[Federal Register Volume 60, Number 118 (Tuesday, June 20, 1995)]
[Rules and Regulations]
[Pages 32102-32104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14962]



=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Secretary

24 CFR Part 84

[Docket No. R-95-1736; FR-3639-F-02]
RIN 2501-AB97


Uniform Administrative Requirements for Grants and Agreements 
With Institutions of Higher Education, Hospitals and Other Non-Profit 
Organizations--OMB Circular A-110 (Revised)

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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

SUMMARY: Office of Management and Budget (OMB) Circular A-110 provides 
standards for obtaining consistency and uniformity among Federal 
agencies in the administration of grants and agreements with 
institutions of higher education, hospitals, and other non-profit 
organizations. On September 13, 1994, the Department published a final 
rule which adopted the revised circular as it pertains to HUD. However, 
the September 13, 1994 rule contained, in subpart E, special provisions 
relating to the use of lump sum grants. Therefore, subpart E was 
treated as an interim rule, and the public was invited to submit 
comments on subpart E. This final rule addresses the public comments 
received on subpart E and makes final the provisions of subpart E.

EFFECTIVE DATE: July 20, 1995.

FOR FURTHER INFORMATION CONTACT: Aliceann B. Muller, Policy and 
Evaluation Division, Office of Procurement and Contracts, Department of 
Housing and Urban Development, 451 Seventh Street, SW, Room 5262, 
Washington, DC 20410. Telephone: (202) 708-0294; TDD: (202) 708-1112. 
(These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION: Office of Management and Budget (OMB) 
Circular A-110 provides standards for obtaining consistency and 
uniformity among Federal agencies in the administration of grants and 
agreements with institutions of higher education, hospitals, and other 
non-profit organizations.
    OMB Circular A-110 was issued under the authority of 31 U.S.C. 503 
(the Chief Financial Officers Act), 31 U.S.C. 1111, 41 U.S.C. 405 (the 
Office of Federal Procurement Policy Act), Reorganization Plan No. 2 of 
1970, and E.O. 11541 (``Prescribing the Duties of the Office of 
Management and Budget and the Domestic Policy Council in the Executive 
Office of the President'').
    OMB issued Circular A-110 in 1976 and made a minor revision in 
February 1987. To update the circular, OMB established an interagency 
task force to review the circular. The task force solicited suggestions 
for changes to the circular from university groups, non-profit 
organizations and other interested parties and compared, for 
consistency, the provisions of similar provisions applied to State and 
local governments. On August 27, 1992, OMB published a notice in the 
Federal Register, at 57 FR 39018, requesting comments on proposed 
revisions to OMB Circular A-110. Interested parties were invited to 
submit comments. OMB received over 200 comments from Federal agencies, 
non-profit organizations, professional organizations and others. All 
comments were considered in developing the final revision. On November 
29, 1993, at 58 FR 62992, OMB issued a revised circular which reflects 
the results of these efforts.
    On September 13, 1994, the Department published a final rule which 
adopted the revised circular as it pertains to HUD. However, the 
September 13, 1994 rule contained, in subpart E, special provisions 
relating to the use of lump sum grants. Therefore, subpart E was 
treated as an interim rule, and the public was invited to submit 
comments on subpart E. This final rule addresses the public comments 
received on subpart E and makes final the provisions of subpart E.

Public Comments

    The final rule published on September 13, 1994, at 59 FR 47010, 
invited public comments on Subpart E regarding lump sum grants. One (1) 
commenter, a national association, responded with a series of technical 
questions. Below is a listing of the questions presented and the 
Department's response to each question. The Department's responses set 
forth additional clarifications needed to aid in the commenter's 
understanding of the rule. No changes to the rule are necessary, and 
none are made by this final rule.
    Question: Do these lump sum awards go through the same audit 
process as regular awards? [[Page 32103]] 
    Response: OMB Circular A-133 ``Audits of Institutions of Higher 
Education and Other Nonprofit Organizations'' applies to lump-sum 
awards. However, in responding to a comment on the proposed A-133 
regarding applicability of A-133 to fixed price formula (performance-
based) type grants, OMB said ``Performance-funded programs are subject 
to the requirements of OMB Circular A-133. However, the auditor should 
tailor the auditing procedures to that type of program. For 
performance-funded programs, the auditor's examination should be 
directed to such matters as determining beneficiary eligibility, 
verifying units of service rendered, and controlling program income.'' 
Therefore, the Department's view is that the recipient of a lump sum 
award would be subject to all of the requirements of A-133 except that 
the lump-sum grant would not be audited for incurred ``costs;'' the 
auditor would tailor the review to fit the grant's terms. Internal 
controls, program compliance, auditing of financial statements, and all 
other aspects of an audit under A-133 would still apply.
    Question: Does HUD anticipate that particular program branches of 
the agency will avail themselves of these types of awards? If so, which 
are they?
    Response: The Department does not expect an expansion in the use of 
the lump-sum provisions in the future. Historically, many of HUD's 
grant programs have been managed on other than a cost-reimbursement 
basis, so it is not a matter of programs ``availing'' themselves of 
this option, but rather of making the Department's rule flexible enough 
to allow the continuance of historical practice. For example, the 
Neighborhood Development Demonstration Program (NDDP) uses a matching 
formula of from one Federal dollar up to six Federal dollars being 
given for each dollar the grantee raises from within the targeted 
neighborhood. The ratio of the match is determined by the level of 
neighborhood distress. The NDDP grantee is paid the match when the 
local dollar is raised--not when costs are incurred or work is done. 
The housing counseling grant program works on a unit price basis; the 
grantee is paid for performing a ``counseling unit,'' which is defined 
in the grant. In many cases, the funding arrangement is part of the 
basic program design and the enabling legislation. However, it is 
highly likely that these programs will change, as HUD is currently 
undergoing a major reinvention and consolidation of its grant programs. 
The combined programs or new programs may take any form allowed by the 
new or revised legislation and by the administrative procedures set 
forth in 24 CFR part 84 (for non-profits) and part 85 (for state and 
local governments).
    Question: Is the underlying motivation to introduce these lump sum 
awards cost saving or streamlining of procedures in a larger context of 
the National Performance Review?
    Response: Yes, in a way, but see also the second question above. 
HUD has been using the lump-sum arrangement for many years and is very 
aware of its advantages in terms of the streamlining and flexibility it 
offers, including reduced grantee and Federal burden.
    Question: Does a lump sum grant resemble a fixed price contract?
    Response: In some cases, yes. In cases where a predetermined 
payment amount is tied to a predetermined performance milestone, it 
does resemble a fixed price contract. The housing counseling program 
discussed above falls in this category. However, not all lump sum 
grants operate in this manner. Sometimes payment is tied to an external 
index or to an external event, such as economic distress, or a dollar 
raised in the NDDP program. See the second question above.
    Question: If a lump sum grant is fixed in price and permission is 
needed for changes as specified in Sec. 84.82(d), will HUD pay 
increased costs that might be incurred from denial of permission, 
especially if grant performance were made impossible as a result of 
such denial?
    Response: Under a lump sum award, HUD is not paying for ``costs'' 
based on the grantee's actual cost experience in performing the work. 
Therefore, an increase in the grantee's costs would not in and of 
itself lead to an increase in the lump sum amount paid by HUD. Rather, 
the lump sum award represents an agreement between HUD and the grantee 
that a certain amount will be paid for a certain event, based on a 
performance milestone, external benchmark, or other pre-defined 
``event.'' (See Secs. 84.80 and 84.81 for further guidance.) However, 
awarding a lump sum grant does not necessarily mean that the lump sum 
could never be increased. The idea is that the Federal contribution be 
sufficient to achieve the agreed-upon goal and that the grantee neither 
realize a financial windfall nor find it impossible to perform. In some 
instances, the HUD contribution might only be a small part of the 
overall program costs, and HUD's clearly stated intention (set forth in 
the grant itself and agreed to before award) is to contribute no more 
than the stated HUD share. For example, a grant might be for acquiring 
and rehabilitating a home for use by low income persons. During the 
performance of the work, unknown conditions may come to light at the 
construction site which cause increased costs. HUD might decline to 
increase its lump sum amount and insist that the grantee recover these 
costs from other sources, or it might agree to make an additional 
contribution. Much of the answer depends on the program design and 
program rules; some programs have statutory caps on individual award 
amounts, while others allow for more flexibility. The key factor is 
that the quid pro quo be clearly set forth in the grant document and 
agreed to by both parties. In cases where there are statutory caps on 
grant amounts or other constraints which limit or preclude any 
adjustments in the amount, these should be made clearly known in 
advance of the award. For issues which could not be foreseen, and in 
the absence of a rule limiting the Grant Officer's authority, such 
matters as adjustments in the lump sum amount would be determined by 
the Grant Officer.
    Also, please note that the conditions for getting approval under 
Sec. 84.82(d) are extremely limited, consisting only of getting 
approval for (1) changes in scope or objective, (2) additional Federal 
funding, and (3) the subcontracting out or transfer of work not 
previously contemplated. The first of these is necessary to make sure 
that the grantee is still undertaking activities eligible under the 
program rule and chargeable to the appropriation, and that the 
activities are consistent with those for which the grantee was selected 
(usually competitively). The second is obvious--if the grantee needs 
additional funding, it cannot continue the grant without it, and the 
Federal agency must make the funds available or explore other avenues 
for resolution, BEFORE the grantee has overcommitted funds on the 
assumption there will be additional Federal dollars. The third is to 
ensure that the grantee who was evaluated as capable actually 
accomplishes the work and does not shift performance to some unknown 
party. These three situations are major and are the only ones for which 
permission must be sought, compared to the many situations requiring 
permission under cost-reimbursement grants.
Other Matters

Environmental Review

     A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969. The Finding of No Significant [[Page 32104]] Impact is 
available for public inspection between 7:30 a.m. and 5:30 p.m. 
weekdays in the Office of the Rules Docket Clerk, Office of the General 
Counsel, Department of Housing and Urban Development, Room 10276, 451 
Seventh Street, S.W., Washington, D.C. 20410.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule does not have a significant 
economic impact on a substantial number of small entities. It pertains 
only to the administration of grants and agreements with institutions 
of higher education, hospitals, and other nonprofit organizations.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that this rule 
does not have ``federalism implications'' because it does not have 
substantial direct effects on the States (including their political 
subdivisions), or on the distribution of power and responsibilities 
among the various levels of government.

Executive Order 12606, The Family

     The General Counsel, as the Designated Official under Executive 
Order 12606, the Family, has determined that this rule does not have 
potential significant impact on family formation, maintenance, and 
general well-being. It pertains only to the administration of grants 
and agreements with institutions of higher education, hospitals, and 
other nonprofit organizations.

Semi-Annual Agenda of Regulations

     This rule was listed as item number 1384 in the Department's 
Semiannual Agenda of Regulations published on May 8, 1995 (60 FR 23368, 
23379) in accordance with Executive Order 12866 and the Regulatory 
Flexibility Act.

List of Subjects in 24 CFR Part 84

    Accounting, Colleges and universities, Grant programs, Loan 
programs, Nonprofit organizations, Reporting and recordkeeping 
requirements.

    Accordingly, subpart E of part 84 of title 24 of the Code of 
Federal Regulations is adopted as final, without change, as it was 
published on September 13, 1994, at 59 FR 47010.

    Dated: June 13, 1995.
Henry G. Cisneros,
 Secretary.
[FR Doc. 95-14962 Filed 6-19-95; 8:45 am]
BILLING CODE 4210-32-P