[Federal Register Volume 68, Number 101 (Tuesday, May 27, 2003)]
[Rules and Regulations]
[Pages 28727-28744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11852]


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SOCIAL SECURITY ADMINISTRATION

20 CFR Part 437

RIN 0960-AE28


Uniform Administrative Requirements for Grants and Cooperative 
Agreements to State and Local Governments

AGENCY: Social Security Administration (SSA).

ACTION: Final rules.

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SUMMARY: These final rules establish new regulations dealing with the 
administrative requirements for grants and cooperative agreements with 
State and local governments. The Social Security Independence and 
Program Improvements Act of 1994 established SSA as an independent 
agency separate from the Department of Health and Human Services (HHS), 
effective March 31, 1995. As part of our effort to implement our own 
set of grants regulations, we are codifying the text of the 
governmentwide grants management Common Rule, ``Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments.'' This final rule, along with the final rules we are 
publishing elsewhere in today's Federal Register, establish SSA grants 
regulations, separate from those of HHS, effective upon publication.

EFFECTIVE DATE: These final rules are effective May 27, 2003.

FOR FURTHER INFORMATION CONTACT: Phyllis Y. Smith, Chief Grants 
Management Officer, Office of Operations Contracts and Grants, Office 
of Acquisition and Grants, SSA, 1710 Gwynn Oak Ave., Baltimore, MD 
21207-5279; telephone (410) 965-9518; FAX (410) 966-9310.

SUPPLEMENTARY INFORMATION: 

I. Background

    In 1983, a 20-agency task force established under the President's 
Council on Management Improvement explored streamlining grants 
management and reviewed OMB Circular A-102, ``Uniform Administrative 
Requirements for Grants to State and Local Governments.'' As an 
outgrowth of the task force studies, a governmentwide ``common'' rule 
was

[[Page 28728]]

drafted, which contained fiscal and administrative requirements for 
grants and cooperative agreements to State and local governments 
(grantees) and subrecipients which are State and local governments 
(subgrantees). At the same time, OMB and the agencies drafted a revised 
Circular A-102 containing guidance to Federal agencies on how they 
should manage the award and administration of Federal grants.
    Consequently, two governmentwide documents were issued. On March 
11, 1988, a revised OMB Circular A-102--directed solely to Federal 
agencies--was published in the Federal Register (53 FR 8028). On the 
same date, a common rule was published (53 FR 8033). Consistent with a 
March 12, 1987, Presidential memorandum, affected agencies adopted the 
grants management Common Rule verbatim, except where inconsistent with 
statutory requirements. The circular became effective immediately while 
the Common Rule did not become effective until October 1, 1988.
    The grants management Common Rule sets forth consistent and uniform 
standards among Federal agencies in the management of grants and 
cooperative agreements with State, local, and federally recognized 
Indian tribal governments. HHS implements the provisions of the grants 
management Common Rule through its regulations at 45 CFR part 92. Prior 
to March 31, 1995, SSA was an operating component of HHS. As a result 
of Public Law 103-296, SSA became an independent agency on March 31, 
1995. However, pursuant to section 106(b) of that law, the HHS 
regulations at 45 CFR part 92 remain applicable to SSA. In order to 
implement our own set of grants regulations, we are essentially 
adopting the text of the governmentwide grants management Common Rule. 
The result is the SSA grants administration regulations, 20 CFR part 
437. HHS regulations at 45 CFR part 92 will cease to be applicable to 
SSA on the effective date of these regulations, in accordance with 
section 106(b) of Pub. L. 103-296.

II. Differences Between Part 437 and Common Rule

    We have made several minor editorial corrections to the language in 
the common rule.
    1. In Sec.  437.20(a), in the first sentence, we have replaced the 
word ``expand'' with the word ``expend.'' The sentence correctly reads: 
``A State must expend and account for grant funds in accordance with 
State laws and procedures for expending and accounting for its own 
funds.''
    2. In Sec.  437.30(f)(1), we have replaced the word ``formal'' with 
the word ``format.'' The sentence correctly reads: ``A request for 
prior approval of any budget revision will be in the same budget format 
the grantee used in its application and shall be accompanied by a 
narrative justification for the proposed revision.''
    3. In Sec.  437.42(f), we have included a period after the word 
``records'' so that a new sentence begins with the word ``unless.'' The 
sentences correctly read: ``The Federal Freedom of Information Act (5 
U.S.C. 552) does not apply to records. Unless required by Federal, 
State, or local law, grantees and subgrantees are not required to 
permit public access to their records.''
    In addition to these changes, throughout new part 437, we have 
replaced, where appropriate, references to ``awarding agency(ies)'' to 
SSA. We have also made numerous nonsubstantive changes to make these 
rules easier for the public to read and understand.

III. Differences Between Part 437 and 45 CFR Part 92

    We have also modified our rules from the HHS rules at part 92 in 
two ways:
    1. We have not included the language at Sec. Sec.  92.4(a)(2)-(10) 
and 92.4(b) in our regulations. These provisions, which list block 
grants and entitlements that are non-SSA programs, do not apply to SSA.
    2. We have modified the language in Sec.  92.30(a)(1), which 
appears in our regulations at Sec.  437.30(a)(1), to show that 
approvals regarding revision of budget and program plans should be 
signed by the responsible SSA Grants Management Officer; or the SSA 
Commissioner or subordinate official with proper delegated authority 
from the Commissioner. SSA regional offices are not involved with grant 
administration activities. Therefore, language dealing with the 
delegation of approval authority to the regional offices is 
unnecessary.

Regulatory Procedures

Justification for Final Rule

    This rule is being published as a final instead of as a proposed 
rule. Section 702(a)(5) of the Social Security Act (Act) makes the 
regulations we prescribe subject to the rulemaking procedures 
established under section 553 of the Administrative Procedure Act 
(APA), 5 U.S.C. 553. These procedures generally require publication of 
notice of the proposed rulemaking and the solicitation of comments from 
interested persons. However, the APA provides exceptions to notice and 
comment procedures when an agency finds that there is good cause for 
dispensing with such procedures on the basis that they are 
impracticable, unnecessary, or contrary to the public interest.
    After due consideration, we have determined that under 5 U.S.C. 
553(b)(B), good cause exists for waiver of notice of proposed 
rulemaking because such procedure would be unnecessary. These final 
regulations adopt as SSA regulations the provisions of the 
governmentwide grants management Common Rule without substantive 
change. Pursuant to section 106(b) of Public Law 103-296, the HHS 
regulations at 45 CFR part 92, which implement the provisions of the 
grants management Common Rule, remain applicable to SSA until such time 
as these regulations become effective. The differences in these 
regulations over those of the grants management Common Rule or those of 
45 CFR part 92 are not substantive. Accordingly, promulgation of these 
regulations pursuant to notice and comment rulemaking is unnecessary 
and may be dispensed with pursuant to 5 U.S.C. 553(b)(B).

Waiver of 30-Day Delay in Effective Date

    These regulations are effective on publication, rather than 
effective 30 days after publication. As indicated above, section 
702(a)(5) of the Act makes the regulations we prescribe subject to the 
rulemaking procedures established under section 553 of the APA. Section 
553(d) of the APA requires that the effective date of a substantive 
rule be no less than 30 days after its publication, except in cases of: 
rules which grant or recognize an exemption or relieve a restriction; 
interpretative rules and statements of policy; or as otherwise provided 
by the agency for good cause found and published with the rule.
    Under 5 U.S.C. 553(d)(3), good cause exists for dispensing with the 
minimum 30-day period between publication date and effective date. As 
indicated above, these regulations adopt without change the substantive 
provisions of the governmentwide grants management Common Rule. A 30-
day delay in the effective date of these regulations would serve no 
purpose since, during such delay, the identical provisions of Part 92, 
which implement the provisions of the grants management Common Rule, 
would remain applicable. Accordingly, these regulations are effective 
on publication.

[[Page 28729]]

Executive Order 12866

    We have consulted with the Office of Management and Budget (OMB) 
and have determined that these final rules do not meet the criteria for 
a significant regulatory action under Executive Order 12866, as amended 
by Executive Order 13258. Thus, they were not subject to OMB review. We 
have also determined that these rules meet the plain language 
requirement of Executive Order 12866, as amended by Executive Order 
13258.

Regulatory Flexibility Act

    We certify that these final regulations will not have a significant 
economic impact on a substantial number of small entities because this 
rule merely reflects the adoption of existing grant policies and 
procedures by SSA and does not promulgate any new policies or 
procedures which would impact the public. Therefore, a regulatory 
flexibility analysis as provided in the Regulatory Flexibility Act, as 
amended, is not required.

Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) of 1995 says that no persons are 
required to respond to a collection of information unless it displays a 
valid OMB control number. In accordance with the PRA, SSA is providing 
notice that the Office of Management and Budget has approved the 
information collection requirements contained in Sec. Sec.  437.10 and 
437.41 of these final rules. The OMB Control Numbers for these 
collections are 0348-0039 (SF-269), 0348-0038 (SF-269A), 0348-0043 (SF-
424), 0348-0004 (SF-270), 0348-0002 (SF-271) and 0348-00030 (SF-272).

(Catalog of Federal Domestic Assistance: Program No. 96.007--Social 
Security--Research and Demonstration; and Program No. 96.008--Social 
Security Administration--Benefits Planning, Assistance, and Outreach 
Program)

List of Subjects in 20 CFR Part 437

    Accounting, Administrative practice and procedures, Grant 
programs--health, Grant programs--social programs, Grants 
administration, Reporting and recordkeeping requirements.

    Dated: April 25, 2003.
Jo Anne B. Barnhart,
Commissioner of Social Security.

0
For the reasons set out in the preamble, we are adding a new part 437 
to chapter III of title 20 of the Code of Federal Regulations to read 
as follows:
0
1. Part 437 is added to read as follows:

PART 437--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND 
COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS

Subpart A--General
Sec.
437.1 Purpose and scope of this part.
437.2 Scope of subpart.
437.3 Definitions.
437.4 Applicability.
437.5 Effect on other issuances.
437.6 Additions and exceptions.
Subpart B--Pre-Award Requirements
437.10 Forms for applying for grants.
437.11 State plans.
437.12 Special grant or subgrant conditions for ``high-risk'' 
grantees.
Subpart C--Post-Award Requirements

Financial Administration

437.20 Standards for financial management systems.
437.21 Payment.
437.22 Allowable costs.
437.23 Period of availability of funds.
437.24 Matching or cost sharing.
437.25 Program income.
437.26 Non-Federal audit.

Changes, Property, and Subawards

437.30 Changes.
437.31 Real property.
437.32 Equipment.
437.33 Supplies.
437.34 Copyrights.
437.35 Subawards to debarred and suspended parties.
437.36 Procurement.
437.37 Subgrants.

Reports, Records, Retention, and Enforcement

437.40 Monitoring and reporting program performance.
437.41 Financial reporting.
437.42 Retention and access requirements for records.
437.43 Enforcement.
437.44 Termination for convenience.
Subpart D--After-the-Grant Requirements
437.50 Closeout.
437.51 Later disallowances and adjustments.
437.52 Collection of amounts due.
Subpart E--Entitlement [Reserved]

    Authority: 5 U.S.C. 301.

Subpart A--General


Sec.  437.1  Purpose and scope of this part.

    This part establishes the Social Security Administration's 
administrative rules for Federal grants and cooperative agreements and 
subawards to State, local and Indian tribal governments. The provisions 
of 20 CFR part 435, Subpart E (Disputes), also apply to grants and 
cooperative agreements covered by this part 437.


Sec.  437.2  Scope of subpart.

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


Sec.  437.3  Definitions.

    As used in this part:
    Accrued expenditures mean the charges incurred by the grantee 
during a given period requiring the provision of funds for:
    (1) Goods and other tangible property received;
    (2) Services performed by employees, contractors, subgrantees, 
subcontractors, and other payees; and
    (3) Other amounts becoming owed under programs for which no current 
services or performance is required, such as annuities, insurance 
claims, and other benefit payments.
    Accrued income means the sum of:
    (1) Earnings during a given period from services performed by the 
grantee and goods and other tangible property delivered to purchasers, 
and
    (2) Amounts becoming owed to the grantee for which no current 
services or performance is required by the grantee.
    Acquisition Cost of an item of purchased equipment means the net 
invoice unit price of the property including the cost of modifications, 
attachments, accessories, or auxiliary apparatus necessary to make the 
property usable for the purpose for which it was acquired. Other 
charges such as the cost of installation, transportation, taxes, duty 
or protective in-transit insurance, shall be included or excluded from 
the unit acquisition cost in accordance with the grantee's regular 
accounting practices.
    Administrative requirements mean those matters common to grants in 
general, such as financial management, kinds and frequency of reports, 
and retention of records. These are distinguished from programmatic 
requirements, which concern matters that can be treated only on a 
program-by-program or grant-by-grant basis, such as kinds of activities 
that can be supported by grants under a particular program.
    Awarding agency means:
    (1) With respect to a grant, the Social Security Administration, 
and
    (2) With respect to a subgrant, the party that awarded the 
subgrant.
    Cash contributions means the grantee's cash outlay, including the 
outlay of money contributed to the grantee or subgrantee by other 
public agencies and institutions, and private organizations and 
individuals. When authorized by Federal legislation, Federal funds 
received from other assistance agreements may be

[[Page 28730]]

considered as grantee or subgrantee cash contributions.
    Contract means (except as used in the definitions for grant and 
subgrant in this section and except where qualified by Federal) a 
procurement contract under a grant or subgrant, and means a procurement 
subcontract under a contract.
    Cost sharing or matching means the value of the third party in-kind 
contributions and the portion of the costs of a federally assisted 
project or program not borne by the Federal Government.
    Cost-type contract means a contract or subcontract under a grant in 
which the contractor or subcontractor is paid on the basis of the costs 
it incurs, with or without a fee.
    Equipment means tangible, nonexpendable, personal property having a 
useful life of more than one year and an acquisition cost of $5,000 or 
more per unit. A grantee may use its own definition of equipment 
provided that such definition would at least include all equipment 
defined in this section.
    Expenditure report means:
    (1) For nonconstruction grants, the SF--269 ``Financial Status 
Report'' (or other equivalent report);
    (2) For construction grants, the SF--271 ``Outlay Report and 
Request for Reimbursement'' (or other equivalent report).
    Federally recognized Indian tribal government means the governing 
body or a governmental agency of any Indian tribe, band, nation, or 
other organized group or community (including any Native village as 
defined in section 3 of the Alaska Native Claims Settlement Act, 85 
Stat 688) certified by the Secretary of the Interior as eligible for 
the special programs and services provided by him through the Bureau of 
Indian Affairs.
    Government means a State or local government or a federally 
recognized Indian tribal government.
    Grant means an award of financial assistance, including cooperative 
agreements, in the form of money, or property in lieu of money, by the 
Federal Government to an eligible grantee. The term does not include 
technical assistance that provides services instead of money, or other 
assistance in the form of revenue sharing, loans, loan guarantees, 
interest subsidies, insurance, or direct appropriations. Also, the term 
does not include assistance, such as a fellowship or other lump sum 
award, which the grantee is not required to account for.
    Grantee means the government to which a grant is awarded and which 
is accountable for the use of the funds provided. The grantee is the 
entire legal entity even if only a particular component of the entity 
is designated in the grant award document.
    Local government means a county, municipality, city, town, 
township, local public authority (including any public and Indian 
housing agency under the United States Housing Act of 1937) school 
district, special district, intrastate district, council of governments 
(whether or not incorporated as a nonprofit corporation under state 
law), any other regional or interstate government entity, or any agency 
or instrumentality of a local government.
    Obligations means the amounts of orders placed, contracts and 
subgrants awarded, goods and services received, and similar 
transactions during a given period that will require payment by the 
grantee during the same or a future period.
    OMB means the United States Office of Management and Budget.
    Outlays (expenditures) mean charges made to the project or program. 
They may be reported on a cash or accrual basis. For reports prepared 
on a cash basis, outlays are the sum of actual cash disbursement for 
direct charges for goods and services, the amount of indirect expense 
incurred, the value of in-kind contributions applied, and the amount of 
cash advances and payments made to contractors and subgrantees. For 
reports prepared on an accrued expenditure basis, outlays are the sum 
of actual cash disbursements, the amount of indirect expense incurred, 
the value of in-kind contributions applied, and the new increase (or 
decrease) in the amounts owed by the grantee for goods and other 
property received, for services performed by employees, contractors, 
subgrantees, subcontractors, and other payees, and other amounts 
becoming owed under programs for which no current services or 
performance are required, such as annuities, insurance claims, and 
other benefit payments.
    Percentage of completion method refers to a system under which 
payments are made for construction work according to the percentage of 
completion of the work, rather than to the grantee's cost incurred.
    Prior approval means documentation evidencing consent prior to 
incurring specific cost.
    Real property means land, including land improvements, structures 
and appurtenances thereto, excluding movable machinery and equipment.
    Share, when referring to SSA's portion of real property, equipment 
or supplies, means the same percentage as SSA's portion of the 
acquiring party's total costs under the grant to which the acquisition 
costs under the grant to which the acquisition cost of the property was 
charged. Only costs are to be counted--not the value of third-party in-
kind contributions.
    SSA means the Social Security Administration.
    State means any of the several States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or any agency or instrumentality of a 
State exclusive of local governments. The term does not include any 
public and Indian housing agency under United States Housing Act of 
1937.
    Subgrant means an award of financial assistance in the form of 
money, or property in lieu of money, made under a grant by a grantee to 
an eligible subgrantee. The term includes financial assistance when 
provided by contractual legal agreement, but does not include 
procurement purchases, nor does it include any form of assistance that 
is excluded from the definition of grant in this part.
    Subgrantee means the government or other legal entity to which a 
subgrant is awarded and which is accountable to the grantee for the use 
of the funds provided.
    Supplies means all tangible personal property other than equipment 
as defined in this part.
    Suspension means depending on the context, either:
    (1) Temporary withdrawal of the authority to obligate grant funds 
pending corrective action by the grantee or subgrantee or a decision to 
terminate the grant, or
    (2) An action taken by a suspending official in accordance with SSA 
regulations implementing E.O. 12549 to immediately exclude a person 
from participating in grant transactions for a period, pending 
completion of an investigation and such legal or debarment proceedings 
as may ensue.
    Termination means permanent withdrawal of the authority to obligate 
previously-awarded grant funds before that authority would otherwise 
expire. It also means the voluntary relinquishment of that authority by 
the grantee or subgrantee. ``Termination'' does not include:
    (1) Withdrawal of funds awarded on the basis of the grantee's 
underestimate of the unobligated balance in a prior period;
    (2) Withdrawal of the unobligated balance as of the expiration of a 
grant;

[[Page 28731]]

    (3) Refusal to extend a grant or award additional funds, to make a 
competing or noncompeting continuation, renewal, extension, or 
supplemental award; or
    (4) Voiding of a grant upon determination that the award was 
obtained fraudulently, or was otherwise illegal or invalid from 
inception.
    Terms of a grant or subgrant mean all requirements of the grant or 
subgrant, whether in statute, regulations, or the award document.
    Third party in-kind contributions mean property or services that 
benefit a federally assisted project or program and which are 
contributed by non-Federal third parties without charge to the grantee, 
or a cost-type contractor under the grant agreement.
    Unliquidated obligations for reports prepared on a cash basis mean 
the amount of obligations incurred by the grantee that has not been 
paid. For reports prepared on an accrued expenditure basis, they 
represent the amount of obligations incurred by the grantee for which 
an outlay has not been recorded.
    Unobligated balance means the portion of the funds authorized by 
SSA that has not been obligated by the grantee and is determined by 
deducting the cumulative obligations from the cumulative funds 
authorized.


Sec.  437.4  Applicability.

    Subparts A through D of this part do not apply to grants and 
subgrants to governments issued under Federal statutes or regulations 
authorized in accordance with the exception provision of Sec.  437.6, 
nor do they apply to grants and subgrants to State and local 
institutions of higher education or State and local hospitals.


Sec.  437.5  Effect on other issuances.

    All other grants administration provisions of codified program 
regulations, program manuals, handbooks and other nonregulatory 
materials apply to grants and subgrants to governments only to the 
extent they are required by statute, or authorized in accordance with 
the exception provision in Sec.  437.6.


Sec.  437.6  Additions and exceptions.

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

Subpart B--Pre-Award Requirements


Sec.  437.10  Forms for applying for grants.

    (a) Scope. (1) This section prescribes forms and instructions to be 
used by governmental organizations (except hospitals and institutions 
of higher education operated by a government) in applying for grants. 
This section is not applicable, however, to formula grant programs that 
do not require applicants to apply for funds on a project basis.
    (2) This section applies only to applications to SSA for grants, 
and is not required to be applied by grantees in dealing with 
applicants for subgrants. However, grantees are encouraged to avoid 
more detailed or burdensome application requirements for subgrants.
    (b) Authorized forms and instructions for governmental 
organizations. (1) In applying for grants, applicants must only use 
standard application forms or those prescribed by the SSA with the 
approval of OMB under the Paperwork Reduction Act of 1980.
    (2) Applicants are not required to submit more than the original 
and two copies of preapplications or applications.
    (3) Applicants must follow all applicable instructions that bear 
OMB clearance numbers. SSA may specify and describe the programs, 
functions, or activities that will be used to plan, budget, and 
evaluate the work under a grant. Other supplementary instructions may 
be issued only with the approval of OMB to the extent required under 
the Paperwork Reduction Act of 1980. For any standard form, except the 
SF--424 facesheet, SSA may shade out or instruct the applicant to 
disregard any line item that is not needed.
    (4) When a grantee applies for additional funding (such as a 
continuation or supplemental award) or amends a previously submitted 
application, only the affected pages need be submitted. Previously 
submitted pages with information that is still current need not be 
resubmitted.


Sec.  437.11  State plans.

    (a) Scope. The statutes for some programs require States to submit 
plans before receiving grants. Under regulations implementing Executive 
Order 12372, ``Intergovernmental Review of Federal Programs,'' States 
are allowed to simplify, consolidate and substitute plans. This section 
contains additional provisions for plans that are subject to 
regulations implementing the Executive order.
    (b) Requirements. A State needs to meet only Federal administrative 
or programmatic requirements for a plan that are in statutes or 
codified regulations.
    (c) Assurances. In each plan the State will include an assurance 
that the State shall comply with all applicable Federal statutes and 
regulations in effect with respect to the periods for which it receives 
grant funding. For this assurance and other assurances required in the 
plan, the State may:
    (1) Cite by number the statutory or regulatory provisions requiring 
the assurances and affirm that it gives the assurances required by 
those provisions,
    (2) Repeat the assurance language in the statutes or regulations, 
or
    (3) Develop its own language to the extent permitted by law.
    (d) Amendments. A State will amend a plan whenever necessary to 
reflect:
    (1) New or revised Federal statutes or regulations or
    (2) A material change in any State law, organization, policy, or 
State agency operation. The State will obtain approval for the 
amendment and its effective date but need submit for approval only the 
amended portions of the plan.


Sec.  437.12  Special grant or subgrant conditions for ``high-risk'' 
grantees.

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

[[Page 28732]]

    (1) The nature of the special conditions/restrictions;
    (2) The reason(s) for imposing them;
    (3) The corrective actions which must be taken before they will be 
removed and the time allowed for completing the corrective actions and
    (4) The method of requesting reconsideration of the conditions/
restrictions imposed.

Subpart C--Post-Award Requirements

Financial Administration


Sec.  437.20  Standards for financial management systems.

    (a) A State must expend and account for grant funds in accordance 
with State laws and procedures for expending and accounting for its own 
funds. Fiscal control and accounting procedures of the State, as well 
as its subgrantees and cost-type contractors, must be sufficient to--
    (1) Permit preparation of reports required by this part and the 
statutes authorizing the grant, and
    (2) Permit the tracing of funds to a level of expenditures adequate 
to establish that such funds have not been used in violation of the 
restrictions and prohibitions of applicable statutes.
    (b) The financial management systems of other grantees and 
subgrantees must meet the following standards:
    (1) Financial reporting. Accurate, current, and complete disclosure 
of the financial results of financially assisted activities must be 
made in accordance with the financial reporting requirements of the 
grant or subgrant.
    (2) Accounting records. Grantees and subgrantees must maintain 
records that adequately identify the source and application of funds 
provided for financially-assisted activities. These records must 
contain information pertaining to grant or subgrant awards and 
authorizations, obligations, unobligated balances, assets, liabilities, 
outlays or expenditures, and income.
    (3) Internal control. Effective control and accountability must be 
maintained for all grant and subgrant cash, real and personal property, 
and other assets. Grantees and subgrantees must adequately safeguard 
all such property and must assure that it is used solely for authorized 
purposes.
    (4) Budget control. Actual expenditures or outlays must be compared 
with budgeted amounts for each grant or subgrant. Financial information 
must be related to performance or productivity data, including the 
development of unit cost information whenever appropriate or 
specifically required in the grant or subgrant agreement. If unit cost 
data are required, estimates based on available documentation will be 
accepted whenever possible.
    (5) Allowable cost. Applicable OMB cost principles, SSA program 
regulations, and the terms of grant and subgrant agreements will be 
followed in determining the reasonableness, allowability, and 
allocability of costs.
    (6) Source documentation. Accounting records must be supported by 
such source documentation as cancelled checks, paid bills, payrolls, 
time and attendance records, contract and subgrant award documents, 
etc.
    (7) Cash management. Procedures for minimizing the time elapsing 
between the transfer of funds from the U.S. Treasury and disbursement 
by grantees and subgrantees must be followed whenever advance payment 
procedures are used. Grantees must establish reasonable procedures to 
ensure the receipt of reports on subgrantees' cash balances and cash 
disbursements in sufficient time to enable them to prepare complete and 
accurate cash transactions reports to SSA. When advances are made by 
letter-of-credit or electronic transfer of funds methods, the grantee 
must make drawdowns as close as possible to the time of making 
disbursements. Grantees must monitor cash drawdowns by their 
subgrantees to assure that they conform substantially to the same 
standards of timing and amount as apply to advances to the grantees.
    (c) SSA may review the adequacy of the financial management system 
of any applicant for financial assistance as part of a preaward review 
or at any time subsequent to award.


Sec.  437.21  Payment.

    (a) Scope. This section prescribes the basic standard and the 
methods under which SSA will make payments to grantees, and grantees 
will make payments to subgrantees and contractors.
    (b) Basic standard. Methods and procedures for payment must 
minimize the time elapsing between the transfer of funds and 
disbursement by the grantee or subgrantee, in accordance with Treasury 
regulations at 31 CFR part 205.
    (c) Advances. Grantees and subgrantees will be paid in advance, 
provided they maintain or demonstrate the willingness and ability to 
maintain procedures to minimize the time elapsing between the transfer 
of the funds and their disbursement by the grantee or subgrantee.
    (d) Reimbursement. Reimbursement is the preferred method when the 
requirements in paragraph (c) of this section are not met. Grantees and 
subgrantees may also be paid by reimbursement for any construction 
grant. Except as otherwise specified in regulation, SSA may not use the 
percentage of completion method to pay construction grants. The grantee 
or subgrantee may use that method to pay its construction contractor, 
and if it does, SSA's payments to the grantee or subgrantee will be 
based on the grantee's or subgrantee's actual rate of disbursement.
    (e) Working capital advances. If a grantee cannot meet the criteria 
for advance payments described in paragraph (c) of this section, and 
SSA determines that reimbursement is not feasible because the grantee 
lacks sufficient working capital, SSA may provide cash or a working 
capital advance basis. Under this procedure, SSA will advance cash to 
the grantee to cover its estimated disbursement needs for an initial 
period generally geared to the grantee's disbursing cycle. Thereafter, 
SSA will reimburse the grantee for its actual cash disbursements. The 
working capital advance method of payment may not be used by grantees 
or subgrantees if the reason for using such method is the unwillingness 
or inability of the grantee to provide timely advances to the 
subgrantee to meet the subgrantee's actual cash disbursements.
    (f) Effect of program income, refunds, and audit recoveries on 
payment. (1) Grantees and subgrantees must disburse repayments to and 
interest earned on a revolving fund before requesting additional cash 
payments for the same activity.
    (2) Except as provided in paragraph (f)(1) of this section, 
grantees and subgrantees must disburse program income, rebates, 
refunds, contract settlements, audit recoveries and interest earned on 
such funds before requesting additional cash payments.
    (g) Withholding payments. (1) Unless otherwise required by Federal 
statute, SSA will not withhold payments for proper charges incurred by 
grantees or subgrantees unless--(i) The grantee or subgrantee fails to 
comply with grant award conditions or
    (ii) The grantee or subgrantee is indebted to the United States.
    (2) Cash withheld for failure to comply with grant award condition, 
but without suspension of the grant, will be released to the grantee 
upon subsequent compliance. When a grant is suspended, payment 
adjustments will be made in accordance with Sec.  437.43(c).
    (3) SSA will not make payment to grantees for amounts that are 
withheld by grantees or subgrantees from payment to contractors to 
assure

[[Page 28733]]

satisfactory completion of work. SSA will make payments when the 
grantees or subgrantees actually disburse the withheld funds to the 
contractors or to escrow accounts established to assure satisfactory 
completion of work.
    (h) Cash depositories. (1) Consistent with the national goal of 
expanding the opportunities for minority business enterprises, grantees 
and subgrantees are encouraged to use minority banks (a bank which is 
owned at least 50 percent by minority group members). A list of 
minority owned banks can be obtained from the Minority Business 
Development Agency, Department of Commerce, Washington, DC 20230.
    (2) A grantee or subgrantee must maintain a separate bank account 
only when required by Federal-State agreement.
    (i) Interest earned on advances. Except for interest earned on 
advances of funds exempt under the Intergovernmental Cooperation Act 
(31 U.S.C. 6501 et seq.) and the Indian Self-Determination Act (23 
U.S.C. 450), grantees and subgrantees must promptly, but at least 
quarterly, remit interest earned on advances to the Federal agency. The 
grantee or subgrantee may keep interest amounts up to $100 per year for 
administrative expenses.


Sec.  437.22  Allowable costs.

    (a) Limitation on use of funds. Grant funds may be used only for:
    (1) The allowable costs of the grantees, subgrantees and cost-type 
contractors, including allowable costs in the form of payments to 
fixed-price contractors; and
    (2) Reasonable fees or profit to cost-type contractors but not any 
fee or profit (or other increment above allowable costs) to the grantee 
or subgrantee.
    (b) Applicable cost principles. For each kind of organization, 
there is a set of Federal principles for determining allowable costs. 
Allowable costs will be determined in accordance with the cost 
principles applicable to the organization incurring the costs. The 
following chart lists the kinds of organizations and the applicable 
cost principles.

------------------------------------------------------------------------
          For the costs of a--               Use the principles in--
------------------------------------------------------------------------
(1) State, local or Indian tribal        OMB Circular A-87.
 government.
(2) Private nonprofit organization       OMB Circular A-122.
 other than an (i) institution of
 higher education, (ii) hospital, or
 (iii) organization named in OMB
 Circular A-122 as not subject to that
 circular.
(3) Educational institutions...........  OMB Circular A-21.
(4) For profit organizationother than a  48 CFR Part 31. Contract Cost
 hospital and an organization named in    Principles and Procedures, or
 OMB Circular A-122 as not subject to     uniform cost accounting
 that circular.                           standards that comply with
                                          cost principles acceptable to
                                          the Federal agency.
------------------------------------------------------------------------

Sec.  437.23  Period of availability of funds.

    (a) General. Where a funding period is specified, a grantee may 
charge to the award only costs resulting from obligations of the 
funding period unless carryover of unobligated balances is permitted, 
in which case the carryover balances may be charged for costs resulting 
from obligations of the subsequent funding period.
    (b) Liquidation of obligations. A grantee must liquidate all 
obligations incurred under the award not later than 90 days after the 
end of the funding period (or as specified in a program regulation) to 
coincide with the submission of the annual Financial Status Report (SF-
269). SSA may extend this deadline at the request of the grantee.


Sec.  437.24  Matching or cost sharing.

    (a) Basic rule. Costs and contributions acceptable. With the 
qualifications and exceptions listed in paragraph (b) of this section, 
a matching or cost sharing requirement may be satisfied by either or 
both of the following:
    (1) Allowable costs incurred by the grantee, subgrantee or a cost-
type contractor under the assistance agreement. This includes allowable 
costs borne by non-Federal grants or by other cash donations from non-
Federal third parties.
    (2) The value of third party in-kind contributions applicable to 
the period to which the cost sharing or matching requirements applies.
    (b) Qualifications and exceptions. (1) Costs borne by other Federal 
grant agreements. Except as provided by Federal statute, a cost sharing 
or matching requirement may not be met by costs borne by another 
Federal grant. This prohibition does not apply to income earned by a 
grantee or subgrantee from a contract awarded under another Federal 
grant.
    (2) General revenue sharing. For the purpose of this section, 
general revenue sharing funds distributed under 31 U.S.C. 6702 are not 
considered Federal grant funds.
    (3) Cost or contributions counted towards other Federal costs-
sharing requirements. Neither costs nor the values of third party in-
kind contributions may count towards satisfying a cost sharing or 
matching requirement of a grant agreement if they have been or will be 
counted towards satisfying a cost sharing or matching requirement of 
another Federal grant agreement, a Federal procurement contract, or any 
other award of Federal funds.
    (4) Costs financed by program income. Costs financed by program 
income, as defined in Sec.  437.25, may not count towards satisfying a 
cost sharing or matching requirement unless they are expressly 
permitted in the terms of the assistance agreement. (This use of 
general program income is described in Sec.  437.25(g).)
    (5) Services or property financed by income earned by contractors. 
Contractors under a grant may earn income from the activities carried 
out under the contract in addition to the amounts earned from the party 
awarding the contract. No costs of services or property supported by 
this income may count toward satisfying a cost sharing or matching 
requirement unless other provisions of the grant agreement expressly 
permit this kind of income to be used to meet the requirement.
    (6) Records. Costs and third party in-kind contributions counting 
towards satisfying a cost sharing or matching requirement must be 
verifiable from the records of grantees and subgrantee or cost-type 
contractors. These records must show how the value placed on third 
party in-kind contributions was derived. To the extent feasible, 
volunteer services will be supported by the same methods that the 
organization uses to support the allocability of regular personnel 
costs.
    (7) Special standards for third party in-kind contributions.
    (i) Third party in-kind contributions count towards satisfying a 
cost sharing or matching requirement only where, if the party receiving 
the contributions were to pay for them, the payments would be allowable 
costs.

[[Page 28734]]

    (ii) Some third party in-kind contributions are goods and services 
that, if the grantee, subgrantee, or contractor receiving the 
contribution had to pay for them, the payments would have been indirect 
costs. Costs sharing or matching credit for such contributions will be 
given only if the grantee, subgrantee, or contractor has established, 
along with its regular indirect cost rate, a special rate for 
allocating to individual projects or programs the value of the 
contributions.
    (iii) A third party in-kind contribution to a fixed-price contract 
may count towards satisfying a cost sharing or matching requirement 
only if it results in:
    (A) An increase in the services or property provided under the 
contract (without additional cost to the grantee or subgrantee) or
    (B) A cost savings to the grantee or subgrantee.
    (iv) The values placed on third party in-kind contributions for 
cost sharing or matching purposes will conform to the rules in the 
succeeding sections of this part. If a third party in-kind contribution 
is a type not treated in those sections, the value placed upon it shall 
be fair and reasonable.
    (c) Valuation of donated services. (1) Volunteer services. Unpaid 
services provided to a grantee or subgrantee by individuals will be 
valued at rates consistent with those ordinarily paid for similar work 
in the grantee's or subgrantee's organization. If the grantee or 
subgrantee does not have employees performing similar work, the rates 
will be consistent with those ordinarily paid by other employers for 
similar work in the same labor market. In either case, a reasonable 
amount for fringe benefits may be included in the valuation.
    (2) Employees of other organizations. When an employer other than a 
grantee, subgrantee, or cost-type contractor furnishes free of charge 
the services of an employee in the employee's normal line of work, the 
services will be valued at the employee's regular rate of pay exclusive 
of the employee's fringe benefits and overhead costs. If the services 
are in a different line of work, paragraph (c)(1) of this section 
applies.
    (d) Valuation of third party donated supplies and loaned equipment 
or space. (1) If a third party donates supplies, the contribution will 
be valued at the market value of the supplies at the time of donation.
    (2) If a third party donates the use of equipment or space in a 
building but retains title, the contribution will be valued at the fair 
rental rate of the equipment or space.
    (e) Valuation of third party donated equipment, buildings, and 
land. If a third party donates equipment, buildings, or land, and title 
passes to a grantee or subgrantee, the treatment of the donated 
property will depend upon the purpose of the grant or subgrant, as 
follows:
    (1) Awards for capital expenditures. If the purpose of the grant or 
subgrant is to assist the grantee or subgrantee in the acquisition of 
property, the market value of that property at the time of donation may 
be counted as cost sharing or matching,
    (2) Other awards. If assisting in the acquisition of property is 
not the purpose of the grant or subgrant, paragraphs (e)(2)(i) and (ii) 
of this section apply:
    (i) If approval is obtained from SSA, the market value at the time 
of donation of the donated equipment or buildings and the fair rental 
rate of the donated land may be counted as cost sharing or matching. In 
the case of a subgrant, the terms of the grant agreement may require 
that the approval be obtained from SSA as well as the grantee. In all 
cases, the approval may be given only if a purchase of the equipment or 
rental of the land would be approved as an allowable direct cost. If 
any part of the donated property was acquired with Federal funds, only 
the non-federal share of the property may be counted as cost-sharing or 
matching.
    (ii) If approval is not obtained under paragraph (e)(2)(i) of this 
section, no amount may be counted for donated land, and only 
depreciation or use allowances may be counted for donated equipment and 
buildings. The depreciation or use allowances for this property are not 
treated as third party in-kind contributions. Instead, they are treated 
as costs incurred by the grantee or subgrantee. They are computed and 
allocated (usually as indirect costs) in accordance with the cost 
principles specified in Sec.  437.22, in the same way as depreciation 
or use allowances for purchased equipment and buildings. The amount of 
depreciation or use allowances for donated equipment and buildings is 
based on the property's market value at the time it was donated.
    (f) Valuation of grantee or subgrantee donated real property for 
construction/acquisition. If a grantee or subgrantee donates real 
property for a construction or facilities acquisition project, the 
current market value of that property may be counted as cost sharing or 
matching. If any part of the donated property was acquired with Federal 
funds, only the non-federal share of the property may be counted as 
cost sharing or matching.
    (g) Appraisal of real property. In some cases under paragraphs (d), 
(e) and (f) of this section, it will be necessary to establish the 
market value of land or a building or the fair rental rate of land or 
of space in a building. In these cases, SSA may require the market 
value or fair rental value be set by an independent appraiser, and that 
the value or rate be certified by the grantee. This requirement will 
also be imposed by the grantee on subgrantees.


Sec.  437.25  Program income.

    (a) General. Grantees are encouraged to earn income to defray 
program costs. Program income includes income from fees for services 
performed, from the use or rental of real or personal property acquired 
with grant funds, from the sale of commodities or items fabricated 
under a grant agreement, and from payments of principal and interest on 
loans made with grant funds. Except as otherwise provided in SSA 
regulations, program income does not include interest on grant funds, 
rebates, credits, discounts, refunds, etc. and interest earned on any 
of them.
    (b) Definition of program income. Program income means gross income 
received by the grantee or subgrantee directly generated by a grant 
supported activity, or earned only as a result of the grant agreement 
during the grant period. ``During the grant period'' is the time 
between the effective date of the award and the ending date of the 
award reflected in the final financial report.
    (c) Cost of generating program income. If authorized by SSA 
regulations or the grant agreement, costs incident to the generation of 
program income may be deducted from gross income to determine program 
income.
    (d) Governmental revenues. Taxes, special assessments, levies, 
fines, and other such revenues raised by a grantee or subgrantee are 
not program income unless the revenues are specifically identified in 
the grant agreement or SSA regulations as program income.
    (e) Royalties. Income from royalties and license fees for 
copyrighted material, patents, and inventions developed by a grantee or 
subgrantee is program income only if the revenues are specifically 
identified in the grant agreement or SSA regulations as program income. 
(See Sec.  437.34.)
    (f) Property. Proceeds from the sale of real property or equipment 
will be handled in accordance with the requirements of Sec.  437.31 and 
Sec.  437.32.
    (g) Use of program income. Program income will be deducted from 
outlays that may be both Federal and non-Federal as described in 
paragraphs (g)(1) through (3) of this section, unless SSA

[[Page 28735]]

regulations or the grant agreement specify another alternative (or a 
combination of the alternatives). In specifying alternatives, SSA may 
distinguish between income earned by the grantee and income earned by 
subgrantees and between the sources, kinds, or amounts of income. When 
SSA authorizes the alternatives in paragraphs (g)(2) and (3) of this 
section, program income in excess of any limits stipulated will also be 
deducted from outlays.
    (1) Deduction. Ordinarily program income must be deducted from 
total allowable costs to determine the net allowable costs. Program 
income must be used for current costs unless SSA authorizes otherwise. 
Program income that the grantee did not anticipate at the time of the 
award must be used to reduce SSA and grantee contributions rather than 
to increase the funds committed to the project.
    (2) Addition. When authorized, program income may be added to the 
funds committed to the grant agreement by SSA and the grantee. The 
program income must be used for the purposes and under the conditions 
of the grant agreement.
    (3) Cost sharing or matching. When authorized, program income may 
be used to meet the cost sharing or matching requirement of the grant 
agreement. The amount of the Federal grant award remains the same.
    (h) Income after the award period. There are no Federal 
requirements governing the disposition of program income earned after 
the end of the award period (i.e., until the ending date of the final 
financial report, see paragraph (a) of this section), unless the terms 
of the agreement or SSA regulations provide otherwise.


Sec.  437.26  Non-Federal audit.

    (a) Basic Rule. Grantees and subgrantees are responsible for 
obtaining audits in accordance with the Single Audit Act Amendments of 
1996 (31 U.S.C. 7501-7507) and revised OMB Circular A-133, ``Audits of 
States, Local Governments, and Non-Profit Organizations.'' The audits 
must be made by an independent auditor in accordance with generally 
accepted government auditing standards covering financial audits.
    (b) Subgrantees. State or local governments, as those terms are 
defined for purposes of the Single Audit Act Amendments of 1996, that 
provide Federal awards to a subgrantee, which expends $300,000 or more 
(or other amount as specified by OMB) in Federal awards in a fiscal 
year, must:
    (1) Determine whether State or local subgrantees have met the audit 
requirements of the Act and whether subgrantees covered by OMB Circular 
A-110, ``Uniform Administrative Requirements for Grants and Agreements 
with Institutions of Higher Education, Hospitals, and Other Non-Profit 
Organizations,'' have met the audit requirements of the Act. Commercial 
contractors (private for-profit and private and governmental 
organizations) providing goods and services to State and local 
governments are not required to have a single audit performed. State 
and local governments should use their own procedures to ensure that 
the contractor has complied with laws and regulations affecting the 
expenditure of Federal funds;
    (2) Determine whether the subgrantee spent Federal assistance funds 
provided in accordance with applicable laws and regulations. This may 
be accomplished by reviewing an audit of the subgrantee made in 
accordance with the Act, Circular A-110, or through other means (e.g., 
program reviews) if the subgrantee has not had such an audit;
    (3) Ensure that appropriate corrective action is taken within six 
months after receipt of the audit report in instance of noncompliance 
with Federal laws and regulations;
    (4) Consider whether subgrantee audits necessitate adjustment of 
the grantee's own records; and
    (5) Require each subgrantee to permit independent auditors to have 
access to the records and financial statements.
    (c) Auditor selection. In arranging for audit services, grantees 
and subgrantees must follow the rules in Sec.  437.36.

Changes, Property, and Subawards


Sec.  437.30  Changes.

    (a) General. Grantees and subgrantees are permitted to rebudget 
within the approved direct cost budget to meet unanticipated 
requirements and may make limited program changes to the approved 
project. However, unless waived by the SSA, certain types of post-award 
changes in budgets and projects require the prior written approval of 
SSA. Approvals are not valid unless they are in writing, and signed by 
at least one of the following SSA officials:
    (1) The responsible SSA Grants Management Officer; or
    (2) The SSA Commissioner or subordinate official with proper 
delegated authority from the Commissioner.
    (b) Relation to cost principles. The applicable cost principles 
(see Sec.  437.22) contain requirements for prior approval of certain 
types of costs. Except where waived, those requirements apply to all 
grants and subgrants even if paragraphs (c) through (f) of this section 
do not.
    (c) Budget changes. (1) Nonconstruction projects. Except as stated 
in other SSA regulations or an award document, grantees or subgrantees 
must obtain prior approval from SSA whenever any of the following 
changes is anticipated under a nonconstruction award:
    (i) Any revision which would result in the need for additional 
funding.
    (ii) Unless waived by SSA, cumulative transfers among direct cost 
categories, or, if applicable, among separately budgeted programs, 
projects, functions, or activities which exceed or are expected to 
exceed ten percent of the current total approved budget, whenever SSA's 
share exceeds $100,000.
    (iii) Transfer of funds allotted for training allowances (i.e., 
from direct payments to trainees to other expense categories).
    (2) Construction projects. Grantees and subgrantees must obtain 
prior written approval for any budget revision that would result in the 
need for additional funds.
    (3) Combined construction and nonconstruction projects. When a 
grant or subgrant provides funding for both construction and 
nonconstruction activities, the grantee or subgrantee must obtain prior 
written approval from SSA before making any fund or budget transfer 
from nonconstruction to construction or vice versa.
    (d) Programmatic changes. Grantees or subgrantees must obtain the 
prior approval from SSA whenever any of the following actions is 
anticipated:
    (1) Any revision of the scope or objectives of the project 
(regardless of whether there is an associated budget revision requiring 
prior approval).
    (2) Need to extend the period of availability of funds.
    (3) Changes in key persons in cases where specified in an 
application or a grant award. In research projects, a change in the 
project director or principal investigator always requires approval 
unless waived by SSA.
    (4) Under nonconstruction projects, contracting out, subgranting 
(if authorized by law) or otherwise obtaining the services of a third 
party to perform activities that are central to the purposes of the 
award. This approval requirement is in addition to the approval 
requirements of Sec.  437.36 but does not apply to the procurement of 
equipment, supplies, and general support services.

[[Page 28736]]

    (5) Providing medical care to individuals under research grants.
    (e) Additional prior approval requirements. SSA may not require 
prior approval for any budget revision that is not described in 
paragraph (c) of this section.
    (f) Requesting prior approval. (1) A request for prior approval of 
any budget revision will be in the same budget format the grantee used 
in its application and must be accompanied by a narrative justification 
for the proposed revision.
    (2) A request for a prior approval under the applicable Federal 
cost principles (see Sec.  437.22) may be made by letter.
    (3) A request by a subgrantee for prior approval must be addressed 
in writing to the grantee. The grantee will promptly review such 
request and must approve or disapprove the request in writing. A 
grantee may not approve any budget or project revision that is 
inconsistent with the purpose or terms and conditions of the Federal 
grant to the grantee. If the revision requested by the subgrantee would 
result in a change to the grantee's approved project that requires 
Federal prior approval, the grantee must obtain SSA's approval before 
approving the subgrantee's request.


Sec.  437.31  Real property.

    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to real property acquired under a grant or subgrant 
will vest upon acquisition in the grantee or subgrantee respectively.
    (b) Use. Except as otherwise provided by Federal statutes, real 
property will be used for the originally authorized purposes as long as 
needed for that purpose, and the grantee or subgrantee may not dispose 
of or encumber its title or other interests.
    (c) Disposition. When real property is no longer needed for the 
originally authorized purpose, the grantee or subgrantee must request 
disposition instructions from SSA. The instructions must provide for 
one of the following alternatives:
    (1) Retention of title. Retain title after compensating SSA. The 
amount paid to SSA is computed by applying SSA's percentage of 
participation in the cost of the original purchase to the fair market 
value of the property. However, in those situations where a grantee or 
subgrantee is disposing of real property acquired with grant funds and 
acquiring replacement real property under the same program, the net 
proceeds from the disposition may be used as an offset to the cost of 
the replacement property.
    (2) Sale of property. Sell the property and compensate SSA. The 
amount due SSA is calculated by applying SSA's percentage of 
participation in the cost of the original purchase to the proceeds of 
the sale after deduction of any actual and reasonable selling and 
fixing-up expenses. If the grant is still active, the net proceeds from 
sale may be offset against the original cost of the property. When a 
grantee or subgrantee is directed to sell property, sales procedures 
must be followed that provide for competition to the extent practicable 
and result in the highest possible return.
    (3) Transfer of title. Transfer title to SSA or to a third-party 
designated/approved by SSA. The grantee or subgrantee must be paid an 
amount calculated by applying the grantee or subgrantee's percentage of 
participation in the purchase of the real property to the current fair 
market value of the property.


Sec.  437.32  Equipment.

    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to equipment acquired under a grant or subgrant 
will vest upon acquisition in the grantee or subgrantee respectively.
    (b) States. A State will use, manage, and dispose of equipment 
acquired under a grant by the State in accordance with State laws and 
procedures. Other grantees and subgrantees must follow paragraphs (c) 
through (e) of this section.
    (c) Use. (1) Equipment must be used by the grantee or subgrantee in 
the program or project for which it was acquired as long as needed, 
whether or not the project or program continues to be supported by 
Federal funds. When no longer needed for the original program or 
project, the equipment may be used in other activities currently or 
previously supported by a Federal agency.
    (2) The grantee or subgrantee must also make equipment available 
for use on other projects or programs currently or previously supported 
by the Federal Government, providing such use will not interfere with 
the work on the projects or program for which it was originally 
acquired. First preference for other use shall be given to other 
programs or projects supported by SSA. User fees should be considered 
if appropriate.
    (3) Notwithstanding the encouragement in Sec.  437.25(a) to earn 
program income, the grantee or subgrantee may not use equipment 
acquired with grant funds to provide services for a fee to compete 
unfairly with private companies that provide equivalent services, 
unless specifically permitted or contemplated by Federal statute.
    (4) When acquiring replacement equipment, the grantee or subgrantee 
may use the equipment to be replaced as a trade-in or sell the property 
and use the proceeds to offset the cost of the replacement property, 
subject to the approval of SSA.
    (d) Management requirements. Procedures for managing equipment 
(including replacement equipment), whether acquired in whole or in part 
with grant funds, until disposition takes place must meet the following 
minimum requirements:
    (1) Property records must be maintained that include a description 
of the property, a serial number or other identification number, the 
source of property, who holds title, the acquisition date, and cost of 
the property, percentage of Federal participation in the cost of the 
property, the location, use and condition of the property, and any 
ultimate disposition data including the date of disposal and sale price 
of the property.
    (2) A physical inventory of the property must be taken and the 
results reconciled with the property records at least once every two 
years.
    (3) A control system must be developed to ensure adequate 
safeguards to prevent loss, damage, or theft of the property. Any loss, 
damage, or theft will be investigated.
    (4) Adequate maintenance procedures must be developed to keep the 
property in good condition.
    (5) If the grantee or subgrantee is authorized or required to sell 
the property, proper sales procedures must be established to ensure the 
highest possible return.
    (e) Disposition. When original or replacement equipment acquired 
under a grant or subgrant is no longer needed for the original project 
or program or for other activities currently or previously supported by 
SSA or for other projects or programs currently or previously supported 
by the Federal government, disposition of the equipment will be made as 
follows:
    (1) Items of equipment with a current per-unit fair market value of 
less than $5,000 may be retained, sold or otherwise disposed of with no 
further obligation to SSA.
    (2) Items of equipment with a current per unit fair market value in 
excess of $5,000 may be retained or sold and SSA has a right to an 
amount calculated by multiplying the current market value or proceeds 
from sale by SSA's share of the equipment.

[[Page 28737]]

    (3) In cases where a grantee or subgrantee fails to take 
appropriate disposition actions, SSA may direct the grantee or 
subgrantee to take excess and disposition actions.
    (f) Federal equipment. In the event a grantee or subgrantee is 
provided federally-owned equipment:
    (1) Title will remain vested in the Federal Government.
    (2) Grantees or subgrantees will manage the equipment in accordance 
with SSA rules and procedures, and submit an annual inventory listing.
    (3) When the equipment is no longer needed, the grantee or 
subgrantee will request disposition instructions from SSA.
    (g) Right to transfer title. SSA may reserve the right to transfer 
title to the Federal Government or a third party named by SSA when such 
a third party is otherwise eligible under existing statutes. Such 
transfers are subject to the following standards:
    (1) The property must be identified in the grant or otherwise made 
known to the grantee in writing.
    (2) SSA will issue disposition instruction within 120 calendar days 
after the end of the Federal support of the project for which it was 
acquired. If SSA fails to issue disposition instructions within the 120 
calendar-day period the grantee must follow paragraph (e) of this 
section.
    (3) When title to equipment is transferred, the grantee will be 
paid an amount calculated by applying the percentage of participation 
in the purchase to the current fair market value of the property.


Sec.  437.33  Supplies.

    (a) Title. Title to supplies acquired under a grant or subgrant 
will vest, upon acquisition, in the grantee or subgrantee respectively.
    (b) Disposition. If there is a residual inventory of unused 
supplies exceeding $5,000 in total aggregate fair market value upon 
termination or completion of the award, and if the supplies are not 
needed for any other federally sponsored programs or projects, the 
grantee or subgrantee must compensate SSA for its share.


Sec.  437.34  Copyrights.

    SSA reserves a royalty-free, nonexclusive, and irrevocable license 
to reproduce, publish or otherwise use, and to authorize others to use, 
for Federal Government purposes:
    (a) The copyright in any work developed under a grant, subgrant, or 
contract under a grant or subgrant; and
    (b) Any rights of copyright to which a grantee, subgrantee or a 
contractor purchases ownership with grant support.


Sec.  437.35  Subawards to debarred and suspended parties.

    Grantees and subgrantees must not make any award or permit any 
award (subgrant or contract) at any tier to any party which is debarred 
or suspended or is otherwise excluded from or ineligible for 
participation in Federal assistance programs under Executive Order 
12549, ``Debarment and Suspension.''


Sec.  437.36  Procurement.

    (a) States. When procuring property and services under a grant, a 
State must follow the same policies and procedures it uses for 
procurements from its non-Federal funds. The State must ensure that 
every purchase order or other contract includes any clauses required by 
Federal statutes and executive orders and their implementing 
regulations. Other grantees and subgrantees must follow paragraphs (b) 
through (i) in this section.
    (b) Procurement standards. (1) Grantees and subgrantees must use 
their own procurement procedures which reflect applicable State and 
local laws and regulations, provided that the procurements conform to 
applicable Federal law and the standards identified in this section.
    (2) Grantees and subgrantees must maintain a contract 
administration system that ensures that contractors perform in 
accordance with the terms, conditions, and specifications of their 
contracts or purchase orders.
    (3) Grantees and subgrantees must maintain a written code of 
standards of conduct governing the performance of their employees 
engaged in the award and administration of contracts. No employee, 
officer or agent of the grantee or subgrantee may participate in 
selection, or in the award or administration of a contract supported by 
Federal funds if a conflict of interest, real or apparent, would be 
involved. Such a conflict would arise when:
    (i) The employee, officer or agent,
    (ii) Any member of his immediate family,
    (iii) His or her partner, or
    (iv) An organization which employs, or is about to employ, any such 
persons, has a financial or other interest in the firm selected for 
award. The grantee's or subgrantee's officers, employees or agents may 
neither solicit nor accept gratuities, favors or anything of monetary 
value from contractors, potential contractors, or parties to 
subagreements. Grantee and subgrantees may set minimum rules where the 
financial interest is not substantial or the gift is an unsolicited 
item of nominal intrinsic value. To the extent permitted by State or 
local law or regulations, such standards or conduct must provide for 
penalties, sanctions, or other disciplinary actions for violations of 
such standards by the grantee's and subgrantee's officers, employees, 
or agents, or by contractors or their agents. SSA may in regulation 
provide additional prohibitions relative to real, apparent, or 
potential conflicts of interest.
    (4) Grantee and subgrantee procedures must provide for a review of 
proposed procurements to avoid purchase of unnecessary or duplicative 
items. Consideration should be given to consolidating or breaking out 
procurements to obtain a more economical purchase. Where appropriate, 
an analysis must be made of lease versus purchase alternatives, and any 
other appropriate analysis to determine the most economical approach.
    (5) To foster greater economy and efficiency, grantees and 
subgrantees are encouraged to enter into State and local 
intergovernmental agreements for procurement or use of common goods and 
services.
    (6) Grantees and subgrantees are encouraged to use Federal excess 
and surplus property in lieu of purchasing new equipment and property 
whenever such use is feasible and reduces project costs.
    (7) Grantees and subgrantees are encouraged to use value 
engineering clauses in contracts for construction projects of 
sufficient size to offer reasonable opportunities for cost reductions. 
Value engineering is a systematic and creative analysis of each 
contract item or task to ensure that its essential function is provided 
at the overall lower cost.
    (8) Grantees and subgrantees will make awards only to responsible 
contractors possessing the ability to perform successfully under the 
terms and conditions of a proposed procurement. Consideration must be 
given to such matters as contractor integrity, compliance with public 
policy, record of past performance, and financial and technical 
resources.
    (9) Grantees and subgrantees must maintain records sufficient to 
detail the significant history of a procurement. These records must 
include, but are not necessarily limited to the following: Rationale 
for the method of procurement, selection of contract type, contractor 
selection or rejection, and the basis for the contract price.

[[Page 28738]]

    (10) Grantees and subgrantees must use time and materials type 
contracts only--
    (i) After a determination that no other contract is suitable, and
    (ii) If the contract includes a ceiling price that the contractor 
exceeds at its own risk.
    (11) Grantees and subgrantees alone will be responsible, in 
accordance with good administrative practice and sound business 
judgment, for the settlement of all contractual and administrative 
issues arising out of procurements. These issues include, but are not 
limited to source evaluation, protests, disputes, and claims. These 
standards do not relieve the grantee or subgrantee of any contractual 
responsibilities under its contracts. SSA will not substitute its 
judgment for that of the grantee or subgrantee unless the matter is 
primarily a Federal concern. Violations of law will be referred to the 
local, State, or Federal authority having proper jurisdiction.
    (12) Grantees and subgrantees must have protest procedures to 
handle and resolve disputes relating to their procurements and must in 
all instances disclose information regarding the protest to SSA. A 
protestor must exhaust all administrative remedies with the grantee and 
subgrantee before pursuing a protest with SSA. Reviews of protests by 
SSA Federal agency are limited to:
    (i) Violations of Federal law or regulations and the standards of 
this section (violations of State or local law will be under the 
jurisdiction of State or local authorities) and
    (ii) Violations of the grantee's or subgrantee's protest procedures 
for failure to review a complaint or protest. Protests received by SSA 
other than those specified in this paragraph (b)(12) will be referred 
to the grantee or subgrantee.
    (c) Competition. (1) All procurement transactions must be conducted 
in a manner providing full and open competition consistent with the 
standards of this section. Some of the situations considered to be 
restrictive of competition include but are not limited to:
    (i) Placing unreasonable requirements on firms in order for them to 
qualify to do business,
    (ii) Requiring unnecessary experience and excessive bonding,
    (iii) Noncompetitive pricing practices between firms or between 
affiliated companies,
    (iv) Noncompetitive awards to consultants that are on retainer 
contracts,
    (v) Organizational conflicts of interest,
    (vi) Specifying only a ``brand name'' product instead of allowing 
``an equal'' product to be offered and describing the performance of 
other relevant requirements of the procurement, and
    (vii) Any arbitrary action in the procurement process.
    (2) Grantees and subgrantees must conduct procurements in a manner 
that prohibits the use of statutorily or administratively imposed in-
State or local geographical preferences in the evaluation of bids or 
proposals, except in those cases where applicable Federal statutes 
expressly mandate or encourage geographic preference. Nothing in this 
section preempts State licensing laws. When contracting for 
architectural and engineering (A/E) services, geographic location may 
be a selection criteria provided its application leaves an appropriate 
number of qualified firms, given the nature and size of the project, to 
compete for the contract.
    (3) Grantees must have written selection procedures for procurement 
transactions. These procedures must ensure that all solicitations:
    (i) Incorporate a clear and accurate description of the technical 
requirements for the material, product, or service to be procured. Such 
description may not, in competitive procurements, contain features that 
unduly restrict competition. The description may include a statement of 
the qualitative nature of the material, product or service to be 
procured, and when necessary, must set forth those minimum essential 
characteristics and standards to which it must conform if it is to 
satisfy its intended use. Detailed product specifications should be 
avoided if at all possible. When it is impractical or uneconomical to 
make a clear and accurate description of the technical requirements, a 
``brand name or equal'' description may be used as a means to define 
the performance or other salient requirements of a procurement. The 
specific features of the named brand which must be met by offerors must 
be clearly stated; and
    (ii) Identify all requirements that the offerors must fulfill and 
all other factors to be used in evaluating bids or proposals.
    (4) Grantees and subgrantees must ensure that all prequalified 
lists of persons, firms, or products which are used in acquiring goods 
and services are current and include enough qualified sources to ensure 
maximum open and free competition. Also, grantees and subgrantees may 
not preclude potential bidders from qualifying during the solicitation 
period.
    (d) Methods of procurement to be followed. (1) Procurement by Small 
Purchase procedures. Small purchase procedures are those relatively 
simple and informal procurement methods for securing services, 
supplies, or other property that do not cost more than the simplified 
acquisition threshold fixed at 41 U.S.C. 403(11) (currently set at 
$100,000). If small purchase procedures are used, price or rate 
quotations must be obtained from an adequate number of qualified 
sources.
    (2) Procurement by sealed bids (formal advertising). Bids are 
publicly solicited and a firm-fixed-price contract (lump sum or unit 
price) is awarded to the responsible bidder whose bid, conforming with 
all the material terms and conditions of the invitation for bids, is 
the lowest in price. The sealed bid method is the preferred method for 
procuring construction, if the conditions in paragraph (d)(2)(i) of 
this section apply.
    (i) In order for sealed bidding to be feasible, the following 
conditions should be present:
    (A) A complete, adequate, and realistic specification or purchase 
description is available;
    (B) Two or more responsible bidders are willing and able to compete 
effectively and for the business; and
    (C) The procurement lends itself to a firm fixed price contract and 
the selection of the successful bidder can be made principally on the 
basis of price.
    (ii) If sealed bids are used, the following requirements apply:
    (A) The invitation for bids must be publicly advertised and bids 
must be solicited from an adequate number of known suppliers, providing 
them sufficient time prior to the date set for opening the bids;
    (B) The invitation for bids, which will include any specifications 
and pertinent attachments, must define the items or services in order 
for the bidder to properly respond;
    (C) All bids must be publicly opened at the time and place 
prescribed in the invitation for bids;
    (D) A firm fixed-price contract award must be made in writing to 
the lowest responsive and responsible bidder. Where specified in 
bidding documents, factors such as discounts, transportation cost, and 
life cycle costs must be considered in determining which bid is lowest. 
Payment discounts will only be used to determine the low bid when prior 
experience indicates that such discounts are usually taken advantage 
of; and
    (E) Any or all bids may be rejected if there is a sound documented 
reason.
    (3) Procurement by competitive proposals. The technique of 
competitive proposals is normally conducted with

[[Page 28739]]

more than one source submitting an offer, and either a fixed-price or 
cost-reimbursement type contract is awarded. It is generally used when 
conditions are not appropriate for the use of sealed bids. If this 
method is used, the following requirements apply:
    (i) Requests for proposals must be publicized and identify all 
evaluation factors and their relative importance. Any response to 
publicized requests for proposals must be honored to the maximum extent 
practical;
    (ii) Proposals must be solicited from an adequate number of 
qualified sources;
    (iii) Grantees and subgrantees must have a method for conducting 
technical evaluations of the proposals received and for selecting 
awardees;
    (iv) Awards must be made to the responsible firm whose proposal is 
most advantageous to the program, with price and other factors 
considered; and
    (v) Grantees and subgrantees may use competitive proposal 
procedures for qualifications-based procurement of architectural/
engineering (A/E) professional services whereby competitors' 
qualifications are evaluated and the most qualified competitor is 
selected, subject to negotiation of fair and reasonable compensation. 
The method, where price is not used as a selection factor, can only be 
used in procurement of A/E professional services. It cannot be used to 
purchase other types of services though A/E firms are a potential 
source to perform the proposed effort.
    (4) Procurement by noncompetitive proposals is procurement through 
solicitation of a proposal from only one source, or after solicitation 
of a number of sources, competition is determined inadequate.
    (i) Procurement by noncompetitive proposals may be used only when 
the award of a contract is not feasible under small purchase 
procedures, sealed bids or competitive proposals and one of the 
following circumstances applies:
    (A) The item is available only from a single source;
    (B) The public exigency or emergency for the requirement will not 
permit a delay resulting from competitive solicitation.
    (C) SSA authorizes noncompetitive proposals; or
    (D) After solicitation of a number of sources, competition is 
determined inadequate.
    (ii) Cost analysis, i.e., verifying the proposed cost data, the 
projections of the data, and the evaluation of the specific elements of 
costs and profits, is required.
    (iii) Grantees and subgrantees may be required to submit the 
proposed procurement to SSA for pre-award review in accordance with 
paragraph (g) of this section.
    (e) Contracting with small and minority firms, women's business 
enterprise and labor surplus area firms. (1) The grantee and subgrantee 
must take all necessary affirmative steps to assure that minority 
firms, women's business enterprises, and labor surplus area firms are 
used when possible.
    (2) Affirmative steps include:
    (i) Placing qualified small and minority businesses and women's 
business enterprises on solicitation lists;
    (ii) Assuring that small and minority businesses, and women's 
business enterprises are solicited whenever they are potential sources;
    (iii) Dividing total requirements, when economically feasible, into 
smaller tasks or quantities to permit maximum participation by small 
and minority business, and women's business enterprises;
    (iv) Establishing delivery schedules, where the requirement 
permits, which encourage participation by small and minority business, 
and women's business enterprises;
    (v) Using the services and assistance of the Small Business 
Administration, and the Minority Business Development Agency of the 
Department of Commerce; and
    (vi) Requiring the prime contractor, if subcontracts are to be let, 
to take the affirmative steps listed in paragraphs (e)(2)(i) through 
(v) of this section.
    (f) Contract cost and price. (1) Grantees and subgrantees must 
perform a cost or price analysis in connection with every procurement 
action including contract modifications. The method and degree of 
analysis is dependent on the facts surrounding the particular 
procurement situation, but as a starting point, grantees must make 
independent estimates before receiving bids or proposals. A cost 
analysis must be performed when the offeror is required to submit the 
elements of his estimated cost, e.g., under professional, consulting, 
and architectural engineering services contracts. A cost analysis is 
necessary when adequate price competition is lacking, and for sole 
source procurements, including contract modifications or change orders, 
unless price reasonableness can be established on the basis of a 
catalog or market price of a commercial product sold in substantial 
quantities to the general public or based on prices set by law or 
regulation. A price analysis must be used in all other instances to 
determine the reasonableness of the proposed contract price.
    (2) Grantees and subgrantees must negotiate profit as a separate 
element of the price for each contract in which there is no price 
competition and in all cases where cost analysis is performed. To 
establish a fair and reasonable profit, consideration must be given to 
the complexity of the work to be performed, the risk borne by the 
contractor, the contractor's investment, the amount of subcontracting, 
the quality of its record of past performance, and industry profit 
rates in the surrounding geographical area for similar work.
    (3) Costs or prices based on estimated costs for contracts under 
grants are allowable only to the extent that costs incurred or cost 
estimates included in negotiated prices are consistent with Federal 
cost principles (see Sec.  437.22). Grantees may reference their own 
cost principles that comply with the applicable Federal cost 
principles.
    (4) The cost plus a percentage of cost and percentage of 
construction cost methods of contracting may not be used.
    (g) SSA review. (1) Grantees and subgrantees must make available, 
upon request of SSA, technical specifications on proposed procurements 
where SSA believes such review is needed to ensure that the item and/or 
service specified is the one being proposed for purchase. This review 
generally must take place prior to the time the specification is 
incorporated into a solicitation document. However, if the grantee or 
subgrantee desires to have the review accomplished after a solicitation 
has been developed, SSA may still review the specifications, with such 
review usually limited to the technical aspects of the proposed 
purchase.
    (2) Grantees and subgrantees must on request make available for SSA 
pre-award review procurement documents, such as requests for proposals 
or invitations for bids, independent cost estimates, etc., when:
    (i) A grantee's or subgrantee's procurement procedures or operation 
fails to comply with the procurement standards in this section; or
    (ii) The procurement is expected to exceed the simplified 
acquisition threshold and is to be awarded without competition or only 
one bid or offer is received in response to a solicitation; or
    (iii) The procurement, which is expected to exceed the simplified 
acquisition threshold, specifies a ``brand name'' product; or
    (iv) The proposed award is more than the simplified acquisition 
threshold and is to be awarded to other than the apparent low bidder 
under a sealed bid procurement; or

[[Page 28740]]

    (v) A proposed contract modification changes the scope of a 
contract or increases the contract amount by more than the simplified 
acquisition threshold.
    (3) A grantee or subgrantee is exempt from the pre-award review in 
paragraph (g)(2) of this section if SSA determines that its procurement 
systems comply with the standards of this section.
    (i) A grantee or subgrantee may request that its procurement system 
be reviewed by SSA to determine whether its system meets these 
standards in order for its system to be certified. Generally, these 
reviews will occur where there is a continuous high-dollar funding, and 
third-party contracts are awarded on a regular basis;
    (ii) A grantee or subgrantee may self-certify its procurement 
system. Such self-certification does not limit SSA's right to survey 
the system. Under a self-certification procedure, SSA may wish to rely 
on written assurances from the grantee or subgrantee that it is 
complying with these standards. A grantee or subgrantee must cite 
specific procedures, regulations, standards, etc., as being in 
compliance with these requirements and have its system available for 
review.
    (h) Bonding requirements. For construction or facility improvement 
contracts or subcontracts exceeding the simplified acquisition 
threshold, SSA may accept the bonding policy and requirements of the 
grantee or subgrantee provided SSA has made a determination that the 
SSA's interest is adequately protected. If such a determination has not 
been made, the minimum requirements are as follows:
    (1) A bid guarantee from each bidder equivalent to five percent of 
the bid price. The ``bid guarantee'' will consist of a firm commitment 
such as a bid bond, certified check, or other negotiable instrument 
accompanying a bid as assurance that the bidder will, upon acceptance 
of his bid, execute such contractual documents as may be required 
within the time specified.
    (2) A performance bond on the part of the contractor for 100 
percent of the contract price. A ``performance bond'' is one executed 
in connection with a contract to secure fulfillment of all the 
contractor's obligations under such contract.
    (3) A payment bond on the part of the contractor for 100 percent of 
the contract price. A ``payment bond'' is one executed in connection 
with a contract to assure payment as required by law of all persons 
supplying labor and material in the execution of the work provided for 
in the contract.
    (i) Contract provisions. A grantee's and subgrantee's contracts 
must contain provisions in paragraph (i) of this section. SSA is 
permitted to require changes, remedies, changed conditions, access and 
records retention, suspension of work, and other clauses approved by 
the Office of Federal Procurement Policy.
    (1) Administrative, contractual, or legal remedies in instances 
where contractors violate or breach contract terms, and provide for 
such sanctions and penalties as may be appropriate (Contracts more than 
the simplified acquisition threshold).
    (2) Termination for cause and for convenience by the grantee or 
subgrantee including the manner by which it will be effected and the 
basis for settlement (All contracts in excess of $10,000).
    (3) Compliance with Executive Order 11246 of September 24, 1965 
entitled ``Equal Employment Opportunity,'' as amended by Executive 
Order 11375 of October 13, 1967 and as supplemented in Department of 
Labor regulations (41 CFR chapter 60) (All construction contracts 
awarded in excess of $10,000 by grantees and their contractors or 
subgrantees).
    (4) Compliance with the Copeland ``Anti-Kickback'' Act (18 U.S.C. 
874) as supplemented in Department of Labor regulations (29 CFR part 3) 
(All contracts and subgrants for construction or repair).
    (5) Compliance with the Davis-Bacon Act (40 U.S.C. 276a to 276a-7) 
as supplemented by Department of Labor regulations (29 CFR part 5). 
(Construction contracts in excess of $2,000 awarded by grantees and 
subgrantees when required by Federal grant program legislation).
    (6) Compliance with sections 103 and 107 of the Contract Work Hours 
and Safety Standards Act (40 U.S.C. 327-330) as supplemented by 
Department of Labor regulations (29 CFR part 5). (Construction 
contracts awarded by grantees and subgrantees in excess of $2,000, and 
in excess of $2,500 for other contracts which involve the employment of 
mechanics or laborers).
    (7) Notice of SSA requirements and regulations pertaining to 
reporting.
    (8) Notice of SSA requirements and regulations pertaining to patent 
rights with respect to any discovery or invention that arises or is 
developed in the course of or under such contract.
    (9) SSA requirements and regulations pertaining to copyrights and 
rights in data.
    (10) Access by the grantee, the subgrantee, SSA, the Comptroller 
General of the United States, or any of their duly authorized 
representatives to any books, documents, papers, and records of the 
contractor which are directly pertinent to that specific contract for 
the purpose of making audit, examination, excerpts, and transcriptions.
    (11) Retention of all required records for three years after 
grantees or subgrantees make final payments and all other pending 
matters are closed.
    (12) Compliance with all applicable standards, orders, or 
requirements issued under section 306 of the Clear Air Act (42 U.S.C. 
1857(h)), section 508 of the Clean Water Act (33 U.S.C. 1368), 
Executive Order 11738, and Environmental Protection Agency regulations 
(40 CFR part 15) (Contracts, subcontracts, and subgrants of amounts in 
excess of $100,000).
    (13) Mandatory standards and policies relating to energy efficiency 
which are contained in the state energy conservation plan issued in 
compliance with the Energy Policy and Conservation Act (Pub. L. 94-163, 
89 Stat. 871).


Sec.  437.37  Subgrants.

    (a) States. States must follow state law and procedures when 
awarding and administering subgrants (whether on a cost reimbursement 
or fixed amount basis) of financial assistance to local and Indian 
tribal governments. States must:
    (1) Ensure that every subgrant includes any clauses required by 
Federal statute and executive orders and their implementing 
regulations;
    (2) Ensure that subgrantees are aware of requirements imposed upon 
them by Federal statute and regulation;
    (3) Ensure that a provision for compliance with Sec.  437.42 is 
placed in every cost reimbursement subgrant; and
    (4) Conform any advances of grant funds to subgrantees 
substantially to the same standards of timing and amount that apply to 
cash advances by SSA.
    (b) All other grantees. All other grantees must follow the 
provisions of this part which are applicable to awarding agencies when 
awarding and administering subgrants (whether on a cost reimbursement 
or fixed amount basis) of financial assistance to local and Indian 
tribal governments. Grantees must:
    (1) Ensure that every subgrant includes a provision for compliance 
with this part;
    (2) Ensure that every subgrant includes any clauses required by 
Federal statute and executive orders and their implementing 
regulations; and
    (3) Ensure that subgrantees are aware of requirements imposed upon 
them by Federal statutes and regulations.

[[Page 28741]]

    (c) Exceptions. By their own terms, certain provisions of this part 
do not apply to the award and administration of subgrants:
    (1) Section 437.10;
    (2) Section 437.11;
    (3) The letter-of-credit procedures specified in Treasury 
Regulations at 31 CFR part 205, cited in Sec.  437.21; and
    (4) Section 437.50.

Reports, Records, Retention, and Enforcement


Sec.  437.40  Monitoring and reporting program performance.

    (a) Monitoring by grantees. Grantees are responsible for managing 
the day-to-day operations of grant and subgrant supported activities. 
Grantees must monitor grant and subgrant supported activities to assure 
compliance with applicable Federal requirements and that performance 
goals are being achieved. Grantee monitoring must cover each program, 
function or activity.
    (b) Nonconstruction performance reports. SSA may, if it decides 
that performance information available from subsequent applications 
contains sufficient information to meet its programmatic needs, require 
the grantee to submit a performance report only upon expiration or 
termination of grant support. Unless waived by SSA, this report is due 
on the same date as the final Financial Status Report.
    (1) Grantees must submit annual performance reports unless SSA 
requires quarterly or semi-annual reports. However, performance reports 
are not required more frequently than quarterly. Annual reports are due 
90 days after the grant year, quarterly or semi-annual reports are due 
30 days after the reporting period. The final performance report is due 
90 days after the expiration or termination of grant support. If a 
justified request is submitted by a grantee, SSA may extend the due 
date for any performance report. Additionally, requirements for 
unnecessary performance reports may be waived by SSA.
    (2) Performance reports must contain, for each grant, brief 
information on the following:
    (i) A comparison of actual accomplishments to the objectives 
established for the period. Where the output of the project can be 
quantified, a computation of the cost per unit of output may be 
required if that information will be useful.
    (ii) The reasons for slippage if established objectives were not 
met.
    (iii) Additional pertinent information including, when appropriate, 
analysis and explanation of cost overruns or high unit costs.
    (3) Grantees will not be required to submit more than the original 
and two copies of performance reports.
    (4) Grantees must adhere to the standards in this section in 
prescribing performance reporting requirements for subgrantees.
    (c) Construction performance reports. For the most part, on-site 
technical inspections and certified percentage-of-completion data are 
relied on heavily by Federal agencies to monitor progress under 
construction grants and subgrants. SSA will require additional formal 
performance reports only when considered necessary, and never more 
frequently than quarterly.
    (d) Significant developments. Events may occur between the 
scheduled performance reporting dates that have significant impact upon 
the grant or subgrant supported activity. In such cases, the grantee 
must inform SSA as soon as the following types of conditions become 
known:
    (1) Problems, delays, or adverse conditions which will materially 
impair the ability to meet the objective of the award. This disclosure 
must include a statement of the action taken, or contemplated, and any 
assistance needed to resolve the situation.
    (2) Favorable developments that enable meeting time schedules and 
objectives sooner or at less cost than anticipated or producing more 
beneficial results than originally planned.
    (e) Site visits. SSA may make site visits as warranted by program 
needs.
    (f) Waivers, extensions. (1) SSA may waive any performance report 
required by this part if not needed.
    (2) The grantee may waive any performance report from a subgrantee 
when not needed. The grantee may extend the due date for any 
performance report from a subgrantee if the grantee will still be able 
to meet its performance reporting obligations to the Federal agency.


Sec.  437.41  Financial reporting.

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

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credit, Treasury check advances or electronic transfer of funds, the 
grantee must submit the Standard Form 272, Federal Cash Transactions 
Report, and when necessary, its continuation sheet, Standard Form 272a, 
unless the terms of the award exempt the grantee from this requirement.
    (ii) These reports will be used by SSA to monitor cash advanced to 
grantees and to obtain disbursement or outlay information for each 
grant from grantees. The format of the report may be adapted as 
appropriate when reporting is to be accomplished with the assistance of 
automatic data processing equipment provided that the information to be 
submitted is not changed in substance.
    (2) Forecasts of Federal cash requirements. Forecasts of Federal 
cash requirements may be required in the ``Remarks'' section of the 
report.
    (3) Cash in hands of subgrantees. When considered necessary and 
feasible by SSA, grantees may be required to report the amount of cash 
advances in excess of three days' needs in the hands of their 
subgrantees or contractors and to provide short narrative explanations 
of actions taken by the grantee to reduce the excess balances.
    (4) Frequency and due date. Grantees must submit the report no 
later than 15 working days following the end of each quarter. However, 
where an advance either by letter of credit or electronic transfer of 
funds is authorized at an annualized rate of one million dollars or 
more, SSA may require the report to be submitted within 15 working days 
following the end of each month.
    (d) Request for advance or reimbursement. (1) Advance payments. 
Requests for Treasury check advance payments must be submitted on 
Standard Form 270, Request for Advance or Reimbursement. (This form may 
not be used for drawdowns under a letter of credit, electronic funds 
transfer or when Treasury check advance payments are made to the 
grantee automatically on a predetermined basis.)
    (2) Reimbursements. Requests for reimbursement under 
nonconstruction grants must also be submitted on Standard Form 270. 
(For reimbursement requests under construction grants, see paragraph 
(e)(1) of this section.)
    (3) The frequency for submitting payment requests is treated in 
paragraph (b)(3) of this section.
    (e) Outlay report and request for reimbursement for construction 
programs. (1) Grants that support construction activities paid by 
reimbursement method. (i) Requests for reimbursement under construction 
grants must be submitted on Standard Form 271, Outlay Report and 
Request for Reimbursement for Construction Programs. SSA may, however, 
prescribe the Request for Advance or Reimbursement form, specified in 
paragraph (d) of this section, instead of this form.
    (ii) The frequency for submitting reimbursement requests is 
discussed in paragraph (b)(3) of this section.
    (2) Grants that support construction activities paid by letter of 
credit, electronic funds transfer or Treasury check advance. (i) When a 
construction grant is paid by letter of credit, electronic funds 
transfer or Treasury check advances, the grantee must report its 
outlays to SSA using Standard Form 271, Outlay Report and Request for 
Reimbursement for Construction Programs. SSA will provide any necessary 
special instruction. However, frequency and due date are governed by 
paragraphs (b)(3) and (4) of this section.
    (ii) When a construction grant is paid by Treasury check advances 
based on periodic requests from the grantee, the advances must be 
requested on the form specified in paragraph (d) of this section.
    (iii) SSA may substitute the Financial Status Report specified in 
paragraph (b) of this section for the Outlay Report and Request for 
Reimbursement for Construction Programs.
    (3) Accounting basis. The accounting basis for the Outlay Report 
and Request for Reimbursement for Construction Programs is governed by 
paragraph (b)(2) of this section.


Sec.  437.42  Retention and access requirements for records.

    (a) Applicability. (1) This section applies to all financial and 
programmatic records, supporting documents, statistical records, and 
other records of grantees or subgrantees that are:
    (i) Required to be maintained by the terms of this part, program 
regulations or the grant agreement, or
    (ii) Otherwise reasonably considered as pertinent to program 
regulations or the grant agreement.
    (2) This section does not apply to records maintained by 
contractors or subcontractors. For a requirement to place a provision 
concerning records in certain kinds of contracts, see Sec.  
437.36(i)(10).
    (b) Length of retention period. (1) Except as otherwise provided, 
records must be retained for three years from the starting date 
specified in paragraph (c) of this section.
    (2) If any litigation, claim, negotiation, audit or other action 
involving the records has been started before the expiration of the 3-
year period, the records must be retained until completion of the 
action and resolution of all issues which arise from it, or until the 
end of the regular 3-year period, whichever is later.
    (3) To avoid duplicate recordkeeping, SSA may make special 
arrangements with grantees and subgrantees to retain any records that 
are continuously needed for joint use. SSA will request transfer of 
records to its custody when it determines that the records possess 
long-term retention value. When the records are transferred to or 
maintained by SSA, the 3-year retention requirement is not applicable 
to the grantee or subgrantee.
    (c) Starting date of retention period. (1) General. When grant 
support is continued or renewed at annual or other intervals, the 
retention period for the records of each funding period starts on the 
day the grantee or subgrantee submits to SSA its single or last 
expenditure report for that period. However, if grant support is 
continued or renewed quarterly, the retention period for each year's 
records starts on the day the grantee submits its expenditure report 
for the last quarter of the Federal fiscal year. In all other cases, 
the retention period starts on the day the grantee submits its final 
expenditure report. If an expenditure report has been waived, the 
retention period starts on the day the report would have been due.
    (2) Real property and equipment records. The retention period for 
real property and equipment records starts from the date of the 
disposition or replacement or transfer at the direction of SSA.
    (3) Records for income transactions after grant or subgrant 
support. In some cases grantees must report income after the period of 
grant support. Where there is such a requirement, the retention period 
for the records pertaining to the earning of the income starts from the 
end of the grantee's fiscal year in which the income is earned.
    (4) Indirect cost rate proposals, cost allocations plans, etc. This 
paragraph applies to the following types of documents, and their 
supporting records: Indirect cost rate computations or proposals, cost 
allocation plans, and any similar accounting computations of the rate 
at which a particular group of costs is chargeable (such as computer 
usage chargeback rates or composite fringe benefit rates).
    (i) If submitted for negotiation. If the proposal, plan, or other 
computation is required to be submitted to the Federal Government (or 
to the grantee) to form the basis for negotiation of the rate, then

[[Page 28743]]

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


Sec.  437.43  Enforcement.

    (a) Remedies for noncompliance. If a grantee or subgrantee 
materially fails to comply with any term of an award, whether stated in 
a Federal statute or regulation, an assurance, in a State plan or 
application, a notice of award, or elsewhere, SSA may take one or more 
of the following actions, as appropriate in the circumstances:
    (1) Temporarily withhold cash payments pending correction of the 
deficiency by the grantee or subgrantee or more severe enforcement 
action by SSA,
    (2) Disallow (that is, deny both use of funds and matching credit 
for) all or part of the cost of the activity or action not in 
compliance,
    (3) Wholly or partly suspend or terminate the current award for the 
grantee's or subgrantee's program,
    (4) Withhold further awards for the program, or
    (5) Take other remedies that may be legally available.
    (b) Hearings, appeals. In taking an enforcement action, SSA will 
provide the grantee or subgrantee an opportunity for such hearing, 
appeal, or other administrative proceeding to which the grantee or 
subgrantee is entitled under any statute or regulation applicable to 
the action involved.
    (c) Effects of suspension and termination. Costs of grantee or 
subgrantee resulting from obligations incurred by the grantee or 
subgrantee during a suspension or after termination of an award are not 
allowable unless SSA expressly authorizes them in the notice of 
suspension or termination or subsequently. Other grantee or subgrantee 
costs during suspension or after termination which are necessary and 
not reasonably avoidable are allowable if:
    (1) The costs result from obligations which were properly incurred 
by the grantee or subgrantee before the effective date of suspension or 
termination, are not in anticipation of it, and, in the case of a 
termination, are noncancellable, and,
    (2) The costs would be allowable if the award were not suspended or 
expired normally at the end of the funding period in which the 
termination takes effect.
    (d) Relationship to debarment and suspension. The enforcement 
remedies identified in this section, including suspension and 
termination, do not preclude grantee or subgrantee from being subject 
to ``Debarment and Suspension'' under E.O. 12549 (see Sec.  437.35).


Sec.  437.44  Termination for convenience.

    Except as provided in Sec.  437.43, awards may be terminated in 
whole or in part only as follows:
    (a) By SSA with the consent of the grantee or subgrantee in which 
case the two parties will agree upon the termination conditions, 
including the effective date and in the case of partial termination, 
the portion to be terminated, or
    (b) By the grantee or subgrantee upon written notification to SSA, 
setting forth the reasons for such termination, the effective date, and 
in the case of partial termination, the portion to be terminated. 
However, if, in the case of a partial termination, SSA determines that 
the remaining portion of the award will not accomplish the purposes for 
which the award was made, SSA may terminate the award in its entirety 
under either Sec.  437.43 or paragraph (a) of this section.

Subpart D--After-the-Grant Requirements


Sec.  437.50  Closeout.

    (a) General. SSA will close out the award when it determines that 
all applicable administrative actions and all required work of the 
grant have been completed.
    (b) Reports. (1) Within 90 days after the expiration or termination 
of the grant, the grantee must submit all financial, performance, and 
other reports required as a condition of the grant. Upon request by the 
grantee, SSA may extend this timeframe. These may include but are not 
limited to:
    (i) Final performance or progress report.
    (ii) Financial Status Report (SF 269) or Outlay Report and Request 
for Reimbursement for Construction Programs (SF-271) (as applicable).
    (iii) Final request for payment (SF-270) (if applicable).
    (iv) Invention disclosure (if applicable).
    (v) Federally-owned property report:
    (2) In accordance with Sec.  437.32(f), a grantee must submit an 
inventory of all federally owned property (as distinct from property 
acquired with grant funds) for which it is accountable and request 
disposition instructions from SSA of property no longer needed.
    (c) Cost adjustment. SSA will, within 90 days after receipt of 
reports in paragraph (b) of this section, make upward or downward 
adjustments to the allowable costs.
    (d) Cash adjustments. (1) SSA will make prompt payment to the 
grantee for allowable reimbursable costs.
    (2) The grantee must immediately refund to SSA any balance of 
unobligated (unencumbered) cash advanced that is not authorized to be 
retained for use on other grants.


Sec.  437.51  Later disallowances and adjustments.

    The closeout of a grant does not affect:
    (a) SSA's right to disallow costs and recover funds on the basis of 
a later audit or other review;
    (b) The grantee's obligation to return any funds due as a result of 
later refunds, corrections, or other transactions;
    (c) Records retention as required in Sec.  437.42;
    (d) Property management requirements in Sec.  437.31 and Sec.  
437.32; and
    (e) Audit requirements in Sec.  437.26.


Sec.  437.52  Collection of amounts due.

    (a) Any funds paid to a grantee in excess of the amount to which 
the

[[Page 28744]]

grantee is finally determined to be entitled under the terms of the 
award constitute a debt to the Federal Government. If not paid within a 
reasonable period after demand, SSA may reduce the debt by:
    (1) Making an administrative offset against other requests for 
reimbursements,
    (2) Withholding advance payments otherwise due to the grantee, or
    (3) Other action permitted by law.
    (b) Except where otherwise provided by statutes or regulations, SSA 
will charge interest on an overdue debt in accordance with the Federal 
Claims Collection Standards (4 CFR chapter II). Litigation or the 
filing of any form of appeal does not extend the date from which 
interest is computed.

Subpart E--Entitlement [Reserved]

[FR Doc. 03-11852 Filed 5-23-03; 8:45 am]
BILLING CODE 4191-02-P