 
properly operate the facility.
    (vi) Evidence that a qualified construction inspector who is 
independent of the contractor has or will be hired.
    (vii) Preliminary plans and outline specifications. However, final 
plans and specifications must be completed and reviewed by the Agency 
prior to the start of construction.
    (viii) The owner's attorney's opinion and comments regarding the 
legal adequacy of the proposed contract documents and evidence that the 
owner has the legal authority to enter into and fulfill the contract.
    (2) Agency concurrence of design/build method. The Agency shall 
review the material submitted by the applicant. When all items are 
acceptable, the loan approval official will concur in the use of the 
design/build method for the proposal.
    (3) Forms used. The American Institute of Architects (AIA) Form 
A191, ``Standard Form of Agreement Between Owner and Design/Builder,'' 
should be used. Other Agency approved contract documents may be used 
provided they are customarily used in the area and protect the interest 
of the applicant and the Agency with respect to compliance with items 
such as the drawings, specifications, payments for work, inspections, 
completion, nondiscrimination in construction work, and acceptance of 
the work. The Agency will not become a party to a construction contract 
or incur any liability under it. No contract shall become effective 
until concurred in writing by the Agency. Such concurrence statement 
shall be attached to and made a part of the contract.
    (4) Contract provisions. Contracts will have a listing of 
attachments and shall meet the following requirements:
    (i) The contract sum;
    (ii) The dates for starting and completing the work;
    (iii) The amount of liquidated damages, if any, to be charged;
    (iv) The amount, method, and frequency of payment;
    (v) Surety provisions that meet the requirements of 7 CFR subpart C 
of part 1780, Sec. 1780.75(c) of this title;
    (vi) The requirement that changes or additions must have prior 
written approval of the Agency;
    (vii) The warranty period to be provided in accordance with 
Appendices A and B, sections 1 through 10, paragraph (i);
    (viii) Contract review and concurrence in accordance with 7 CFR 
subpart C of part 1780, Sec. 1780.61(b) of this title;
    (ix) Owner's contractual responsibility in accordance with 7 CFR 
subpart C of part 1780, Sec. 1780.68 of this title; and
    (x) Further contract provisions concerning remedies, termination, 
surety, equal employment opportunity, anti-kickback, records, State 
energy conservation plan, change orders, Agency concurrence, retainage, 
and other compliance requirements must be met in accordance with 7 CFR 
subpart C of part 1780, Sec. 1780.75 of this title.
    (5) Obtaining bids and selecting a contractor. The applicant may 
select a contractor based on competitive sealed bids, competitive 
negotiation, or noncompetitive negotiation as described in 7 CFR subpart 
C of part 1780, Sec. 1780.72(b), (c), or (d) of this title.
    (g) Contract method. If the contract amount is greater than $200,000 
and is not of the design/build method, the following conditions must be 
met:

[[Page 744]]

    (1) Procurement method. Procurement method shall comply with the 
requirements of 7 CFR subpart C of part 1780, Sec. Sec. 1780.72, 
1780.75, and 1780.76 of this title.
    (2) Forms used. The AIA Form A101, ``Standard Form of Agreement 
Between Owner/Contractor,'' or Engineering Joint Counsel Document 
Committee (EJCDC) Form C-521, ``Suggested Form of Agreement Between 
Owner and Contractor (Stipulated Price) Funding Agency Edition,'' should 
be used. Other Agency approved contract documents may be used provided 
they are customarily used in the area and protect the interest of the 
applicant and the Agency with respect to compliance with items such as 
the drawings, specifications, payments for work, inspections, 
completion, nondiscrimination in construction work, and acceptance of 
the work. The Agency will not become a party to a construction contract 
or incur any liability under it. No contract shall become effective 
until concurred in writing by the Agency. Such concurrence statement 
shall be attached to and made a part of the contract.
    (3) Contract provisions. Contracts will have a listing of 
attachments and shall meet the requirements of 7 CFR subpart C of part 
1780, Sec. 1780.75 of this title and the following requirements:
    (i) The contract sum;
    (ii) The dates for starting and completing the work;
    (iii) The amount of liquidated damages, if any, to be charged;
    (iv) The amount, method, and frequency of payment;
    (v) Surety provisions that meet the requirements of 7 CFR subpart C 
of part 1780, Sec. 1780.75(c) of this title;
    (vi) The requirement that changes or additions must have prior 
written approval of the Agency;
    (vii) The warranty period to be provided in accordance with 
Appendices A and B, sections 1 through 10, paragraph (i);
    (viii) Contract review and concurrence in accordance with 7 CFR 
subpart C of part 1780, Sec. 1780.61(b) of this title;
    (ix) Owner's contractual responsibility in accordance with 7 CFR 
subpart C of part 1780, Sec. 1780.68 of this title; and
    (x) Further contract provisions concerning remedies, termination, 
surety, equal employment opportunity, anti-kickback, records, State 
energy conservation plan, change orders, Agency concurrence, retainage, 
and other compliance requirements must be met in accordance with 7 CFR 
subpart C of part 1780, Sec. 1780.75 of this title.
    (4) Obtaining bids and selecting a contractor. The applicant may 
select a contractor based on competitive sealed bids, competitive 
negotiation, or noncompetitive negotiation as described in 7 CFR subpart 
C of part 1780, Sec. 1780.72(b), (c), or (d) of this title.
    (5) Contract award. Applicants awarding contracts must comply with 7 
CFR subpart C of part 1780, Sec. 1780.70(h) of this title.
    (6) Contracts awarded prior to applications. Applicants awarding 
contracts prior to filing an application must comply with 7 CFR subpart 
C of part 1780, Sec. 1780.74 of this title.
    (7) Contract administration. Contract administration must comply 
with 7 CFR subpart C of part 1780, Sec. 1780.76 of this title. If 
another authority, such as a Federal or State Agency, is providing 
funding and requires oversight of inspections, change orders, and pay 
requests, the Agency may accept copies of their reports or forms as 
meeting oversight requirements of the Agency.



Sec. 4280.116  Grantee requirements.

    (a) A Letter of Conditions will be prepared by the Agency, 
establishing conditions that must be understood and agreed to by the 
applicant before any obligation of funds can occur. The applicant must 
sign a ``Letter of Intent to Meet Conditions'' and Form RD 1940-1, 
``Request for Obligation of Funds,'' if they accept the conditions of 
the grant.
    (b) The grantee must sign and abide by all requirements contained in 
Form RD 4280-2 and this subpart.



Sec. 4280.117  Servicing grants.

    Grants will be serviced in accordance with subparts E and O of part 
1951 of this title and Form RD 4280-2.

[[Page 745]]



Sec. Sec. 4280.118-4280.120  [Reserved]

                       Section B. Guaranteed Loans



Sec. 4280.121  Borrower eligibility.

    To receive a guaranteed loan under this subpart, a borrower must 
meet each of the criteria, as applicable, identified in Sec. 
4280.107(a)(1) through (4).



Sec. 4280.122  Project eligibility.

    For a project to be eligible to receive a guaranteed loan under this 
subpart, the project must meet each of the criteria, as applicable, in 
Sec. 4280.108(a) through (g). In addition, guaranteed loan funds may be 
used for necessary capital improvements to an existing renewable energy 
system.



Sec. 4280.123  Guaranteed loan funding.

    (a) The amount of the loan that will be made available to an 
eligible project under this subpart will not exceed 50 percent of total 
eligible project costs. Eligible project costs are specified in 
paragraph (e) of this section.
    (b) The minimum amount of a guaranteed loan made to a borrower will 
be $5,000, less any program grant amounts. The maximum amount of a 
guaranteed loan made to a borrower is $10 million.
    (c) The percentage of guarantee, up to the maximum allowed by this 
section, will be negotiated between the lender and the Agency. The 
maximum percentage of guarantee is 85 percent for loans of $600,000 or 
less; 80 percent for loans greater than $600,000 up to and including $5 
million; and 70 percent for loans greater than $5 million up to and 
including $10 million.
    (d) The total amount of the loans guaranteed by the Agency under 
this program to one borrower, including the outstanding principal and 
interest balance of any existing loans guaranteed by the Agency under 
this program, and new loan request, must not exceed $10 million.
    (e) Eligible project costs are only those costs associated with the 
items identified in paragraphs (e)(1) through (11) of this section, as 
long as the items are an integral and necessary part of the renewable 
energy system or energy efficiency improvement.
    (1) Post-application purchase and installation of equipment (new, 
refurbished, or remanufactured), except agricultural tillage equipment, 
used equipment, and vehicles.
    (2) Post-application construction or improvements, except 
residential.
    (3) Energy audits or assessments.
    (4) Permit and license fees.
    (5) Professional service fees, except for application preparation.
    (6) Feasibility studies and technical reports.
    (7) Business plans.
    (8) Retrofitting.
    (9) Construction of a new energy efficient facility only when the 
facility is used for the same purpose, is approximately the same size, 
and based on the energy audit will provide more energy savings than 
improving an existing facility. Only costs identified in the energy 
audit for energy efficiency improvements are allowed.
    (10) Working capital.
    (11) Land acquisition.
    (f) In determining the amount of a loan awarded, the Agency will 
take into consideration the following six criteria:
    (1) The type of renewable energy system to be purchased;
    (2) The estimated quantity of energy to be generated by the 
renewable energy system;
    (3) The expected environmental benefits of the renewable energy 
system;
    (4) The extent to which the renewable energy system will be 
replicable;
    (5) The amount of energy savings expected to be derived from the 
activity, as demonstrated by an energy audit comparable to an energy 
audit under 7 U.S.C. 8105; and
    (6) The estimated length of time it would take for the energy 
savings generated by the activity to equal the cost of the activity.



Sec. 4280.124  Interest rates.

    (a) 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. The variable rate must be based on 
published indices, such as money market indices. In no case, however, 
shall the rate be more than the rate customarily charged borrowers in 
similar circumstances in the ordinary course of business. The interest 
rate

[[Page 746]]

charged is subject to Agency review and approval.
    (b) Comply with Sec. 4279.125(a), (b), and (d) of this chapter.



Sec. 4280.125  Terms of loan.

    (a) The repayment term for a loan for:
    (1) Real estate must not exceed 30 years;
    (2) Machinery and equipment must not exceed 20 years, or the useful 
life, including major rebuilds and component replacement, whichever is 
less;
    (3) Combined loans on real estate and equipment must not exceed 30 
years; and
    (4) Working capital loans must not exceed 7 years.
    (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.
    (c) Payment terms must comply with Sec. 4279.126(c) of this 
chapter.
    (d) The maturity of a loan will be based on the use of proceeds, the 
useful life of the assets being financed, and the borrower's ability to 
repay.
    (e) All loans guaranteed through this program must be sound, with 
reasonably assured repayment.
    (f) Guarantees must be provided only after consideration is given to 
the borrower's overall credit quality and to the terms and conditions of 
renewable energy and energy efficiency subsidies, tax credits, and other 
such incentives.
    (g) A principal plus interest repayment schedule is permissible.



Sec. 4280.126  Guarantee/annual renewal fee percentages.

    (a) Fee ceilings. The maximum guarantee fee that may be charged is 1 
percent. The maximum annual renewal fee that may be charged is 0.5 
percent. The Agency will establish each year the guarantee fee and 
annual renewal fee and a notice will be published in the Federal 
Register.
    (b) Guarantee fee. The guarantee fee will be paid to the Agency by 
the lender and is nonrefundable. The guarantee fee may be passed on to 
the borrower. The guarantee fee must be paid at the time the Loan Note 
Guarantee is issued.
    (c) Annual renewal fee. The annual renewal fee will be calculated on 
the unpaid principal balance as of close of business on December 31 of 
each year. It will be calculated by multiplying the outstanding 
principal balance times the percent of guarantee times the annual 
renewal fee. The fee will be billed to the lender in accordance with the 
Federal Register publication. The annual renewal fee may not be passed 
on to the borrower.



Sec. 4280.127  [Reserved]



Sec. 4280.128  Application and documentation.

    The requirements in this section apply to guaranteed loan 
applications under this subpart.
    (a) General. Applications must be submitted in accordance with the 
requirements specified in Sec. 4280.111(a).
    (b) Application content for guaranteed loans greater than $600,000. 
Applications and documentation for guaranteed loans greater than 
$600,000 must provide the required information organized pursuant to a 
Table of Contents in a chapter format presented in the order shown in 
paragraphs (b)(1) and (2) of this section.
    (1) Guaranteed loan application content. (i) Table of Contents. 
Include page numbers for each component of the application in the table 
of contents. Begin pagination immediately following the Table of 
Contents.
    (ii) Project Summary. Provide a concise summary of the proposed 
project and applicant information, project purpose and need, and project 
goals, including the following:
    (A) Title. Provide a descriptive title of the project (identified on 
SF 424).
    (B) Borrower eligibility. Describe how each of the criteria, 
identified in Sec. 4280.107(a)(1) through (4), is met.
    (C) Project eligibility. Describe how each of the criteria, as 
applicable in Sec. 4280.108(a) through (g), is met. Clearly state 
whether the application is for the purchase of a renewable energy system 
(including making necessary capital improvements to an existing 
renewable energy system) or to make energy efficiency improvements. The 
response to

[[Page 747]]

Sec. 4280.108(a) must include a brief description of the system or 
improvement. This description is to provide the reader with a frame of 
reference for reviewing the rest of application. Additional project 
description information will be needed later in the application.
    (D) Operation description. Describe the applicant's total farm/
ranch/business operation and the relationship of the proposed project to 
the applicant's total farm/ranch/business operation as specified in 
Sec. 4280.111(b)(3)(iv).
    (iii) Financial information for size determination. Provide 
financial information to allow the Agency to determine the applicant's 
size as specified in Sec. 4280.111(b)(3)(v).
    (iv) Matching funds. Submit a spreadsheet identifying sources, 
amounts, and status of matching funds as specified in Sec. 
4280.111(b)(5).
    (v) Self-evaluation score. Self-score the project using the 
evaluation criteria in Sec. 4280.112(e) as specified in Sec. 
4280.111(b)(6).
    (vi) Renewable energy and energy efficiency technical report. For 
both renewable energy projects and energy efficiency improvement 
projects, submit a Technical Report in accordance with applicable 
provisions of Appendix B of this subpart and as specified in Sec. 
4280.111(b)(7)(ii). For loan requests in excess of $600,000, the 
services of a licensed professional engineer (P.E.) or a team of 
licensed P.E.'s is required. If none of the Technology Reports in 
Appendix B apply to the proposed technology, the applicant may submit a 
Technical Report that conforms to the overall outline and subjects 
specified in applicable provisions of Sec. 4280.111(b)(7)(ii)(A) 
through (G).
    (vii) Business-level feasibility study for renewable energy systems. 
For each application for a renewable energy system project submitted by 
a start-up or existing business, a business-level feasibility study by 
an independent qualified consultant will be required by the Agency. An 
acceptable business-level feasibility study must at least include an 
evaluation of economic, market, technical, financial, and management 
feasibility.
    (2) Lender forms, certifications, and agreements. Each application 
submitted under paragraph (b)(1) of this section must contain applicable 
items described in paragraphs (b)(2)(i) through (xii) of this section.
    (i) A completed Form RD 4279-1, ``Application for Loan Guarantee.''
    (ii) Form RD 1940-20.
    (iii) A personal credit report from an Agency approved credit 
reporting company for each owner, partner, officer, director, key 
employee, and stockholder owning 20 percent or more interest in the 
borrower's business, except passive investors and those corporations 
listed on a major stock exchange.
    (iv) Appraisals completed in accordance with Sec. 4280.141. 
Completed appraisals should be submitted when the application is filed. 
If the appraisal has not been completed when the application is filed, 
the applicant must submit an estimated appraisal. In all cases, a 
completed appraisal must be submitted prior to the loan being closed.
    (v) Commercial credit reports obtained by the lender on the borrower 
and any parent, affiliate, and subsidiary firms.
    (vi) Current personal and corporate financial statements of any 
guarantors.
    (vii) Intergovernmental consultation comments in accordance with 7 
CFR part 3015, subpart V, of this title.
    (viii) Financial statements as specified in Sec. 4280.111(b)(4)(i) 
through (iii). Financial information is required on the total operation 
of the agricultural producer/rural small business and its parent, 
subsidiary, or affiliates at other locations. All information submitted 
under this paragraph must be substantiated by authoritative records.
    (ix) Business-level feasibility study.
    (x) Lender's complete comprehensive written analysis in accordance 
with Sec. 4280.139.
    (xi) A certification by the lender that it has completed a 
comprehensive written analysis of the proposal, the borrower is 
eligible, the loan is for authorized purposes with technical merit, and 
there is reasonable assurance of repayment ability based on the 
borrower's history, projections, equity, and the collateral to be 
obtained.

[[Page 748]]

    (xii) A proposed Loan Agreement or a sample Loan Agreement with an 
attached list of the proposed Loan Agreement provisions. The following 
requirements must be addressed in the proposed or sample Loan Agreement:
    (A) Prohibition against assuming liabilities or obligations of 
others;
    (B) Restriction on dividend payments;
    (C) Limitation on the purchase or sale of equipment and fixed 
assets;
    (D) Limitation on compensation of officers and owners;
    (E) Minimum working capital or current ratio requirement;
    (F) Maximum debt-to-net worth ratio;
    (G) Restrictions concerning consolidations, mergers, or other 
circumstances;
    (H) Limitations on selling the business without the concurrence of 
the lender;
    (I) Repayment and amortization of the loan;
    (J) 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 for corporate and personal guarantors 
must be updated at least annually once the guarantee is provided;
    (K) Type and frequency of financial statements to be required from 
the borrower for the duration of the loan;
    (L) The addition of any requirements imposed by the Agency in Form 
RD 4279-3;
    (M) A reserved section for any Agency environmental requirements; 
and
    (N) A provision for the lender or the Agency to have reasonable 
access to the project and its performance information during its useful 
life or the term of the loan, whichever is longer, including the 
periodic inspection of the project by a representative of the lender or 
the Agency.
    (c) Application content for guaranteed loans of $600,000 or less. 
Applications and documentation for guaranteed loans $600,000 or less 
must comply with paragraphs (c)(1) and (2) of this section.
    (1) Application Contents. Applications and documentation for 
guaranteed loans $600,000 or less must provide the required information 
organized pursuant to a Table of Contents in a chapter format presented 
in the order shown in Sec. 4280.111(b)(2) through (8), except as 
specified in paragraphs (c)(1)(i) through (iii) of this section.
    (i) Section 4280.111(b)(7)(i) does not apply.
    (ii) Technical Reports must be submitted according to paragraph 
(c)(1)(ii)(A) or (B) of this section, as applicable.
    (A) For renewable energy projects and energy efficiency projects 
utilizing commercially available systems or improvements and with total 
eligible project costs of $200,000 or less, submit a Technical Report as 
described in Appendix A of this subpart. If a renewable energy project 
does not fit on of the technologies identified in Appendix A, the 
applicant must submit a Technical Report that conforms to the overall 
outline and subjects specified in Sec. 4280.111(b)(7)(ii)(G).
    (B) For renewable energy projects and energy efficiency projects 
utilizing pre-commercial technology or with total eligible project costs 
greater than $200,000, submit a Technical Report as described in 
Appendix B of this subpart and as specified in Sec. 
4280.111(b)(7)(ii)(G)(1) through (10), as applicable.
    (iii) Business-level feasibility study for renewable energy systems. 
For each application for a renewable energy system project submitted by 
a start-up or existing business, a business-level feasibility study by 
an independent qualified consultant will be required by the Agency. An 
acceptable business-level feasibility study must at least include an 
evaluation of economic, market, technical, financial, and management 
feasibility. Renewable energy projects with total eligible project costs 
of $200,000 or less are exempt from the feasibility study requirement.
    (2) Lender forms, certifications, and agreements. Applications 
submitted under paragraph (c) of this section must use Form RD 4279-1A, 
``Application for Loan Guarantee, Short Form,'' and include the 
documentation contained in paragraphs (b)(2)(ii), (vii), (viii), (ix), 
(x), and (xii) of this section. The lender must have the documentation 
contained in paragraphs (b)(2)(iii),

[[Page 749]]

(iv), (v), (vi), and (xi) available in its files for the Agency's 
review.



Sec. 4280.129  Evaluation of guaranteed loan applications.

    (a) General review. The Agency will evaluate each application to 
confirm that both the borrower and project are eligible, the project has 
technical merit, there is reasonable assurance of repayment, 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) Ineligible applications. If either the borrower or the project 
is ineligible, the Agency will inform the lender in writing of the 
reasons and provide any appeal rights. No further evaluation of the 
application will occur.
    (c) Incomplete applications. If the application is incomplete, the 
Agency will identify those parts of the application that are incomplete 
and return it, with a written explanation, to the lender for possible 
future resubmission. Upon receipt of a complete application, the Agency 
will complete its evaluation.
    (d) Technical merit determination. The Agency's determination of a 
project's technical merit will be based on the information provided by 
the applicant. The Agency may engage the services of other government 
agencies or recognized industry experts in the applicable technology 
field, at its discretion, to evaluate and rate the application. The 
Agency may use this evaluation and rating to determine the level of 
technical merit of the proposed project. Projects determined by the 
Agency to be without technical merit shall be deemed ineligible.
    (e) Evaluation criteria. The Agency will score each application 
based on the evaluation criteria specified in Sec. 4280.112(e) (except 
for the criteria specified in Sec. 4280.112(e)(5)) and in paragraphs 
(e)(1) and (2) of this section. Points will be awarded for either 
paragraph (e)(1) or (2) of this section, but not both.
    (1) If the interest rate on the loan is to be below the prime rate 
(as published in The Wall Street Journal) plus 1.5 percent, 5 points 
will be awarded.
    (2) If the interest rate on the loan is to be below the prime rate 
(as published in The Wall Street Journal) plus 1 percent, 10 points will 
be awarded.



Sec. 4280.130  Eligible lenders.

    Eligible lenders are those identified in Sec. 4279.29 of this 
chapter, excluding mortgage companies that are part of a bank-holding 
company.



Sec. 4280.131  Lender's functions and responsibilities.

    (a) General. Lenders are responsible for implementing the guaranteed 
loan program under this subpart. All lenders requesting or obtaining a 
loan guarantee must comply with Sec. 4279.30(a)(1)(i) through (ix) of 
this chapter.
    (b) Credit evaluation. The lender's credit evaluation must comply 
with Sec. 4279.30(b) of this chapter.
    (c) Environmental information. Lenders must ensure that borrowers 
furnish all environmental information required under 7 CFR part 1940, 
subpart G, of this title and must comply with Sec. 4279.30(c) of this 
chapter.
    (d) Construction planning and performing development. The lender 
must comply with Sec. 4279.156(a) and (b) of this chapter, except under 
paragraph Sec. 4279.156(a) of this chapter, the lender must also ensure 
that all project facilities are designed utilizing accepted 
architectural and engineering practices that conform to the requirements 
of this subpart.
    (e) Loan closing. The loan closing must be in compliance with Sec. 
4279.30(d) of this chapter.



Sec. 4280.132  Access to records.

    Both the lender and borrower must permit representatives of the 
Agency (or other agencies of the U.S.) to inspect and make copies of any 
records pertaining to any Agency guaranteed loan during regular office 
hours of the lender or borrower or at any other time upon agreement 
between the lender, the borrower, and the Agency, as appropriate.



Sec. 4280.133  Conditions of guarantee.

    All loan guarantees will be subject to Sec. 4279.72 of this 
chapter.

[[Page 750]]



Sec. 4280.134  Sale or assignment of guaranteed loan.

    Any sale or assignment of the guaranteed loan must be in accordance 
with Sec. 4279.75 of this chapter.



Sec. 4280.135  Participation.

    All participation must be in accordance with Sec. 4279.76 of this 
chapter.



Sec. 4280.136  Minimum retention.

    Minimum retention must be in accordance with Sec. 4279.77 of this 
chapter.



Sec. 4280.137  Repurchase from holder.

    Any repurchase from a holder must be in accordance with Sec. 
4279.78 of this chapter.



Sec. 4280.138  Replacement of document.

    Documents must be replaced in accordance with Sec. 4279.84 of this 
chapter, except, in Sec. 4279.84(b)(1)(v), a full statement of the 
circumstances of any defacement or mutilation of the Loan Note Guarantee 
or Assignment Guarantee Agreement would also need to be provided.



Sec. 4280.139  Credit quality.

    The lender must determine credit quality and must address all of the 
elements of credit quality in a written credit analysis, including 
adequacy of equity, cashflow, collateral, history, management, and the 
current status of the industry for which credit is to be extended.
    (a) Cashflow. All efforts will be made to structure debt so that the 
business has adequate debt coverage and the ability to accommodate 
expansion.
    (b) Collateral. Collateral must have documented value sufficient to 
protect the interest of the lender and the Agency. The discounted 
collateral value will normally be at least equal to the loan amount. 
Lenders will discount collateral consistent with sound loan-to-value 
policy. Guaranteed loans made under this subpart shall have at least 
parity position with guaranteed loans made under subpart B of part 4279 
of this title.
    (c) Industry. The current status of the industry will be considered. 
Borrowers developing well established commercially available renewable 
energy systems with significant support infrastructure may be considered 
for better terms and conditions than those borrowers developing systems 
with limited infrastructure.
    (d) Equity. In determining the adequacy of equity, the lender must 
meet the criteria specified in paragraph (d)(1) of this section for 
loans over $600,000 and the criteria in paragraph (d)(2) of this section 
for loans of $600,000 or less. Cash equity injection, as discussed in 
paragraphs (d)(1) and (2) of this section, must be in the form of cash. 
Federal grant funds may be counted as cash equity.
    (1) For loans over $600,000, borrowers shall demonstrate evidence of 
cash equity injection in the project of not less than 25 percent of 
eligible project costs. The fair market value of equity in real property 
that is to be pledged as collateral for the loan may be substituted in 
whole or in part to meet the cash equity requirement. However, the 
appraisal completed to establish the fair market value of the real 
property must not be more than 1 year old and must meet Agency appraisal 
standards.
    (2) For loans of $600,000 or less, borrowers shall demonstrate 
evidence of cash equity injection in the project of not less than 15 
percent of eligible project costs. The fair market value of equity in 
real property that is to be pledged as collateral for the loan may be 
substituted in whole or in part to meet the cash equity requirement. 
However, the appraisal completed to establish the fair market value of 
the real property must not be more than 1 year old and must meet Agency 
appraisal standards.
    (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.

[[Page 751]]



Sec. 4280.140  Financial statements.

    (a) The financial information required in Sec. 4280.111(b)(3)(v) 
and (b)(4) is required for the guaranteed loan program.
    (b) If the proposed guaranteed loan exceeds $3 million, the Agency 
may require annual audited financial statements, at its sole discretion 
when the Agency is concerned about the applicant's credit risk.



Sec. 4280.141  Appraisals.

    (a) Conduct of appraisals. All appraisals must be in accordance with 
Sec. 4279.144 of this chapter.
    (1) For loans of $600,000 or more, a complete self-contained 
appraisal must be conducted. Lenders must complete at least a 
Transaction Screen Questionnaire for any undeveloped sites and a Phase I 
environmental site assessment on existing business sites, which should 
be provided to the appraiser for completion of the self-contained 
appraisal.
    (2) For loans for less than $600,000, a complete summary appraisal 
may be conducted in lieu of a complete self-contained appraisal as 
required under paragraph (a)(1) of this section. Summary appraisals must 
be conducted in accordance with Uniform Standards of Professional 
Appraisal Practice (USPAP).
    (b) Specialized appraisers. Specialized appraisers will be required 
to complete appraisals in accordance with paragraphs (a)(1) and (2) of 
this section. The Agency may approve a waiver of this requirement only 
if a specialized appraiser does not exist in a specific industry or 
hiring one would cause an undue financial burden to the borrower.



Sec. 4280.142  Personal and corporate guarantees.

    (a) All personal and corporate guarantees must be in accordance with 
Sec. 4279.149(a) of this chapter.
    (b) Except for passive investors, unconditional personal and 
corporate guarantees for those owners with a beneficial interest greater 
than 20 percent of the borrower will be required where legally 
permissible.



Sec. 4280.143  Loan approval and obligation of funds.

    The lender and applicant must comply with Sec. 4279.173 of this 
chapter, except that either or both parties may also propose alternate 
conditions to the Conditional Commitment if certain conditions cannot be 
met.



Sec. 4280.144  Transfer of lenders.

    All transfers of lenders must be in accordance with Sec. 4279.174 
of this chapter, except that it will be the Agency rather than the loan 
approval official who may approve the substitution of a new eligible 
lender.



Sec. 4280.145  Changes in borrower.

    All changes in borrowers must be in accordance with Sec. 4279.180 
of this chapter, but the eligibility requirements of this program apply.



Sec. 4280.146  Conditions precedent to issuance of Loan Note Guarantee.

    (a) The Loan Note Guarantee will not be issued until the lender 
certifies to the conditions identified in paragraphs Sec. 4279.181(a) 
through (o) of this chapter and paragraph (b) of this section.
    (b) All planned property acquisitions and development have been 
performing at a steady state operating level in accordance with the 
technical requirements, 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.



Sec. 4280.147  Issuance of the guarantee.

    (a) When loan closing plans are established, the lender must notify 
the Agency in writing. At the same time, or immediately after loan 
closing, the lender must provide the following to the Agency:
    (1) Lender's certifications as required by Sec. 4280.146;
    (2) An executed Form RD 4279-4; and
    (3) An executed Form RD 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:

[[Page 752]]

    (1) Assignment Guarantee Agreement. If the lender assigns the 
guaranteed portion of the loan to a holder, the lender, holder, and the 
Agency must execute the Assignment Guarantee Agreement;
    (2) Certificate of Incumbency. If requested by the lender, the 
Agency will provide the lender with a copy of Form RD 4279-7, 
``Certificate of Incumbency and Signature,'' with the signature and 
title of the Agency official responsible for signing the Loan Note 
Guarantee, Lender's Agreement, and Assignment Guarantee Agreement;
    (3) Copies of legal loan documents; and
    (4) Disbursement plan, if working capital is a purpose of the 
project.



Sec. 4280.148  Refusal to execute Loan Note Guarantee.

    If the Agency determines that it cannot execute the Loan Note 
Guarantee, Sec. 4279.187 of this chapter will apply.



Sec. 4280.149  Requirements after project construction.

    Once the project has been constructed, the lender must provide the 
Agency periodic reports from the borrower. The borrower's reports will 
include the information specified in paragraphs (a) and (b) of this 
section, as applicable.
    (a) Renewable energy projects. For renewable energy projects, 
commencing the first full calendar year following the year in which 
project construction was completed and continuing for 3 full years, 
provide a report detailing the information specified in paragraphs 
(a)(1) through (7) of this section.
    (1) The actual amount of energy produced in BTUs, kilowatt-hours, or 
similar energy equivalents.
    (2) If applicable, documentation that any identified health and/or 
sanitation problem has been solved.
    (3) The annual income and/or energy savings of the renewable energy 
system.
    (4) A summary of the cost of operating and maintaining the facility.
    (5) A description of any maintenance or operational problems 
associated with the facility.
    (6) Recommendations for development of future similar projects.
    (7) Actual jobs created or saved.
    (b) Energy efficiency improvement projects. For energy efficiency 
improvement projects, commencing the first full calendar year following 
the year in which project construction was completed and continuing for 
2 full years, provide a report detailing the actual amount of energy 
saved due to the energy efficiency improvements.



Sec. 4280.150  Insurance requirements.

    Each borrower must obtain the insurance required in Sec. 4280.113. 
The coverage required by this section must be maintained for the life of 
the loan unless this requirement is waived or modified by the Agency in 
writing.



Sec. 4280.151  Laws that contain other compliance requirements.

    Each lender and borrower must comply with the requirements specified 
in Sec. 4280.114(d), Sec. Sec. 4279.58, and 4279.156(c) and (d) of 
this chapter.



Sec. 4280.152  Servicing guaranteed loans.

    The lender must service the entire loan and must remain mortgagee 
and secured party of record notwithstanding the fact that another party 
may hold a portion of the loan. The entire loan must 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.
    (a) Routine servicing. Comply with Sec. 4287.107 of this chapter, 
except that all notifications from the lender to the Agency shall be in 
writing and all actions by the lender in servicing the entire loan must 
be consistent with the servicing actions that a reasonable, prudent 
lender would perform in servicing its own portfolio.
    (b) Interest rate adjustments. Comply with Sec. 4287.112 of this 
chapter, except that under Sec. 4287.112(a)(3) of this chapter the 
interest rates, after adjustments, must comply with the requirements for 
interest rates on new loans as established by Sec. 4280.124.
    (c) Release of collateral. (1) Collateral may only be released in 
accordance with Sec. 4287.113(a) and (b) of this chapter and paragraph 
(c)(2) of this section.

[[Page 753]]

    (2) Within the parameters of paragraph (c)(1) 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 or real estate equal to or greater than the 
collateral being replaced.
    (d) Subordination of lien position. All subordinations of the 
lender's lien position must comply with Sec. 4287.123 of this chapter.
    (e) Alterations of loan instruments. All alterations of loan 
instruments must comply with Sec. 4287.124 of this chapter.
    (f) Loan transfer and assumption. All loan transfers and assumptions 
must comply with Sec. 4287.134(c), (d), (f), (g), and (i) through (k) 
of this chapter in addition to the following:
    (1) Documentation of request. All transfers and assumptions must be 
approved in writing by the Agency and must be to eligible applicants in 
accordance with Sec. 4280.121. An individual credit report must be 
provided for transferee proprietors, partners, offices, 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.
    (2) 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 Sec. 4280.125. 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.
    (3) Additional loans. Loans to provide additional funds in 
connection with a transfer and assumption must be considered as a new 
loan application under Sec. 4280.128.
    (4) 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 Form RD 449-30, ``Loan Note Guaranteed Loss 
of Report,'' 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 Sec. 
4279.78(c) 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 transfer and assumption will be included in the 
calculations.



Sec. 4280.153  Substitution of lender.

    (a) All substitutions of lenders must comply with Sec. 
4287.135(a)(2) and (b) of this chapter and paragraph (b) of this 
section.
    (b) The Agency may approve the substitution of a new lender if the 
proposed substitute lender:
    (1) Is an eligible lender in accordance with Sec. 4280.130;
    (2) Is able to service the loan in accordance with the original loan 
documents; and
    (3) Acquires title to the unguaranteed portion of the loan held by 
the original lender and assumes all original loan requirements, 
including liabilities and servicing responsibilities.



Sec. 4280.154  Default by borrower.

    If the loan goes into default, the lender must comply with Sec. 
4287.145 of this chapter.



Sec. 4280.155  Protective advances.

    All protective advances made by the lender must comply with Sec. 
4287.156 of this chapter.



Sec. 4280.156  Liquidation.

    All liquidations must comply with Sec. 4287.157 of this chapter, 
except as follows:
    (a) Under Sec. 4287.157(d)(13) of this chapter, whenever $200,000 
is used substitute $100,000; and
    (b) Under Sec. 4287.157(d)(13) of this chapter, replace the 
sentence ``The appraisal shall consider this aspect'' with ``Both the 
estimate and the appraisal shall consider this aspect.''

[[Page 754]]



Sec. 4280.157  Determination of loss and payment.

    Loss and payments will be determined in accordance with Sec. 
4287.158 of this chapter.



Sec. 4280.158  Future recovery.

    Future recoveries will be conducted in accordance with Sec. 
4287.169 of this chapter.



Sec. 4280.159  Bankruptcy.

    Bankruptcies will be handled in accordance with Sec. 4287.170 of 
this chapter, except that the notification required under Sec. 
4287.170(b)(4) of this chapter shall be made in writing.



Sec. 4280.160  Termination of guarantee.

    Guarantees will be terminated in accordance with Sec. 4287.180 of 
this chapter.

                         Section C. Direct Loans



Sec. 4280.161  Direct Loan Process.

    (a) The Agency will determine each year whether or not direct loan 
funds are available. For each year in which direct loan funds are 
available, the Agency will publish a Notice of Funds Availability (NOFA) 
in the Federal Register.
    (b) In each direct loan NOFA, the Agency will identify the 
following:
    (1) The amount of funds available for direct loans;
    (2) Applicant and project eligibility criteria;
    (3) Minimum and maximum loan amounts;
    (4) Interest rates;
    (5) Terms of loan;
    (6) Application and documentation requirements;
    (7) Evaluation of applications;
    (8) Actions required of the applicant/borrower (e.g., appraisals, 
land and property acquisition);
    (9) Insurance requirements;
    (10) Laws that contain other compliance requirements;
    (11) Construction planning and performing development;
    (12) Requirements after project construction;
    (13) Letter of Conditions, loan agreement, and loan closing process;
    (14) Processing and servicing of direct loans by the Agency; and
    (15) Any applicable definitions.



Sec. 4280.162-4280.192  [Reserved]

                       Section D. Combined Funding



Sec. 4280.193  Combined funding.

    The requirements for a project for which an applicant is seeking a 
combined grant and guaranteed loan are defined as follows:
    (a) Eligibility. Applicants must meet the applicant eligibility 
requirements specified in Sec. 4280.107 and the borrower eligibility 
requirements specified in Sec. 4280.121. Projects must meet the project 
eligibility requirements specified in Sec. Sec. 4280.108 and 4280.122. 
Applicants may submit simplified applications if the project meets the 
requirements specified in Sec. 4280.109.
    (b) Funding. Funding provided under this section is subject to the 
limits described in paragraphs (b)(1) through (3) of this section.
    (1) The amount of any combined grant and guaranteed loan must not 
exceed 50 percent of total eligible project costs. For purposes of 
combined funding requests, total eligible project costs are based on the 
total costs associated with those items specified in Sec. Sec. 
4280.110(c) and 4280.123(e). The applicant must provide the remaining 
total funds needed to complete the project.
    (2) Third-party, in-kind contributions will be limited to 10 percent 
of the matching fund requirement of any financial assistance provided to 
the applicant.
    (3) The minimum combined funding request allowed is $5,000, with the 
grant portion of the funding request being at least $1,500.
    (c) Application and documentation. When applying for combined 
funding, the applicant must submit separate applications for both types 
of assistance (grant and guaranteed loan). Each application must meet 
the requirements, including the requisite forms and certifications, 
specified in Sec. Sec. 4280.111 and 4280.128. The separate applications 
must be submitted simultaneously. The applicant must submit at least one 
set of documentation, but does not need to submit duplicate forms or 
certifications.
    (d) Evaluation. The Agency will evaluate each application according 
to

[[Page 755]]

applicable procedures specified in Sec. Sec. 4280.112 and 4280.129.
    (e) Interest rate and terms of loan. The interest rate and terms of 
the loan for the loan portion of the combined funding request will be 
determined based on the procedures specified in Sec. Sec. 4280.124 and 
4280.125 for guaranteed loans.
    (f) Other provisions. In addition to the requirements specified in 
paragraphs (a) through (e) of this section, the combined funding request 
shall be subject to the other requirements specified in this subpart, 
including, but not limited to, processing and servicing requirements, as 
applicable, as described in paragraphs (f)(1) and (2) of this section.
    (1) All other provisions of Section A of this subpart shall apply to 
the grant portion of the combined funding request.
    (2) All other provisions of Section B of this subpart shall apply to 
the guaranteed loan portion of the combined funding request.



Sec. Sec. 4280.194-4280.199  [Reserved]



Sec. 4280.200  OMB control number.

    The information collection requirements contained in the regulation 
have been approved by the Office of Management and Budget (OMB) and have 
been assigned OMB control number 0570-0050. A person is not required to 
respond to a collection of information unless it displays a currently 
valid OMB control number.

                        Appendix A to Part 4280--

  Technical Reports for Projects With Total Eligible Project Costs of 
                            $200,000 or Less

    The Technical Report for projects with total eligible project costs 
of $200,000 or less must demonstrate that the project design, 
procurement, installation, startup, operation, and maintenance of the 
renewable energy system or energy efficiency improvement will operate or 
perform as specified over its design life in a reliable and a cost-
effective manner. The Technical Report must also identify all necessary 
project agreements, demonstrate that those agreements will be in place, 
and that necessary project equipment and services are available over the 
design life.
    All technical information provided must follow the format specified 
in Sections 1 through 10 of this appendix. Supporting information may be 
submitted in other formats. Design drawings and process flowcharts are 
encouraged as exhibits. A discussion of each topic is not necessary if 
the topic is not applicable to the specific project. Questions 
identified in the Agency's technical review of the project must be 
answered to the Agency's satisfaction before the application will be 
approved. The applicant must submit the original technical report plus 
one copy to the Rural Development State Office. Depending on the level 
of engineering required for the specific project or if necessary to 
ensure public safety, the services of a licensed professional engineer 
or a team of licensed professional engineers may be required.

                          Section 1. Bioenergy

    The technical requirements specified in this section apply to 
bioenergy projects, which are, as defined in Sec. 4280.103, renewable 
energy systems that produce fuel, thermal energy, or electric power from 
a biomass source, other than an anaerobic digester project.
    (a) Qualifications of key project service providers. List all key 
project service providers. If one or more licensed professionals are 
involved in the project, provide the credentials for each professional.
    (b) Agreements, permits, and certifications. (1) Identify all 
necessary agreements and permits required for the project and the status 
and schedule for securing those agreements and permits.
    (2) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on Form RD 
1940-20, ``Request for Environmental Information,'' and in compliance 
with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate evidence 
of the availability of the renewable resource required for the system to 
operate as designed. Indicate the type, quantity, quality, and 
seasonality of the biomass resource, including harvest and storage, 
where applicable. Where applicable, indicate shipping or receiving 
method and required infrastructure for shipping. For proposed projects 
with an established resource, provide a summary of the resource.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as

[[Page 756]]

to meet the intended purpose, will ensure public safety, and will comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be designed 
and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of equipment;
    (3) Provide a description of the components, materials, or systems 
to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical interconnection. 
Provide diagrams or schematics as required showing all major installed 
structural, mechanical, and electrical components of the system;
    (5) Describe the expected electric power, fuel production, or 
thermal energy production of the proposed system as rated and as 
expected in actual field conditions. For systems with a capacity of more 
than 20 tons per day of biomass, address performance on a monthly and 
annual basis. For small projects such as a commercial biomass furnace or 
pelletizer of up to 5 tons daily capacity, proven, commercially 
available devices need not be addressed in detail. Describe the uses of 
or the market for electricity, heat, or fuel produced by the system;
    (6) Discuss the impact of reduced or interrupted biomass 
availability on the system process; and
    (7) Describe the project site and address issues such as proximity 
to the load or the electrical grid, unique safety concerns, and whether 
special circumstances exist.
    (e) Project development schedule. Provide a project schedule in an 
appropriate level of detail that will demonstrate that the project can 
be adequately managed and be able to identify impacts of any delays on 
the project completion. The applicant must submit a statement certifying 
that the project will be completed within 2 years from the date of 
approval.
    (f) Project economic assessment. Provide an analysis of the proposed 
project to demonstrate its financial performance, including the 
calculation of simple payback. The analysis should include applicable 
investment incentives, productivity incentives, loans and grants, and 
expected energy offsets or sales on a monthly and annual basis. In 
addition, provide other information necessary to assess the project's 
cost effectiveness.
    (g) Equipment procurement. Include a statement from the applicant 
certifying that ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the applicant 
certifying that equipment installation will be made in accordance with 
all applicable safety and work rules. Upon successful system 
installation and following established operation, the successful 
applicant must deliver invoices and evidence of payment.
    (i) Operations and maintenance. Identify any unique operations and 
maintenance requirements of the project necessary for the system to 
operate as designed over the design life. State the design life of the 
system.
    (1) Provide information on all system warranties. A minimum 3-year 
warranty for equipment and a 10-year warranty on design are expected.
    (2) If the project has any unique operation and maintenance issues, 
describe them.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives.

                 Section 2. Anaerobic Digester Projects

    The technical requirements specified in this section apply to 
anaerobic digester projects, which are, as defined in Sec. 4280.103, 
renewable energy systems that use animal waste and other organic 
substrates to produce thermal or electrical energy via anaerobic 
digestion.
    (a) Qualifications of key project service providers. List all key 
project service providers. If one or more licensed professionals are 
involved in the project, provide the credentials for each professional.
    (b) Agreements, permits, and certifications. (1) Identify all 
necessary agreements and permits required for the project and the status 
and schedule for securing those agreements and permits.
    (2) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on Form RD 
1940-20, ``Request for Environmental Information,'' and in compliance 
with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of digestible substrate resource available. 
Indicate the source of the data and assumptions. Indicate the substrates 
used as digester inputs, including animal wastes, food-processing 
wastes, or other organic wastes in terms of type, quantity,

[[Page 757]]

seasonality, and frequency of collection. Describe any special handling 
of feedstock that may be necessary. Describe the process for determining 
the feedstock resource. Show the digestion conversion factors and 
calculations used to estimate biogas production and heat or power 
production.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as to 
meet the intended purpose, will ensure public safety, and will comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be designed 
and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of equipment;
    (3) Provide a description of the components, materials, or systems 
to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical interconnection. 
Provide diagrams or schematics as required showing all major installed 
structural, mechanical, and electrical components of the system;
    (5) Describe the expected electric power, fuel production, or 
thermal energy production of the proposed system as rated and as 
expected in actual field conditions. Describe the uses of or the market 
for electricity, heat, or fuel produced by the system; and
    (6) Describe the project site and address issues such as proximity 
to the load or the electrical grid, unique safety concerns, and whether 
special circumstances exist.
    (e) Project development schedule. Provide a project schedule in an 
appropriate level of detail that will demonstrate the project can be 
adequately managed and be able to identify impacts of any delays on the 
project completion. The applicant must submit a statement certifying 
that the project will be completed within 2 years from the date of 
approval.
    (f) Project economic assessment. Provide an analysis of the proposed 
project to demonstrate its financial performance, including the 
calculation of simple payback. The analysis should include applicable 
investment incentives, productivity incentives, loans and grants, and 
expected energy offsets or sales on a monthly and annual basis. In 
addition, provide other information necessary to assess the project's 
cost effectiveness.
    (g) Equipment procurement. Include a statement from the applicant 
certifying ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the applicant 
certifying that equipment installation will be made in accordance with 
all applicable safety and work rules. Upon successful system 
installation and following established operation, the successful 
applicant must deliver invoices and evidence of payment.
    (i) Operations and maintenance. Identify any unique operations and 
maintenance requirements of the project necessary for the system to 
operate as designed over the design life. State the design life of the 
system.
    (1) Provide information on all system warranties. A minimum 3-year 
warranty for equipment and a 10-year warranty on design are expected.
    (2) If the project has any unique operation and maintenance issues, 
describe them.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives.

               Section 3. Geothermal, Electric Generation

    The technical requirements specified in this section apply to 
electric generation geothermal projects, which are, as defined in Sec. 
4280.103, systems that use geothermal energy to produce high pressure 
steam for electric power production.
    (a) Qualifications of key project service providers. List all key 
project service providers. If one or more licensed professionals are 
involved in the project, provide the credential for each professional.
    (b) Agreements, permits, and certifications. (1) Identify all 
necessary agreements and permits required for the project and the status 
and schedule for securing those agreements and permits, including any 
permits or agreements required for well construction and for disposal or 
re-injection of cooled geothermal waters and the schedule for securing 
those agreements and permits.
    (2) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on Form RD 
1940-20, ``Request for Environmental Information,'' and in compliance 
with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate evidence 
of the availability of the renewable resource required for the system to 
operate as designed. Indicate the

[[Page 758]]

quality of the geothermal resource, including temperature, flow, and 
sustainability and what conversion system is to be installed. Describe 
any special handling of cooled geothermal waters that may be necessary. 
Describe the process for determining the geothermal resource, including 
measurement setup for the collection of the geothermal resource data. 
For proposed projects with an established resource, provide a summary of 
the resource and the specifications of the measurement setup.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as to 
meet the intended purpose, will ensure public safety, and will comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be designed 
and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of equipment;
    (3) Provide a description of the components, materials, or systems 
to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical interconnection. 
Provide diagrams or schematics as required showing all major installed 
structural, mechanical, and electrical components of the system;
    (5) Describe the expected electric power, fuel production, or 
thermal energy production of the proposed system as rated and as 
expected in actual field conditions. Describe the uses of or the market 
for electricity, heat, or fuel produced by the system; and
    (6) Describe the project site and address issues such as proximity 
to the load or the electrical grid, unique safety concerns, and whether 
special circumstances exist.
    (e) Project development schedule. Provide a project schedule in an 
appropriate level of detail that will demonstrate that the project can 
be adequately managed and be able to identify impacts of any delays on 
the project completion. The applicant must submit a statement certifying 
that the project will be completed within 2 years from the date of 
approval.
    (f) Project economic assessment. Provide an analysis of the proposed 
project to demonstrate its financial performance, including the 
calculation of simple payback. The analysis should include applicable 
investment incentives, productivity incentives, loans and grants, and 
expected energy offsets or sales on a monthly and annual basis. In 
addition, provide other information necessary to assess the project's 
cost effectiveness.
    (g) Equipment procurement. Include a statement from the applicant 
certifying that ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the applicant 
certifying that equipment installation will be made in accordance with 
all applicable safety and work rules. Upon successful system 
installation and following established operation, the successful 
applicant must deliver invoices and evidence of payment.
    (i) Operations and maintenance. Identify any unique operations and 
maintenance requirements of the project necessary for the system to 
operate as designed over the design life. State the design life of the 
system.
    (1) Provide information on all system warranties. A minimum 3-year 
warranty for equipment and a 10-year warranty on design are expected.
    (2) If the project has any unique operation and maintenance issues, 
describe them.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives.

                    Section 4. Geothermal, Direct Use

    The technical requirements specified in this section apply to direct 
use geothermal projects, which are, as defined in Sec. 4280.103, 
systems that use thermal energy directly from a geothermal source.
    (a) Qualifications of key project service providers. List all key 
project service providers. If one or more licensed professionals are 
involved in the project, provide the credentials for each professional.
    (b) Agreements, permits, and certifications. (1) Identify all 
necessary agreements and permits required for the project and the status 
and schedule for securing those agreements and permits, including any 
permits or agreements required for well construction and for disposal or 
re-injection of cooled geothermal waters and the schedule for securing 
those agreements and permits.
    (2) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on Form RD 
1940-20, ``Request for Environmental Information,'' and in compliance 
with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate evidence 
of the availability of the renewable resource required for the system to 
operate as designed. Indicate the quality of the geothermal resource, 
including temperature, flow, and sustainability and what direct use 
system is to be installed. Describe any special handling of cooled 
geothermal waters that may be necessary. Describe the process for 
determining the geothermal resource, including measurement

[[Page 759]]

setup for the collection of the geothermal resource data. For proposed 
projects with an established resource, provide a summary of the resource 
and the specifications of the measurement setup.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as to 
meet the intended purpose, will ensure public safety, and will comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be designed 
and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of equipment;
    (3) Provide a description of the components, materials, or systems 
to be installed. Include the location of the project;
    (4) Provide one-line diagram for the electrical interconnection. 
Provide diagrams or schematics as required showing all major installed 
structural, mechanical, and electrical components of the system;
    (5) Describe the expected thermal energy production of the proposed 
system as rated and as expected in actual field conditions. Describe the 
uses of, or the market for, heat produced by the system; and
    (6) Describe the project site and address issues such as proximity 
to the load, unique safety concerns, and whether special circumstances 
exist.
    (e) Project development schedule. Provide a project schedule in an 
appropriate level of detail that will demonstrate the project can be 
adequately managed and be able to identify impacts of any delays on the 
project completion. The applicant must submit a statement certifying 
that the project will be completed within 2 years from the date of 
approval.
    (f) Project economic assessment. Provide an analysis of the proposed 
project to demonstrate its financial performance, including the 
calculation of simple payback. The analysis should include applicable 
investment incentives, productivity incentives, loans and grants, and 
expected energy offsets or sales on a monthly and annual basis. In 
addition, provide other information necessary to assess the project's 
cost effectiveness.
    (g) Equipment procurement. Include a statement from the applicant 
certifying that ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the applicant 
certifying that equipment installation will be made in accordance with 
all applicable safety and work rules. Upon successful system 
installation and following established operation, the successful 
applicant must deliver invoices and evidence of payment.
    (i) Operations and maintenance. Identify any unique operations and 
maintenance requirements of the project necessary for the system to 
operate as designed over the design life. State the design life of the 
system.
    (1) Provide information on all system warranties. A minimum 3-year 
warranty for equipment and a 10-year warranty on design are expected.
    (2) If the project has any unique operation and maintenance issues, 
describe them.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives.

                           Section 5. Hydrogen

    The technical requirements specified in this section apply to 
hydrogen projects, which are, as defined in Sec. 4280.103, renewable 
energy systems that produce hydrogen, or a renewable energy system that 
uses mechanical or electric power or thermal energy from a renewable 
resource using hydrogen as an energy transport medium.
    (a) Qualifications of key project service providers. List all key 
project service providers. If one or more licensed professionals are 
involved in the project, provide the credentials for each professional.
    (b) Agreements, permits, and certifications. (1) Identify all 
necessary agreements and permits required for the project and the status 
and schedule for securing those agreements and permits.
    (2) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on Form RD 
1940-20, ``Request for Environmental Information,'' and in compliance 
with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the type, quantity, quality, and seasonality of the local 
renewable resource that will be used to produce the hydrogen.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as to 
meet the intended purpose, will ensure

[[Page 760]]

public safety, and will comply with applicable laws, regulations, 
agreements, permits, codes, and standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be designed 
and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of equipment;
    (3) Provide a description of the components, materials, or systems 
to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical interconnection. 
Provide diagrams or schematics as required showing all major installed 
structural, mechanical, and electrical components of the system; and
    (5) Describe the project site and address issues such as proximity 
to the load or the electrical grid, unique safety concerns, and whether 
special circumstances exist.
    (e) Project development schedule. Provide a project schedule in an 
appropriate level of detail that will demonstrate the project can be 
adequately managed and be able to identify impacts of any delays on the 
project completion. The applicant must submit a statement certifying 
that the project will be completed within 2 years from the date of 
approval.
    (f) Project economic assessment. Provide an analysis of the proposed 
project to demonstrate its financial performance, including the 
calculation of simple payback. The analysis should include applicable 
investment incentives, productivity incentives, loans and grants, and 
expected energy offsets or sales on a monthly and annual basis. In 
addition, provide other information necessary to assess the project's 
cost effectiveness.
    (g) Equipment procurement. Include a statement from the applicant 
certifying that ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the applicant 
certifying that equipment installation will be made in accordance with 
all applicable safety and work rules. Upon successful system 
installation and following established operation, the successful 
applicant must deliver invoices and evidence of payment.
    (i) Operations and maintenance. Identify any unique operations and 
maintenance requirements of the project necessary for the system to 
operate as designed over the design life. State the design life of the 
system.
    (1) Provide information on all system warranties. A minimum 3-year 
warranty for equipment and a 10-year warranty on design are expected.
    (2) If the project has any unique operation and maintenance issues, 
describe them.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives.

                         Section 6. Solar, Small

    The technical requirements specified in this section apply to small 
solar electric projects and small solar thermal projects, as defined in 
Sec. 4280.103.
    Small solar electric projects are those for which the rated power of 
the system is 10kW or smaller. Small solar electric projects are either 
stand-alone (off grid) or interconnected to the grid at less than 600 
volts (on grid).
    Small solar thermal projects are those for which the rated storage 
volume of the system is 240 gallons or smaller, or which have a 
collector area of 1,000 square feet or less.
    (a) Qualifications of key project service providers. List all key 
project service providers. If one or more licensed professionals are 
involved in the project, provide the credentials for each professional.
    (b) Agreements, permits, and certifications. (1) Identify all 
necessary agreements and permits required for the project and the status 
and schedule for securing those agreements and permits.
    (2) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on Form RD 
1940-20, ``Request for Environmental Information,'' and in compliance 
with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of solar resource available. Indicate the source 
of the solar data and assumptions.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as to 
meet the intended purpose, will ensure public safety, and will comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be designed 
and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of equipment;

[[Page 761]]

    (3) Provide a description of the components, materials, or systems 
to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical interconnection. 
Provide diagrams or schematics as required showing all major installed 
structural, mechanical, and electrical components of the system; and
    (5) Describe the project site and address issues such as solar 
access, orientation, proximity to the load or the electrical grid, 
unique safety concerns, and whether special circumstances exist.
    (e) Project development schedule. Provide a project schedule in an 
appropriate level of detail that will demonstrate that the project can 
be adequately managed and be able to identify impacts of any delays on 
the project completion. The applicant must submit a statement certifying 
that the project will be completed within 2 years from the date of 
approval.
    (f) Project economic assessment. Provide an analysis of the proposed 
project to demonstrate its financial performance, including the 
calculation of simple payback. The analysis should include applicable 
investment incentives, productivity incentives, loans and grants, and 
expected energy offsets or sales on a monthly and annual basis. In 
addition, provide other information necessary to assess the project's 
cost effectiveness.
    (g) Equipment procurement. Include a statement from the applicant 
certifying that ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the applicant 
certifying that equipment installation will be made in accordance with 
all applicable safety and work rules. Upon successful system 
installation and following established operation, the successful 
applicant must deliver invoices and evidence of payment.
    (i) Operations and maintenance. Identify any unique operations and 
maintenance requirements of the project necessary for the system to 
operate as designed over the design life. State the design life of the 
system.
    (1) Provide information on all system warranties. A minimum 3-year 
warranty for equipment and a 10-year warranty on design are expected.
    (2) If the project has any unique operation and maintenance issues, 
describe them.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives.

                         Section 7. Solar, Large

    The technical requirements specified in this section apply to large 
solar electric projects and large solar thermal projects, as defined in 
Sec. 4280.103.
    Large solar electric systems are those for which the rated power of 
the system is larger than 10kW. Large solar electric systems are either 
stand-alone (off grid) or interconnected to the grid (on grid).
    Large solar thermal systems are those for which the rated storage 
volume of the system is greater than 240 gallons or that have a 
collector area of more than 1,000 square feet.
    (a) Qualifications of key project service providers. List all key 
project service providers. If one or more licensed professionals are 
involved in the project, provide the credential for each professional.
    (b) Agreements, permits, and certifications. (1) Identify all 
necessary agreements and permits required for the project and the status 
and schedule for securing those agreements and permits.
    (2) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on Form RD 
1940-20, ``Request for Environmental Information,'' and in compliance 
with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of solar resource available. Indicate the source 
of the solar data and assumptions.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as to 
meet the intended purpose, will ensure public safety, and will comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be designed 
and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of equipment;
    (3) Provide a description of the components, materials, or systems 
to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical interconnection. 
Provide diagrams or

[[Page 762]]

schematics as required showing all major installed structural, 
mechanical, and electrical components of the system; and
    (5) Describe the project site and address issues such as solar 
access, orientation, proximity to the load or the electrical grid, 
unique safety concerns, and whether special circumstances exist.
    (e) Project development schedule. Provide a project schedule in an 
appropriate level of detail that will demonstrate the project can be 
adequately managed and be able to identify impacts of any delays on the 
project completion. The applicant must submit a statement certifying 
that the project will be completed within 2 years from the date of 
approval.
    (f) Project economic assessment. Provide an analysis of the proposed 
project to demonstrate its financial performance, including the 
calculation of simple payback. The analysis should include applicable 
investment incentives, productivity incentives, loans and grants, and 
expected energy offsets or sales on a monthly and annual basis. In 
addition, provide other information necessary to assess the project's 
cost effectiveness.
    (g) Equipment procurement. Include a statement from the applicant 
certifying that ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the applicant 
certifying that equipment installation will be made in accordance with 
all applicable safety and work rules. Upon successful system 
installation and following established operation, the successful 
applicant must deliver invoices and evidence of payment.
    (i) Operations and maintenance. Identify any unique operations and 
maintenance requirements of the project necessary for the system to 
operate as designed over the design life. State the design life of the 
system.
    (1) Provide information on all system warranties. A minimum 3-year 
warranty for equipment and a 10-year warranty on design are expected.
    (2) If the project has any unique operation and maintenance issues, 
describe them.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives.

                         Section 8. Wind, Small

    The technical requirements specified in this section apply to small 
wind systems, which are, as defined in Sec. 4280.103, wind energy 
systems for which the rated power of the wind turbine is 100kW or 
smaller and with a generator hub height of 120 feet or less. Small wind 
systems are either stand-alone or connected to the local electrical 
system at less than 600 volts.
    (a) Qualifications of key project service providers. List all key 
project service providers. If one or more licensed professionals are 
involved in the project, provide the credentials for each professional.
    (b) Agreements, permits, and certifications. (1) Identify all 
necessary agreements and permits required for the project and the status 
and schedule for securing those agreements and permits.
    (2) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on Form RD 
1940-20, ``Request for Environmental Information,'' and in compliance 
with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of local wind resource where the small wind 
turbine is to be installed. Indicate the source of the wind data and 
assumptions.
    (d) Design and engineering. Applicants must certify that their 
project will be designed and engineered so as to meet the intended 
purpose, will ensure public safety, and will comply with applicable 
laws, regulations, agreements, permits, codes, and standards. In 
addition, applicants must:
    (1) Provide authoritative evidence that the system will be designed 
and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of equipment;
    (3) Provide a description of the components, materials, or systems 
to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical interconnection. 
Provide diagrams or schematics as required showing all major installed 
structural, mechanical, and electrical components of the system; and
    (5) Describe the project site and address issues such as proximity 
to the load or the electrical grid, unique safety concerns, and whether 
special circumstances exist.
    (e) Project development schedule. Provide a project schedule in an 
appropriate level of detail that will demonstrate the project can be 
adequately managed and be able to identify impacts of any delays on the 
project completion. The applicant must submit a

[[Page 763]]

statement certifying that the project will be completed within 2 years 
from the date of approval.
    (f) Project economic assessment. Provide an analysis of the proposed 
project to demonstrate its financial performance, including the 
calculation of simple payback. The analysis should include applicable 
investment incentives, productivity incentives, loans and grants, and 
expected energy offsets or sales on a monthly and annual basis. In 
addition, provide other information necessary to assess the project's 
cost effectiveness.
    (g) Equipment procurement. Include a statement from the applicant 
certifying that ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the applicant 
certifying that equipment installation will be made in accordance with 
all applicable safety and work rules. Upon successful system 
installation and following established operation, the successful 
applicant must deliver invoices and evidence of payment.
    (i) Operations and maintenance. Identify any unique operations and 
maintenance requirements of the project necessary for the system to 
operate as designed over the design life. State the design life of the 
system.
    (1) Provide information on all system warranties. A minimum 3-year 
warranty for equipment and a 10-year warranty on design are expected.
    (2) If the project has any unique operation and maintenance issues, 
describe them.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives.

                         Section 9. Wind, Large

    The technical requirements specified in this section apply to large 
wind systems, which are, as defined in Sec. 4280.103, wind energy 
projects for which the rated power of the individual wind turbine(s) is 
larger than 100kW.
    (a) Qualifications of key project service providers. List all key 
project service providers. If one or more licensed professionals are 
involved in the project, provide the credentials for each professional.
    (b) Agreements, permits, and certifications. (1) Identify all 
necessary agreements and permits required for the project and the status 
and schedule for securing those agreements and permits.
    (2) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on Form RD 
1940-20, ``Request for Environmental Information,'' and in compliance 
with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of local wind resource where the large wind 
turbine is to be installed. Indicate the source of the wind data and 
assumptions. Projects greater than 500kW must obtain wind data from the 
proposed project site. For such projects, describe the proposed 
measurement setup for the collection of the wind resource data. For 
proposed projects with an established wind resource, provide a summary 
of the wind resource and the specifications of the measurement setup. 
Large wind systems larger than 500kW in size will typically require at 
least 1 year of on-site monitoring. If less than 1 year of data is used, 
the qualified meteorological consultant must provide a detailed analysis 
of correlation between the site data and a nearby long-term measurement 
site.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as to 
meet the intended purpose, will ensure public safety, and will comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be designed 
and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of equipment;
    (3) Provide a description of the components, materials, or systems 
to be installed. Include the location of the project;
    (4) Provide one-line diagram for the electrical interconnection. 
Provide diagrams or schematics as required showing all major installed 
structural, mechanical, and electrical components of the system; and
    (5) Describe the project site and address issues such as proximity 
to the load or the electrical grid, unique safety concerns, and whether 
special circumstances exist.
    (e) Project development schedule. Provide a project schedule in an 
appropriate level of detail that will demonstrate the project can be 
adequately managed and be able to identify impacts of any delays on the 
project completion. The applicant must submit a statement certifying 
that the project will be

[[Page 764]]

completed within 3 years from the date of approval.
    (f) Project economic assessment. Provide an analysis of the proposed 
project to demonstrate its financial performance, including the 
calculation of simple payback. The analysis should include applicable 
investment incentives, productivity incentives, loans and grants, and 
expected energy offsets or sales on a monthly and annual basis. In 
addition, provide other information necessary to assess the project's 
cost effectiveness.
    (g) Equipment procurement. Include a statement from the applicant 
certifying that ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the applicant 
certifying that equipment installation will be made in accordance with 
all applicable safety and work rules. Upon successful system 
installation and following established operation, the successful 
applicant must deliver invoices and evidence of payment.
    (i) Operations and maintenance. Identify any unique operations and 
maintenance requirements of the project necessary for the system to 
operate as designed over the design life. State the design life of the 
system.
    (1) Provide information on all system warranties. A minimum 3-year 
warranty for equipment and a 10-year warranty on design are expected.
    (2) If the project has any unique operation and maintenance issues, 
describe them.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives.

               Section 10. Energy Efficiency Improvements

    The technical requirements specified in this section apply to energy 
efficiency improvement projects, which are, as defined in Sec. 
4280.103, improvements to a facility, building, or process that reduces 
energy consumption.
    (a) Qualifications of key project service providers. List all key 
project service providers. If one or more licensed professionals are 
involved in the project, provide the credentials for each professional. 
For projects with total eligible project costs greater than $50,000, 
also discuss the qualifications of the energy auditor, including any 
relevant certifications by recognized organizations or bodies.
    (b) Agreements, permits, and certifications. (1) The applicant must 
certify that they will comply with all necessary agreements and permits 
required for the project. Indicate the status and schedule for securing 
those agreements and permits.
    (2) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on Form RD 
1940-20, ``Request for Environmental Information,'' and in compliance 
with 7 CFR part 1940, subpart G, of this title.
    (c) Energy assessment. (1) For all energy efficiency improvement 
projects, provide adequate and appropriate evidence of energy savings 
expected when the system is operated as designed.
    (2) For energy efficiency improvement projects with total eligible 
project costs greater than $50,000, an energy audit must be conducted. 
An energy audit is a written report by an independent, qualified party 
that documents current energy usage, recommended potential improvements 
and their costs, energy savings from these improvements, dollars saved 
per year, and simple payback period in years (total costs divided by 
annual dollars of energy savings). The methodology of the energy audit 
must meet professional and industry standards. The energy audit must 
cover the following:
    (i) Situation report. Provide a narrative description of the 
facility or process, its energy system(s) and usage, and activity 
profile. Also include price per unit of energy (electricity, natural 
gas, propane, fuel oil, renewable energy, etc.,) paid by the customer on 
the date of the audit. Any energy conversion should be based on use 
rather than source.
    (ii) Potential improvements. List specific information on all 
potential energy-saving opportunities and their costs.
    (iii) Technical analysis. Discuss the interactions among the 
potential improvements and other energy systems.
    (A) Estimate the annual energy and energy costs savings expected 
from each improvement identified in the potential project.
    (B) Calculate all direct and attendant indirect costs of each 
improvement.
    (C) Rank potential improvement measures by cost-effectiveness.
    (iv) Potential improvement description. Provide a narrative summary 
of the potential improvement and its ability to provide needed benefits, 
including a discussion of nonenergy benefits such as project reliability 
and durability.
    (A) Provide preliminary specifications for critical components.
    (B) Provide preliminary drawings of project layout, including any 
related structural changes.
    (C) Document baseline data compared to projected consumption, 
together with any explanatory notes. When appropriate, show before-and-
after data in terms of consumption per unit of production, time or area. 
Include at least 1 year's bills for those energy sources/fuel types 
affected by this project.

[[Page 765]]

Also submit utility rate schedules, if appropriate.
    (D) Identify significant changes in future related operations and 
maintenance costs.
    (E) Describe explicitly how outcomes will be measured.
    (d) Design and engineering. The applicant must submit a statement 
certifying that their project will be designed and engineered so as to 
meet the intended purpose, will ensure public safety, and will comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards.
    (1) Identify possible suppliers and models of major pieces of 
equipment.
    (2) Describe the components, materials, or systems to be installed. 
Include the location of the project.
    (e) Project development schedule. Provide a project schedule in an 
appropriate level of detail that will demonstrate the project can be 
adequately managed. The applicant must submit a statement certifying 
that the project will be completed within 2 years from the date of 
approval.
    (f) Project economic assessment. For projects with total eligible 
project costs greater than $50,000, provide an analysis of the proposed 
project to demonstrate its financial performance, including the 
calculation of simple payback. The analysis should include applicable 
investment incentives, productivity incentives, loans and grants, and 
expected energy offsets or sales on a monthly and annual basis. In 
addition, provide other information necessary to assess the project's 
cost effectiveness.
    (g) Equipment procurement. Include a statement from the applicant 
certifying that ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the applicant 
certifying that equipment installation will be made in accordance with 
all applicable safety and work rules. Upon successful system 
installation and following established operation, the successful 
applicant must deliver invoices and evidence of payment.
    (i) Operations and maintenance. Identify any unique operations and 
maintenance requirements of the project necessary for the improvement(s) 
to perform as designed over the design life. State the design life of 
the improvement(s). Provide information regarding component warranties.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and proper disposal of the project components and 
associated wastes at the end of their useful lives.

                        Appendix B to Part 4280--

Technical Reports for Projects With Total Eligible Project Costs Greater 
                              Than $200,000

    The Technical Report for projects with total eligible project costs 
greater than $200,000 (and for any other project that must submit a 
Technical Report under this appendix) must demonstrate that the project 
design, procurement, installation, startup, operation, and maintenance 
of the renewable energy system or energy efficiency improvement will 
operate or perform as specified over its design life in a reliable and a 
cost-effective manner. The Technical Report must also identify all 
necessary project agreements, demonstrate that those agreements will be 
in place, and that necessary project equipment and services are 
available over the design life.
    All technical information provided must follow the format specified 
in Sections 1 through 10 of this appendix. Supporting information may be 
submitted in other formats. Design drawings and process flowcharts are 
encouraged as exhibits. A discussion of each topic is not necessary if 
the topic is not applicable to the specific project. Questions 
identified in the Agency's technical review of the project must be 
answered to the Agency's satisfaction before the application will be 
approved. The applicant must submit the original technical report plus 
one copy to the Rural Development State Office. Renewable energy 
projects with total eligible project costs greater than $400,000 and for 
energy efficiency improvement projects with total eligible project costs 
greater than $200,000 require the services of a licensed professional 
engineer (PE) or team of PEs. Depending on the level of engineering 
required for the specific project or if necessary to ensure public 
safety, the services of a licensed PE or a team of licensed PEs may be 
required for smaller projects.

                          Section 1. Bioenergy

    The technical requirements specified in this section apply to 
bioenergy projects, which are, as defined in Sec. 4280.103, renewable 
energy systems that produce fuel, thermal energy, or electric power from 
a biomass source, other than an anaerobic digester project.
    (a) Qualifications of project team. The bioenergy project team will 
vary according to the complexity and scale of the project. For 
engineered systems, the project team should consist of a system 
designer, a project manager, an equipment supplier, a project engineer, 
a construction contractor or system installer, and a system operator and 
maintainer. One individual or entity may serve more than one role. The 
project team must

[[Page 766]]

have demonstrated expertise in similar bioenergy systems development, 
engineering, installation, and maintenance. Authoritative evidence that 
project team service providers have the necessary professional 
credentials or relevant experience to perform the required services must 
be provided. Authoritative evidence that vendors of proprietary 
components can provide necessary equipment and spare parts for the 
system to operate over its design life must also be provided. The 
application must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (2) Discuss the bioenergy system equipment manufacturers of major 
components being considered in terms of the length of time in business 
and the number of units installed at the capacity and scale being 
considered;
    (3) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor qualifications 
for engineering, designing, and installing bioenergy systems, including 
any relevant certifications by recognized organizations. Provide a list 
of the same or similar projects designed, installed, or supplied and 
currently operating with references, if available; and
    (4) Describe the system operator's qualifications and experience for 
servicing, operating, and maintaining bioenergy renewable energy 
equipment or projects. Provide a list of the same or similar projects 
designed, installed, or supplied and currently operating with 
references, if available.
    (b) Agreements, permits, and certifications. Identify all necessary 
agreements and permits required for the project and the status and 
schedule for securing those agreements and permits, including the items 
specified in paragraphs (b)(1) through (8).
    (1) Identify zoning and code issues, and required permits and the 
anticipated schedule for meeting those requirements and securing those 
permits.
    (2) Identify licenses where required and the schedule for obtaining 
those licenses.
    (3) Identify land use agreements required for the project and the 
anticipated schedule for securing the agreements and the term of those 
agreements.
    (4) Identify any permits or agreements required for solid, liquid, 
and gaseous emissions or effluents and the schedule for securing those 
permits and agreements.
    (5) Identify available component warranties for the specific project 
location and size.
    (6) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (7) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 CFR 
part 1940, subpart G, of this title.
    (8) Submit a statement certifying that the project will be installed 
in accordance with applicable local, State, and national codes and 
regulations.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Indicate the 
type, quantity, quality, and seasonality of the biomass resource, 
including harvest and storage, where applicable. Where applicable, also 
indicate shipping or receiving method and required infrastructure for 
shipping. For proposed projects with an established resource, provide a 
summary of the resource.
    (d) Design and engineering. Provide authoritative evidence that the 
system will be designed and engineered so as to meet its intended 
purpose, will ensure public safety, and will comply with applicable 
laws, regulations, agreements, permits, codes, and standards. Projects 
shall be engineered by a qualified party. Systems must be engineered as 
a complete, integrated system with matched components. The engineering 
must be comprehensive, including site selection, system and component 
selections, and system monitoring equipment. Systems must be constructed 
by a qualified party.
    (1) Provide a concise but complete description of the bioenergy 
project, including location of the project, resource characteristics, 
system specifications, electric power system interconnection, and 
monitoring equipment. Identify possible vendors and models of major 
system components. Describe the expected electric power, fuel 
production, or thermal energy production of the proposed system as rated 
and as expected in actual field conditions. For systems with a capacity 
of more than 20 tons per day of biomass, address performance on a 
monthly and annual basis. For small projects such as a commercial 
biomass furnace or pelletizer of up to 5 tons daily capacity, proven, 
commercially available devices need not be addressed in detail. Describe 
the uses of or the market for

[[Page 767]]

electricity, heat, or fuel produced by the system. Discuss the impact of 
reduced or interrupted biomass availability on the system process.
    (2) Describe the project site and address issues such as site 
access, foundations, backup equipment when applicable, and environmental 
concerns with emphasis on land use, air quality, water quality, soil 
degradation, habitat fragmentation, land use, visibility, odor, noise, 
construction, and installation issues. Identify any unique construction 
and installation issues.
    (e) Project development schedule. Identify each significant task, 
its beginning and end, and its relationship to the time needed to 
initiate and carry the project through startup and shakedown. Provide a 
detailed description of the project timeline, including resource 
assessment, system and site design, permits and agreements, equipment 
procurement, and system installation from excavation through startup and 
shakedown.
    (f) Project economic assessment. Provide a study that describes the 
costs and revenues of the proposed project to demonstrate the financial 
performance of the project, including the calculation of simple payback. 
Provide a detailed analysis and description of project costs, including 
project management, resource assessment, project design, project 
permitting, land agreements, equipment, site preparation, system 
installation, startup and shakedown, warranties, insurance, financing, 
professional services, and operations and maintenance costs. Provide a 
detailed analysis and description of annual project revenues and 
expenses. Provide a detailed description of applicable investment 
incentives, productivity incentives, loans, and grants. In addition, 
provide other information necessary to assess the project's cost 
effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required by 
the system is available and can be procured and delivered within the 
proposed project development schedule. Bioenergy systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues such as 
scheduling and timing of component manufacture and delivery, ordering, 
warranties, shipping, receiving, and on-site storage or inventory. 
Identify all the major equipment that is proprietary and justify how 
this unique equipment is needed to meet the requirements of the proposed 
design. Include a statement from the applicant certifying that ``open 
and free'' competition will be used for the procurement of project 
components in a manner consistent with the requirements of 7 CFR part 
3015 of this title.
    (h) Equipment installation. Fully describe the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment needed for 
project construction, and provide a description of the startup and 
shakedown specifications and process and the conditions required for 
startup and shakedown for each equipment item individually and for the 
system as a whole. Include a statement from the applicant certifying 
that equipment installation will be made in accordance with all 
applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. In addition:
    (1) Provide information regarding available system and component 
warranties and availability of spare parts;
    (2) Describe the routine operations and maintenance requirements of 
the proposed system, including maintenance schedule for the mechanical, 
piping, and electrical systems and system monitoring and control 
requirements. Provide information that supports expected design life of 
the system and timing of major component replacement or rebuilds. 
Discuss the costs and labor associated with the operation and 
maintenance of the system, and plans for in-sourcing or out-sourcing. 
Describe opportunities for technology transfer for long-term project 
operations and maintenance by a local entity or owner/operator; and
    (3) For systems having a biomass input capacity exceeding 10 tons of 
biomass per day, provide and discuss the risk management plan for 
handling large, potential failures of major components.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives. Describe the budget for and any 
unique concerns associated with the dismantling and disposal of project 
components and their wastes.

                 Section 2. Anaerobic Digester Projects

    The technical requirements specified in this section apply to 
anaerobic digester projects, which are, as defined in Sec. 4280.103, 
renewable energy systems that use animal waste and other organic 
substrates to produce thermal or electrical energy via anaerobic 
digestion.
    (a) Qualifications of project team. The anaerobic digester project 
team should consist of a system designer, a project manager, an 
equipment supplier, a project engineer, a construction contractor, and a 
system operator or maintainer. One individual or entity may serve more 
than one role. The project team must have demonstrated commercial-scale 
expertise in anaerobic digester systems development, engineering, 
installation, and

[[Page 768]]

maintenance as related to the organic materials and operating mode of 
the system. Authoritative evidence that project team service providers 
have the necessary professional credentials or relevant experience to 
perform the required services must be provided. Authoritative evidence 
that vendors of proprietary components can provide necessary equipment 
and spare parts for the system to operate over its design life must also 
be provided. The application must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (2) Discuss the anaerobic digester system equipment manufacturers of 
major components being considered in terms of the length of time in 
business and the number of units installed at the capacity and scale 
being considered;
    (3) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor qualifications 
for engineering, designing, and installing anaerobic digester systems, 
including any relevant certifications by recognized organizations. 
Provide a list of the same or similar projects designed, installed, or 
supplied and currently operating consistent with the substrate material 
with references, if available; and
    (4) For regional or centralized digester plants, describe the system 
operator's qualifications and experience for servicing, operating, and 
maintaining similar projects. Farm scale systems may not require 
operator experience as the developer is typically required to provide 
operational training during system startup and shakedown. Provide a list 
of the same or similar projects designed, installed, or supplied and 
currently operating consistent with the substrate material with 
references, if available.
    (b) Agreements, permits, and certifications. Identify all necessary 
agreements and permits required for the project and the status and 
schedule for securing those agreements and permits, including the items 
specified in paragraphs (b)(1) through (8).
    (1) Identify zoning and code issues, and required permits and the 
anticipated schedule for meeting those requirements and securing those 
permits.
    (2) Identify licenses where required and the schedule for obtaining 
those licenses.
    (3) For regional or centralized digester plants, identify feedstock 
access agreements required for the project and the anticipated schedule 
for securing those agreements and the term of those agreements.
    (4) Identify any permits or agreements required for transport and 
ultimate waste disposal and the schedule for securing those agreements 
and permits.
    (5) Identify available component warranties for the specific project 
location and size.
    (6) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (7) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 CFR 
part 1940, subpart G, of this title.
    (8) Submit a statement certifying that the project will be installed 
in accordance with applicable local, State, and national codes and 
regulations.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Indicate the 
substrates used as digester inputs, including animal wastes, food 
processing wastes, or other organic wastes in terms of type, quantity, 
seasonality, and frequency of collection. Describe any special handling 
of feedstock that may be necessary. Describe the process for determining 
the feedstock resource. Provide either tabular values or laboratory 
analysis of representative samples that include biodegradability studies 
to produce gas production estimates for the project on daily, monthly, 
and seasonal basis.
    (d) Design and engineering. Provide authoritative evidence that the 
system will be designed and engineered so as to meet its intended 
purpose, will ensure public safety, and will comply with applicable 
laws, regulations, agreements, permits, codes, and standards. Projects 
shall be engineered by a qualified party. Systems must be engineered as 
a complete, integrated system with matched components. The engineering 
must be comprehensive, including site selection, digester component 
selection, gas handling component selection, and gas use component 
selection. Systems must be constructed by a qualified party.
    (1) Provide a concise but complete description of the anaerobic 
digester project, including location of the project, farm description, 
feedstock characteristics, a step-by-step flowchart of unit operations, 
electric power system interconnection equipment,

[[Page 769]]

and any required monitoring equipment. Identify possible vendors and 
models of major system components. Provide the expected system energy 
production, heat balances, and material balances as part of the unit 
operations flowchart.
    (2) Describe the project site and address issues such as site 
access, foundations, backup equipment when applicable, and environmental 
concerns with emphasis on land use, air quality, water quality, soil 
degradation, habitat degradation, land use, visibility, odor, noise, 
construction, and installation issues. Identify any unique construction 
and installation issues.
    (e) Project development schedule. Identify each significant task, 
its beginning and end, and its relationship to the time needed to 
initiate and carry the project through startup and shakedown. Provide a 
detailed description of the project timeline, including feedstock 
assessment, system and site designs, permits and agreements, equipment 
procurement, system installation from excavation through startup and 
shakedown, and operator training.
    (f) Project economic assessment. Provide a study that describes the 
costs and revenues of the proposed project to demonstrate the financial 
performance of the project, including the calculation of simple payback. 
Provide a detailed analysis and description of project costs, including 
project management, feedstock assessment, project design, project 
permitting, land agreements, equipment, site preparation, system 
installation, startup and shakedown, warranties, insurance, financing, 
professional services, training and operations, and maintenance costs of 
both the digester and the gas use systems. Provide a detailed analysis 
and description of annual project revenues and expenses. Provide a 
detailed description of applicable investment incentives, productivity 
incentives, loans, and grants. In addition, provide other information 
necessary to assess the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required by 
the system is available and can be procured and delivered within the 
proposed project development schedule. Anaerobic digester systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues such as 
scheduling and timing of component manufacture and delivery, ordering, 
warranties, shipping, receiving, and on-site storage or inventory. 
Identify all the major equipment that is proprietary and justify how 
this unique equipment is needed to meet the requirements of the proposed 
design. Include a statement from the applicant certifying that ``open 
and free'' competition will be used for the procurement of project 
components in a manner consistent with the requirements of 7 CFR part 
3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment needed for 
project construction, and provide a description of the startup and 
shakedown specifications and process and the conditions required for 
startup and shakedown for each equipment item individually and for the 
system as a whole. Include a statement from the applicant certifying 
that equipment installation will be made in accordance with all 
applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Ensure that systems must have at least a 3-year warranty for 
equipment and a 10-year warranty on design. Provide information 
regarding system warranties and availability of spare parts;
    (2) Describe the routine operations and maintenance requirements of 
the proposed project, including maintenance for the digester, the gas 
handling equipment, and the gas use systems. Describe any maintenance 
requirements for system monitoring and control equipment;
    (3) Provide information that supports the expected design life of 
the system and the timing of major component replacement or rebuilds;
    (4) Provide and discuss the risk management plan for handling large, 
potential failures of major components. Include in the discussion, costs 
and labor associated with the operation and maintenance of the system, 
and plans for in-sourcing or out-sourcing; and
    (5) Describe opportunities for technology transfer for long-term 
project operations and maintenance by a local entity or owner/operator.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives. Describe the budget for and any 
unique concerns associated with the dismantling and disposal of project 
components and their wastes.

               Section 3. Geothermal, Electric Generation

    The technical requirements specified in this section apply to 
electric generation geothermal projects, which are, as defined in Sec. 
4280.103, systems that use geothermal energy to produce high pressure 
steam for electric power production.
    (a) Qualifications of project team. The electric generating 
geothermal plant project team should consist of a system designer, a 
project manager, an equipment supplier, a

[[Page 770]]

project engineer, a construction contractor, and a system operator and 
maintainer. One individual or entity may serve more than one role. The 
project team must have demonstrated expertise in geothermal electric 
generation systems development, engineering, installation, and 
maintenance. Authoritative evidence that project team service providers 
have the necessary professional credentials or relevant experience to 
perform the required services must be provided. Authoritative evidence 
that vendors of proprietary components can provide necessary equipment 
and spare parts for the system to operate over its design life must also 
be provided. The application must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (2) Discuss the geothermal plant equipment manufacturers of major 
components being considered in terms of the length of time in business 
and the number of units installed at the capacity and scale being 
considered;
    (3) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor qualifications 
for engineering, designing, and installing geothermal electric 
generation systems, including any relevant certifications by recognized 
organizations. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating with references, if 
available; and
    (4) Describe the system operator's qualifications and experience for 
servicing, operating, and maintaining electric generating geothermal 
projects. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating with references, if 
available.
    (b) Agreements, permits, and certifications. Identify all necessary 
agreements and permits required for the project and the status and 
schedule for securing those agreements and permits, including the items 
specified in paragraphs (b)(1) through (7).
    (1) Identify zoning and code issues and required permits and the 
anticipated schedule for meeting those requirements and securing those 
permits.
    (2) Identify any permits or agreements required for well 
construction and for disposal or re-injection of cooled geothermal 
waters and the schedule for securing those agreements and permits.
    (3) Identify land use or access to the resource agreements required 
for the project and the anticipated schedule for securing the agreements 
and the term of those agreements.
    (4) Identify available component warranties for the specific project 
location and size.
    (5) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements.
    (6) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 CFR 
part 1940, subpart G, of this title.
    (7) Submit a statement certifying that the project will be installed 
in accordance with applicable local, State, and national codes and 
regulations.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Indicate the 
quality of the geothermal resource, including temperature, flow, and 
sustainability and what conversion system is to be installed. Describe 
any special handling of cooled geothermal waters that may be necessary. 
Describe the process for determining the geothermal resource, including 
measurement setup for the collection of the geothermal resource data. 
For proposed projects with an established resource, provide a summary of 
the resource and the specifications of the measurement setup.
    (d) Design and engineering. Provide authoritative evidence that the 
system will be designed and engineered so as to meet its intended 
purpose, will ensure public safety, and will comply with applicable 
laws, regulations, agreements, permits, codes, and standards. Projects 
shall be engineered by a qualified party. Systems must be engineered as 
a complete, integrated system with matched components. The engineering 
must be comprehensive, including site selection, system and component 
selection, conversion system component and selection, design of the 
local collection grid, interconnection equipment selection, and system 
monitoring equipment. Systems must be constructed by a qualified party.
    (1) Provide a concise but complete description of the geothermal 
project, including location of the project, resource characteristics, 
thermal system specifications, electric power system interconnection 
equipment and project monitoring equipment. Identify possible vendors 
and models of major system components. Provide the expected system 
energy production on a monthly and annual basis.
    (2) Describe the project site and address issues such as site 
access, proximity to the electrical grid, environmental concerns with

[[Page 771]]

emphasis on land use, air quality, water quality, habitat fragmentation, 
visibility, noise, construction, and installation issues. Identify any 
unique construction and installation issues.
    (e) Project development schedule. Identify each significant task, 
its beginning and end, and its relationship to the time needed to 
initiate and carry the project through startup and shakedown. Provide a 
detailed description of the project timeline, including resource 
assessment, system and site design, permits and agreements, equipment 
procurement, and system installation from excavation through startup and 
shakedown.
    (f) Project economic assessment. Provide a study that describes the 
costs and revenues of the proposed project to demonstrate the financial 
performance of the project, including the calculation of simple payback. 
Provide a detailed analysis and description of project costs, including 
project management, resource assessment, project design, project 
permitting, land agreements, equipment, site preparation, system 
installation, startup and shakedown, warranties, insurance, financing, 
professional services, and operations and maintenance costs. Provide a 
detailed analysis and description of annual project revenues, including 
electricity sales, production tax credits, revenues from green tags, and 
any other production incentive programs throughout the life of the 
project. Provide a detailed description of applicable investment 
incentives, productivity incentives, loans, and grants. In addition, 
provide other information necessary to assess the project's cost 
effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required by 
the system is available and can be procured and delivered within the 
proposed project development schedule. Geothermal systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues such as 
scheduling and timing of component manufacture and delivery, ordering, 
warranties, shipping, receiving, and on-site storage or inventory. 
Identify all the major equipment that is proprietary and justify how 
this unique equipment is needed to meet the requirements of the proposed 
design. Include a statement from the applicant certifying that ``open 
and free'' competition will be used for the procurement of project 
components in a manner consistent with the requirements of 7 CFR part 
3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment needed for 
project construction, and provide a description of the startup and 
shakedown specifications and process and the conditions required for 
startup or shakedown for each equipment item individually and for the 
system as a whole. Include a statement from the applicant certifying 
that equipment installation will be made in accordance with all 
applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Ensure that systems must have at least a 3-year warranty for 
equipment. Provide information regarding turbine warranties and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements of 
the proposed project, including maintenance for the mechanical and 
electrical systems and system monitoring and control requirements;
    (3) Provide information that supports expected design life of the 
system and timing of major component replacement or rebuilds;
    (4) Provide and discuss the risk management plan for handling large, 
potential failures of major components such as the turbine. Include in 
the discussion, costs and labor associated with the operation and 
maintenance of the system, and plans for in-sourcing or out-sourcing; 
and
    (5) Describe opportunities for technology transfer for long-term 
project operations and maintenance by a local entity or owner/operator.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives. Describe the budget for and any 
unique concerns associated with the dismantling and disposal of project 
components and their wastes.

                    Section 4. Geothermal, Direct Use

    The technical requirements specified in this section apply to direct 
use geothermal projects, which are, as defined in Sec. 4280.103, 
systems that use thermal energy directly from a geothermal source.
    (a) Qualifications of project team. The geothermal project team 
should consist of a system designer, a project manager, an equipment 
supplier, a project engineer, a construction contractor, and a system 
operator and maintainer. One individual or entity may serve more than 
one role. The project team must have demonstrated expertise in 
geothermal heating systems development, engineering, installation, and 
maintenance. Authoritative evidence that project team service providers 
have the necessary professional credentials or relevant experience to 
perform the required services must be provided. Authoritative evidence 
that vendors of proprietary components can provide necessary equipment 
and spare parts for the system to operate over its design life must also 
be provided. The application must:

[[Page 772]]

    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (2) Discuss the geothermal system equipment manufacturers of major 
components being considered in terms of the length of time in business 
and the number of units installed at the capacity and scale being 
considered;
    (3) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor qualifications 
for engineering, designing, and installing direct use geothermal 
systems, including any relevant certifications by recognized 
organizations. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating with references, if 
available; and
    (4) Describe system operator's qualifications and experience for 
servicing, operating, and maintaining direct use generating geothermal 
projects. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating with references, if 
available.
    (b) Agreements, permits, and certifications. Identify all necessary 
agreements and permits required for the project and the status and 
schedule for securing those agreements and permits, including the items 
specified in paragraphs (b)(1) through (7).
    (1) Identify zoning and code issues, and required permits and the 
anticipated schedule for meeting those requirements and securing those 
permits.
    (2) Identify licenses where required and the schedule for obtaining 
those licenses.
    (3) Identify land use or access to the resource agreements required 
for the project and the anticipated schedule for securing the agreements 
and the term of those agreements.
    (4) Identify any permits or agreements required for well 
construction and for disposal or re-injection of cooled geothermal 
waters and the anticipated schedule for securing those permits and 
agreements.
    (5) Identify available component warranties for the specific project 
location and size.
    (6) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 CFR 
part 1940, subpart G, of this title.
    (7) Submit a statement certifying that the project will be installed 
in accordance with applicable local, State, and national codes and 
regulations.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Indicate the 
quality of the geothermal resource, including temperature, flow, and 
sustainability and what direct use system is to be installed. Describe 
any special handling of cooled geothermal waters that may be necessary. 
Describe the process for determining the geothermal resource, including 
measurement setup for the collection of the geothermal resource data. 
For proposed projects with an established resource, provide a summary of 
the resource and the specifications of the measurement setup.
    (d) Design and engineering. Provide authoritative evidence that the 
system will be designed and engineered so as to meet its intended 
purpose, will ensure public safety, and will comply with applicable 
laws, regulations, agreements, permits, codes, and standards. Projects 
shall be engineered by a qualified party. Systems must be engineered as 
a complete, integrated system with matched components. The engineering 
must be comprehensive, including site selection, system and component 
selection, thermal system component selection, and system monitoring 
equipment. Systems must be constructed by a qualified party.
    (1) Provide a concise but complete description of the geothermal 
project, including location of the project, resource characteristics, 
thermal system specifications, and monitoring equipment. Identify 
possible vendors and models of major system components. Provide the 
expected system energy production on a monthly and annual basis.
    (2) Describe the project site and address issues such as site 
access, thermal backup equipment, environmental concerns with emphasis 
on land use, air quality, water quality, habitat fragmentation, 
visibility, noise, construction, and installation issues. Identify any 
unique construction and installation issues.
    (e) Project development schedule. Identify each significant task, 
its beginning and end, and its relationship to the time needed to 
initiate and carry the project through startup and shakedown. Provide a 
detailed description of the project timeline, including resource 
assessment, system and site design, permits and agreements, equipment 
procurement, and system installation from excavation through startup and 
shakedown.
    (f) Project economic assessment. Provide a study that describes the 
costs and revenues of the proposed project to demonstrate the financial 
performance of the project, including the calculation of simple payback. 
Provide a detailed analysis and description of project costs, including 
project management, resource assessment, project design, project 
permitting, land agreements, equipment,

[[Page 773]]

site preparation, system installation, startup and shakedown, 
warranties, insurance, financing, professional services, and operations 
and maintenance costs. Provide a detailed analysis and description of 
annual project revenues and expenses. Provide a detailed description of 
applicable investment incentives, productivity incentives, loans, and 
grants. In addition, provide other information necessary to assess the 
project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required by 
the system is available and can be procured and delivered within the 
proposed project development schedule. Geothermal systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues such as 
scheduling and timing of component manufacture and delivery, ordering, 
warranties, shipping, receiving, and on-site storage or inventory. 
Identify all the major equipment that is proprietary and justify how 
this unique equipment is needed to meet the requirements of the proposed 
design. Include a statement from the applicant certifying that ``open 
and free'' competition will be used for the procurement of project 
components in a manner consistent with the requirements of 7 CFR part 
3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment needed for 
project construction, and provide a description of the startup and 
shakedownspecifications and process and the conditions required for 
startup and shakedown for each equipment item individually and for the 
system as a whole. Include a statement from the applicant certifying 
that equipment installation will be made in accordance with all 
applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Ensure that systems must have at least a 3-year warranty for 
equipment. Provide information regarding system warranties and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements of 
the proposed project, including maintenance for the mechanical and 
electrical systems and system monitoring and control requirements;
    (3) Provide information that supports expected design life of the 
system and timing of major component replacement or rebuilds;
    (4) Provide and discuss the risk management plan for handling large, 
potential failures of major components. Include in the discussion, costs 
and labor associated with the operation and maintenance of the system, 
and plans for in-sourcing or out-sourcing; and
    (5) Describe opportunities for technology transfer for long-term 
project operations and maintenance by a local entity or owner/operator.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives. Describe the budget for and any 
unique concerns associated with the dismantling and disposal of project 
components and their wastes.

                      Section 5. Hydrogen Projects

    The technical requirements specified in this section apply to 
hydrogen projects, which are, as defined in Sec. 4280.103, renewable 
energy systems that produce hydrogen or, a renewable energy system that 
uses mechanical or electric power or thermal energy from a renewable 
resource using hydrogen as an energy transport medium.
    (a) Qualifications of project team. The hydrogen project team will 
vary according to the complexity and scale of the project. For 
engineered systems, the project team should consist of a system 
designer, a project manager, an equipment supplier, a project engineer, 
a construction contractor or system installer, and a system operator and 
maintainer. One individual or entity may serve more than one role. The 
project team must have demonstrated expertise in similar hydrogen 
systems development, engineering, installation, and maintenance. 
Authoritative evidence that project team service providers have the 
necessary professional credentials or relevant experience to perform the 
required services must be provided. Authoritative evidence that vendors 
of proprietary components can provide necessary equipment and spare 
parts for the system to operate over its design life must also be 
provided. The application must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (2) Discuss the hydrogen system equipment manufacturers of major 
components for the hydrogen system being considered in terms of the 
length of time in the business and the number of units installed at the 
capacity and scale being considered;
    (3) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor qualifications

[[Page 774]]

for engineering, designing, and installing hydrogen systems, including 
any relevant certifications by recognized organizations. Provide a list 
of the same or similar projects designed, installed, or supplied and 
currently operating with references, if available; and
    (4) Describe the system operator's qualifications and experience for 
servicing, operating, and maintaining hydrogen system equipment or 
projects. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating with references, if 
available.
    (b) Agreements, permits, and certifications. Identify all necessary 
agreements and permits required for the project and the status and 
schedule for securing those agreements and permits, including the items 
specified in paragraphs (b)(1) through (8).
    (1) Identify zoning and building code issues, and required permits 
and the anticipated schedule for meeting those requirements and securing 
those permits.
    (2) Identify licenses where required and the schedule for obtaining 
those licenses.
    (3) Identify land use agreements required for the project and the 
anticipated schedule for securing the agreements and the term of those 
agreements.
    (4) Identify any permits or agreements required for solid, liquid, 
and gaseous emissions or effluents and the anticipated schedule for 
securing those permits and agreements.
    (5) Identify available component warranties for the specific project 
location and size.
    (6) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (7) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 CFR 
part 1940, subpart G, of this title.
    (8) Submit a statement certifying that the project will be installed 
in accordance with applicable local, State, and national codes and 
regulations.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Indicate the 
type, quantity, quality, and seasonality of the biomass resource. For 
solar, wind, or geothermal sources of energy used to generate hydrogen, 
indicate the local renewable resource where the hydrogen system is to be 
installed. Local resource maps may be used as an acceptable preliminary 
source of renewable resource data. For proposed projects with an 
established renewable resource, provide a summary of the resource.
    (d) Design and engineering. Provide authoritative evidence that the 
system will be designed and engineered so as to meet its intended 
purpose, will ensure public safety, and will comply with applicable 
laws, regulations, agreements, permits, codes, and standards. Projects 
shall be engineered by a qualified party. Systems must be engineered as 
a complete, integrated system with matched components. The engineering 
must be comprehensive, including site selection, system and component 
selection, and system monitoring equipment. Systems must be constructed 
by a qualified party.
    (1) Provide a concise but complete description of the hydrogen 
project, including location of the project, resource characteristics, 
system specifications, electric power system interconnection equipment, 
and monitoring equipment. Identify possible vendors and models of major 
system components. Describe the expected electric power, fuel 
production, or thermal energy production of the proposed system. Address 
performance on a monthly and annual basis. Describe the uses of or the 
market for electricity, heat, or fuel produced by the system. Discuss 
the impact of reduced or interrupted resource availability on the system 
process.
    (2) Describe the project site and address issues such as site 
access, foundations, backup equipment when applicable, and any 
environmental and safety concerns with emphasis on land use, air 
quality, water quality, and safety hazards. Identify any unique 
construction and installation issues.
    (e) Project development schedule. Identify each significant task, 
its beginning and end, and its relationship to the time needed to 
initiate and carry the project through startup and shakedown. Provide a 
detailed description of the project timeline, including resource 
assessment, system and site design, permits and agreements, equipment 
procurement, and system installation from excavation through startup and 
shakedown.
    (f) Project economic assessment. Provide a study that describes the 
costs and revenues of the proposed project to demonstrate the financial 
performance of the project, including the calculation of simple payback. 
Provide a detailed analysis and description of project costs, including 
project management, resource assessment, project design and engineering, 
project permitting, land agreements, equipment, site preparation, system 
installation, startup and shakedown, warranties, insurance, financing, 
professional services, and operations and maintenance costs. Provide a 
detailed analysis and description of annual project revenues and 
expenses. Provide a detailed description of applicable

[[Page 775]]

investment incentives, productivity incentives, loans, and grants. In 
addition, provide other information necessary to assess the project's 
cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required by 
the system is available and can be procured and delivered within the 
proposed project development schedule. Hydrogen systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues, such 
as scheduling and timing of component manufacture and delivery, 
ordering, warranties, shipping, and receiving, and on-site storage or 
inventory. Identify all the major equipment that is proprietary and 
justify how this unique equipment is needed to meet the requirements of 
the proposed design. Include a statement from the applicant certifying 
that ``open and free'' competition will be used for the procurement of 
project components in a manner consistent with the requirements of 7 CFR 
part 3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment needed for 
project construction, and provide a description of the startup and 
shakedown specifications and process and the conditions required for 
startup and shakedown for each equipment item individually and for the 
system as a whole. Include a statement from the applicant certifying 
that equipment installation will be made in accordance with all 
applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Provide information regarding system warranties and availability 
of spare parts;
    (2) Describe the routine operations and maintenance requirements of 
the proposed project, including maintenance of the reformer, 
electrolyzer, or fuel cell as appropriate, and other mechanical, piping, 
and electrical systems and system monitoring and control requirements;
    (3) Provide information that supports expected design life of the 
system and timing of major component replacement or rebuilds;
    (4) Provide and discuss the risk management plan for handling large, 
potential failures of major components. Include in the discussion, costs 
and labor associated with the operation and maintenance of the system, 
and plans for in-sourcing or out-sourcing; and
    (5) Describe opportunities for technology transfer for long-term 
project operations and maintenance by a local entity or owner/operator.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives. Describe the budget for and any 
unique concerns associated with the dismantling and disposal of project 
components and their wastes.

                         Section 6. Solar, Small

    The technical requirements specified in this section apply to small 
solar electric projects and small solar thermal projects, as defined in 
Sec. 4280.103.
    Small solar electric projects are those for which the rated power of 
the system is 10kW or smaller. Small solar electric projects are either 
stand-alone (off grid) or interconnected to the grid at less than 600 
volts (on grid).
    Small solar thermal projects are those for which the rated storage 
volume of the system is 240 gallons or smaller, or which have a 
collector area of 1,000 square feet or less.
    (a) Qualifications of project team. The small solar project team 
should consist of a system designer, a project manager or general 
contractor, an equipment supplier of major components, a system 
installer, a system maintainer, and, in some cases, the owner of the 
application or load served by the system. One individual or entity may 
serve more than one role. Authoritative evidence that project team 
service providers have the necessary professional credentials or 
relevant experience to perform the required services must be provided. 
Authoritative evidence that vendors of proprietary components can 
provide necessary equipment and spare parts for the system to operate 
over its design life must also be provided. The application must:
    (1) Discuss the qualifications of the suppliers of major components 
being considered;
    (2) Describe the knowledge, skills, and abilities needed to service, 
operate, and maintain the system for the proposed application; and
    (3) Discuss the project manager, system designer, and system 
installer qualifications for engineering, designing, and installing 
small solar systems, including any relevant certifications by recognized 
organizations. Provide a list of the same or similar systems designed or 
installed by the design and installation team and currently operating 
with references, if available.
    (b) Agreements, permits, and certifications. Identify all necessary 
agreements and permits required for the project and the status and 
schedule for securing those agreements and permits, including the items 
specified in paragraphs (b)(1) through (5).
    (1) Identify zoning, building, and electrical code issues, and 
required permits and the anticipated schedule for meeting those 
requirements and securing those permits.

[[Page 776]]

    (2) Identify available component warranties for the specific project 
location and size.
    (3) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (4) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 CFR 
part 1940, subpart G, of this title.
    (5) Submit a statement certifying that the project will be installed 
in accordance with applicable local, State, and national codes and 
regulations.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Indicate the 
source of the solar data and assumptions.
    (d) Design and engineering. Provide authoritative evidence that the 
system will be designed and engineered so as to meet its intended 
purpose, will ensure public safety, and will comply with applicable 
laws, regulations, agreements, permits, codes, and standards. For small 
solar electric systems, the engineering must be comprehensive, including 
solar collector design and selection, support structure design and 
selection, power conditioning design and selection, surface or 
submersible water pumps and energy storage requirements as applicable, 
and selection of cabling, disconnects and interconnection equipment. For 
small solar thermal systems, the engineering must be comprehensive, 
including solar collector design and selection, support structure design 
and selection, pump and piping design and selection, and energy storage 
design and selection.
    (1) Provide a concise but complete description of the small solar 
system, including location of the project and proposed equipment 
specifications. Identify possible vendors and models of major system 
components. Provide the expected system energy production based on 
available solar resource data on a monthly (when possible) and annual 
basis and how the energy produced by the system will be used.
    (2) Describe the project site and address issues such as solar 
access, orientation, proximity to the load or the electrical grid, 
environmental concerns such as water quality and land use, unique safety 
concerns such as hazardous materials handling, construction, and 
installation issues, and whether special circumstances exist.
    (e) Project development schedule. Identify each significant task, 
its beginning and end, and its relationship to the time needed to 
initiate and carry the project through startup and shakedown. Provide a 
detailed description of the project timeline, including system and site 
design, permits and agreements, equipment procurement, and system 
installation from excavation through startup and shakedown.
    (f) Project economic assessment. Provide a study that describes the 
costs and revenues of the proposed project to demonstrate the financial 
performance of the project, including the calculation of simple payback. 
Provide a detailed analysis and description of project costs, including 
design, permitting, equipment, site preparation, system installation, 
system startup and shakedown, warranties, insurance, financing, 
professional services, and operations and maintenance costs. Provide a 
detailed description of applicable investment incentives, productivity 
incentives, loans, and grants. Provide a detailed description of 
historic or expected energy use and expected energy offsets or sales on 
a monthly and annual basis. In addition, provide other information 
necessary to assess the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required by 
the system is available and can be procured and delivered within the 
proposed project development schedule. Small solar systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues such as 
scheduling and timing of component manufacture and delivery, ordering, 
warranties, shipping, receiving, and on-site storage or inventory. 
Provide a detailed description of equipment certification. Identify all 
the major equipment that is proprietary and justify how this unique 
equipment is needed to meet the requirements of the proposed design. 
Include a statement from the applicant certifying that ``open and free'' 
competition will be used for the procurement of project components in a 
manner consistent with the requirements of 7 CFR part 3015 of this 
title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment needed for 
project construction, and provide a description of the startup and 
shakedown specifications and process and the conditions required for 
startup and shakedown for each equipment item individually and for the 
system as a whole. Include a statement from the applicant certifying 
that equipment installation will be made in accordance with all 
applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of

[[Page 777]]

the system necessary for the system to operate as designed over the 
design life. The application must:
    (1) Ensure that systems must have at least a 5-year warranty for 
equipment. Provide information regarding system warranty and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements of 
the proposed system, including maintenance schedules for the mechanical 
and electrical and software systems;
    (3) For owner maintained portions of the system, describe any unique 
knowledge, skills, or abilities needed for service operations or 
maintenance; and
    (4) Provide information regarding expected system design life and 
timing of major component replacement or rebuilds. Include in the 
discussion, costs and labor associated with the operation and 
maintenance of the system, and plans for in-sourcing or out-sourcing.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives. Describe the budget for and any 
unique concerns associated with the dismantling and disposal of project 
components and their wastes. Describe any environmental compliance 
requirements such as proper disposal or recycling procedures to reduce 
potential impact from any hazardous chemicals.

                         Section 7. Solar, Large

    The technical requirements specified in this section apply to large 
solar electric projects and large solar thermal projects, as defined in 
Sec. 4280.103.
    Large solar electric systems are those for which the rated power of 
the system is larger than 10kW. Large solar electric systems are either 
stand-alone (off grid) or interconnected to the grid (on grid).
    Large solar thermal systems are those for which the rated storage 
volume of the system is greater than 240 gallons or that have a 
collector area of more than 1,000 square feet.
    (a) Qualifications of project team. The large solar project team 
should consist of an equipment supplier of major components, a project 
manager, general contractor, system engineer, system installer, and 
system maintainer. One individual or entity may serve more than one 
role. Authoritative evidence that project team service providers have 
the necessary professional credentials or relevant experience to perform 
the required services must be provided. Authoritative evidence that 
vendors of proprietary components can provide necessary equipment and 
spare parts for the system to operate over its design life must also be 
provided. The application must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (2) Discuss the qualifications of the suppliers of major components 
being considered;
    (3) Discuss the project manager, general contractor, system 
engineer, and system installer qualifications for engineering, 
designing, and installing large solar systems, including any relevant 
certifications by recognized organizations. Provide a list of the same 
or similar systems designed or installed by the design, engineering, and 
installation team and currently operating with references, if available; 
and
    (4) Describe the system operator's qualifications and experience for 
servicing, operating, and maintaining the system for the proposed 
application. Provide a list of the same or similar systems designed or 
installed by the design, engineering, and installation team and 
currently operating with references, if available.
    (b) Agreements, permits, and certifications. Identify all necessary 
agreements and permits required for the project and the status and 
schedule for securing those agreements and permits, including the items 
specified in paragraphs (b)(1) through (5).
    (1) Identify zoning, building, and electrical code issues, and 
required permits and the anticipated schedule for meeting those 
requirements and securing those permits.
    (2) Identify available component warranties for the specific project 
location and size.
    (3) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (4) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 CFR 
part 1940, subpart G, of this title.
    (5) Submit a statement certifying that the project will be installed 
in accordance with applicable local, State, and national codes and 
regulations.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the

[[Page 778]]

amount of renewable resource available. Indicate the source of the solar 
data and assumptions.
    (d) Design and engineering. Provide authoritative evidence that the 
system will be designed and engineered so as to meet its intended 
purpose, will ensure public safety, and will comply with applicable 
laws, regulations, agreements, permits, codes, and standards.
    (1) For large solar electric systems, the engineering must be 
comprehensive, including solar collector design and selection, support 
structure design and selection, power conditioning design and selection, 
surface or submersible water pumps and energy storage requirements as 
applicable, and selection of cabling, disconnects, and interconnection 
equipment. A complete set of engineering drawings, stamped by a 
professional engineer, must be provided.
    (2) For large solar thermal systems, the engineering must be 
comprehensive, including solar collector design and selection, support 
structure design and selection, pump and piping design and selection, 
and energy storage design and selection. Provide a complete set of 
engineering drawings stamped by a professional engineer.
    (3) For either type of system, provide a concise but complete 
description of the large solar system, including location of the project 
and proposed equipment and system specifications. Identify possible 
vendors and models of major system components. Provide the expected 
system energy production based on available solar resource data on a 
monthly (when possible) and annual basis and how the energy produced by 
the system will be used.
    (4) For either type of system, provide a description of the project 
site and address issues such as solar access, orientation, proximity to 
the load or the electrical grid, environmental concerns such as land 
use, water quality, habitat fragmentation, and aesthetics, unique safety 
concerns, construction, and installation issues, and whether special 
circumstances exist.
    (e) Project development schedule. Identify each significant task, 
its beginning and end, and its relationship to the time needed to 
initiate and carry the project through startup and shakedown. Provide a 
detailed description of the project timeline, including system and site 
design, permits and agreements, equipment procurement, and system 
installation from excavation through startup and shakedown.
    (f) Project economic assessment. Provide a study that describes the 
costs and revenues of the proposed project to demonstrate the financial 
performance of the project, including the calculation of simple payback. 
Provide a detailed analysis and description of project costs, including 
design and engineering, permitting, equipment, site preparation, system 
installation, system startup and shakedown, warranties, insurance, 
financing, professional services, and operations and maintenance costs. 
Provide a detailed description of applicable investment incentives, 
productivity incentives, loans, and grants. Provide a detailed 
description of historic or expected energy use and expected energy 
offsets or sales on a monthly and annual basis. In addition, provide 
other information necessary to assess the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required by 
the system is available and can be procured and delivered within the 
proposed project development schedule. Large solar systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues such as 
scheduling and timing of component manufacture and delivery, ordering, 
warranties, shipping, receiving, and on-site storage or inventory. 
Provide a detailed description of equipment certification. Identify all 
the major equipment that is proprietary and justify how this unique 
equipment is needed to meet the requirements of the proposed design. 
Include a statement from the applicant certifying that ``open and free'' 
competition will be used for the procurement of project components in a 
manner consistent with the requirements of 7 CFR part 3015 of this 
title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment, including 
cranes and other devices needed for project construction, and provide a 
description of the startup and shakedown specifications and process and 
the conditions required for startup and shakedown for each equipment 
item individually and for the system as a whole. Include a statement 
from the applicant certifying that equipment installation will be made 
in accordance with all applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Ensure that systems must have at least a 5-year warranty for 
equipment. Provide information regarding system warranty and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements of 
the proposed system, including maintenance schedules for the mechanical, 
electrical, and software systems;
    (3) For owner maintained portions of the system, describe any unique 
knowledge, skills, or abilities needed for service operations or 
maintenance; and

[[Page 779]]

    (4) Provide information regarding expected system design life and 
timing of major component replacement or rebuilds. Include in the 
discussion, costs and labor associated with the operation and 
maintenance of the system, and plans for in-sourcing or out-sourcing.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives. Describe the budget for and any 
unique concerns associated with the dismantling and disposal of project 
components and their wastes. Describe any environmental compliance 
requirements such as proper disposal or recycling procedures to reduce 
any potential impact from hazardous chemicals.

                         Section 8. Wind, Small

    The technical requirements specified in this section apply to small 
wind systems, which are, as defined in Sec. 4280.103, wind energy 
systems for which the rated power of the wind turbine is 100kW or 
smaller and with a generator hub height of 120 ft or less. Small wind 
systems are either stand-alone or connected to the local electrical 
system at less than 600 volts.
    (a) Qualifications of project team. The small wind project team 
should consist of a system designer, a project manager or general 
contractor, an equipment supplier of major components, a system 
installer, a system maintainer, and, in some cases, the owner of the 
application or load served by the system. One individual or entity may 
serve more than one role. Authoritative evidence that project team 
service providers have the necessary professional credentials or 
relevant experience to perform the required services must be provided. 
Authoritative evidence that vendors of proprietary components can 
provide necessary equipment and spare parts for the system to operate 
over its design life must also be provided. The application must:
    (1) Discuss the small wind turbine manufacturers and other equipment 
suppliers of major components being considered in terms of their length 
of time in business and the number of units installed at the capacity 
and scale being considered;
    (2) Describe the knowledge, skills, and abilities needed to service, 
operate, and maintain the system for the proposed application; and
    (3) Discuss the project manager, system designer, and system 
installer qualifications for engineering, designing, and installing 
small wind systems, including any relevant certifications by recognized 
organizations. Provide a list of the same or similar systems designed, 
installed, or supplied and currently operating with references, if 
available.
    (b) Agreements, permits, and certifications. Identify all necessary 
agreements and permits required for the project and the status and 
schedule for securing those agreements and permits, including the items 
specified in paragraphs (b)(1) through (5).
    (1) Identify zoning, building, and electrical code issues, and 
required permits and the anticipated schedule for meeting those 
requirements and securing those permits.
    (2) Identify available component warranties for the specific project 
location and size.
    (3) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses, where required, and the anticipated schedule 
for meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program as their interconnection agreement, describe the applicable 
local net metering program.
    (4) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 CFR 
part 1940, subpart G, of this title.
    (5) Submit a statement certifying that the project will be installed 
in accordance with applicable local, State, and national codes and 
regulations.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Indicate the 
source of the wind data and the conditions of the wind monitoring when 
collected at the site or assumptions made when applying nearby wind data 
to the site.
    (d) Design and engineering. Provide authoritative evidence that the 
system will be designed and engineered so as to meet its intended 
purpose, will ensure public safety, and will comply with applicable 
laws, regulations, agreements, permits, codes, and standards. Small wind 
systems must be engineered by either the wind turbine manufacturer or 
other qualified party. Systems must be offered as a complete, integrated 
system with matched components. The engineering must be comprehensive, 
including turbine design and selection, tower design and selection, 
specification of guy wire anchors and tower foundation, inverter/
controller design and selection, energy storage requirements as 
applicable, and selection of cabling, disconnects, and interconnection 
equipment, as well as the engineering data needed to match the wind 
system output to the application load, if applicable.
    (1) Provide a concise but complete description of the small wind 
system, including location of the project, proposed turbine 
specifications, tower height and type of tower, type of energy storage 
and location of storage if applicable, proposed inverter manufacturer 
and model, electric power system interconnection equipment, and 
application

[[Page 780]]

load and load interconnection equipment as applicable. Identify possible 
vendors and models of major system components. Provide the expected 
system energy production based on available wind resource data on a 
monthly (when possible) and annual basis and how the energy produced by 
the system will be used.
    (2) Describe the project site and address issues such as access to 
the wind resource, proximity to the electrical grid or application load, 
environmental concerns with emphasis on historic properties, visibility, 
noise, bird and bat populations, and wildlife habitat destruction and/or 
fragmentation, construction, and installation issues and whether special 
circumstances such as proximity to airports exist. Provide a 360-degree 
panoramic photograph of the proposed site, including indication of 
prevailing winds when possible.
    (e) Project development schedule. Identify each significant task, 
its beginning and end, and its relationship to the time needed to 
initiate and carry the project through startup and shakedown. Provide a 
detailed description of the project timeline, including system and site 
design, permits and agreements, equipment procurement, and system 
installation from excavation through startup and shakedown.
    (f) Project economic assessment. Provide a study that describes the 
costs and revenues of the proposed project to demonstrate the financial 
performance of the project, including the calculation of simple payback. 
Provide a detailed analysis and description of project costs, including 
design, permitting, equipment, site preparation, system installation, 
system startup and shakedown, warranties, insurance, financing, 
professional services, and operations and maintenance costs. Provide a 
detailed description of applicable investment incentives, productivity 
incentives, loans, and grants. Provide a detailed description of 
historic or expected energy use and expected energy offsets or sales on 
a monthly and annual basis. In addition, provide other information 
necessary to assess the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required by 
the system is available and can be procured and delivered within the 
proposed project development schedule. Small wind systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues such as 
scheduling and timing of component manufacture and delivery, ordering, 
warranties, shipping, receiving, and on-site storage or inventory. 
Provide a detailed description of equipment certification. Identify all 
the major equipment that is proprietary and justify how this unique 
equipment is needed to meet the requirements of the proposed design. 
Include a statement from the applicant certifying that ``open and free'' 
competition will be used for the procurement of project components in a 
manner consistent with the requirements of 7 CFR part 3015 of this 
title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment, including 
cranes and other devices needed for project construction, and provide a 
description of the startup and shakedown specifications and process and 
the conditions required for startup and shakedown for each equipment 
item individually and for the system as a whole. Include a statement 
from the applicant certifying that equipment installation will be made 
in accordance with all applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Ensure that systems must have at least a 5-year warranty for 
equipment and a commitment from the supplier to have spare parts 
available. Provide information regarding system warranty and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements of 
the proposed system, including maintenance schedules for the mechanical, 
electrical, and software systems;
    (3) Provide historical or engineering information that supports 
expected design life of the system and timing of major component 
replacement or rebuilds. Include in the discussion, costs and labor 
associated with the operation and maintenance of the system, and plans 
for in-sourcing or out-sourcing; and
    (4) For owner maintained portions of the system, describe any unique 
knowledge, skills, or abilities needed for service operations or 
maintenance.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives. Describe the budget for and any 
unique concerns associated with the dismantling and disposal of project 
components and their wastes.

                         Section 9. Wind, Large

    The technical requirements specified in this section apply to wind 
energy systems, which are, as defined in Sec. 4280.103, wind energy 
projects for which the rated power of the individual wind turbine(s) is 
larger than 100kW.
    (a) Qualifications of project team. The large wind project team 
should consist of a project

[[Page 781]]

manager, a meteorologist, an equipment supplier, a project engineer, a 
primary or general contractor, construction contractor, and a system 
operator and maintainer, and in some cases, the owner of the application 
or load served by the system. One individual or entity may serve more 
than one role. Authoritative evidence that project team service 
providers have the necessary professional credentials or relevant 
experience to perform the required services must be provided. 
Authoritative evidence that vendors of proprietary components can 
provide necessary equipment and spare parts for the system to operate 
over its design life must also be provided. The application must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developers 
risk;
    (2) Discuss the large wind turbine manufacturers and other equipment 
suppliers of major components being considered in terms of the length of 
time in business and the number of units installed at the capacity and 
scale being considered;
    (3) Discuss the project manager, equipment supplier, project 
engineer, and construction contractor qualifications for engineering, 
designing, and installing large wind systems, including any relevant 
certifications by recognized organizations. Provide a list of the same 
or similar projects designed, installed, or supplied and currently 
operating with references, if available;
    (4) Discuss the qualifications of the meteorologist, including 
references; and
    (5) Describe system operator's qualifications and experience for 
servicing, operating, and maintaining the system for the proposed 
application. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating with references, if 
available.
    (b) Agreements, permits, and certifications. Identify all necessary 
agreements and permits required for the project and the status and 
schedule for securing those agreements and permits, including the items 
specified in paragraphs (b)(1) through (6).
    (1) Identify zoning, building, and electrical code issues, and 
required permits and the anticipated schedule for meeting those 
requirements and securing those permits.
    (2) Identify land use agreements required for the project and the 
anticipated schedule for securing the agreements and the term of those 
agreements.
    (3) Identify available component warranties for the specific project 
location and size.
    (4) For systems planning to interconnect with a utility, describe 
the utility's system interconnection requirements, power purchase 
arrangements, or licenses where required and the anticipated schedule 
for meeting those requirements and obtaining those agreements.
    (5) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 CFR 
part 1940, subpart G, of this title.
    (6) Submit a statement certifying that the project will be installed 
in accordance with applicable local, State, and national codes and 
regulations.
    (c) Resource assessment. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Projects greater 
than 500kW must obtain wind data from the proposed project site. For 
such projects, describe the proposed measurement setup for the 
collection of the wind resource data. For proposed projects with an 
established wind resource, provide a summary of the wind resource and 
the specifications of the measurement setup. Large wind systems larger 
than 500kW in size will typically require at least 1 year of on-site 
monitoring. If less than 1 year of data is used, the qualified 
meteorological consultant must provide a detailed analysis of the 
correlation between the site data and a nearby, long-term measurement 
site.
    (d) Design and engineering. Provide authoritative evidence that the 
system will be designed and engineered so as to meet its intended 
purpose, will ensure public safety, and will comply with applicable 
laws, regulations, agreements, permits, codes, and standards. Large wind 
systems must be engineered by a qualified party. Systems must be 
engineered as complete, integrated systems with matched components. The 
engineering must be comprehensive, including site selection, turbine 
selection, tower selection, tower foundation, design of the local 
collection grid, interconnection equipment selection, and system 
monitoring equipment. For stand-alone, non-grid applications, 
engineering information must be provided that demonstrates appropriate 
matching of wind turbine and load.
    (1) Provide a concise, but complete, description of the large wind 
project, including location of the project, proposed turbine 
specifications, tower height and type of tower, the collection grid, 
interconnection equipment, and monitoring equipment. Identify possible 
vendors and models of major system components. Provide the expected 
system energy production based on available wind resource data on a 
monthly and annual basis. For wind projects larger than 500kW in size, 
provide the expected system energy production over the life of the 
project, including

[[Page 782]]

a discussion on inter-annual variation using a comparison of the on-site 
monitoring data with long-term meteorological data from a nearby 
monitored site.
    (2) Describe the project site and address issues such as site 
access, proximity to the electrical grid or application load, 
environmental concerns with emphasis on historic properties, visibility, 
noise, bird and bat populations, and wildlife habitat destruction and/or 
fragmentation, construction, and installation issues and whether special 
circumstances such as proximity to airports exist.
    (e) Project development schedule. Identify each significant task, 
its beginning and end, and its relationship to the time needed to 
initiate and carry the project through startup and shakedown. Provide a 
detailed description of the project timeline, including resource 
assessment, system and site design, permits and agreements, equipment 
procurement, and system installation from excavation through startup and 
shakedown.
    (f) Project economic assessment. Provide a study that describes the 
costs and revenues of the proposed project to demonstrate the financial 
performance of the proposed project. Provide a detailed analysis and 
description of project costs, including project management, resource 
assessment, project design, project permitting, land agreements, 
equipment, site preparation, system installation, startup and shakedown, 
warranties, insurance, financing, professional services, and operations 
and maintenance costs. Provide a detailed description of applicable 
investment incentives, productivity incentives, loans, and grants. 
Provide a detailed analysis and description of annual project revenues, 
including electricity sales, production tax credits, revenues from green 
tags, and any other production incentive programs throughout the life of 
the project. Provide a description of planned contingency fees or 
reserve funds to be used for unexpected large component replacement or 
repairs and for low productivity periods. In addition, provide other 
information necessary to assess the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required by 
the system is available and can be procured and delivered within the 
proposed project development schedule. Large wind turbines may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues such as 
scheduling and timing of component manufacture and delivery, ordering, 
warranties, shipping, receiving, and on-site storage or inventory. 
Provide a detailed description of equipment certification. Identify all 
the major equipment that is proprietary and justify how this unique 
equipment is needed to meet the requirements of the proposed design. 
Include a statement from the applicant certifying that ``open and free'' 
competition will be used for the procurement of project components in a 
manner consistent with the requirements of 7 CFR part 3015 of this 
title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment, including 
cranes or other devices, needed for project construction, and provide a 
description of the startup and shakedown specifications and process and 
the conditions required for startup and shakedown for each equipment 
item individually and for the system as a whole. Include a statement 
from the applicant certifying that equipment installation will be made 
in accordance with all applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Ensure that systems must have at least a 3-year warranty for 
equipment. Provide information regarding turbine warranties and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements of 
the proposed project, including maintenance schedules for the mechanical 
and electrical systems and system monitoring and control requirements;
    (3) Provide information that supports expected design life of the 
system and timing of major component replacement or rebuilds;
    (4) Provide and discuss the risk management plan for handling large, 
potential failures of major components such as the turbine gearbox or 
rotor. Include in the discussion, costs and labor associated with the 
operation and maintenance of the system, and plans for in-sourcing or 
out-sourcing;
    (5) Describe opportunities for technology transfer for long-term 
project operations and maintenance by a local entity or owner/operator; 
and
    (6) For owner maintained portions of the system, describe any unique 
knowledge, skills, or abilities needed for service operations or 
maintenance.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives. Describe the budget for and any 
unique concerns associated with the dismantling and disposal of project 
components and their wastes.

               Section 10. Energy Efficiency Improvements

    The technical requirements specified in this section apply to 
projects that involve energy efficiency improvements, which are,

[[Page 783]]

as defined in Sec. 4280.103, improvements to a facility, building, or 
process that reduces energy consumption. The system engineering for such 
projects must be performed by a qualified party or certified 
Professional Engineer.
    (a) Qualifications of project team. The energy efficiency project 
team is expected to consist of an energy auditor or other service 
provider, a project manager, an equipment supplier of major components, 
a project engineer, and a construction contractor or system installer. 
One individual or entity may serve more than one role. Authoritative 
evidence that project team service providers have the necessary 
professional credentials or relevant experience to perform the required 
services must be provided. Authoritative evidence that vendors of 
proprietary components can provide necessary equipment and spare parts 
for the system to operate over its design life must also be provided. 
The application must:
    (1) Discuss the qualifications of the various project team members, 
including any relevant certifications by recognized organizations;
    (2) Describe qualifications or experience of the team as related to 
installation, service, operation and maintenance of the project;
    (3) Provide a list of the same or similarly engineered projects 
designed, installed, or supplied by the team or by team members and 
currently operating. Provide references if available; and
    (4) Discuss the manufacturers of major energy efficiency equipment 
being considered, including length of time in business.
    (b) Agreements, permits, and certifications. Identify all necessary 
agreements and permits required for the energy efficiency improvement(s) 
and the status and anticipated schedule for securing those agreements 
and permits, including the items specified in paragraphs (b)(1) through 
(4). The applicant must also submit a statement certifying that the 
applicant will comply with all necessary agreements and permits for the 
energy efficiency improvement(s).
    (1) Identify building code, electrical code, and zoning issues and 
required permits, and the anticipated schedule for meeting those 
requirements and securing those permits.
    (2) Identify available component warranties for the specific project 
location and size.
    (3) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 CFR 
part 1940, subpart G, of this title.
    (4) Submit a statement certifying that the project will be installed 
in accordance with applicable local, State, and national codes and 
regulations.
    (c) Energy assessment. Provide adequate and appropriate evidence of 
energy savings expected when the system is operated as designed.
    (1) Provide information on baseline energy usage (preferably 
including energy bills for at least 1 year), expected energy savings 
based on manufacturers specifications or other estimates, estimated 
dollars saved per year, and payback period in years (total investment 
cost equal to cumulative total dollars of energy savings). Calculation 
of energy savings should follow accepted methodology and practices. 
System interactions should be considered and discussed.
    (2) For energy efficiency improvement projects with total eligible 
project costs greater than $50,000, an energy audit is required. An 
energy audit is a written report by an independent, qualified party that 
documents current energy usage, recommended potential improvements and 
their costs, energy savings from these improvements, dollars saved per 
year, and simple payback period in years (total costs divided by annual 
dollars of energy savings). The methodology of the energy audit must 
meet professional and industry standards. The energy audit must cover 
the following:
    (i) Situation report. Provide a narrative description of the 
facility or process, its energy system(s) and usage, and activity 
profile. Also include price per unit of energy (electricity, natural 
gas, propane, fuel oil, renewable energy, etc.,) paid by the customer on 
the date of the audit. Any energy conversion should be based on use 
rather than source.
    (ii) Potential improvements. List specific information on all 
potential energy-saving opportunities and their costs.
    (iii) Technical analysis. Give consideration to the interactions 
among the potential improvements and other energy systems:
    (A) Estimate the annual energy and energy costs savings expected 
from each improvement identified in the potential project;
    (B) Calculate all direct and attendant indirect costs of each 
improvement; and
    (C) Rank potential improvements measures by cost-effectiveness.
    (iv) Potential improvement description. Provide a narrative summary 
of the potential improvement and its ability to provide needed benefits, 
including a discussion of nonenergy benefits such as project reliability 
and durability.
    (A) Provide preliminary specifications for critical components.
    (B) Provide preliminary drawings of project layout, including any 
related structural changes.
    (C) Document baseline data compared to projected consumption, 
together with any explanatory notes. When appropriate, show before-and-
after data in terms of consumption per unit of production, time or area. 
Include at least 1 year's bills for those energy sources/fuel types 
affected by this project.

[[Page 784]]

Also submit utility rate schedules, if appropriate.
    (D) Identify significant changes in future related operations and 
maintenance costs.
    (E) Describe explicitly how outcomes will be measured.
    (3) For energy efficiency improvement projects with total eligible 
project costs equal to or less than $50,000, an energy assessment or 
energy audit is required. If an energy assessment is performed, provide 
adequate and appropriate evidence of energy savings expected when the 
system is operated as designed. If an energy audit is performed, it must 
follow the requirements specified in paragraph (c)(2).
    (d) Design and engineering. Provide authoritative evidence that the 
energy efficiency improvement(s) will be designed and engineered so as 
to meet its intended purpose, will ensure public safety, and will comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards.
    (1) Energy efficiency improvement projects in excess of $50,000 must 
be engineered by a qualified party. Systems must be engineered as a 
complete, integrated system with matched components.
    (2) For all energy efficiency improvement projects, identify and 
itemize major energy efficiency improvements, including associated 
project costs. Specifically delineate which costs of the project are 
directly associated with energy efficiency improvements. Describe the 
components, materials or systems to be installed and how they improve 
the energy efficiency of the process or facility being modified. Discuss 
passive improvements that reduce energy loads, such as improving the 
thermal efficiency of a storage facility, and active improvements that 
directly reduce energy consumption, such as replacing existing energy 
consuming equipment with high efficiency equipment, as separate topics. 
Discuss any anticipated synergy between active and passive improvements 
or other energy systems. Include in the discussion any change in on-site 
effluents, pollutants, or other by-products.
    (3) Identify possible suppliers and models of major pieces of 
equipment.
    (e) Project development schedule. Identify each significant task, 
its beginning and end, and its relationship to the time needed to 
initiate and carry the project through startup and shakedown. Provide a 
detailed description of the project timeline, including energy audit (if 
applicable), system and site design, permits and agreements, equipment 
procurement, and system installation from site preparation through 
startup and shakedown.
    (f) Project economic assessment. For projects whose total eligible 
costs are greater than $50,000, provide an analysis of the proposed 
project to demonstrate its financial performance, including the 
calculation of simple payback. The analysis should include applicable 
investment incentives, productivity incentives, loans and grants, and 
expected energy offsets or sales on a monthly and annual basis. In 
addition, provide other information necessary to assess the project's 
cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required for 
the energy efficiency improvement(s) is available and can be procured 
and delivered within the proposed project development schedule. Energy 
efficiency improvements may be constructed of components manufactured in 
more than one location. Provide a description of any unique equipment 
procurement issues such as scheduling and timing of component 
manufacture and delivery, ordering, warranties, shipping, receiving, and 
on-site storage or inventory. Provide a detailed description of 
equipment certification. Identify all the major equipment that is 
proprietary and justify how this unique equipment is needed to meet the 
requirements of the proposed design. Include a statement from the 
applicant certifying that ``open and free'' competition will be used for 
the procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for installation of the energy efficiency improvement(s), identify 
specific issues associated with installation, provide details regarding 
the scheduling of major installation equipment needed for project 
discussion, and provide a description of the startup and shakedown 
specifications and process and the conditions required for startup and 
shakedown for each equipment item individually and for the system as a 
whole. Include in this discussion any unique concerns, such as the 
effects of energy efficiency improvements on system power quality. 
Include a statement from the applicant certifying that equipment 
installation will be made in accordance with all applicable safety and 
work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the energy efficiency improvement(s) 
necessary for the energy efficiency improvement(s) to perform as 
designed over the design life. The application must:
    (1) Provide information regarding component warranties and the 
availability of spare parts;
    (2) Describe the routine operation and maintenance requirements of 
the proposed project, including maintenance schedules for the mechanical 
and electrical systems and system monitoring and control requirements;
    (3) Provide information that supports expected design life of the 
improvement(s) and timing of major component replacement or rebuilds;

[[Page 785]]

    (4) Provide and discuss the risk management plan for handling large, 
potential failures of major components. Include in the discussion, costs 
and labor associated with the operation and maintenance of the 
improvement(s), and plans for in-sourcing or out-sourcing; and
    (5) For owner maintained portions of the improvement(s), describe 
any unique knowledge, skills, or abilities needed for service operations 
or maintenance.
    (j) Dismantling and disposal of project components. Describe a plan 
for dismantling and disposing of project components and associated 
wastes at the end of their useful lives. Describe the budget for and any 
unique concerns associated with the dismantling and disposal of project 
components and their wastes.



PART 4284_GRANTS--Table of Contents




 Subpart A_General Requirements for Cooperative Services Grant Programs

Sec.
4284.1 Purpose.
4284.2 Policy.
4284.3 Definitions.
4284.4 Appeals.
4284.5 [Reserved]
4284.6 Applicant eligibility.
4284.7 Electronic submission.
4284.8 Grant approval and obligation of funds.
4284.9 Grant disbursement.
4284.10 Ineligible grant purposes.
4284.11 Award requirements.
4284.12 Reporting requirements.
4284.13 Confidentiality of reports.
4284.14 Grant servicing.
4284.15 Performance reviews.
4284.16 Other considerations.
4284.17 Member delegate clause.
4284.18 Audit requirements.
4284.19 Programmatic changes.
4284.20-4284.99 [Reserved]
4284.100 OMB control number.

Subparts B-E [Reserved]

             Subpart F_Rural Cooperative Development Grants

4284.501 Purpose.
4284.502 Policy.
4284.503 Program administration.
4284.504 Definitions.
4284.505-4284.506 [Reserved]
4284.507 Eligibility for grant assistance.
4284.508 Use of grant funds.
4284.509 Limitations on grants.
4284.510 Application processing.
4284.511 Evaluation screening.
4284.512 Evaluation process.
4284.513 Evaluation criteria and weights.
4284.514 Grant closing.
4284.515-4284.599 [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.

Subparts H-I [Reserved]

                  Subpart J_Value-Added Producer Grants

4284.901 Purpose.
4284.902 Policy.
4284.903 Program administration.
4284.904 Definitions.
4284.905-4284.906 [Reserved]
4284.907 Eligibility for grant assistance.
4284.908 Use of grant and matching funds.
4284.909 Limitations on use of funds and awards.
4284.910 Application processing.
4284.911 Evaluation screening.
4284.912 Evaluation process.
4284.913 Evaluation criteria and weights.
4284.914 Grant closing.
4284.915-4284.999 [Reserved]
4284.1000 OMB control number.

         Subpart K_Agriculture Innovation Demonstration Centers

4284.1001 Purpose.
4284.1002 Policy.
4284.1003 Program administration.
4284.1004 Definitions.
4284.1005-4284.1006 [Reserved]
4284.1007 Eligibility for grant assistance.
4284.1008 Use of grant funds.

[[Page 786]]

4284.1009 Limitations on awards.
4284.1010 Application processing.
4284.1011 Evaluation screening.
4284.1012 Evaluation process.
4284.1013 Evaluation criteria and weights.
4284.1014 Grant closing.
4284.1015-4284.1099 [Reserved]
4284.1100 OMB control number.

    Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
    Subpart F also issued under 7 U.S.C 1932(e).
    Subpart G also issued under 7 U.S.C 1926(a)(11).
    Subpart J also issued under 7 U.S.C 1621 note.
    Subpart K also issued under 7 U.S.C. 1621 note.

    Source: 62 FR 42387, Aug. 7, 1997, unless otherwise noted.



 Subpart A_General Requirements for Cooperative Services Grant Programs

    Source: 69 FR 23425, Apr. 29, 2004, unless otherwise noted.



Sec. 4284.1  Purpose.

    The purpose of this subpart is to set forth definitions and 
requirements which are common to all grant programs set forth in this 
part administered by Cooperative Services within the Rural Business-
Cooperative Service (RBS). Programs administered by the Business 
Programs within RBS are not affected by this subpart.



Sec. 4284.2  Policy.

    It is the policy of Cooperative Services to administer grant 
programs as uniformly as possible to minimize unnecessary 
inconsistencies in the administration of the grant programs provided for 
in this part. The specific provisions or definitions provided in the 
subparts that are specific to Cooperative Services are supplemental to 
these general provisions. Where a specific program provision is 
expressly different from what is provided in this subpart, the program 
specific subpart shall prevail.



Sec. 4284.3  Definitions.

    Agency--Rural Business-Cooperative Service (RBS), an agency of the 
United States Department of Agriculture (USDA), or a successor agency.
    Agricultural Producer--Persons or entities, including farmers, 
ranchers, loggers, agricultural harvesters and fishermen, that engage in 
the production or harvesting of an agricultural product. Producers may 
or may not own the land or other production resources, but must have 
majority ownership interest in the agricultural product to which Value-
Added is to accrue as a result of the project. Examples of agricultural 
producers include: a logger who has a majority interest in the logs 
harvested that are then converted to boards, a fisherman that has a 
majority interest in the fish caught that are then smoked, a wild herb 
gatherer that has a majority interest in the gathered herbs that are 
then converted into essential oils, a cattle feeder that has a majority 
interest in the cattle that are fed, slaughtered and sold as boxed beef, 
and a corn grower that has a majority interest in the corn produced that 
is then converted into corn meal.
    Agriculture Producer Group--An organization that represents 
Independent Producers, whose mission includes working on behalf of 
Independent Producers and the majority of whose membership and board of 
directors is comprised of Independent Producers.
    Agricultural Product--Plant and animal products and their by-
products to include forestry products, fish and seafood products.
    Cooperative Services--The office within RBS, and its successor 
organization, that administers programs authorized by the Cooperative 
Marketing Act of 1926 (7 U.S.C. 451 et seq.) and such other programs so 
identified in USDA regulations.
    Economic development--The economic growth of an area as evidenced by 
increase in total income, employment opportunities, decreased out-
migration of population, 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.
    Emerging Market--A new or developing market for the applicant, which 
the applicant has not traditionally supplied.

[[Page 787]]

    Farmer or Rancher Cooperative--A farmer or rancher-owned and 
controlled business from which benefits are derived and distributed 
equitably on the basis of use by each of the farmer or rancher owners.
    Fixed equipment--Tangible personal property used in trade or 
business that would ordinarily be subject to depreciation under the 
Internal Revenue Code, including processing equipment, but not including 
property for equipping and furnishing offices such as computers, office 
equipment, desks or file cabinets.
    Independent Producers--Agricultural producers, individuals or 
entities (including for profit and not for profit corporations, LLCs, 
partnerships or LLPs), where the entities are solely owned or controlled 
by Agricultural Producers who own a majority ownership interest in the 
agricultural product that is produced. An independent producer can also 
be a steering committee composed of independent producers in the process 
of organizing an association to operate a Value-Added venture that will 
be owned and controlled by the independent producers supplying the 
agricultural product to the market. Independent Producers must produce 
and own the agricultural product to which value is being added. 
Producers who produce the agricultural product under contract for 
another entity but do not own the product produced are not independent 
producers.
    Majority-Controlled Producer-Based Business Venture--A venture where 
more than 50% of the ownership and control is held by Independent 
Producers, or, partnerships, LLCs, LLPs, corporations or cooperatives 
that are themselves 100 percent owned and controlled by Independent 
Producers.
    Matching Funds--Cash or confirmed funding commitments from non-
Federal sources unless otherwise provided by law. Unless otherwise 
provided, matching funds must be at least equal to the grant amount. 
Unless otherwise provided, in-kind contributions that conform to the 
provisions of 7 CFR 3015.50 and 7 CFR 3019.23, as applicable, can be 
used as matching funds. Examples of in-kind contributions include 
volunteer services furnished by professional and technical personnel, 
donated supplies and equipment, and donated office space. Matching funds 
must be provided in advance of grant funding, such that for every dollar 
of grant that is advanced, not less than an equal amount of match funds 
shall have been funded prior to submitting the request for 
reimbursement. Matching funds are subject to the same use restrictions 
as grant funds. Funds used for an ineligible purpose will not be 
considered matching funds.
    National Office--USDA RBS headquarters in Washington, DC.
    Nonprofit institution--Any organization or institution, including an 
accredited institution of higher education, no part of the net earnings 
of which may inure, to the benefit of any private shareholder or 
individual.
    Product segregation--Physical separation of a product or commodity 
from similar products. Physical separation requires a barrier to prevent 
mixing with the similar product.
    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.
    RFP--Request for Proposals.
    Rural and rural area--includes all the territory of a state that is 
not within the outer boundary of any city or town having a population of 
50,000 or more and the urbanized area contiguous and adjacent to such 
city or town, as defined by the U.S. Bureau of the Census using the 
latest decennial census of the United States.
    Rural Development--A mission area within the USDA consisting of the 
Office of Under Secretary for Rural Development, Office of Community 
Development, Rural Business-Cooperative Service, Rural Housing Service 
and Rural Utilities Service and their successors.
    State--includes each of the several States, the Commonwealth of 
Puerto Rico, the Virgin Islands of the United States, Guam, American 
Samoa, the Commonwealth of the Northern Mariana Islands, and, as may be 
determined by the Secretary to be feasible,

[[Page 788]]

appropriate and lawful, the Freely Associated States and the Federated 
States of Micronesia.
    State Office--USDA Rural Development offices located in each state.
    Value-Added--The incremental value that is realized by the producer 
from an agricultural commodity or product as the result of a change in 
its physical state, differentiated production or marketing, as 
demonstrated in a business plan, or Product segregation. Also, the 
economic benefit realized from the production of farm or ranch-based 
renewable energy. Incremental value may be realized by the producer as a 
result of either an increase in value to buyers or the expansion of the 
overall market for the product. Examples include milling wheat into 
flour, slaughtering livestock or poultry, making strawberries into jam, 
the marketing of organic products, an identity-preserved marketing 
system, wind or hydro power produced on land that is farmed and 
collecting and converting methane from animal waste to generate energy. 
Identity-preserved marketing systems include labeling that identifies 
how the product was produced and by whom.



Sec. 4284.4  Appeals.

    Any appealable adverse decision made by the Agency may be appealed 
in accordance with USDA appeal regulations found at 7 CFR part 11 and 
subpart B of part 1900. If the Agency makes a determination that a 
decision is not appealable, a participant may request that it be 
reviewed by the Director of the National Appeals Division.



Sec. 4284.5  [Reserved]



Sec. 4284.6  Applicant eligibility.

    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 assistance until the judgment is paid in full or otherwise 
satisfied. RBS grant funds may not be used to satisfy the judgment.



Sec. 4284.7  Electronic submission.

    Applicants and grant awardees are encouraged, but not required, to 
submit applications and reports in electronic form as prescribed in 
requests for proposals issued by USDA and in the applicable grant 
agreements.



Sec. 4284.8  Grant approval and obligation of funds.

    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 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.



Sec. 4284.9  Grant 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. The Agency may limit the frequency in which a Request for 
Advance or Reimbursement may be submitted.



Sec. 4284.10  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 date of grant 
approval;
    (d) Fund political activities;
    (e) Pay for assistance to any private business enterprise which does 
not have a 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;

[[Page 789]]

    (g) Plan, repair, rehabilitate, acquire, or construct a building or 
facility (including a processing facility);
    (h) Purchase, rent or install Fixed Equipment;
    (i) Pay for the repair of privately owned vehicles; or
    (j) Fund research and development.



Sec. 4284.11  Award requirements.

    In addition to specific grant requirements, all approved applicants 
will be required to do the following:
    (a) Enter into a grant agreement with USDA in form and substance 
similar to the form of agreement as may be published within or as an 
appendix to the applicable RFP;
    (b) Submit a feasibility study and business plan showing the 
viability of the venture, if any Federal grant and matching funds are to 
be used as working capital;
    (c) Use ``Request for Advance or Reimbursement'' to request advances 
or reimbursements, as applicable, but not more frequently than once a 
month;
    (d) Maintain a financial management system that is acceptable to the 
Agency; and
    (e) Collect and maintain data on race, sex and national origin of 
the beneficiaries of the project.



Sec. 4284.12  Reporting requirements.

    Grantees must submit the following to USDA:
    (a) A ``Financial Status Report'' listing expenditures according to 
agreed upon budget categories, on a semi-annual basis. Reporting periods 
end each March 31 and September 30. Reports are due 30 days after the 
reporting period ends.
    (b) Semi-annual performance reports that compare accomplishments to 
the objectives stated in the proposal. Identify all tasks completed to 
date and provide documentation supporting the reported results. If the 
original schedule provided in the work plan is not being met, the report 
should discuss the problems or delays that may affect completion of the 
project. Objectives for the next reporting period should be listed. 
Compliance with any special condition on the use of award funds should 
be discussed. Reports are due as provided in paragraph (a) of this 
section. The supporting documentation for completed tasks include, but 
are not limited to, feasibility studies, marketing plans, business 
plans, articles of incorporation and bylaws and an accounting of how 
working capital funds were spent.
    (c) Final project performance reports, inclusive of supporting 
documentation. The final performance report is due within 30 days of the 
completion of the project.



Sec. 4284.13  Confidentiality of reports.

    All reports submitted to the Agency will be held in confidence to 
the extent permitted by law.



Sec. 4284.14  Grant servicing.

    Grants will be serviced in accordance with 7 CFR part 1951, subparts 
E and O. 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. 4284.15  Performance reviews.

    (a) USDA will incorporate performance criteria in grant award 
documentation and will regularly evaluate the progress and performance 
of grant awardees.
    (b) USDA may elect to suspend or terminate a grant in all or part, 
or funding of a particular workplan activity, but nevertheless fund the 
remainder of a request for an advance or reimbursement, as applicable, 
where USDA has determined:
    (1) That the grantee or subrecipient of grant funds has demonstrated 
insufficient progress in complying with the terms of the grant 
agreement;
    (2) There is reason to believe that other sources of joint funding 
have not been or will not be forthcoming on a timely basis; or
    (3) Such other cause as USDA identifies in writing to the grantee 
(including but not limited to the use of Federal grant funds for 
ineligible purposes).



Sec. 4284.16  Other considerations.

    (a) Environmental review. All grants made under this subpart are 
subject to

[[Page 790]]

the requirements of 7 CFR part 1940, subpart G. Applications for 
technical assistance or planning projects are generally excluded from 
the environmental review process by Sec. 1940.333, 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.
    (b) Civil rights. 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 7 CFR part 1901, subpart E. 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. This program will also be administered in 
accordance with all other applicable civil rights law.
    (c) Other USDA regulations. The grant programs under this part are 
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.



Sec. 4284.17  Member delegate clause.

    No Member of Congress shall be admitted to any share or part of a 
grant program or any benefit that may arise there from, but this 
provision shall not be construed to bar as a contractor under a grant a 
publicly held corporation whose ownership might include a Member of 
Congress.



Sec. 4284.18  Audit requirements.

    Grantees must comply with the audit requirements of 7 CFR part 3052. 
The audit requirements apply to the years in which grant funds are 
received and years in which work is accomplished using grant funds.



Sec. 4284.19  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.



Sec. Sec. 4284.20-4284.99  [Reserved]



Sec. 4284.100  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 0570-0045.

Subparts B-E [Reserved]



             Subpart F_Rural Cooperative Development Grants

    Source: 69 FR 23428, Apr. 29, 2004, unless otherwise noted.



Sec. 4284.501  Purpose.

    This subpart outlines the Agency's polices and procedures for making 
grants for cooperative development in rural areas.



Sec. 4284.502  Policy.

    Rural cooperative development grants will be used to facilitate the

[[Page 791]]

creation or retention of jobs in rural areas through the development of 
new rural cooperatives, Value-Added processing and rural businesses.



Sec. 4284.503  Program administration.

    The rural cooperative development grant program is administered by 
Cooperative Services within the Agency.



Sec. 4284.504  Definitions.

    Center--The entity established or operated by the grantee for rural 
cooperative development. It may or may not be an independent legal 
entity separate from the grantee.
    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 marketing of 
products, or enterprises that create Value-Added to farm products 
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.
    1994 Institution--means a college identified as such for purposes of 
the Equity in Educational Land-Grant Status Act of 1994 (7 U.S.C. 301 
note). Contact the Agency for a list of currently eligible colleges.
    Project--A planned undertaking by a Center that utilizes the funds 
provided to it to promote economic development in rural areas through 
the creation and enhancement of cooperatives.



Sec. Sec. 4284.505-4284.506  [Reserved]



Sec. 4284.507  Eligibility for grant assistance.

    Grants may be made to Nonprofit corporations and institutions of 
higher education. Grants may not be made to Public bodies.



Sec. 4284.508  Use of grant funds.

    Grant funds may be used to pay up to 75 percent (95 percent where 
the grantee is a 1994 Institution) of the cost of establishing and 
operating centers for rural cooperative development. Matching funds 
contributed by the applicant may include a loan from another federal 
source. Grant funds may be used for, but are not limited to, providing 
the following to individuals, cooperatives, small businesses and other 
similar entities in rural areas served by the Center:
    (a) Applied research, feasibility, environmental and other studies 
that may be useful for the purpose of cooperative development.
    (b) Collection, interpretation and dissemination of principles, 
facts, technical knowledge, or other information for the purpose of 
cooperative development.
    (c) Providing training and instruction for the purpose of 
cooperative development.
    (d) Providing loans and grants for the purpose of cooperative 
development in accordance with the subpart.
    (e) Providing technical assistance, research services and advisory 
services for the purpose of cooperative development.



Sec. 4284.509  Limitations on grants.

    Grants made pursuant to this subpart shall be for one year or less.



Sec. 4284.510  Application processing.

    (a) Applications. USDA will solicit applications on a competitive 
basis by publication of one or more Requests for Proposals (RFPs). 
Unless otherwise specified in the applicable RFP, applicants must file 
an original and one hard copy of the required forms and a proposal.
    (b) Required forms. The following forms must be completed, signed 
and submitted as part of the application package. Other forms may be 
required. This will be published in the applicable RFP.
    (1) ``Application for Federal Assistance''
    (2) ``Budget Information--Non-Construction Programs''
    (3) ``Assurances--Non-Construction Programs''
    (c) Proposal. Each proposal must contain the following elements. 
Additional elements may be published in the applicable RFP.
    (1) Title Page.
    (2) Table of Contents.

[[Page 792]]

    (3) Executive Summary. A summary of the proposal should briefly 
describe the Center, including goals and tasks to be accomplished, the 
amount requested, how the work will be performed and whether 
organizational staff, consultants or contractors will be used.
    (4) Eligibility. A detailed discussion describing how the applicant 
meets the eligibility requirements.
    (5) Proposal Narrative. The narrative portion of the proposal must 
include, but is not limited to, the following:
    (i) Project Title. The title of the proposed project must be brief, 
not to exceed 75 characters, yet describe the essentials of the project.
    (ii) Information Sheet. A separate one-page information sheet 
listing each of the evaluation criteria referenced in the RFP, followed 
by the page numbers of all relevant material and documentation contained 
in the proposal that address or support the criteria.
    (iii) Goals of the Project. This section must include the following:
    (A) A provision that substantiates that the Center will effectively 
serve rural areas in the United States;
    (B) A provision that the primary objective of the Center will be to 
improve the economic condition of rural areas through cooperative 
development;
    (C) A description of the contributions that the proposed activities 
are likely to make to the improvement of the economic conditions of the 
rural areas for which the Center will provide services.
    (D) Provisions that the Center, in carrying out the activities, will 
seek, where appropriate, the advice, participation, expertise, and 
assistance of representatives of business, industry, educational 
institutions, the Federal Government, and State and local governments.
    (iv) Work Plan. Applicants must discuss the specific tasks to be 
completed using grant and matching funds. The work plan should show how 
customers will be identified, key personnel to be involved, and the 
evaluation methods to be used to determine the success of specific tasks 
and overall objectives of Center operations. The budget must present a 
breakdown of the estimated costs associated with cooperative development 
activities as well as the operation of the Center and allocate these 
costs to each of the tasks to be undertaken. Matching funds as well as 
grant funds must be accounted for in the budget.
    (v) Performance Evaluation Criteria. Performance criteria suggested 
by the applicant for incorporation in the grant award in the event the 
proposal receives grant funding under this subpart. These suggested 
criteria are not binding on USDA.
    (vi) Undertakings. The applicant must expressly undertake to do the 
following:
    (A) Take all practicable steps to develop continuing sources of 
financial support for the Center, particularly from sources in the 
private sector;
    (B) Make arrangements for the activities by the nonprofit 
institution operating the Center to be monitored and evaluated; and
    (C) Provide an accounting for the money received by the grantee 
under this subpart.
    (vii) Delivery of Cooperative development assistance. The applicant 
must describe its previous accomplishments and outcomes in Cooperative 
development activities and/or its potential for effective delivery of 
Cooperative development services to rural areas. The applicant should 
also describe the type(s) of assistance to be provided, the expected 
impacts of that assistance, the sustainability of cooperative 
organizations receiving the assistance, and the transferability of its 
Cooperative development strategy and focus to other areas of the U.S.
    (viii) Qualifications of Personnel. Applicants must describe the 
qualifications of personnel expected to perform key center tasks, and 
whether these personnel are to be full/part-time Center employees or 
contract personnel. Those personnel having a track record of positive 
solutions for complex cooperative development or marketing problems, or 
those with a record of conducting feasibility studies that later proved 
to be accurate, business planning, marketing analysis, or other 
activities relevant to the Center's success should be highlighted.

[[Page 793]]

    (ix) Support and commitments. Applicants must describe the level of 
support and commitment in the community for the proposed Center and the 
services it would provide. Plans for coordinating with other 
developmental organizations in the proposed service area, or with state 
and local government institutions should be included. Letters supporting 
cooperation and coordination from potential local customers should be 
provided.
    (x) Future support. Applicants should describe their vision for 
Center operations beyond the first year, including issues such as 
sources and uses of alternative funding; reliance on Federal, state, and 
local grants; and the use of in-house personnel for providing services 
versus contracting out for that expertise. To the extent possible, 
applicants should document future funding sources that will help achieve 
long-term sustainability of the Center.
    (xi) Evaluation criteria. Each of the evaluation criteria referenced 
in the RFP must be specifically and individually addressed in narrative 
form.
    (6) Verification of Matching Funds. Applicants must provide a budget 
to support the work plan showing all sources and uses of funds during 
the project period. Applicants will be required to verify matching 
funds, both cash and in-kind. Sufficient information should be included 
such that USDA can verify all representations.
    (7) Certification. Applicants must certify that matching funds will 
be available at the same time grant funds are anticipated to be spent 
and that matching funds will be spent in advance of grant funding, such 
that for every dollar of grant that is advanced, not less than an equal 
amount of match funds will have been funded prior to submitting the 
request for advance.



Sec. 4284.511  Evaluation screening.

    The Agency will conduct an initial screening of all proposals to 
determine whether the applicant is eligible and whether the application 
is complete and sufficiently responsive to the requirements set forth in 
the applicable RFP so as to allow for an informed review. Incomplete or 
non-responsive applications will not be evaluated further. Applicants 
may revise their applications and re-submit them prior to the published 
deadline if there is sufficient time to do so.



Sec. 4284.512  Evaluation process.

    (a) Applications will be evaluated by qualified reviewers appointed 
by the Agency.
    (b) After all proposals have been evaluated using the evaluation 
criteria and scored in accordance with the point allocation specified in 
the applicable RFP, the Agency will present to the Administrator of RBS 
a list of all applications in rank order, together with funding level 
recommendations.



Sec. 4284.513  Evaluation criteria and weights.

    Unless supplemented in a RFP, the criteria listed in this section 
will be used to evaluate grants under this subpart. Preference will be 
given to items in paragraphs (a) through (f) of this section. The 
distribution of points to be awarded per criterion will be identified in 
the applicable RFP.
    (a) Administrative capabilities. The application will be evaluated 
to determine whether the subject Center has a track record of 
administering a nationally coordinated, regional or state-wide operated 
project. Centers that have capable financial systems and audit controls, 
personnel and program administration performance measures and clear 
rules of governance will receive more points than those not evidencing 
this capacity.
    (b) Technical assistance and other services. The Agency will 
evaluate the applicant's demonstrated expertise in providing technical 
assistance in Rural areas.
    (c) Economic development. The Agency will evaluate the applicant's 
demonstrated ability to assist in the retention of businesses, 
facilitate the establishment of cooperatives and new cooperative 
approaches and generate employment opportunities that will improve the 
economic conditions of rural areas.
    (d) Linkages. The Agency will evaluate the applicant's demonstrated 
ability to create horizontal linkages among businesses within and among 
various sectors in rural areas of the

[[Page 794]]

United States and vertical linkages to domestic and international 
markets.
    (e) Commitment. The Agency will evaluate the applicant's commitment 
to providing technical assistance and other services to underserved and 
economically distressed areas in rural areas of the United States.
    (f) Matching Funds. All applicants must demonstrate Matching Funds 
equal to at least 25 percent (5 percent for 1994 Institutions) of the 
grant amount requested. Applications exceeding these minimum commitment 
levels will receive more points.
    (g) Delivery. The Agency will evaluate whether the Center has a 
track record in providing technical assistance in rural areas and 
accomplishing effective outcomes in cooperative development. The 
Center's potential for delivering effective cooperative development 
assistance, the expected effects of that assistance, the sustainability 
of cooperative organizations receiving the assistance, and the 
transferability of the Center's cooperative development strategy and 
focus to other States will also be assessed.
    (h) Work Plan/Budget. The work plan will be reviewed for detailed 
actions and an accompanying timetable for implementing the proposal. 
Clear, logical, realistic and efficient plans will result in a higher 
score. Budgets will be reviewed for completeness and the quality of non 
Federal funding commitments.
    (i) Qualifications of those Performing the Tasks. The application 
will be evaluated to determine if the personnel expected to perform key 
center tasks have a track record of positive solutions for complex 
Cooperative development or marketing problems, or a successful record of 
conducting accurate feasibility studies, business plans, marketing 
analysis, or other activities relevant to Cooperative development center 
success.
    (j) Local support. Applications will be reviewed for previous and 
expected local support for the Center, plans for coordinating with other 
developmental organizations in the proposed service area and 
coordination with state and local institutions. Support documentation 
should include recognition of rural values that balance employment 
opportunities with environmental stewardship and other positive rural 
amenities. Centers that demonstrate strong support from potential 
beneficiaries and formal evidence of the Center's intent to coordinate 
with other developmental organizations will receive more points than 
those not evidencing such support and formal intent.
    (k) Future support. Applications that demonstrate their vision for 
funding center operations for future years, including diversification of 
funding sources and building in-house technical assistance capacity, 
will receive more points for this criterion.



Sec. 4284.514  Grant closing.

    (a) Letter of Conditions. The Agency will notify an approved 
applicant in writing, setting out the conditions under which the grant 
will be made.
    (b) Applicant's intent to meet conditions. Upon reviewing the 
conditions and requirements in the letter of conditions, the applicant 
must complete, sign and return the Agency's ``Letter of Intent to Meet 
Conditions,'' 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.
    (c) Grant agreement. The Agency and the grantee must enter into the 
Agency's ``Agriculture Innovation Center Grant Agreement'' prior to the 
advance of funds.



Sec. Sec. 4284.515-4284.599  [Reserved]



Sec. 4284.600  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget and 
have been assigned OMB control number 0570-0006 in accordance with the 
Paperwork Reduction Act of 1995.



               Subpart G_Rural Business Opportunity Grants

    Source: 64 FR 71986, Dec. 23, 1999, unless otherwise noted.

[[Page 795]]



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 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

[[Page 796]]

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]



Sec. Sec. 4284.604-4287.619  [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 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

[[Page 797]]

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.



Sec. Sec. 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.



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.



Sec. Sec. 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

[[Page 798]]

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 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

[[Page 799]]

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 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.



Sec. Sec. 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.



Sec. Sec. 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

[[Page 800]]

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 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.



Sec. Sec. 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.

[[Page 801]]



Sec. Sec. 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.



Sec. Sec. 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.

Subparts H-I [Reserved]



                  Subpart J_Value-Added Producer Grants

    Source: 69 FR 23430, Apr. 29, 2004, unless otherwise noted.



Sec. 4284.901  Purpose.

    This subpart implements the Value-Added agricultural product market 
development grant program (Value-Added Producer Grants) administered by 
the Rural Business-Cooperative Service whereby grants are made to enable 
producers to develop businesses that produce and market Value-Added 
agricultural products.



Sec. 4284.902  Policy.

    It is the policy of the Secretary of Agriculture to fund a broad 
diversity of projects that help increase the agricultural producers' 
customer base and share of the food and agricultural system profit.



Sec. 4284.903  Program administration.

    The Value-Added Producer Grant program is administered by 
Cooperative Services within the Agency.



Sec. 4284.904  Definitions.

    Planning Grants--Grants to facilitate the development of a defined 
program of economic activities to determine the viability of a potential 
Value-Added venture, including feasibility studies, marketing 
strategies, business plans and legal evaluations.
    Working Capital Grants--Grants to provide funds to operate ventures 
and pay the normal expenses of the venture that are eligible uses of 
grant funds.



Sec. Sec. 4284.905-4284.906  [Reserved]



Sec. 4284.907  Eligibility for grant assistance.

    (a) The proposed project must evidence a high likelihood of creating 
Value-Added for an Agricultural Product.
    (b) Independent Producers, Agricultural producer groups, Farmer or 
Rancher cooperatives and Majority-Controlled Producer-Based Business 
Ventures, are eligible for grants under this subpart.
    (c) An applicant that is a Farmer or Rancher cooperative, an 
Agriculture producer group or a Majority-Controlled Producer-Based 
Business Venture must be entering into an Emerging Market as a result of 
the proposed project. An applicant that is an Independent Producer does 
not have to be entering into an Emerging Market.
    (d) No project may be the subject of more than one Planning Grant or 
more than one Working Capital Grant under this subpart. The same project 
may, however, be awarded one Planning Grant and subsequently apply for 
and receive a Working Capital Grant.
    (e) Not more than one project per funding cycle per applicant may 
receive grant funding under this subpart.

[[Page 802]]



Sec. 4284.908  Use of grant and matching funds.

    (a) An application may be for either a Planning Grant or a Working 
Capital Grant, but not both.
    (b) Grant funds may be used to pay up to 50 percent of the costs for 
carrying out relevant projects. Matching funds must be provided for the 
balance of costs.
    (c) Matching funds may only be used for the same purposes allowed 
for grant funds.
    (d) Planning Grant funds may be used to develop a business plan or 
perform a feasibility study to establish a viable marketing opportunity 
for a Value-Added producer. These uses include, but are not limited to, 
the following:
    (1) Conduct, or hire a qualified consultant to conduct, a 
feasibility analysis of the proposed value added project to help 
determine the potential success of the project;
    (2) Develop, or hire a qualified consultant to develop, a business 
operations plan that provides comprehensive detail on the management, 
planning and other operational aspects of the proposed project; and
    (3) Develop, or hire a qualified consultant to develop, a marketing 
plan for the proposed Value-Added product(s) including the 
identification of a market window, potential buyers, a description of 
the distribution system and possible promotional campaigns;
    (e) Working Capital Grant funds may be used to provide capital to 
establish alliances or business ventures that allow the producer of the 
Value-Added agricultural product to better compete in domestic or 
international markets. These uses include, but are not limited to, the 
following:
    (1) Establish a working capital account to fund operations prior to 
obtaining sufficient cash flow from operations;
    (2) Hire counsel to provide legal advice and to draft organizational 
and other legal documents related to the proposed venture;
    (3) Hire a Certified Public Accountant or other qualified individual 
to design an accounting system for the proposed venture; and
    (4) Pay salaries, utilities and other operating costs such as 
inventory financing, the purchase of office equipment, computers and 
supplies and finance other related activities.



Sec. 4284.909  Limitations on use of funds and awards.

    (a) In addition to the limitations provided in 7 CFR subpart A, 
neither grant nor matching funds may be used to fund architectural or 
engineering design work, or other planning work, for a physical 
facility;
    (b) The total amount provided to any Value-Added project shall not 
exceed $500,000;
    (c) The aggregate amount of awards to majority controlled producer-
based business ventures may not exceed ten percent of the total funds 
obligated under this subpart during any fiscal year.



Sec. 4284.910  Application processing.

    (a) Applications. USDA will solicit applications on a competitive 
basis by publication of one or more RFPs. Unless otherwise specified in 
the applicable RFP, applicants must file an original and one copy of the 
required forms and a proposal.
    (b) Required forms. The following forms must be completed, signed 
and submitted as part of the application package. Other forms may be 
required. This will be published in the applicable RFP.
    (1) ``Application for Federal Assistance.''
    (2) ``Budget Information--Non-Construction Programs.''
    (3) ``Assurances--Non-Construction Programs.''
    (c) Proposal. Each proposal must contain the following elements. 
Additional elements may be published in the applicable RFP.
    (1) Title Page.
    (2) Table of Contents.
    (3) Executive Summary. A summary of the proposal should briefly 
describe the project including goals, tasks to be completed and other 
relevant information that provides a general overview of the project. In 
this section the applicant must clearly state whether the application is 
for a Planning Grant or a Working Capital Grant and the amount 
requested.

[[Page 803]]

    (4) Eligibility. The narrative must include a detailed discussion of 
how the applicant meets the eligibility requirements.
    (5) Proposal Narrative. The narrative portion of the proposal must 
include, but is not limited to, the following:
    (i) Project Title. The title of the proposed project must be brief, 
not to exceed 75 characters, yet describe the essentials of the project.
    (ii) Information Sheet. A separate one page information sheet 
listing each of the evaluation criteria referenced in the RFP followed 
by the page numbers of all relevant material and documentation contained 
in the proposal that address or support the criteria.
    (iii) Goals of the Project. A clear statement of the ultimate goals 
of the project. There must be an explanation of how a market will be 
expanded and the degree to which incremental revenue will accrue to the 
benefit of the agricultural producer(s).
    (iv) Work Plan. The narrative must contain a description of the 
project and set forth the tasks involved in reasonable detail.
    (v) Performance Evaluation Criteria. Performance criteria suggested 
by the applicant for incorporation in the grant award in the event the 
proposal receives grant funding under this subpart. These suggested 
criteria are not binding on USDA.
    (vi) Proposal Evaluation Criteria. Each of the proposal evaluation 
criteria referenced in the RFP must be addressed, specifically and 
individually, in narrative form.
    (6) Verification of Matching Funds. Applicants must provide a budget 
to support the work plan showing all sources and uses of funds during 
the project period. Applicants will be required to verify matching 
funds, both cash and in-kind. Sufficient information should be included 
such that USDA can verify all representations.
    (7) Certification. Applicants must certify that matching funds will 
be available at the same time grant funds are anticipated to be spent 
and that matching funds will be spent in advance of grant funding, such 
that for every dollar of grant that is advanced, not less than an equal 
amount of match funds will have been funded prior to submitting the 
request for reimbursement.



Sec. 4284.911  Evaluation screening.

    The Agency will conduct an initial screening of all proposals to 
determine whether the applicant is eligible and whether the application 
is complete and sufficiently responsive to the requirements set forth in 
the RFP to allow for an informed review. Failure to address any of the 
required evaluation criteria will disqualify the proposal. Submissions 
which do not pass the initial screening may be returned to the 
Applicant. If the submission deadline has not expired and time permits, 
returned applications may be revised and re-submitted.



Sec. 4284.912  Evaluation process.

    (a) Applications will be evaluated by agricultural economists or 
other technical experts appointed by the Agency.
    (b) After all proposals have been evaluated and scored in accordance 
with the point allocation specified in the applicable RFP, Agency 
officials will present to the Administrator of RBS a list of all 
applications in rank order, together with funding level recommendations.
    (c) The Administrator reserves the right to award additional points, 
as specified in the applicable RFP, to accomplish agency objectives 
(e.g., to ensure geographic distribution, distribution of a commodity or 
accomplish presidential initiatives.) The maximum number of points that 
can be added to an application cannot exceed ten percent of the total 
points of the original score.
    (d) After giving effect to the Administrator's point awards, 
applications will be funded in rank order until all available funds have 
been obligated.
    (e) In the event an insufficient number of eligible applications are 
received in response to a given RFP, time permitting, subsequent rounds 
of competition will be initiated by publishing subsequent RFPs.
    (f) Unless a proposal is withdrawn, eligible but unfunded proposals 
from preceding competitions in a given fiscal year will be considered 
for funding in subsequent competitions in the same fiscal year.

[[Page 804]]



Sec. 4284.913  Evaluation criteria and weights.

    Unless supplemented in a RFP, the criteria listed in this section 
will be used to evaluate proposals submitted under this subpart. The 
distribution of points to be awarded per criterion will be identified in 
the applicable RFP.
    (a) Planning Grants. (1) Nature of the proposed venture. Projects 
will be evaluated for technological feasibility, operational efficiency, 
profitability, sustainability and the likely improvement to the local 
rural economy. Points will be awarded based on the greatest expansion of 
markets and increased returns to producers. Evaluators may rely on their 
own knowledge and examples of similar ventures described in the proposal 
to form conclusions regarding this criterion.
    (2) Qualifications of those doing work. Proposals will be reviewed 
for whether the personnel who are responsible for doing proposed tasks, 
including those hired to do studies, have the necessary qualifications. 
If a consultant or others are to be hired, more points may be awarded if 
the proposal includes evidence of their availability and commitment as 
well.
    (3) Project leadership. The leadership abilities of individuals who 
are proposing the venture will be evaluated as to whether they are 
sufficient to support a conclusion of likely project success. Credit may 
be given for leadership evidenced in community or volunteer efforts.
    (4) Commitments and support. Producer commitments will be evaluated 
on the basis of the number of Independent Producers currently involved 
as well as how many may potentially be involved, and the nature, level 
and quality of their contributions. End user commitments will be 
evaluated on the basis of potential markets and the potential amount of 
output to be purchased. Proposals will be reviewed for evidence that the 
project enjoys third party support and endorsement, with emphasis placed 
on financial and in kind support as well as technical assistance.
    (5) Work plan/Budget. The work plan will be reviewed to determine 
whether it provides specific and detailed planning task descriptions 
that will accomplish the project's goals. The budget will be reviewed 
for a detailed breakdown of estimated costs associated with the planning 
activities. The budget must present a detailed breakdown of all 
estimated costs associated with the planning activities and allocate 
these costs among the listed tasks. Points may not be awarded unless 
sufficient detail is provided to determine whether or not funds are 
being used for qualified purposes. Matching funds as well as grant funds 
must be accounted for in the budget to receive points.
    (6) Amount requested. Points will be awarded based on the size of 
the grant request. Generally, requests for lower amounts will receive a 
higher score for this criterion than higher requests. The points to be 
awarded and request ranges will be established in the applicable RFP.
    (7) Project cost per owner-producer. This is calculated by dividing 
the amount of Federal funds requested by the total number of producers 
that are owners of the venture. Points to be awarded will be established 
in the applicable RFP.
    (8) Presidential initiatives. Points may be awarded for proposals 
that focus on Presidential initiatives. Descriptions of these 
initiatives and the points to be awarded will be established in the 
applicable RFP.
    (b) Working Capital Grants--(1) Business viability. Proposals will 
be evaluated on the basis of the technical and economic feasibility and 
sustainability of the venture and the efficiency of operations.
    (2) Customer base/increased returns. Proposals that demonstrate 
strong growth in a market or customer base and greater Value-Added 
revenue accruing to producer-owners will receive more points than those 
that demonstrate less growth in markets and realized Value-Added 
returns.
    (3) Commitments and support. Producer commitments will be evaluated 
on the basis of the number of Independent Producers currently involved 
as well as how many may potentially be involved, and the nature, level 
and quality of their contributions. End user commitments will be 
evaluated on the basis of identified markets, letters of intent or 
contracts from potential buyers and the amount of output to be 
purchased.

[[Page 805]]

Proposals will be reviewed for evidence that the project enjoys third 
party support and endorsement, with emphasis placed on financial and in 
kind support as well as technical assistance.
    (4) Management team/work force. The education and capabilities of 
project managers and those who will operate the venture must reflect the 
skills and experience necessary to effect project success. The 
availability and quality of the labor force needed to operate the 
venture will also be evaluated. Proposals that reflect successful track 
records managing similar projects will receive higher points for this 
criterion than those that do not reflect successful track records.
    (5) Work plan/Budget. The work plan will be reviewed for whether it 
provides specific and detailed planning task descriptions that will 
accomplish the project's goals and the budget will be reviewed for a 
detailed breakdown of estimated costs associated with the planning 
activities. The budget must present a detailed breakdown of all 
estimated costs associated with the venture's operations and allocate 
these costs among the listed tasks. Points may not be awarded unless 
sufficient detail is provided to determine whether or not funds are 
being used for qualified purposes. Matching funds as well as grant funds 
must be accounted for in the budget to receive points.
    (6) Amount requested. Points will be awarded based on the size of 
the grant request. Requests for lower amounts will receive a higher 
score for this criterion than higher requests. The points to be awarded 
and request ranges will be established in the applicable RFP.
    (7) Project cost per owner-producer. This is calculated by dividing 
the amount of Federal funds requested by the total number of producers 
that are owners of the venture. Points to be awarded will be established 
in the applicable RFP.
    (8) Presidential initiatives. Points may be awarded for proposals 
that focus on Presidential initiatives. Descriptions of these 
initiatives and the points to be awarded will be established in the 
applicable RFP.



Sec. 4284.914  Grant closing.

    (a) Letter of Conditions. The Agency will notify an approved 
applicant in writing, setting out the conditions under which the grant 
will be made.
    (b) Applicant's intent to meet conditions. Upon reviewing the 
conditions and requirements in the letter of conditions, the applicant 
must complete, sign and return the Agency's ``Letter of Intent to Meet 
Conditions,'' 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.
    (c) Grant agreement. The Agency and the grantee must sign the 
Agency's ``Value-Added Producer Grant Agreement'' prior to the advance 
of funds.



Sec. Sec. 4284.915-4284.999  [Reserved]



Sec. 4284.1000  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 0570-0039 in accordance 
with the Paperwork Reduction Act of 1995.



         Subpart K_Agriculture Innovation Demonstration Centers

    Source: 69 FR 23433, Apr. 29, 2004, unless otherwise noted.



Sec. 4284.1001  Purpose.

    This subpart implements a demonstration program administered by the 
Rural Business-Cooperative Service whereby grants are made to innovation 
centers responsible for providing technical and business development 
assistance to agricultural producers seeking to engage in the marketing 
or the production of Value-Added products.



Sec. 4284.1002  Policy.

    It is the policy of the Secretary of Agriculture to fund Centers 
which evidence broad support from the agricultural community in the 
state or region, significant coordination with end

[[Page 806]]

users (processing and distribution companies and regional grocers), 
strategic alliances with entities having technical research capabilities 
and a focused delivery plan for reaching out to the producer community. 
It is also the policy of the Secretary, using the research and technical 
services of the U.S. Department of Agriculture, to assist the grantees 
in establishing Centers. This program is not intended to fund scientific 
research.



Sec. 4284.1003  Program administration.

    The Agriculture Innovation Demonstration Center program is 
administered by Cooperative Services within the Agency.



Sec. 4284.1004  Definitions.

    Board of Directors--The group of individuals that govern the Center.
    Center--The Agriculture Innovation Center to be established and 
operated by the grantees. It may or may not be an independent legal 
entity, but it must be independently governed in accordance with the 
requirements of this subpart.
    Producer Services--Services to be provided by the Centers to 
agricultural producers. Producer Services consist of the following types 
of services:
    (1) Technical assistance, consisting of engineering services, 
applied research, Scale Production Assessments, and similar services, to 
enable the agricultural producers to establish businesses to produce 
Value-Added agricultural commodities or products;
    (2) Assistance in marketing, market development and business 
planning, including advisory services with respect to leveraging capital 
assets; and
    (3) Organizational, outreach and development assistance to increase 
the viability, growth and sustainability of businesses that produce 
Value-Added agricultural commodities or products.
    Qualified Board of Directors--A Board of Directors that includes 
representatives from each of the following groups:
    (1) The two general agricultural organizations with the greatest 
number of members in the State in which the Center is located;
    (2) The State department of agriculture, or equivalent, of the State 
in which the Center is located; and
    (3) Entities representing the four highest grossing commodities 
produced in the State in which the Center is located, as determined on 
the basis of annual gross cash sales.
    Scale Production Assessments--Studies that analyze facilities, 
including processing facilities, for potential Value-added activities in 
order to determine the size that optimizes construction and other cost 
efficiencies.



Sec. Sec. 4284.1005-4284.1006  [Reserved]



Sec. 4284.1007  Eligibility for grant assistance.

    Non-profit and for-profit corporations, institutions of higher 
learning and other entities, including a consortium where a lead entity 
has been designated and agrees to act as funding agent, that meet the 
following requirements are eligible for grant assistance:
    (a) The entity--
    (1) Has provided services similar to those listed for Producer 
Services; or
    (2) Demonstrates the capability of providing Producer Services;
    (b) The application includes a plan that meets the requirements of 
Sec. 4284.1010(c)(5)(iv) that also outlines--
    (1) The support for the entity in the agricultural community;
    (2) The technical and other expertise of the entity; and
    (3) The goals of the entity for increasing and improving the ability 
of local agricultural producers to develop markets and processes for 
Value-Added agricultural commodities or products;
    (c) The entity demonstrates that adequate resources (in cash or in 
kind) are available, or have been committed to be made available to the 
entity, to increase and improve the ability of local agricultural 
producers to develop markets and processes for Value-Added agricultural 
commodities or products; and
    (d) The proposed Center has a Qualified Board of Directors.



Sec. 4284.1008  Use of grant funds.

    Grant funds may be used to assist eligible recipients in 
establishing Centers that provide Producer Services and may only be used 
to support operations of the Center that directly relate to providing 
Producer Services. Grant

[[Page 807]]

funds may be used for the following purposes, subject to the limitations 
set forth in Sec. 4284.10:
    (a) Consulting services for legal, accounting and technical services 
to be used by the grantee in establishing and operating a Center;
    (b) Hiring of employees, at the discretion of the Qualified Board of 
Directors;
    (c) The making of matching grants to agricultural producers, 
individually not to exceed $5,000, where the aggregate amount of all 
such matching grants made by the grantee does not exceed $50,000;
    (d) Applied research;
    (e) Legal services; and
    (f) Such other related purposes as the Agency may announce in the 
RFP.



Sec. 4284.1009  Limitations on awards.

    The maximum grant award for an agriculture innovation center shall 
be in an amount that does not exceed the lesser of $1,000,000 or twice 
the dollar amount of the resources (in cash or in kind) that the 
eligible entity demonstrates are available, or have been committed to be 
made available, to the eligible entity.



Sec. 4284.1010  Application processing.

    (a) Applications. USDA will solicit applications on a competitive 
basis by publication of one or more Requests for Proposals (RFPs). 
Unless otherwise specified in the applicable RFP, applicants must file 
an original and one copy of the required forms and a proposal.
    (b) Required forms. The following forms must be completed, signed 
and submitted as part of the application package. Other OMB approved 
forms may be required. This will be published in the applicable RFP.
    (1) ``Application for Federal Assistance.''
    (2) ``Budget Information--Non-Construction Programs.''
    (3) ``Assurances--Non-Construction Programs.''
    (c) Proposal. Each proposal must contain the following elements. 
Additional elements may be published in the applicable RFP.
    (1) Title Page.
    (2) Table of Contents.
    (3) Executive Summary. A summary of the proposal should briefly 
describe the project including goals, tasks to be completed and other 
relevant information that provides a general overview of the project and 
the amount requested.
    (4) Eligibility. A detailed discussion describing how the applicant 
meets the eligibility requirements.
    (5) Proposal Narrative. The narrative portion of the proposal must 
include, but is not limited to, the following:
    (i) Project Title. The title of the proposed project must be brief, 
not to exceed 75 characters, yet describe the essentials of the project.
    (ii) Information Sheet. A separate one page information sheet 
listing each of the evaluation criteria referenced in the RFP followed 
by the page numbers of all relevant material and documentation contained 
in the proposal that address or support the criteria.
    (iii) Goals of the Project. The first part of this section should 
list each Producer Service to be offered by the Center. The second part 
of this section should list one or more specific goals relating to 
increasing and improving the ability of identified local agricultural 
producers to develop a market or process for Value-Added agricultural 
commodities or products.
    (iv) Work Plan. Actions that must be taken in order for the Producer 
Services to be available from the Center. Each action listed should 
include a target date by which it will be completed. General start up 
tasks should be listed, followed by specific tasks listed for each 
Producer Service to be offered, as well as tasks associated with the 
start of operations. The tasks associated with the start of operations 
should include a focused marketing and delivery plan directed to the 
local agricultural producers that were identified in paragraph 
(c)(5)(iii) of this section. The actions to be taken should include 
steps for identifying customers, acquiring personnel and contracting for 
services to the Center, including arrangements for strategic alliances.
    (v) Performance Evaluation Criteria. Performance criteria suggested 
by the applicant for incorporation in the grant award in the event the 
proposal

[[Page 808]]

receives grant funding under this subpart. These suggested criteria are 
not binding on USDA.
    (vi) Agricultural Community Support. Evidence of support from the 
local agricultural community should be included in this section. Letters 
in support should reflect that the writer is familiar with the 
provisions of the Plan for the Center, including the stated goals.
    Evidence of support can take the form of making employees available 
to the Center, service as a board member and other in-kind 
contributions.
    (vii) Strategic Coordination and Alliances. Describe arrangements in 
place or planned with end users (processing and distribution companies 
and regional grocers) as well as arrangements with entities having 
technical research capabilities, broad support from the agricultural 
community in the state or region, significant coordination with end 
users (processing and distribution companies and regional grocers), 
strategic alliances with entities having technical research capabilities 
and a focused delivery plan for reaching out to the producer community.
    (viii) Capacity. Evidence of the ability of the grantee(s) to 
successfully establish and operate a Center. A description of the 
grantee's track record in providing services similar to those listed for 
Producer Services or evidence that the entity has the capability to 
provide Producer Services. Resumes of key personnel should be included 
in this section. Past successes should be described in detail, with a 
focus on lessons learned, best practices, familiarity with producer 
problems in Value-Added ventures, and how these barriers are best 
overcome should be elaborated on in this section. For every challenge 
identified, the applicant should demonstrate how they are addressed in 
the Work Plan (see paragraph (c)(5)(iv) of this section). All successes 
should include a monetary estimate of the Value-Added achieved.
    (ix) Legal structure. Provide a description of the legal 
relationship between the grantee(s) and the proposed Center. If the 
Center is to be an independent corporate entity, provide copies of the 
corporate charter, bylaws and other relevant organizational documents. 
Describe how funds for the Center will be handled and include copies of 
the agreements documenting the legal relationships between the Center 
and related parties. If the Center is not to be an independent legal 
entity, provide copies of the corporate governance documents that 
describe how members of the Board of Directors for the Center are to be 
determined.
    (x) Evaluation Criteria. Each of the evaluation criteria referenced 
in the RFP must be specifically and individually addressed in narrative 
form. Supporting documentation, as applicable, should be included in 
this section, or a cross reference to other sections in the application 
should be provided, as applicable.
    (xi) Verification of Adequate Resources. Present a budget to support 
the work plan showing sources and uses of funds during the start up 
period prior to the start of operations and for the first year of full 
operations. Present a copy of a bank statement evidencing sources of 
funds equal to amounts required in excess of the grant requested, or, in 
the alternative, a copy of confirmed funding commitments from credible 
sources such that USDA is satisfied that the Center has adequate 
resources to complete a full year of operation. Include information 
sufficient to facilitate verification by USDA of all representations.
    (xii) Certification of Adequate Resources Applicants must certify 
that non-Federal funds identified in the budget pursuant to paragraph 
(c)(5)(xi) of this section will be available and funded commensurately 
with grant funds.



Sec. 4284.1011  Evaluation screening.

    The Agency will conduct an initial screening of all proposals to 
determine whether the applicant is eligible and whether the application 
is complete and sufficiently responsive to the requirements set forth in 
the applicable RFP so as to allow for an informed review. Incomplete or 
non-responsive applications will not be evaluated further, and may be 
returned to the applicant. Applicants may revise their applications and 
re-submit them prior to the published deadline if there is sufficient 
time to do so.

[[Page 809]]



Sec. 4284.1012  Evaluation process.

    (a) Applications will be evaluated by qualified reviewers appointed 
by the Agency.
    (b) After all proposals have been evaluated using the evaluation 
criteria and scored in accordance with the point allocation specified in 
the applicable RFP, Agency officials will present to the Administrator 
of RBS a list of all applications in rank order, together with funding 
level recommendations.
    (c) The Administrator reserves the right to award additional points, 
as specified in the applicable RFP, to accomplish agency objectives 
(e.g., to ensure geographic distribution, put emphasis on a specific 
commodity, or to accomplish presidential initiatives.) The maximum 
number of points that can be added to an application under this 
paragraph cannot exceed ten percent of the total points the application 
originally scored.
    (d) After giving effect to the Administrator's point awards, 
applications will be funded in rank order until all available funds have 
been obligated.



Sec. 4284.1013  Evaluation criteria and weights.

    Unless supplemented in a RFP, the criteria listed in this section 
will be used to evaluate grants under this subpart. The distribution of 
points to be awarded per criterion will be identified in the applicable 
RFP.
    (a) Ability to Deliver. The application will be evaluated as to 
whether it evidences unique abilities to deliver Producer Services so as 
to create sustainable Value-Added ventures. Abilities that are 
transferable to a wide range of agricultural Value-Added commodities are 
preferred over highly specialized skills. Strong skills must be 
accompanied by a credible and thoughtful plan.
    (b) Successful Track Record. The applicant's track record in 
achieving Value-Added successes.
    (c) Work Plan/Budget. The work plan will be reviewed for detailed 
actions and an accompanying timetable for implementing the proposal. 
Clear, logical, realistic and efficient plans will result in a higher 
score. Budgets will be reviewed for completeness and the strength of 
non-Federal funding commitments.
    (d) Qualifications of personnel. Proposals will be reviewed for 
whether the key personnel who are to be responsible for performing the 
proposed tasks have the necessary qualifications and whether they have a 
track record of performing activities similar to those being proposed. 
If a consultant or others are to be hired, points may be awarded for 
consultants only if the proposal includes evidence of their availability 
and commitment as well. Proposals using in-house employees with strong 
track records in innovative activities will receive higher points 
relative to proposals that out-source expertise.
    (e) Local support. Proposed Centers must show local support and 
coordination with other developmental organizations in the proposed 
service area and with state and local institutions. Support 
documentation should include recognition of rural values that balance 
employment opportunities with environmental stewardship and other rural 
amenities. Proposed Centers that show strong support from potential 
beneficiaries and coordination with other developmental organizations 
will receive more points than those not evidencing such support.
    (f) Future support. Applicants that can demonstrate their vision for 
funding center operations for future years, including diversification of 
funding sources and building in-house technical assistance capacity, 
will receive more points for this criterion.



Sec. 4284.1014  Grant closing.

    (a) Letter of Conditions. The Agency will notify an approved 
applicant in writing, setting out the conditions under which the grant 
will be made.
    (b) Applicant's intent to meet conditions. Upon reviewing the 
conditions and requirements in the letter of conditions, the applicant 
must complete, sign and return the Agency's ``Letter of Intent to Meet 
Conditions,'' 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

[[Page 810]]

the letter of conditions by the applicant before the application will be 
further processed.
    (c) Grant agreement. The Agency and the grantee must enter into an 
``Agriculture Innovation Center Grant Agreement'' prior to the advance 
of funds.



Sec. Sec. 4284.1015-4284.1099  [Reserved]



Sec. 4284.1100  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget and 
have been assigned OMB control number 0570-0045.



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.
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

[[Page 811]]

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.
    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.



Sec. Sec. 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

[[Page 812]]

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.



Sec. Sec. 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.



Sec. Sec. 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

[[Page 813]]

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:
    (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

[[Page 814]]

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.



Sec. Sec. 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 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

[[Page 815]]

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.



Sec. Sec. 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 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

[[Page 816]]

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
    (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

[[Page 817]]

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.



Sec. Sec. 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. 6301-6308 (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.



Sec. Sec. 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

[[Page 818]]

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]



       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.



Sec. Sec. 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

[[Page 819]]

premiums, and maintaining liens on collateral.
    (a) Lender reports and annual renewal fee. The lender must report 
the outstanding principal and interest balance on each guaranteed loan 
semiannually using a USDA-approved status report or other approved 
format. The lender will transmit the annual renewal fee to the Agency 
simultaneously with the December 31 semiannual status report in 
accordance with 7 CFR part 4279, subpart B, Sec. 4279.107.
    (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, even though such loans will not be guaranteed.

[61 FR 67648, Dec. 23, 1996, as amended at 70 FR 57486, Oct. 3, 2005]



Sec. Sec. 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

[[Page 820]]

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.



Sec. Sec. 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.



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.



Sec. Sec. 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

[[Page 821]]

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 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

[[Page 822]]

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.



Sec. Sec. 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 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.



Sec. Sec. 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

[[Page 823]]

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 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

[[Page 824]]

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 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:

[[Page 825]]

    (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.
    (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.

[[Page 826]]

    (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 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.

[[Page 827]]

    (3) If the Agency has conducted the liquidation, it will pay the 
lender in accordance with the Loan Note Guarantee.



Sec. Sec. 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 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

[[Page 828]]

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 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.



Sec. Sec. 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.



Sec. Sec. 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.



PART 4290_RURAL BUSINESS INVESTMENT COMPANY (``RBIC'')
PROGRAM--Table of Contents




                   Subpart A_Introduction to Part 4290

Sec.
4290.10 Description of the Rural Business Investment Company Program.
4290.20 Legal basis and applicability of this part 4290.
4290.30 Amendments to Act and regulations.
4290.40 How to read this part 4290.
4290.45 Responsibility for implementing this part 4290.

[[Page 829]]

             Subpart B_Definition of Terms Used in Part 4290

4290.50 Definition of terms.

              Subpart C_Qualifications for the RBIC Program

                            Organizing a RBIC

4290.100 Business form.
4290.110 Qualified management.
4290.120 Plan to invest in Rural Areas.
4290.130 Identified Rural Areas.
4290.140 Approval of initial Management Expenses.
4290.150 Management and ownership diversity requirement.
4290.160 Special rules for Partnership RBICs and LLC RBICs.
4290.165 Obligations of Control Persons.

                           Capitalizing a RBIC

4290.200 Adequate capital for RBICs.
4290.210 Minimum capital requirements for RBICs.
4290.230 Private Capital for RBICs.
4290.240 Limitations on non-cash capital contributions in Private 
          Capital.

      Subpart D_Application and Approval Process for RBIC Licensing

4290.300 When and how to apply for a RBIC License.
4290.310 Contents of application.
4290.320 Contents of comprehensive business plan.
4290.330 Grant issuance fee.

               Subpart E_Evaluation and Selection of RBICs

4290.340 Evaluation and selection--general.
4290.350 Eligibility and completeness.
4290.360 Initial review of Applicant's management team's qualifications.
4290.370 Evaluation criteria.
4290.380 Selection.
4290 390 Licensing as a RBIC.

          Subpart F_Changes in Ownership, Structure, or Control

                Changes in ControL or Ownership of a RBIC

4290.400 Changes in ownership of 10 percent or more of RBIC but no 
          change of Control.
4290.410 Changes in Control of RBIC (through change in ownership or 
          otherwise).
4290.420 Prohibition on exercise of ownership or Control rights in RBIC 
          before approval.
4290.430 Notification of transactions that may change ownership or 
          Control.
4290.440 Standards governing prior approval for a proposed transfer of 
          Control.
4290.450 Notification of pledge of RBIC's shares.

    Restrictions on Common Control or Ownership of Two or More RBICs

4290.460 Restrictions on Common Control or ownership of two (or more) 
          RBICs.

                       Change in Structure of RBIC

4290.470 Prior approval of merger, consolidation, or reorganization of 
          RBIC.
4290.480 Prior approval of changes to RBIC's business plan.

               Subpart G_Managing the Operations of a RBIC

                          General Requirements

4290.500 Lawful operations under the Act.
4290.502 Representations to the public.
4290.503 RBIC's adoption of an approved valuation policy.
4290.504 Equipment and office requirements.
4290.506 Safeguarding the RBIC's assets/Internal controls.
4290.507 Violations based on false filings and nonperformance of 
          agreements with the Secretary or SBA.
4290.508 Compliance with non-discrimination laws and regulations 
          applicable to federally-assisted programs.
4290.509 Employment of USDA or SBA officials.

                       Management and Compensation

4290.510 Approval of RBIC's Investment Adviser/Manager.
4290.520 Management Expenses of a RBIC.

                        Cash Management by a RBIC

4290.530 Restrictions on investments of idle funds by RBICs.

                       Secured Borrowing by RBICs

4290.550 Prior approval of secured third-party debt of RBICs.

                Voluntary Decrease in Regulatory Capital

4290.585 Voluntary decrease in RBIC's Regulatory Capital.

  Subpart H_Recordkeeping, Reporting, and Examination Requirements for 
                                  RBICs

                  Recordkeeping Requirements for RBICs

4290.600 General requirement for RBIC to maintain and preserve records.
4290.610 Required certifications for Loans and Investments.
4290.620 Requirement to obtain information from Portfolio Concerns.

[[Page 830]]

                    Reporting Requirements for RBICs

4290.630 Requirements for RBICs to file financial statements and 
          supplementary information with the Secretary (SBA Form 468).
4290.640 Requirement to file portfolio financing reports with the 
          Secretary (SBA Form 1031).
4290.650 Requirement to report portfolio valuations to the Secretary.
4290.660 Other items required to be filed by RBIC with the Secretary.
4290.680 Reporting changes in RBIC not subject to prior approval.

    Examinations of RBICS by the Secretary for Regulatory Compliance

4290.690 Examinations.
4290.691 Responsibilities of RBIC during examination.
4290.692 Examination fees.

               Subpart I_Financing of Enterprises by RBICs

       Determining Eligibility of an Enterprise for RBIC Financing

4290.700 Requirements concerning types of Enterprises to receive 
          Financing.
4290.720 Enterprises that may be ineligible for Financing.
4290.730 Financings which constitute conflicts of interest.
4290.740 Portfolio diversification (``overline'' limitation).
4290.760 How a change in size or activity of a Portfolio Concern affects 
          the RBIC and the Portfolio Concern.

 Structuring RBIC Financing of Eligible Enterprises--Types of Financings

4290.800 Financings in the form of Equity Securities.
4290.810 Financings in the form of Loans.
4290.815 Financings in the form of Debt Securities.
4290.820 Financings in the form of guarantees.
4290.825 Purchasing securities from an underwriter or other third party.
4290.830 Minimum term of Financing.
4290.835 Exception to minimum term of Financing.
4290.840 Maximum term of Financing.
4290.845 Maximum rate of amortization on Loans and Debt Securities.
4290.850 Restrictions on redemption of Equity Securities.
4290.860 Financing fees and expense reimbursements a RBIC may receive 
          from an Enterprise.
4290.880 Assets acquired in liquidation of Portfolio securities.

                  Limitations on Disposition of Assets

4290.885 Disposition of assets to RBIC's Associates or to competitors of 
          Portfolio Concerns.
4290.900 Management fees for services provided to an Enterprise by RBIC 
          or its Associate.

           Subpart J_Financial Assistance for RBICs (Leverage)

              General Information About Obtaining Leverage

4290.1100 Type of Leverage and application procedures.
4290.1120 General eligibility requirements for Leverage.
4290.1130 Leverage fees payable by RBIC.
4290.1140 RBIC's acceptance of remedies under Sec. 4290.1810.

         Maximum Amount of Leverage for Which a RBIC is Eligible

4290.1150 Maximum amount of Leverage for a RBIC.

         Conditional Commitments To Reserve Leverage for a RBIC

4290.1200 Leverage commitment to a RBIC--application procedure, amount, 
          and term.
4290.1220 Requirement for RBIC to file financial statements at the time 
          of request for a draw.
4290.1230 Draw-downs by RBIC under Leverage commitment.
4290.1240 Funding of RBIC's draw request through sale to third party.

            Distributions by RBICs With Outstanding Leverage

4290.1500 Restrictions on distributions to RBIC investors while RBIC has 
          outstanding Leverage.

         Funding Leverage by Use of Trust Certificates (``TCs'')

4290.1600 Secretary's authority to issue and guarantee Trust 
          Certificates.
4290.1610 Effect of prepayment or early redemption of Leverage on a 
          Trust Certificate.
4290.1620 Functions of agents, including Central Registration Agent, 
          Selling Agent and Fiscal Agent.
4290.1630 Regulation of Brokers and Dealers and disclosure to purchasers 
          of Leverage or Trust Certificates.
4290.1640 Secretary's access to records of the CRA, Brokers, Dealers and 
          Pool or Trust assemblers.

                              Miscellaneous

4290.1700 Secretary's transfer of interest in a RBIC's Leverage 
          security.

[[Page 831]]

4290.1710 Secretary's authority to collect or compromise claims.
4290.1720 Characteristics of Secretary's guarantee.

          Subpart K_RBIC's Noncompliance With Terms of Leverage

4290.1810 Events of default and the Secretary's remedies for RBIC's 
          noncompliance with terms of Debentures.

                Computation of RBIC's Capital Impairment

4290.1830 RBIC's Capital Impairment definition and general requirements.
4290.1840 Computation of RBIC's Capital Impairment Percentage.

                  Subpart L_Ending Operations as a RBIC

4290.1900 Termination of participation as a RBIC.

                         Subpart M_Miscellaneous

4290.1910 Non-waiver of rights or terms of Leverage security.
4290.1920 RBIC's application for exemption from a regulation in this 
          part 4290.
4290.1930 Effect of changes in this part 4290 on transactions previously 
          consummated.
4290.1940 Integration of this part with other regulations applicable to 
          USDA's programs.

    Subpart N_Requirements for Operational Assistance Grants to RBICs

4290.2000 Operational Assistance grants to RBICs.

    Authority: 7 U.S.C. 1989 and 2009cc et seq.

    Source: 69 FR 32202, June 8, 2004, unless otherwise noted.



                   Subpart A_Introduction to Part 4290



Sec. 4290.10  Description of the Rural Business Investment Company Program.

    The Rural Business Investment Company (``RBIC'') Program is a 
Developmental Venture Capital program for the purpose of promoting 
economic development and the creation of wealth and job opportunities in 
Rural Areas and among individuals living in such Areas. To this end, the 
Secretary will select and license RBIC Applicants that will agree to 
address the unmet Equity Capital needs of Smaller Enterprises primarily 
located in Rural Areas.



Sec. 4290.20  Legal basis and applicability of this part 4290.

    The regulations in this part implement Subtitle H of the 
Consolidated Farm and Rural Development Act, as amended (7 U.S.C. 2009cc 
et seq.) (``Act''). All RBICs must comply with all applicable 
regulations, accounting guidelines and valuation guidelines for RBICs.



Sec. 4290.30  Amendments to Act and regulations.

    A RBIC is subject to all existing and future provisions of the Act 
and part 4290 of title 7 of the Code of Federal Regulations.



Sec. 4290.40  How to read this part 4290.

    (a) Center Headings. Center headings are descriptive and are used 
for convenience only. They have no regulatory effect.
    (b) Capitalizing defined terms. Terms defined in Sec. 4290.50 have 
initial capitalization in this part 4290.
    (c) ``You.'' The pronoun ``you'' as used in this part 4290 means a 
RBIC unless otherwise noted.
    (d) Forms. All references in this part to forms, and instructions 
for their preparation, are to the current issue of such forms.



Sec. 4290.45  Responsibility for implementing this part 4290.

    The Secretary has delegated to the U.S. Small Business 
Administration (SBA), pursuant to an agreement under the Economy Act (31 
U.S.C. 1535), the authority to implement the RBIC program, including 
implementing and enforcing the regulations in this part 4290. Therefore, 
unless specifically stated otherwise, SBA will exercise on behalf of the 
Secretary all responsibilities and authorities assigned to the Secretary 
in this part 4290.



             Subpart B_Definition of Terms Used in Part 4290



Sec. 4290.50  Definition of terms.

    Act means Subtitle H of the Consolidated Farm and Rural Development 
Act, as amended (7 U.S.C. 2009cc et seq.).

[[Page 832]]

    Administrator means the Administrator of SBA.
    Affiliate or Affiliates has the meaning set forth in title 13 CFR 
121.103.
    Applicant means any entity submitting an application to be licensed 
as a RBIC.
    Articles mean articles of incorporation or charter and bylaws for a 
Corporate RBIC, the certificate and limited partnership agreement for a 
Partnership RBIC, and the operating agreement or other organizational 
documents for an LLC RBIC.
    Assistance or Assisted means Financing of or management services 
rendered to a Portfolio Concern by or through a RBIC pursuant to the Act 
and this part.
    Associate of a RBIC means any of the following:
    (1)(i) An officer, director, employee or agent of a Corporate RBIC;
    (ii) A Control Person, employee or agent of a Partnership RBIC;
    (iii) A managing member of an LLC RBIC;
    (iv) An Investment Adviser/Manager of any RBIC, including any Person 
who contracts with a Control Person of a RBIC to be the Investment 
Adviser/Manager of such RBIC; or
    (v) Any Person regularly serving a RBIC on retainer in the capacity 
of attorney at law.
    (2) Any Person who owns or controls, or who has entered into an 
agreement to own or control, directly or indirectly, at least 10 percent 
of any class of stock of a Corporate RBIC or 10 percent of the 
membership interests of an LLC RBIC, or a limited partner's interest of 
at least 10 percent of the partnership capital of a Partnership RBIC. 
However, neither a limited partner in a Partnership RBIC nor a non-
managing member in an LLC RBIC is considered an Associate if such Person 
is an Entity Institutional Investor whose investment in the Partnership, 
including commitments, represents no more than 33 percent of the capital 
of the RBIC and no more than five percent of such Person's net worth.
    (3) Any officer, director, partner (other than a limited partner), 
manager, agent, or employee of any Associate described in paragraph (1) 
or (2) of this definition.
    (4) Any Person that directly or indirectly Controls, or is 
Controlled by, or is under Common Control with, a RBIC.
    (5) Any Person that directly or indirectly Controls, or is 
Controlled by, or is under Common Control with, any Person described in 
paragraphs (1) and (2) of this definition.
    (6) Any Close Relative of any Person described in paragraphs (1), 
(2), (4), and (5) of this definition.
    (7) Any Secondary Relative of any Person described in paragraphs 
(1), (2), (4), and (5) of this definition.
    (8) Any concern in which--
    (i) Any person described in paragraphs (1) through (6) of this 
definition is an officer; general partner, or managing member; or
    (ii) Any such Person(s) singly or collectively Control or own, 
directly or indirectly, an equity interest of at least 10 percent 
(excluding interests that such Person(s) own indirectly through 
ownership interests in the RBIC).
    (9) Any concern in which any Person(s) described in paragraph (7) of 
this definition singly or collectively own (including beneficial 
ownership) a majority equity interest, or otherwise have Control. As 
used in this paragraph (9), ``collectively'' means together with any 
Person(s) described in paragraphs (1) though (7) of this definition.
    (10) For the purposes of this definition, any Associate relationship 
described in paragraphs (1) through (7) of this definition that exists 
at any time within six months before or after the date that a RBIC 
provides Financing, will be considered to exist on the date of the 
Financing.
    Capital Impairment has the meaning set forth in Sec. 4290.1830(b).
    Central Registration Agent or CRA means one or more agents appointed 
for the purpose of issuing Trust Certificates (TCs) and performing the 
functions enumerated in Sec. 4290.1620 and performing similar functions 
for Debentures funded outside the pooling process.
    Close Relative of an individual means:
    (1) A current or former spouse;
    (2) A father, mother, guardian, brother, sister, son, daughter; or

[[Page 833]]

    (3) A father-in-law, mother-in-law, brother-in-law, sister-in-law, 
son-in-law, or daughter-in-law.
    Commitment means a written agreement between a RBIC and an 
Enterprise that obligates the RBIC to provide Financing (except a 
guarantee) to that Enterprise in a fixed or determinable sum, by a fixed 
or determinable future date. In this context the term ``agreement'' 
means that there has been agreement on the principal economic terms of 
the Financing. The agreement may include reasonable conditions precedent 
to the RBIC's obligation to fund the Commitment, but these conditions 
must be outside the RBIC's control.
    Common Control means a condition such that two or more Persons, 
either through ownership, management, contract, or otherwise, are under 
the Control of one group or Person. Two or more RBICs are presumed to be 
under Common Control if they are Affiliates of each other by reason of 
common ownership or common officers, directors, or general partners; or 
if they are managed or their investments are significantly directed 
either by a common independent Investment Advisor/Manager or managerial 
contractor, or by two or more such advisors or contractors that are 
Affiliates of each other. This presumption may be rebutted by evidence 
satisfactory to the Secretary.
    Community Development Finance means debt or equity-type investments 
in Rural Areas.
    Control means the possession, direct or indirect, of the power to 
direct or cause, or the power to stop or hinder (also referred to as 
``negative Control''), the direction of the management and policies of a 
RBIC or other concern, whether through the ownership of voting 
securities, by contract, or otherwise.
    Control Person means any Person that controls a RBIC, either 
directly or through an intervening entity. A Control Person includes:
    (1) A general partner of a Partnership RBIC;
    (2) Any Person serving as a general partner (in the case of a 
partnership), an officer or director (in the case of a corporation), or 
a manager (in the case of a limited liability company) of any entity 
that controls a RBIC, either directly or through an intervening entity;
    (3) Any Person that--
    (i) Controls or owns, directly or through an intervening entity, at 
least 10 percent of a Partnership RBIC, a LLC RBIC, or any entity 
described in paragraphs (1) or (2) of this definition; and
    (ii) Participates in the investment decisions of a general partner 
of such Partnership RBIC or of a managing member of such LLC RBIC;
    (4) Any Person that controls or owns, directly or through an 
intervening entity, at least 50 percent of a RBIC or any entity 
described in paragraphs (1) or (2) of this definition.
    Corporate RBIC has the meaning set forth in the definition of RBIC 
in this section.
    Debenture means a debt obligation issued by RBICs pursuant to 
section 384E of the Act and held or guaranteed by the Secretary.
    Debt Securities means instruments evidencing a loan with an option 
or any other right to acquire Equity Securities in an Enterprise or its 
Affiliates, or a loan which by its terms is convertible into an equity 
position. Consideration must be paid for all options acquired.
    Developmental Venture Capital means Equity Capital invested in Rural 
Business Concerns, with an objective of fostering economic development 
in Rural Areas.
    Distribution means any transfer of cash or non-cash assets to the 
Secretary, the Secretary's agent or Trustee, or to partners in a 
Partnership RBIC, or to shareholders in a Corporate RBIC, or to members 
in an LLC RBIC. Capitalization of Retained Earnings Available for 
Distribution constitutes a Distribution to the RBIC's partners, 
shareholders, or members.
    Enterprise means a Person engaged in a business or commercial 
activity which charges for the goods and services it provides, whether 
such Person is operating for profit or is subject to any legal 
restrictions on the distribution of profits to its owners, members, or 
suppliers of its equity or quasi-equity capital. An Enterprise includes:

[[Page 834]]

    (1) A public, private, or cooperative for-profit or non-profit 
organization;
    (2) A for-profit or nonprofit business controlled by an Indian tribe 
on a Federal or State reservation or other federally recognized Indian 
tribal group; or
    (3) Any other Person.
    Entity General Partner has the meaning set forth in Sec. 4290.160.
    Entity Managing Member has the meaning set forth in Sec. 4290.160.
    Equity Capital means Equity Securities or Subordinated Debt With 
Equity Features.
    Equity Securities means stock of any class in a corporation, stock 
options, warrants, limited partnership interests in a limited 
partnership, membership interests in a limited liability company, or 
joint venture interests.
    Farm Credit System Institution means an institution defined in 
section 1.2(a) of the Farm Credit Act of 1971 (12 U.S.C. 2002(a)).
    Financing or Financed means outstanding financial assistance 
provided to a Portfolio Concern by a RBIC, whether through:
    (1) Loans, with or without a right to acquire Equity Securities;
    (2) Debt Securities;
    (3) Equity Securities;
    (3) Subordinated Debt With Equity Features;
    (4) Guarantees; or
    (5) Purchases of securities of an Enterprise through or from an 
underwriter as permitted by Sec. 4290.825.
    Guaranty Agreement means the contract entered into by the Secretary 
which is a guarantee backed by the full faith and credit of the United 
States Government as to timely payment of principal and interest on 
Debentures and the Secretary's rights in connection with such guarantee.
    Includible Non-Cash Gains means those non-cash gains (as reported on 
SBA Form 468) that are realized in the form of Publicly Traded and 
Marketable securities or investment grade debt instruments. For purposes 
of this definition, investment grade debt instruments means those 
instruments that are rated ``BBB'' or ``Baa'', or better, by Standard & 
Poor's Corporation or Moody's Investors Service, respectively. Non-rated 
debt may be considered to be investment grade if a RBIC obtains a 
written opinion from an investment banking firm acceptable to the 
Secretary stating that the non-rated debt instrument is equivalent in 
risk to the issuer's investment grade debt.
    Institutional Investor means Entity Institutional Investor or 
Individual Institutional Investor, each defined as follows:
    (1) Entity Institutional Investors. Any of the following entities if 
the entity has a net worth (exclusive of unfunded commitments from 
investors) of at least $1 million, or such higher amount as is specified 
in this paragraph (1). (See also Sec. 4290.230(c)(4) for limitations on 
the amount of an Entity Institutional Investor's commitment that may be 
included in Private Capital.)
    (i) A State or National bank, Farm Credit System Institution, trust 
company, savings bank, or savings and loan association.
    (ii) An insurance company.
    (iii) A 1940 Act Investment Company or Business Development Company 
(each as defined in the Investment Company Act of 1940, as amended (15 
U.S.C. 80a-1 et seq.).
    (iv) A holding company of any entity described in paragraph (l)(i), 
(ii) or (iii) of this definition.
    (v) An employee benefit or pension plan established for the benefit 
of employees of the Federal government, any State or political 
subdivision of a State, or any agency or instrumentality of such 
government unit.
    (vi) An employee benefit or pension plan (as defined in the Employee 
Retirement Income Security Act of 1974, as amended (Public Law 93-406, 
88 Stat. 829), excluding plans established under Sec. 401(k) of the 
Internal Revenue Code of 1986 (26 U.S.C. 401(k)), as amended).
    (vii) A trust, foundation or endowment exempt from Federal income 
taxation under the Internal Revenue Code of 1986, 26 U.S.C. 1, as 
amended.
    (viii) A corporation, partnership or other entity with a net worth 
(exclusive of unfunded commitments from investors) of more than $10 
million.
    (ix) A State, a political subdivision of a State, or an agency or 
instrumentality of a State or its political subdivision.

[[Page 835]]

    (x) An entity whose primary purpose is to manage and invest non-
Federal funds on behalf of at least three Institutional Investors 
described in paragraphs (l)(i) through (ix) of this definition, each of 
whom must have at least a 10 percent ownership interest in the entity.
    (xi) Any other entity that the Secretary determines to be an 
Institutional Investor.
    (2) Individual Institutional Investor. (i) Any of the following 
individuals if he/she is also a permanent resident of the United States:
    (A) An individual who is an Accredited Investor (as defined in the 
Securities Act of 1933, as amended (15 U.S.C. 77a-77aa)) and whose 
commitment to the RBIC is backed by a letter of credit from a State or 
National bank acceptable to the Secretary.
    (B) An individual whose personal net worth is at least $2 million 
and at least ten times the amount of his or her commitment to the RBIC. 
The individual's personal net worth must not include the value of any 
equity in his or her most valuable residence.
    (C) An individual whose personal net worth, not including the value 
of any equity in his or her most valuable residence, is at least $10 
million.
    (ii) Any individual who is not a permanent resident of the United 
States but who otherwise satisfies paragraph (2)(i) of this definition 
provided such individual has irrevocably appointed an agent within the 
United States for the service of process.
    Investment Adviser/Manager means any Person who furnishes advice or 
assistance with respect to operations of a RBIC under a written contract 
executed in accordance with the provisions of Sec. 4290.510.
    Lending Institution means a concern that is operating under 
regulations of a state or Federal licensing, supervising, or examining 
body, or whose shares are publicly traded and listed on a recognized 
stock exchange or is listed in the Automated Quotation System of the 
National Association of Securities Dealers (NASDAQ) and which has assets 
in excess of $500 million; and which, in either case, holds itself out 
to the public as engaged in the making of commercial and industrial 
loans and whose lending operations are not for the purpose of financing 
its own or an Associate's sales or business operations.
    Leverage means financial assistance provided to a RBIC by the 
Secretary either through the purchase or guaranty of a RBIC's Debentures 
and any other SBA financial assistance evidenced by a security of the 
RBIC.
    Leverageable Capital means Regulatory Capital, excluding unfunded 
commitments.
    LLC RBIC has the meaning set forth in the definition of RBIC in this 
section.
    Loan means a transaction evidenced by a debt instrument with no 
provision for you to acquire Equity Securities.
    Loans and Investments means Portfolio securities, assets acquired in 
liquidation of Portfolio securities, operating Enterprises acquired, and 
notes and other securities received, as set forth in the Statement of 
Financial Position on SBA Form 468.
    Management Expenses has the meaning set forth in Sec. 4290.520.
    NAICS Manual means the latest issue of the North American Industrial 
Classification System (NAICS) Manual, prepared by the Office of 
Management and Budget, and available from the U.S. Government Printing 
Office, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA, 
15250-7954.
    1940 Act Company means a RBIC which is registered under the 
Investment Company Act of 1940.
    1980 Act Company means a RBIC which is registered under the Small 
Business Investment Incentive Act of 1980.
    Operational Assistance means management, marketing, and other 
technical assistance that assists a Smaller Enterprise with its business 
development.
    Original Issue Price means the price paid by the purchaser for 
securities at the time of issuance.
    Participation Agreement means an agreement between the Secretary and 
an Applicant licensed as a RBIC pursuant to Sec. 4290.390 of this part, 
that details the RBIC's operating plan and investment criteria and 
requires the RBIC to operate pursuant to the Act and this part.

[[Page 836]]

    Partnership RBIC has the meaning set forth in the definition of RBIC 
in this section.
    Person means a natural person or legal entity.
    Pool means an aggregation of guaranteed Debentures approved by the 
Secretary.
    Portfolio means the securities representing a RBIC's total 
outstanding Financings of Enterprises. It does not include idle funds or 
assets acquired in liquidation of Portfolio securities.
    Portfolio Concern means any Enterprise Assisted by a RBIC.
    Principal Office means the location where the greatest number of the 
Enterprise's employees at any one location perform their work. However, 
for those Enterprises whose ``primary industry'' (see 13 CFR 121.107) is 
service or construction (see 13 CFR 121.201), the determination of 
principal office excludes the Enterprise's employees who perform the 
majority of their work at job-site locations to fulfill specific 
contract obligations.
    Private Capital has the meaning set forth in Sec. 4290.230.
    Publicly Traded and Marketable means securities that are salable 
without restriction or that are salable within 12 months pursuant to 
Rule 144 (17 CFR 230.144) of the Securities Act of 1933, as amended, by 
the holder thereof, and are of a class which is traded on a regulated 
stock exchange, or is listed in NASDAQ, or has, at a minimum, at least 
two market makers as defined in the relevant sections of the Securities 
Exchange Act of 1934, as amended (15 U.S.C. 77b et seq.), and in all 
cases the quantity of which can be sold over a reasonable period of time 
without having an adverse impact upon the price of the stock.
    Qualified Non-private Funds means:
    (1) Funds directly or indirectly invested in any RBIC or Applicant 
on or after May 13, 2002 by any Federal agency other than USDA under a 
provision of law explicitly mandating the inclusion of those funds in 
the definition of ``Private Capital;'' and
    (2) The aggregate amount of funds invested in any Applicant or RBIC 
by one or more States, or any political subdivisions, agencies or 
instrumentalities thereof, including any guarantee extended by such 
entities.
    Regulatory Capital means Private Capital, excluding non-cash assets 
contributed to a RBIC or an Applicant unless such assets have been 
converted to cash or have been approved by the Secretary for inclusion 
in Regulatory Capital. For purposes of this definition, sales of 
contributed non-cash assets with recourse or borrowings against such 
assets shall not constitute a conversion to cash.
    Relevant Venture Capital Finance means Equity Capital in Rural 
Business Concerns or benefiting Rural Areas.
    Retained Earnings Available for Distribution means Undistributed Net 
Realized Earnings less any Unrealized Depreciation on Loans and 
Investments (as reported on SBA Form 468), and represents the amount 
that a RBIC may distribute to investors as a profit Distribution, or 
transfer to Private Capital.
    Rural Area means an area that is located outside a standard 
metropolitan statistical area, or within a community that has a 
population of 50,000 or less inhabitants. As used in this definition, 
``community'' means any area outside of a metropolitan statistical area 
(MSA) or any territory within an MSA that is not within an urbanized 
area, all as defined by the Bureau of the Census of the United States 
Department of Commerce (Census Bureau) at the last decennial census.
    Rural Business Concern means an Enterprise whose Principal Office is 
located in a Rural Area.
    Rural Business Concern Investment means a Financing in a Rural 
Business Concern whose Principal Office was located in a Rural Area at 
the time of the initial Financing.
    Rural Business Investment Company or RBIC means a corporation 
organized as required by Sec. 4290.100 (Corporate RBIC), a limited 
partnership organized as required by Sec. Sec. 4290.100 and 4290.160 
(Partnership RBIC), or a limited liability company organized as required 
by Sec. Sec. 4290.100 and 4290.160 (LLC RBIC), that has been licensed 
as a RBIC pursuant to Sec. 4290.390.

[[Page 837]]

    SBA means the U.S. Small Business Administration, an agency of the 
Federal Government headquartered at 409 Third Street, SW, Washington, DC 
20416.
    Secondary Relative of an individual means:
    (1) A grandparent, grandchild, or any other ancestor or lineal 
descendent who is not a Close Relative;
    (2) An uncle, aunt, nephew, niece, or first cousin; or
    (3) A spouse of any person described in paragraph (1) or (2) of this 
definition.
    Secretary means the Secretary of Agriculture.
    Small Business Concern means a for-profit Smaller Enterprise that 
meets the definition of ``business concern'' in 13 CFR 121.105 and that, 
together with its Affiliates, meets the small business size standards 
set forth in 13 CFR 121.201 or 13 CFR 121.301(c) for the industry in 
which it is primarily engaged on the date the Financing is made (the 
term ``primarily engaged'' for purposes of this definition is defined in 
13 CFR 121.107).
    Small Business Concern Investments means a Financing in the form of 
Equity Capital in an Enterprise that qualified as both a Smaller 
Enterprise and a Small Business Concern at the time of the initial 
Financing.
    Small Business Investment Company or SBIC means a Licensee, as that 
term is defined in 13 CFR 107.50.
    Smaller Enterprise means any Rural Business Concern that, together 
with its Affiliates and by itself--
    (1) Meets the size standard established by SBA in 13 CFR 121.201, 
corresponding to each type of economic activity or industry described in 
the NAICS Manual for the industry in which it is primarily engaged on 
the date on which the Financing is made (the term ``primarily engaged'' 
for purposes of this definition is defined in 13 CFR 121.107); or
    (2) Has--
    (i) A net financial worth of not more than $6,000,000 as of the date 
on which the Financing is made; and
    (ii) An average net income for the two year period preceding the 
date on which the Financing is made of not more than $2,000,000, after 
Federal income taxes (excluding any carryover losses), except that, for 
purposes of this clause, if the Rural Business Concern is not required 
by law to pay Federal income taxes at the enterprise level, but is 
required to pass income through to the shareholders, partners, 
beneficiaries, or other equitable owners of the Rural Business Concern, 
its net income is determined by allowing a deduction in an amount equal 
to the total of--
    (A) If it is not required by law to pay State (and local, if any) 
income taxes at the enterprise level, the net income (determined without 
regard to this paragraph (2)(ii)(A)) multiplied by the marginal State 
income tax rate (or by the combined State and local income tax rates, as 
applicable) that would have applied if the Rural Business Concern were a 
corporation; and
    (B) The net income (so determined) less any deduction for State (and 
local) income taxes calculated under paragraph (2)(ii)(A) of this 
definition multiplied by the marginal Federal income tax rate that would 
have applied if the Rural Business Concern were a corporation.
    Smaller Enterprise Investment means a Financing in the form of 
Equity Capital in an Enterprise that qualified as a Smaller Enterprise 
at the time of the initial Financing.
    State means each of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, Guam, the Virgin Islands of the United 
States, American Samoa, the Commonwealth of the Northern Mariana 
Islands, the Trust Territory of the Pacific Islands, and the Federated 
States of Micronesia.
    Subordinated Debt means a debt of a debtor, common to more than one 
creditor, that is the subject of an agreement between two groups of 
creditors (whose claims would otherwise be in parity) setting forth the 
circumstances under which the claims of one group (senior creditors) 
shall be satisfied out of the resources of the common debtor that would 
otherwise be available for the payment of the claims of the other group 
(junior creditors).
    Subordinated Debt With Equity Features means a Subordinated Debt 
obligation that gives to the junior creditor

[[Page 838]]

such additional compensation as warrants, conversion rights, any other 
interest in the debtor's equity, profits, increased future revenue, or a 
royalty interest.
    Trust means a legal entity created for the purpose of holding 
guaranteed Debentures and the guaranty agreement related thereto, 
receiving, holding and making any related payments, and accounting for 
such payments.
    Trust Certificate Rate means a fixed rate determined at the time 
Debentures are pooled.
    Trust Certificates (TCs) means certificates issued by the Secretary, 
the Secretary's agent or Trustee and representing ownership of all or a 
fractional part of a Trust or Pool of Debentures.
    Trustee means the trustee or trustees of a Trust.
    Undistributed Net Realized Earnings means Undistributed Realized 
Earnings less Non-cash Gains/Income, each as reported on SBA Form 468.
    Unrealized Appreciation means the amount by which a RBIC's valuation 
of each of its Loans and Investments, as determined by its board of 
directors, general partner(s), or managing member(s) in accordance with 
the RBIC's valuation policies, exceeds the cost basis thereof.
    Unrealized Depreciation means the amount by which a RBIC's valuation 
of each of its Loans and Investments, as determined by its board of 
directors, general partner(s), or managing member(s) in accordance with 
the RBIC's valuation policies, is below the cost basis thereof.
    Unrealized Gain (Loss) on Securities Held means the sum of the 
Unrealized Appreciation and Unrealized Depreciation on all of a RBIC's 
Loans and Investments, less estimated future income tax expense or 
estimated realizable future income tax benefit, as appropriate.
    Urban Area means an area containing a city (or its equivalent), or 
any equivalent geographic area determined by the Census Bureau and 
adopted by the Secretary for purposes of this definition (about which 
the Secretary will publish a document in the Federal Register from time 
to time), which had a population of over 150,000 in the last decennial 
census and the urbanized areas containing or adjacent to that city, both 
as determined by the Census Bureau for the last decennial census.
    Urban Area Investment means a Financing in an Enterprise whose 
Principal Office was located in an Urban Area at the time of the initial 
Financing.
    USDA means the U.S. Department of Agriculture, a department of the 
Federal government headquartered at 1400 Independence Avenue, SW., 
Washington, DC 20250.



              Subpart C_Qualifications for the RBIC Program

                            Organizing a RBIC



Sec. 4290.100  Business form.

    (a) Newly-formed for-profit. An Applicant for a RBIC license must be 
a newly formed for-profit entity or, subject to Sec. 4290.150, a newly 
formed for-profit subsidiary of an existing entity. It must be organized 
under the law of a State. An Applicant may be organized as a corporation 
(``Corporate RBIC''), a limited partnership (``Partnership RBIC''), or a 
limited liability company (``LLC RBIC'').
    (b) Purpose. An Applicant must be organized solely for the purpose 
of performing the functions and conducting the activities contemplated 
under the Act: making Developmental Venture Capital investments and 
providing Operational Assistance to eligible Smaller Enterprises.
    (c) Articles. The RBIC's Articles--
    (1) Must specify in general terms:
    (i) The purposes for which the RBIC is formed;
    (ii) The name of the RBIC;
    (iii) The Rural Area or Areas in which it will operate;
    (iv) The place where the RBIC's headquarters will be located; and
    (v) The amount and classes of the RBIC's ownership interests.
    (2) May contain any other provisions consistent with the Act that 
the RBIC may determine is appropriate to adopt to regulate its business 
and the conduct of its affairs.
    (3) Are subject to the Secretary's approval.

[[Page 839]]

    (d) Duration--(1) Partnership RBICs. If you are a Partnership RBIC:
    (i) You must have a minimum duration of 10 years, or two years 
following the maturity of your last-maturing Leverage security, 
whichever is longer. After 10 years, if all Leverage has been repaid or 
redeemed and all amounts due the Secretary, his or her agent, or Trustee 
have been paid, the Partnership RBIC may be terminated by a vote of your 
partners;
    (ii) None of your general partner(s) may be removed or replaced by 
your limited partners without prior written approval of the Secretary;
    (iii) Any transferee of, or successor in interest to, your general 
partner shall have only the rights and liabilities of a limited partner 
prior to the Secretary's written approval of such transfer or 
succession; and
    (iv) You must incorporate all the provisions in this paragraph (d) 
in your limited partnership agreement.
    (2) LLC RBICs. If you are a LLC RBIC, you must have a minimum 
duration of 10 years, or two years following the maturity of your last-
maturing Leverage security, whichever is longer. After 10 years, if all 
Leverage has been repaid or redeemed and all amounts due the Secretary, 
his or her agent, or Trustee have been paid, the LLC RBIC may be 
terminated by a vote of your members.
    (3) Corporate RBICs. If you are a Corporate RBIC, you must have a 
duration of not less than 30 years unless earlier dissolved by the 
shareholders, except that the Corporate RBIC must not dissolve until at 
least two years following the maturity of your last-maturing Leverage 
security.



Sec. 4290.110  Qualified management.

    An Applicant must show, to the satisfaction of the Secretary, that 
its current or proposed management team is qualified and has the 
knowledge, experience, and capability in Community Development Finance 
or Relevant Venture Capital Finance, necessary for investing in the 
types of Enterprises contemplated by the Act, regulations in this part, 
and its business plan. In determining whether an Applicant's current or 
proposed management team has sufficient qualifications, the Secretary 
will consider information provided by the Applicant and third parties 
concerning the background, capability, education, training and 
reputation of its general partners, managers, officers, key personnel, 
and investment committee and governing board members. The Applicant must 
designate at least one individual as the official responsible for 
contact with the Secretary.



Sec. 4290.120  Plan to invest in Rural Areas.

    An Applicant must agree that if licensed as a RBIC, it will make 
Developmental Venture Capital investments in Enterprises that will 
create wealth and job opportunities in Rural Areas and among individuals 
living in those areas.



Sec. 4290.130  Identified Rural Areas.

    A RBIC must identify the specific Rural Area or Areas in which it 
intends to make Developmental Venture Capital investments and provide 
Operational Assistance under the RBIC program. The scope of the 
identified areas must be consistent with Applicant's business plan, 
especially as the plan relates to the Applicant's ability to operate 
actively, soundly, and profitably in such areas.



Sec. 4290.140  Approval of initial Management Expenses.

    A RBIC must have its Management Expenses approved by the Secretary 
at the time it is licensed. (See Sec. 4290.520 for the definition of 
Management Expenses.)



Sec. 4290.150  Management and ownership diversity requirement.

    (a) Diversity requirement. You must have diversity between 
management and ownership in order to be licensed as a RBIC and to 
maintain your license. To establish diversity, you must meet the 
requirements in paragraphs (b) and (c) of this section.
    (b) Percentage ownership requirement. No Person or group of Persons 
who are Affiliates of one another may own or control, directly or 
indirectly, more than 70 percent of your Regulatory Capital or your 
Leverageable Capital.

[[Page 840]]

    (c) Non-affiliation requirement. At least 30 percent of your 
Regulatory Capital and Leverageable Capital must be owned and controlled 
by Persons unaffiliated with your management and unaffiliated with each 
other, and whose investments are significant in dollar and percentage 
terms as determined by the Secretary. Such Persons must not be your 
Associates (except for their status as your shareholders, limited 
partners or members) and must not Control, be Controlled by, or be under 
Common Control with any of your Associates. A single ``acceptable'' 
Institutional Investor may be substituted for two or three of the three 
investors who are otherwise required. The following Institutional 
Investors are ``acceptable'' for this purpose:
    (1) Entities whose overall activities are regulated and periodically 
examined by State, Federal or other governmental authorities 
satisfactory to the Secretary;
    (2) Entities listed on the New York Stock Exchange;
    (3) Entities that are publicly-traded and that meet both the minimum 
numerical listing standards and the corporate governance listing 
standards of the New York Stock Exchange;
    (4) Public or private employee pension funds;
    (5) Trusts, foundations, or endowments, but only if exempt from 
Federal income taxation; and
    (6) Other Institutional Investors satisfactory to the Secretary.
    (d) Voting requirement. The investors relied upon to satisfy the 
diversity requirement may not delegate their voting rights to any Person 
who is your Associate, or who Controls, is Controlled by, or is under 
Common Control with any of your Associates, without prior approval by 
the Secretary.
    (e) Requirement to maintain diversity. You must maintain management-
ownership diversity while you are a RBIC. If, at any time, you no longer 
have the required management-ownership diversity, you must:
    (1) Notify the Secretary within 10 days; and
    (2) Re-establish diversity within six months after loss of 
diversity.



Sec. 4290.160  Special rules for Partnership RBICs and LLC RBICs.

    (a) Entity General Partner or Entity Managing Member. (1) A general 
partner of a Partnership RBIC which is a corporation, limited liability 
company or partnership (an ``Entity General Partner''), or a managing 
member of an LLC RBIC which is a corporation, limited liability company, 
or partnership (an ``Entity Managing Member'') shall be organized under 
State law solely for the purpose of serving as the general partner or 
managing member of one or more RBICs, and shall be organized for profit.
    (2) The Secretary must approve any person who will serve as an 
officer, director, manager, or general partner of the Entity General 
Partner or Entity Managing Member and of an entity that Controls the 
Entity General Partner or Entity Managing Member. This provision must be 
stated in an Entity General Partner's or Entity Managing Member's 
articles of incorporation or charter and bylaws if a corporation, 
operating agreement if a limited liability company, or partnership 
agreement if a partnership.
    (3) An Entity General Partner or Entity Managing Member is subject 
to the same examination and reporting requirements as a RBIC under 
sections 384K and 384L of the Act. The restrictions and obligations 
imposed upon a RBIC by Sec. Sec. 4290.1810, 4290.30, 4290.410 through 
4290.450, 4290.470, 4290.500, 4290.510, 4290.585, 4290.600, 4290.680, 
4290.690 through 4290.692, and 4290.1910 apply also to an Entity General 
Partner or Entity Managing Member of a RBIC.
    (4) The general partner(s) of your Entity General Partner(s) or 
Entity Managing Member(s) will be considered your general partner.
    (5) If your Entity General Partner or Entity Managing Member is a 
limited partnership, its limited partners may be considered your Control 
Person(s) if they meet the definition for Control Person in Sec. 
4290.50.
    (b) Liability of general partner of Partnership RBIC. Subject to 
section 384O(b) of the Act, your general partner(s) is not liable solely 
by reason of its status as a general partner for repayment of any 
Leverage or debts you

[[Page 841]]

owe to the Secretary unless the Secretary, in the exercise of reasonable 
investment prudence, and with regard to your financial soundness, 
determines otherwise prior to the purchase or guaranty of your Leverage. 
The conditions specified in Sec. 4290.1810 and Sec. 4290.1910 apply to 
all general partners.
    (c) Special Leverage requirement for Partnership RBICs and LLC 
RBICs. Before your first issuance of Leverage, you must furnish the 
Secretary with evidence that you qualify as a partnership for tax 
purposes, either by a ruling from the Internal Revenue Service or by an 
opinion of counsel.



Sec. 4290.165  Obligations of Control Persons.

    All Control Persons are bound by the provisions of sections 384O and 
384P of the Act and by the conflict-of-interest rules under Sec. 
4290.730. The term RBIC, as used in Sec. Sec. 4290.30, 4290.460, and 
4290.680, includes all of the RBIC's Control Persons.

                           Capitalizing a RBIC



Sec. 4290.200  Adequate capital for RBICs.

    You must meet the requirements of Sec. Sec. 4290.200 through 
4290.230 in order to qualify as a RBIC and to receive Leverage.



Sec. 4290.210  Minimum capital requirements for RBICs.

    (a) General Rule. You must have Regulatory Capital of at least 
$10,000,000, or such lesser amount (but not less than $5,000,000) as the 
Secretary may prescribe by notice published from time to time in the 
Federal Register, and Leverageable Capital of at least $500,000, to 
become a RBIC.
    (b) Exception. (1) The Secretary in his or her sole discretion and 
based on a showing of special circumstances and good cause may license 
an Applicant with Regulatory Capital of at least $2,500,000, but only if 
the Applicant:
    (i) Has satisfied all eligibility criteria for licensing as a RBIC 
as described in Sec. 4290.390(a) of this part, except the capital 
requirement specified in paragraph (a)(1) of that section, as determined 
solely by the Secretary;
    (ii) Has a viable business plan reasonably projecting profitable 
operations; and
    (iii) Has a reasonable timetable for achieving Regulatory Capital of 
at least $10,000,000.
    (2) A RBIC licensed under this exception is not eligible to receive 
Leverage until it has complied with paragraph (a) of this section.



Sec. 4290.230  Private Capital for RBICs.

    (a) General. Private Capital means the contributed capital of a 
RBIC, plus unfunded binding commitments by Institutional Investors 
(including commitments evidenced by a promissory note) to contribute 
capital to a RBIC.
    (b) Contributed capital. For purposes of this section, contributed 
capital means the paid-in capital and paid-in surplus of a Corporate 
RBIC, the members' contributed capital of a LLC RBIC, or the partners' 
contributed capital of a Partnership RBIC, in each case subject to the 
limitations in paragraph (c) of this section.
    (c) Exclusions from Private Capital. Private Capital does not 
include:
    (1) Funds borrowed by an Applicant or a RBIC from any source.
    (2) Funds obtained through the issuance of Leverage.
    (3) Funds obtained directly or indirectly from the Federal 
government or any State (including by a political subdivision, agency or 
instrumentality of the Federal government or a State), except that the 
following categories of such funds are not excluded from Private 
Capital--
    (i) Funds obtained directly or indirectly from the business revenues 
(excluding any governmental appropriation) of any federally-chartered or 
government-sponsored enterprise established prior to May 13, 2002;
    (ii) Funds invested by an employee welfare benefit plan or pension 
plan; and
    (iii) Qualified Non-private Funds in an amount not to exceed 33 
percent of the total Private Capital of any Applicant or RBIC, provided, 
however, that in no event may any investor or investors of Qualified 
Non-private Funds have

[[Page 842]]

the power to Control, directly or indirectly, the management, board of 
directors, general partners, or members of the RBIC.
    (4) Any portion of an unfunded commitment from an Institutional 
Investor with a net worth of less than $10 million that exceeds 10 
percent of such Institutional Investor's net worth.
    (5) An unfunded commitment from an investor if the Secretary 
determines that the collectibility of the commitment is questionable.
    (d) Non-cash capital contributions. Capital contributions in a form 
other than cash are subject to the limitations in Sec. 4290.240 of this 
part.
    (e) Contributions with borrowed funds. You may not accept any 
capital contribution made with funds borrowed by a Person seeking to own 
an equity interest (whether direct or indirect, beneficial or of record) 
of at least 10 percent of your Private Capital. This exclusion does not 
apply if:
    (1) Such Person's net worth is at least twice the amount borrowed; 
or
    (2) The Secretary gives his or her prior written approval of the 
capital contribution.



Sec. 4290.240  Limitations on non-cash capital contributions in Private Capital.

    Non-cash capital contributions to a RBIC or Applicant are included 
in Private Capital only if they are approved by the Secretary and they 
fall into one of the following categories:
    (a) Direct obligations of, or obligations guaranteed as to principal 
and interest by, the United States having a term of no more than one 
year.
    (b) Services rendered or to be rendered to you, priced at no more 
than their fair market value.
    (c) Other non-cash assets approved by the Secretary.



      Subpart D_Application and Approval Process for RBIC Licensing



Sec. 4290.300  When and how to apply for a RBIC License.

    (a) Notice of Funds Availability (``NOFA''). The Secretary will 
publish a NOFA in the Federal Register advising potential applicants of 
the availability of funds for the RBIC program and inviting the 
submission of applications. The NOFA may specify limitations, special 
rules, procedures, and restrictions for a particular funding round. When 
submitting its application, an Applicant must comply with both this part 
4290 and any requirements specified in the NOFA, including the opening 
and closing dates for submission of an application.
    (b) Application form. An Applicant must apply for a RBIC license 
using the application packet provided by the Secretary. Upon receipt of 
a completed application packet, the Secretary may request clarifying or 
technical information on the materials submitted as part of the 
application.



Sec. 4290.310  Contents of application.

    Each Applicant must submit a complete application, including the 
following:
    (a) Management team experience. The Applicant must provide 
information generally as to the background, capability, education, 
reputation and training of its management team, including general 
partners, managers, officers, key personnel, and investment committee 
and governing board members. The Applicant also must provide information 
specifically on these individuals' qualifications and reputation in the 
areas of Community Development Finance and/or Relevant Venture Capital 
Finance, including the impact of these individuals' activities in these 
areas.
    (b) Amount of Regulatory Capital. The Applicant must indicate the 
amount of Regulatory Capital it has raised or proposes to raise, which 
amount must satisfy the requirements of Sec. 4290.210(a) of this part, 
unless the Applicant indicates that it has raised or proposes to raise 
at least $2,500,000 and is applying for an exception pursuant to Sec. 
4290.210(b) of this part and includes in its application--
    (1) A showing of special circumstances and good cause for the 
exception:
    (2) Will satisfy all eligibility criteria for licensing as a RBIC as 
set forth in Sec. 4290.390(a) of this part, except the capital 
requirement specified in paragraph

[[Page 843]]

(a)(1) of that section, as determined solely by the Secretary;
    (3) Has a viable business plan reasonably projecting profitable 
operations; and
    (4) Has a reasonable timetable for achieving Regulatory Capital in 
an amount that satisfies the requirements of Sec. 4290.210(a) of this 
part.
    (c) Comprehensive business plan. The Applicant must submit a 
comprehensive business plan covering at least a five-year period, 
addressing the specific items described in Sec. 4290.320, and which 
demonstrates that the Applicant has the capacity to operate successfully 
as a RBIC.



Sec. 4290.320  Contents of comprehensive business plan.

    (a) Plan for Developmental Venture Capital investing. The Applicant 
must describe its plans and strategies for how it proposes to make 
successful Developmental Venture Capital investments in identified Rural 
Areas.
    (b) Working with Rural Area community-based organizations. The 
Applicant must describe how it intends to work with community-based 
organizations and local entities (including local economic development 
companies, local lenders, and local investors) in order to facilitate 
its Developmental Venture Capital investments.
    (c) Market analysis. The Applicant must provide an analysis of the 
Rural Areas in which it intends to focus its Developmental Venture 
Capital investments and Operational Assistance to Smaller Enterprises, 
demonstrating that the Applicant understands the market and the unmet 
Equity Capital needs in such areas and how its activities will meet 
these unmet needs and will have a positive economic impact on those 
areas. The Applicant also must analyze the extent of the demand in such 
areas for Developmental Venture Capital investments and any factors or 
trends that may affect the Applicant's ability to make effective 
Developmental Venture Capital investments.
    (d) Operational capacity and investment strategies. The Applicant 
must submit information concerning its policies and procedures for 
underwriting and approving its Developmental Venture Capital 
investments, monitoring its portfolio, and maintaining internal controls 
and operations.
    (e) Plan to raise Regulatory Capital. The Applicant must include a 
detailed description of how it plans to raise its Regulatory Capital if 
it has not yet done so at the time of application. The Applicant must 
discuss its potential sources of Regulatory Capital, the estimated 
timing for raising such funds, and the extent of the expressions of 
interest to commit such funds to the Applicant.
    (f) Plan for providing Operational Assistance. The Applicant must 
describe how it plans to use its grant funds to provide Operational 
Assistance to Smaller Enterprises in which it makes or expects to make 
Developmental Venture Capital investments. Its plan must address the 
types of Operational Assistance it proposes to provide, and how it plans 
to provide the Operational Assistance through the use of licensed 
professionals, when necessary, either from its own staff or from outside 
entities.
    (g) Projected amount of investment in Rural Areas. The Applicant 
must describe how it proposes to meet the requirements set forth in 
Sec. 4290.700. An Applicant must project the amount of its total 
Regulatory Capital and Leverage that it proposes to invest in Smaller 
Enterprises and in Rural Business Concerns that are not Smaller 
Enterprises. The Applicant also must describe the amount of its total 
Regulatory Capital and Leverage that it proposes to invest in Urban Area 
Investments.
    (h) Projected impact. The Applicant must describe the criteria and 
economic measurements to be used to evaluate whether and to what extent 
it has met the objectives of the RBIC program. It must include:
    (1) A description of the extent to which it will concentrate its 
Developmental Venture Capital investments and Operational Assistance 
activities in identified Rural Areas;
    (2) An estimate of the economic development benefits to be created 
within identified Rural Areas over the next five years or more as a 
result of its activities;

[[Page 844]]

    (3) A description of the criteria to be used to measure the benefits 
created as a result of its activities;
    (4) A discussion about the amount of such benefits created that it 
will consider to constitute successfully meeting the objectives of the 
RBIC program.
    (i) Affiliates and business relationships. The Applicant must submit 
information describing the management and financial strength of any 
parent or holding entity, affiliated firm or entity, or any other firm 
or entity essential to the success of the Applicant's business plan.



Sec. 4290.330  Grant issuance fee.

    The Applicant must pay to the Secretary a grant issuance fee of 
$5,000. An Applicant must submit this fee in advance, at the time of 
application submission.



               Subpart E_Evaluation and Selection of RBICs



Sec. 4290.340  Evaluation and selection--general.

    The Secretary on behalf of USDA and the Administrator on behalf of 
SBA, in their sole discretion, will evaluate and select an Applicant to 
participate in the RBIC program based on a review of the Applicant's 
application materials, interviews or site visits with the Applicant (if 
any), and background investigations conducted by the Secretary and other 
Federal agencies. The Secretary's evaluation and selection process is 
intended to--
    (a) Ensure that Applicants are evaluated on a competitive basis and 
in a fair and consistent manner;
    (b) Take into consideration the unique proposals presented by 
Applicants;
    (c) Ensure that each Applicant licensed as a RBIC can fulfill 
successfully the goals of its comprehensive business plan; and
    (d) Ensure that the Secretary selects Applicants in such a way as to 
promote nationwide geographic distribution of Developmental Venture 
Capital investments.



Sec. 4290.350  Eligibility and completeness.

    The Secretary will not consider any application that is not complete 
or that is submitted by an Applicant that does not meet the eligibility 
criteria described in subpart C of this part. The Secretary at his or 
her sole discretion, may request from an Applicant additional 
information concerning eligibility criteria or easily completed portions 
of the application in order to facilitate consideration of its 
application.



Sec. 4290.360  Initial review of Applicant's management team's qualifications.

    The Secretary will review the information submitted by the Applicant 
concerning the qualifications of the Applicant's management team to 
determine in his or her sole discretion whether the team meets the 
minimum requirements deemed by the Secretary to be critical to 
successful venture capital investing. In making this determination, the 
Secretary will consider, among other things, the general business 
reputation of the owners and managers of the Applicant. Only those 
Applicants considered to have a management team qualified for venture 
capital investing will be further considered for selection as a RBIC.



Sec. 4290.370  Evaluation criteria.

    Of those Applicants whose management team is considered qualified 
for venture capital investing and who have submitted an eligible and 
complete application, the Secretary on behalf of USDA and the 
Administrator on behalf of SBA, in their sole discretion, will evaluate 
and select an Applicant for participation in the RBIC program by 
considering the following criteria--
    (a) Whether the Applicant's management team has the knowledge, 
experience, and capability necessary to manage a sound, economically 
viable RBIC and to comply with the Act;
    (b) The quality of the Applicant's comprehensive business plan in 
terms of meeting the objectives of the RBIC program;
    (c) The likelihood that the Applicant will achieve the goals 
described in its comprehensive business plan;

[[Page 845]]

    (d) The strength and likelihood for success of the Applicant's 
operations and investment strategies, including whether the Applicant 
has projected adequate profitability and financial soundness;
    (e) Whether the Applicant will be able to operate soundly and 
profitably over the long term;
    (f) Whether the Applicant will be able to operate actively in its 
identified Rural Areas in accordance with its business plan;
    (g) The need for Developmental Venture Capital investments in the 
Rural Areas in which the Applicant intends to invest;
    (h) The extent to which the Applicant will concentrate its 
activities on serving Smaller Enterprises and Small Business Concerns 
located in the Rural Areas in which it intends to invest, including the 
ratio of resources that it proposes to invest in such Enterprises as 
compared to other Enterprises;
    (i) The Applicant's demonstrated understanding of the markets in the 
Rural Areas in which it intends to focus its activities;
    (j) The likelihood that and the time frame within which the 
Applicant will be able to raise the Regulatory Capital it proposes to 
raise for its investments;
    (k) The strength of the Applicant's proposal to provide Operational 
Assistance to Smaller Enterprises in which it plans to invest;
    (l) The extent to which the activities proposed by the Applicant 
will promote economic development and the creation of wealth and job 
opportunities in the Rural Areas in which it intends to invest and among 
individuals living in such Areas; and
    (m) The strength of the Applicant's application compared to 
applications submitted by other Applicants intending to invest in the 
same or proximate Rural Areas.



Sec. 4290.380  Selection.

    From among the Applicants that have submitted eligible and complete 
applications, the Secretary on behalf of USDA and the Administrator on 
behalf of SBA, in their sole discretion, will select some, all, or none 
of such Applicants to participate in the RBIC program. Selection will 
entitle the Applicant to proceed with obtaining a license as a RBIC but 
only if the Applicant also meets the conditions set forth in Sec. 
4290.390.



Sec. 4290.390  Licensing as a RBIC.

    (a) Eligibility criteria for licensing as a RBIC. Each selected 
Applicant must meet the following conditions before it is eligible to be 
licensed as a RBIC:
    (1) Raise, within a time period specified by the Secretary but not 
to exceed 12 months after selection under Sec. 4290.380 the specific 
amount of Regulatory Capital that the Applicant had projected in its 
application that it would raise (see Sec. 4290.210 for additional 
information);
    (2) Raise $500,000 in Leverageable Capital as required by Sec. 
4290.210;
    (3) Complete and submit to the Secretary all legal and other 
documentation concerning the RBIC, including but not limited to its 
Articles and updated financial information concerning the RBIC in order 
to qualify for a Leverage commitment; and
    (4) Enter into a Participation Agreement with the Secretary.
    (b) Licensing as a RBIC. If the selected Applicant has 
satisfactorily met all the conditions specified in paragraph (a) of this 
section, as determined within the sole discretion of the Secretary, then 
the Secretary on behalf of USDA and the Administrator on behalf of SBA 
will license the Applicant as a RBIC.
    (c) Failure to meet eligibility criteria for licensing. Each 
selected Applicant that does not meet the eligibility criteria for 
licensing described in paragraph (a) of this section, within a time 
period specified by the Secretary, will not be licensed as a RBIC. 
Failure to meet any of those conditions, including but not limited to 
failure to raise the projected Regulatory Capital within the required 
time period, will cause the Applicant's selection to lapse. The 
Secretary will not restore the selection of such an Applicant after the 
expiration of that time period. After the expiration of that time 
period, an Applicant that is not licensed as a RBIC must cease to 
represent itself as a participant or potential participant in the RBIC 
program.

[[Page 846]]

    (d) Effect of a RBIC license. The Participation Agreement executed 
by the Secretary with each Applicant licensed as a RBIC will include the 
following:
    (1) Approval to operate as a RBIC under the Act;
    (2) A commitment of Leverage; and
    (3) An Operational Assistance grant award.



          Subpart F_Changes in Ownership, Structure, or Control

                 Changes in Control or Ownership of RBIC



Sec. 4290.400  Changes in ownership of 10 percent or more of RBIC but no change of Control.

    You must obtain the Secretary's prior written approval for any 
proposed transfer or issuance of ownership interests that results in the 
ownership (beneficial or of record) by any Person, or group of Persons 
acting in concert, of at least 10 percent of any class of your stock, 
partnership capital or membership interests.



Sec. 4290.410  Changes in Control of RBIC (through change in ownership or otherwise).

    You must obtain the Secretary's prior written approval for any 
proposed transaction or event that results in Control by any Person(s) 
not previously approved by the Secretary.



Sec. 4290.420  Prohibition on exercise of ownership or Control rights in RBIC before approval.

    Without the Secretary's prior written approval, no change of 
ownership or Control may take effect and no officer, director, employee 
or other Person acting on your behalf shall:
    (a) Register on your books any transfer of ownership interest to the 
proposed new owner(s);
    (b) Permit the proposed new owner(s) to exercise voting rights with 
respect to such ownership interest (including directly or indirectly 
procuring or voting any proxy, consent or authorization as to such 
voting rights at any meeting of shareholders, partners or members);
    (c) Permit the proposed new owner(s) to participate in any manner in 
the conduct of your affairs (including exercising control over your 
books, records, funds or other assets; participating directly or 
indirectly in any disposition thereof; or serving as an officer, 
director, partner, manager, employee or agent); or
    (d) Allow ownership or Control to pass to another Person.



Sec. 4290.430  Notification of transactions that may change ownership or Control.

    You must promptly notify the Secretary as soon as you have knowledge 
of transactions or events that may result in a transfer of Control or 
ownership of at least 10 percent of your Regulatory Capital. If the 
effect of a particular transaction or event is unclear, you must report 
all pertinent facts to the Secretary.



Sec. 4290.440  Standards governing prior approval for a proposed transfer of Control.

    The Secretary's approval of a proposed transfer of Control is 
contingent upon full disclosure of the real parties in interest, the 
source of funds for the new owners' interest, and other data requested 
by the Secretary. As a condition of approving a proposed transfer of 
control, the Secretary may:
    (a) Require an increase in your Regulatory Capital;
    (b) Require the new owners or the transferee's Control Person(s) to 
assume, in writing, personal liability for your Leverage, effective only 
in the event of their direct or indirect participation in any transfer 
of Control not approved by the Secretary; or
    (c) Require compliance with any other conditions set by the 
Secretary, including compliance with the requirements for minimum 
capital and management-ownership diversity in effect at such time for 
new RBICs.



Sec. 4290.450  Notification of pledge of RBIC's shares.

    (a) You must notify the Secretary in writing, within 30 calendar 
days, of the terms of any transaction in which:
    (1) Any Person, or group of Persons acting in concert, pledges 
shares of

[[Page 847]]

your stock (or equivalent ownership interests) as collateral for 
indebtedness; and
    (2) The shares pledged constitute at least 10 percent of your 
Regulatory Capital.
    (b) If the transaction creates a change of ownership or Control, you 
must comply with Sec. 4290.400 or Sec. 4290.410, as appropriate.

    Restrictions on Common Control or Ownership of Two or More RBICs



Sec. 4290.460  Restrictions on Common Control or ownership of two (or more) RBICs.

    Without the Secretary's prior written approval, you must not have an 
officer, director, manager, Control Person, or owner (with a direct or 
indirect ownership interest of at least 10 percent) who is also:
    (a) An officer, director, manager, Control Person, or owner (with a 
direct or indirect ownership interest of at least 10 percent) of another 
RBIC; or
    (b) An officer or director of any Person that directly or indirectly 
controls, or is controlled by, or is under Common Control with, another 
RBIC.

                       Change in Structure of RBIC



Sec. 4290.470  Prior approval of merger, consolidation, or reorganization of RBIC.

    You may not merge, consolidate, change form of organization 
(corporation, limited liability company, or limited partnership) or 
reorganize without the Secretary's prior written approval. Any such 
merger, consolidation, or change of form is subject to Sec. 4290.440.



Sec. 4290.480  Prior approval of changes to RBIC's business plan.

    Without the Secretary's prior written approval, no change in your 
business plan, upon which you were selected and licensed as a RBIC, may 
take effect.



               Subpart G_Managing the Operations of a RBIC

                          General Requirements



Sec. 4290.500  Lawful operations under the Act.

    You must engage only in the activities permitted by the Act and in 
no other activities.



Sec. 4290.502  Representations to the public.

    You may not represent or imply to anyone that the Secretary, the 
U.S. Government, or any of its agencies or officers has approved any 
ownership interests you have issued, obligations you have incurred, or 
Financings you have made. You must include a statement to this effect in 
any solicitation provided to investors. Example: You may not represent 
or imply that ``USDA stands behind the RBIC'' or that ``Your capital is 
safe because the Secretary's experts review proposed investments to make 
sure they are safe for the RBIC.''



Sec. 4290.503  RBIC's adoption of an approved valuation policy.

    (a) Valuation guidelines. You must prepare, document and report the 
valuations of your Loans and Investments in accordance with the 
Valuation Guidelines for SBICs issued by SBA. These guidelines may be 
obtained from SBA's Investment Division or at http://www.sba.gov/INV/
valuation.pdf.
    (b) The Secretary's approval of valuation policy. You must have a 
written valuation policy approved by the Secretary for use in 
determining the value of your Loans and Investments. You must either:
    (1) Adopt without change the model valuation policy set forth in 
section III of the Valuation Guidelines for SBICs; or
    (2) Obtain the Secretary's prior written approval of an alternative 
valuation policy.
    (c) Responsibility for valuations. Your board of directors, managing 
member(s), or general partner(s) will be solely responsible for adopting 
your

[[Page 848]]

valuation policy and for using it to prepare valuations of your Loans 
and Investments for submission to the Secretary. If the Secretary 
reasonably believes that your valuations, individually or in the 
aggregate, are materially misstated, he or she reserves the right to 
require you to engage, at your expense, an independent third party 
acceptable to the Secretary to substantiate the valuations.
    (d) Frequency of valuations. (1) You must value your Loans and 
Investments at the end of the second quarter of your fiscal year, and 
again at the end of your fiscal year.
    (2) On a case-by-case basis, the Secretary may require you to 
perform valuations more frequently.
    (3) You must report material adverse changes in valuations at least 
quarterly, within 30 days following the close of the quarter.
    (e) Review of valuations by independent public accountant. (1) For 
valuations performed as of the end of your fiscal year, your independent 
public accountant must review your valuation procedures and the 
implementation of such procedures, including adequacy of documentation.
    (2) The independent public accountant's report on your audited 
annual financial statements (SBA Form 468) must include a statement that 
your valuations were prepared in accordance with your approved valuation 
policy.



Sec. 4290.504  Equipment and office requirements.

    (a) Computer capability. You must have a personal computer with 
access to the Internet and be able to use this equipment to prepare 
reports, for which you will receive the necessary software, and transmit 
such reports to the Secretary. In addition, you must have the capability 
to send and receive electronic mail.
    (b) Facsimile capability. You must be able to receive facsimile 
messages 24 hours per day at your primary office.
    (c) Accessible office. You must maintain an office that is 
convenient to the public and is open for business during normal working 
hours.



Sec. 4290.506  Safeguarding the RBIC's assets/Internal controls.

    You must adopt a plan to safeguard your assets and monitor the 
reliability of your financial data, personnel, Portfolio, funds and 
equipment. You must provide your bank and custodian with a certified 
copy of your resolution or other formal document describing your control 
procedures.



Sec. 4290.507  Violations based on false filings and nonperformance of agreements with the Secretary or SBA.

    The following shall constitute a violation of this part:
    (a) Nonperformance. Failure to perform any of the requirements of 
any Debenture or of any written agreement with the Secretary or SBA.
    (b) False statement. In any document submitted to the Secretary or 
SBA:
    (1) Any false statement knowingly made; or
    (2) Any misrepresentation of a material fact; or
    (3) Any failure to state a material fact.
    (4) A material fact is any fact that is necessary to make a 
statement not misleading in light of the circumstances under which the 
statement was made.



Sec. 4290.508  Compliance with non-discrimination laws and regulations applicable to federally-assisted programs.

    In conducting your operations and providing Assistance to your 
Portfolio Concerns, you must comply with Title VI of the Civil Rights 
Act of 1964 (42 U.S.C. 2000d-1 et seq.), the Age Discrimination Act of 
1975 (Pub. L. 94-135, Title III), and Title V of the Equal Credit 
Opportunity Act (15 U.S.C. 1691 et seq.) and the following regulations 
promulgated by USDA to implement and enforce such laws: 7 CFR part 15.



Sec. 4290.509  Employment of USDA or SBA officials.

    (a) Without the Secretary's prior written approval, for a period of 
two years after the date of your most recent issuance of Leverage or 
after the receipt of any assistance as defined in paragraph (b) of this 
section, you are

[[Page 849]]

not permitted to employ, offer employment to, or retain for professional 
services, any person who:
    (1) Served as an officer, attorney, agent, or employee of SBA or 
USDA within one year before such date; and
    (2) In that capacity, occupied a position or engaged in activities 
which, in SBA's or the Secretary's determination, involved discretion 
with respect to the issuing of Leverage or the granting of such 
assistance.
    (b) For purposes of this section, ``assistance'' means financial, 
contractual, grant, managerial, or other aid, including licensing, 
certifications, and other eligibility determinations made by USDA or 
SBA, and any express decision to compromise or defer possible litigation 
or other adverse action.

                       Management and Compensation



Sec. 4290.510  Approval of RBIC's Investment Adviser/Manager.

    (a) General. You may employ an Investment Adviser/Manager who will 
be subject to the supervision of your board of directors, managing 
member(s), or general partner(s). If you have Leverage or plan to seek 
Leverage, you must obtain the Secretary's prior written approval of the 
management contract. Approval of an Investment Adviser/Manager for one 
RBIC does not indicate approval of that manager for any other RBIC.
    (b) Management contract. The contract must:
    (1) Specify the services the Investment Adviser/Manager will render 
to you and to your Portfolio Concerns; and
    (2) Indicate the basis for computing Management Expenses.
    (c) Material change to approved management contract. Any proposed 
material change must be approved by both you and the Secretary in 
advance. If you are uncertain whether the change is material, submit the 
proposed revision to the Secretary.



Sec. 4290.520  Management Expenses of a RBIC.

    The Secretary must approve your initial Management Expenses and any 
increases in your Management Expenses.
    (a) Definition of Management Expenses. Management Expenses include:
    (1) Salaries;
    (2) Office expenses;
    (3) Travel;
    (4) Business development, including finders' fees;
    (5) Office and equipment rental;
    (6) Bookkeeping; and
    (7) Expenses related to developing, investigating and monitoring 
investments.
    (b) Management Expenses do not include services provided by 
specialized outside consultants, outside lawyers and independent public 
accountants, if they perform services not generally performed by a 
venture capital company.

                        Cash Management by a RBIC



Sec. 4290.530  Restrictions on investments of idle funds by RBICs.

    (a) Permitted investments of idle funds. Funds not invested in 
Portfolio Concerns must be maintained in:
    (1) Direct obligations of, or obligations guaranteed as to principal 
and interest by, the United States, which mature within 15 months from 
the date of the investment; or
    (2) Repurchase agreements with federally insured institutions, with 
a maturity of seven days or less. The securities underlying the 
repurchase agreements must be direct obligations of, or obligations 
guaranteed as to principal and interest by, the United States. The 
securities must be maintained in a custodial account at a federally 
insured institution; or
    (3) Certificates of deposit with a maturity of one year or less, 
issued by a federally insured institution; or
    (4) A deposit account in a federally insured institution, subject to 
a withdrawal restriction of one year or less; or
    (5) A checking account in a federally insured institution; or
    (6) A reasonable petty cash fund.
    (b) Deposit of funds in excess of the insured amount--(1) General 
rule. You are permitted to deposit in a federally insured institution 
funds in excess of the institution's insured amount, but only if the 
institution is ``well capitalized'' in accordance with the definition 
set

[[Page 850]]

forth in regulations of the Federal Deposit Insurance Corporation (12 
CFR 325.103).
    (2) Exception. You may make a temporary deposit (not to exceed 30 
days) in excess of the insured amount, in a transfer account established 
to facilitate the receipt and disbursement of funds or to hold funds 
necessary to honor Commitments issued.
    (c) Deposit of funds in Associate institution. A deposit in, or a 
repurchase agreement with, a federally insured institution that is your 
Associate is not considered a Financing of such Associate under Sec. 
4290.730, provided the terms of such deposit or repurchase agreement are 
no less favorable than those available to the general public.

                       Secured Borrowing by RBICs



Sec. 4290.550  Prior approval of secured third-party debt of RBICs.

    (a) Definition. In this Sec. 4290.550, ``secured third-party debt'' 
means any debt that is secured by any of your assets and not guaranteed 
by the Secretary, including secured guarantees and other contingent 
obligations that you voluntarily assume and secured lines of credit.
    (b) General rule. You must get the Secretary's written approval 
before you incur any secured third-party debt or refinance any debt with 
secured third-party debt, including any renewal of a secured line of 
credit, increase in the maximum amount available under a secured line of 
credit, or expansion of the scope of a security interest or lien. For 
purposes of this paragraph (b), ``expansion of the scope of a security 
interest or lien'' does not include the substitution of one asset or 
group of assets for another, provided the asset values (as reported on 
your most recent annual SBA Form 468) are comparable.
    (c) Conditions for approval. As a condition of granting its approval 
under this Sec. 4290.550, the Secretary may impose such restrictions or 
limitations as he or she deems appropriate, taking into account your 
historical performance, current financial position, proposed terms of 
the secured debt and amount of aggregate debt you will have outstanding 
(including Leverage). The Secretary will not favorably consider any 
requests for approval which include a blanket lien on all your assets, 
or a security interest in your investor commitments in excess of 125 
percent of the proposed borrowing.
    (d) Thirty-day approval. Unless the Secretary notifies you otherwise 
within 30 days after he or she receives your request, you may consider 
your request automatically approved if:
    (1) You are in regulatory compliance;
    (2) The security interest in your assets is limited to either those 
assets being acquired with the borrowed funds or an asset coverage ratio 
of no more than 2:1;
    (3) Your request is for approval of a secured line of credit that 
would not cause your total outstanding borrowings (not including 
Leverage) to exceed 50 percent of your Leverageable Capital.

                Voluntary Decrease in Regulatory Capital



Sec. 4290.585  Voluntary decrease in RBIC's Regulatory Capital.

    You must obtain the Secretary's prior written approval to reduce 
your Regulatory Capital by more than two percent in any fiscal year. At 
all times, you must retain sufficient Regulatory Capital to meet the 
minimum capital requirements in the Act and Sec. 4290.210, and 
sufficient Leverageable Capital to avoid having excess Leverage in 
violation of section 384E(d) of the Act.



  Subpart H_Recordkeeping, Reporting, and Examination Requirements for 
                                  RBICs

                  Recordkeeping Requirements for RBICs



Sec. 4290.600  General requirement for RBIC to maintain and preserve records.

    (a) Maintaining your accounting records. You must establish and 
maintain your accounting records using SBA's standard chart of accounts 
for SBICs, unless the Secretary approves otherwise. You may obtain this 
chart of accounts from SBA or at http://www.sba.gov/INV/chartof.pdf.

[[Page 851]]

    (b) Location of records. You must keep the following records at your 
principal place of business or, in the case of paragraph (b)(3) of this 
section, at the branch office that is primarily responsible for the 
transaction:
    (1) All your accounting and other financial records;
    (2) All minutes of meetings of directors, stockholders, executive 
committees, partners, members, or other officials; and
    (3) All documents and supporting materials related to your business 
transactions, except for any items held by a custodian under a written 
agreement between you and a Portfolio Concern or lender, or any 
securities held in a safe deposit box, or by a licensed securities 
broker in an amount not exceeding the broker's per-account insurance 
coverage.
    (c) Preservation of records. You must retain all the records that 
are the basis for your financial reports. Such records must be preserved 
for the periods specified in this paragraph (c) and must remain readily 
accessible for the first two years of the preservation period.
    (1) You must preserve for at least 15 years or, in the case of a 
Partnership RBIC or LLC RBIC, at least two years beyond the date of 
liquidation:
    (i) All your accounting ledgers and journals, and any other records 
of assets, asset valuations, liabilities, equity, income, and expenses;
    (ii) Your Articles, bylaws, minute books, and RBIC application; and
    (iii) All documents evidencing ownership of the RBIC including 
ownership ledgers and ownership transfer registers.
    (2) You must preserve for at least six years all supporting 
documentation (such as vouchers, bank statements, or canceled checks) 
for the records listed in paragraph (b)(l) of this section.
    (3) After final disposition of any item in your Portfolio, you must 
preserve for at least six years:
    (i) Financing applications and Financing instruments;
    (ii) All loan, participation, and escrow agreements;
    (iii) All certifications listed in Sec. 4290.610 of this part;
    (iv) Any capital stock certificates and warrants of the Portfolio 
Concern that you did not surrender or exercise; and
    (v) All other documents and supporting material relating to the 
Portfolio Concern, including correspondence.
    (4) You may substitute a microfilm or computer-scanned or generated 
copy for the original of any record covered by this paragraph (c).
    (d) Additional requirement. You must comply with the recordkeeping 
and record retention requirements set forth in Circular A-110 of the 
Office of Management and Budget. (OMB Circulars are available from the 
addresses listed in 5 CFR 1310.3 and at http://www.whitehouse.gov/omb/
circulars/index.html.)



Sec. 4290.610  Required certifications for Loans and Investments.

    For each of your Loans and Investments, you must have the documents 
listed in this section. You must keep these documents in your files and 
make them available to the Secretary upon request.
    (a) For each Financing made to a Rural Business Concern or Smaller 
Enterprise, a certification by the Portfolio Concern stating the basis 
for its qualification as a Rural Business Concern or Smaller Enterprise.
    (b) For each Financing made to a Small Business Concern, Size Status 
Declaration (SBA Form 480), executed both by you and by the Portfolio 
Concern certifying that the concern is a Small Business Concern. For 
securities purchased from an underwriter in a public offering, you may 
substitute a prospectus showing that the concern is a Small Business 
Concern.
    (c) A certification by the Portfolio Concern that it will not 
discriminate in violation of Title VI of the Civil Rights Act of 1964, 
the Age Discrimination Act of 1975, and Title V of the Equal Credit 
Opportunity Act.
    (d) A certification by the Portfolio Concern of the intended use of 
the proceeds. For securities purchased from an underwriter in a public 
offering, you may substitute a prospectus indicating the intended use of 
proceeds.

[[Page 852]]



Sec. 4290.620  Requirements to obtain information from Portfolio Concerns.

    All the information required by this section is subject to the 
requirements of Sec. 4290.600 and must be in English.
    (a) Information for initial Financing decision. Before extending any 
Financing, you must require the Enterprise to submit such financial 
statements, plans of operation (including intended use of financing 
proceeds), cash flow analyses, projections, and such economic 
development information about the Enterprise, as are necessary to 
support your investment decision. The information submitted must be 
consistent with the size and type of the Enterprise and the amount of 
the proposed Financing.
    (b) Updated financial and economic development information. (1) The 
terms of each Financing must require the Portfolio Concern to provide, 
at least annually, sufficient financial and economic development 
information to enable you to perform the following required procedures:
    (i) Evaluate the financial condition of the Portfolio Concern for 
the purpose of valuing your investment;
    (ii) Determine the continued eligibility of the Portfolio Concern;
    (iii) Verify the use of Financing proceeds;
    (iv) Evaluate the economic development impact of the Financing; and
    (v) In the case of any Portfolio Concern that is not a Rural 
Business Concern, the number and percentage of its employees residing in 
Rural Areas.
    (2) The president, chief executive officer, treasurer, chief 
financial officer, general partner, or proprietor of the Portfolio 
Concern must certify the information submitted to you.
    (3) For financial and valuation purposes, you may accept a complete 
copy of the Federal income tax return filed by the Portfolio Concern (or 
its proprietor) in lieu of financial statements, but only if appropriate 
for the size and type of the Enterprise involved.
    (4) The requirements in this paragraph (b) do not apply when you 
acquire securities from an underwriter in a public offering (see Sec. 
4290.825). In that case, you must keep copies of all reports furnished 
by the Portfolio Concern to the holders of its securities.
    (c) Information required for examination purposes. You must obtain 
any information requested by the Secretary's examiners for the purpose 
of verifying the certifications made by a Portfolio Concern under Sec. 
4290.610. In this regard, your Financing documents must contain 
provisions requiring the Portfolio Concern to give you and/or the 
Secretary's examiners access to its books and records for such purpose.

                    Reporting Requirements for RBICs



Sec. 4290.630  Requirement for RBICs to file financial statements and supplementary information with the Secretary (SBA Form 468).

    (a) Annual filing of SBA Form 468. For each fiscal year, you must 
submit financial statements and supplementary information prepared on 
SBA Form 468. You must file Form 468 on or before the last day of the 
third month following the end of your fiscal year, except for the 
information required under paragraphs (e) and (f) of this section, which 
must be filed on or before the last day of the fifth month following the 
end of your fiscal year.
    (1) Audit of Form 468. An independent public accountant acceptable 
to the Secretary must audit the annual Form 468.
    (2) Insurance requirement for public accountant. Unless the 
Secretary approves otherwise, your independent public accountant must 
carry at least $1,000,000 of Errors and Omissions insurance, or be self-
insured and have a net worth of at least $1,000,000.
    (b) Interim filings of Form 468. When requested by the Secretary, 
you must file interim reports on Form 468. The Secretary may require you 
to file the entire form or only certain statements and schedules. You 
must file such reports on or before the last day of the month following 
the end of the reporting period. When you submit a request for a draw 
under a Leverage commitment, you must also comply with any applicable 
filing requirements set forth in Sec. 4290.1220.
    (c) Standards for preparation of Form 468. You must prepare SBA Form 
468 in accordance with SBA's Accounting Standards and Financial 
Reporting Requirements for SBICs, which you may

[[Page 853]]

obtain from SBA or at http://www.sba.gov/INV/standards.pdf.
    (d) Where to file Form 468. Submit all filings of Form 468 to the 
Investment Division of SBA.
    (e) Reporting of economic development impact information for each 
Financing on Form 468. Your annual filing of SBA Form 468 must include 
an assessment of the economic development impact of each Financing. This 
assessment must specify the fulltime equivalent jobs created, the impact 
of the Financing on the revenues and profits of the business and on 
taxes paid by the business and its employees, and a listing of the 
number and percentage of employees who reside in Rural Areas.
    (f) Reporting of economic development information for certain 
Financings. For each Rural Business Concern Investment and each Smaller 
Enterprise Investment, your Form 468 must include an assessment of each 
such Financing with respect to:
    (1) The economic development benefits achieved as a result of the 
Financing;
    (2) How and to what extent such benefits fulfilled the goals of your 
comprehensive business plan and Participation Agreement; and
    (3) Whether you consider the Financing or the results of the 
Financing to have fulfilled the objectives of the RBIC program.



Sec. 4290.640  Requirement to file portfolio financing reports with the Secretary (SBA Form 1031).

    For each Financing you make (excluding guarantees), you must submit 
a Portfolio Financing Report on SBA Form 1031 within 30 days of the 
closing date.



Sec. 4290.650  Requirement to report portfolio valuations to the Secretary

    You must determine the value of your Loans and Investments in 
accordance with Sec. 4290.503. You must report such valuations to the 
Secretary within 90 days of the end of the fiscal year in the case of 
annual valuations, and within 30 days following the close of other 
reporting periods. You must report material adverse changes in 
valuations at least quarterly, within 30 days following the close of the 
quarter.



Sec. 4290.660  Other items required to be filed by RBIC with the Secretary.

    (a) Reports to owners. You must give the Secretary a copy of any 
report you furnish to your investors, including any prospectus, letter, 
or other publication concerning your financial operations or those of 
any Portfolio Concern.
    (b) Documents filed with SEC. You must give the Secretary a copy of 
any report, application or document you file with the Securities and 
Exchange Commission.
    (c) Litigation reports. When you become a party to litigation or 
other proceedings, you must give the Secretary a report within 30 days 
that describes the proceedings and identifies the other parties involved 
and your relationship to them.
    (1) The proceedings covered by this paragraph (c) include any action 
by you, or by your security holder(s) in a personal or derivative 
capacity, against an officer, director, Investment Adviser/Manager or 
other Associate of yours for alleged breach of official duty.
    (2) The Secretary may require you to submit copies of the pleadings 
and other documents he or she may specify.
    (3) Where proceedings have been terminated by settlement or final 
judgment, you must promptly advise the Secretary of the terms.
    (4) This paragraph (c) does not apply to collection actions or 
proceedings to enforce your ordinary creditors' rights.
    (d) Notification of criminal charges. If any officer, director, 
general partner, or managing member of the RBIC, or any other person who 
was required by the Secretary to complete a personal history statement, 
is charged with or convicted of any criminal offense other than a 
misdemeanor involving a minor motor vehicle violation, you must report 
the incident to the Secretary within 5 calendar days. Such report must 
fully describe the facts that pertain to the incident.
    (e) Reports concerning Operational Assistance grant funds. You must 
comply with all reporting requirements set forth in Circular A-110 of 
the Office of Management and Budget and any grant award document 
executed between you and the Secretary.

[[Page 854]]

    (f) Other reports. You must file any other reports the Secretary may 
require in writing.



Sec. 4290.680  Reporting changes in RBIC not subject to prior approval.

    (a) Changes to be reported for post-approval. This section applies 
to any changes in your Articles, ownership, capitalization, management, 
operating area, or investment policies that do not require the 
Secretary's prior approval. You must report such changes to the 
Secretary within 30 days after the change, for post approval.
    (b) Approval by the Secretary. You may consider any change submitted 
under this Sec. 4290.680 to be approved unless the Secretary notifies 
you to the contrary within 90 days after receiving it. Approval is 
contingent upon your full disclosure of all relevant facts and is 
subject to any conditions the Secretary may prescribe.

    Examinations of RBICs by the Secretary for Regulatory Compliance



Sec. 4290.690  Examinations.

    All RBICs must submit to annual examinations by or at the direction 
of the Secretary for the purpose of evaluating regulatory compliance.



Sec. 4290.691  Responsibilities of RBIC during examination.

    You must make all books, records and other pertinent documents and 
materials available for the examination, including any information 
required by the examiner under Sec. 4290.620(c). In addition, the 
agreement between you and the independent public accountant performing 
your audit must provide that any information in the accountant's working 
papers be made available to the examiners upon request.



Sec. 4290.692  Examination fees.

    (a) General. The Secretary will assess fees for examinations in 
accordance with this Sec. 4290.692. Unless the Secretary determines 
otherwise on a case by case basis, he or she will not assess fees for 
special examinations to obtain specific information.
    (b) Base fee. A base fee of $9,200 + 0.015 percent of your assets 
will be assessed, subject to adjustment in accordance with paragraph (c) 
of this section.
    (c) Adjustments to base fee. The base fee will be decreased based on 
the following criteria:
    (1) If you have no outstanding regulatory violations at the time of 
the commencement of the examination or the Secretary did not identify 
any violations as a result of the most recent prior examination, you 
will receive a 15% discount on your base fee; and
    (2) If you were fully responsive to the letter of notification of 
examination (that is, you provided all requested documents and 
information within the time period stipulated in the notification letter 
in a complete and accurate manner, and you prepared and had available 
all information requested by the examiner for on-site review), you will 
receive a 10% discount on your base fee.
    (d) Delay fee. If, in the sole discretion of the Secretary, the time 
required to complete your examination is delayed due to your lack of 
cooperation or the condition of your records, the Secretary may assess 
an additional fee of up to $500 per day.



               Subpart I_Financing of Enterprises by RBICs

       Determining Eligibility of an Enterprise for RBIC Financing



Sec. 4290.700  Requirements concerning types of Enterprises to receive Financing.

    (a) Rural Business Concern Investments. At the close of each of your 
fiscal years--
    (1) At least 75 percent of your Portfolio Concerns must have 
received a Rural Business Concern Investment; and
    (2) For all Financings you have extended, you must have invested at 
least 75 percent (in total dollars) in Rural Business Concern 
Investments.
    (b) Smaller Enterprise Investments. At the close of each of your 
fiscal years--
    (1) More than 50 percent of your Portfolio Concerns must be Smaller 
Enterprises that, at the time of the initial Financing to such 
Enterprise, meet either the net worth/net income test or the size 
standard set forth in the

[[Page 855]]

``Smaller Enterprise'' definition in Sec. 4290.50 of this part; and
    (2) For all Financings that you have extended, you must have 
invested more than 50 percent (in total dollars) in Financings in the 
form of Equity Capital in such Enterprises.
    (c) Small Business Concern Investments. At the close of each of your 
fiscal years--
    (1) At least 50 percent of the Portfolio Concerns referenced in 
paragraph (b)(1) of this section must be Small Business Concerns; and
    (2) For all Financings referenced in paragraph (b)(2) of this 
section, you must have invested at least 50 percent (in total dollars) 
in Small Business Concerns.
    (d) Urban Area Investments. At the close of each of your fiscal 
years--
    (1) No more than 10 percent of your Portfolio Concerns must have 
received Urban Area Investments; and
    (2) For all Financings you have extended, you must not have invested 
more than 10 percent (in total dollars) in Urban Area Investments.
    (e) Non-compliance with this section. If you have not met the 
percentages required in paragraphs (a), (b), (c), or (d) of this section 
at the end of any fiscal year, then you must be in compliance by the end 
of the following fiscal year. However, you will not be eligible for 
additional Leverage until such time as you meet the required percentages 
(see Sec. 4290.1120).



Sec. 4290.720  Enterprises that may be ineligible for Financing.

    (a) Re-lenders or re-investors. You are not permitted to finance any 
Enterprise that is a re-lender or re-investor. The primary business 
activity of re-lenders or re-investors involves, directly or indirectly, 
providing funds to others, purchasing debt obligations, factoring, or 
long-term leasing of equipment with no provision for maintenance or 
repair.
    (b) Passive Enterprises. You are not permitted to finance a passive 
Enterprise.
    (1) Definition. An Enterprise is passive if:
    (i) It is not engaged in a regular and continuous business operation 
(for purposes of this paragraph (b), the mere receipt of payments such 
as dividends, rents, lease payments, or royalties is not considered a 
regular and continuous business operation); or
    (ii) Its employees are not carrying on the majority of day to day 
operations, and the Enterprise does not provide effective control and 
supervision, on a day to day basis, over persons employed under 
contract; or
    (iii) It passes through substantially all of the proceeds of the 
Financing to another entity.
    (2) Exception for pass-through of proceeds to subsidiary. With the 
prior written approval of the Secretary, you may finance a passive 
Enterprise if it passes substantially all of the proceeds through to one 
or more subsidiary companies, each of which is an eligible Enterprise 
that is not passive. For the purpose of this paragraph (b)(2), 
``subsidiary company'' means a company in which at least 50 percent of 
the outstanding voting securities are owned by the Financed passive 
Enterprise.
    (3) Exception for certain Partnership RBICs or LLC RBICs. With the 
prior written approval of the Secretary, if you are a Partnership RBIC 
or LLC RBIC, you may form one or more wholly owned corporations in 
accordance with this paragraph (b)(3). The sole purpose of such 
corporation(s) must be to provide Financing to one or more eligible, 
unincorporated Enterprise. You may form such corporation(s) only if a 
direct Financing to such Enterprise would cause any of your investors to 
incur unrelated business taxable income under section 511 of the 
Internal Revenue Code of 1986, as amended (26 U.S.C. 511). Your 
investment of funds in such corporation(s) will not constitute a 
violation of Sec. 4290.730(a).
    (c) Real Estate Enterprises. (1) You are not permitted to finance:
    (i) Any Enterprise classified under sector 233 (Building, 
Developing, and General Contracting) of the NAICS Manual, or
    (ii) Any Enterprise listed under sector 531 (Real Estate) unless at 
least 80 percent of its revenue is derived from non-Affiliate sources.
    (2) You are not permitted to finance an Enterprise, regardless of 
NAICS classification, if the Financing is to be

[[Page 856]]

used to acquire or refinance real property, unless the Enterprise:
    (i) Is acquiring an existing property and will use at least 51 
percent of the usable square footage for an eligible business or 
commercial purpose; or
    (ii) Is constructing or renovating a building and will use at least 
67 percent of the usable square footage for an eligible business or 
commercial purpose; or
    (iii) Occupies the subject property and uses at least 67 percent of 
the usable square footage for an eligible business or commercial 
purpose.
    (d) Project Financing. You are not permitted to finance an 
Enterprise if:
    (1) The assets of the Enterprise are to be reduced or consumed, 
generally without replacement, as the life of the Enterprise progresses, 
and the nature of the Enterprise requires that a stream of cash payments 
be made to the Enterprise's financing sources, on a basis associated 
with the continuing sale of assets. Examples include real estate 
development projects, oil and gas wells, wind farms, or power facilities 
(including solar, geothermal, hydroelectric, or biomass power 
facilities); or
    (2) The primary purpose of the Financing is to fund production of a 
single item or defined limited number of items, generally over a defined 
production period, and such production will constitute the majority of 
the activities of the Enterprise. Examples include motion pictures.
    (e) Farm land purchases. You are not permitted to finance the 
acquisition of farmland. Farmland means land which is or is intended to 
be used for agricultural or forestry purposes such as the production of 
food, fiber, or wood, or is so taxed or zoned.
    (f) Public interest. You are not permitted to finance any business 
if the proceeds are to be used for purposes contrary to the public 
interest, including but not limited to or activities which are in 
violation of law, or inconsistent with free competitive enterprise.
    (g) Foreign investment--(1) General rule. You are not permitted to 
finance an Enterprise if:
    (i) The funds will be used substantially for a foreign operation; or
    (ii) At the time of the Financing or within one year thereafter, 
more than 49 percent of the employees or tangible assets of the 
Enterprise are located outside the United States (unless you can show, 
to the Secretary's satisfaction, that the Financing was used for a 
specific domestic purpose).
    (2) Exception. This paragraph (g) does not prohibit a Financing used 
to acquire foreign materials and equipment or foreign property rights 
for use or sale in the United States.
    (h) Financing RBICs, SBICs, or New Markets Venture Capital Companies 
(NMVC Companies). (1) You are not permitted to provide funds, directly 
or indirectly, that will be used:
    (i) To purchase stock in or otherwise provide capital to a RBIC, 
SBIC or NMVC Company; or
    (ii) To repay an indebtedness incurred for the purpose of investing 
in a RBIC, SBIC, or NMVC Company.
    (2) ``NMVC Company'' is defined in 13 CFR 108.50.
    (i) Entities ineligible for Farm Credit System Assistance. If one or 
more Farm Credit System Institutions or their Affiliates owns 15 percent 
or more of your Regulatory Capital, you may not provide Financing to any 
entity that is not otherwise eligible to receive Financing from the Farm 
Credit System under the Farm Credit Act of 1971 (12 U.S.C. 2001 et 
seq.).
    (j) Gaming establishments. You are not permitted to Finance an 
Enterprise that derives, or is expected to derive, more than one-third 
of its gross annual revenue from legal gaming activities.
    (k) Change of ownership of an Enterprise. You are not permitted to 
Finance a change of ownership of an Enterprise unless otherwise approved 
by the Secretary.



Sec. 4290.730  Financings which constitute conflicts of interest.

    (a) General rule. You must not self-deal to the prejudice of an 
Enterprise, the RBIC, its shareholders, partners or, members, or the 
Secretary. Unless you obtain a prior written exemption from the 
Secretary for special instances in which a Financing may further the 
purposes of the Act despite presenting a conflict of interest, you must 
not directly or indirectly:

[[Page 857]]

    (1) Provide Financing to any of your Associates, except for an 
Enterprise that satisfies all of the following conditions:
    (i) Your Associate relationship with the Enterprise is described by 
paragraph (8) or (9) of the definition of Associate in Sec. 4290.50,
    (ii) No Person triggering the Associate relationship identified in 
paragraph (a)(1)(i) of the definition of Associate in Sec. 4290.50 is a 
Close Relative or Secondary Relative of any Person described in 
paragraphs (1), (2), (4), or (5) of the definition of Associate in Sec. 
4290.50, and
    (iii) No single Associate of yours has either a voting interest or 
an economic interest in the Enterprise exceeding 20 percent, and no two 
or more of your Associates have either a voting interest or an economic 
interest exceeding 33 percent. Economic interests shall be computed on a 
fully diluted basis, and both voting and economic interests shall 
exclude any interest owned through the RBIC.
    (2) Provide Financing to an Associate of another RBIC if one of your 
Associates has received or will receive any direct or indirect Financing 
or a Commitment from that RBIC or any other RBIC (including Financing or 
Commitments received under any understanding, agreement, or cross 
dealing, reciprocal or circular arrangement).
    (3) Borrow money from:
    (i) An Enterprise Financed by you;
    (ii) An officer, director, or owner of at least a 10 percent equity 
interest in such Enterprise; or
    (iii) A Close Relative of any such officer, director, or equity 
owner.
    (4) Provide Financing to an Enterprise to discharge an obligation to 
your Associate or free other funds to pay such obligation. This 
paragraph (a)(4) does not apply if the obligation is to an Associate 
Lending Institution and is a line of credit or other obligation incurred 
in the normal course of business.
    (b) Rules applicable to Associates. Without the Secretary's prior 
written approval, your Associates must not, directly or indirectly:
    (1) Borrow money from any Person described in paragraph (a)(3) of 
this section.
    (2) Receive from an Enterprise any compensation or anything of value 
in connection with Assistance you provide (except as permitted under 
Sec. 4290.825(c)), or anything of value for procuring, attempting to 
procure, or influencing your action with respect to such Assistance.
    (c) Applicability of other laws. You are also bound by Federal or 
State laws applicable to you that govern conflicts of interest and 
fiduciary obligations.
    (d) Financings with Associates--(1) Financings with Associates 
requiring prior approval. Without the Secretary's prior written 
approval, you may not Finance any Enterprise in which your Associate has 
either a voting equity interest or total equity interests (including 
potential interests) of at least five percent, or effective control, 
except as otherwise permitted under paragraph (a)(1) of this section.
    (2) Other Financings with Associates. If you and an Associate 
provide Financing to the same Enterprise, either at the same time or at 
different times, you must be able to demonstrate to the Secretary's 
satisfaction that the terms and conditions are (or were) fair and 
equitable to you, taking into account any differences in the timing of 
each party's financing transactions.
    (3) Exceptions to paragraphs (d)(1) and (d)(2) of this section. A 
Financing that falls into one of the following categories is exempt from 
the prior approval requirement in paragraph (d)(1) of this section or is 
presumed to be fair and equitable to you for the purposes of paragraph 
(d)(2) of this section, as appropriate:
    (i) Your Associate is a Lending Institution that is providing 
financing under a credit facility in order to meet the operational needs 
of the Enterprise and the terms of such financing are usual and 
customary.
    (ii) Your Associate invests in the Enterprise on the same terms and 
conditions and at the same time as you.
    (iii) Both you and your Associate are RBICs.
    (e) Use of Associates to manage Portfolio Concerns. To protect your 
investment, you may designate an Associate to serve as an officer, 
director, or other participant in the management of a Portfolio Concern. 
You must identify

[[Page 858]]

any such Associate in your records available for the Secretary's review 
under Sec. 4290.600. Without the Secretary's prior written approval, 
such Associate must not:
    (1) Have any other direct or indirect financial interest in the 
Portfolio Concern that exceeds, or has the potential to exceed, the 
percentages of the Portfolio Concern's equity set forth in paragraph 
(a)(1) of this section.
    (2) Receive any income or anything of value from the Portfolio 
Concern unless it is for your benefit, with the exception of director's 
fees, expenses, and distributions based upon the Associate's ownership 
interest in the Concern.
    (f) 1940 and 1980 Act Companies: SEC exemptions. If you are a 1940 
or 1980 Act Company and you receive an exemption from the Securities and 
Exchange Commission for a transaction described in this Sec. 4290.730, 
you need not obtain the Secretary's approval of the transaction. 
However, you must promptly notify the Secretary of the transaction.
    (g) Restriction on options obtained by RBIC's management and 
employees. Your employees, officers, directors, managing members or 
general partners, or the general partners or managing members of the 
Investment Adviser/Manager that is providing services to you or to your 
general partner or managing member, may obtain options in a Portfolio 
Concern only if:
    (1) They participate in the Financing on a pari passu basis with 
you; or
    (2) The Secretary gives prior written approval; or
    (3) The options received are compensation for service as a member of 
the board of directors of the Portfolio Concern, and such compensation 
does not exceed that paid to other outside directors. In the absence of 
such directors, fees must be reasonable when compared with amounts paid 
to outside directors of similar companies.



Sec. 4290.740  Portfolio diversification (``overline'' limitation).

    (a) Without the Secretary's prior written approval, you may provide 
Financing or a Commitment to an Enterprise only if the resulting amount 
of your aggregate outstanding Financings and Commitments to that 
Enterprise and its Affiliates does not exceed 20 percent of the sum of:
    (1) Your Regulatory Capital as of the date of the Financing or 
Commitment; plus
    (2) Any permitted Distribution(s) you made during the five years 
preceding the date of the Financing or Commitment which reduced your 
Regulatory Capital.
    (b) For the purposes of paragraph (a) of this section, you must 
measure each outstanding Financing at its current cost plus any amount 
of the Financing that was previously written off.



Sec. 4290.760  How a change in size or activity of a Portfolio Concern affects the RBIC and the Portfolio Concern.

    (a) Effect on RBIC of a change in size of a Portfolio Concern. If a 
Portfolio Concern was a Smaller Enterprise or Small Business Concern at 
the time of the initial Financing but no longer qualifies as such under 
the size standard applicable to such entity, you may keep your 
investment in the Portfolio Concern and:
    (1) Subject to the overline limitations of Sec. 4290.740, you may 
provide additional Financing to the Portfolio Concern up to the time it 
makes a public offering of its securities.
    (2) Even after the Portfolio Concern makes a public offering, you 
may exercise any stock options, warrants, or other rights to purchase 
Equity Securities which you acquired before the public offering, or fund 
Commitments you made before the public offering.
    (b) Effect of a change in business activity occurring within one 
year of RBIC's initial Financing--(1) Retention of Financing. Unless you 
receive the Secretary's written approval, you may not keep your 
Financing in a Portfolio Concern which becomes ineligible for financing 
by a RBIC by reason of a change in its business or commercial activity 
or for any other reason within one year of your initial Financing in the 
Portfolio Concern.
    (2) Request for approval to retain Financing. If you request that 
the Secretary approve the retention of your investment, your request 
must include sufficient evidence to demonstrate that

[[Page 859]]

the change in business or commercial activity was caused by an 
unforeseen change in circumstances and was not contemplated at the time 
the Financing was made.
    (3) Additional Financing. If the Secretary approves your request to 
retain a Financing under paragraph (b)(2) of this section, you may 
provide additional Financing to the Portfolio Concern to the extent 
necessary to protect against the loss of the amount of your original 
investment, subject to the overline limitations of Sec. 4290.740.
    (c) Effect of a change in business activity occurring more than one 
year after the initial Financing. If a Portfolio Concern becomes 
ineligible because of a change in business activity more than one year 
after your initial Financing you may:
    (1) Retain your investment; and
    (2) Provide additional Financing to the Portfolio Concern to the 
extent necessary to protect against the loss of the amount of your 
original investment, subject to the overline limitations of Sec. 
4290.740.

 Structuring RBIC Financing of Eligible Enterprises--Types of Financings



Sec. 4290.800  Financings in the form of Equity Securities.

    You may purchase the Equity Securities of an Enterprise. You may 
not, inadvertently or otherwise:
    (a) Become a general partner in any unincorporated business; or
    (b) Become jointly or severally liable for any obligations of an 
unincorporated business.



Sec. 4290.810  Financings in the form of Loans.

    You are permitted to make Loans to an Enterprise only if:
    (a) The maturity or term of the Loan is five years or less; and
    (b) You determine that making the Loan is necessary to preserve an 
existing Financing (other than a Loan) in that same Enterprise.



Sec. 4290.815  Financings in the form of Debt Securities.

    (a) General rule. You may purchase Debt Securities from an 
Enterprise.
    (b) Restriction of options obtained by RBIC's management and 
employees. If you have outstanding Leverage or plan to obtain Leverage, 
your employees, officers, directors, general partners, or managing 
members, or the general partners or managing members of your Investment 
Advisor/Manager, may obtain options in a Portfolio Concern only if:
    (1) They participate in the Financing on a pari passu basis with 
you; or
    (2) The Secretary gives its prior written approval; or
    (3) The options received are compensation for services as a member 
of the board of directors of the Enterprise, and such compensation does 
not exceed that paid to other outside directors. In the absence of such 
directors, fees must be reasonable when compared with amounts paid to 
outside directors of similar Enterprises.



Sec. 4290.820  Financings in the form of guarantees.

    (a) General rule. At the request of an Enterprise or where necessary 
to protect your existing Financing in a Portfolio Concern, you may 
guarantee the monetary obligation of an Enterprise to any non-Associate 
creditor.
    (b) Exception. You may not issue a guaranty if:
    (1) You would become subject to State regulation as an insurance, 
guaranty or surety business; or
    (2) The amount of the guaranty plus any direct Financings to the 
Enterprise exceed the overline limitations of Sec. 4290.740, except 
that a pledge of the Equity Securities of the issuer or a subordination 
of your lien or creditor position does not count toward your overline.
    (c) Pledge of RBIC's assets as guaranty. For purposes of this 
section, a guaranty with recourse only to specific asset(s) you have 
pledged is equal to the fair market value of such asset(s) or the amount 
of the debt guaranteed, whichever is less.



Sec. 4290.825  Purchasing securities from an underwriter or other third party.

    (a) Securities purchased through or from an underwriter. You may 
purchase

[[Page 860]]

the securities of an Enterprise through or from an underwriter if:
    (1) You purchase such securities within 90 days of the date the 
public offering is first made;
    (2) Your purchase price is no more than the original public offering 
price; and
    (3) The amount paid by you for the securities (less ordinary and 
reasonable underwriting charges and commissions) has been, or will be, 
paid to the issuer, and the underwriter certifies in writing that this 
requirement has been met.
    (b) Recordkeeping requirements. You must keep records available for 
the Secretary's inspection which show the relevant details of the 
transaction, including but not limited to, date, price, commissions, and 
the underwriter's certifications required under paragraphs (a)(3) and 
(c) of this section.
    (c) Underwriter's requirements. The underwriter must certify whether 
it is your Associate. You may pay reasonable and customary commissions 
and expenses to an Associate underwriter for the portion of an offering 
that you purchase.
    (d) Securities purchased from another RBIC. You may purchase from, 
or exchange with, another RBIC, Portfolio securities (or any interest 
therein). Such purchase or exchange may only be made on a non-recourse 
basis. You may not have more than one-third of your total assets (valued 
at cost) invested in such securities. If you have previously sold 
Portfolio securities (or any interest therein) on a recourse basis, you 
must include the amount for which you may be contingently liable in your 
overline computation.
    (e) Purchases of securities from other non-issuers. You may purchase 
securities of an Enterprise from a non-issuer not previously described 
in this Sec. 4290.825 if such acquisition is a reasonably necessary 
part of the overall sound Financing of the Enterprise.



Sec. 4290.830  Minimum term of Financing.

    (a) General rule. The minimum term of each of your Financings is one 
year.
    (b) Restrictions on mandatory redemption of Equity Securities. If 
you have acquired Equity Securities, options, or warrants on terms that 
include redemption by the Portfolio Concern, you must not require 
redemption by the Portfolio Concern within the first year of your 
acquisition except as permitted in Sec. 4290.850.
    (c) Special rules for Loans and Debt Securities--(1) Term. The 
minimum term for Loans and Debt Securities starts with the first 
disbursement of the Financing.
    (2) Prepayment. You must permit voluntary prepayment of Loans and 
Debt Securities by the Portfolio Concern. You must obtain the 
Secretary's prior written approval of any restrictions on the ability of 
the Portfolio Concern to prepay other than the imposition of a 
reasonable prepayment penalty under paragraph (c)(3) of this section.
    (3) Prepayment penalties. You may charge a reasonable prepayment 
penalty which must be agreed upon at the time of the Financing. If the 
Secretary determines that a prepayment is unreasonable, you must refund 
the entire penalty to the Portfolio Concern. A prepayment penalty equal 
to five percent of the outstanding balance during the first year of any 
Financing, declining by one percentage point per year through the fifth 
year, is considered the maximum reasonable amount.



Sec. 4290.835  Exceptions to minimum term of Financing.

    You may make a Financing with a term of less than one year but only 
if such Financing is in contemplation of another Financing, with a term 
of one year or more, to the same Enterprise.



Sec. 4290.840  Maximum term of Financing.

    The maximum term of any Debt Security must be no longer than 20 
years.



Sec. 4290.845  Maximum rate of amortization on Loans and Debt Securities.

    The principal of any Loan, or the loan portion of any Debt Security, 
with a term of one year or less, cannot be amortized faster than 
straight line. If the term is greater than one year, the principal 
cannot be amortized faster than straight line for the first year.

[[Page 861]]



Sec. 4290.850  Restrictions on redemption of Equity Securities.

    (a) Restriction on redemption. A Portfolio Concern cannot be 
required to redeem Equity Securities earlier than one year from the date 
of the first closing unless:
    (1) The Portfolio Concern makes a public offering, or has a change 
of management or control, or files for protection under the provisions 
of the Bankruptcy Code, or materially breaches your Financing agreement; 
or
    (2) You make a follow-on Financing, in which case the new securities 
may be redeemed in less than one year, but no earlier than the 
redemption date associated with your earliest Financing of the Portfolio 
Concern.
    (b) Redemption price. The redemption price must be either:
    (1) A fixed amount that is no higher than the price you paid for the 
securities; or
    (2) An amount that cannot be fixed or determined before the time of 
the redemption. In this case, the redemption price must be based on:
    (i) A reasonable formula that reflects the performance of the 
Portfolio Concern (such as one based on earnings or book value); or
    (ii) The fair market value of the Portfolio Concern at the time of 
redemption, as determined by a professional appraisal performed under an 
agreement acceptable to both parties.
    (c) Method. Any method for determining the redemption price must be 
agreed upon no later than the date of the first (or only) closing of the 
Financing.



Sec. 4290.860  Financing fees and expense reimbursements a RBIC may receive from an Enterprise.

    (a) General rule. You may collect Financing fees and receive expense 
reimbursements from an Enterprise only as permitted under this Sec. 
4290.860.
    (b) Application fee. You may collect a nonrefundable application fee 
from an Enterprise to review its Financing application. The application 
fee may be collected at the same time as the closing fee under paragraph 
(d) or (e) of this section, or earlier. The fee must be:
    (1) No more than one percent of the amount of Financing requested 
(or, if two or more RBICs participate in the Financing, their combined 
application fees are no more than one percent of the total Financing 
requested); and
    (2) Agreed to in writing by the Financing applicant.
    (c) The Secretary's review of application fees. For any fiscal year, 
if the number of application fees you collect is more than twice the 
number of Financings closed, the Secretary in its sole discretion may 
determine that you are engaged in activities not contemplated by the 
Act, in violation of Sec. 4290.500.
    (d) Closing fee--Loans. You may charge a closing fee on a Loan if:
    (1) The fee is no more than two percent of the Financing amount (or, 
if two or more RBICs participate in the Financing, their combined 
closing fees are no more than two percent of the total Financing 
amount); and
    (2) You charge the fee no earlier than the date of the first 
disbursement.
    (e) Closing fee--Debt or Equity Financings. You may charge a Closing 
Fee on a Debt Security or Equity Security Financing if:
    (1) The fee is no more than four percent of the Financing amount 
(or, if two or more RBICs participate in the Financing, their combined 
closing fees are no more than four percent of the total Financing 
amount); and
    (2) You charge the fee no earlier than the date of the first 
disbursement.
    (f) Limitation on dual fees. If another RBIC or an Associate of 
yours collects a transaction fee under Sec. 4290.900(e) in connection 
with your Financing of an Enterprise, the sum of the transaction fee and 
your application and closing fees cannot exceed the maximum application 
and closing fees permitted under this Sec. 4290.860.
    (g) Expense reimbursements. You may charge an Enterprise for the 
reasonable out-of-pocket expenses, other than Management Expenses, that 
you incur to process its Financing application. If the Secretary 
determines that any of your reimbursed expenses are unreasonable or are 
Management Expenses, the Secretary will require you to refund them to 
the Enterprise.

[[Page 862]]

    (h) Breakup fee. If an Enterprise accepts your Commitment and then 
fails to close the Financing because it has accepted funds from another 
source, you may charge a ``breakup fee'' equal to the closing fee that 
you would have been permitted to charge under paragraph (d) or (e) of 
this section.



Sec. 4290.880  Assets acquired in liquidation of Portfolio securities.

    (a) General rule. You may acquire assets in full or partial 
liquidation of a Portfolio Concern's obligation to you under the 
conditions permitted by this Sec. 4290.880. The assets may be acquired 
from the Portfolio Concern, a guarantor of its obligation, or another 
party.
    (b) Timely disposition of assets. You must dispose of assets 
acquired in liquidation of a Portfolio security within a reasonable 
period of time.
    (c) Permitted expenditures to preserve assets. (1) You may incur 
reasonably necessary expenditures to maintain and preserve assets 
acquired.
    (2) You may incur reasonably necessary expenditures for improvements 
to render such assets saleable.
    (3) You may make payments of mortgage principal and interest 
(including amounts in arrears when you acquired the asset), pay taxes 
when due, and pay for necessary insurance coverage.
    (d) The Secretary approval of expenditures. This paragraph (d) 
applies if you have outstanding Leverage or are applying for Leverage. 
Any application for the Secretary's approval under this paragraph must 
specify all expenses estimated to be necessary pending disposal of the 
assets. Without the Secretary's prior written approval:
    (1) Your total expenditures under paragraphs (c)(1) and (c)(2) of 
this section plus your total Financing(s) to the Portfolio Concern must 
not exceed your overline limit under Sec. 4290.740; and
    (2) Your total expenditures under paragraph (b) of this section plus 
your total Financing(s) to the Portfolio Concern must not exceed 35 
percent of your Regulatory Capital.

                  Limitations on Disposition of Assets



Sec. 4290.885  Disposition of assets to RBIC's Associates or to competitors of Portfolio Concerns.

    Except with the Secretary's prior written approval, you are not 
permitted to dispose of assets (including assets acquired in 
liquidation) to any Associate or to competitors of Portfolio Concerns if 
you have outstanding Leverage. As a prerequisite to such approval, you 
must demonstrate that the proposed terms of disposal are at least as 
favorable to you as the terms obtainable elsewhere.



Sec. 4290.900  Management fees for services provided to an Enterprise by RBIC or its Associate.

    (a) General. This Sec. 4290.900 applies to management services that 
you or your Associate provide to a Portfolio Concern during the term of 
a Financing or prior to Financing. It does not apply to management 
services that you or your Associate provide to an Enterprise that you do 
not finance.
    (b) The Secretary's approval. You must obtain the Secretary's prior 
written approval of any management services fees and other fees 
described in this section that you or your Associate charge.
    (c) Permitted management fees. You or your Associate may provide 
management services to a Portfolio Concern financed by you if:
    (1) You or your Associate have entered into a written contract with 
the Portfolio Concern;
    (2) The fees charged are for services actually performed;
    (3) Services are provided on an hourly fee, project fee, or other 
reasonable basis;
    (4) You can demonstrate to the Secretary, upon request, that the 
rate does not exceed the prevailing rate charged for comparable services 
by other organizations in the geographic area of the Portfolio Concern; 
and
    (5) All of the management services fees paid to your Associate by a 
Portfolio Concern for management services provided by the Associate are 
allocated back to you for your benefit.
    (d) Fees for service as a board member. You or your Associate may 
receive fees

[[Page 863]]

in the form of cash, warrants, or other payments, for services provided 
as members of the board of directors of a Portfolio Concern Financed by 
you. The fees must not exceed those paid to other outside board members. 
In the absence of such board members, fees must be reasonable when 
compared with amounts paid to outside directors of similar companies. At 
least 50 percent of any board member services fees paid to your 
Associate by a Portfolio Concern for board member services provided by 
the Associate must be allocated back to you for your benefit.
    (e) Approval required. You must obtain the Secretary's prior written 
approval of any management contract that does not satisfy paragraphs (c) 
or (d) of this section.
    (f) Transaction fees. (1) You or your Associate may charge 
reasonable transaction fees for work performed preparing an Enterprise 
for a public offering, private offering, or sale of all or part of the 
business, and for assisting with the transaction. Compensation may be in 
the form of cash, notes, stock, and/or options. All of the transaction 
services fees paid to your Associate by a Portfolio Concern for 
transaction services provided by the Associate must be allocated back to 
you for your benefit.
    (2) Your Associate may charge market rate investment banking fees to 
a Portfolio Concern on that portion of a Financing that you do not 
provide.
    (g) Recordkeeping Requirements. You must keep a record of hours 
spent and amounts charged to the Portfolio Concern, including expenses 
charged.



           Subpart J_Financial Assistance for RBICs (Leverage)

              General Information About Obtaining Leverage



Sec. 4290.1100  Type of Leverage and application procedures.

    (a) Type of Leverage available. You may apply for Leverage from the 
Secretary in the form of a guarantee of your Debentures.
    (b) Applying for Leverage. The Leverage application process has two 
parts. You must first apply for the Secretary's conditional commitment 
to reserve a specific amount of Leverage for your future use. You may 
then apply to draw down Leverage against the commitment. See Sec. Sec. 
4290.1200 through 4290.1240.
    (c) Where to send your application. Send all Leverage draw-down 
applications to Funding Control Officer, Investment Division, U.S. Small 
Business Administration, 409 Third Street, SW., Suite 6300, Mail Code 
7050, Washington, DC 20416.



Sec. 4290.1120  General eligibility requirements for Leverage.

    To be eligible for Leverage, you must be in compliance with the Act, 
the regulations in this part, and your Participation Agreement.



Sec. 4290.1130  Leverage fees payable by RBIC.

    (a) Leverage fee. You must pay the Secretary a non-refundable 
leverage fee for each issuance of a Debenture. The fee is 3 percent of 
the face amount of the Debenture issued, and will be deducted from the 
proceeds remitted to you.
    (b) Additional charge. You must pay the Secretary an additional 
annual charge of 1 percent of the outstanding amount of your Debenture.
    (c) Other Leverage fees. The Secretary may establish a fee structure 
for services performed by the Central Registration Agent (CRA). The 
Secretary will not collect any fee for its guarantee of TCs.



Sec. 4290.1140  RBIC's acceptance of remedies under Sec. 4290.1810.

    If you issue Leverage, you automatically agree to the terms and 
conditions in Sec. 4290.1810 as it exists at the time of issuance. The 
effect of these terms and conditions is the same as if they were fully 
incorporated in the terms of your Leverage.

         Maximum Amount of Leverage for Which a RBIC Is Eligible



Sec. 4290.1150  Maximum amount of Leverage for a RBIC.

    The face amount of a RBIC's outstanding Debentures may not exceed 
the lesser of 200 percent of its Leverageable Capital or $105,000,000.

[[Page 864]]

         Conditional Commitments To Reserve Leverage for a RBIC



Sec. 4290.1200  Leverage commitment to a RBIC--application procedure, amount, and term.

    (a) General. Under the provisions in Sec. Sec. 4290.1200 through 
4290.1240, you may apply for the Secretary's conditional commitment to 
reserve a specific amount of Leverage and type of Debenture (standard or 
discounted) for your future use. You may then apply to draw down 
Leverage against the commitment.
    (b) Applying for a Leverage commitment. The Secretary will notify 
you when requests for Leverage commitments are being accepted, and upon 
receipt of your request, will send you a complete application package.
    (c) Limitations on the amount of a Leverage commitment. The amount 
of a Leverage commitment must be a multiple of $5,000. The Secretary in 
his or her discretion may determine a minimum dollar amount for Leverage 
commitments. Any such minimum amounts will be published in Notices in 
the Federal Register from time to time.
    (d) Term of Leverage commitment. Your Leverage commitment will 
automatically lapse on the expiration date stated in the commitment 
letter issued to you by the Secretary. The Secretary's Leverage 
commitment will be included in the Participation Agreement at the time 
of your licensing as a RBIC, under Sec. 4290.390.



Sec. 4290.1220  Requirement for RBIC to file financial statements at the time of request for a draw.

    (a) If you submit a request for a draw against your Leverage 
commitment more than 90 days following your submission of an annual SBA 
Form 468 or a SBA Form 468 (Short Form), you must:
    (1) Give the Secretary a financial statement on Form 468 (Short 
Form), and
    (2) File a statement of no material adverse change in your financial 
condition since your last filing of SBA Form 468.
    (b) You will not be eligible for a draw if you are not in compliance 
with this Sec. 4290.1220.



Sec. 4290.1230  Draw-downs by RBIC under Leverage commitment.

    (a) RBIC's authorization of the Secretary to guarantee securities. 
By submitting a request for a draw against the Leverage commitment, you 
authorize the Secretary, or the Secretary's designated agent or trustee, 
to guarantee your Debenture and to sell it with the Secretary's 
guarantee.
    (b) Limitations on amount of draw. The amount of a draw must be a 
multiple of $5,000. The Secretary, in his or her discretion, may 
determine a minimum dollar amount for draws against Leverage 
commitments. Any such minimum amounts will be published in Notices in 
the Federal Register from time to time.
    (c) Effect of regulatory violations on RBIC's eligibility for 
draws--(1) General rule. You are eligible to make a draw against your 
Leverage commitment only if you are in compliance with all applicable 
provisions of the Act and this part (i.e., no unresolved statutory or 
regulatory violations) and your Participation Agreement.
    (2) Exception to general rule. If you are not in compliance, you may 
still be eligible for draws if:
    (i) The Secretary determines that your outstanding violations are of 
non-substantive provisions of the Act or this part or your Participation 
Agreement and that you have not repeatedly violated any non-substantive 
provisions; or
    (ii) You have agreed with the Secretary in writing on a course of 
action to resolve your violations and such agreement does not prevent 
you from issuing Leverage.
    (d) Procedures for funding draws. You may request a draw at any time 
during the term of the commitment. With each request, submit the 
following documentation:
    (1) A statement certifying that there has been no material adverse 
change in your financial condition since your last filing of SBA Form 
468 (see also Sec. 4290.1220 for SBA Form 468 filing requirements).
    (2) If your request is submitted more than 30 days following the end 
of your fiscal year, but before you have submitted your annual filing of 
SBA Form 468 in accordance with Sec. 4290.630(a), a

[[Page 865]]

preliminary unaudited annual financial statement on SBA Form 468 (Short 
Form).
    (3) A statement certifying that to the best of your knowledge and 
belief, you are in compliance with all provisions of the Act and this 
part (i.e., no unresolved regulatory or statutory violations) and your 
Participation Agreement, or a statement listing any specific violations 
you are aware of. Either statement must be executed by one of the 
following:
    (i) An officer of the RBIC;
    (ii) An officer of a corporate general partner or managing member of 
the RBIC;
    (iii) An individual who is authorized to act as or for a general 
partner of the RBIC; or
    (iv) An individual who is authorized to act as or for a managing 
member of the RBIC.
    (4) A statement that the proceeds are needed to fund one or more 
particular Enterprises or to provide liquidity for your operations. If 
required by the Secretary, the statement must include the name and 
address of each Enterprise, and the amount and anticipated closing date 
of each proposed Financing.
    (e) Reporting requirements after drawing funds. (1) Within 30 
calendar days after the actual closing date of each Financing funded 
with the proceeds of your draw, you must file an SBA Form 1031 
confirming the closing of the transaction.
    (2) If the Secretary required you to provide information concerning 
a specific planned Financing under paragraph (d)(4) of this section, and 
such Financing has not closed within 60 calendar days after the 
anticipated closing date, you must provide a written explanation of the 
failure to close.
    (3) If you do not comply with this paragraph (e), you will not be 
eligible for additional draws. The Secretary may also determine that you 
are not in compliance with the terms of your Leverage under Sec. 
4290.1810.



Sec. 4290.1240  Funding of RBIC's draw request through sale to third-party.

    (a) RBIC's authorization of the Secretary to arrange sale of 
Debentures to third-party. By submitting a request for a draw of 
Debenture Leverage, you authorize the Secretary, or any agent or trustee 
the Secretary designates, to enter into any agreements (and to bind you 
to such agreements) necessary to accomplish:
    (1) The sale of your Debenture to a third-party at a price approved 
by the Secretary; and
    (2) The purchase of your Debenture from the third-party and the 
pooling of your Debenture with other Debentures with the same maturity 
date.
    (b) Sale of Debentures to a third-party. If the Secretary arranges 
for the sale of your Debenture to a third-party, the sale price may be 
an amount discounted from the face amount of the Debenture.

            Distributions by RBICs With Outstanding Leverage



Sec. 4290.1500  Restrictions on distributions to RBIC investors while RBIC has outstanding Leverage.

    (a) Restriction on distribution. If you have outstanding Leverage, 
whenever you make a distribution to your investors you must make, at the 
same time, a prepayment to or for the benefit of the third-party holder 
of the Debenture sold pursuant to Sec. 4290.1240 of this part, accrued 
unpaid interest and the principal, in whole or in part, of one or more 
of your Debentures outstanding as of the date of the distribution 
(subject to the terms of such Debentures).
    (b) Amount of prepayment. You must calculate the amount due the 
third-party holder by multiplying the total amount you intend to 
distribute by a fraction whose numerator is the outstanding principal of 
your Debenture(s) immediately preceding your distribution, and whose 
denominator is the sum of your Leverageable Capital as of that time plus 
the outstanding principal amount of your Debentures. For purposes of the 
preceding sentence ``principal'' means both the net proceeds and 
interest accrued to date of a discounted Debenture. The amount of any 
payment received under this section will be credited first against 
unpaid interest accrued to the date of distribution and then to the 
principal in whole or in part of the first Debenture you select to 
prepay and then to the interest and principal in whole or in part

[[Page 866]]

of such other Debenture(s) as you select to prepay. You may elect to 
prepay in whole any discounted Debenture under this section only within 
five years of its maturity date. Payments under this section must be 
made on the next occurring March 1 or September 1.
    (c) Effect of prepayment. Subject to the terms of the Debenture(s), 
you may voluntarily prepay additional principal, but neither mandatory 
nor voluntary prepayment will increase your future Leverage eligibility.

   Funding Leverage by Use of Guaranteed Trust Certificates (``TCs'')



Sec. 4290.1600  Secretary's authority to issue and guarantee Trust Certificates.

    (a) Authorization. Section 384F of the Act authorizes the Secretary 
to issue TCs and to guarantee the timely payment of the principal and 
interest thereon. Any such guarantee of such TC is limited to the 
principal and interest due on the Debentures in any Trust or Pool 
backing such TC. The full faith and credit of the United States is 
pledged to the payment of all amounts due under the guarantee of any TC.
    (b) Authority to arrange public or private fundings of Leverage. The 
Secretary in his or her discretion may arrange for public or private 
financing under his or her guarantee authority. Such financing may be 
accomplished by the sale of individual Debentures, aggregations of 
Debentures, or Pools or Trusts of Debentures.
    (c) Pass-through provisions. TCs shall provide for a pass-through to 
their holders of all amounts of principal and interest paid on the 
Debentures in the Pool or Trust against which they are issued.
    (d) Formation of a Pool or Trust holding Leverage Securities. The 
Secretary shall approve the formation of each Pool or Trust. The 
Secretary may, in his or her discretion, establish the size of the Pools 
and their composition, the interest rate on the TCs issued against 
Trusts or Pools, fees, discounts, premiums and other charges made in 
connection with the Pools, Trusts, and TCs, and any other 
characteristics of a Pool or Trust he or she deems appropriate.



Sec. 4290.1610  Effect of prepayment or early redemption of Leverage on a Trust Certificate.

    (a) The rights, if any, of a RBIC to prepay any Debenture is 
established by the terms of such security, and no such right is created 
or denied by the regulations in this part.
    (b) The Secretary's rights to purchase or prepay any Debenture 
without premium are established by the terms of the Guaranty Agreement 
relating to the Debenture.
    (c) Any prepayment of a Debenture pursuant to the terms of the 
Guaranty Agreement relating to such security shall reduce the 
Secretary's guarantee of timely payment of principal and interest on a 
TC in proportion to the amount of principal that such prepaid Debenture 
represents in the Trust or Pool backing such TC.
    (d) The Secretary shall be discharged from his or her guarantee 
obligation to the holder or holders of any TC, or any successor or 
transferee of such holder, to the extent of any such prepayment, whether 
or not such successor or transferee shall have notice of any such 
prepayment.
    (e) Interest on prepaid Debentures shall accrue only through the 
date of prepayment.
    (f) In the event that all Debentures constituting a Trust or Pool 
are prepaid, the TCs backed by such Trust or Pool shall be redeemed by 
payment of the unpaid principal and interest on the TCs; provided, 
however, that in the case of the prepayment of a Debenture pursuant to 
the provisions of the Guaranty Agreement relating to the Debenture, the 
Central Registration Agent (CRA) shall pass through pro rata to the 
holders of the TCs any such prepayments including any prepayment penalty 
paid by the obligor RBIC pursuant to the terms of the Debenture.



Sec. 4290.1620  Functions of agents, including Central Registration Agent, Selling Agent and Fiscal Agent.

    (a) Agents. The Secretary may appoint or cause to be appointed 
agent(s) to perform functions necessary to market and service Debentures 
or TCs pursuant to this part.

[[Page 867]]

    (1) Selling Agent. As a condition of guaranteeing a Debenture, the 
Secretary may cause each RBIC to appoint a Selling Agent to perform 
functions that include, but are not limited to:
    (i) Selecting qualified entities to become pool or Trust assemblers 
(``Poolers'').
    (ii) Receiving guaranteed Debentures as well as negotiating the 
terms and conditions of sales or periodic offerings of Debentures and/or 
TCs on behalf of RBICs.
    (iii) Directing and coordinating periodic sales of Debentures and/or 
TCs.
    (iv) Arranging for the production of Offering Circulars, 
certificates, and such other documents as may be required from time to 
time.
    (2) Fiscal Agent. The Secretary shall appoint a Fiscal Agent to:
    (i) Establish performance criteria for Poolers.
    (ii) Monitor and evaluate the financial markets to determine those 
factors that will minimize or reduce the cost of funding Debentures.
    (iii) Monitor the performance of the Selling Agent, Poolers, CRA, 
and the Trustee.
    (iv) Perform such other functions as the Secretary, from time to 
time, may prescribe.
    (3) Central Registration Agent. Pursuant to a contract entered into 
with the Secretary, the CRA, as the Secretary's agent, will do the 
following with respect to the Pools or Trust Certificates for the 
Debentures:
    (i) Form an approved Pool or Trust;
    (ii) Issue the TCs in the prescribed form;
    (iii) Transfer the TCs upon the sale of original issue TCs in any 
secondary market transaction;
    (iv) Receive payments from RBICs;
    (v) Make periodic payments as scheduled or required by the terms of 
the TCs, and pay all amounts required to be paid upon prepayment of 
Debentures;
    (vi) Hold, safeguard, and release all Debentures constituting Trusts 
or Pools upon instructions from the Secretary;
    (vii) Remain custodian of such other documentation as the Secretary 
shall direct by written instructions;
    (viii) Provide for the registration of all pooled Debentures, all 
Pools and Trusts, and all TCs; and
    (ix) Perform such other functions as the Secretary may deem 
necessary to implement the provisions of this section.
    (b) Functions. Either the Secretary or an agent appointed by the 
Secretary may perform the function of locating purchasers, and 
negotiating and closing the sale of Debentures and TCs. Nothing in the 
regulations in this part shall be interpreted to prevent the CRA from 
acting as the Secretary's agent for this purpose.



Sec. 4290.1630  Regulation of Brokers and Dealers and disclosure to purchasers of Leverage or Trust Certificates.

    (a) Brokers and Dealers. Each broker, dealer, and Pool or Trust 
assembler approved by the Secretary pursuant to these regulations shall 
either be regulated by a Federal financial regulatory agency, or be a 
member of the National Association of Securities Dealers (NASD), and 
shall be in good standing in respect to compliance with the financial, 
ethical, and reporting requirements of such body. It also shall be in 
good standing with the Secretary as determined by the SBA official with 
delegated authority to made this determination (see paragraph (c) of 
this section) and shall provide a fidelity bond or insurance in such 
amount as the Secretary may require.
    (b) Suspension and/or termination of Broker or Dealer. The Secretary 
shall exclude from the sale and all other dealings in Debentures or TCs 
any broker or dealer:
    (1) If such broker's or dealer's authority to engage in the 
securities business has been revoked or suspended by a supervisory 
agency. When such authority has been suspended, the Secretary will 
suspend such broker or dealer for the duration of such suspension by the 
supervisory agency.
    (2) If such broker or dealer has been indicted or otherwise formally 
charged with a misdemeanor or felony bearing on its fitness, such broker 
or dealer may be suspended while the charge is pending. Upon conviction, 
participation may be terminated.

[[Page 868]]

    (3) If such broker or dealer has suffered an adverse final civil 
judgment holding that such broker or dealer has committed a breach of 
trust or violation of law or regulation protecting the integrity of 
business transactions or relationships, participation in the market for 
Debentures or TCs may be terminated.
    (c) Termination/suspension proceedings. A broker's or dealer's 
participation in the market for Debentures or TCs will be conducted in 
accordance with 7 CFR part 11. The Secretary may, for any of the reasons 
stated in paragraphs (b)(1) through (3) of this section, suspend the 
privilege of any broker or dealer to participate in this market. The 
Secretary shall give written notice at least ten business days prior to 
the effective date of such suspension. Such notice shall inform the 
broker or dealer of the opportunity for a hearing pursuant to 7 CFR part 
11.



Sec. 4290.1640  Secretary's access to records of the CRA, Brokers, Dealers and Pool or Trust assemblers.

    The CRA and any broker, dealer and Pool or Trust assembler operating 
under the regulations in this part shall make all books, records and 
related materials associated with Debentures and TCs available to the 
Secretary for review and copying purposes. Such access shall be at such 
party's primary place of business during normal business hours.

                              Miscellaneous



Sec. 4290.1700  Secretary's transfer of interest in a RBIC's Leverage security.

    Upon such conditions and for such consideration as he or she deems 
reasonable, the Secretary may sell, assign, transfer, or otherwise 
dispose of any Debenture held by or on behalf of the Secretary. Upon 
notice by the Secretary, a RBIC will make all payments of principal and 
interest as shall be directed by the Secretary. A RBIC will be liable 
for all damage or loss which the Secretary may sustain by reason of the 
RBIC's failure to follow such payment instructions, up to the amount of 
the RBIC's liability under such security, plus court costs and 
reasonable attorney's fees incurred by the Secretary.



Sec. 4290.1710  Secretary's authority to collect or compromise claims.

    The Secretary may, upon such conditions and for such consideration 
as he or she deems reasonable, collect or compromise all claims relating 
to obligations he or she holds or has guaranteed, and all legal or 
equitable rights accruing to him or her.



Sec. 4290.1720  Characteristics of Secretary's guarantee.

    If the Secretary agrees to guarantee a RBIC's Debentures, such 
guarantee will be unconditional, irrespective of the validity, 
regularity or enforceability of the Debentures or any other 
circumstances that might constitute a legal or equitable discharge or 
defense of a guarantor. Pursuant to its guarantee, the Secretary will 
make timely payments of principal and interest on the Debentures.



          Subpart K_RBIC's Noncompliance With Terms of Leverage



Sec. 4290.1810  Events of default and the Secretary's remedies for RBIC's noncompliance with terms of Debentures.

    (a) Applicability of this section. By issuing Debentures, you 
automatically agree to the terms, conditions and remedies in this 
section, as in effect at the time of issuance and as if fully set forth 
in the Debentures.
    (b) Automatic events of default. The occurrence of one or more of 
the events in this paragraph (b) causes the remedies in paragraph (c) of 
this section to take effect immediately.
    (1) Insolvency. You become equitably or legally insolvent.
    (2) Voluntary assignment. You make a voluntary assignment for the 
benefit of creditors without the Secretary's prior written approval.
    (3) Bankruptcy. You file a petition to begin any bankruptcy or 
reorganization proceeding, receivership, dissolution or other similar 
creditors' rights proceeding, or such action is initiated against you 
and is not dismissed within 60 days.
    (c) Remedies for automatic events of default. Upon the occurrence of 
one or more of the events in paragraph (b) of this section:

[[Page 869]]

    (1) Without notice, presentation or demand, the entire indebtedness 
evidenced by your Debentures, including accrued interest, and any other 
amounts owed with respect to your Debentures, is immediately due and 
payable; and
    (2) You automatically consent to the appointment of the Secretary or 
his or her designee, as your receiver under section 384M of the Act.
    (d) Events of default with notice. For any occurrence (as determined 
by the Secretary) of one or more of the events in this paragraph (d), 
the Secretary may avail him or herself of one or more of the remedies in 
paragraph (e) of this section.
    (1) Fraud. You commit a fraudulent act that causes detriment to the 
Secretary's position as a creditor or guarantor.
    (2) Fraudulent transfers. You make any transfer or incur any 
obligation that is fraudulent under the terms of 11 U.S.C. 548.
    (3) Willful conflicts of interest. You willfully violate Sec. 
4290.730.
    (4) Willful non-compliance. You willfully violate one or more of the 
substantive provisions of the Act or any substantive regulation 
promulgated under the Act or any substantive provision of your 
Participation Agreement.
    (5) Repeated Events of Default. At any time after being notified of 
the occurrence of an event of default under paragraph (f) of this 
section, you engage in similar behavior that results in another 
occurrence of the same event of default.
    (6) Transfer of Control. You willfully violate Sec. 4290.410, and 
as a result of such violation you undergo a transfer of Control.
    (7) Non-cooperation under Sec. 4290.1810(h). You fail to take 
appropriate steps, satisfactory to the Secretary, to accomplish any 
action the Secretary may have required under paragraph (h) of this 
section.
    (8) Non-notification of Events of Default. You fail to notify the 
Secretary as soon as you know or reasonably should have known that any 
event of default exists under this section.
    (9) Non-notification of defaults to others. You fail to notify the 
Secretary in writing within ten days from the date of a declaration of 
an event of default or nonperformance under any note, debenture or 
indebtedness of yours, issued to or held by anyone other than the 
Secretary.
    (e) Remedies for events of default with notice. Upon written notice 
to you of the occurrence (as determined by the Secretary) of one or more 
of the events in paragraph (d) of this section:
    (1) The Secretary may declare the entire indebtedness evidenced by 
your Debentures, including accrued interest and/or any other amounts 
owed the Secretary with respect to your Debentures, immediately due and 
payable: and
    (2) The Secretary may avail himself or herself of any remedy 
available under the Act, specifically including institution of 
proceedings for his or her, or his or her designee's appointment as your 
receiver under section 384M(c) of the Act.
    (f) Events of default with opportunity to cure. For any occurrence 
(as determined by the Secretary) of one or more of the events in this 
paragraph (f), the Secretary may avail him or herself of one or more of 
the remedies in paragraph (g) of this section.
    (1) Excessive Management Expenses. Without the Secretary's prior 
written consent, you incur Management Expenses in excess of those 
permitted under Sec. Sec. 4290.510 and 4290.520.
    (2) Improper Distributions. You make any Distribution to your 
shareholders or partners, except with the Secretary's prior written 
consent, other than:
    (i) Distributions permitted under Sec. 4290.585; and
    (ii) Payments from Retained Earnings Available for Distribution 
based on either the shareholders' or members' pro-rata interests or the 
provisions for profit distributions in your partnership agreement, as 
appropriate.
    (3) Failure to make payment. Unless otherwise approved by the 
Secretary, you fail to make timely payment of any amount due under any 
security or obligation of yours that is issued to, held or guaranteed by 
the Secretary.
    (4) Failure to maintain Regulatory Capital. You fail to maintain the 
minimum Regulatory Capital required under

[[Page 870]]

these regulations or, without the Secretary's prior written consent, you 
reduce your Regulatory Capital except as permitted by Sec. 4290.585.
    (5) Capital Impairment. You have a condition of Capital Impairment 
as determined under Sec. 4290.1830.
    (6) Cross-default. An obligation of yours that is greater than 
$100,000 becomes due or payable (with or without notice) before its 
stated maturity date, for any reason including your failure to pay any 
amount when due. This provision does not apply if you pay the amount due 
within any applicable grace period or contest the payment of the 
obligation in good faith by appropriate proceedings.
    (7) Nonperformance. You violate or fail to perform one or more of 
the terms and conditions of any security or obligation of yours that is 
issued to, held or guaranteed by the Secretary, or of any agreement 
(including your Participation Agreement) with or conditions imposed by 
the Secretary in the administration of the Act and the regulations 
promulgated under the Act.
    (8) Noncompliance. Except as otherwise provided in paragraph (d)(5) 
of this section, the Secretary determines that you have violated one or 
more of the substantive provisions of the Act or any substantive 
regulation promulgated under the Act.
    (9) Failure to maintain diversity. You fail to maintain diversity 
between management and ownership as required by Sec. 4290.150.
    (g) Remedies for events of default with opportunity to cure. (1) 
Upon written notice to you of the occurrence (as determined by the 
Secretary) of one or more of the events of default in paragraph (f) of 
this section, and subject to the conditions in paragraph (g)(2) of this 
section:
    (i) The Secretary may declare the entire indebtedness evidenced by 
your Debentures, including accrued interest, and/or any other amounts 
owed the Secretary with respect to your Debentures, immediately due and 
payable; and
    (ii) The Secretary may avail himself or herself of any remedy 
available under the Act, specifically including institution of 
proceedings for the appointment of the Secretary or a designee as your 
receiver under Sec. 348M of the Act.
    (2) The Secretary may invoke the remedies in paragraph (g)(1) of 
this section only if:
    (i) You have been given at least 15 days to cure the default(s); and
    (ii) You fail to cure the default(s) to the Secretary's satisfaction 
within the allotted time.
    (h) Repeated non-substantive violations. If you repeatedly fail to 
comply with one or more of the non-substantive provisions of the Act or 
any non-substantive regulation promulgated under the Act, the Secretary, 
after written notification to you and until you cure such condition to 
the Secretary's satisfaction, may deny you additional Leverage and/or 
require you to take such actions as the Secretary may determine to be 
appropriate under the circumstances.
    (i) Consent to removal of officers, directors, or general partners 
and/or appointment of receiver. The Articles of each RBIC must include 
the following provisions as a condition to the purchase or guarantee of 
Leverage. Upon the occurrence of any of the events specified in 
paragraphs (d)(1) through (d)(6) or (f)(l) through (f)(3) of this 
section as determined by the Secretary, the Secretary shall have the 
right, and you consent to the Secretary's exercise of such right:
    (1) With respect to a Corporate RBIC, upon written notice, to 
require you to replace, with individuals approved by the Secretary, one 
or more of your officers and/or such number of directors of your board 
of directors as is sufficient to constitute a majority of such board; or
    (2) With respect to a Partnership RBIC or an LLC RBIC, upon written 
notice, to require you to remove the person(s) responsible for such 
occurrence and/or to remove the general partner or manager of the RBIC, 
which general partner or manager shall then be replaced in accordance 
with the RBIC's Articles by a new general partner or manager approved by 
the Secretary; and/or
    (3) With respect to a Corporate RBIC, Partnership RBIC, or LLC RBIC, 
to obtain the appointment of the Secretary or his or her designee as 
your receiver

[[Page 871]]

under section 384M of the Act for the purpose of continuing your 
operations. The appointment of a receiver to liquidate an RBIC is not 
within such consent, but is governed instead by the relevant provisions 
of the Act.

                Computation of RBIC'S Capital Impairment



Sec. 4290.1830  RBIC's Capital Impairment definition and general requirements.

    (a) Significance of Capital Impairment condition. If you have a 
condition of Capital Impairment, you are not in compliance with the 
terms of your Leverage. As a result, the Secretary has the right to 
impose the applicable remedies for noncompliance in Sec. 4290.1810(g).
    (b) Definition of Capital Impairment condition. You have a condition 
of Capital Impairment if your Capital Impairment Percentage, as computed 
pursuant to the procedures set forth in Sec. 4290.1840, exceeds 70 
percent.
    (c) Quarterly computation requirement and procedure. You must 
determine whether you have a condition of Capital Impairment as of the 
end of each fiscal quarter. You must notify the Secretary promptly if 
you are Capitally Impaired.
    (d) The Secretary's right to determine RBIC's Capital Impairment 
condition. The Secretary may make his or her own determination of your 
Capital Impairment condition at any time.



Sec. 4290.1840  Computation of RBIC's Capital Impairment Percentage.

    (a) General. This section contains the procedures you must use to 
determine your Capital Impairment Percentage. You must compare your 
Capital Impairment Percentage to the maximum permitted under Sec. 
4290.1830(b) to determine whether you have a condition of Capital 
Impairment.
    (b) Preliminary impairment test. If you satisfy the preliminary 
impairment test, your Capital Impairment Percentage is zero and you do 
not have to perform any more procedures in this Sec. 4290.1840. 
Otherwise, you must continue with paragraph (c) of this section. You 
satisfy the test if each of the following amounts is zero or greater:
    (1) The sum of Undistributed Net Realized Earnings, as reported on 
SBA Form 468, and Includible Non-Cash Gains.
    (2) Unrealized Gain (Loss) on Securities Held.
    (c) How to compute your Capital Impairment Percentage. (1) If you 
have an Unrealized Gain on Securities Held, compute your Adjusted 
Unrealized Gain using paragraph (d) of this section. If you have an 
Unrealized Loss on Securities Held, continue with paragraph (c)(2) of 
this section.
    (2) Add together your Undistributed Net Realized Earnings, your 
Includible Non-cash Gains, and either your Unrealized Loss on Securities 
Held or your Adjusted Unrealized Gain.
    (3) If the sum in paragraph (c)(2) of this section is zero or 
greater, your Capital Impairment Percentage is zero.
    (4) If the sum in paragraph (c)(2) of this section is less than 
zero, drop the negative sign, divide by your Regulatory Capital 
(excluding Treasury Stock), and multiply by 100. The result is your 
Capital Impairment Percentage.
    (d) How to compute your Adjusted Unrealized Gain. (1) Subtract 
Unrealized Depreciation from Unrealized Appreciation. This is your ``Net 
Appreciation''.
    (2) Determine your Unrealized Appreciation on Publicly Traded and 
Marketable securities. This is your ''Class I Appreciation''.
    (3) Determine your Unrealized Appreciation on securities that are 
not Publicly Traded and Marketable and meet the following criteria, 
which must be substantiated to the Secretary's satisfaction (this is 
your ``Class 2 Appreciation''):
    (i) The Portfolio Concern that issued the security received a 
significant subsequent equity financing by an investor whose objectives 
were not primarily strategic and at a price that conclusively supports 
the Unrealized Appreciation;
    (ii) Such financing represents a substantial investment in the form 
of an arm's-length transaction by a sophisticated new investor in the 
issuer's securities; and
    (iii) Such financing occurred within 24 months of the date of the 
Capital

[[Page 872]]

Impairment computation, or the Portfolio Concern's pre-tax cash flow 
from operations for its most recent fiscal year was at least 10 percent 
of its average contributed capital for such fiscal year.
    (4) Perform the appropriate computation from the table in 13 CFR 
107.1840(d)(4).
    (5) Reduce the gain computed in paragraph (d)(4) of this section by 
your estimate of related future income tax expense. Subject to any 
adjustment required by paragraph (d)(6) of this section, the result is 
your Adjusted Unrealized Gain for use in paragraph (c)(2) of this 
section.
    (6) If any securities that are the source of either Class 1 or Class 
2 Appreciation are pledged or encumbered in any way, you must reduce the 
Adjusted Unrealized Gain computed in paragraph (d)(5) of this section by 
the amount of the related borrowing or other obligation, up to the 
amount of the Unrealized Appreciation on the securities.



                  Subpart L_Ending Operations as a RBIC



Sec. 4290.1900  Termination of participation as a RBIC.

    You may not terminate your participation as a RBIC without the 
Secretary's prior written approval. Your request for approval must be 
accompanied by an offer of immediate repayment of all of your 
outstanding Leverage (including any prepayment penalties thereon), or by 
a plan satisfactory to the Secretary for the orderly liquidation of the 
RBIC.



                         Subpart M_Miscellaneous



Sec. 4290.1910  Non-waiver of rights or terms of Leverage security.

    The Secretary's failure to exercise or delay in exercising any right 
or remedy under the Act or the regulations in this part does not 
constitute a waiver of such right or remedy. The Secretary's failure to 
require you to perform any term or provision of your Leverage does not 
affect the Secretary's right to enforce such term or provision. 
Similarly, the Secretary's waiver of, or failure to enforce, any term or 
provision of your Leverage or of any event or condition set forth in 
Sec. 4290.1810 does not constitute a waiver of any succeeding breach of 
such term or provision or condition.



Sec. 4290.1920  RBIC's application for exemption from a regulation in this part 4290.

    (a) General. You may file an application in writing with the 
Secretary to have a proposed action exempted from any procedural or 
substantive requirement, restriction, or prohibition to which it is 
subject under this part, unless the provision is mandated by the Act. 
The Secretary may grant an exemption for such applicant, conditionally 
or unconditionally, provided the exemption would not be contrary to the 
purposes of the Act.
    (b) Contents of application. Your application must be accompanied by 
supporting evidence that demonstrates to the Secretary's satisfaction 
that:
    (1) The proposed action is fair and equitable; and
    (2) The exemption requested is reasonably calculated to advance the 
best interests of the RBIC program in a manner consistent with the 
policy objectives of the Act and the regulations in this part.



Sec. 4290.1930  Effect of changes in this part 4290 on transactions previously consummated.

    The legality of a transaction covered by the regulations in this 
part is governed by the regulations in this part in effect at the time 
the transaction was consummated, regardless of later changes. Nothing in 
this part bars enforcement action with respect to any transaction 
consummated in violation of provisions applicable at the time, but no 
longer in effect.



Sec. 4290.1940  Integration of this part with other regulations applicable to USDA's programs.

    (a) Intergovernmental review. To the extent applicable to this part, 
the Secretary will comply with subpart V of 7 CFR part 3015, 
``Intergovernmental Review of Department of Agriculture Programs and 
Activities.'' The Secretary has not delegated this responsibility to SBA 
pursuant to Sec. 4290.45 of this part.

[[Page 873]]

    (b) National flood insurance. To the extent applicable to this part, 
the Secretary will comply with subpart B of 7 CFR part 1806. The 
Secretary has not delegated this responsibility to SBA pursuant to Sec. 
4290.45 of this part.
    (c) Clean Air Act and Water Pollution Control Act requirements. To 
the extent applicable to this part, the Secretary will comply with the 
requirements of the Clean Air Act, section 306; the Clean Water Act, 
section 508; Executive Order 11738; and 40 CFR part 32. The Secretary 
has not delegated this responsibility to SBA pursuant to Sec. 4290.45 
of this part.
    (d) Historic preservation requirements. To the extent applicable to 
this part, the Secretary will comply with subpart F of 7 CFR part 1901. 
The Secretary has not delegated this responsibility to SBA pursuant to 
Sec. 4290.45 of this part.
    (e) Lead-based paint requirements. To the extent applicable to this 
part, the Secretary will comply with subpart A of 7 CFR part 1924. The 
Secretary has not delegated this responsibility to SBA pursuant to Sec. 
4290.45 of this part.
    (f) Conflict of interest. To the extent applicable to this part, the 
Secretary will comply with subpart D of 7 CFR part 1900 and RD 
Instruction 2045-BB. The Secretary has not delegated this responsibility 
to SBA pursuant to Sec. 4290.45 of this part.
    (g) Civil rights impact analysis. To the extent applicable to this 
part, the Secretary will comply with RD Instruction 2006-P, ``Civil 
Rights Impact Analysis.'' The Secretary has not delegated this 
responsibility to SBA pursuant to Sec. 4290.45 of this part.
    (h) Environmental requirements. To the extent applicable to this 
part, the Secretary will comply with subpart G of 7 CFR part 1940. The 
Secretary has not delegated this responsibility to SBA pursuant to Sec. 
4290.45 of this part.
    (i) Appeals to the National Appeals Division for review of adverse 
decisions. Applicants and RBICs have the right to request review by the 
National Appeals Division within the USDA of adverse decisions, as 
defined in 7 CFR 11.1, pursuant to 7 CFR part 11.



    Subpart N_Requirements for Operational Assistance Grants to RBICs



Sec. 4290.2000  Operational Assistance Grants to RBICs.

    (a) Regulations governing. Regulations governing Operational 
Assistance grants to RBICs may be found in subparts D and E of this part 
4290 and in this Sec. 4290.2000.
    (b) Restrictions on use. A RBIC must use Operational Assistance 
grant funds only to provide Operational Assistance to Smaller 
Enterprises to which it either has made, or expects to make, a 
Financing.
    (c) Amount of grant. Each RBIC will receive an Operational 
Assistance grant award equal to the lesser of 10 percent of the 
Regulatory Capital raised by the RBIC at the time of licensing or 
$1,000,000.
    (d) Term. Operational Assistance grants made under this part will be 
made for a multiyear period (not to exceed 10 years) under such terms as 
the Secretary may require.
    (e) Reporting and recordkeeping requirements. Policies governing 
reporting, record retention, and recordkeeping requirements applicable 
to RBICs may be found in subpart H of this part 4290.


[[Page 875]]



                              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 877]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2007)

                      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--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 100-199)
        II  Office of Management and Budget Circulars and Guidance 
                (200-299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
        IX  Department of Energy (Part 901)
    XXXVII  Peace Corps (Part 3700)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability 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)

[[Page 878]]

       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)
    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)
        LV  National Endowment for the Arts (Part 6501)
       LVI  National Endowment for the Humanities (Part 6601)
      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)
     LXVII  Institute of Museum and Library Services (Part 7701)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
    LXXIII  Department of Agriculture (Part 8301)

[[Page 879]]

     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)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Part 
                9701)
      XCIX  Department of Defense Human Resources Management and 
                Labor Relations Systems (Department of Defense--
                Office of Personnel Management) (Part 9901)

                      Title 6--Homeland Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)

                         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)
        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)

[[Page 880]]

       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 Policy and New Uses, 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)
     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  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)

[[Page 881]]

        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)
      XIII  Nuclear Waste Technical Review Board (Parts 1303--
                1399)
      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)
        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)

[[Page 882]]

        IV  Emergency Steel Guarantee Loan Board, Department of 
                Commerce (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board, 
                Department of Commerce (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)
        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)

[[Page 883]]

                    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  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     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)

[[Page 884]]

                       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 Regulations (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)

                          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)

[[Page 885]]

        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)

                           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)

[[Page 886]]

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       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)
        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  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)

[[Page 887]]

     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)

                      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)

[[Page 888]]

        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 Homeland Security (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)

                          Title 35 [Reserved]

             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)

[[Page 889]]

         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)
       III  Copyright Royalty Board, Library of Congress (Parts 
                301--399)
        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--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       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)

[[Page 890]]

        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 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (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)

                   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--10010)

[[Page 891]]

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (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)
     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 Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)

[[Page 892]]

       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (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  Defense Acquisition Regulations System, 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)
        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)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)

[[Page 893]]

        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  [Reserved]
        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 (Parts 
                5400--5499)
        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  Pipeline and Hazardous Materials Safety 
                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 Homeland Security (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)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

[[Page 894]]

                   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 895]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2007)

                                                  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
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
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

[[Page 896]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
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
Copyright Royalty Board                           37, III
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 and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 897]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Acquisition Regulations System          48, II
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  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
Employee Benefits Security Administration         29, XXV
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

[[Page 898]]

  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
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 Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102

[[Page 899]]

  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  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 Accountability Office                  4, I
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
  Defense Acquisition Regulations System          48, 2
  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; 42, I
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
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 Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
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; 42, I
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
[[Page 900]]

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
  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
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  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 Review, Executive Office for        8, V
  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
  Employee Benefits Security Administration       29, XXV
  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
  Public Contracts                                41, 50

[[Page 901]]

  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
  Copyright Royalty Board                         37, III
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
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

[[Page 902]]

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
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
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
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
Pipeline and Hazardous Materials Safety           49, I
     Administration
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 Innovative Technology                49, XI
     Administration
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

[[Page 903]]

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
  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
  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
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  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 and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            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 905]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations that 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....................................................78329
3550.50 Amended (OMB number).......................................78329
3550.52 (b)(1)(i) and (ii) revised.................................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.........................78330
3550.54 (c)(1) amended.............................................78330
3550.57 (a) introductory text revised..............................78330
3550.59 (a)(2) amended.............................................78330
3550.63 Introductory text and (a) revised..........................78330
3550.66 Revised....................................................78330
3550.70 Introductory text amended..................................78330
3550.100 Amended (OMB number)......................................78330
3550.101--3550.150 (Subpart C) Heading revised.....................78330
3550.101 Amended...................................................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.......................................78331
3550.106 (a) amended...............................................78331
3550.108 Introductory text amended; (b)(1) revised.................78331
3550.114 Amended...................................................78331
3550.115 Added.....................................................78331
3550.116 Added.....................................................78331
3550.117 Added.....................................................78331
3550.118 Added.....................................................78331
3550.119 Added.....................................................78331
3550.150 Amended (OMB number)......................................78331
3550.162 (b)(2) revised............................................78331
3550.163 (b)(2) amended............................................78331
3550.200 Amended (OMB number)......................................78332
3550.208 (a)(6) added; (b) amended.................................78332
3550.210 (a) revised...............................................69672
3550.211 (c) amended...............................................78332
3550.250 Amended (OMB number)3.....................................78332
3550.251 (c)(5)(i)(A) amended; (c)(4)(1) and (ii) revised..........78332
3550.300 Amended (OMB number)......................................78332
3565.3 Amended.....................................................16970
3565.209 Revised...................................................16970
3565.214 Removed...................................................16971
3565.403 (b)(2) amended............................................16971

[[Page 906]]

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

                                  2003

7 CFR
                                                                   68 FR
                                                                    Page
2045 Authority citation revised....................................61333
2045.1754 (c) amended..............................................61333
Chapter XX
2200 Heading revised...............................................74416
2200.1 (d) added...................................................74416
2200.10 Added......................................................74416
2200.11 Added......................................................74416
2200.12 Added......................................................74416
2201 Added.........................................................74422
Chapter XXIX
2903 Added.........................................................56139
Chapter XXX
3017 Revised; interim.......................................66544, 66563
3017.50 (c) amended; interim.......................................66564
3017.215 (h) through (p) added; interim............................66564
3017.220 (c) added; interim........................................66564
3017.440 Added; interim............................................66565
3017.755 Amended; interim..........................................66565
3017.765 Added; interim............................................66565
3017.800 (e) added; interim........................................66565
3017.870 (a) amended; interim......................................66565
3017.890 Added; interim............................................66565
3017.935 (b) added; interim........................................66565
3017.1010 (b) added; interim.......................................66565
3021 Added; interim.........................................66557, 66565
3021.510 (c) amended; interim......................................66566
3021.605 (a)(2) amended; interim...................................66566
Chapter XXXII
3200.4 (a), (d) and (e)(2) revised; eff. 3-1-04....................75107
3200.6 (a) revised; (b) and (c) redesignated as (c) and (d); new 
        (b) added; eff. 3-1-04.....................................75107
3200.10 Revised; eff. 3-1-04.......................................75108
Chapter XXXV
Chapter XXXV Policy statement......................................14889

                                  2004

7 CFR
                                                                   69 FR
                                                                    Page
Chapter XXX
3000--3099 (Chapter XXX) Policy statement..........................64477
Chapter XXXIV
3402 Revised.......................................................62537
Chapter XXXV
    Technical correction...........................................75454
    Regulation at 69 FR 69106 comment period extended..............77609
3565 Technical correction..........................................75454
3565.204 (c)(2) amended; interim; eff. 2-24-05.....................69176
    Regulation at 69 FR 69176 comment period extended..............77609
3565.351 (c) amended; interim; eff. 2-24-05........................69176
    Regulation at 69 FR 69176 comment period extended..............77609
3570.53 Amended....................................................65519
Chapter XLII
4274.302 (a) amended...............................................65519
4279.108 (a) introductory text, (4) and (c) revised; (d) 
        redesignated as (e); new (d) added; interim................64830
4279.113 (j) through (aa) redesignated as (k) through (bb); (i) 
        and new (r) corrected; new (j) added; interim..............64831
4279.119 (a) revised; interim......................................64831
4279.144 Revised; interim..........................................64831
4279.161 Introductory text amended; (c) added; interim.............64831
4284 Authority citation revised....................................23425
4284.1--4284.100 (Subpart A) Added.................................23425
4284.501--4284.600 (Subpart F) Revised.............................23428
4284.901--4284.1000 (Subpart J) Added..............................23430
4284.1001--4284.1100 (Subpart K) Added.............................23433
4290 Added; interim................................................32204

                                  2005

7 CFR
                                                                   70 FR
                                                                    Page
Chapter XXIX
2900--2999 (Chapter XXIX) Heading revised...........................1809
2902 Added..........................................................1809

[[Page 907]]

Chapter XXX
3052.105 Amended...................................................34986
3052.200 (a), (b) and (d) amended..................................34986
3052.230 (b)(2) amended............................................34986
3052.400 (a) revised; (d)(4) amended...............................34986
Chapter XXXV
3550.10 Amended.....................................................6552
3550.61 (b)and (d)(1) revised.......................................6552
3550.110 (b) and (d)(1) revised.....................................6552
3560.152 Regulation at 69 FR 69133 eff. date delayed; interim.......8503
3560.154 Regulation at 69 FR 69134 eff. date delayed; interim.......8503
3560.156 Regulation at 69 FR 69136 eff. date delayed; interim.......8503
3560.254 Regulation at 69 FR 69144 eff. date delayed; interim.......8503
3565.3 Amended......................................................2930
3565.52 Revised.....................................................2930
3565.102 (b) revised................................................2931
3565.103 (d)(1) revised.............................................2931
3565.212 (c) amended; (d) removed...................................2931
3565.252 Revised....................................................2931
3565.403 (a) through (d) redesignated as (b) through (e); new (a) 
        added.......................................................2931
3565.404 Heading revised............................................2931
3565.405 Added......................................................2931
3565.452 (a) revised................................................2932
3565.453 Revised....................................................2932
3565.457 Revised....................................................2933
3565.501--3565.550 (Subpart K) Added................................2934
Chapter XLII
4274.326 (a)(3) added..............................................38572
4274.331 (a)(3)(i) and (4) revised.................................38573
4274.337 (b)(2) amended............................................38573
4274.338 (a)(5)(i) revised; (b)(4)(i)(B) amended...................38573
4274.344 (c) introductory text amended; (c)(1)(ii) introductory 
        text revised...............................................38573
4279 Authority citation revised....................................57485
4279.107 Revised...................................................57486
4280 Added.........................................................41303
4287.107 (a) revised...............................................57486

                                  2006

7 CFR
                                                                   71 FR
                                                                    Page
Chapter XXIX
2902.1 Revised; interim............................................42575
2902.2 Amended.....................................................13704
    Amended; interim...............................................42575
2902.3 Revised; interim............................................42575
2902.4 (b)(3) added; interim.......................................42575
2902.8 (c) added...................................................13704
    (b) revised; interim...........................................42575
2902.10 Added......................................................13705
2902.11 Added......................................................13705
2902.12 Added......................................................13705
    (c) revised....................................................67032
2902.13 Added......................................................13705
2902.14 Added......................................................13705
2902.15 Added......................................................13705
    (c) revised....................................................67032
Chapter XXXIV
3411.1 (a) revised.................................................54896
3411.2 (a) and (c) revised.........................................54896
3411.3 (a), (d) introductory text, (1) introductory text, (i), (2) 
        and (3)(ii) revised........................................54896
3411.4 (a) introductory text, (4), (5), (c)(3) introductory text, 
        (7) introductory text, (8), (11) and (13) revised..........54897
3411.5 (a) revised.................................................54898
3411.6 (a), (b) heading, (1)(iii), (iv), (d) introductory text, 
        (2) and (f) revised; (b)(2) removed........................54898
3411.7 (b)(1) revised..............................................54898
3411.8 Amended.....................................................54898
Chapter XLII
4279 Authority citation revised....................................33187
4279.2 Revised.....................................................33187
4279.113 (r) revised; (cc) added...................................33189
4279.131 (d) revised...............................................33189
4279.149 Revised...................................................67033


                                  [all]