[Federal Register Volume 68, Number 84 (Thursday, May 1, 2003)]
[Rules and Regulations]
[Pages 23212-23224]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10644]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Part 1309

RIN 0970--AB54


Head Start Program

AGENCY: Administration on Children, Youth and Families (ACYF), 
Administration for Children and Families (ACF).

ACTION: Final rule.

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SUMMARY: The Administration on Children, Youth and Families is amending 
a Final Rule which applies to the purchase of Head Start facilities in 
order to include in the Rule provisions implementing a statutory 
provision that authorizes the Agency to permit Head Start grantees to 
use grant funds to finance the construction and major renovation of 
Head Start facilities and to make other necessary changes.

EFFECTIVE DATE: June 2, 2003.

FOR FURTHER INFORMATION CONTACT: Windy M. Hill, Associate Commissioner, 
Head Start Bureau, Administration on Children, Youth and Families, 330 
C St., SW., Washington, DC 20447; (202) 205-8572.

SUPPLEMENTARY INFORMATION:

I. Program Purpose

    Head Start is authorized under the Head Start Act (42 U.S.C. 9801 
et seq.). It is a national program providing comprehensive 
developmental services to low-income preschool children, primarily age 
three to the age of compulsory school attendance, and their families. 
To help enrolled children achieve their full potential, Head Start 
programs provide comprehensive health, nutritional, educational, social 
and other services. In addition, section 645A of the Head Start Act 
provides authority to fund programs serving infants and toddlers. 
Programs receiving funds under the authority of this section are 
referred to as Early Head Start programs.
    Head Start programs are required to provide for the direct 
participation of the parents of enrolled children in the development, 
conduct, and direction of local programs. Parents also receive training 
and education to foster their understanding of and involvement in the 
development of their children. In fiscal year 2001, Head Start served 
905,235 children through a network of over 2,000 grantees and delegate 
agencies.
    While Head Start is intended to serve primarily children whose 
families have income at or below the poverty line, or who receive 
public assistance, Head Start policy permits up to 10 percent of the 
children in local programs to be from families who do not meet these 
low-income criteria. Tribal grantees can exceed this limit under 
certain conditions. The Act also requires that a minimum of 10 percent 
of the enrollment opportunities in each program be made available to 
children with disabilities. Such children are expected to participate 
in the full range of Head Start services and activities with their non-
disabled peers and to receive needed special education and related 
services.

II. Purpose of the Rule

    The Administration for Children and Families is establishing a 
final rule governing construction and renovation of Head Start 
facilities. The purpose of the Rule is to implement the statutory 
authority to permit Head Start grantees (including Early Head Start 
grantees) to use grant funds to construct or undertake major 
renovations of Head Start facilities. The authority for this Rule is 
section 644 (c), (f), and (g) and 645A (b)(9) of the Head Start Act (42 
U.S.C. 9801 et seq.). Paragraph (g) of section 644 was added by Pub. L. 
103-252, Title I of the Human Services Amendments of 1994. Section 
644(g)(1) requires that the Secretary establish uniform procedures for 
Head Start programs to request approval for payments of capital 
expenditures related to the construction and major renovations of 
facilities.

III. Summary of the Major Provisions of the Final Rule

    [sbull] Defines major renovation to mean ``a structural change to 
the foundation, roof, floor, or exterior or load-bearing walls of a 
facility, or extension of an existing facility to increase its floor 
area. Major renovation also means extensive alteration of an existing 
facility, such as to significantly change its function and purpose, 
even if such renovation does not include any structural change to the 
facility. Major renovation also includes a renovation of any kind which 
has a cost exceeding the lesser of $200,000, adjusted annually to 
reflect the percentage change in the Consumer Price Index for All Urban 
Consumers (issued by the Bureau of Labor Statistics) beginning one year 
after the effective date of the amendments to these regulations, or 25 
percent of the total annual direct costs approved for the grantee by 
ACF for the budget period in which the application is made.''
    [sbull] Defines construction to mean new building, excludes 
renovations, alterations, additions or work of any kind to existing 
buildings.
    [sbull] Specifies what information the grantee must provide to 
establish eligibility to be awarded grant funds for the construction or 
major renovation of a Head Start facility.
    [sbull] Specifies the provisions of subordination of interest 
agreements between the Department and lenders.
    [sbull] Requires that all construction and major renovation 
contracts be on a lump sum fixed-price basis.

IV. Rulemaking History

    On December 1, 1994, the Department published a Notice of Proposed 
Rulemaking (NPRM) in the Federal Register (59 FR 61575) proposing to 
establish a Rule to implement the statutory provision authorizing the 
use of Head Start grant funds to purchase facilities. The Final Rule on 
Purchase of Head Start Facilities was published on February 8, 1999 and 
became effective on March 10, 1999, with certain provisions involving 
information collection becoming effective when approved by the Office 
of Management and Budget. The Final Rule on purchase does not address 
construction or major renovation since the statutory change concerning 
construction and major renovation occurred too close to publication of 
the NPRM published in connection with the purchase of Head Start 
facilities. We recognized, however, that procedures covering the 
purchase,

[[Page 23213]]

construction and major renovation of facilities using Head Start funds 
should be consistent with procedures for the purchase of facilities and 
both should be brought together in one Rule. Therefore the Department 
issued a NPRM on February 9, 1999, which proposed to amend the Final 
Rule for Purchase of Head Start Facilities by incorporating the 
provisions governing construction and renovation of facilities.

V. Section-by-Section Discussion of the Comments Received

    Seven parties submitted twenty-one comments. Only those sections on 
which comments were made, or to which changes were made are discussed 
below. The discussion of the sections follows the order of the table of 
contents of the Final Rule for the purchase of Head Start facilities 
and a notation is made wherever the section designations have been 
changed or deleted in the Final Rule.

Section 1309.1--Purpose and Application

    This provision is being changed to make it clear that Early Head 
Start grantees are eligible to apply for facility funding, that the 
regulation implements the authority in section 644 (f) and (g), and to 
add the appropriate statutory citations covering the Early Head Start 
program. Early Head Start grantees are included as eligible for 
purchase funding under the definition of ``grantee'' under the existing 
regulations.

Section 1309.2--Approval of the Use of Head Start Funds To Continue 
Purchase of Facilities

    The title and wording of this provision are being changed to make 
it clear that Early Head Start grantees may apply for funding to pay 
facility purchase costs for facilities purchased after December 31, 
1986. This provision is also being changed to emphasize that 
applications are for the future use of funds for the continuing process 
of purchasing the facility rather than for approval of an earlier 
decision by the grantee to purchase the facility. The change is 
necessary to make the provision applicable to Early Head Start grantees 
which entered the program after 1994 and to clearly describe the 
activity for which funds are available. As with the current regulation, 
the amended regulation authorizes funds to pay facility purchase costs 
incurred after the responsible HHS official has approved the use of 
funds. The Head Start program wishes to emphasize that grant funds are 
available under this provision of the regulations for use in paying off 
existing purchase mortgages or new mortgages which are being sought to 
refinance the existing debt incurred to purchase the facility. Funds 
are not available for payment of a new mortgage on a facility when the 
grantee had previously completed the purchase of the facility. The 
changes to this provision are being made without opportunity for public 
comment as permitted by 5 U.S.C. 553(b), when such opportunity is 
unnecessary. In this case, public comment is unnecessary because the 
individual changes either do not alter the substance of the provision, 
or are required to ensure the application of section 644(f)(1), 
authorizing the use of funds for continuing purchases of facilities, to 
Early Head Start grantees, along with the other provisions of section 
644(f) and (g).

Section 1309.3--Definitions--Construction

Comment
    We received one comment suggesting that a more precise definition 
of construction be established in this section. As defined in the NPRM, 
construction means, ``new building and excludes alterations, 
renovations, additions, or work of any kind to an existing building.'' 
The respondent noted that by this definition, projects which include 
attaching substantial additions to insignificant structures are 
classified as renovation projects. The respondent stated that these 
projects should more reasonably be defined as construction activities. 
The respondent also noted that projects which include the finishing of 
partly constructed buildings could reasonably be defined as 
construction projects rather than as renovation projects.
Response
    The Head Start Act at section 644(g)(2) authorizes the Secretary, 
once a determination has been made that suitable facilities are not 
otherwise available, to authorize the use of financial assistance for 
``construction of facilities that are not in existence on the date of 
that determination.'' We believe that the proposed definition of 
``construction'' as ``new building'' is consistent with the statute and 
sufficiently clear to allow a responsible HHS official charged with 
making a determination about the funding of a project to make a common 
sense determination about the appropriate classification of a proposed 
project as either construction or major renovation. We are hesitant to 
adopt a more detailed definition because any such definition may create 
more uncertainty than the proposed definition. Accordingly, we have 
decided not to modify the definition of ``construction'' in the final 
regulations.

Grantee

    The definition of Grantee is being revised to specifically state 
that the definition includes agencies receiving funding to conduct 
Early Head Start programs.

Incidental Alterations and Renovations and Major Renovations

Comment
    We received a comment about the distinctions provided in the 
proposed definitions between ``incidental alteration and renovations'' 
and ``major renovations.'' Incidental alterations are defined in the 
proposed Rule as alterations costing the lesser of $150,000 or 25 
percent of total direct costs approved for a budget period. The 
respondent stated that from time to time the costs of incidental 
alterations can exceed this dollar limit but still not meet the 
conditions as defined for major renovations in this section, making it 
difficult to classify the activity. The respondent suggests that the 
definition be modified to state that renovations are considered 
incidental if they do not meet the definition of major renovations as 
defined in the proposal Rule.
Response
    By classifying incidental alterations and renovations we meant to 
differentiate these activities from major renovations so that grantees 
could move easily and with speed to improve the quality and safety of 
Head Start child care facilities. Further, our intention was to 
differentiate incidental renovations from major renovation activities 
which would ordinarily require greater technical consultation and would 
require more time and funding to accomplish.
    We agree with the respondent that some incidental alteration and 
renovation projects could exceed the $150,000 limit presently 
established in the definition. The $150,000 limit on costs has been 
established in grants policy for approximately 10 years. During this 
time there has been a steady growth of Head Start enrollment, and a 
corresponding increase in the number and size of centers operated by 
grantees. We recognize that the costs for carrying out center 
improvements have increased. We are therefore amending the definition 
of ``incidental alterations and renovations'' to read ``improvements to 
a facility which do not meet the definition of major

[[Page 23214]]

renovation.'' In order to help clarify the difference between 
incidental alteration and major renovations and to reflect the increase 
in the costs of incidental alteration and renovations we are amending 
the definition of ``major renovation.'' This definition is amended to 
read ``Major renovations means a structural change to the foundation, 
roof, floor, or exterior or load-bearing walls of a facility, or 
extension of an existing facility to increase its floor area. Major 
renovation also means extensive alteration of an existing facility, 
such as to significantly change its function and purpose, even if such 
renovation does not include any structural change to the facility. 
Major renovation also includes a renovation of any kind which has a 
cost exceeding the lesser of $200,000, adjusted annually to reflect the 
percentage change in the Consumer Price Index for All Urban Consumers 
(issued by the Bureau of Labor Statistics) beginning one year after the 
effective date of the amendments to these regulations, or 25 percent of 
the total annual direct costs approved for the grantee by ACF for the 
budget period in which the application is made.''

Suitable Facility

Comment
    A ``suitable facility'' as defined in the NPRM is one that ``is 
owned by a grantee or available for lease or purchase, which is usable 
as a Head Start facility and is not more expensive to purchase, own or 
lease than other comparable facilities in the grantee's service area.'' 
One respondent commented that the meaning of ``suitable'' could 
reasonably be conformed with what is later defined in the NPRM as a 
``useable'' facility.
Response
    We agree with the respondent and are revising the definition of a 
``suitable facility'' to mean ``a facility which is large enough to 
meet the foreseeable needs of the Head Start program and which complies 
with local licensing and code requirements, the access requirements of 
the Americans with Disabilities Act (ADA), if applicable, and section 
504 of the Rehabilitation Act of 1973.''

Purchase

    The definition of this term is being changed to make it consistent 
with the revised wording of section 1309.2.

Useable Facility

    This definition will be deleted from the Final Rule and the word 
``suitable'' will be substituted.

1309.4--Eligibility--Construction

    This section describes how a grantee establishes eligibility for 
funding of the construction of Head Start facilities.

Paragraph (b)

    We are making a change in this paragraph to make it more consistent 
with the wording of the statute. The proposed Rule at section 1309.49 
would have required that a grantee establish eligibility to construct a 
facility by demonstrating that no facility is available for purchase in 
the grantee's service area. We are amending paragraph (b) to read 
``There is a lack of suitable facilities (including public school 
facilities) in the grantee's service area which will inhibit the 
operation of the program, as demonstrated by a statement that neither 
the grantee's current facility nor any facility available for lease in 
the service area is suitable for use by a Head Start program. This 
statement must explain the factors considered, how it was determined 
that there is a lack of suitable facilities and be supported whenever 
possible by a written statement from a licensed real estate 
professional in the grantee's service area.''

Section 1309.10--Application for the Purchase, Construction and Major 
Renovation of Facilities

Section 1309.10(b), (d), (f), (i), (l) and (m)

    This section describes the information that an applicant must 
provide when requesting funding for the purchase, construction and 
major renovation of facilities.
Comment
    Paragraph (b) requires that applicants provide a certification from 
a licensed engineer or architect as to the cost and technical 
appropriateness of the proposed renovation. One respondent stated that 
this requirement is vague because it does not specify which costs 
should be considered. This respondent stated further that the section 
does not indicate the form in which certification should be submitted. 
The respondent also stated that a technical review by an architect or 
engineer of the proposed project is required later at section 1309.51 
of the rule and this requirement should not be duplicated in this 
paragraph.
Response
    The respondent is correct in saying that section 1309.51 requires 
that applicants submit working drawings and specifications which have 
been reviewed by an architect or engineer as to the technical 
appropriateness of the proposed construction or renovation project. We 
agree that the requirement for a technical review should be deleted 
from this paragraph.
    Our intention when including a requirement for a certification of 
the project cost by an architect or engineer was to ensure that 
applicants had a sound basis for requesting funds for all costs 
associated with a renovation project and that sufficient funding could 
be made available upon approval of the working drawings and 
specifications. We realize that these costs are estimates. It is 
sufficient for the applicant to have a written estimate of all costs 
associated with the project prepared by an architect or engineer. We 
are making a change to this paragraph to include a cost estimate for 
proposed construction projects as well. Paragraph (b) has been revised 
to read, ``In the case of a proposed major renovation or construction 
project, the applicant must submit a written estimate of all costs 
associated with the project. An architect or engineer must prepare the 
written estimate.''
    We have dropped the requirement in section 1309.10(d) that 
facilities for which funding is provided must be used principally for 
Head Start purposes, as it would apply to new purchases, construction 
and major renovations of facilities. Applying this requirement to such 
projects would frustrate the intent of Congress expressed in section 
644(g) that Head Start facilities be collocated with other programs 
serving low-income families whenever possible. In the case of 
continuing purchases of facilities, the grantee will still be required 
to demonstrate that the facility will be used principally as a Head 
Start center or a direct support facility for a Head Start program, as 
required by section 644(f)(2)(D) of the Head Start Act. Whenever funds 
are provided to purchase, construct, or make major renovation to a 
facility to be used in part for Head Start purposes, the proportion of 
the cost of the facility project will be limited to its proportional 
benefit to the Head Start program.
    We have decided to include in the final regulations at 45 CFR 
1309.10(l) a requirement that a grantee applying for funding to make 
major renovations to a facility it does not own must include with its 
application the written permission from the owner of the building for 
the grantee to make the planned renovation and a copy of the lease or 
proposed lease on the facility. The requirement for written permission 
is necessary to ensure that the landlord has given permission for the 
grantee to make the proposed major renovations

[[Page 23215]]

and to avoid any question of the landlord's rights having been violated 
by the grantee's performing the major renovation. It is necessary for 
the responsible HHS official to see the lease to ensure that it 
includes the provisions required by 45 CFR 1309.21(d)(4) and any other 
terms the official considers necessary. Under 45 CFR 1309.21(d), the 
lease on a facility to receive major renovations must be long enough to 
permit the Head Start program to receive the full value of the grant-
supported improvements.
    We are changing 45 CFR 1309.10(l) to address situations where 
grantees propose using grant funds to acquire a facility that is or 
will be sited on land not owned by the grantee. A grantee proposing to 
acquire a facility without also purchasing the land on which the 
facility is or will be situated must include in its application a copy 
of the existing or proposed land lease or other document ensuring the 
grantee's right to occupy the facility. The lease or other document, 
which protects the Federal interest in the facility, must ensure 
undisturbed use and possession of the facility by the grantee for the 
purpose of operating a Head Start program or other program designated 
by ACF. We are also adding language to 45 CFR 1309.10(l) to ensure that 
the term of the land lease or other similar interest in the underlying 
land, which is owned by a party other than the grantee and upon which 
the facility to be acquired or renovated is located, is long enough to 
allow the Head Start program to receive the full value of that 
improvement.
    We have also included in Sec.  1309.10(l) a requirement that a 
grantee seeking funding for acquisition or major renovation of a 
facility sited on land not owned by the grantee must establish that 
there is no feasible alternative to the proposed project. A feasible 
alternative may exist whenever there is an opportunity for the grantee 
to purchase or construct an appropriate facility on land available for 
purchase in the grantee's service area. (A grantee applying for major 
renovation funding for a leased facility will be providing information 
on facilities available for purchase in its service area under 
Sec. Sec.  1309.4 and 1309.11.) Where such an alternative site exists, 
the responsible HHS official should have the grantee provide 
information on the cost of purchasing or constructing a facility at the 
alternative site as part of the cost comparison under Sec.  1309.11. 
Where the cost of the alternative project is less than the proposed 
project and will result in the purchase or construction of a suitable 
facility appropriate to the needs of the grantee, the alternative 
project will be considered feasible.
    The intent of the new wording is that the responsible HHS official 
shall not approve funding for acquisition of a facility which will be 
sited on property not owned by a grantee unless the land lease or other 
document ensures the Federal interest in the facility and the 
undisturbed use and possession of the facility by the grantee for ACF 
approved purposes. This goal can be accomplished, depending on the 
circumstances, by including appropriate terms in the lease or other 
document. The necessary terms will vary from one situation to another. 
The term of the lease or other arrangement should in most cases be for 
a period of years that is at least equal to the estimated useful life 
of the facility. The responsible HHS official should also consider 
whether it is necessary for the lease or other document to provide for 
the lessor's compensation of the grantee for any residual value of the 
facility at the time the grantee ceases to occupy the facility. Such a 
provision would be appropriate where the lease or other document 
provides that the grantee's occupancy would end before the term of the 
facility's projected useful life. In most cases, ACF should also have 
the right to intervene within a period of sixty days after default 
under the lease to have the grantee or some other organization cure the 
default and prevent termination of the lease. The Head Start program 
will be providing responsible HHS officials with additional guidance on 
the terms that should be considered for inclusion in the lease or other 
document in order to fully protect the Federal interest and the 
grantee's use and occupancy of the facility. It is also the intent of 
HHS to ensure that the purchase, construction, and major renovation of 
facilities sited on land not owned by the grantee only be undertaken 
when there is no feasible alternative available for providing a 
suitable facility for conduct of the program.
    We have decided to change the wording of paragraph (m) of 45 CFR 
1309.10 to indicate that all requests for funding to acquire or make 
major renovation to a facility must be accompanied by an assessment of 
the environmental impact of the proposed project. The current 
regulation makes this requirement applicable to certain facilities 
proposed for purchase. The change is necessary to ensure that all 
projects, which may result in significant environmental impacts, are 
identified in the application process. The responsible HHS official 
already has the authority to make requests for additional information 
about proposed facility purchases. The existing regulations at 45 CFR 
1309.10(r) (and the amended regulations at 45 CFR 1309.10(q)) require 
the grantee applying for facility funding to provide ``[s]uch 
additional information as the responsible HHS official may require.'' 
This provision authorizes the official to request the grantee to 
provide any additional information on the proposed facility purchase 
including information regarding environmental impacts of the facility 
proposed for purchase. In most cases, we expect that the assessment 
requirement can be met through completion of a questionnaire on the 
project.
    Paragraph (f) and (i) of Sec.  1309.10 have been revised to refer 
to continuing purchases rather than previous purchases to make them 
consistent with the revised wording of Sec.  1309.2.

Section 1309.11--Cost Comparison

    We are adding wording to Sec.  1309.11(a) to make it clear that the 
responsible HHS official has authority to require a grantee to provide 
additional cost information, such as when the grantee is proposing to 
acquire or make major renovations to a facility sited on land not owned 
by the grantee.
    We have changed the wording in Sec.  1309.11(c)(2) to require that 
the grantee compare the costs of the proposed construction project to 
the costs of purchasing a suitable alternate facility or owning, 
purchasing or leasing an alternate facility which can be made suitable 
for use through incidental alterations and renovations or major 
renovations. The change is being made to make the regulations 
consistent with the requirements of section 644(g)(1) regarding cost 
comparisons for construction projects.
    We have also changed the wording in Sec.  1309.11(c)(3). That 
provision will read in the final regulations ``A grantee proposing to 
undertake a major renovation of a facility must compare the cost of the 
proposed renovation (including the cost of purchasing the facility to 
be renovated if the grantee is proposing to purchase the facility) to 
the cost of constructing a facility of comparable size. In place of the 
cost comparison required in the preceding sentence, a grantee proposing 
to make renovations to a leased facility must show that the monthly or 
annual occupancy costs for the term of the lease, including the cost of 
the renovation, is less than, or comparable to, the cost of purchasing 
or leasing any other facility in the grantee's service area which can 
be made suitable through major renovations, if such a facility is 
available.''

[[Page 23216]]

    The new wording of Sec.  1309.11(c)(3) does not require that Head 
Start grantees seeking funding to make major renovation to a leased 
facility compare the cost of constructing a facility of comparable 
size. We have decided to adopt this approach because it seems likely 
that a grantee for which construction is the cheaper alternative will 
apply for construction funding rather than for funding to make major 
renovations to a leased facility. However, a responsible HHS official 
will have the authority to require comparison with the costs of 
constructing an equivalent facility under 45 CFR 1309.10(q) when the 
official questions whether the proposed project is the lowest cost 
alternative for providing the Head Start program with a suitable 
facility. Section 1309.21(d)(2) is being revised to make it consistent 
with the revised wording of section 1309.2.

Section 1309.21--Recording of the Federal Interest and Other Protection 
of the Federal Interest

    We are revising paragraph (d) of 45 CFR 1309.21 to protect the 
federal interest in facilities not owned by the grantee that will be 
undergoing major renovations paid for with Head Start funds and 
facilities acquired by grantees that are or will be sited on land not 
owned by the grantee, and to address the issue of when the Notice of 
Federal Interest must be filed under various circumstances. Our 
decision to include these provisions in the final regulations is based 
on the experience of the Head Start program in funding facility 
projects. The new wording in paragraph (d)(1) makes it clear that all 
facilities not owned by the grantee receiving a major renovation paid 
for with Head Start funds must be leased by the grantee. The lease must 
protect the right of the grantee, or some other organization designated 
by ACF in the event of the grantee's termination or withdrawal from the 
Head Start program, to occupy the facility for the term of the lease. 
The new wording of paragraph (d)(1) also imposes these requirements on 
projects involving the acquisition of a facility on land not owned by 
the grantee. We are also adding language to the same provision to 
ensure that the term of the land lease or other similar interest in the 
underlying land, which is owned by a party other than the grantee, and 
upon which the facility to be acquired or renovated is located, is long 
enough to allow the Head Start program to receive the full value of the 
grant supported improvements.
    The final wording of paragraph (d)(2) now provides new requirements 
concerning when the Notice of Federal Interest is filed. The changes 
are being made to cover the different circumstances under which a 
facility or land on which a facility is to be constructed is purchased 
with grants funds. The revised wording of paragraph (d)(2) also 
provides that in the case of a leased facility undergoing major 
renovations, the Notice of Federal Interest shall be a copy of the 
executed lease and all amendments or an affidavit describing the terms 
of the lease. The revised paragraph (d)(2) also establishes new 
requirements for facilities now sited or to be constructed on land not 
owned by a grantee. In such cases, the Notice of Federal Interest shall 
be the land lease or other document protecting the Federal interest and 
ensuring the right of the grantee to have undisturbed use and 
possession of the facility. New wording in paragraph (d)(4) establishes 
requirements for the contents of leases, affidavits, and other 
documents serving as the Notice of Federal Interest for leased 
facilities undergoing major renovations and facilities sited on 
property not owned by the grantee.
    In addition to including the provision on required terms of the 
lease in the final regulations, we will be issuing guidance to 
responsible HHS officials on additional terms which are desirable to 
include in leases of facilities receiving major renovations and 
facilities sited on land not owned by the grantee.

Section 1309.22--Rights and Responsibilities in the Event of Grantee's 
Default on Mortgage, or Withdrawal or Termination

Section 1309.22(a)

    This section describes actions, which may be taken by ACF and 
lenders in the event a grantee defaults on the mortgage, or is 
terminated or withdraws from the Head Start program.
Comment
    Some states use an instrument called a trust deed, which is a form 
of mortgage. A lender commented that the words ``trust deeds'' should 
be included along with the words ``mortgage'' and ``chattel mortgages'' 
in this section to make it clear that this is an acceptable instrument 
in states where it is used.
Response
    In using the word ``mortgage'' ACF intends to mean also ``trust 
deed'' if that term is recognized by the state in question as a 
substitute for the word ``mortgage.'' The wording of this provision is 
also being changed to encompass 45 CFR 1309.2, Approval of the Use of 
Head Start Funds to Continue Purchase of Facilities.

Sections 1309.23--Insurance, Bonding and Maintenance, 1309.30--General, 
1309.31--Site Description, and Sec.  1309.33--Inspection

    We are making a change in each of these provisions to make their 
wording consistent with the changes in the wording of 45 CFR 1309.2.

Section 1309.44--Independent Analysis

    This provision is being amended by the final regulation to 
establish that a responsible HHS official may also direct the grantee 
to obtain an independent analysis of its cost comparison for a 
construction or major renovation project and that the cost of such 
analysis will be an allowable expense. The responsible HHS official 
will have the authority to require an independent analysis under the 
amended regulations. The extension of coverage of this provision to 
construction and major renovation projects makes explicit the 
responsible HHS official's authority under the amended Sec.  
1309.10(q), to require such information as part of the application 
process for construction and major renovation projects.

Section 1309.49--Eligibility--Construction

Section 1309.50--Eligibility--Major Renovation

    These sections in the proposed regulations contained conditions 
grantees must meet in order to be eligible to receive funding to 
construct or conduct major renovations of a facility.
Comment
    One respondent commented that the rules should be better organized. 
The respondent suggested that since an applicant must first establish 
that it is eligible to receive funding for construction or renovation 
of a facility, the criteria to establish eligibility for funding of 
these activities would logically precede all other provision of the 
Rule.
Response
    We agree with this suggestion and Sec.  1309.49 is re-designated as 
Sec.  1309.4 and Sec.  1309.50 is re-designated as Sec.  1309.5.

Section 1309.50--Eligibility--Major Renovations

Paragraph (b)

    This paragraph states that when a grantee requests funds to conduct 
major renovations of a leased facility the lease

[[Page 23217]]

must provide a term of occupancy of at least five years.
Comment
    We received two comments in which the respondents stated that a 
minimum lease term of five years was not sufficient to protect the 
Federal interest in the case of high cost major renovations and that 
this provision should be more stringent. We agree that, depending on 
the cost of the renovation, it would be a prudent business practice to 
require that grantees negotiate lease terms in excess of five years. As 
provided in the policies of the Department of Health and Human 
Services, the responsible HHS official will only agree to expenditure 
of Head Start funds for major renovation of a leased facility when the 
lease is long enough for the full value of the grant-supported 
improvements to benefit the grant activity. We have shifted the 
statement on the requirement for the length of the lease to Sec.  
1309.21(d)(1).

Section 1309.51--Approval of Drawings and Specifications

Paragraph (a)

    This paragraph requires that grantees submit final working drawings 
and specifications to the responsible HHS official for approval before 
advertising for bids and contracting for construction or major 
renovation work.
Comment
    One respondent commented that requiring HHS approval of final 
drawings would add a delay in the construction or renovation process. 
The respondent added that since technical drawings had to be approved 
by local officials it should not be necessary for HHS to also approve 
final drawings. The respondent suggested that the Rule be written to 
state that HHS should require a written statement by an architect or 
engineer that final drawings meet all Head Start and local licensing 
requirements.
Response
    By reserving the right to approve final construction and renovation 
working drawings, HHS is reserving the right to determine that the 
final plans remain within the scope and costs of the project for which 
funding has been or will be made available. In order to make our 
intention clear on this point we have revised the wording of Sec.  
1309.51 to read:
    (a) The grantee may not advertise for bids or award a contract for 
any part of the construction or major renovation funded by grant funds 
until the grantee has submitted to the responsible HHS official final 
working drawings and written specifications for the project, a written 
certification by a licensed engineer or architect as to the technical 
appropriateness of the proposed construction or renovation and the 
conformity of the project as shown in the final working drawings and 
specifications with Head Start programmatic requirements, and a written 
estimate of the costs of the project by a licensed architect or 
engineer.
    (b) The responsible HHS official may authorize the grantee to 
advertise bids or award a contract after receiving the information 
provided under paragraph (a) and determining that sufficient funding 
is, or will be, available to cover the costs of the project as 
estimated by the architect or engineer, and that the scope of the 
project as described in the drawings and specifications is appropriate 
to the needs of the grantee.
    The revised wording of the regulation clarifies what the grantee 
must provide before the responsible HHS official can authorize the 
issuance of bids or the signing of a contract. Paragraph (b) clarifies 
the role of the responsible HHS official as being concerned with 
whether the scope of the project is appropriate to the grantee's needs 
and whether Head Start funding is available to meet the estimated costs 
of the project.

Section 1309.52--Procurement Procedures

Paragraph (b)

    This paragraph requires that the HHS official approve contracts for 
construction and renovation of acquired facilities.
Comment
    In reviewing this requirement a respondent stated that this 
provision did not require the approval of contracts for all 
construction and major renovation including those in leased facilities 
or facilities not owned or acquired by the grantee.
Response
    It was our intention to require written approval by the HHS 
official for any use of Head Start funds for renovation and 
construction activities whether or not the Head Start grantee owns the 
property to be improved. We are making a change in this provision and 
paragraph (b) is being amended to read ``All contracts for construction 
or major renovation of a facility to be paid for in whole or in part 
with Head Start funds require the prior, written approval of the 
responsible HHS official and shall be on a lump-sum fixed-price 
basis.''

Paragraph (c)

    This paragraph requires grantees to obtain written approval for 
unsolicited modifications that would materially alter the costs of a 
project or increase the amount of grant funds needed to complete a 
project.
Comment
    We received one comment from a respondent who stated that this 
paragraph was not clear. The respondent was concerned that the Rule 
implies that routine ``change orders'' which are normally encountered 
when conducting renovation and construction projects would need to be 
approved which would cause delays in the implementation of projects.
Response
    Our intention in this provision is to ensure that funds would be 
available to complete projects and that the responsible HHS officials 
would be notified of significant changes which could result in project 
cost increases. It is not our intention to require grantees to submit 
routine change orders to the responsible HHS official for prior 
approval. In order to make this intention clear we are rewording 
section (c) to state that ``Prior written approval of the responsible 
HHS official is required for modifications that would change the scope 
or objective of the project or would materially alter the costs of the 
project by increasing the amount of grant funds needed to complete the 
project.''

Section 1309.54--Davis-Bacon Act

    This section conforms with the statute in requiring that all 
laborers and mechanics employed by contractors and subcontractors in 
the construction or renovation of Head Start facilities be paid wages 
as determined by the Secretary of Labor in accordance with 40 U.S.C. 
276a (et seq.), commonly referred to as the Davis-Bacon Act.
Comment
    We received two comments from two respondents suggesting that wages 
paid for incidental alterations and renovations should be excluded from 
the requirements of the Davis-Bacon Act.
Response
    We cannot adopt this recommendation because the statute provides no 
authority for exempting from the Davis-Bacon Act any class of 
construction or renovation activities.

[[Page 23218]]

VI. Impact Analysis

Executive Order 12866

    Executive Order 12866 requires that regulations be drafted to 
ensure that they are consistent with the priorities and principles set 
forth in the Executive Order. The Department has determined that this 
Rule is consistent with these priorities and principles. This Rule 
implements the statutory authority for Head Start grantees to apply to 
use grant funds to construct or make major renovations to facilities.
    This Rule was determined to be significant and was reviewed by the 
Office of Management and Budget.

Executive Order 13132

    Executive Order 13132 on Federalism applies to policies that have 
federalism implications, defined as ``regulations, legislative comments 
or proposed legislation, and other policy statements or actions that 
have substantial direct effects on the States, on the relationship 
between the national government and the States, on the distribution of 
power and responsibilities among the various levels of government.'' 
This rule does not have federalism implications as defined in the 
Executive Order.

Family Well-Being Impact

    As required by section 654 of the Treasury and General Government 
Appropriations Act of 1999, we have assessed the impact of this final 
Rule on family well being. By allowing Head Start grantees to purchase, 
renovate or construct facilities our assessment is that this Rule will 
have a positive impact on child and family well being by improving the 
quality and availability of Head Start child care facilities in low 
income communities.

Compliance With the National Environmental Policy Act (NEPA)

    Pursuant to regulations of the Council on Environmental Quality (40 
CFR 1500-1508), ACF published an environmental assessment of these 
regulations, and placed a Notice in the Federal Register on November 9, 
2000 (65 FR 67377) which invited public comment on the assessment. ACF 
received no comments and published a Preliminary Finding of No 
Significant Impact on January 25, 2001 (66 FR 7768). After receiving no 
comments on this preliminary finding, ACF published a Final Finding of 
No Significant Impact on March 26, 2001 (66 FR 16478). ACF found that 
these rules will not have a significant impact on the quality of the 
human environment and that the preparation of an Environmental Impact 
Statement would not be necessary.

Regulatory Flexibility Act of 1980

    The Regulatory Flexibility Act (5 U.S.C. Chapter 6) requires the 
Federal government to anticipate and reduce the impact of rules and 
paperwork requirements on small businesses. For each rule with a 
``significant economic impact on a substantial number of small 
entities'' an analysis must be prepared describing the rule's impact on 
small entities. Small entities are defined by the Act to include small 
businesses, small non-profit organizations and small governmental 
entities. While these regulations would affect small entities, they 
would not affect a substantial number. Furthermore, the cost of the 
application process and other activities undertaken as a result of 
these regulations will not have a significant economic impact because 
the Head Start program covers 80 percent of the allowable costs of 
grantees under the program. The remaining costs associated with 
compliance are part of the share of cost grantees agree to meet from 
their own resources when they enter the Head Start program. For these 
reasons, the Secretary certifies that this rule will not have a 
significant impact on substantial numbers of small entities.

Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act (Pub. L. 104-4) requires agencies 
to prepare an assessment of anticipated costs and benefits before 
proposing any rule that may result in an annual expenditure by State, 
local, or Tribal governments, in the aggregate, or by the private 
sector, of $100,000,000 or more (adjusted annually for inflation). This 
rule does not impose any mandates on State, local, or tribal 
governments, or the private sector that will result in an annual 
expenditure of $100,000,000 or more.

Congressional Review

    This rule is not a major rule as defined in 5 U.S.C., Chapter 8.

Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (Pub. L. 104-13), all 
Departments are required to submit to the Office of Management and 
Budget (OMB) for review and approval any reporting or record-keeping 
requirement inherent in a proposed or final rule. This Rule contains 
information collection and record-keeping requirements in section 
1309.10 (Application), 1309.4 as re-designated (Eligibility--
construction), and 1309.5 as re-designated, (Eligibility--major 
renovation) which will be submitted to OMB for review and approval in 
accordance with the Paperwork Reduction Act.
    The respondents to the information collection requirements in the 
Rule are Head Start grantees. Forty percent of these grantees include 
local non-profit or for profit agencies, thirty-three percent are 
Community Action Agencies and sixteen percent are school districts. The 
balance represents Tribes and municipal entities. The Department needs 
to require this collection of information in order to assure that 
grantees that apply for approval to construct or make major renovations 
to a facility with Head Start funds have followed certain necessary 
legal and administrative procedures. Also, the requirement for this 
collection of information is necessary for monitoring purposes.
    The grantees who will be affected by these requirements will be 
those who request approval and are approved to construct or make major 
renovations to a facility for the purpose of operating a Head Start 
program. More than half of grantee agencies (sixty-one percent) enroll 
less than 300 children and are relatively small entities. Less than 
twenty-five percent of all programs enroll more than 500 children and 
would be expected to engage in relatively large scale facility 
development projects if they qualified for funding of such projects. In 
total, the estimated annual number of grantees that will be affected is 
200, based on the average number of grantees who requested approval 
from the Department since the statutory authority became effective.
    The actual submittal of an application under section 1309.10 from a 
grantee to construct or make a major renovation to a facility is a one-
time activity, which is preceded by a number of preparatory activities. 
We estimate the time it will take to prepare the application in 
accordance with the requirements of this Rule is 40 hours per grantee, 
calculated over a period of time. On an annual basis, the total 
estimate for the preparation of applications by grantees is 8,000 
hours. Based upon the Head Start program manager's average annual 
salary, we estimate the cost of the preparation of an application to be 
approximately $960.00. Eighty percent of these costs are borne directly 
through the provision of federal funds. In addition, all other costs 
related to the development of projects affected by this Rule are 
provided directly by grant funds or through required non-federal match 
as provided for by this Rule. No impacts are expected on either 
employees or clients of the Head Start program or its operation.

[[Page 23219]]

    The Administration for Children and Families (ACF) will consider 
comments by the public on these proposed collections of information in:
    [sbull] Evaluating whether the proposed collections are necessary 
for proper performance of the functions of ACF, including whether the 
information will have practical utility;
    [sbull] Evaluating the accuracy of ACF's estimate of the burden of 
the proposed collections of information;
    [sbull] Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
    [sbull] Minimizing the burden of the collection of information on 
those who are to respond.
    OMB is required to make a decision concerning the collection of 
information contained in this Final Rule between 30 and 60 days after 
publication of this document in the Federal Register. Therefore, a 
comment is best assured of having all its full effect if OMB receives 
it within 30 days of publication. Written comments to OMB for the 
proposed information collection should be sent to: Office of Management 
and Budget, Paperwork Reduction Project, 725 17th Street, NW., 
Washington, DC 20503, Attn: Brenda Aguilar.

List of Subjects in 45 CFR Part 1309

    Education of disadvantaged, Grant programs-social programs, Head 
Start, Real property acquisition.

(Catalog of Federal Domestic Assistance Program Number 93.600, 
Project Head Start)

    Dated: December 24, 2002.
Wade F. Horn,
Assistant Secretary for Children and Families.
    Approved: January 21, 2003.
Tommy G. Thompson,
Secretary.


0
For the reasons set forth in the Preamble, 45 CFR part 1309 is amended 
as follows:
0
1. The authority citation for part 1309 continues to read as follows:

    Authority: 42 U.S.C. 9801 et seq.

0
2. The heading of Part 1309 is revised to read as follows:


PART 1309--HEAD START FACILITIES PURCHASE, MAJOR RENOVATION AND 
CONSTRUCTION

0
3. Section 1309.1 is revised to read as follows:


Sec.  1309.1  Purpose and application.

    This part prescribes regulations implementing sections 644(c), (f) 
and (g) and 645A(b)(9) of the Head Start Act, 42 U.S.C. 9801 et seq., 
as they apply to grantees operating Head Start programs (including 
Early Head Start grantees) under the Act. It prescribes the procedures 
for applying for Head Start grant funds to purchase, construct, or make 
major renovations to facilities in which to operate Head Start 
programs. It also details the measures which must be taken to protect 
the Federal interest in such facilities purchased, constructed or 
renovated with Head Start grant funds.

0
4. Section 1309.2 is revised to read as follows:


Sec.  1309.2  Approval of the use of Head Start funds to continue 
purchase of facilities.

    Head Start grantees (including Early Head Start grantees) which 
purchased facilities after December 31, 1986, and which are continuing 
to pay costs of purchasing those facilities, may apply to receive Head 
Start funds to meet those costs by submitting applications which 
conform to the requirements of this part and the Act. A grantee may 
only use grant funds to pay facility purchase costs incurred after the 
responsible HHS official approves its application.

0
5. Section 1309.3 is amended by revising the definitions ``acquire,'' 
``grant funds,'' ``grantee,'' and ``purchase'' and adding four new 
definitions to read as follows:


Sec.  1309.3  Definitions.

* * * * *
    Acquire means to purchase or construct in whole or in part with 
Head Start grant funds through payments made in satisfaction of a 
mortgage agreement (both principal and interest), as a down payment, 
and for professional fees, closing costs and any other costs associated 
with the purchase or construction of the property that are usual and 
customary for the locality.
* * * * *
    Construction means new buildings, and excludes renovations, 
alterations, additions, or work of any kind to existing buildings.
* * * * *
    Grant funds means Federal financial assistance received by a 
grantee from ACF to administer a Head Start or Early Head Start program 
pursuant to the Head Start Act.
    Grantee means any agency designated to operate a Head Start program 
(including an agency designated to operate an Early Head Start program) 
pursuant to section 641 or 645A of the Head Start Act.
    Incidental alterations and renovations means improvements to 
facility which do not meet the definition of major renovation.
* * * * *
    Major renovation means a structural change to the foundation, roof, 
floor, or exterior or load-bearing walls of a facility, or extension of 
an existing facility to increase its floor area. Major renovation also 
means extensive alteration of an existing facility, such as to 
significantly change its function and purpose, even if such renovation 
does not include any structural change to the facility. Major 
renovation also includes a renovation of any kind which has a cost 
exceeding the lesser of $200,000, adjusted annually to reflect the 
percentage change in the Consumer Price Index for All Urban Consumers 
(issued by the Bureau of Labor Statistics) beginning one year after 
June 2, 2003, or 25 percent of the total annual direct costs approved 
for the grantee by ACF for the budget period in which the application 
is made.
* * * * *
    Purchase means to buy an existing facility, either outright or 
through a mortgage. Purchase also refers to an approved use of Head 
Start funds to continue paying the cost of purchasing facilities begun 
after December 31, 1986 as permitted by the Head Start Act and by Sec.  
1309.2.
* * * * *
    Suitable facility means a facility which is large enough to meet 
the foreseeable needs of the Head Start program and which complies with 
local licensing and code requirements and the access requirements of 
the Americans with Disabilities Act (ADA), if applicable, and section 
504 of the Rehabilitation Act of 1973.

0
6. Section 1309.4 is added to read as follows:


Sec.  1309.4  Eligibility--Construction.

    Before submitting an application under Sec.  1309.10 for 
construction of a facility, the grantee must establish that:
    (a) The Head Start program serves an Indian Tribe; or is located in 
a rural or other low-income community; and
    (b) There is a lack of suitable facilities (including public school 
facilities) in the grantee's service area which will inhibit the 
operation of the program, as demonstrated by a statement that neither 
the grantee's current facility nor any facility available for lease in 
the service area is suitable for use by the Head Start program. This 
statement must explain the factors considered, how it was determined 
that there is a lack of suitable facilities and be supported whenever 
possible by a written statement from a licensed real

[[Page 23220]]

estate professional in the grantee's service area.

0
7. Section 1309.5 is added to read as follows:


Sec.  1309.5  Eligibility--Major Renovations.

    Before submitting an application under Sec.  1309.10, the grantee 
must establish that:
    (a) The Head Start program serves an Indian Tribe, or is located in 
a rural or other low-income community; and
    (b) There is a lack of suitable facilities (including public school 
facilities) in the grantee's service area which will inhibit or prevent 
the operation of the program, as demonstrated by a statement that 
neither the grantee's current facility nor any facility available for 
lease or purchase in the service area is suitable or could be made 
suitable without major renovation. This statement must explain the 
factors considered, how it was determined that there is a lack of 
suitable facilities and be supported, whenever possible, by written 
statement from a licensed real estate professional in the grantee's 
service area.

0
8. Section 1309.10 is removed and a new Sec. 1309.10 is added to read 
as follows:


Sec.  1309.10  Applications for the purchase, construction and major 
renovation of facilities.

    A grantee which proposes to use grant funds to purchase a facility, 
or a grantee found eligible under Sec.  1309.4 to apply for funds to 
construct a facility, or Sec.  1309.5 to undertake major renovation of 
a facility, including facilities purchased for that purpose, must 
submit a written application to the responsible HHS official. The 
application must include the following information:
    (a) A legal description of the site of the facility, and an 
explanation of the appropriateness of the location to the grantee's 
service area, including a statement of the effect that acquisition or 
major renovation of the facility has had or will have on the 
transportation of children to the program, on the grantee's ability to 
collaborate with other child care, early education programs, social 
services and health providers, and on all other program activities and 
services.
    (b) Plans and specifications of the facility to be acquired, 
including information on the size and type of structure, the number and 
a description of the rooms, and the lot on which the building is 
located or will be located (including the space available for a 
playground and for parking). If incidental alterations and renovations 
or major renovations are being proposed to make a facility suitable to 
carry out the Head Start program, a description of the renovations, and 
the plans and specifications submitted, must also describe the facility 
as it will be after renovations are complete. In the case of a proposed 
major renovation or construction project, the applicant must submit a 
written estimate of all costs associated with the project. An architect 
or engineer must prepare the written estimate.
    (c) The cost comparison described in Sec.  1309.11.
    (d) The intended use of the facility proposed for acquisition or 
major renovation, including information showing the percentage of floor 
space that will be used as a Head Start center or a direct support 
facility for a Head Start program. As provided under section 
644(f)(2)(D) of the Act, in the case of a request regarding funding for 
the continuing purchase of a facility, the application must include 
information demonstrating that the facility will be used principally as 
a Head Start center, or a direct support facility for a Head Start 
program.
    (e) An assurance that the facility complies (or will comply when 
constructed or after completion of the renovations described in 
paragraph (b) of this section) with local licensing and code 
requirements, the access requirements of the Americans with 
Disabilities Act (ADA), if applicable, and section 504 of the 
Rehabilitation Act of 1973. The grantee will also assure that it has 
met the requirements of the Flood Disaster Protection Act of 1973, if 
applicable.
    (f) If the grantee proposing to purchase a facility without 
undertaking major renovations is claiming that the lack of alternative 
facilities will prevent or would have prevented operation of the 
program, a statement of how it was determined that there is or was a 
lack of alternative facilities. This statement must be supported, 
whenever possible, by a written statement from a licensed real estate 
professional in the grantee's service area. If a grantee requesting 
approval of the use of Head Start funds to continue purchase of a 
facility is unable to provide such statements based on circumstances 
which existed at the time the purchase began, the grantee and the 
licensed real estate professional may use present conditions as a basis 
for making the determination.
    (g) The terms of any proposed or existing loan(s) related to 
acquisition or major renovation of facility and the repayment plans 
(detailing balloon payments or other unconventional terms, if any), and 
information on all other sources of funding of the acquisition or major 
renovations, including any restrictions or conditions imposed by other 
funding sources.
    (h) A statement of the effect that the acquisition or major 
renovation of the facility would have on the grantee's meeting the non-
Federal share requirement of section 640(b) of the Head Start Act, 
including whether the grantee is seeking a waiver of its non-Federal 
share obligation under that section of the Act.
    (i) Certification by a licensed engineer or architect that the 
building proposed to be purchased or for which Head Start funds will be 
used to continue to purchase is structurally sound and safe for use as 
a Head Start facility. The applicant must certify that, upon completion 
of major renovation to a facility or construction of a facility, that 
an inspection by a licensed engineer or architect will be conducted to 
determine that the facility is structurally sound and safe for use as a 
Head Start facility.
    (j) A statement of the effect that the acquisition or major 
renovation of a facility would have on the grantee's ability to meet 
the limitation on development and administrative costs in section 
644(b) of the Head Start Act. One-time fees and expenses necessary to 
the acquisition or major renovation, such as the down payment, the cost 
of necessary renovation, loan fees and related expenses, and fees paid 
to attorneys, engineers, and appraisers, are not considered to be 
administrative costs.
    (k) A proposed schedule for acquisition, renovation and occupancy 
of the facility.
    (l) Reasonable assurance that the applicant will obtain, or has 
obtained, a fee simple or such other estate or interest in the site of 
the facility to assure undisturbed use and possession for the purpose 
of operating a Head Start program. A grantee seeking funding for 
acquisition or major renovation of a facility that is sited on land not 
owned by the grantee must establish in its application that there is no 
other feasible alternative to acquisition or leasing of the facility 
for providing a suitable facility appropriate to the needs of the Head 
Start program. If the grantee proposes to acquire a facility without 
also purchasing the land on which the facility is or will be situated, 
the application must include a copy of the existing or proposed land 
lease or other document which protects the Federal interest in the 
facility and ensures undisturbed use and possession of the facility by 
the grantee, or other organization designated by ACF, for the purpose 
of operating a Head Start program or other program designated by

[[Page 23221]]

ACF. A grantee applying for funding to make major renovations to a 
facility it does not own must include with its application written 
permission from the owner of the building projected to undergo major 
renovation and a copy of the lease or proposed lease for the facility. 
A grantee receiving funds for acquisition or the major renovation of a 
facility, on land belonging to another party, must have a land lease or 
other similar interest in the underlying land which is long enough to 
allow the Head Start program to receive the full value of those 
permanent grant-supported improvements.
    (m) An assessment of the impact of the proposed project on the 
human environment pursuant to section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)) and its 
implementing regulations (40 CFR parts 1500 through 1508), as well as a 
report showing the results of tests for environmental hazards present 
in the facility, ground water, and soil (or justification why such 
testing is not necessary). In addition, such information as may be 
necessary to comply with the National Historic Preservation Act of 1966 
(16 U.S.C. 470f) must be included.
    (n) Assurance that the grantee will comply with the requirements of 
the Uniform Relocation Assistance and Real Property Acquisition 
Policies Act of 1970, as amended (42 U.S.C. 4601 et seq. and 49 CFR 
part 24), and information about the costs that may be incurred due to 
compliance with this Act.
    (o) A statement of the share of the cost of acquisition or major 
renovation that will be paid with grant funds.
    (p) For a grantee seeking approval of the use of Head Start funds 
to continue purchase of a facility, a statement of the extent to which 
it has attempted to comply and will be able to comply with the 
provision of Sec.  1309.22.
    (q) Such additional information as the responsible HHS official may 
require.

0
9. Section 1309.11 is revised to read as follows:


Sec.  1309.11  Cost comparison for purchase, construction and major 
renovation of facilities.

    (a) A grantee proposing to acquire or undertake a major renovation 
of a facility must submit a detailed estimate of the costs of the 
proposed activity and compare the costs of the proposed activity as 
provided under paragraph (c) of this section and provide any additional 
information requested by the responsible HHS official.
    (b) All costs of acquisition, renovation and ownership must be 
identified, including, but not limited to, professional fees, purchase 
of the facility to be renovated, renovation costs, moving expenses, 
additional transportation costs, maintenance, taxes, insurance, and 
easements, rights of way or land rentals. An independent appraisal of 
the current value of the facility proposed to be purchased, or which 
the grantee will continue to purchase with Head Start funds or to 
receive major renovation, made by a professional appraiser, must be 
included.
    (c)(1) Grantees proposing to purchase a facility, without 
requesting funds for major renovations to the facility, must compare 
costs of the proposed facility to the cost of the facility currently 
used by the grantee, unless the grantee has no current facility, will 
lose the use of its current facility, intends to continue to use its 
current facility after it purchases the new facility, or has shown to 
the satisfaction of the responsible HHS official that its existing 
facility is inadequate. Where the grantee's current facility is not 
used as the alternate facility, the grantee must use for comparison a 
facility (or facilities) available for lease in the grantee's service 
area and suitable for use as a Head Start facility or which can be made 
suitable through incidental alteration or renovations, the cost of 
which shall be included in the cost comparison. In the case of an 
application for approval of the use of Head Start funds to continue 
purchase of a facility, the cost of the present facility must be 
compared to the cost of the facility used by the grantee before 
purchase of its current facility. If the facility used by the grantee 
before the purchase of its present facility was deemed inadequate by 
the responsible HHS official, or the grantee had no previous facility, 
the alternative facility shall be an available, appropriate facility 
(or facilities) of comparable size that was available for rent in the 
grantee's service are at the time of its purchase of the current 
facility. Grantees which have established under Sec.  1309.10(f) that 
there is a lack of alternative facilities that will prevent or would 
have prevented operation of the program are not required to provide a 
cost comparison under this paragraph.
    (2) Grantees proposing to construct a facility must compare the 
costs of constructing the proposed facility to the costs of purchasing 
a suitable alternate facility or owning, purchasing or leasing an 
alternative facility which can be made suitable for use through 
incidental alterations and renovations or major renovations. The 
alternative facility is one now owned by the grantee or available for 
lease or purchase in the grantee's service area. If no such facility is 
available, this statement must explain how this fact was determined and 
the claim must be supported, whenever possible, by a written statement 
from a licensed real estate professional in the grantee's service area.
    (3) A grantee proposing to undertake a major renovation of a 
facility must compare the cost of the proposed renovation (including 
the cost of purchasing the facility to be renovated, if the grantee is 
proposing to purchase the facility) to the costs of constructing a 
facility of comparable size. In place of the cost comparison required 
in the preceding sentence, a grantee proposing to make major 
renovations to a leased facility must show that the monthly or annual 
occupancy costs for the term of the lease, including the cost of the 
major renovations, is less than, or comparable to, the costs of 
purchasing or leasing any other facility in the grantee's service area 
which can be made suitable through major renovations, if such a 
facility is available.
    (d) The grantee must separately delineate the following expenses in 
the application:
    (1) One-time costs, including but not limited to, costs of 
purchasing the facility to be renovated, the down payment, professional 
fees, moving expenses, the cost of site preparation; and
    (2) Ongoing costs, including, but not limited to, mortgage 
payments, insurance premiums, maintenance costs, and property taxes. If 
the grantee is exempt from the payment of property taxes, this fact 
must be stated.
    (e) The period of comparison for purchase, construction or major 
renovation of a facility is twenty years, except that for the purchase 
of a modular unit the period of comparison is ten years and the period 
of comparison for major renovation of a leased facility is the period 
of the lease remaining after the renovations are completed. For 
approvals of the use of Head Start funds to continue purchase of the 
facility the period of comparison begins on the date the purchase 
began.
    (f) If the facility is to be used for other purposes in addition to 
the operation of the Head Start program, the cost of use of that part 
of the facility used for such other purposes must be allocated in 
accordance with applicable Office of Management and Budget cost 
principles.

0
10. Section 1309.21 is amended by revising paragraphs (a), (d) and (f) 
introductory text to read as follows:

[[Page 23222]]

Sec.  1309.21  Recording of Federal interest and other protection of 
Federal interest.

    (a) The Federal government has an interest in all real property and 
equipment acquired or upon which major renovations have been undertaken 
with grant funds for use as a Head Start facility. The responsible HHS 
official may subordinate the Federal interest in such property to that 
of a lender, which financed the acquisition or major renovation costs 
subject to the conditions set forth in paragraph (f) of this section.
* * * * *
    (d)(1) A grantee receiving funds to acquire or make major 
renovations to a facility that is or will be sited on land not owned by 
the grantee must have a lease or other arrangement which protects the 
Federal interest in the facility and ensures the grantee's undisturbed 
use and possession of the facility. The lease or document evidencing 
another arrangement shall include provisions to protect the right of 
the grantee, or some other organization designated by ACF in the place 
of the grantee, to occupy the facility for the term of the lease or 
other arrangement and such other terms required by the responsible HHS 
official. The designation of an alternate tenant or occupant of the 
facility by ACF shall be subject to approval by the Lessor, which will 
not be withheld except for good reason, not including the willingness 
of another party to pay a higher rent. A grantee receiving funds for 
the major renovation or acquisition of a facility, on land belonging to 
another party, must have a land lease or other similar interest in the 
underlying land which is long enough to allow the Head Start program to 
receive the full value of those permanent grant-supported improvements.
    (2) Except as required under Sec.  1309.31 for certain modular 
units, the grantee must record the Notice of Federal Interest in the 
appropriate official records for the jurisdiction where a facility is 
or will be located immediately upon: purchasing a facility or land on 
which a facility is to be constructed; receiving permission to use 
funds to continue purchase of a facility; commencing major renovation 
of a facility or construction of a facility. In the case of a leased 
facility undergoing major renovations, the Notice of Federal Interest 
shall be a copy of the executed lease and all amendments. In the case 
of a facility now sited or to be constructed on land not owned by the 
grantee, the Notice of Federal Interest shall be the land lease or 
other document protecting the Federal interest. The lease or other 
document must ensure the right of the grantee to have undisturbed use 
and possession of the facility. In the event that filing of a lease is 
prohibited by State law, the grantee shall file an affidavit signed by 
the representatives of the grantee and the Lessor stating that the 
lease includes terms which protect the right of the grantee, or some 
other organization designated by ACF in the place of the grantee, to 
occupy the facility for the term of the lease.
    (3) The Notice of Federal Interest for property sited on land not 
owned by the grantee shall include the following information:
    (i) The date of the award of grant funds for the acquisition or 
major renovation of the property to be used as a Head Start facility, 
and the address and legal description of the property to be acquired or 
renovated;
    (ii) That the grant incorporated conditions which included 
restrictions on the use of the property and provide for a Federal 
interest in the property;
    (iii) That the property may not be used for any purpose 
inconsistent with that authorized by the Head Start Act and applicable 
regulations;
    (iv) That the property may not be mortgaged or used as collateral, 
sold or otherwise transferred to another party, without the written 
permission of the responsible HHS official;
    (v) That these grant conditions and requirements cannot be altered 
or nullified through a transfer of ownership; and
    (vi) The name (including signature) and title of the person who 
completed the Notice for the grantee agency, and the date of the 
Notice.
    (4) A lease, serving as a Notice of Federal Interest, an affidavit 
filed in the land records as a substitute for the lease, or other 
document protecting the Federal interest in a facility acquired with 
grant funds and sited on land not owned by the grantee, shall include 
the following information:
    (i) The address and legal description of the property;
    (ii) That the grant incorporated conditions which include 
restrictions on the use of the property and provide for a Federal 
interest in the property for the term of the lease or other 
arrangement; and
    (iii) That the property may not be used for any purpose during the 
lease or other arrangement that is inconsistent with that authorized by 
the Head Start Act and applicable regulations.
* * * * *
    (f) In subordinating its interest in a facility acquired or upon 
which major renovations have been undertaken with grant funds, the 
responsible HHS officials does not waive application of paragraph (d) 
of this section and Sec.  1309.22. A written agreement by the 
responsible HHS official to subordinate the Federal interest must 
provide:
* * * * *

0
11. Section 1309.22(a) is revised to read as follows:


Sec.  1309.22  Rights and responsibilities in the event of grantee's 
default on mortgage, or withdrawal or termination.

    (a) The mortgage agreement, or security agreement in the case of a 
modular unit which is proposed to be purchased under a chattel 
mortgage, shall provide in the case of default by the grantee or the 
withdrawal or termination of the grantee from the Head Start program 
that ACF may intervene. In the case of a default, the mortgage 
agreement or security agreement must provide that ACF may intervene to 
ensure that the default is cured by the grantee or another agency 
designated by ACF and that the lender shall accept the payment of money 
or performance of any other obligation by ACF's designee, for the 
grantee, as if such payment of money of performance had been made by 
the grantee. The agreement shall also provide that ACF will have a 
period of 60 days after notification by the grantee of default in which 
to intervene to attempt to cure the default. The agreement shall 
further provide that in the event of a default, or the withdrawal or 
termination of the grantee the mortgage may be assumed by an 
organization designated by ACF. The mortgage or creditor will have the 
right to approve the organization designated to assume the mortgage, 
but such approval will not be withheld except for good reason. The 
required provisions must be included in the mortgages of facilities 
funded as continuing purchases pursuant to Sec. 1309.2 unless a 
convincing justification for not doing so is shown by the Head Start 
grantee.
* * * * *

0
12. Section 1309.23 is amended by revising paragraph (a) introductory 
text to read as follows:


Sec.  1309.23  Insurance, bonding and maintenance.

    (a) At the time of acquiring or undertaking a major renovation of a 
facility or receiving approval for the use of Head Start funds to 
continue purchase the grantee shall obtain insurance coverage for the 
facility which is not lower in value than coverage it has obtained for 
other real property it owns, and which at least meets the requirements 
of the coverage

[[Page 23223]]

specified in paragraphs (a)(1) and (2) of this section. For facilities, 
which have been constructed or renovated, insurance coverage must begin 
at the commencement of the expenditure of costs in fulfillment of 
construction or renovation work.
* * * * *
0
13. Introductory language and paragraph (a) of Sec.  1309.30 are 
revised to read as follows:


Sec.  1309.30  General.

    In addition to the special requirements of Sec. Sec.  1309.31 
through 1309.34, the proposed purchase or request for approval of 
continuing purchase of a modular unit is subject to all of the 
requirements of this part with the following exceptions:
    (a) The requirements of Sec. 1309.33 apply rather than the 
requirement of Sec. 1309.10(i); and
* * * * *

0
14. Section 1309.31 is amended by revising paragraph (a) to read as 
follows:


Sec.  1309.31  Site description.

    (a) An application for the purchase or approval of a continuing 
purchase of a modular unit pursuant to Sec.  1309.2 must state 
specifically where the modular unit is or will be installed, and 
whether the land on which the modular unit will be installed will be 
purchased by the grantee. If the grantee does not propose to purchase 
the land on which to install the modular unit or if the modular unit 
the grantee is continuing to purchase with Head Start funds is located 
on land not owned by the grantee, the application must state who owns 
the land on which the modular unit is or will be situated and describe 
the easement, right-of-way or land rental it will obtain or has 
obtained to allow it sufficient access to the modular unit.
* * * * *

0
15. Section 1309.32 is amended by revising paragraph (b) to read as 
follows:


Sec.  1309.32  Statement of procurement procedure for modular units.

* * * * *
    (b) This statement must include a copy of the specifications for 
the unit which is proposed to be purchased and assurance that the 
grantee will comply with procurement procedures in 45 CFR parts 74 and 
92, including assurance that all transactions will be conducted in a 
manner to provide, to the maximum extent practical, open and free 
competition. A grantee requesting approval for the use of Head Start 
funds for continued purchase of a modular unit must also include a copy 
of the specifications for the unit.

0
16. Section 1309.33 is revised to read as follows:


Sec.  1309.33  Inspection.

    A grantee which purchases a modular unit with grant funds or 
receives approval of a continuing purchase must have the modular unit 
inspected by a licensed engineer or architect within 15 calendar days 
of its installation or approval of a continuing purchase, and must 
submit to the responsible HHS official the engineer's or architect's 
inspection report within 30 calendar days of the inspection.

0
17. Section 1309.40 is removed and a new Sec. 1309.40 is added to read 
as follows:


Sec.  1309.40  Copies of documents.

    Certified copies of the deed, lease, loan instrument, mortgage, and 
any other legal documents related to the acquisition or major 
renovation of the facility or the discharge of any debt secured by the 
facility must be submitted to the responsible HHS official within ten 
days of their execution.

0
18. Section 1309.41 is removed and a new Sec. 1309.41 is added to read 
as follows:


Sec.  1309.41  Record retention.

    All records pertinent to the acquisition or major renovation of a 
facility must be retained by the grantee for a period equal to the 
period of the grantee's ownership (or occupancy, in the case of leased 
facilities) of the facility plus three years.

0
19. Section 1309.42 is revised to read as follows:


Sec.  1309.42  Audit of mortgage.

    Any audit of a grantee, which has acquired or made major 
renovations to a facility with grant funds, shall include an audit of 
any mortgage or encumbrance on the facility. Reasonable and necessary 
fees for this audit and appraisal are payable with grant funds.

0
20. Section 1309.43 is revised to read as follows:


Sec.  1309.43  Use of grant funds to pay fees.

    Consistent with the cost principles referred to in 45 CFR part 74 
and 45 CFR part 92, reasonable fees and costs associated with and 
necessary to the acquisition or major renovation of a facility 
(including reasonable and necessary fees and costs incurred to 
establish preliminary eligibility under Sec. Sec.  1309.4 and 1309.5, 
or otherwise prior to the submission of an application under Sec.  
1309.10 or acquisition of the facility) are payable with grant funds, 
and require prior, written approval of the responsible HHS official.

0
21. Section 1309.44 is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec.  1309.44  Independent analysis.

    (a) The responsible HHS official may direct the grantee applying 
for funds to acquire or make major renovations to a facility to obtain 
an independent analysis of the cost comparison submitted by the grantee 
pursuant to Sec.  1309.11, or the statement under 1309.10(f) of this 
part, or both, if, in the judgment of the official, such an analysis is 
necessary to adequately review a proposal submitted under this part.
    (b) The analysis shall be in writing and shall be made by a 
qualified, disinterested real estate professional in the community in 
which the property to be purchased or renovated is situated.
* * * * *

0
22. A new Subpart F is added to read as follows:
Subpart F--Construction and Major Renovation
Sec.
1309.51 Submission of drawings and specifications.
1309.52 Procurement procedures.
1309.53 Inspection of work.
1309.54 Davis-Bacon Act.

Subpart F--Construction and Major Renovation


Sec.  1309.51  Submission of drawings and specifications.

    (a) The grantee may not advertise for bids or award a contract for 
any part of construction or major renovation funded by grant funds 
until the grantee has submitted to the responsible HHS official final 
working drawings and written specifications for the project, a written 
certification by a licensed engineer or architect as to technical 
appropriateness of the proposed construction or renovation and the 
conformity of the project as shown in the final working drawings and 
specifications with Head Start programmatic requirements, and a written 
estimate of the costs of the project by a licensed architect or 
engineer.
    (b) The responsible HHS official may authorize the grantee to 
advertise bids or award a contract after receiving the information 
provided under paragraph (a) of this section and determining that 
sufficient funding is, or will be, available to cover the costs of the 
project as estimated by the architect or engineer, and that the scope 
of the project as described in the drawings and

[[Page 23224]]

specifications is appropriate to the needs of the grantee.


Sec.  1309.52  Procurement procedures.

    (a) All facility construction and major renovation transactions 
must comply with the procurement procedure in 45 CFR parts 74 or 92, 
and must be conducted in a manner to provide, to the maximum extent 
practical, open and free competition.
    (b) All contracts for construction or major renovation of a 
facility to be paid for in whole or in part with Head Start funds 
require the prior, written approval of the responsible HHS official and 
shall be on a lump sum fixed-price basis.
    (c) Prior written approval of the responsible HHS official is 
required for unsolicited modifications that would change the scope or 
objective of the project or would materially alter the costs of the 
project by increasing the amount of grant funds needed to complete the 
project.
    (d) All construction and major renovation contracts for facilities 
acquired with grant funds shall contain a clause stating that the 
responsible HHS official or his or her designee shall have access at 
all reasonable times to the work being performed pursuant to the 
contract, at any stage of preparation or progress, and require that the 
contractor shall facilitate such access and inspection.


Sec.  1309.53  Inspection of work.

    (a) The grantee must provide and maintain competent and adequate 
architectural or engineering inspection at the work site to insure that 
the completed work conforms to the approved plans and specifications.
    (b) The grantee must submit a final architectural or engineering 
inspection report of the facility to the responsible HHS official 
within 30 calendar days of substantial completion of the construction 
or renovation.


Sec.  1309.54  Davis-Bacon Act.

    Construction and renovation projects and subcontracts financed with 
funds awarded under the Head Start program are subject to the Davis-
Bacon Act (40 U.S.C. 276a et seq.) and the Regulations of the 
Department of Labor, 29 CFR part 5. The grantee must provide an 
assurance that all laborers and mechanics employed by contractors or 
subcontractors in the construction or renovation of affected Head Start 
facilities shall be paid wages at not less than those prevailing on 
similar construction in the locality, as determined by the Secretary of 
Labor.

[FR Doc. 03-10644 Filed 4-30-03; 8:45 am]
BILLING CODE 4184-01-P