[Federal Register Volume 85, Number 122 (Wednesday, June 24, 2020)]
[Rules and Regulations]
[Pages 37753-37756]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11915]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 21

RIN 2900-AP72


Veterans Employment Pay for Success Grant Program

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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SUMMARY: The Department of Veterans Affairs (VA) established a grant 
program (Veterans Employment Pay for Success (VEPFS)) to award grants 
to eligible entities to fund projects that are successful in 
accomplishing employment rehabilitation for Veterans with service-
connected disabilities. VA will award grants on the basis of an 
eligible entity's proposed use of a Pay for Success (PFS) strategy to 
achieve goals. This final rule adopts with changes an interim final 
rule that established regulations for awarding a VEPFS grant, including 
the general process for awarding the grant, criteria and parameters for 
evaluating grant applications, priorities related to the award of a 
grant, and general requirements and guidance for administering a VEPFS 
grant program.

DATES: This rule is effective on June 24, 2020.

FOR FURTHER INFORMATION CONTACT: Mike Frueh, Deputy Assistant 
Secretary, Planning and Performance Management, (008A), Department of 
Veterans Affairs, 810 Vermont Ave. NW, Washington, DC, (202) 632-8784. 
(This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: Section 3119 of title 38, United States 
Code, authorizes the Secretary of Veterans Affairs (Secretary) to make 
grants to or contract with public or nonprofit agencies, including 
institutions of higher learning, to advance ``the knowledge, methods, 
techniques, and resources available for use in rehabilitation programs 
for veterans.'' Section 3119 specifically authorizes the Secretary to 
make grants to such agencies to conduct or provide support for projects 
which are ``designed to increase the resources and potential for 
accomplishing the rehabilitation of disabled veterans.'' (See also 
implementing regulation at 38 CFR 21.390.)
    On August 10, 2016, VA published an interim final rule in the 
Federal Register, 81 FR 52770, under the authority of sec. 3119 
establishing regulations for administering a VEPFS grant program to 
award grants to eligible entities to fund projects that are successful 
in accomplishing employment rehabilitation for Veterans with service-
connected disabilities. In general, a PFS model is a strategy for 
successfully attaining positive social or environmental outcomes by 
paying for an intervention to achieve such outcomes only after the 
intervention produces these outcomes. The interim final rule included 
the general process for awarding the grant, criteria and parameters for 
evaluating grant applications, priorities related to the award of a 
grant, and general requirements and guidance for administering a VEPFS 
grant program. VA provided a 60-day public comment period that ended on 
October 11, 2016, and received nine comments from a single entity.
    The first comment recommended amending the definition of 
``Employment outcome'' to include outcomes that occur ``during'' as 
well as following the service period so that the PFS agreement reflects 
the benefits of the selected intervention while services are provided. 
In addition, this comment and the third comment recommended amending 
the definitions of ``Employment outcome'' and ``Outcomes payments'' to 
allow a PFS project evaluation to be based on a ``comparison'' group in 
addition to a ``control'' group so there is greater flexibility when 
structuring valid evaluation methodologies. VA agrees that if 
employment outcomes can be measured during the service period, an 
evaluator may be able to obtain useful information that could assist 
with determining whether employment outcomes have improved across the 
lifecycle of the project. It is feasible to assume that some outcomes 
may be achievable and measurable at any point during the lifecycle of 
the service period. VA believes measuring outcomes during the service 
period may allow for greater flexibility in transaction structuring for 
outcomes payments. In addition, VA agrees that basing a project 
evaluation on a comparison group or a control group will allow for 
greater flexibility in structuring evaluation methodologies. Having 
greater flexibility in this regard may allow for greater statistical 
power when measuring outcomes and benefit the VA program office when 
evaluating the impact of the outcomes on future rehabilitation policy 
and programming. Therefore, we are amending the definition of 
``Employment outcome'' to reflect that it means the employment or 
earnings of a participant in an intervention group or a control or 
comparison group either during or after a service period. We are 
further amending this definition and the definition of ``Outcomes 
payments'' to indicate that comparison groups, in addition to control 
groups, may be used when structuring evaluation methodologies.
    The second comment proposed adding a definition of ``Outcome 
metrics'' and additional comments, including the sixth comment,

[[Page 37754]]

recommended adding the language, ``outcomes metrics or'' before 
``target levels'' in a number of the regulatory sections in this 
rulemaking. ``Outcomes metrics or target levels'' as a phrase does not 
make sense. Outcomes are a kind of result of interventional or non-
interventional activities. Targets are a hoped-for level of achievement 
for various outcomes, or a characteristic of outcomes, and are not part 
of an ``either/or'' option. Therefore, we will not add the language 
``outcomes metrics or'' to any of the regulatory provisions in this 
rulemaking. Because we are not adding this proposed language, there is 
no need to add a definition for ``Outcome metrics.''
    The fourth comment recommended clarifying that the project 
partnership may be memorialized in more than one agreement. We are 
amending the definition of project partnership to reflect that it may 
consist of multiple agreements because allowing for multiple agreements 
will provide the project partnership with greater flexibility.
    The fifth comment recommended allowing each VEPFS grant to 
establish the minimum and maximum number of years rather than requiring 
a minimum 5-year period for all VEPFS grants. VA's original vision for 
pay for success programming did not account for projects that may have 
a shorter duration, such as feasibility studies or studies that may 
require long-term evaluation of certain employment outcomes. To 
accommodate a broader range of PFS projects with the increased 
potential for better outcomes, VA agrees that performance period 
minimums or maximums should be established on a per grant program 
basis. Thus, we are amending Sec.  21.442(c) to allow each VEPFS grant 
agreement to establish the project duration instead of setting a 
required minimum period.
    The seventh comment proposed to eliminate the requirement that 
grantees procure investors in a government acquisition process 
following procurement standards set forth in 2 CFR 200.317-200.326. The 
commenter explained that, in typical PFS arrangements to which it has 
been a party, investors are not ``procured'' and are not a party to the 
PFS agreement. Typically, the government is not a party to the investor 
financing agreements and does not negotiate directly with investors. 
The commenter explained that investors do not provide services to the 
government, but fund services to be provided by the service provider 
and bear the risk that the intervention will not achieve the agreed 
upon outcomes metrics. Thus, investors are recruited or engaged in a 
manner that befits their role as risk-bearing entities in the PFS 
model.
    We agree to eliminate the requirement that grant recipients 
``procure'' investors and follow procurement standards set forth in 2 
CFR 200.317-200.326. Although the uniform grant regulations at 2 CFR 
part 200 apply to recipients (and subrecipients) of the PFS grants, 
they do not contemplate investors as playing a part in the grant 
agreement or carrying out the purposes of the grant. The procurement of 
goods and services by way of contract is a key factor in creating a 
procurement relationship. See 2 CFR 200.330(b). The Federal Acquisition 
Regulations defining ``procurement'' and ``acquisition'' support the 
position that investors and investments of capital are not 
``procured.'' As the commenter explained, because investors supply 
money/funding, and do not provide goods or services, obtaining 
investments is not an acquisition or procurement as contemplated by the 
uniform grant regulations. While the funding investors provide is used 
to procure goods or services necessary to carry out the grant's 
purpose, neither the investor nor the funding is a good or service that 
is procured. Therefore, the uniform grant regulations at 2 CFR part 200 
should not apply, and we agree to exclude ``investors'' from the 
requirement in Sec.  21.445(b) that partner entities be procured 
following procurement standards set forth in 2 CFR 200.317-200.326.
    The eighth comment proposed to not require grantees to identify 
investors at the time of application. We see no reason why grantees 
should not be able to identify investors at the time of application and 
the commenter has provided no convincing reason. We do not believe that 
excluding investors from the procurement requirement supports the 
argument that investors should be identified later in the grant 
process. Furthermore, identifying investors later in the process would 
introduce uncertainty into the overall viability of the applicant's 
proposed project. Accordingly, we will not make any changes based on 
this comment.
    The ninth comment proposed to allow VA and an applicant to 
negotiate a cooperative agreement or a grant agreement to provide 
flexibility in finalizing the terms of the VEPFS grant. As stated 
above, sec. 3119 provides the authority for the Secretary to make these 
VEPFS grants. It also provides authority for the Secretary to contract 
with entities to fund projects that are successful in accomplishing 
rehabilitation for Veterans with service-connected disabilities. 
However, there is no authority for the Secretary to enter into 
cooperative agreements to fund such projects. As VA has no authority to 
enter cooperative agreements for this purpose, we must decline to 
change the regulations to allow for the negotiation of cooperative 
agreements between an applicant and VA.
    Based on the rationale set forth in the interim final rule and in 
this document, VA is adopting the provisions of the interim final rule 
as a final rule with changes, as noted above.

Administrative Procedure Act

    The Secretary is issuing this rule because there is a need to find 
new methods for rehabilitating Veterans with service-connected 
disabilities to become employable and obtain and maintain suitable 
employment. This rulemaking serves an important Veterans' need in an 
economical way because it provides the opportunity for discovering such 
new methods using a strategy that will save taxpayer money. However, 
funding for a grant awarded under these regulations was available to be 
obligated within a limited timeframe. Therefore, it was impracticable 
and contrary to the public interest to delay the rule for the purpose 
of soliciting advance public comment or to have a delayed effective 
date. Accordingly, VA issued an interim final rule with an immediate 
effective date and is now issuing this final rule after having 
considered the comments submitted.

Executive Orders 12866, 13563 and 13771

    Executive Orders 12866 and 13563 direct agencies to assess the 
costs and benefits of available regulatory alternatives and, when 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, and other advantages; distributive impacts; 
and equity). Executive Order 13563 (Improving Regulation and Regulatory 
Review) emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
The Office of Information and Regulatory Affairs has determined that 
this rule is not a significant regulatory action under Executive Order 
12866.
    VA's impact analysis can be found as a supporting document at 
http://www.regulations.gov, usually within 48 hours after the 
rulemaking document is published. Additionally, a copy of the 
rulemaking and its impact analysis are available on VA's website at 
http://

[[Page 37755]]

www.va.gov/orpm/, by following the link for ``VA Regulations Published 
From FY 2004 Through Fiscal Year to Date.''
    This final rule is considered an E.O. 13771 regulatory action. 
Details on the estimated costs of this final rule can be found in the 
rule's economic analysis.

Paperwork Reduction Act

    Although this action contains provisions constituting collections 
of information at 38 CFR 21.445, 21.447, and 21.448, under the 
provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3521), no new or proposed revised collections of information are 
associated with this final rule. The information collection 
requirements for Sec. Sec.  21.445, 21.447, and 21.448 are currently 
approved by OMB and have been assigned OMB control number 2900-0847.

Regulatory Flexibility Act

    The Secretary hereby certifies that this final rule will not have a 
significant economic impact on a substantial number of small entities 
as they are defined in the Regulatory Flexibility Act (5 U.S.C. 601-
612). The Secretary estimates that, for any VEPFS grant program, no 
more than ten non-renewable grants will be awarded. For each grant 
awarded, usually one of each, but no more than a few, outcomes payors, 
project coordinators, evaluators, investors, and service providers will 
be involved with the grant program. The goal of these grants is to 
rehabilitate Veterans with service-connected disabilities with regard 
to employment. Thus, an insubstantial number of small entities will be 
affected by this final rule and, accordingly, there will not be a 
significant economic impact on such affected entities. Therefore, 
pursuant to 5 U.S.C. 605(b), the initial and final regulatory 
flexibility analysis requirements of 5 U.S.C. 603 and 604 do not apply.

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year. This final rule will have no such effect on 
State, local, and tribal governments, or on the private sector.

Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as not a major rule, as defined by 5 U.S.C. 804(2).

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number and title for the 
program affected by this document is 64.116, Vocational Rehabilitation 
for Disabled Veterans.

List of Subjects in 38 CFR Part 21

    Administrative practice and procedure, Armed forces, Civil rights, 
Claims, Colleges and universities, Conflict of interests, Defense 
Department, Education, Employment, Grant programs--education, Grant 
programs--veterans, Health care, Loan programs--education, Loan 
programs--veterans, Manpower training programs, Reporting and 
recordkeeping requirements, Schools, Travel and transportation 
expenses, Veterans, Vocational education, Vocational rehabilitation.

Signing Authority

    The Secretary of Veterans Affairs approved this document and 
authorized the undersigned to sign and submit the document to the 
Office of the Federal Register for publication electronically as an 
official document of the Department of Veterans Affairs. Pamela Powers, 
Chief of Staff, Performing the Delegable Duties of the Deputy 
Secretary, Department of Veterans Affairs, approved this document on 
April 13, 2020, for publication.

Jeffrey M. Martin,
Assistant Director, Office of Regulation Policy & Management, Office of 
the Secretary, Department of Veterans Affairs.

    Accordingly, the interim final rule amending 38 CFR part 21, which 
published at 81 FR 52770 on August 10, 2016, is adopted as final with 
the following changes:

PART 21--VOCATIONAL REHABILITATION AND EDUCATION

Subpart A--Vocational Rehabilitation and Employment Under 38 U.S.C. 
Chapter 31

0
1. The authority citation for part 21, subpart A, continues to read as 
follows:

    Authority: 38 U.S.C. 501(a), chs. 18, 31, and as noted in 
specific sections.


0
2. In Sec.  21.441, revise the definitions of ``Employment outcome'' 
and ``Outcomes payments'' and the introductory text of the definition 
of ``Project partnership'' to read as follows:


Sec.  21.441  Definitions.

* * * * *
    Employment outcome is the employment or earnings of a participant 
in an intervention group or control or comparison group during or after 
the service period. Improving employment outcomes means creating 
positive impact in terms of these outcomes, where the results for 
individuals that receive the intervention are better than the results 
for a valid control or comparison group that did not receive the 
intervention.
* * * * *
    Outcomes payments are funds that are paid to an investor or service 
provider and that are released only for the achievement of outcomes, as 
compared to those of a control or comparison group, that meet target 
levels that have been agreed to in advance of the provision of 
intervention (i.e., if positive impact has been created by the 
intervention in terms of these outcomes). When investors have provided 
the upfront capital for the project, these payments generally cover 
repayment of the principal investment and provide a modest return on 
investment for any associated risks of paying for the intervention 
upfront.
* * * * *
    Project partnership is a collaboration among entities that 
negotiate one or more agreements and execute a project to improve 
employment outcomes for Veterans with service-connected disabilities. 
The entities that may be involved in a project partnership include:
* * * * *


0
3. In Sec.  21.442, revise paragraph (c) to read as follows:


Sec.  21.442  VEPFS grants--general.

* * * * *
    (c) A VEPFS grant will be awarded for a minimum and maximum number 
of years that is specified in the VEPFS grant agreement, beginning on 
the date on which the VEPFS grant is awarded, with the availability of 
no-cost extensions.
* * * * *


0
4. In Sec.  21.445, revise paragraph (b) to read as follows:


Sec.  21.445  Application.

* * * * *
    (b) Description of anticipated project partnership(s), including 
the responsibilities of each of the partner entities, the experience of 
any involved entities with serving Veteran populations, and other 
qualifications of the involved entities that may be relevant in 
carrying out responsibilities of the project partnership. In

[[Page 37756]]

establishing the project partnership, entities, including the project 
coordinator, evaluator, and service provider, but excluding investors, 
must be procured following procurement standards set forth in 2 CFR 
200.317 through 200.326.
* * * * *
[FR Doc. 2020-11915 Filed 6-23-20; 8:45 am]
BILLING CODE 8320-01-P