[Federal Register Volume 59, Number 155 (Friday, August 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17962]


[[Page Unknown]]

[Federal Register: August 12, 1994]


_______________________________________________________________________

Part II





Corporation for National and Community Service





_______________________________________________________________________



45 CFR Parts 2541 and 2542




Corporation Grant and Cooperative Agreement Requirements; Final Rule
CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

45 CFR Parts 2541 and 2542

 
Corporation Grant and Cooperative Agreement Requirements

AGENCY: Corporation for National and Community Service.

ACTION: Final Rule.

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SUMMARY: The Corporation for National and Community Service 
(Corporation) is adopting in its final rules the following two Federal 
agency common rules: Uniform Administrative Requirements for Grants and 
Cooperative Agreements to State and Local Governments; and 
Governmentwide Debarment and Suspension (Nonprocurement) and Drug-Free 
Workplace (Grants). These regulations have been adopted by the 
Corporation because they are applicable to State and Local Governments 
that receive grants from the Corporation. In addition, all Corporation 
grantees must comply with the Governmentwide Debarment and Suspension 
and Drug-Free Workplace rules. By implementing these regulations, the 
Corporation grantees will know some of the terms and conditions of 
their respective grants.

EFFECTIVE DATE: This final rule is effective on August 12, 1994.

FOR FURTHER INFORMATION CONTACT: Terry Russell, General Counsel, (202) 
606-4949, (Voice) (202) 606-5256, (TDD), between the hours of 9:00 a.m. 
and 6:00 p.m. Eastern Standard Time. For individuals with disabilities, 
information will be made available in alternative formats, upon 
request.

SUPPLEMENTARY INFORMATION:

Background Information

    Part 2541 contains the Uniform Administrative Requirements for 
Grants and Cooperative Agreements to State and Local Governments which 
is a common rule developed by OMB and adopted by the Federal agencies 
to ensure consistency and uniformity among Federal agencies in the 
administration of grants and cooperative agreements to State, local, 
and federally recognized Indian tribal governments. A full discussion 
of the issues pertaining to this rule is contained in the preamble to 
the final common rule that was adopted by 23 Federal agencies and 
published in the Federal Register on March 11, 1988 (53 FR 8034).
    Part 2542 contains the Governmentwide Debarment and Suspension 
Requirements which were implemented pursuant to Executive Order 12549 
to prevent waste, fraud and abuse in Federal nonprocurement 
transactions. A discussion of the issues pertaining to this rule is 
contained in the preamble of the final common rule that was adopted by 
27 Federal agencies and published in the Federal Register on May 26, 
1988 (53 FR 19161). Part 2542 also contains the Governmentwide Drug-
Free Workplace rules which were established to implement the Drug-Free 
Workplace Act of 1988, 41 U.S.C. 701-722. The Drug Free Workplace Act 
requires that all grantees receiving grants from any Federal agency 
certify to that agency that they will maintain a drug-free workplace, 
or in the case of a grantee who is an individual, certify to the agency 
that his or her conduct of grant activity will be drug-free. A full 
discussion of the issues pertaining to this rule is contained in the 
preamble of the interim final rule that was adopted by 33 Federal 
agencies and published in the Federal Register on May 25, 1990 (55 FR 
21679).
    The Corporation finds that publishing a notice of proposed 
rulemaking on these matters would be unnecessary, and contrary to the 
public interest, since the common rulemaking has been subjected to 
extensive public scrutiny when OMB proposed and finalized the rules and 
27 federal agencies issued these proposed rules for notice and 
comments. Consequently, the Corporation for good cause pursuant to 5 
U.S.C. 553(b) has decided not to publish a proposed rulemaking on these 
matters and has adopted and published these rules as a final rule. This 
regulation is fully in effect. No further regulatory action by the 
Corporation is essential to the legal effectiveness of the rule.
    Pursuant to the Regulatory Flexibility Act, it is hereby certified 
that this final rule will not have a significant impact on small 
business entities.

List of Subjects

45 CFR Part 2541

    Accounting, Grant programs, Indians, Intergovernmental relations, 
Reporting and recordkeeping requirements.

45 CFR Part 2542

    Administrative practice and procedure, Drug abuse, Grant programs, 
Reporting and recordkeeping requirements.

Terry Russell,
General Counsel.

    Accordingly, the Corporation amends title 45, chapter XXV of the 
Code of Federal Regulations by adding parts 2541 and 2542 to read as 
follows:

PART 2541--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND 
COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS

Subpart A--General

Sec.
2541.10  Purpose and scope of this part.
2541.20  Scope of subpart.
2541.30  Definitions.
2541.40  Applicability.
2541.50  Effect on other issuances.
2541.60  Additions and exceptions.

Subpart B--Pre-Award Requirements

2541.100  Forms for applying for grants.
2541.110  State plans.
2541.120  Special grant or subgrant conditions for ``high-risk'' 
grantees.

Subpart C--Post Award Requirements

2541.200  Standards for financial management systems.
2541.210  Payment.
2541.220  Allowable costs.
2541.230  Period of availability of funds.
2541.240  Matching or cost sharing.
2541.250  Program income.
2541.260  Non-Federal audit.

Subpart D--Changes, Property and Subawards

2541.300  Changes.
2541.310  Real property.
2541.320  Equipment.
2541.330  Supplies.
2541.340  Copyrights.
2541.350  Subawards to debarred and suspended parties.
2541.360  Procurement.
2541.370  Subgrants.

Subpart E--Reports, Records, Retention and Enforcement

2541.400  Monitoring and reporting program performance.
2541.410  Financial reporting.
2541.420  Retention and access requirements for records.
2541.430  Enforcement.
2541.440  Termination for convenience.

Subpart F--After the Grant Requirements

2541.500  Closeout.
2541.510  Later disallowances and adjustments.
2541.520  Collection of amounts due.

    Authority: 42 U.S.C. 4950 et seq. and 12501 et seq.

Subpart A--General


Sec. 2541.10  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. 2541.20  Scope of subpart.

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


Sec. 2541.30  Definitions.

    The following definitions apply to terms used in this part and part 
2542 of this chapter.
    Accrued expenditures. The term accrued expenditures means 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. The term 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. The term 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. The term administrative requirements 
means 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. The term 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. The term 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. The term 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). The term 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. The term cost-type contract means a contract or 
subcontract under a grant in which the contractor or subcontractor is 
paid on the basis of the costs it incurs, with or without a fee.
    Equipment. The term 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 mentioned in this definition.
    Expenditure report. The term 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. The term 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. The term government means a State or local government 
or a federally recognized Indian tribal government.
    Grant. The term 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. The term 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. The term 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 (42 U.S.C. 1401 et seq.) 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. The term 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. The term OMB means the United States Office of Management and 
Budget.
    Outlays (expenditures). The term outlays (expenditures) means 
charges made to the project or program. They may be reported on a cash 
or accrual basis. For reports prepared on a cash basis, outlays are the 
sum of actual cash disbursement for direct charges for goods and 
services, the amount of indirect expense incurred, the value of in-kind 
contributions applied, and the amount of cash advances and payments 
made to contractors and subgrantees. For reports prepared on an accrued 
expenditure basis, outlays are the sum of actual cash disbursements, 
the amount of indirect expense incurred, the value of in-kind 
contributions applied, and the new increase (or decrease) in the 
amounts owed by the grantee for goods and other property received, for 
services performed by employees, contractors, subgrantees, 
subcontractors, and other payees, and other amounts becoming owed under 
programs for which no current services or performance are required, 
such as annuities, insurance claims, and other benefit payments.
    Percentage of completion method. The term 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. The term prior approval means documentation 
evidencing consent prior to incurring specific cost.
    Real property. The term real property means land, including land 
improvements, structures and appurtenances thereto, excluding movable 
machinery and equipment.
    Share. The term share, when referring to the awarding agency's 
portion of real property, equipment or supplies, means the same 
percentage as the awarding agency's portion of the acquiring party's 
total costs under the grant to which the acquisition costs under the 
grant to which the acquisition cost of the property was charged. Only 
costs are to be counted--not the value of third-party in-kind 
contributions.
    State. The term 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 the United 
States Housing Act of 1937.
    Subgrant. The term 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. The term 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. The term supplies means all tangible personal property 
other than ``equipment'' as defined in this part.
    Suspension. The term 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 (3 CFR, 1986 Comp., p. 189) 
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. The term 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. The term third party in-kind 
contributions means 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. The 
term unliquidated obligations for reports prepared on a cash basis 
means 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. The term 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. 2541.40  Applicability.

    (a) General. Subparts A through 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. 2541.60, 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 (Pub. L. 97-35, 95 Stat. 357) (Community 
Services; Preventive Health and Health Services; Alcohol, Drug Abuse, 
and Mental Health Services; Maternal and Child Health Services; Social 
Services; Low-Income Home Energy Assistance; States' Program of 
Community Development Block Grants for Small Cities; and Elementary and 
Secondary Education other than programs administered by the Secretary 
of Education under title V, subtitle D, chapter 2, section 583--the 
Secretary's discretionary grant program) and titles I-III of the Job 
Training Partnership Act of 1982 (29 U.S.C. 1501 et seq.) and under the 
Public Health Services Act (42 U.S.C. 201 et seq.), 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 (42 U.S.C. 301 et seq.):
    (i) Aid to Needy Families with Dependent Children (title IV-A of 
the Act, not including the Work Incentive Program (WIN) authorized by 
section 402(a)19(G); HHS grants for WIN are subject to this part);
    (ii) Child Support Enforcement and Establishment of Paternity 
(title IV-D of the Act);
    (iii) Foster Care and Adoption Assistance (title IV-E of the Act);
    (iv) Aid to the Aged, Blind, and Disabled (titles I, X, XIV, and 
XVI-AABD of the Act); and
    (v) Medical Assistance (Medicaid) (title XIX of the Act) not 
including the State Medicaid Fraud Control program authorized by 
section 1903(a)(6)(B).
    (4) Entitlement grants under the following programs of The National 
School Lunch Act (42 U.S.C. 1751 et seq.):
    (i) School Lunch (section 4 of the Act);
    (ii) Commodity Assistance (section 6 of the Act);
    (iii) Special Meal Assistance (section 11 of the Act);
    (iv) Summer Food Service for Children (section 13 of the Act); and
    (v) Child Care Food Program (section 17 of the Act).
    (5) Entitlement grants under the following programs of The Child 
Nutrition Act of 1966:
    (i) Special Milk (section 3 of the Act); and
    (ii) School Breakfast (section 4 of the Act).
    (6) Entitlement grants for State Administrative expenses under The 
Food Stamp Act of 1977 (7 U.S.C. 2011 et seq.).
    (7) A grant for an experimental, pilot, or demonstration project 
that is also supported by a grant listed in paragraph (a)(3) of this 
section.
    (8) Grant funds awarded under subsection 412(e) of the Immigration 
and Nationality Act (8 U.S.C. 1522(e)) and subsection 501(a) of the 
Refugee Education Assistance Act of 1980 (Pub. L. 96-422, 94 Stat. 
1809), for cash assistance, medical assistance, and supplemental 
security income benefits to refugees and entrants and the 
administrative costs of providing the assistance and benefits.
    (9) Grants to local education agencies under 20 U.S.C. 236 through 
241-1(a), and 242 through 244 (portions of the Impact Aid program), 
except for 20 U.S.C. 238(d)(2)(c) and 240(f) (Entitlement Increase for 
Handicapped Children).
    (10) Payments under the Veterans Administration's State Home Per 
Diem Program (38 U.S.C. 641(a)).
    (b) Entitlement programs. Entitlement programs enumerated in 
Sec. 2541.40(a) (3) through (8) are subject to subpart E of this part.


Sec. 2541.50  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. 2541.60.


Sec. 2541.60  Additions and exceptions.

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

Subpart B--Pre-Award Requirements


Sec. 2541.100  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 (44 
U.S.C. 3501 et seq.).
    (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. 2541.110  State plans.

    (a) Scope. The statutes for some programs require States to submit 
plans before receiving grants. Under regulations implementing Executive 
Order 12372 (3 CFR, 1982 Comp., p. 197), ``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: New or revised Federal statutes or regulations; or 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. 2541.120  Special grant or subgrant conditions for ``high-risk'' 
grantees.

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

Subpart C--Post-Award Requirements


Sec. 2541.200  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 canceled checks, paid bills, payrolls, 
time and attendance records, contract and subgrant award documents, 
etc.
    (7) Cash management. Procedures for minimizing the time elapsing 
between the transfer of funds from the U.S. Treasury and disbursement 
by grantees and subgrantees must be followed whenever advance payment 
procedures are used. Grantees must establish reasonable procedures to 
ensure the receipt of reports on subgrantees' cash balances and cash 
disbursements in sufficient time to enable them to prepare complete and 
accurate cash transactions reports to the awarding agency. When 
advances are made by letter-of-credit or electronic transfer of funds 
methods, the grantee must make drawdowns as close as possible to the 
time of making disbursements. Grantees must monitor cash drawdowns by 
their subgrantees to assure that they conform substantially to the same 
standards of timing and amount as apply to advances to the grantees.
    (c) An awarding agency may review the adequacy of the financial 
management system of any applicant for financial assistance as part of 
a preaward review or at any time subsequent to award.


Sec. 2541.210  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 on 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
    (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. 2541.410(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. 2541.220  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        OMB Circular A-87.                 
 government                                                             
Private nonprofit organization       OMB Circular A-122.                
 other than 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   48 CFR Part 31. Contract Cost      
 a hospital and an organization       Principles and Procedures, or     
 named in OMB Circular A-122 as not   uniform cost accounting standards 
 subject to that circular             that comply with cost principles  
                                      acceptable to the Federal agency. 
------------------------------------------------------------------------

Sec. 2541.230  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. 2541.240  Matching or cost sharing.

    (a) Basic rule; costs and contributions acceptable. With the 
qualifications and exceptions listed in paragraph (b) of this section, 
a matching or cost sharing requirement may be satisfied by either or 
both of the following:
    (1) Allowable costs incurred by the grantee, subgrantee or a cost-
type contractor under the assistance agreement. This includes allowable 
costs borne by non-Federal grants or by other 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. 2541.250, 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. 2541.250(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.
    (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. 2541.220, 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 grantee. This 
requirement will also be imposed by the grantee on subgrantees.


Sec. 2541.250  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. 2541.340)
    (f) Property. Proceeds from the sale of real property or equipment 
will be handled in accordance with the requirements of Secs. 2541.310 
and 2541.320.
    (g) Use of program income. Program income shall be deducted from 
outlays which may be both Federal and non-Federal as described in 
paragraphs (g)(1) and (2) of this section, 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. 2541.260  Non-Federal audit.

    (a) Basic rule. Grantees and subgrantees are responsible for 
obtaining audits in accordance with the Single Audit Act of 1984 (31 
U.S.C.7501-7) and Federal agency implementing regulations. The audits 
shall be made by an independent auditor in accordance with generally 
accepted government auditing standards covering financial and 
compliance audits.
    (b) Subgrantees. State or local governments, as those terms are 
defined for purposes of the Single Audit Act, that receive Federal 
financial assistance and provide $25,000 or more of it in a fiscal year 
to a subgrantee shall:
    (1) Determine whether State or local subgrantees have met the audit 
requirements of the Act and whether subgrantees covered by OMB Circular 
A-110, ``Uniform Requirements for Grants and Other Agreements with 
Institutions of Higher Education, Hospitals and Other Nonprofit 
Organizations'' have met the audit requirement. Commercial contractors 
(private for profit and private and governmental organizations) 
providing goods and services to State and local governments are not 
required to have a single audit performed. State and local governments 
should use their own procedures to ensure that the contractor has 
complied with laws and regulations affecting the expenditure of Federal 
funds;
    (2) Determine whether the subgrantee spent Federal assistance funds 
provided in accordance with applicable laws and regulations. This may 
be accomplished by reviewing an audit of the subgrantee made in 
accordance with 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. 2541.360 shall be followed.

Subpart D--Changes, Property and Subawards


Sec. 2541.300  Changes.

    (a) General. Grantees and subgrantees are permitted to re budget 
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. 2541.220) 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.
    (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. 2541.360 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. 2541.220) 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. 2541.310  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. 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. 2541.320  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. 2541.250(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 $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 paragraph (e) of this section.
    (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. 2541.330  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. 2541.340  Copyrights.

    The Federal awarding agency reserves a royalty-free, non-exclusive, 
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. 2541.350  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. 2541.360  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) of this section.
    (b) Procurement standards. (1) Grantees and subgrantees will use 
their own procurement procedures which reflect applicable State and 
local laws and regulations, provided that the procurements conform to 
applicable Federal law and the standards identified in this section.
    (2) Grantees and subgrantees will maintain a contract 
administration system which ensures that contractors perform in 
accordance with the terms, conditions, and specifications of their 
contracts or purchase orders.
    (3) Grantees and subgrantees will maintain a written code of 
standards of conduct governing the performance of their employees 
engaged in the award and administration of contracts. No employee, 
officer or agent of the grantee or subgrantee shall participate in 
selection, or in the award or administration of a contract supported by 
Federal funds if a conflict of interest, real or apparent, would be 
involved. Such a conflict would arise when--
    (i) The employee, officer or agent;
    (ii) Any member of his immediate family;
    (iii) His or her partner; or
    (iv) An organization which employs, or is about to employ, any of 
the above, has a financial or other interest in the firm selected for 
award. The grantee's or subgrantee's officers, employees or agents will 
neither solicit nor accept gratuities, favors or anything of monetary 
value from contractors, potential contractors, or parties to 
subagreements. Grantee and subgrantees may set minimum rules where the 
financial interest is not substantial or the gift is an unsolicited 
item of nominal intrinsic value. To the extent permitted by State or 
local law or regulations, such standards or conduct will provide for 
penalties, sanctions, or other disciplinary actions for violations of 
such standards by the grantee's and subgrantee's officers, employees, 
or agents, or by contractors or their agents. The awarding agency may 
in regulation provide additional prohibitions relative to real, 
apparent, or potential conflicts of interest.
    (4) Grantee and subgrantee procedures will provide for a review of 
proposed procurements to avoid purchase of unnecessary or duplicative 
items. Consideration should be given to consolidating or breaking out 
procurements to obtain a more economical purchase. Where appropriate, 
an analysis will be made of lease versus purchase alternatives, and any 
other appropriate analysis to determine the most economical approach.
    (5) To foster greater economy and efficiency, grantees and 
subgrantees are encouraged to enter into State and local 
intergovernmental agreements for procurement or use of common goods and 
services.
    (6) Grantees and subgrantees are encouraged to use Federal excess 
and surplus property in lieu of purchasing new equipment and property 
whenever such use is feasible and reduces project costs.
    (7) Grantees and subgrantees are encouraged to use value 
engineering clauses in contracts for construction projects of 
sufficient size to offer reasonable opportunities for cost reductions. 
Value engineering is a systematic and creative analysis of each 
contract item or task to ensure that its essential function is provided 
at the overall lower cost.
    (8) Grantees and subgrantees will make awards only to responsible 
contractors possessing the ability to perform successfully under the 
terms and conditions of a proposed procurement. Consideration will be 
given to such matters as contractor integrity, compliance with public 
policy, record of past performance, and financial and technical 
resources.
    (9) Grantees and subgrantees will maintain records sufficient to 
detail the significant history of a procurement. These records will 
include, but are not necessarily limited to the following: Rationale 
for the method of procurement, selection of contract type, contractor 
selection or rejection, and the basis for the contract price.
    (10) Grantees and subgrantees will use time and material type 
contracts only--
    (i) After a determination that no other contract is suitable; and
    (ii) If the contract includes a ceiling price that the contractor 
exceeds at its own risk.
    (11) Grantees and subgrantees alone will be responsible, in 
accordance with good administrative practice and sound business 
judgment, for the settlement of all contractual and administrative 
issues arising out of procurements. These issues include, but are not 
limited to source evaluation, protests, disputes, and claims. These 
standards do not relieve the grantee or subgrantee of any contractual 
responsibilities under its contracts. Federal agencies will not 
substitute their judgment for that of the grantee or subgrantee unless 
the matter is primarily a Federal concern. Violations of law will be 
referred to the local, State, or Federal authority having proper 
jurisdiction.
    (12) Grantees and subgrantees will have protest procedures to 
handle and resolve disputes relating to their procurements and shall in 
all instances disclose information regarding the protest to the 
awarding agency. A protester 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 sub-grantee's protest 
procedures for failure to review a complaint or protest. Protests 
received by the Federal agency other than those specified in this 
paragraph (b)(12)(ii) 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 this section. 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 statutory 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 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 $25,000 in the 
aggregate. If small purchase procurements are used, price or rate 
quotations will be obtained from an adequate number of qualified 
sources.
    (2) Procurement by sealed bids (formal advertising). Bids are 
publicly solicited and a firm-fixed-price contract (lump sum or unit 
price) is awarded to the responsible bidder whose bid, conforming with 
all the material terms and conditions of the invitation for bids, is 
the lowest in price. The sealed bid method is the preferred method for 
procuring construction, if the conditions in paragraph (d)(2)(i) of 
this section apply.
    (i) In order for sealed bidding to be feasible, the following 
conditions should be present:
    (A) A complete, adequate, and realistic specification or purchase 
description is available;
    (B) Two or more responsible bidders are willing and able to compete 
effectively for the business; and
    (C) The procurement lends itself to a firm fixed price contract and 
the selection of the successful bidder can be made principally on the 
basis of price.
    (ii) If sealed bids are used, the following requirements apply:
    (A) The invitation for bids will be publicly advertised and bids 
shall be solicited from an adequate number of known suppliers, 
providing them sufficient time prior to the date set for opening the 
bids;
    (B) The invitation for bids, which will include any specifications 
and pertinent attachments, shall define the items or services in order 
for the bidder to properly respond;
    (C) All bids will be publicly opened at the time and place 
prescribed in the invitation for bids;
    (D) A firm fixed-price contract award will be made in writing to 
the lowest responsive and responsible bidder. Where specified in 
bidding documents, factors such as discounts, transportation cost, and 
life cycle costs shall be considered in determining which bid is 
lowest. Payment discounts will only be used to determine the low bid 
when prior experience indicates that such discounts are usually taken 
advantage of; and
    (E) Any or all bids may be rejected if there is a sound documented 
reason.
    (3) Procurement by competitive proposals. The technique of 
competitive proposals is normally conducted with more than one source 
submitting an offer, and either a fixed-price or cost-reimbursement 
type contract is awarded. It is generally used when conditions are not 
appropriate for the use of sealed bids. If this method is used, the 
following requirements apply:
    (i) Requests for proposals will be publicized and identify all 
evaluation factors and their relative importance. Any response to 
publicized requests for proposals shall be honored to the maximum 
extent practical;
    (ii) Proposals will be solicited from an adequate number of 
qualified sources;
    (iii) Grantees and subgrantees will have a method for conducting 
technical evaluations of the proposals received and for selecting 
awardees;
    (iv) Awards will be made to the responsible firm whose proposal is 
most advantageous to the program, with price and other factors 
considered; and
    (v) Grantees and subgrantees may use competitive proposal 
procedures for qualifications-based procurement of architectural/
engineering (A/E) professional services whereby competitors' 
qualifications are evaluated and the most qualified competitor is 
selected, subject to negotiation of fair and reasonable compensation. 
The method, where price is not used as a selection factor, can only be 
used in procurement of A/E professional services. It cannot be used to 
purchase other types of services though A/E firms are a potential 
source to perform the proposed effort.
    (4) Procurement by noncompetitive proposals. This procurement is 
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 profit, is required.
    (iii) Grantees and subgrantees may be required to submit the 
proposed procurement to the awarding agency for pre-award review in 
accordance with paragraph (g) of this section.
    (e) Contracting with small and minority firms, women's business 
enterprise and labor surplus area firms. (1) The grantee and subgrantee 
will take all necessary affirmative steps to assure that minority 
firms, women's business enterprises, and labor surplus area firms are 
used when possible.
    (2) Affirmative steps shall include:
    (i) Placing qualified small and minority businesses and women's 
business enterprises on solicitation lists;
    (ii) Assuring that small and minority businesses, and women's 
business enterprises are solicited whenever they are potential sources;
    (iii) Dividing total requirements, when economically feasible, into 
smaller tasks or quantities to permit maximum participation by small 
and minority business, and women's business enterprises;
    (iv) Establishing delivery schedules, where the requirement 
permits, which encourage participation by small and minority business, 
and women's business enterprises;
    (v) Using the services and assistance of the Small Business 
Administration, and the Minority Business Development Agency of the 
Department of Commerce; and
    (vi) Requiring the prime contractor, if subcontracts are to be let, 
to take the affirmative steps listed in paragraphs (e)(2) (i) through 
(v) of this section.
    (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 incurred or cost 
estimates included in negotiated prices are consistent with Federal 
cost principles (see Sec. 2541.220). 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 $25,000 and is to be 
awarded without competition or only one bid or offer is received in 
response to a solicitation; or
    (iii) The procurement, which is expected to exceed $25,000, 
specifies a ``brand name'' product; or
    (iv) The proposed award over $25,000 is to be awarded to other than 
the apparent low bidder under a sealed bid procurement; or
    (v) A proposed contract modification changes the scope of a 
contract or increases the contract amount by more than $25,000.
    (3) A grantee or subgrantee will be exempt from the pre-award 
review in paragraph (g)(2) of this section if the awarding agency 
determines that its procurement systems comply with the standards of 
this section.
    (i) A grantee or subgrantee may request that its procurement system 
be reviewed by the awarding agency to determine whether its system 
meets 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 $100,000, the awarding agency may 
accept the bonding policy and requirements of the grantee or subgrantee 
provided the awarding agency has made a determination that the awarding 
agency's interest is adequately protected. If such a determination has 
not been made, the minimum requirements shall be as follows:
    (1) A bid guarantee 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 
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 this paragraph of this section. Federal 
agencies are permitted to require changes, remedies, changed 
conditions, access and records retention, suspension of work, and other 
clauses approved by the Office of Procurement Policy.
    (1) Administrative, contractual, or legal remedies in instances 
where contractors violate or breach contract terms, and provide for 
such sanctions and penalties as may be appropriate (contracts other 
than small purchases).
    (2) Termination for cause and for convenience by the grantee or 
subgrantee including the manner by which it will be effected and the 
basis for settlement (all contracts in excess of $10,000).
    (3) Compliance with Executive Order 11246 of September 24, 1965 (3 
CFR, 1964-1965 Comp., p. 339) entitled ``Equal Employment 
Opportunity,'' as amended by Executive Order 11375 of October 13, 1967 
(3 CFR, 1966-1970 Comp., p. 684) 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 a-7) as 
supplemented by Department of Labor regulations (29 CFR part 5) 
(construction contracts in excess of $2,000 awarded by grantees and 
subgrantees when required by Federal grant program legislation).
    (6) Compliance with sections 103 and 107 of the Contract Work Hours 
and Safety Standards Act (40 U.S.C. 327-330) as supplemented by 
Department of Labor regulations (29 CFR part 5) (construction contracts 
awarded by grantees and subgrantees in excess of $2,000, and in excess 
of $2,500 for other contracts which involve the employment of mechanics 
or laborers).
    (7) Notice of awarding agency requirements and regulations 
pertaining to reporting.
    (8) Notice of awarding agency requirements and regulations 
pertaining to patent rights with respect to any discovery or invention 
which arises or is developed in the course of or under such contract.
    (9) Awarding agency requirements and regulations pertaining to 
copyrights and rights in data.
    (10) Access by the grantee, the subgrantee, the Federal grantor 
agency, the Comptroller General of the United States, or any of their 
duly authorized representatives to any books, documents, papers, and 
records of the contractor which are directly pertinent to that specific 
contract for the purpose of making audit, examination, excerpts, and 
transcriptions.
    (11) Retention of all required records for three years after 
grantees or subgrantees make final payments and all other pending 
matters are closed.
    (12) Compliance with all applicable standards, orders, or 
requirements issued under section 306 of the Clear Air Act (42 U.S.C. 
1857(h)), section 508 of the Clean Water Act (33 U.S.C. 1368), 
Executive Order 11738 (3 CFR, 1971-1975 Comp., p. 799), 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 (42 U.S.C. 6201 
et seq.).


Sec. 2541.370  Subgrants.

    (a) States. States shall follow State law and procedures when 
awarding and administering subgrants (whether on a cost reimbursement 
or fixed amount basis) of financial assistance to local and Indian 
tribal governments. States shall:
    (1) Ensure that every subgrant includes any clauses required by 
Federal statute and executive orders and their implementing 
regulations;
    (2) Ensure that subgrantees are aware of requirements imposed upon 
them by Federal statute and regulation;
    (3) Ensure that a provision for compliance with Sec. 2541.400 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) Sec. 2541.100;
    (2) Sec. 2541.110;
    (3) The letter-of-credit procedures specified in Treasury 
Regulations at 31 CFR part 205, cited in Sec. 2541.210; and
    (4) Sec. 2541.500.

Subpart E--Reports, Records, Retention and Enforcment


Sec. 2541.400  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.
    (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) Site visits. 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. 2541.410  Financial reporting.

    (a) General.--(1) Except as provided in paragraphs (a) (2) and (5) 
of this section, grantees will use only the forms specified in 
paragraphs (a) through (e) of this section, and such supplementary or 
other forms as may from time to time be authorized by OMB, for:
    (i) Submitting financial reports to Federal agencies; or
    (ii) Requesting advances or reimbursements when letters of credit 
are not used.
    (2) Grantees need not apply the forms prescribed in this section in 
dealing with their subgrantees. However, grantees shall not impose more 
burdensome requirements on subgrantees.
    (3) Grantees shall follow all applicable standard and supplemental 
Federal agency instructions approved by OMB to the extent required 
under the Paperwork Reduction Act of 1980 for use in connection with 
forms specified in paragraphs (b) through (e) of this section. Federal 
agencies may issue substantive supplementary instructions only with the 
approval of OMB. Federal agencies may shade out or instruct the grantee 
to disregard any line item that the Federal agency finds unnecessary 
for its decision making purposes.
    (4) Grantees will not be required to submit more than the original 
and two copies of forms required under this part.
    (5) Federal agencies may provide computer outputs to grantees to 
expedite or contribute to the accuracy of reporting. Federal agencies 
may accept the required information from grantees in machine usable 
format or computer printouts instead of prescribed forms.
    (6) Federal agencies may waive any report required by this section 
if not needed.
    (7) Federal agencies may extend the due date of any financial 
report upon receiving a justified request from a grantee.
    (b) Financial Status Report.--(1) Form. Grantees will use Standard 
Form 269 or 269A, Financial Status Report, to report the status of 
funds for all nonconstruction grants and for construction grants when 
required in accordance with paragraph (e)(2)(iii) of this section.
    (2) Accounting basis. Each grantee will report program outlays and 
program income on a cash or accrual basis as prescribed by the awarding 
agency. If the Federal agency requires accrual information and the 
grantee's accounting records are not normally kept on the accrual 
basis, the grantee shall not be required to convert its accounting 
system but shall develop such accrual information through an analysis 
of the documentation on hand.
    (3) Frequency. The Federal agency may prescribe the frequency of 
the report for each project or program. However, the report will not be 
required more frequently than quarterly. If the Federal agency does not 
specify the frequency of the report, it will be submitted annually. A 
final report will be required upon expiration or termination of grant 
support.
    (4) Due date. When reports are required on a quarterly or 
semiannual basis, they will be due 30 days after the reporting period. 
When required on an annual basis, they will be due 90 days after the 
grant year. Final reports will be due 90 days after the expiration or 
termination of grant support.
    (c) Federal Cash Transactions Report.--(1) Form. (i) For grants 
paid by letter 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 
paragraph (b)(3) of this section.
    (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 paragraph (d) of this section, instead of this form.
    (ii) The frequency for submitting reimbursement requests is treated 
in paragraph (b)(3) of this section.
    (2) Grants that support construction activities paid by letter of 
credit, electronic funds transfer or Treasury check advance. (i) When a 
construction grant is paid by letter of credit, electronic funds 
transfer or Treasury check advances, the grantee will report its 
outlays to the Federal agency using Standard Form 271, Outlay Report 
and Request for Reimbursement for Construction Programs. The Federal 
agency will provide any necessary special instruction. However, 
frequency and due date shall be governed by paragraphs (b) (3) and (4) 
of this section.
    (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 paragraph (d) of this section.
    (iii) The Federal agency may substitute the Financial Status Report 
specified in paragraph (b) of this section 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 paragraph (b)(2) of this section.


Sec. 2541.420  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. 2541.360(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 charge back rates or composite fringe benefit rates).
    (i) If submitted for negotiation. If the proposal, plan, or other 
computation is required to be submitted to the Federal Government (or 
to the grantee) to form the basis for negotiation of the rate, then the 
3-year retention period for its supporting records starts from the date 
of such submission.
    (ii) If not submitted for negotiation. If the proposal, plan, or 
other computation is not required to be submitted to the Federal 
Government (or to the grantee) for negotiation purposes, then the 3-
year retention period for the proposal plan, or computation and its 
supporting records starts from end of the fiscal year (or other 
accounting period) covered by the proposal, plan, or other computation.
    (d) Substitution of microfilm. Copies made by microfilming, 
photocopying, or similar methods may be substituted for the original 
records.
    (e) Access to records.--(1) Records of grantees and subgrantees. 
The awarding agency and the Comptroller General of the United States, 
or any of their authorized representatives, shall have the right of 
access to any pertinent books, documents, papers, or other records of 
grantees and subgrantees which are pertinent to the grant, in order to 
make audits, examinations, excerpts, and transcripts.
    (2) Expiration of right of access. The rights of access in this 
section must not be limited to the required retention period but shall 
last as long as the records are retained.
    (f) Restrictions on public access. The Federal Freedom of 
Information Act (5 U.S.C. 552) does not apply to records. Unless 
required by Federal, State, or local law, grantees and subgrantees are 
not required to permit public access to their records.


Sec. 2541.430  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. 2541.350).


Sec. 2541.440  Termination for convenience.

    Except as provided in Sec. 2541.430 awards may be terminated in 
whole or in part only as follows:
    (a) By the awarding agency with the consent of the grantee or 
subgrantee in which case the two parties shall agree upon the 
termination conditions, including the effective date and in the case of 
partial termination, the portion to be terminated; or
    (b) By the grantee or subgrantee upon written notification to the 
awarding agency, setting forth the reasons for such termination, the 
effective date, and in the case of partial termination, the portion to 
be terminated. However, if, in the case of a partial termination, the 
awarding agency determines that the remaining portion of the award will 
not accomplish the purposes for which the award was made, the awarding 
agency may terminate the award in its entirety under either 
Sec. 2541.430 or paragraph (a) of this section.

Subpart F--After the Grant Requirement


Sec. 2541.500  Closeout.

    (a) General. The Federal agency will close out the award when it 
determines that all applicable administrative actions and all required 
work of the grant has been completed.
    (b) Reports. Within 90 days after the expiration or termination of 
the grant, the grantee must submit all financial, performance, and 
other reports required as a condition of the grant. Upon request by the 
grantee, Federal agencies may extend this time frame. These may include 
but are not limited to:
    (1) Final performance or progress report;
    (2) Financial Status Report (SF 269) or Outlay Report and Request 
for Reimbursement for Construction Programs (SF-271) (as applicable);
    (3) Final request for payment (SF-270) (if applicable);
    (4) Invention disclosure (if applicable);
    (5) Federally-owned property report. In accordance with 
Sec. 2541.320(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. 2541.510  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. 2541.420;
    (d) Property management requirements in Secs. 2541.3120 and 
2541.320; and
    (e) Audit requirements in Sec. 2541.410.


Sec. 2541.520  Collection of amounts due.

    (a) Any funds paid to a grantee in excess of the amount to which 
the grantee is finally determined to be entitled under the terms of the 
award constitute a debt to the Federal Government. If not paid within a 
reasonable period after demand, the Federal agency may reduce the debt 
by:
    (1) Making an administrative offset against other requests for 
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.

PART 2542--GOVERNMENTWIDE DEBARMENT AND SUSPENSION (NONPROCUREMENT) 
AND GOVERNMENTWIDE REQUIREMENTS FOR DRUG-FREE WORKPLACE (GRANTS)

Subpart A--General

Sec.
2542.10  Purpose.
2542.20  Definitions.
2542.30  Coverage.
2542.40  Policy.

Subpart B--Effect of Action

2542.100  Debarment or suspension.
2542.110  Ineligible persons.
2542.120  Voluntary exclusion.
2542.130  Exception provision.
2542.140  Continuation of covered transactions.
2542.150  Failure to adhere to restrictions.

Subpart C--Debarment

2542.200  General.
2542.210  Causes for debarment.
2542.220  Procedures.
2542.230  Investigation and referral.
2542.240  Notice of proposed debarment.
2542.250  Opportunity to contest proposed debarment.
2542.260  Debarring officials decision.
2542.270  Settlement and voluntary exclusion.
2542.280  Period of debarment.
2542.290  Scope of debarment.

Subpart D--Suspension

2542.300  General.
2542.310  Causes for suspension.
2542.320  Procedures.
2542.330  Notice of suspension.
2542.340  Opportuntiy to contest suspension.
2542.350  Suspending official's decision.
2542.360  Period of suspension.
2542.370  Scope of suspension.

Subpart E--Responsibilities of GSA, Agency and Participants

2542.400  GSA responsibilities.
2542.410  Corporation responsibilities.
2542.420  Participants' responsibilities.

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

2542.500  Purpose.
2542.510  Definitions.
2542.520  Coverage.
2542.530  Grounds for suspension of payments, suspension or 
termination of grants, or suspension or debarment.
2542.540  Effect of violation.
2542.550  Exception provision.
2542.560  Certification requirements and procedures.
2542.570  Reporting of and employee sanctions for convictions of 
criminal drug offenses.

Appendix A to Part 2542--Certification Regarding Debarment, 
Suspension, and other Responsibility Matters--Primary Covered 
Transactions
Appendix B to Part 2542--Certification Regarding Debarment, 
Suspension, Ineligibility and Voluntary Exclusion--Lower Tiered 
Covered Transactions
Appendix C to Part 2542--Certification Regarding Drug-Free Workplace 
Requirements

    Authority: 42 U.S.C. 4951 et seq., 5060 and 12644; E.O. 12549, 
51 FR 6370, February 21, 1986 (3 CFR, 1986 Comp., p. 189).

    Cross Reference: See also Office of Management and Budget notice 
published at 55 FR 21679, May 25, 1990, and the governmentwide 
common rule published at 53 FR 19161, May 26, 1988.

Subpart A--General


Sec. 2542.10  Purpose.

    (a) Executive Order 12549 (3 CFR, 1986 Comp., p. 189) provides 
that, to the extent permitted by law, Executive departments and 
agencies shall participate in a governmentwide system for 
nonprocurement debarment and suspension. A person who is debarred or 
suspended shall be excluded from Federal financial and nonfinancial 
assistance and benefits under Federal programs and activities. 
Debarment or suspension of a participant in a program by one agency 
shall have governmentwide effect.
    (b) The regulations in this part implement section 3 of Executive 
Order 12549 and the guidelines promulgated by the Office of Management 
and Budget under section 6 of the Executive Order by:
    (1) Prescribing the programs and activities that are covered by the 
governmentwide system;
    (2) Prescribing the governmentwide criteria and governmentwide 
minimum due process procedures that each agency shall use;
    (3) Providing for the listing of debarred and suspended 
participants, participants declared ineligible (see definition of 
``ineligible'' in Sec. 2542.20), and participants who have voluntarily 
excluded themselves from participation in covered transactions;
    (4) Setting forth the consequences of a debarment, suspension, 
determination of ineligibility, or voluntary exclusion; and
    (5) Offering such other guidance as necessary for the effective 
implementation and administration of the governmentwide system.
    (c) Although the regulations in this part cover the listing of 
ineligible participants and the effect of such listing, they do not 
prescribe policies and procedures governing declarations of 
ineligibility.


Sec. 2542.20  Definitions.

    Adequate evidence. The term adequate evidence means information 
sufficient to support the reasonable belief that a particular act or 
omission has occurred.
    Affiliate. The term affiliate means persons are affiliates of each 
other if, directly or indirectly, either one controls or has the power 
to control the other, or, a third person controls or has the power to 
control both. Indicia of control include, but are not limited to: 
Interlocking management or ownership, identity of interests among 
family members, shared facilities and equipment, common use of 
employees, or a business entity organized following the suspension or 
debarment of a person which has the same or similar management, 
ownership, or principal employees as the suspended, debarred, 
ineligible, or voluntarily excluded person.
    Agency. The term agency means any executive department, military 
department or defense agency or other agency of the executive branch, 
excluding the independent regulatory agencies.
    Civil judgment. The term civil judgment means the disposition of a 
civil action by any court of competent jurisdiction, whether entered by 
verdict, decision, settlement, stipulation, or otherwise creating a 
civil liability for the wrongful acts complained of; or a final 
determination of liability under the Program Fraud Civil Remedies Act 
of 1988 (31 U.S.C. 3801-12).
    Conviction. The term conviction means a judgment of conviction of a 
criminal offense by any court of competent jurisdiction, whether 
entered upon a verdict or a plea, including a plea of nolo contendere.
    Debarment. The term debarment means an action taken by a debarring 
official in accordance with these regulations to exclude a person from 
participating in covered transactions. A person so excluded is 
``debarred.''
    Debarring official. The term debarring official means an official 
authorized to impose debarment. The debarring official is either:
    (1) The agency head; or
    (2) An official designated by the agency head.
    Indictment. Indictment for a criminal offense. An information or 
other filing by competent authority charging a criminal offense shall 
be given the same effect as an indictment.
    Ineligible. The term ineligible means excluded from participation 
in Federal nonprocurement programs pursuant to a determination of 
ineligibility under statutory, executive order, or regulatory 
authority, other than Executive Order 12549 and its agency implementing 
regulations; for example, excluded pursuant to the Davis-Bacon Act and 
its implementing regulations, the equal employment opportunity acts and 
executive orders, or the environmental protection acts and executive 
orders. A person is ineligible where the determination of ineligibility 
affects such person's eligibility to participate in more than one 
covered transaction.
    Legal proceedings. The term legal proceedings means any criminal 
proceeding or any civil judicial proceeding to which the Federal 
Government or a State or local government or quasi-governmental 
authority is a party. The term includes appeals from such proceedings.
    Nonprocurement list. The term nonprocurement list means a portion 
of the List of Parties Excluded from Federal Procurement or 
Nonprocurement Programs compiled, maintained and distributed by the 
General Services Administration (GSA) containing the names and other 
information about persons who have been debarred, suspended, or 
voluntarily excluded under Executive Order 12549 and this part, and 
those who have been determined to be ineligible.
    Notice. The term notice means a written communication served in 
person or sent by certified mail, return receipt requested, or its 
equivalent, to the last known address of a party, its identified 
counsel, its agent for service of process, or any partner, officer, 
director, owner, or joint venturer of the party. Notice, if 
undeliverable, shall be considered to have been received by the 
addressee five days after being properly sent to the last address known 
by the agency.
    Participant. The term participant means any person who submits a 
proposal for, enters into, or reasonably may be expected to enter into 
a covered transaction. This term also includes any person who acts on 
behalf of or is authorized to commit a participant in a covered 
transaction as an agent or representative of another participant.
    Person. The term person means any individual, corporation, 
partnership, association, unit of government or legal entity, however 
organized, except: Foreign governments or foreign governmental 
entities, public international organizations, foreign government owned 
(in whole or in part) or controlled entities, and entities consisting 
wholly or partially of foreign governments or foreign governmental 
entities.
    Preponderance of the evidence. The term preponderance of the 
evidence means proof by information that, compared with that opposing 
it, leads to the conclusion that the fact at issue is more probably 
true than not.
    Principal. The term principal means an officer, director, owner, 
partner, key employee, or other person within a participant with 
primary management or supervisory responsibilities; or a person who has 
a critical influence on or substantive control over a covered 
transaction, whether or not employed by the participant. Persons who 
have a critical influence on or substantive control over a covered 
transaction are principal investigators.
    Proposal. The term proposal means a solicited or unsolicited bid, 
application, request, invitation to consider or similar communication 
by or on behalf of a person seeking to participate or to receive a 
benefit, directly or indirectly, in or under a covered transaction.
    Respondent. The term respondent means a person against whom a 
debarment or suspension action has been initiated.
    State. The term state means any of the States of the United States, 
the District of Columbia, the Commonwealth of Puerto Rico, any 
territory or possession of the United States, or any agency of a State, 
exclusive of institutions of higher education, hospitals, and units of 
local government. A State instrumentality will be considered part of 
the State government if it has a written determination from a State 
government that such State considers that instrumentality to be an 
agency of the State government.
    Suspending official. The term suspending official means an official 
authorized to impose suspension. The suspending official is either:
    (1) The agency head; or
    (2) An official designated by the agency head.
    Suspension. The term suspension means an action taken by a 
suspending official in accordance with these regulations that 
immediately excludes a person from participating in covered 
transactions for a temporary period, pending completion of an 
investigation and such legal, debarment, or Program Fraud Civil 
Remedies Act proceedings as may ensue. A person so excluded is 
``suspended.''
    Voluntary exclusion (or) voluntarily excluded. The term voluntary 
exclusion (or) voluntarily excluded means a status of nonparticipation 
or limited participation in covered transactions assumed by a person 
pursuant to the terms of a settlement.


Sec. 2542.30  Coverage.

    (a) The regulations in this part apply to all persons who have 
participated, are currently participating or may reasonably be expected 
to participate in transactions under Federal nonprocurement programs. 
For purposes of the regulations in this part such transactions will be 
referred to as ``covered transactions.''
    (1) Covered transaction. For purposes of the regulations in this 
part, a covered transaction is a primary covered transaction or a lower 
tier covered transaction. Covered transactions at any tier need not 
involve the transfer of Federal funds.
    (i) Primary covered transaction. Except as noted in paragraph 
(a)(2) of this section, a primary covered transaction is any 
nonprocurement transaction between an agency and a person, regardless 
of type, including: Grants, cooperative agreements, scholarships, 
fellowships, contracts of assistance, loans, loan guarantees, 
subsidies, insurance, payments for specified use, donation agreements 
and any other nonprocurement transactions between a Federal agency and 
a person. Primary covered transactions also include those transactions 
specially designated by the U.S. Department of Housing and Urban 
Development in such agency's regulations governing debarment and 
suspension.
    (ii) Lower tier covered transaction. A lower tier covered 
transaction is:
    (A) Any transaction between a participant and a person other than a 
procurement contract for goods or services, regardless of type, under a 
primary covered transaction.
    (B) Any procurement contract for goods or services between a 
participant and a person, regardless of type, expected to equal or 
exceed the Federal procurement small purchase threshold fixed at 10 
U.S.C. 2304(g) and 41 U.S.C. 253(g) (currently $25,000) under a primary 
covered transaction.
    (C) Any procurement contract for goods or services between a 
participant and a person under a covered transaction, regardless of 
amount, under which that person will have a critical influence on or 
substantive control over that covered transaction. Such persons are:
    (1) Principal investigators.
    (2) Providers of federally-required audit services.
    (3) Exceptions. The following transactions are not covered:
    (i) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (ii) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, entities 
consisting wholly or partially of foreign governments or foreign 
governmental entities;
    (iii) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits 
received in an individual's business capacity are not excepted);
    (iv) Federal employment;
    (v) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (vi) Incidental benefits derived from ordinary governmental 
operations; and
    (vii) Other transactions where the application of these regulations 
would be prohibited by law.
    (b) Relationship to other sections. This section describes the 
types of transactions to which a debarment or suspension under this 
part will apply. Subpart B, ``Effect of Action,'' Sec. 2542.50, 
``Debarment or suspension,'' sets forth the consequences of a debarment 
or suspension. Those consequences would obtain only with respect to 
participants and principals in the covered transactions and activities 
described in Sec. 2542.30(a). Sections 2542.200 ``Scope of debarment,'' 
and 2542.280, ``Scope of suspension,'' govern the extent to which a 
specific participant or organizational elements of a participant would 
be automatically included within a debarment or suspension action, and 
the conditions under which affiliates or persons associated with a 
participant may also be brought within the scope of the action.
    (c) Relationship to Federal procurement activities. Debarment and 
suspension of Federal procurement contractors and subcontractors under 
Federal procurement contracts are covered by the Federal Acquisition 
Regulation (FAR), 48 CFR part 9, subpart 9.4.


Sec. 2542.40  Policy.

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

Subpart B--Effect of Action


Sec. 2542.100  Debarment or suspension.

    (a) Primary covered transactions. Except to the extent prohibited 
by law, persons who are debarred or suspended shall be excluded from 
primary covered transactions as either participants or principals 
throughout the executive branch of the Federal Government for the 
period of their debarment or suspension. Accordingly, no agency shall 
enter into primary covered transactions with such debarred or suspended 
persons during such period, except as permitted pursuant to 
Sec. 2542.130.
    (b) Lower tier covered transactions. Except to the extent 
prohibited by law, persons who have been debarred or suspended shall be 
excluded from participating as either participants or principals in all 
lower tier covered transactions (see Sec. 2542.30(a)(1)(ii)) for the 
period of their debarment or suspension.
    (c) Exceptions. Debarment or suspension does not affect a person's 
eligibility for:
    (1) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (2) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, and 
entities consisting wholly or partially of foreign governments or 
foreign governmental entities;
    (3) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits 
received in an individual's business capacity are not excepted);
    (4) Federal employment;
    (5) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (6) Incidental benefits derived from ordinary governmental 
operations; and
    (7) Other transactions where the application of this part would be 
prohibited by law.


Sec. 2542.110  Ineligible persons.

    Persons who are ineligible, as defined in Sec. 2542.20, are 
excluded in accordance with the applicable statutory, executive order, 
or regulatory authority.


Sec. 2542.120  Voluntary exclusion.

    Persons who accept voluntary exclusions under Sec. 2542.270 are 
excluded in accordance with the terms of their settlements. Corporation 
shall, and participants may, contact the original action agency to 
ascertain the extent of the exclusion.


Sec. 2542.130  Exception provision.

    The Corporation may grant an exception permitting a debarred, 
suspended, or voluntarily excluded person to participate in a 
particular covered transaction upon a written determination by the 
agency head or an authorized designee stating the reason(s) for 
deviating from the Presidential policy established by Executive Order 
12549 and Sec. 2542.100. However, in accordance with the President's 
stated intention in the Executive Order, exceptions shall be granted 
only infrequently. Exceptions shall be reported in accordance with 
Sec. 2542.410(a).


Sec. 2542.140  Continuation of covered transactions.

    (a) Notwithstanding the debarment, suspension, 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, declared 
ineligible, or voluntarily excluded. A decision as to the type of 
termination action, if any, to be taken should be made only after 
thorough review to ensure the propriety of the proposed action.
    (b) Agencies and participants shall not renew or extend covered 
transactions (other than no-cost time extensions) with any person who 
is debarred, suspended, ineligible, or voluntarily excluded, except as 
provided in Sec. 2542.130.


Sec. 2542.150  Failure to adhere to restrictions.

    Except as permitted under Sec. 2542.130 or Sec. 2542.140, a 
participant shall not knowingly do business under a covered transaction 
with a person who is debarred or suspended, or with a person who is 
ineligible for or voluntarily excluded from that covered transaction. 
Violation of this restriction 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. A 
participant may rely upon the certification of a prospective 
participant in a lower tier covered transaction that it and its 
principals are not debarred, suspended, ineligible, or voluntarily 
excluded from the covered transaction (see Appendix B of this part), 
unless it knows that the certification is erroneous. An agency has the 
burden of proof that such participant did knowingly do business with 
such a person.

Subpart C--Debarment


Sec. 2542.200  General.

    The debarring official may debar a person for any of the causes in 
Sec. 2542.210, using procedures established in Secs. 2542.220 through 
2542.260. The existence of a cause for debarment, however, does not 
necessarily require that the person be debarred; the seriousness of the 
person's acts or omissions and any mitigating factors shall be 
considered in making any debarment decision.


Sec. 2542.210  Causes for debarment.

    Debarment may be imposed in accordance with the provisions of 
Secs. 2542.200 through 2542.260 for:
    (a) Conviction of or civil judgment for:
    (1) Commission of fraud or a criminal offense in connection with 
obtaining, attempting to obtain, or performing a public or private 
agreement or transaction;
    (2) Violation of Federal or State antitrust statutes, including 
those proscribing price fixing between competitors, allocation of 
customers between competitors, and bid rigging;
    (3) Commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, 
receiving stolen property, making false claims, or obstruction of 
justice; or
    (4) Commission of any other offense indicating a lack of business 
integrity or business honesty that seriously and directly affects the 
present responsibility of a person.
    (b) Violation of the terms of a public agreement or transaction so 
serious as to affect the integrity of an agency program, such as:
    (1) A willful failure to perform in accordance with the terms of 
one or more public agreements or transactions;
    (2) A history of failure to perform or of unsatisfactory 
performance of one or more public agreements or transactions; or
    (3) A willful violation of a statutory or regulatory provision or 
requirement applicable to a public agreement or transaction.
    (c) Any of the following causes:
    (1) A nonprocurement debarment by any Federal agency taken before 
October 1, 1988, the effective date of the Governmentwide debarment and 
suspension (nonprocurement) regulations, or a procurement debarment by 
any Federal agency taken pursuant to 48 CFR part 9, subpart 9.4;
    (2) Knowingly doing business with a debarred, suspended, 
ineligible, or voluntarily excluded person, in connection with a 
covered transaction, except as permitted in Sec. 2542.130 or 
Sec. 2542.140;
    (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. 2542.270 or of any settlement of a 
debarment or suspension action; or
    (5) Violation of any requirement of subpart F of this part, 
relating to providing a drug-free workplace, as set forth in 
Sec. 2542.530 of this part.
    (d) Any other cause of so serious or compelling a nature that it 
affects the present responsibility of a person.


Sec. 2542.220  Procedures.

    The Corporation shall process debarment actions as informally as 
practicable, consistent with the principles of fundamental fairness, 
using the procedures in Secs. 2542.230 through 2542.260.


Sec. 2542.230  Investigation and referral.

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


Sec. 2542.240  Notice of proposed debarment.

    A debarment proceeding shall be initiated by notice to the 
respondent advising:
    (a) That debarment is being considered;
    (b) Of the reasons for the proposed debarment in terms sufficient 
to put the respondent on notice of the conduct or transaction(s) upon 
which it is based;
    (c) Of the cause(s) relied upon under Sec. 2452.210 for proposing 
debarment;
    (d) Of the provisions of Secs. 2542.230 through 2542.260, and any 
other Corporation procedures, if applicable, governing debarment 
decision making; and
    (e) Of the potential effect of a debarment.


Sec. 2542.250  Opportunity to contest proposed debarment.

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


Sec. 2542.260  Debarring official's decision.

    (a) No additional proceedings necessary. In actions based upon a 
conviction or civil judgment, or in which there is no genuine dispute 
over material facts, the debarring official shall make a decision on 
the basis of all the information in the administrative record, 
including any submission made by the respondent. The decision shall be 
made within 45 days after receipt of any information and argument 
submitted by the respondent, unless the debarring official extends this 
period for good cause.
    (b) Additional proceedings necessary. (1) In actions in which 
additional proceedings are necessary to determine disputed material 
facts, written findings of fact shall be prepared. The debarring 
official shall base the decision on the facts as found, together with 
any information and argument submitted by the respondent and any other 
information in the administrative record.
    (2) The debarring official may refer disputed material facts to 
another official for findings of fact. The debarring official may 
reject any such findings, in whole or in part, only after specifically 
determining them to be arbitrary and capricious or clearly erroneous.
    (3) The debarring official's decision shall be made after the 
conclusion of the proceedings with respect to disputed facts.
    (c) (1) Standard of proof. In any debarment action, the cause for 
debarment must be established by a preponderance of the evidence. Where 
the proposed debarment is based upon a conviction or civil judgment, 
the standard shall be deemed to have been met.
    (2) Burden of proof. The burden of proof is on the agency proposing 
debarment.
    (d) Notice of debarring official's decision. (1) If the debarring 
official decides to impose debarment, the respondent shall be given 
prompt notice:
    (i) Referring to the notice of proposed debarment;
    (ii) Specifying the reasons for debarment;
    (iii) Stating the period of debarment, including effective dates; 
and
    (iv) Advising that the debarment is effective for covered 
transactions throughout the executive branch of the Federal Government 
unless an agency head or an authorized designee makes the determination 
referred to in Sec. 2542.130.
    (2) If the debarring official decides not to impose debarment, the 
respondent shall be given prompt notice of that decision. A decision 
not to impose debarment shall be without prejudice to a subsequent 
imposition of debarment by any other agency.


Sec. 2542.270  Settlement and voluntary exclusion.

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


Sec. 2542.280  Period of debarment.

    (a) Debarment shall be for a period commensurate with the 
seriousness of the cause(s). If a suspension precedes a debarment, the 
suspension period shall be considered in determining the debarment 
period.
    (1) Debarment for causes other than those related to a violation of 
the requirements of subpart F of this part generally should not exceed 
three years. Where circumstances warrant, a longer period of debarment 
may be imposed.
    (2) In the case of a debarment for a violation of the requirements 
of subpart F of this part (see Sec. 2542.210(c)(5)), the period of 
debarment shall not exceed five years.
    (b) The debarring official may extend an existing debarment for an 
additional period, if that official determines that an extension is 
necessary to protect the public interest. However, a debarment may not 
be extended solely on the basis of the facts and circumstances upon 
which the initial debarment action was based. If debarment for an 
additional period is determined to be necessary, the procedures of 
Secs. 2542.230 through 2542.260 shall be followed to extend the 
debarment.
    (c) The respondent may request the debarring official to reverse 
the debarment decision or to reduce the period or scope of debarment. 
Such a request shall be in writing and supported by documentation. The 
debarring official may grant such a request for reasons including, but 
not limited to:
    (1) Newly discovered material evidence;
    (2) Reversal of the conviction or civil judgment upon which the 
debarment was based;
    (3) Bona fide change in ownership or management;
    (4) Elimination of other causes for which the debarment was 
imposed; or
    (5) Other reasons the debarring official deems appropriate.


Sec. 2542.290  Scope of debarment.

    (a) Scope in general. (1) Debarment of a person under this part 
constitutes debarment of all its divisions and other organizational 
elements from all covered transactions, unless the debarment decision 
is limited by its terms to one or more specifically identified 
individuals, divisions or other organizational elements or to specific 
types of transactions.
    (2) The debarment action may include any affiliate of the 
participant that is specifically named and given notice of the proposed 
debarment and an opportunity to respond (see Secs. 2542.230 through 
2542.260).
    (b) Imputing conduct. For purposes of determining the scope of 
debarment, conduct may be imputed as follows:
    (1) Conduct imputed to participant. The fraudulent, criminal or 
other seriously improper conduct of any officer, director, shareholder, 
partner, employee, or other individual associated with a participant 
may be imputed to the participant when the conduct occurred in 
connection with the individual's performance of duties for or on behalf 
of the participant, or with the participant's knowledge, approval, or 
acquiescence. The participant's acceptance of the benefits derived from 
the conduct shall be evidence of such knowledge, approval, or 
acquiescence.
    (2) Conduct imputed to individuals associated with participant. The 
fraudulent, criminal, or other seriously improper conduct of a 
participant may be imputed to any officer, director, shareholder, 
partner, employee, or other individual associated with the participant 
who participated in, knew of, or had reason to know of the 
participant's conduct.
    (3) Conduct of one participant imputed to other participants in a 
joint venture. The fraudulent, criminal, or other seriously improper 
conduct of one participant in a joint venture, grant pursuant to a 
joint application, or similar arrangement may be imputed to other 
participants if the conduct occurred for or on behalf of the joint 
venture, grant pursuant to a joint application, or similar arrangement 
or with the knowledge, approval, or acquiescence of these participants. 
Acceptance of the benefits derived from the conduct shall be evidence 
of such knowledge, approval, or acquiescence.

Subpart D--Suspension


Sec. 2542.300  General.

    (a) The suspending official may suspend a person for any of the 
causes in Sec. 2542.310 using procedures established in Secs. 2542.320 
through 2542.350.
    (b) Suspension is a serious action to be imposed only when:
    (1) There exists adequate evidence of one or more of the causes set 
out in Sec. 2542.320; and
    (2) Immediate action is necessary to protect the public interest.
    (c) In assessing the adequacy of the evidence, the agency should 
consider how much information is available, how credible it is given 
the circumstances, whether or not important allegations are 
corroborated, and what inferences can reasonably be drawn as a result. 
This assessment should include an examination of basic documents such 
as grants, cooperative agreements, loan authorizations, and contracts.


Sec. 2542.310  Causes for suspension.

    (a) Suspension may be imposed in accordance with the provisions of 
Secs. 2542.300 through 2542.350 upon adequate evidence:
    (1) To suspect the commission of an offense listed in 
Sec. 2542.300(a); or
    (2) That a cause for debarment under Sec. 2542.300 may exist.
    (b) Indictment shall constitute adequate evidence for purposes of 
suspension actions.


Sec. 2542.320  Procedures.

    (a) Investigation and referral. Information concerning the 
existence of a cause for suspension from any source shall be promptly 
reported, investigated, and referred, when appropriate, to the 
suspending official for consideration. After consideration, the 
suspending official may issue a notice of suspension.
    (b) Decisionmaking process. The Corporation shall process 
suspension actions as informally as practicable, consistent with 
principles of fundamental fairness, using the procedures in 
Secs. 2541.330 through 2542.350.


Sec. 2542.330  Notice of suspension.

    When a respondent is suspended, notice shall immediately be given:
    (a) That suspension has been imposed;
    (b) That the suspension is based on an indictment, conviction, or 
other adequate evidence that the respondent has committed 
irregularities seriously reflecting on the propriety of further Federal 
Government dealings with the respondent;
    (c) Describing any such irregularities in terms sufficient to put 
the respondent on notice without disclosing the Federal Government's 
evidence;
    (d) Of the cause(s) relied upon under Sec. 2542.310 for imposing 
suspension;
    (e) That the suspension is for a temporary period pending the 
completion of an investigation or ensuing legal, debarment, or Program 
Fraud Civil Remedies Act proceedings;
    (f) Of the provisions of Secs. 2542.330 through 2542.350 and any 
other Corporation procedures, if applicable, governing suspension 
decisionmaking; and
    (g) Of the effect of the suspension.


Sec. 2542.340  Opportunity to contest suspension.

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


Sec. 2542.350  Suspending official's decision.

    The suspending official may modify or terminate the suspension (for 
example, see Sec. 2542.280(c) for reasons for reducing the period or 
scope of debatement or may leave it in force. However, a decision to 
modify or terminate the suspension shall be without prejudice to the 
subsequent imposition of suspension by any agency. The decision shall 
be rendered in accordance with the following provisions.
    (a) No additional proceedings necessary. In actions: Based on an 
indictment, conviction, or civil judgment; in which there is no genuine 
dispute over material facts; or in which additional proceedings to 
determine disputed material facts have been denied on the basis of 
Department of Justice advice, the suspending official shall make a 
decision on the basis of all the information in the administrative 
record, including any submission made by the respondent. The decision 
shall be made within 45 days after receipt of any information and 
argument submitted by the respondent, unless the suspending official 
extends this period for good cause.
    (b) Additional proceedings necessary. (1) In actions in which 
additional proceedings are necessary to determine disputed material 
facts, written findings of fact shall be prepared. The suspending 
official shall base the decision on the facts as found, together with 
any information and argument submitted by the respondent and any other 
information in the administrative record.
    (2) The suspending official may refer matters involving disputed 
material facts to another official for findings of fact. The suspending 
official may reject any such findings, in whole or in part, only after 
specifically determining them to be arbitrary or capricious or clearly 
erroneous.
    (c) Notice of suspending official's decision. Prompt written notice 
of the suspending official's decision shall be sent to the respondent.


Sec. 2542.360  Period of suspension.

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


Sec. 2542.370  Scope of suspension.

    The scope of a suspension is the same as the scope of a debarment 
(see Sec. 2542.290) except that the procedures of Secs. 2542.320 
through 2542.350 shall be used in imposing a suspension.

Subpart E--Responsibilities of GSA, Agency and Participants


Sec. 2542.400  GSA responsibilities.

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


Sec. 2542.410  Corporation responsibilities.

    (a) The agency shall provide GSA with current information 
concerning debarments, suspension, determinations of ineligibility, and 
voluntary exclusions it has taken. Until February 18, 1989, the agency 
shall also provide GSA and OMB with information concerning all 
transactions in which the Corporation has granted exceptions under 
Sec. 2542.130 permitting participation by debarred, suspended, or 
voluntarily excluded persons.
    (b) Unless an alternative schedule is agreed to by GSA, the agency 
shall advise GSA of the information set forth in Sec. 2542.400(b) and 
of the exceptions granted under Sec. 2542.130 within five working days 
after taking such actions.
    (c) The agency shall direct inquiries concerning listed persons to 
the agency that took the action.
    (d) Agency officials shall check the Nonprocurement List before 
entering covered transactions to determine whether a participant in a 
primary transaction is debarred, suspended, ineligible, or voluntarily 
excluded.
    (e) Agency officials shall check the Nonprocurement List before 
approving principals or lower tier participants where agency approval 
of the principal or lower tier participant is required under the terms 
of the transaction, to determine whether such principals or 
participants are debarred, suspended, ineligible, or voluntarily 
excluded.


Sec. 2542.420  Participants' responsibilities.

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

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


Sec. 2542.500  Purpose.

    (a) The purpose of this subpart is to carry out the Drug-Free 
Workplace Act of 1988 (41 U.S.C. 701 et seq.) by requiring that--
    (1) A grantee, other than an individual, shall certify to the 
agency that it will provide a drug-free workplace;
    (2) A grantee who is an individual shall certify to the agency 
that, as a condition of the grant, he or she will not engage in the 
unlawful manufacture, distribution, dispensing, possession or use of a 
controlled substance in conducting any activity with the grant.
    (b) Requirements implementing the Drug-Free Workplace Act of 1988 
for contractors with the agency are found at 48 CFR part 9, subpart 
9.4, part 23, subpart 23.5, and part 52, subpart 52.2.


Sec. 2542.510  Definitions.

    (a) Except as amended in this section, the definitions of 
Sec. 2542.20 apply to this subpart.
    (b) For purposes of this subpart--
    (1) Controlled substance. The term controlled substance means a 
controlled substance in schedules I through V of the Controlled 
Substances Act (21 U.S.C. 812), and as further defined by regulation at 
21 CFR 1308.11 through 1308.15;
    (2) Conviction. The term conviction means a finding of guilt 
(including a plea of nolo contendere) or imposition of sentence, or 
both, by any judicial body charged with the responsibility to determine 
violations of the Federal or State criminal drug statutes;
    (3) Criminal drug statute. The term criminal drug statute means a 
Federal or non-Federal criminal statute involving the manufacture, 
distribution, dispensing, use, or possession of any controlled 
substance;
    (4) Drug-free workplace. The term drug-free workplace means a site 
for the performance of work done in connection with a specific grant at 
which employees of the grantee are prohibited from engaging in the 
unlawful manufacture, distribution, dispensing, possession, or use of a 
controlled substance;
    (5) Employee. (i) The term employee means the employee of a grantee 
directly engaged in the performance of work under the grant, including:
    (A) All direct charge employees;
    (B) All indirect charge employees, unless their impact or 
involvement is insignificant to the performance of the grant; and
    (C) Temporary personnel and consultants who are directly engaged in 
the performance of work under the grant and who are on the grantee's 
payroll.
    (ii) This definition does not include workers not on the payroll of 
the grantee (e.g., volunteers, even if used to meet a matching 
requirement; consultants or independent contractors not on the payroll; 
or employees of subrecipients or subcontractors in covered workplaces);
    (6) Federal agency (or agency). The term federal agency (or agency) 
means any United States executive department, military department, 
government corporation, government controlled corporation, any other 
establishment in the executive branch (including the Executive Office 
of the President), or any independent regulatory agency;
    (7) Grant. The term grant means an award of financial assistance, 
including a cooperative agreement, in the form of money, or property in 
lieu of money, by a Federal agency directly to a grantee. The term 
grant includes block grant and entitlement grant programs, whether or 
not exempted from coverage under the grants management government-wide 
common rule on uniform administrative requirements for grants and 
cooperative agreements. The term does not include technical assistance 
that provides services instead of money, or other assistance in the 
form of loans, loan guarantees, interest subsidies, insurance, or 
direct appropriations; or any veterans' benefits to individuals, i.e., 
any benefit to veterans, their families, or survivors by virtue of the 
service of a veteran in the Armed Forces of the United States;
    (8) Grantee. The term grantee means a person who applies for or 
receives a grant directly from a Federal agency (except another Federal 
agency);
    (9) Individual. The term individual means a natural person;
    (10) State. The term State means any of the States of the United 
States, the District of Columbia, the Commonwealth of Puerto Rico, any 
territory or possession of the United States, or any agency of a State, 
exclusive of institutions of higher education, hospitals, and units of 
local government. A State instrumentality will be considered part of 
the State government if it has a written determination from a State 
government that such State considers the instrumentality to be an 
agency of the State government.


Sec. 2542.520  Coverage.

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


Sec. 2542.530  Grounds for suspension of payments, suspension or 
termination of grants, or suspension or debarment.

    A grantee shall be deemed in violation of the requirements of this 
subpart if the agency head or his or her official designee determines, 
in writing, that--
    (a) The grantee has made a false certification under Sec. 2542.560;
    (b) With respect to a grantee other than an individual--
    (1) The grantee has violated the certification by failing to carry 
out the requirements of paragraphs (A) (a)-(g) and/or (B) of the 
certification (Alternate I in Appendix C of this part); or
    (2) Such a number of employees of the grantee have been convicted 
of violations of criminal drug statutes for violations occurring in the 
workplace as to indicate that the grantee has failed to make a good 
faith effort to provide a drug-free workplace; or
    (c) With respect to a grantee who is an individual--
    (1) The grantee has violated the certification by failing to carry 
out its requirements (Alternate II of Appendix C of this part); or
    (2) The grantee is convicted of a criminal drug offense resulting 
from a violation occurring during the conduct of any grant activity.


Sec. 2542.540  Effect of violation.

    (a) In the event of a violation of this subpart as provided in 
Sec. 2542.520, and in accordance with applicable law, the grantee shall 
be subject to one or more of the following actions:
    (1) Suspension of payments under the grant;
    (2) Suspension or termination of the grant; and
    (3) Suspension or debarment of the grantee under the provisions of 
this part.
    (b) Upon issuance of any final decision under this part requiring 
debarment of a grantee, the debarred grantee shall be ineligible for 
award of any grant from any Federal agency for a period specified in 
the decision, not to exceed five years (see Sec. 2542.280(a)(2)).


Sec. 2542.550  Exception provision.

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


Sec. 2542.560  Certification requirements and procedures.

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


Sec. 2542.570  Reporting of and employee sanctions for convictions of 
criminal drug offenses.

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

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

Appendix A To Part 2542--Certification Regarding Debarment, Suspension, 
And Other Responsibility Matters--Primarily Covered Transactions

Instructions for Certification

    1. By signing and submitting this proposal, the prospective 
primary participant is providing the certification set out below.
    2. The inability of a person to provide the certification 
required below will not necessarily result in denial of 
participation in this covered transaction. The prospective 
participant shall submit an explanation of why it cannot provide the 
certification set out below. The certification or explanation will 
be considered in connection with the department or agency's 
determination whether to enter into this transaction. However, 
failure of the prospective primary participant to furnish a 
certification or an explanation shall disqualify such person from 
participation in this transaction.
    3. The certification in this clause is a material representation 
of fact upon which reliance was placed when the department or agency 
determined to enter into this transaction. If it is later determined 
that the prospective primary participant knowingly rendered an 
erroneous certification, in addition to other remedies available to 
the Federal Government, the department or agency may terminate this 
transaction for cause or default.
    4. The prospective primary participant shall provide immediate 
written notice to the department or agency to whom this proposal is 
submitted if at any time the prospective primary participant learns 
that its certification was erroneous when submitted or has become 
erroneous by reason of changed circumstances.
    5. The terms ``covered transaction,'' ``debarred,'' 
``suspended,'' ``ineligible,'' ``lower tier covered transaction,'' 
``participant,'' ``person,'' ``primary covered transaction,'' 
``principal,'' ``proposal,'' and ``voluntarily excluded,'' as used 
in this clause, have the meanings set out in the Definitions and 
Coverage sections of the rules implementing Executive Order 12549. 
You may contact the department or agency to which this proposal is 
being submitted for assistance in obtaining a copy of those 
regulations.
    6. The prospective primary participant agrees by submitting this 
proposal that, should the proposed covered transaction be entered 
into, it shall not knowingly enter into any lower tier covered 
transaction with a person who is debarred, suspended, declared 
ineligible, or voluntarily excluded from participation in this 
covered transaction, unless authorized by the department or agency 
entering into this transaction.
    7. The prospective primary participant further agrees by 
submitting this proposal that it will include the clause titled 
``Certification Regarding Debarment, Suspension, Ineligibility and 
Voluntary Exclusion--Lower Tier Covered Transaction,'' provided by 
the department or agency entering into this covered transaction, 
without modification, in all lower tier covered transactions and in 
all solicitations for lower tier covered transactions.
    8. A participant in a covered transaction may rely upon a 
certification of a prospective participant in a lower tier covered 
transaction that it is not debarred, suspended, ineligible, or 
voluntarily excluded from the covered transaction, unless it knows 
that the certification is erroneous. A participant may decide the 
method and frequency by which it determines the eligibility of its 
principals. Each participant may, but is not required to, check the 
Nonprocurement List.
    9. Nothing contained in the foregoing shall be construed to 
require establishment of a system of records in order to render in 
good faith the certification required by this clause. The knowledge 
and information of a participant is not required to exceed that 
which is normally possessed by a prudent person in the ordinary 
course of business dealings.
    10. Except for transactions authorized under paragraph 6 of 
these instructions, if a participant in a covered transaction 
knowingly enters into a lower tier covered transaction with a person 
who is suspended, debarred, ineligible, or voluntarily excluded from 
participation in this transaction, in addition to other remedies 
available to the Federal Government, the department or agency may 
terminate this transaction for cause or default.

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

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

Appendix B To Part 2542--Certification, Regarding Debarment, 
Suspension, Ineligibility, and Voluntary Exclusion--Lower Tier Covered 
Transactions

Instructions for Certification

    1. By signing and submitting this proposal, the prospective 
lower tier participant is providing the certification set out below.
    2. The certification in this clause is a material representation 
of fact upon which reliance was placed when this transaction was 
entered into. If it is later determined that the prospective lower 
tier participant knowingly rendered an erroneous certification, in 
addition to other remedies available to the Federal Government, the 
department or agency with which this transaction originated may 
pursue available remedies, including suspension and/or debarment.
    3. The prospective lower tier participant shall provide 
immediate written notice to the person to which this proposal is 
submitted if at any time the prospective lower tier participant 
learns that its certification was erroneous when submitted or has 
become erroneous by reason of changed circumstances.
    4. The terms ``covered transaction,'' ``debarred,'' 
``suspended,'' ``ineligible,'' ``lower tier covered transaction,'' 
``participant,'' ``person,'' ``primary covered transaction,'' 
``principal,'' ``proposal,'' and ``voluntarily excluded,'' as used 
in this clause, have the meanings set out in the Definitions and 
Coverage sections of rules implementing Executive Order 12549. You 
may contact the person to which this proposal is submitted for 
assistance in obtaining a copy of those regulations.
    5. The prospective lower tier participant agrees by submitting 
this proposal that, should the proposed covered transaction be 
entered into, it shall not knowingly enter into any lower tier 
covered transaction with a person who is debarred, suspended, 
declared ineligible, or voluntarily excluded from participation in 
this covered transaction, unless authorized by the department or 
agency with which this transaction originated.
    6. The prospective lower tier participant further agrees by 
submitting this proposal that it will include this clause titled 
``Certification Regarding Debarment, Suspension, Ineligibility and 
Voluntary Exclusion--Lower Tier Covered Transaction,'' without 
modification, in all lower tier covered transactions and in all 
solicitations for lower tier covered transactions.
    7. A participant in a covered transaction may rely upon a 
certification of a prospective participant in a lower tier covered 
transaction that it is not debarred, suspended, ineligible, or 
voluntarily excluded from the covered transaction, unless it knows 
that the certification is erroneous. A participant may decide the 
method and frequency by which it determines the eligibility of its 
principals. Each participant may, but is not required to, check the 
Nonprocurement List.
    8. Nothing contained in the foregoing shall be construed to 
require establishment of a system of records in order to render in 
good faith the certification required by this clause. The knowledge 
and information of a participant is not required to exceed that 
which is normally possessed by a prudent person in the ordinary 
course of business dealings.
    9. Except for transactions authorized under paragraph 5 of these 
instructions, if a participant in a covered transaction knowingly 
enters into a lower tier covered transaction with a person who is 
suspended, debarred, ineligible, or voluntarily excluded from 
participation in this transaction, in addition to other remedies 
available to the Federal Government, the department of agency with 
which this transaction originated may pursue available remedies, 
including suspension and/or debarment.

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

    (1) The prospective lower tier participant certifies, by 
submission of this proposal, that neither it nor its principals is 
presently debarred, suspended, proposed for debarment, declared 
ineligible, or voluntarily excluded from participation in this 
transaction by any Federal department or agency.
    (2) Where the prospective lower tier participant is unable to 
certify to any of the statements in this certification, such 
prospective participant shall attach an explanation to this 
proposal.

Appendix C to Part 2542--Certification Regarding Drug-Free Workplace 
Requirements

Instructions for Certification

    1. By signing and/or submitting this application or grant 
agreement, the grantee is providing the certification set out below.
    2. The certification set out below is a material representation 
of fact upon which reliance is placed when the agency awards the 
grant. If it is later determined that the grantee knowingly rendered 
a false certification, or otherwise violates the requirements of the 
Drug-Free Workplace Act, the agency, in addition to any other 
remedies available to the Federal Government, may take action 
authorized under the Drug-Free Workplace Act.
    3. For grantees other than individuals, Alternate I applies.
    4. For grantees who are individuals, Alternate II applies.
    5. Workplaces under grants, for grantees other than individuals, 
need not be identified on the certification. If known, they may be 
identified in the grant application. If the grantee does not 
identify the workplaces at the time of application, or upon award, 
if there is no application, the grantee must keep the identity of 
the workplace(s) on file in its office and make the information 
available for Federal inspection. Failure to identify all known 
workplaces constitutes a violation of the grantee's drug-free 
workplace requirements.
    6. Workplace identifications must include the actual address of 
buildings (or parts of buildings) or other sites where work under 
the grant takes place. Categorical descriptions may be used (e.g., 
all vehicles of a mass transit authority or State highway department 
while in operation, State employees in each local unemployment 
office, performers in concert halls or radio studios).
    7. If the workplace identified to the agency changes during the 
performance of the grant, the grantee shall inform the agency of the 
change(s), if it previously identified the workplaces in question 
(see paragraph five).
    8. Definitions of terms in the Nonprocurement Suspension and 
Debarment common rule and Drug-Free Workplace common rule apply to 
this certification. Grantees' attention is called, in particular, to 
the following definitions from these rules:
    Controlled substance means a controlled substance in Schedules I 
through V of the Controlled Substances Act (21 U.S.C. Sec. 812) and 
as further defined by regulation (21 CFR 1308.11 through 1308.15);
    Conviction means a finding of guilt (including a plea of nolo 
contendere) or imposition of sentence, or both, by any judicial body 
charged with the responsibility to determine violations of the 
Federal or State criminal drug statutes;
    Criminal drug statute means a Federal or non-Federal criminal 
statute involving the manufacture, distribution, dispensing, use, or 
possession of any controlled substance;
    Employee means the employee of a grantee directly engaged in the 
performance of work under a grant, including: (i) All direct charge 
employees; (ii) All indirect charge employees unless their impact or 
involvement is insignificant to the performance of the grant; and, 
(iii) Temporary personnel and consultants who are directly engaged 
in the performance of work under the grant and who are on the 
grantee's payroll. This definition does not include workers not on 
the payroll of the grantee (e.g., volunteers, even if used to meet a 
matching requirement; consultants or independent contractors not on 
the grantee's payroll; or employees of sub recipients or 
subcontractors in covered workplaces).

Certification Regarding Drug-Free Workplace Requirements

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

----------------------------------------------------------------------

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Check [  ] if there are workplaces on file that are not identified 
here.

Alternate II. (Grantees Who Are Individuals)

    (a) The grantee certifies that, as a condition of the grant, he 
or she will not engage in the unlawful manufacture, distribution, 
dispensing, possession, or use of a controlled substance in 
conducting any activity with the grant;
    (b) If convicted of a criminal drug offense resulting from a 
violation occurring during the conduct of any grant activity, he or 
she will report the conviction, in writing, within 10 calendar days 
of the conviction, to every grant officer or other designee, unless 
the Federal agency designates a central point for the receipt of 
such notices. When notice is made to such a central point, it shall 
include the identification number(s) of each affected grant.

[FR Doc. 94-17962 Filed 8-11-94; 8:45 am]
BILLING CODE 6820-BA-P