[Federal Register Volume 66, Number 178 (Thursday, September 13, 2001)]
[Notices]
[Pages 47688-47698]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-23008]


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LEGAL SERVICES CORPORATION


Property Acquisition and Management Manual

AGENCY: Legal Services Corporation.

ACTION: Issuance of Property Acquisition and Management Manual.

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SUMMARY: This Notice sets forth the text of a Property Acquisition and 
Management Manual that governs the use by recipients of LSC funds to 
acquire, use and dispose of real and nonexpendable personal property. 
The Property Acquisition and Management Manual is intended to provide 
recipients with a single complete and consolidated set of policies and 
procedures related to property acquisition, use and disposal and 
supercedes guidance currently contained in several LSC documents.

EFFECTIVE DATE: This Property Acquisition and Management Manual is 
effective on October 15, 2001.

FOR FURTHER INFORMATION CONTACT: Mattie C. Condray, Senior Assistant 
General Counsel, Office of Legal Affairs, Legal Services Corporation, 
750 First Street, NE, Washington, DC 20002-4250; 202/336-8817 (phone); 
202/336-8952 (fax); [email protected].

SUPPLEMENTARY INFORMATION:

Background

    The Legal Services Corporation's (``LSC'') policies and procedures 
regarding LSC-funded recipients' property acquisition, use and disposal 
are incomplete, outdated and disbursed among several different LSC 
documents. In 1975 and again in 1979, LSC published Instructions in the 
Federal Register setting out procedures for the procurement, inventory 
control and disposal of nonexpendable personal property by LSC 
recipients. See 44 FR 22525, April 16, 1979. In 1981, the 1979 
Instruction was superseded by the Property Management Manual for LSC 
Programs (``1981 Property Manual'').\1\
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    \1\ The Introduction to the 1981 Property Manual states that it 
was intended to supersede the 1975 Instruction. No mention is made 
of the 1979 Instruction. However, because the Manual was finalized 
as a slightly revised version of the 1979 Instruction, longstanding 
LSC policy has been that the 1981 Property Manual superseded the 
1979 Instruction as well. Current LSC grant assurances and the 
current Accounting Guide for LSC Recipients reference the Property 
Manual ``or its duly adopted successor.''
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    LSC also addressed property acquisition and management issues in 
the 1981 version of the Audit and Accounting Guide for Recipients and 
Auditors (``1981 Audit Guide''). The 1981 Audit Guide included 
provisions requiring LSC's prior approval of certain purchases and 
leases of property (real and personal). These provisions were 
superseded by the LSC rule on cost standards and procedures, 45 CFR 
part 1630, which was adopted in 1986. See 51 FR 29082, August 13, 1986. 
Under the current part 1630 rule, adopted in 1997, LSC must approve in 
advance all purchases of real property, purchases or leases of personal 
property with a value of over $10,000 and capital expenditures of more 
than $10,000 to improve real property. 45 CFR 1630.5(b).
    Notwithstanding the 1981 Audit Guide (or the current part 1630 
requirements), the 1981 Property Manual, like its predecessor 
Instructions, does not address the acquisition, use or disposal of real 
property.\2\ LSC has instead established its policies relating to real 
property in a variety of internal memoranda, Program Letters, 
regulations, grant assurances and individual agreements with recipients 
purchasing real property which have either restricted the use or 
regulated the disposal of the property in the event of cessation of LSC 
funding. Having policies related to real property in such unconnected 
and disparate sources has become untenable. For example, grant 
assurances on property have not been consistent over time and have on 
occasion been challenged as lacking legal authority.
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    \2\ There have been suggestions to LSC that the 1981 Property 
Manual was originally intended to apply to real property and was so 
applied at sometime in the past. LSC's reading of the terms of the 
Manual, however, and LSC's practice over the last several years 
applying the requirements of the 1981 Property Manual only to 
personal property, indicate that it does not, in fact, apply to real 
property.
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    Accordingly, LSC has decided that all of the relevant policies and 
requirements related to the acquisition, use and disposal of real and 
personal property should be consolidated and issued in one document. 
LSC published a proposed Property Acquisition and Management Manual 
(PAMM) for comment on September 28, 2000 (65 FR 58288). The comments 
received and the final version of the PAMM are discussed below.

Proposed Property Acquisition and Management Manual

Generally

    The PAMM contains both existing and new or revised standards and 
procedures. In developing the new or revised standards and procedures, 
LSC looked to three existing Federal sources of property acquisition 
and management policy: the Federal Acquisition Regulations (FAR); the 
Federal Property Management Regulations; and Office of Management and 
Budget (OMB) Circular A-110, ``Uniform Administrative Requirements for 
Grants and Agreements with Institutions of Higher Education, Hospitals, 
and Other Non-Profit Organizations'' which contains standards governing 
the use and disposition of personal and real property by non-profit 
recipients of Federal funding. While many provisions of the PAMM are 
based on equivalent sections on these sources, LSC has revised these 
provisions as necessary to be consistent with LSC law and practice. In 
addition, this final version of the PAMM reflects some additional 
changes suggested by the comments LSC

[[Page 47689]]

received on the proposed PAMM, as discussed below.
    The personal property use standards are intended to give recipients 
flexibility in using such property acquired with LSC funds, provided 
that the primary use of the property is for the delivery of legal 
services to eligible clients in accordance with the requirements of the 
LSC Act and regulations. The standards governing the disposal of 
personal property revise existing policy to reflect the heightened 
need, in this era of reduced funding and competition for grants, for 
LSC to receive reimbursement to ensure that the scare funds available 
are serving their original intended purpose to the maximum extent 
possible. Accordingly, in the event that a recipient owning personal 
property purchased with LSC funds ceases to receive LSC funding, these 
standards require LSC approval prior to dispose of the property. The 
PAMM also provides for transfer of personal property in the case of a 
merger with or the succession of another recipient.
    The PAMM retains LSC's longstanding policy to permit recipients, 
with LSC's approval, to use LSC funds to purchase real property for the 
primary purpose of delivery of legal services to eligible clients. The 
procedures, which incorporate provisions from Program Letter 98-4, 
require recipients to demonstrate that purchasing is more economical 
than leasing. Recipients are also required to agree to reimburse LSC in 
the event of a discontinuation of funding, unless a transfer of the 
property is made to a merged or successor entity in the case of a 
merger with or the succession of another recipient.
    Most of the comments LSC received addressed specific sections of 
the proposed PAMM. These comments are addressed in the section-by-
section analysis portions of this notice. There was one suggestion, 
however, which affects most of the sections of the PAMM, and which, 
therefore, LSC wishes to address at the outset. Many commenters 
objected to application of the PAMM to leases of personal property. 
Among the reasons given for this objection were: (1) Leases and leased 
property is generally not considered ``assets'' and, as such, should 
not be subject to the PAMM; (2) the negotiation of leases may not be 
``amenable'' to the competition requirements of the PAMM; (3) the 
recipient Board of Directors is already charged with the fiduciary duty 
to ensure that leases of personal property are appropriate; (4) leases 
of personal property are often for items which are shared operating 
expenses, allocated among the recipient's funding sources and it could 
become problematic to have differing procedural requirements relating 
to the same property; and (5) as monthly lease payments may be small, 
representing a small amount of LSC resources, and since Part 1630 
already requires program resources to meet a reasonableness standard, 
there is no need to include them in the PAMM.
    LSC proposed to include leases of personal property under the 
coverage of the PAMM because recipients are increasingly spending 
sizable sums of LSC funds on leases of personal property and LSC 
believes that some measure of accountability to LSC for such 
expenditures is appropriate. The fact that a leased item may not be 
considered an ``asset'' of the recipient for an accounting purpose is 
not germane; the requirements of the PAMM are not intended to track 
assets, but rather to ensure that LSC funds are being expended on 
property in an efficient manner to best meet the legal services needs 
served by the recipient. LSC disagrees that it not feasible, as a 
general matter, to seek competitive quotes on large scale leases of 
equipment and other nonexpendable personal property and none of the 
commenters provided any factual evidence to back up this claim. 
Moreover, if the seeking of competitive quotes is not feasible in a 
particular instance, the PAMM provides a safe harbor for recipients to 
engage in sole source acquisitions.
    LSC appreciates that recipient Boards already exercise fiduciary 
responsibilities relating to expenditures of LSC funds and that LSC 
regulations at 45 CFR part 1630 require a rule of reason in relation to 
expenditures of funds. However, part 1630 applies to all costs and 
Boards exercise fiduciary responsibility related to all expenditures of 
funds. If these facts were sufficient to ameliorate the need to apply 
the PAMM to leases of personal property, they would suffice to 
ameliorate the need to have the PAMM at all. The commenters, however, 
do not appear to question the propriety of having acquisition, use and 
disposal standards for purchased property.
    LSC also disagrees that the fact that a lease may be funded from 
other than just LSC funds is likely to cause practical problems. First, 
the competition (and for individual items, the prior approval) 
requirements only apply to leases in which more than $10,000 of LSC 
funds are used. It is unlikely that such a lease would be one in which 
LSC funds are the minority source of funds and that other, 
inconsistent, competition requirements would apply and no such examples 
were specifically identified in any of the comments received. Second, 
the use requirements are broad enough that it is hard to imagine a 
inconsistent requirement stemming from another funding source. Finally, 
the disposition requirements only note that leased property is to be 
disposed of in accordance with the terms of the lease. Again, none of 
the comments received provided specific instances in which these 
requirements would be burdensome or inconsistent in reference to other 
directives attached to use of other funds.
    LSC also notes that in the extensive comment process leading to the 
development of the proposed PAMM, no objection was raised to including 
leased personal property under coverage of the PAMM.

Section-by-Section Analysis

Section 1--Purpose and Scope

    The section contains a statement indicating that the purpose of 
this PAMM is to set forth standards governing the acquisition, 
retention, use and disposal of personal and real property acquired in 
whole or in part with LSC funds. The section also specifies that LSC 
intends the standards in this PAMM to apply to both real and 
nonexpendable personal property, but not to expendable personal 
property or services, except services for capital improvements which 
are subject to the requirements of section 4(f). LSC has not previously 
applied the 1981 Property Manual standards to supplies and LSC does not 
believe that it is necessary to enlarge the scope of its oversight in 
such a manner. Finally, this section makes clear that LSC will apply 
the requirements of the PAMM to acquisitions made on or after the 
PAMM's effective date as set forth in this notice. For acquisitions of 
real property prior to the PAMM's effective date, the written agreement 
between the program and LSC will control. For prior acquisitions of 
personal property, the 1981 Property Manual will control.
    LSC received three comments specifically related to this section. 
One comment suggested that the parenthetical reference to ``equipment'' 
should either be removed or clarified since there is nonexpendable 
personal property other than what is generally thought of as equipment. 
LSC agrees. References to ``equipment'' and ``supplies'' have been 
removed from this section. The definitions of nonexpendable personal 
property and expendable personal property have been

[[Page 47690]]

clarified. These issues are discussed further under Section 2--
Definitions, below.
    The second comment LSC received on this section suggested that the 
reference to services for capital improvements should specify 
``contracted'' services. This was certainly LSC's intent and the 
section has been modified to make this clarification.
    LSC also received a request with regard to acquisitions of real 
property prior to the PAMM's effective date. The comment requested that 
LSC clarify its intent with regard to property for which there is no 
written agreement. LSC is aware of instances in which recipients have 
acknowledged through documented evidence that LSC funds have been used 
towards the acquisition of real property, without, however, a real 
property interest agreement having been executed. In the event of 
cessation of funding in these instances, disposition of the property 
will be handled on a case-by-case basis.

Section 2--Definitions

    This section sets forth definitions of key terms used throughout 
the PAMM.
    Section (2)(a) defines acquisition as a purchase of real property 
or a purchase or lease of personal property. It can consist of a single 
item or it can consist of multiple items obtained simultaneously 
through a single contract. This definition of acquisition is adapted 
from the definition of acquisition appearing in the FAR. The FAR 
definition of acquisition includes leases of real property as well, but 
LSC has chosen to leave real property leases out of the definition of 
acquisition because LSC is excluding leases of real property from the 
coverage of the PAMM. The term ``acquisition'' is used throughout the 
PAMM, except in those instances in which it is necessary to 
differentiate between personal property which is leased and personal 
property which has been purchased. In those cases, the term ``lease'' 
or ``purchase'' is used, as appropriate.
    LSC received one comment suggesting that the term ``single 
acquisition'' as it is used in the definition is confusing. The 
commenter suggests replacing it with the term ``individual item.'' LSC 
does not agree that this term is confusing. Further, substituting the 
term ``individual item'' for ``single acquisition'' would alter the 
meaning of the definition. As noted above, the term ``single 
acquisition'' includes transactions in which more than one item is 
procured in a single contract, while ``individual item'' does not. 
Since many acquisitions are for multiple items acquired under a single 
contract, excluding these acquisitions from the PAMM (which would be 
the result if LSC were to make the suggested change) would seriously 
undermine the object of the PAMM of ensuring accountability and the 
efficient use of LSC funds. Accordingly, the definition is being 
adopted as proposed.
    In addition, as discussed above, several commenters suggested that 
the PAMM not apply to leases of personal property, and these 
commenters, accordingly, suggested amending this section. For the 
reasons discussed above, LSC is retaining the requirement that leases 
of personal property be subject to the PAMM. Therefore, references to 
leases in the definition in 2(a) are retained as proposed.
    LSC received a comment suggesting the addition of a definition for 
``acquisition costs for real property.'' The commenter stated that LSC 
currently has no such definition. LSC disagrees. The preamble to the 
current part 1630 final rule, 62 FR 68219, addresses this matter, 
stating that the acquisition costs associated with the purchase of real 
property include principal and interest payments and initial down 
payments. However, LSC agrees that including that definition in the 
PAMM would be useful in as much as the PAMM is intended to be a single 
source for information. Accordingly, a definition of ``acquisition 
costs for real property'' is added as section 2(b). This definition 
reproduces and explicitly references the definition found in the 
December 31, 1997 preamble to the part 1630 final rule.
    Section 2(c), capital improvement, incorporates the $10,000 
capitalization threshold of LSC's regulation governing cost standards 
and procedures, 45 CFR 1530.5(b)(2). One commenter suggested that this 
section be clarified to specify that it applies only to amounts of over 
$10,000 of LSC funds. This has been and continues to be LSC's policy 
and this clarifying change has been made.
    Section 2(d) defines lease as a contract for the use of property 
during a specified period for a specified price. Under a lease, the 
lessee does not take ownership of or title to the property. As 
discussed above, several commenters suggested that the PAMM not apply 
to leases of personal property, and these commenters, accordingly, 
suggested deleting this section. For the reasons discussed above, LSC 
is retaining the requirement that leases of personal property be 
subject to the PAM. Therefore, the definition is retained as proposed, 
although to allow for the insertion of a new definition of 
``acquisition costs for real property,'' as discussed above, the 
definition has been redesignated from 2(c) to 2(d) in this final PAMM.
    Section 2(e) contains a definition for LSC property interest 
agreement, a term used in sections 4(e) and 8(d) of this PAMM. The 
definition is consistent with section 2-2.4 of the Accounting Guide for 
LSC Recipients, which sets forth the principle that LSC possesses a 
reversionary interest in real property purchased in whole or in part 
with LSC funds.
    LSC received no comments on this section and the definition is 
adopted as proposed. LSC notes that it is not using the term 
``reversionary interest'' in the PAMM because LSC believes that the use 
of ``reversionary interest'' might be confusing. Although LSC's 
recipients who have entered into agreements with LSC pursuant to the 
purchase of real property understand what reversionary interest means 
in the context of their agreements, the term is a widely used term of 
art in the property law context with a somewhat broader and different 
meaning. To avoid potential confusion, LSC will use the more accurate 
``LSC property interest agreement.'' In addition, to allow for the 
insertion of a new definition of ``acquisition costs for real 
property,'' as discussed above, the definition has been redesignated 
from 2(d) to 2(e) in this final PAMM.
    Section 2(f) contains a definition of personal property adapted 
from OMB Circular A-110. LSC is, however, omitting supplies, which are 
considered to be personal property in the OMB Circular, from the 
definition because LSC does not intend to apply its property 
acquisition and management standards to the purchase, retention or use 
of supplies. As noted above, LSC has clarified the definition to 
provide more detailed examples of the types of things which are 
considered nonexpendable personal property or expendable personal 
property. Thus, the definition now notes that nonexpendable personal 
property includes such things as furniture and books in addition to 
equipment and that supplies include items such as stationery, paper 
clips, and pens. The items do not represent an exhaustive list, but 
rather are intended to signify the most common examples of each type of 
property. In addition, to allow for the insertion of a new definition 
of ``acquisition costs for real property,'' as discussed above, the 
definition has been redesignated from 2(e) to 2(f) in this final PAMM.
    Section 2(g) limits the definition of real or personal property to 
property with a market value of over $5000 and a useful life of more 
than one year. This definition is consistent with OMB

[[Page 47691]]

Circular A-110. With this definition, LSC intends that property 
acquisition and management standards not apply to property excluded 
from the definition.
    LSC originally proposed a definition of property with a $1000 
threshold. LSC received several comments opposing the capitalization 
threshold of $1,000. These commenters noted that other Federal grants 
they receive are subject to the $5,000 OMB definition and that raising 
the limit would provide a greater measure of consistency to them in 
meeting property acquisition standards across grants. These commenters 
also noted that the $1,000 threshold seems artificially low in the 
current economy and that a $5,000 threshold would more appropriately 
reflect the point at which additional program oversight is justified. 
Raising the threshold, it is argued, would increase recipient 
flexibility. To the extent that LSC desires to maintain consistency 
with the LSC Accounting Guide, these comments suggest raising the 
capitalization threshold in the Guide to $5,000 as well.
    In light of the above, LSC is adopting a $5000 threshold for the 
definition of property. To allow for the insertion of a new definition 
of ``acquisition costs for real property,'' as discussed above, the 
definition has been redesignated from 2(f) to 2(g) in this final PAMM.
    Section 2(h) contains a definition of purchase which uses the term 
purchase in reference to personal property of which the recipient 
obtains ownership, as distinguished from leasing. As discussed above, 
several commenters suggested that the PAMM not apply to leases of 
personal property, and these commenters, accordingly, suggested 
amending this section. For the reasons discussed above, LSC is 
retaining the requirement that leases of personal property be subject 
to the PAMM. Therefore, the definition is retained as proposed, 
although to allow for the insertion of a new definition of 
``acquisition costs for real property,'' as discussed above, the 
definition has been redesignated from 2(g) to 2(h) in this final PAMM.
    Section 2(I) sets forth a definition for quote which incorporates 
language from the definition of ``offer'' in the FAR. For the purposes 
of the PAMM, a quote is intended to be the basis for informal 
negotiation which results in an offer by the recipient, typically in 
the form of a purchase order, which a source may accept or reject.
    In response to a suggestion that the word ``bid'' be substituted 
for ``quote'' in section 4(f), LSC has instead chosen to amend section 
2(I) to explicitly include competition for capital improvement services 
contracts in the definition of ``quote.'' LSC agrees with the commenter 
that this clarification is appropriate, but LSC thinks it is better 
accomplished in the definitions section. In addition, to allow for the 
insertion of a new definition of ``acquisition costs for real 
property,'' as discussed above, the definition has been redesignated 
from 2(h) to 2(I) in this final PAMM.
    Section 2(j) sets forth a definition of real property taken from 
the definition of the same term in OMB Circular A-110. LSC received no 
comments on this definition and it is adopted as proposed, although to 
allow for the insertion of a new definition of ``acquisition costs for 
real property,'' as discussed above, the definition has been 
redesignated from 2(I) to 2(j) in this final PAMM.
    Section 2(k) contains a definition of source as a supplier, vendor 
or contractor who has agreed to provide property to a recipient through 
a purchase or lease agreement. LSC received no comments on this 
definition and it is adopted as proposed, although to allow for the 
insertion of a new definition of ``acquisition costs for real 
property,'' as discussed above, the definition has been redesignated 
from 2(j) to 2(k) in this final PAMM.

Section 3--Acquisition Procedures for Personal Property

    This section sets forth the procedures governing the acquisition of 
personal property with LSC funds. The requirements herein are based on 
both the FAR and OMB Circular A-110. Through the use of these 
procedures, LSC intends to encourage recipients to conduct their 
property acquisitions in a manner that provides free and open 
competition to the maximum extent practical.
    LSC received a number of comments on the various aspects of this 
section, several of which indicated a significant misunderstanding of 
the proposed requirements. Specifically, several commenters objected to 
what they took to be LSC's proposal to require prior approval of 
aggregate acquisitions of over $10,000. However, LSC did not propose to 
require prior approval of aggregate acquisitions of over $10,000, but 
rather, only to require certain minimum competition standards for such 
large acquisitions. Under both the proposed and this final PAMM, prior 
approval is required, as specified in 45 CFR part 1630, for individual 
item acquisitions of over $10,000, but not for aggregate acquisitions 
of over $10,000.
    A variant of this objection was contained in one comment which 
suggested deleting Section 3(a)-(d) as redundant, given the need for 
prior approval of large acquisitions referenced in Section 3(e). 
However, since section 3(e) refers only to the showing a recipient must 
make to obtain prior approval and sections 3(a)-(d) apply to 
acquisitions not requiring prior approval, the competition requirements 
of 3(a)-(d) are not redundant. Further, to the extent that, for 
acquisitions requiring prior approval, 3(e) recapitulates the 
requirements of 3(a)-(d), it does not place any additional substantive 
burden on recipients.
    One commenter suggested that the competition requirements not apply 
to aggregate acquisitions of over $10,000, but only to individual item 
acquisitions of over $10,000. Acquisitions using over $10,000 of LSC 
funds represent a significant investment of funds, whether for a single 
item or multiple items in a single acquisition. As noted elsewhere 
herein, one of LSC's responsibilities is to act as a steward, ensuring 
the public funds it is entrusted to distribute are used for the purpose 
and in the manner which Congress made them available. Thus, LSC has a 
responsibility to ensure that recipients are, to the extent possible, 
``getting a good deal'' on large acquisitions. Limiting the competition 
requirement to individual item purchases does not meet this objective 
and would undermine LSC's ability to exercise effective oversight over 
the use of LSC funds.
    As proposed, acquisitions of over $10,000 would have to have been 
accomplished by written competitive quote. This proposed requirement 
was based on the FAR and OMB Circular A-110, each of which require that 
requests for quotes clearly identify the salient characteristics of the 
property to be acquired, as well as the basis for evaluating quotes and 
selecting a source. LSC received comments suggesting that the 
requirement for three written quotes could be relaxed or otherwise 
redesigned to allow recipients greater flexibility in competing and 
completing procurements. In this area, a few commenters suggested the 
language of this section take into account the increasing use of 
catalogs and internet sites in procurement.
    LSC agrees with these commenters that LSC could make changes to 
provide more options to recipients while still meeting LSC's objective 
that recipients seek to obtain competitive prices on the items they 
acquire. An as initial matter, LSC notes that, even as proposed, the 
use of electronic media would have been permissible to secure written 
quotes. However, LSC believes that this section was susceptible to 
improvement beyond simply making this point more explicit. Accordingly, 
section 3(a) has been significantly revised to require a

[[Page 47692]]

recipient to consider competitive quotes from at least three potential 
sources for the property. Under the revised language, a recipient may 
make individual requests for quotes and/or may use quotes listed in 
suppliers' online or printed catalogs, posted on electronic websites or 
contained in other publicly available materials.
    Individual item acquisitions of over $10,000 will have to be 
approved in advance by LSC. This includes acquisitions made to replace 
already-existing property, the original acquisition of which LSC may 
have approved at a prior point in time. Consistent with previous LSC 
guidance, requests for prior approvals will have to include a 
justification stating the need for the acquisition, a brief description 
of the property to be acquired and a description of the acquisition 
process used, including the quotes received by the recipient.
    LSC has added language to this section to allow a recipient making 
a grant application to include a prior approval request in the grant 
application. The provision specifies that any such request must 
identify the particular item proposed to be acquired and include a 
justification which complies with the requirements of this section. In 
such a case, the grant approval will serve as the notice of the 
approval of the acquisition request. LSC believes that this will save 
time and effort for recipients, particularly (but not exclusively) 
those seeking funds under the Technology Grants program, who know that 
they intend to acquire a large individual item with the grant funds for 
which they are applying. Thus, by allowing a recipient to include the 
prior approval request in the grant application instead of having to 
make a separate request once the grant is awarded, LSC hopes to lessen 
the burdens on recipients, while still ensuring compliance with the 
requirements of Part 1630. Any prior approvals granted in this manner 
would, like all grants, be conditional upon the availability of the 
grant funds, and like app prior approvals, be subject to the duration 
requirements of 45 CFR 1630.5(c).
    Other comments LSC received on this section noted concerns about 
situations in which exceptions to the basic policy would be necessary. 
LSC notes that the procedures permit sole source acquisitions if 
circumstances prevent requesting competitive quotes. In such cases, 
recipients would have to document the reason(s) for conducting the 
acquisition on a sole source basis. LSC believes that this language is 
sufficient to alleviate concerns in this area. This is particularly so 
in light of the fact that the language reflects current LSC policy, 
which has worked well up to this point.
    In addition, as discussed above, several commenters suggested that 
the PAMM not apply to leases of personal property, and these 
commenters, accordingly, suggested amending this section. For the 
reasons discussed above, LSC is retaining the requirement that leases 
of personal property be subject to the PAMM. Therefore, references to 
leases in this section are retained as proposed.

Section 4--Acquisition Procedures for Real Property

    Section 4 contains the procedures for the acquisition of real 
property. Under this section, prior to acquiring real property, a 
recipient is required to identify and evaluate at least three potential 
sites. This section draws upon a similar requirement in the FAR 
relating to the selection of sources for the leasing of real property. 
The types of costs to be considered in an analysis of an acquisition of 
real property would be those which LSC asks recipients to describe when 
seeking prior approval of an acquisition of real property pursuant to 
LSC Program Letter 98-4, dated July 1, 1998. Recipients are encouraged 
to negotiate with potential sources prior to entering a contract in 
order to obtain the most favorable contract terms possible.
    LSC received a variety of comments on the proposed requirements in 
this section. One comment suggested that the competition requirements 
not be applied to purchases of real property, while others suggested 
that the competition factors be broadened to allow recipients to take 
into account certain non-monetary factors (i.e., accessibility of 
facility to public transportation), and that the required cost analysis 
include occupancy costs.
    For many recipients, such a purchase may represent the single 
largest acquisition they ever make. Hence, LSC does not believe it is 
unreasonable to expect recipients to consider alternate properties and 
gain the benefits of competition in making real estate purchases. 
However, LSC does agree that many factors other than price alone are 
appropriately considered in making the choice of selecting one property 
over another. Indeed, past practice in reviewing and granting prior 
approvals demonstrates that recipients do consider factors other than 
price and LSC approves of such practices. Accordingly, LSC has revised 
section 4 to make explicit the ability of recipients to consider a 
range of qualitative factors when considering real property acquisition 
alternatives and that the required cost analysis includes occupancy 
costs.
    One commenter requested that LSC clarify the time period over which 
the average annual cost analysis should be done. Section 4(c), as 
proposed, stated that the cost analysis should be for the life of the 
financing. LSC believes this is sufficiently clear and has made no 
changes to this language.
    This section retains LSC's prior approval requirement for 
acquisitions of real property.\3\ Sections 4(d)(1) through (7) reflect 
provisions from Program Letter 98-4 setting forth the types of 
information which LSC requires recipients to submit in support of a 
request for prior approval of an acquisition of real property. LSC 
received no comments on this section and LSC retains the language as 
proposed.
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    \3\ LSC's longstanding policy is that leases of real property do 
not require prior approval and LSC does ot propose any change to 
that policy.
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    Section 4 also retains LSC's longstanding practice of requiring, as 
a condition of LSC's approval of the acquisition of real property, a 
formal agreement between LSC and the recipient setting forth the terms 
of LSC's approval. These agreements have included provisions governing 
the disposal of property purchased with LSC funds, both during the 
grant term and upon cessation of funding and requiring the recipient to 
record LSC's interest in the property. LSC received a few comments on 
this provision.
    One commenter requested that LSC clarify 4(e)(1) relating to 
property agreements, on the basis that the reference to ``delivering 
legal services to eligible clients'' was somewhat confusing because it 
could be interpreted to require that real property could be used only 
for the delivery of legal services to eligible clients and not for any 
other purpose or for services to ineligible clients who are otherwise 
lawfully served by the recipient (with non-LSC funds). LSC agrees that 
such an interpretation would be overbroad and unnecessary. However, LSC 
does not believe that the section 4(e)(1), as proposed, lends itself to 
such an interpretation. Moreover, LSC notes that other sections of the 
property manual contemplate use of property for other purposes (see, 
e.g., section 5(f) on conditions under which property may be used by 
organizations engaging in LSC-restricted activities). Rather, the 
language was intended to convey the message that recipients are not to 
use LSC funds to purchase real estate simply for investment purposes, 
but that

[[Page 47693]]

rather, any real estate purchased is to be acquired primarily as office 
space for the recipient. Although LSC has not made any changes to the 
language in section 4(e), LSC has clarified the language elsewhere in 
the PAMM to make explicit that property acquired with LSC funds is to 
be acquired and used for the primary purpose of delivering legal 
services to eligible clients in accordance with the requirements of the 
LSC Act, as amended, applicable appropriations acts and LSC 
regulations.
    Another commenter suggested that the PAMM should more fully 
explicate LSC's interest in real property. Individual property 
agreements, which are expressly required by the PAMM, currently do and 
will continue to serve this functions. Accordingly, LSC has made no 
changes in section 4 in regard to this matter.
    Finally, LSC restates in the PAMM LSC's requirement in 45 CFR 
1630.5(b)(4) that recipients obtain prior approval of expenditures for 
capital improvements. This requirement applies to leasehold 
improvements as well as improvements to recipient-owned property. LSC 
retains the existing requirement from Program Letter 98-4 that 
recipients submit certain information in support of requests for prior 
approval of capital improvements. LSC did receive one comment on this 
section, requesting that LSC allow for emergency approval of 
acquisitions related to capital expenditures. LSC has traditionally 
permitted recipients to make such arrangements as are necessary in 
emergency situations, such as in response to natural disasters or other 
such occurrences which require emergency repairs and there was no 
intention to change this policy in the proposed PAMM. Accordingly, 
section 4(f) has been revised to permit a recipient to seek emergency 
approval of expenditures for capital improvements prior to providing 
the full written justification. In such cases, recipients will have to 
provide the required information to LSC in a timely manner.
    Another commenter suggested substituting the word ``bid'' for 
``quote'' in section 4(f). As noted above, while a clarification is 
appropriate, LSC thinks the clarification is better accomplished in the 
definitions section. Accordingly section 2(I) is amended to explicitly 
include competition for capital improvement services contracts.

Section 5--Retention and Use of Property Acquired With LSC Funds

    Section 5 sets forth the standards for the management of real and 
personal property acquired with LSC funds. These standards build upon 
the principle contained in OMB Circular A-110, that grant recipients 
should possess full ownership of personal and real property purchased 
in whole or in part with grant funds. With regard to leased personal 
property, the PAMM reflects current LSC policy that leased property may 
be used according to the lease terms during the term of an LSC grant or 
contract, and must be disposed of according to the lease terms in the 
event that there is a cessation of LSC funding.
    Under the provisions of this section, recipients are permitted to 
retain property as long as they continue to receive LSC funding. This 
represents a change from the prior policy which permitted recipients to 
retain property as long as it was needed for civil legal assistance. 
This change reflects the heightened need, in the competitive grant 
environment, for LSC to ensure that its funds are available to the 
maximum extent possible for LSC recipients and programs.
    Notwithstanding the above, under the PAMM a recipient may use 
property acquired with LSC funds for permissible non-LSC activities, 
such as the representation of income-ineligible clients, provided that 
such other use does not interfere with the performance of the 
recipient's duties under its LSC grant. This flexibility parallels 
similar provisions in OMB Circular A-110. Further, a recipient is 
permitted to lease space to others or otherwise allow the use of its 
property for restricted activities, provided that the recipient charges 
a fair market price for such lease or property use. Any such use will 
also have to be consistent with the program integrity requirements of 
45 CFR Part 1610.
    LSC received one comment specifically addressing this particular 
provision. The commenter suggested that LSC replace the phrase ``shall 
not be less than'' with ``shall be reasonable and comparable to'' in 
5(e) and (f). The phrase ``shall not be less than'' was derived from 
OMB Circular A-110 and chosen to ensure that the provisions would be 
consistent with IRS rules. As such, LSC does not believe that changing 
this language is desirable or advisable. Accordingly, the language has 
not been changed.
    Section 5(f) addresses the use of a particular subset of personal 
property--copyrights. Incorporating language from OMB Circular A-110, 
this paragraph provides that recipients be permitted to own copyrights 
to publications, software, and other copyrightable works created in 
whole or part with LSC funds. However, in conformance with longstanding 
LSC policy, recipients creating or otherwise obtaining copyrightable 
materials with LSC funds will have to provide LSC free access to and 
use of such materials, including the right to make such materials 
available to other LSC recipients.
    Other than the comments relating to paragraphs (e) and (f) 
discussed above, the only other comments LSC received on section 5 
suggested amendments to this section reflecting the suggestion that the 
PAMM not apply to leases of personal property. For the reasons 
discussed above, LSC is retaining the requirement that leases of 
personal property be subject to the PAMM. Therefore, references to 
leases in this section are retained as proposed. All other provisions 
are also retained as proposed.

Section 6--Disposal of Personal Property Acquired With LSC Funds

    This section establishes requirements governing the disposal of 
personal property. Generally, recipients have considerable discretion 
in selecting methods of disposing of personal property purchased with 
LSC funds, except at the point which a recipient ceases to receive LSC 
funds. At the cessation of LSC funding, recipients have an obligation 
to LSC with respect to items of personal property.
    LSC received a comment asking LSC to clarify section 6 with regard 
to the proper standards for disposing of property having a value of 
less than the definitional threshold standard in Section 2(g). Property 
is defined in the PAMM as having a threshold value of $5,000. Thus, 
property with a current market value at the time of disposition of less 
than $5,000 is not, by its own terms, subject to the PAMM. Recipients 
are, accordingly, free to dispose of property having a value of less 
than $5,000 in any manner in which the recipient sees fit. LSC reminds 
recipients that the relevant dollar value is the current market value. 
Thus, property with a current market value of less than $5,000 at the 
time of disposal is not subject to the PAMM, regardless of the value of 
the property at the time of acquisition.
    In the notice setting forth the proposed PAMM, LSC requested 
comment on the proposal to prohibit the sale of excess property to 
recipient Board members or employees. None of the commenters 
affirmatively supported this proposal, while one commenter stated that 
it did ``not disagree'' with the proposal and several commenters stated 
that they disagreed with the proposal. It was not altogether clear, 
however, whether those commenters opposing the

[[Page 47694]]

proposal were considering that the prohibition, as proposed, would only 
apply to property with a value of over $1,000. Given the definition of 
property in the PAMM, property with a current market value of less than 
$5,000 would, as noted above, be subject to disposal by the recipient 
without restriction, including by sale to Board members or employees. 
In light of the above, LSC believes that the proposed restriction 
should be adopted. As written, the prohibition will only apply items of 
significant value. LSC believes this is appropriate, yet still allows 
recipients flexibility in disposing of items of lesser value.
    The PAMM, as noted above, permits recipients considerable latitude 
in disposing of personal property purchased with LSC funds during the 
term of an LSC grant. Specifically, under this section, recipients may: 
(1) Trade property to suppliers or vendors in return for reductions in 
the acquisition price of new or replacement property; (2) sell the 
property, by the solicitation of formal quotes for property with a 
value of over $15,000, or by negotiation where the property has a value 
$15,000 or less or where advertising for bids has not resulted in 
reasonable bid prices; \4\ (3) transfer the property to third parties 
which are eligible under statute to receive support from LSC; (4) 
transfer the property to non-LSC programs, subject to LSC approval; or 
(5) transfer the property to other nonprofit programs serving the poor 
in the same community. These options are consistent with current 
Federal practice as reflected in OMB Circular A-110, the Federal 
Property Management Regulations (41 CFR Chapter 101) and the 1981 
Property Manual.
---------------------------------------------------------------------------

    \4\ By reference to 45 CFR 1630.12, section 6(c) would clarify 
that income from the state of property purchased with LSC funds is 
LSC derivative income subject to the requirements of the LSC Act, 
regulations, and other applicable law. As such, LSC derivative 
income becomes part of the LSC fund balance which may need to be 
returned to LSC if the fund balance amount exceeds limits 
established by 45 CFR part 1628.
---------------------------------------------------------------------------

    Another comment addressing the disposal procedures suggested that 
the requirements should apply only in situations in which the recipient 
had to get prior approval of the acquisition and in which the property 
had a current market value (at the time of disposition) of greater than 
$10,000 and that LSC should limit its interest in such property to a 
period of one year. If LSC were to adopt this suggestion, almost all 
personal property dispositions would no longer be subject to any 
standards. Under such circumstances, LSC would lose its ability to 
exercise effective oversight over the use of LSC funds. As noted above, 
one of LSC's responsibilities is to act as a steward, ensuring the 
public funds it is entrusted to distribute are used for the purpose and 
in the manner which Congress made them available and the lack of 
accountability over most funds cannot be justified.
    The PAMM provides for different options for the disposal of 
personal property at the point that a recipient ceases to receive LSC 
funding. Recipients are permitted to transfer or retain personal 
property purchased with LSC funds, provided that LSC would be 
compensated in an amount equal to the percentage of the property's 
acquisition cost funded with LSC monies. These provisions are based on 
disposal options set forth in OMB Circular A-110. It is anticipated 
that LSC and recipients will identify, on a case by case basis at the 
time of cessation of funding, the best method for disposing of personal 
property purchased with LSC funds.
    One commenter also suggested that LSC should delete references to 
LSC being entitled to compensation in the case of disposal of property 
by sale by the recipient. This commenter suggested that such an action 
would make it appear that LSC was interested in profit-making. As LSC 
noted in the notice of the proposed PAMM, funding is limited and 
available only on a competitive basis. Thus, rather that seeking some 
undue ``windfall'' from the disposition of property acquired with LSC 
funds, LSC is seeking to recoup funds in order to redistribute them to 
ensure that the scarce funds available are serving their original 
purpose to the maximum extent possible. If LSC were to permit 
recipients to retain all the proceeds from a disposition of property 
once they ceased being funded by LSC, it could be argued that the 
recipient would be reaping an undue windfall. At the least, the 
benefits of those dollars would no longer be assured of serving the 
original intended purpose. Accordingly, these provisions have not been 
changed. A provision has been, however, to reflect the current LSC 
policy that reimbursed funds are to be used to make additional grants 
to the field and that grants will generally be to recipients in the 
same service area which the funds originally supported.
    With respect to leased personal property, the PAMM provides that 
during the term of an LSC grant or contract, recipients be permitted to 
dispose of such leased with LSC funds in accordance with the terms of 
the lease. When a recipient ceases to receive LSC funding, the 
recipient would be required to dispose of items of personal property 
leased with LSC funds in accordance with the terms of the lease.
    LSC was asked provide additional clarification regarding it what it 
intended by requiring disposal of leased property in conformance with 
the terms of the lease. The other disposal-related requirements all 
apply to property purchased and owned by recipients. Leased property 
is, by definition, not owned by the recipient and the recipient is not 
at liberty to dispose of the property by giving it away or selling it. 
However, since LSC anticipates that there will occasionally be a need 
for recipients to divest themselves of leased property, it was 
appropriate that this circumstance be included in the PAMM. Since, the 
use and disposal of leased property is generally governed by the terms 
of the lease itself, LSC thought it was sufficient to note that any 
such property should be disposed of as required by the terms of the 
lease under which the property was obtained. This provision is retained 
as proposed.
    A number of commenters noted that the requirements related to 
disposal in the case where a recipient ceases to receive funding are 
unclear if the recipient is undergoing a merger or takeover. In such a 
case, while the recipient may itself become a different (or non-
existent) legal entity, the successor organization will be a funded 
recipient.
    LSC agrees that this is a special circumstance which merits 
specific treatment in the PAMM. Accordingly, LSC has added a new 
provision to Section 6 to provide that when a recipient ceases to 
receive LSC funding because the recipient has merged with or is 
succeeded by another recipient, the recipient may transfer the property 
to the merged or successor recipient, provided that the recipient and 
the merged or successor recipient execute a successor in interest 
agreement, approved by LSC, which requires the merged or successor 
recipient to use the property for the primary purpose of delivering 
legal services to eligible clients in accordance with the requirements 
of the LSC Act, as amended, applicable appropriations acts, and LSC 
regulations.

Section 7--Disposal of Real Property Acquired With LSC Funds

    Section 7 sets forth the proposed standards for the disposal of 
real property purchased with LSC funds. As with the personal property 
disposal standards in Section 6, LSC proposes to provide different 
options for disposals occurring during the grant term and at the 
cessation of LSC funding.

[[Page 47695]]

    For recipients seeking to dispose of real property during the grant 
term, LSC retains the longstanding LSC policy whereby recipients are 
permitted to sell real property acquired with LSC funds.\5\ Recipients 
are also permitted to transfer real property to other LSC recipients. 
This is consistent with most LSC property interest agreements between 
LSC and recipients using LSC funds to purchase real property.
---------------------------------------------------------------------------

    \5\ By reference to 45 CFR 1630.12, Section 7(b) would clarify 
that income from the sale of property acquired with LSC funds is LSC 
derivative income subject to the requirements of the LSC Act, 
regulations, and other applicable law. As such, LSC derivative 
income becomes part of the LSC fund balance which may need to be 
returned to LSC if the fund balance amount exceeds the limits 
established by 45 CFR part 1628.
---------------------------------------------------------------------------

    LSC also received a couple of comments suggesting limiting section 
7 to ``acquisition costs.'' The PAMM, as proposed, reflected current 
policy related to disposition of property and is what LSC is currently 
requiring in property agreements. LSC sees no reason to change the 
policy at this time.
    At the point of cessation of LSC funding, the PAMM permits 
recipients to sell, transfer or retain real property acquired with LSC 
funds, provided that LSC is compensated in an amount equal to the 
percentage of the property's acquisition cost funded by LSC monies. LSC 
will have to approve any such disposition in advance.
    One commenter suggested that LSC should delete references to LSC 
being entitled to compensation in the case of disposal of property by 
sale by the recipient. This commenter suggested that such an action 
would make it appear that LSC was interested in profit-making. As LSC 
noted in the notice of the proposed PAMM, funding is limited and 
available only on a competitive basis. Thus, rather that seeking some 
undue ``windfall'' from the disposition of property acquired with LSC 
funds, LSC is seeking to recoup funds in order to redistribute them to 
ensure that the scarce funds available are serving their original 
purpose to the maximum extent possible. If LSC were to permit 
recipients to retain all the proceeds from a disposition of property 
once they ceased being funded by LSC, it could be argued that the 
recipient would be reaping an undue windfall. At the least, the 
benefits of those dollars would no longer be assured of serving the 
original intended purpose. Accordingly, these provisions have not been 
changed. A provision has been, however, to reflect the current LSC 
policy that reimbursed funds are to be used to make additional grants 
to the field and that grants will generally be to recipients in the 
same service area which the funds originally supported.
    A number of commenters noted that the requirements related to 
disposal in the case where a recipient ceases to receive funding are 
unclear if the recipient is undergoing a merger or takeover. In such a 
case, while the recipient may itself become a different (or non-
existent) legal entity, the successor organization will be a funded 
recipient.
    LSC agrees that this is a special circumstance which merits 
specific treatment in the PAMM. Accordingly, LSC has added a new 
provision to Section 7 to provide that when a recipient ceases to 
receive LSC funding because the recipient has merged with or is 
succeeded by another recipient, the recipient may transfer the property 
to the merged or successor recipient, provided that the recipient and 
the merged or successor recipient execute a successor in interest 
agreement, approved by LSC, which requires the merged or successor 
recipient to use the property for the primary purpose of delivering 
legal services to eligible clients in accordance with the requirements 
of the LSC Act, as amended, applicable appropriations acts, and LSC 
regulations.

Section 8--Documentation and Recordkeeping Requirements

    Section 8 contains requirements for the documentation of property 
acquisitions and disposals. This section is intended to ensure that 
recipients create and retain the required records in support of 
property acquisition and disposal decisions and LSC fund expenditures 
related thereto.
    LSC received no comments addressing this section and it is adopted 
as proposed.

Section 9--Recipient Policies and Procedures

    This section requires that recipients adopt written procurement 
procedures. This requirement stems from OMB Circular A-110 and is 
intended to ensure that recipients have standardized procurement 
procedures that are consistent with LSC requirements. LSC will not 
collect, review or approve such procedures, although a recipient will 
have to make them available to LSC upon request for LSC oversight and 
compliance purposes.
    LSC received no suggestions for changing this section and it is 
adopted as proposed. One commenter, however, did pose a question about 
when LSC expects recipients to have developed and implemented their 
written procedures as required by Section 9. LSC expects recipients to 
comply with this section within 90 days of the effective date of this 
notice.

Property Acquisition and Management Manual

Sec. 1  Purpose and Scope.
Sec. 2  Definitions.
Sec. 3  Acquisition Procedures for Personal Property.
Sec. 4  Acquisition Procedures for Real Property.
Sec. 5  Retention and Use of Property Acquired with LSC Funds.
Sec. 6  Disposal of Personal Property Acquired with LSC Funds.
Sec. 7  Disposal of Real Property Acquired with LSC Funds.
Sec. 8  Documentation and Recordkeeping Requirements.
Sec. 9  Recipient Policies and Procedures.

Section 1  Purpose and Scope

    The purpose of this PAMM is to set forth standards governing the 
acquisition, retention, use and disposal of personal and real property 
acquired in whole or in part with LSC funds. The standards set forth 
herein apply to both real and non-expendable personal property, but not 
apply to expendable personal property or services, except for contracts 
for services for capital improvements which are subject to the 
requirements of Section 4(f) herein.
    The requirements set forth herein apply to acquisitions made on or 
after the PAMM's effective date as published in the Federal Register. 
For purchases of real property prior to the PAMM's effective date, the 
written agreement between the program and LSC will control. For prior 
acquisitions of personal property, the 1981 Property Manual will 
control.

Section 2  Definitions

    (a) Acquisition means a purchase of real property or a purchase or 
lease of personal property made in whole or in part with LSC funds. For 
the purposes of this PAMM, recipients should treat a purchase or lease 
of related property as a single acquisition when the property can be 
readily obtained through a single contract with a single source.
    (b) Acquisition costs for real property means the initial down 
payment and principle and interest on debt secured to finance the 
acquisition of the property, as provided in the December 31, 1997 
preamble to the final rule on cost accounting, 45 CFR Part 1630.
    (c) Capital improvement means an expenditure of an amount of LSC 
funds exceeding $10,000 to improve real property through construction 
or the purchase of immovable items which become an integral part of 
real property.

[[Page 47696]]

    (d) Lease means a contract for the use of property during a 
specified period for a specified price.
    (e) LSC property interest agreement means a formal written 
agreement between LSC and a recipient setting forth the terms of LSC's 
approval of the recipient's use of LSC funds to acquire real property.
    (f) Personal Property means property of any kind, including 
tangible property (having physical existence), such as equipment, 
furniture, or books, or intangible (having no physical existence), such 
as copyrights or patents, but does not include supplies, such as 
stationery, paper clips, pens, etc., or real property or improvements 
to real property.
    (g) Property means any real or personal property having a market 
value greater than $5,000 and a useful life of more than one year. For 
the purposes of Sections 6 and 7 related to the disposal of property, 
the relevant market value is the value at the time of disposal.
    (h) Purchase means to obtain and take ownership of property through 
the payment of money or its equivalent.
    (i) Quote means a quotation or bid from a potential source 
interested in selling or leasing property to a recipient, or providing 
services to a recipient for capital improvements.
    (j) Real property means land, buildings, and appurtenances, 
including capital improvements thereto, but not including moveable 
personal property.
    (k) Source means a supplier, vendor, or contractor who has agreed 
to provide property to a recipient through a purchase or lease 
agreement.

Section 3  Acquisition Procedures for Personal Property

    (a) Before using more than $10,000 of LSC funds to make an 
acquisition of personal property, including, but not limited to, 
acquisitions of single items of over $10,000, a recipient shall 
consider competitive quotes from at least three potential sources for 
the property. A recipient may make individual requests for quotes and/
or may use quotes listed in suppliers' online or printed catalogs, 
posted on electronic websites or contained in other publicly available 
materials.
    (b) The selection of a source shall be on the basis of criteria 
established and documented by the recipient. Such criteria may include 
price alone or price in combination with other factors.
    (c) Notwithstanding paragraph (a) of this section, a recipient may 
make a sole source acquisition when circumstances prevent the 
requesting of competitive quotes. When an acquisition is made on a sole 
source basis, the recipient shall maintain written documentation of the 
reason(s) for not obtaining competitive quotes.
    (d) A recipient using more than $10,000 of LSC funds to acquire an 
individual item of personal property must request and receive LSC's 
prior approval pursuant to 45 CFR 1630.5(b)(2), whether or not the 
acquisition is to replace existing property, before making the 
expenditure.
    (1) A request for prior approval shall include:
    (i) Three quotes, if obtained; and
    (ii) A letter or memorandum containing:
    (A) A statement of need explaining how the acquisition will further 
the delivery of legal services to eligible clients;
    (B) A brief description of the property to be acquired, including 
the make and manufacture of the item, the name of the source supplying 
the item, the quantity to be acquired, and the total dollar amount of 
the acquisition; and
    (C) A brief description of the acquisition process, including the 
names of the potential sources who submitted quotes, the amounts of the 
quotes, the quantity of items offered by the potential sources, and a 
brief explanation of the reasons for selecting a particular source to 
supply the item(s). In the absence of quotes, the description should 
explain what circumstances prevented the recipient from obtaining 
quotes.
    (2) A recipient making a grant application may include a prior 
approval request in the grant application. Any such request must 
identify the specific item proposed to be acquired and include a 
justification which complies with the requirements of paragraph (d)(1) 
of this section. In such a case, approval of the grant application 
shall be deemed an approval of the acquisition request, in accordance 
with 45 CFR 1630.5(b)(2) and 1630.5(c).

Section 4  Acquisition Procedures for Real Property

    (a) Prior to acquiring real property with LSC funds, recipients 
shall conduct an informal market survey in order to identify and 
evaluate at least three potential sources. Recipients may retain a real 
estate agent or broker for the purposes of conducting a market survey, 
provided that the cost is reasonable.
    (b) The evaluation of potential acquisitions of real property shall 
include consideration of:
    (1) The total cost of the acquisition;
    (2) The quality of the property to be acquired; and
    (3) Other factors affecting the appropriateness of the property for 
the delivery of legal services, such as location, accessibility to the 
client population and public transportation, and proximity to courts 
and/or other government or social services agencies.
    (c) Recipients shall conduct an analysis of the average annual cost 
of the acquisition, including the costs of a down payment, interest and 
principal payments on debt acquired to finance the acquisition, closing 
costs, renovation costs, and the costs of utilities, maintenance, and 
taxes, where applicable. The cost analysis shall include a comparison 
of:
    (1) The estimated total costs of acquiring and occupying the 
property over the life of the financing of the acquisition; with
    (2) The estimated total costs of leasing and occupying similar 
property over the same period of time.
    (d) The use of LSC funds to acquire real property requires LSC's 
prior approval pursuant to 45 CFR 1630.5(b)(3). When requesting LSC 
prior approval of an acquisition of real property, recipients shall 
provide to LSC in writing:
    (1) a statement of need explaining how the acquisition will further 
the delivery of legal services to eligible clients in terms of:
    (i) The location of the property in terms of accessibility to 
program clients;
    (ii) Trends in funding and program staffing levels in relation to 
space needs; and
    (iii) Whether the property will replace or be in addition to 
existing program offices;
    (2) a brief analysis comparing:
    (i) The estimated average annual cost of the planned acquisition 
over the life of the financing of the acquisition, including the costs 
of maintenance, utilities, and taxes; with
    (ii) The estimated average annual cost of leasing or purchasing 
other, similar property over the same period of time;
    (3) A current, independent appraisal of a type sufficient to secure 
a mortgage;
    (4) Documentation of board approval consisting of either a board 
resolution or board minutes demonstrating approval of the acquisition;
    (5) A statement of handicapped accessibility sufficient to meet the 
requirements of 45 CFR 1624.5(c);
    (6) A copy of an acquisition agreement, contract, or other document 
containing a description of the property and the terms of the 
acquisition; and
    (7) An explanation of the anticipated financing of the acquisition 
including:
    (i) The estimated total cost of the acquisition, including 
renovations, moving, and closing costs;

[[Page 47697]]

    (ii) The source and amount of funds to be applied toward a down 
payment;
    (iii) The source of funds to be applied toward a monthly mortgage 
payment, if any;
    (iv) The monthly amount of principal and interest payments on debt 
secured to finance the acquisition, if any; and
    (v) The source and estimated amounts of funds needed to cover 
moving, renovations, and closing costs.
    (e) At the time of approving a recipient's use of LSC funds to 
acquire real property, LSC and the recipient shall enter into a written 
LSC property interest agreement, which shall include, at a minimum:
    (1) Provisions consistent with Sections 5(a), 7(a) and 7(b) herein;
    (2) An agreement by the recipient not to encumber the property 
without prior approval of LSC;
    (3) An agreement by the recipient to record, in accordance with 
appropriate and applicable state law, LSC's interest in the property.
    (f) Expenditures for capital improvements require LSC's prior 
approval pursuant to 45 CFR 1630.5(b)(4).
    (1) When requesting LSC's prior approval of such expenditures, 
recipients shall provide to LSC in writing, the following:
    (i) A statement of need explaining how the improvement will further 
the delivery of legal services to eligible clients;
    (ii) A brief description of the improvement, including the nature 
of the work to be done, the name of the contractor performing the work, 
and the total expected cost of the improvement; and
    (iii) A brief description of the contractor selection process, 
including the names of the contractors who submitted quotes, the 
amounts of the quotes, and a brief explanation of the reason(s) for 
selecting a particular contractor to perform the work.
    (2) If an expenditure for capital improvements must be made on an 
emergency basis (i.e., to repair major structural elements of a 
building after a hurricane or earthquake, flooding, etc.), a recipient 
may seek an approval to move ahead with the project prior to providing 
the information provided in paragraph (f)(1) of this section. If such 
approval has been granted, the recipient must follow up with LSC by 
providing the required information in a timely manner.

Section 5  Retention and Use of Property Acquired With LSC Funds

    (a) Subject to the requirements herein, recipients may use LSC 
funds to acquire and use personal and real property for the primary 
purpose of delivering legal services to eligible clients in accordance 
with the requirements of the LSC Act, as amended, applicable 
appropriations acts and LSC regulations. Title to personal and real 
property purchased in whole or in part with LSC funds vests in the 
recipient subject to the conditions set out in paragraphs (b) through 
(f) of this section.
    (b) Recipients may retain personal and real property purchased with 
LSC funds for as long as they continue to receive LSC funding. When a 
recipient ceases to receive LSC funding, property purchased with LSC 
funds shall be disposed of in accordance with the requirements of 
sections 6(d) or (e) and 7(c) or (d) herein, as appropriate.
    (c) Recipients may retain personal property obtained through a 
lease using LSC funds for as long as they continue to receive LSC 
funds, subject to the terms of the lease. When a recipient ceases to 
receive LSC funding, property leased with LSC funds shall be disposed 
of in accordance with Section 6(b) herein.
    (d) When using personal or real property acquired in whole or in 
part with LSC funds for the performance of an LSC grant or contract, 
recipients may use such property for other activities, provided that 
such other activities do not interfere with the performance of the LSC 
grant or contract, and provided that such other uses meet the 
requirements of paragraphs (e) and (f) of this section.
    (e) If a recipient uses personal property acquired in whole or in 
part with LSC funds to provide services to another organization which 
engages in activity restricted by the LSC Act, regulations, or other 
applicable law, the recipient shall charge the other organization a fee 
which shall not be less than that which private non-profit 
organizations in the same locality charge for the same services under 
similar conditions.
    (f) If a recipient uses real property acquired in whole or in part 
with LSC funds to provide space to another organization which engages 
in activity restricted by the LSC Act, regulations, or other applicable 
law, the recipient shall charge the other organization an amount of 
rent which shall not be less than that which private non-profit 
organizations in the same locality charge for the same amount of space 
under similar conditions.
    (g) Recipients may copyright any work that is subject to copyright 
and was developed, or for which ownership was obtained, under an LSC 
grant or contract, provided that LSC reserves a royalty-free, 
nonexclusive, and irrevocable license to reproduce, publish, or 
otherwise use work copyrighted by recipients, when the work is obtained 
or developed in whole or in part with LSC funds.

Section 6  Disposal of Personal Property Acquired With LSC Funds

    (a) During the term of an LSC grant or contract, recipients may 
dispose of items of personal property leased with LSC funds in 
accordance with the terms of the lease.
    (b) When a recipient ceases to receive LSC funding, the recipient 
shall dispose of items of personal property leased with LSC funds in 
accordance with the terms of the lease.
    (c) During the term of an LSC grant or contract, recipients may 
dispose of items of personal property purchased with LSC funds by:
    (1) Trading in the property at the time of acquiring replacement 
property;
    (2) Selling the property at a reasonable negotiated price, without 
advertising for quotes, where the property item has a current fair 
market value not exceeding $15,000;
    (3) Selling the property after having advertised for and received 
quotes, where the current fair market value of the property item 
exceeds $15,000;
    (4) Transferring the property to another recipient of LSC funds; or
    (5) With the approval of LSC, transferring the property to another 
nonprofit organization serving the poor in the same service area.
    (d) Recipients shall not dispose of items of personal property by 
sale, donation or other transfer of the property to the recipients' 
board members and employees.
    (e) During the term of an LSC grant or contract, recipients selling 
personal property purchased with LSC funds may retain and use income 
from the sale according to the requirements of 45 CFR 1630.12 and 45 
CFR 1628.3.
    (f)(1) Except as provided in paragraph (g) of this section, when a 
recipient ceases to receive LSC funding, subject to the approval of 
LSC, recipients shall dispose of individual items of personal property 
purchased with LSC funds according to one of the following methods:
    (i) The recipient may transfer the property to another recipient of 
LSC funds, in which case the recipient transferring the property shall 
be entitled to compensation in the amount of that percentage of the 
property's current fair market value which is equal to that percentage 
of the property's acquisition cost which was borne by non-LSC funds;

[[Page 47698]]

    (ii) The recipient may transfer the property to another nonprofit 
organization serving the poor in the same service area, in which case 
LSC shall be entitled to compensation for that percentage of the 
property's current fair market value which is equal to that percentage 
of the property's acquisition cost which was borne by LSC funds;
    (iii) The recipient may sell the property and retain the proceeds 
from the sale after compensating LSC for that percentage of the 
property's current fair market value which is equal to that percentage 
of the property's acquisition cost which was borne by LSC funds;
    (iv) The recipient may retain the property, in which case LSC shall 
be entitled to compensation from the recipient for that percentage of 
the property's current fair market value which is equal to that 
percentage of the property's acquisition cost which was borne by LSC 
funds.
    (2) Funds returned to LSC upon a disposition of property under this 
section shall be used by LSC to make emergency and other special grants 
to recipients. Such grants will generally be made to the same service 
area the returned funds originally supported.
    (g) When a recipient ceases to receive LSC funding because the 
recipient has merged with or is succeeded by another recipient, the 
recipient may transfer the property to the merged or successor 
recipient, provided that the recipient and the merged or successor 
recipient execute a successor in interest agreement, approved by LSC, 
which requires the merged or successor recipient to use the property 
for the purpose of providing legal services for primary purpose of 
delivering legal services to eligible clients in accordance with the 
requirements of the LSC Act, as amended, applicable appropriations 
acts, and LSC regulations.

Section 7  Disposal of Real Property Acquired With LSC Funds

    (a) During the term of an LSC grant or contract, recipients may 
dispose of real property acquired with LSC funds by:
    (1) Selling the property after having advertised for and received 
offers, in which case the recipient may retain and use the proceeds 
from the sale of the property for the purpose of delivering legal 
services to eligible clients; or
    (2) Transferring the property to another recipient of LSC funds, in 
which case the recipient transferring the property shall be entitled to 
compensation in the amount of that percentage of the property's current 
fair market value which is equal to that percentage of the property's 
acquisition cost which was borne by non-LSC funds.
    (b) During the term of an LSC grant or contract, recipients selling 
real property acquired with LSC funds may retain and use income from 
the sale of the property according to the requirements of 45 CFR 
1630.12 and 45 CFR 1628.3.
    (c)(1) When a recipient owning real property acquired with LSC 
funds ceases to receive funding from LSC, the recipient shall, with the 
approval of LSC, dispose of the real property according to one of the 
following methods:
    (i) The recipient may transfer title to the property to another 
recipient of LSC funds, in which case the recipient transferring the 
property shall be entitled to compensation for that percentage of the 
property's current fair market value which is equal to that percentage 
of the property's acquisition cost which was borne by non-LSC funds;
    (ii) The recipient may retain title to the property without further 
obligation to LSC after the recipient compensates LSC for that 
percentage of the property's current fair market value which is equal 
to the percentage of the property's acquisition cost which was borne by 
LSC funds;
    (iii) The recipient may sell the property and compensate LSC for 
that percentage of the property's current fair market value which is 
equal to the percentage of the property's acquisition cost that was 
borne by LSC funds, after the deduction of actual and reasonable 
selling and fix-up expenses, if any.
    (2) Funds returned to LSC upon a disposition of property under this 
section shall be used by LSC to make emergency and other special grants 
to recipients. Such grants will generally be made to the same service 
area the returned funds originally supported.
    (d) When a recipient ceases to receive LSC funding because the 
recipient has merged with or is succeeded by another recipient, the 
recipient may transfer the property to the merged or successor 
recipient, provided that the recipient and the merged or successor 
recipient execute a successor in interest agreement, approved by LSC, 
which requires the merged or successor recipient to use the property 
for the primary purpose of delivering legal services to eligible 
clients in accordance with the requirements of the LSC Act, as amended, 
applicable appropriations acts, and LSC regulations.

Section 8  Documentation and Recordkeeping Requirements

    (a) Recipients shall account for personal property acquired with 
LSC funds according to the requirements of Sections 2-2.4 and 3-5.4(c) 
of the Accounting Guide for LSC Recipients.
    (b) Recipients acquiring real property with LSC funds shall keep 
such records as are customary for the retention of real property in the 
jurisdiction where the property is located.
    (c) Recipients shall account for income earned from the sale of 
real or personal property purchased with LSC funds in accordance with 
the requirements of 45 CFR 1630.12.
    (d) Documentation of real property acquisitions shall consist of 
the acquisition contract, evidence of a market survey, cost or price 
analysis, and an explanation of the reason(s) for selecting a 
particular source, a copy of an independent appraisal of the property's 
market value, evidence of board approval of the acquisition, a 
statement of handicapped accessibility sufficient to meet the 
requirements of 45 CFR 1624.5(c), and a copy of the LSC property 
interest agreement required by Section 4(e) herein.

Section 9  Recipient Policies and Procedures

    Recipients shall develop written policies and procedures which 
implement, at a minimum, the requirements of Sections 3 and 4 herein.

Victor M. Fortuno
General Counsel and Vice President for Legal Affairs
[FR Doc. 01-23008 Filed 9-12-01; 8:45 am]
BILLING CODE 7050-01-P