Final Rule - Administration of Grants
Administration of Grants
August 7, 1980
TO:STATE AGENCIES ADMINISTERING CHILD SUPPORT ENFORCEMENT PLANS APPROVED UNDER TITLE IV-D OF THE SOCIAL SECURITY ACT AND OTHER INTERESTED INDIVIDUALS
SUBJECT: Administration of Grants
ATTACHMENT:Final regulations that amend the Department-wide grants administration regulations to implement revisions made by the Office of Management and Budget (OMB) to the Government-wide procurement standards and cost principles.
(1)Amendments published in the Federal Register on June 3, 1980 in volume 45, page 37666 and correction thereto published on June 9, 1980 revised 45 CFR Part 74 to:
149implement new OMB standards governing procurements made by States, local governments, and Indian tribal governments under Federal grants and subgrants contained in Attachment 0 to OMB Circular No. A-102;
149incorporate the text of Attachment 0 to OMB Circular No. A-102 in a separate new appendix without paraphrasing;
149specify that the incorporated attachment applies, with limited exceptions, to all procurements supported by HHS grants that are subject to 45 CFR Part 74;
149explain that the incorporated attachment does not apply to transactions between governments or agencies or instrumentalities of governments;
149explain how OMB text that refers to Federal agencies and grantees is to be "translated" in the case of subgrants;
149make new OMB policies governing payments under grants (and subgrants) to States, local governments and Indian tribal governments contained in Attachment J to OMB Circular No. A-102 applicable to all grants and subgrantssubject to 45 CFR Part 74.
(2)Amendments published in the Federal Register on May 22, 1980 in volume 45, page 34272 revised 45 CFR Part 74 to:
149implement revisions made to the Government-wide cost principles for State and local governments contained in Federal Management Circular 74-4. These revisions: liberalize the provision concerning travel costs to allow travel costs incurred by the offices of chief executives and legislative bodies which are specifically related to grant programs; and liberalize the provisions concerning rental costs and interest costs to allow interest costs associated with the acquisition of publicly owned buildings which are newly occupied on or after October 1, 1980.
A "rental rate" system or equivalent system reflecting actual costs must be used.
149delete appendix C and incorporate Federal Management Circular 74-4 into the regulations by reference.
In the attachment, references made to OMB Circular No. A-21 and OMB Circular No. A-110 should be ignored since these circulars do not apply to the Child Support Enforcement program.
REFERENCE:45 CFR 74.20, 74.24, 74.25, 74.96, 74.170, 74.171, 74.175, 45 CFR Part 74, Subpart P, and appendices C, and G.
DATE: June 3, 1980 (45 CFR 74.20, 74.24, 74.25, 74.96, 45 CFR Part 74, Subpart P and Appendix G) May 22,1980 (45 CFR 74.170, 74.171, 74.175 and Appendix C)
INQUIRIES TO: OCSE Regional Representatives
Office of Child Support
DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Part 74
Administration of Grants; Procurements by Grantees and Subgrantees
AGENCY: Department of Health and Human Services (HHS).
ACTION: Final rule.
SUMMARY: This amends HHS' Department-wide grants administration regulation to implement a recent revision by the Office of Management and Budget (OMB) of the standards governing procurements made by governmental recipients of Federal grants and subgrants-Attachment O to OMB Circular A-102. In the process, this changes the way HHS implements both this set of standards and also OMB's as yet unrevised set of standards for procurements made by nongovernmental recipients - Attachment O to OMB Circular A-110.
This also implements for HHS a recent OMB policy amendment on the timing of reimbursement to recipients for amounts they withhold from contractors to assure satisfactory completion of work.
EFFECTIVE DATE: July 3, 1980.
FOR FURTHER INFORMATION CONTACT: Matthias Lasker, Department of Health and Human Services, Room 513D, Hubert H. Humphrey Building, 200 Independence Avenue, S.W., Washington, D.C. 20201, 202-245-7565.
A. Procurement Standards
Action by OMB
On August 1, 1979, OMB revised its standards governing procurements by States, local governments, and Indian tribal governments under Federal grants and subgrants, Attachment 0 to OMB Circular A-102. The revision was published on August 15, 1979, at 44 FR 44874 and carried an effective date of October 1, 1979.
OMB had previously circulated the proposed revision to interest groups representing governments, to Federal agencies, and to contractor organizations. OMB also published the proposed revision in the Federal Register (43 FR 57202, December 6, 1978) and on January 16, 1979, held a public hearing on it.
The revision continues the Federal policy of minimum Federal intervention in the procurement operations of recipients. The most significant changes, in our view, are:
1. Prohibits Federal agencies from substituting their judgmentfor the judgment of the grantee unless the matter is primarily a Federal concern. By implication, prohibits grantees that award subgrants from substituting their judgment for that of the subgrantee, unless the matter is primarily a concern of the grantee or the Federal Government. (Like other Attachment 0 prohibitions, this prohibition does not prevent State grantees from exercising whatever control they would have over procurements by subgrantees were no subgrants involved.)
2. Creates a program for certifying recipient procurement system as meeting the standards in the attachment. If a recipient's systems is certified, prohibits awarding parties from imposing certain prior approval requirements on the recipient's individual procurements,
3. Limits awarding parties' authority to review protests against the recipient's selection of a contractor. OMB has stated that this is properly the responsibility of the recipient.
4. Prohibits any employee, officer, or agent of the recipient from participating in contractor election or in the award or administration of a contract if conflict of interest, real or apparent, would be involved.
5. Expands the rules intended to promote the use of small and minority business firms by requiring specific affirmative actions. Requires similar affirmative actions in support of women's business enterprises and encourages recipients to procure foods and services from labor surplus areas.
6. Describes the methods of procurement that are permitted under grants and subgrants.
7. Requires some form of cost or price analysis in connection with every procurement action, including contract modifications.
8. Requires that contracts comply with State Energy Conservation Plans.
Until now, HHS has implemented Attachment O to OMB Circular A-102 (governing procurements under grants and subgrants to governments) and Attachment O to OMB Circular A-110 (governing procurements under grants and subgrants to institutions of higher education, hospitals and private nonprofit organizations) by paraphrasing and combining the text of the two attachments. HHS is changing this method of implementation for both attachments. These amendments require compliance with the attachments and place their texts in separate new appendices to 45 CFR 74, without paraphrasing.
Some explanations of how the attachments apply to HHS grants and subgrants are needed. We are providing these in the body of this part and in footnotes to the appended attachments. Thus,explanations added by HHS are clearly distinguished from the attachments themselves.
This implementation approach furthers OMB's goal of standardizing as much as possible the requirements Federal departments and agencies impose on recipient procurements. The approach should greatly benefit recipients receiving awards from other Federal departments and agencies as well as from HHS,
Recipients are cautioned that, if other terms of an HHS grant also include provisions on procurements, those provisions also apply and take precedence over those in this part. (See 45 CFR 74.4.)
Following are the principal explanations these amendments provide:
1. The amendments explain that the attachments apply, with limited exceptions, to all procurements supported by HHS grants that are subject to this part, even if charged only to required cost sharing or matching. OMB has told us that this is its intent.
2. The amendments explain that the attachments do not apply to transactions between governments or agencies or instrumentalities of governments. Many of the provisions in the attachments are inappropriate to these transactions, and OMB has told us that it does not intend the attachment to apply to them.
3. The amendments explain how OMB text that refers to Federal agencies and to grantees is to be "translated" in the case of subgrants.
4. Attachment O of OMB Circular A-102 inadvertently omits a requirement for retention of records by contractors. These amendments make the same records retention rule apply to contracts under that attachment that applies to contracts under Attachment O of OMB Circular A-102. The amendments also explain how the retention period is affected by an audit or other action involving the records. Finally, the amendments explain under what circumstances the records access and retention requirements apply to subcontracts. These additions and clarifications are consistent with OMB intent.
Because access to and retention of contractor records are treated in the OMB circular attachments, the current rules on those topics in Subpart D are removed,
B. Payment Policy Action by OMB
On October 5, 1979, at 44 FR 57855, OMB amended its policies governing payments under grants (and subgrants) to States, local governments, and Indian tribal governments-Attachment J to OMB Circular A-102. The amendment provides that, when awarding parties pay recipients by the reimbursement method, they are not to reimburse recipients for amounts that are withheld from contractors to assure satisfactory completion of work. The awarding parties are to pay the Federal share of these amounts when the recipients make final payment. The purpose of the amendment is to save interest costs incurred by the Federal Government in order to obtain funds to pay for these amounts.
Under the reimbursement method, recipients may base theirpayment requests on accrued costs rather than cash disbursements, and that is why the amendment is needed to achieve OMB's purpose. When the letter of credit or advances by Treasury check methods are used, drawdowns or payments are already required to coincide with the recipient's cash needs. Hence, a similar amendment for these payment methods is not needed.
The amendment is effective January 1, 1980, but grantor agencies are authorized to delay implementation to January 1, 1981, for recipients that must amend their laws to comply.
OMB had published the proposed amendment for comment in the Federal Register on October 18, 1978.
HHS is implementing the amendments by adding the new rule without substantive change to 45 CFR Part 74, Subpart K, - "Grant and Subgrant Payment Requirements." The added text includes as a clarification OMB provided in its October 5 Federal Register notice making the amendment. To avoid confusion, we have, also added text reaffirming the Federal policy of basing non-prescheduled Treasury check advances on estimated cash outlays, even if the recipient uses an accrual accounting system.
OMB intends to make the same amendment to its circular on grants to nongovernmental organizations - OMB Circular A-110. Accordingly, with OMB's approval, we are applying the new rule to all grants and subgrants subject to 45 CFR Part 74, those to nongovernmental organizations as well as those to governments.
As authorized by OMB, HHS is deferring implementation for some recipients. (See "Timing" below.)
C. Other Information
Timing. These amendments apply to grant and subgrant funding periods beginning on or after the effective date of the amendments. However, the revision of 45 CFR 74.96(b) does not apply until January 1, 1981, if the recipient is a State, local government, or Federally recognized Indian Tribal government and has to amend its laws in order to comply with that revision.
At its option, the recipient of a grant or subgrant which is active when these amendments take effect may apply them to that grant or subgrant for the remainder of the current funding period.
Effective date. These amendments merely require HHS components and HHS grantees and subgrantees to comply with already existing Government-wide policies and provide a few necessary explanations of those policies. For this reason, notice of proposed rulemaking and delay in effective date are considered unnecessary. These amendments are therefore effective on June 3, 1980.
Note.-The Department of Health and Human Services has determined that this document does not contain a major proposal requiring preparation of a Regulatory Analysis under Executive Order 12044,
Dated: May 27, 1980.
Patricia Roberta Harris,
Secretary of Health and Human Services.
Part 74 of Title 45 of the Code of Federal Regulations is amended as follows:
1. Section 74.20 is revised to read as follows:
§ 74.20 Applicability.
(a) This subpart applies to all financial and programmatic records, supporting documents, statistical records, and other records of recipients, which are:
(1) Required to be maintained by the terms of an HHS grant, or
(2) Otherwise reasonably considered as pertinent to an HHS grant.
(b) This subpart does not apply to the records of contractors and subcontractors under grants and subgrants. For a requirement to place a provision concerning those records in certain kinds of contracts, see Subpart P and Appendices G and H of this part.
§ 74.24 [Amended]
2. Section 74.24 is amended by deleting and reserving paragraph (c).
§ 74.25 [Amended]
3. Section 74.25 is amended by deleting "or their contractors and subcontractors" from the last sentence.
4. Section 74.96 is revised to read as follows:
§ 74.96 Requesting advances or reimbursements.
(a) If advances are made by Treasury check and the advances are not prescheduled, the grantee shall submit its requests for payment monthly. Less frequent requests are not permitted because they would result in advances covering excessive periods of time. The grantee shall not request advances in excess of the Federal share of reasonable estimates of its outlays for the month covered. The grantee shall make these estimates on a cash basis, even if it uses an accrual accounting system.
(b) If payments are made through reimbursement by Treasury check:
(1) The grantee may submit its requests for reimbursement monthly and may submit them more often if authorized, the grantee will be paid as promptly as possible, ordinarily within 33 days after receipt of a proper request for reimbursement.
(2) The grantee shall not request reimbursement for the Federal share or amounts withheld from contractors to ensure satisfactory completion of work until after it makes those payments. To meed this requirement, a grantee with an accrual accounting system need not convert to cash basis accounting. It may bill in general on an accrued cost basis handling theseretained amounts as adjustments in the billing system.
(c) The forms for requesting advances or reimbursements are identified in Subpart I of this part.
5. Subpart F is revised to read as follows:
Subpart P-Procurements by Grantees and Subgrantees
74.160 What procurements are subject to this subpart?
74.161 What rules govern the procurements?
74.162 Must requests for OMB authorizations go through HHS' Office of Grants and Procurement (OGP)?
74.163 How do the rules apply to Subgrants?
74.164 What clarifications are needed for the rule on access to contractor records?
Subpart P-Procurements by Grantees and Subgrantees
§ 74.160 What procurements are subject to this subpart?
(a) This subpart applies to recipient procurements of supplies, equipment, and services (including construction).
(b) This subpart applies if any part of the cost of the property or service being procured by a recipient is treated as a direct cost under a grant or subgrant and is either borne by grant funds or counted toward satisfying a cost-sharing or matching requirement of the Federal grant. However, for research grants subject to an institutional cost-sharing agreement (see § 74.50(b)), this subpart applies only if some part of the cost is borne by grant funds.
(c) This subpart does not apply to the acquisition of property or services by one government from another government or by one agency or instrumentality of a government from another agency or instrumentality of the same or another government.*
§ 74.161 What rules govern the procurements?
For procurements by governmental recipients, awarding parties and recipients shall comply with Attachment O, "Procurement Standards," of OMB Circular A-102. For procurements by nongovernmental recipients, awarding parties and recipients shall comply with Attachment O, "Procurement Standards," of OMB Circular A-110. The versions of the attachments that apply are those in effect on October 1, 1979. The texts of those versions are in Appendices G and H of this part.
*Instrumentalities of a government include government institutions of higher education and government hospitals. However, those institutions and hospitals are not considered governmental organizations for the other purposes of this subpart. (See paragraph (c) of § 74.4. "Applicability of this part.")
§ 74.162 Must request for OMB Authorization go through HHS' Office of Grants and Procurement (OGP)?
Requests for the Office of Federal Procurement Policy approval or authorizations referred to in paragraphs l.b, 1.c, and 14.j of the OMB Circular A-102 attachment must be submitted, through appropriate HHS granting agency channels, to OGP. If OGP concurs in the request, OGP sends it to the Office of Federal Procurement Policy of OMB.
§ 74.163 How do the rules apply to subgrants?
(a) The Attachments O of the OMB circulars apply to procurements under subgrants as well as grants, although written, for the most part, in terms of grants. Except as explained in paragraphs (b) and (c) of this section, in the case of a subgrant, text that applies to a Federal agency is to be construed as applying to the grantee awarding the subgrant and text that applies to a grantee is to be construed as applying to the recipient of the subgrant.
(b) In section 4 and paragraphs 14.d through 14.i of Attachment O of OMB Circular A-102 and in paragraphs 4.e through 4.j of Attachment O of OMB Circular A-110, the references to Federal agencies apply to Federal agencies even in the case of a subgrant.
(c) In paragraph 2.a of Attachment O of OMB Circular A-102, the reference to a Federal concern is to be construed, in the case of a subgrant, as referring to a concern of either the Federal Government or the grantee awarding the subgrant.
§ 74.164 What clarifications are needed for the rule on access to contractor records?
The Attachments O require recipients to include in specified kinds of contracts a provision for access to the contractor's records by the recipient and the Federal Government. The following applies to the provision:
(a) The provision must require the contractor to place the same provision in any subcontract which would have to have the provision were it awarded directly by the recipient.
(b) The provision must require retention of records for three years after final payment is made under the contract or subcontract and all pending matters are closed. The provision must also requires that, if an audit, litigation, or other action involving the records is started before the end of the three-year period, the records must be retained until all issues arising out of the action are resolved or until the end of the three-year period, whichever is later.
(c) In contracts and subcontracts under a subgrant, the provision must require that access to the records be provided to the grantee as well as the subgrantee and the Federal Government.
Appendices G and H [Added]
6. New appendices G and H are added, reading as follows:
Appendix G--Attachment O, "Procurement Standards," of OMB Circular A-102, Uniform Administrative Requirements for Grants-in-Aid to State and local Governments"
a. This Attachment establishes standards and guidelines for the procurement of supplies, equipment, construction, and services for Federal assistance programs. These standards are furnished to ensure that such materials and services are obtained efficiently and economically and in compliance with the provisions of applicable Federal law and Executive orders.
b. No additional procurement requirements or subordinate regulations shall be imposed upon grantees by Executive agencies unless specifically required by Federal law or Executive orders or authorized by the Administrator for Federal Procurement Policy. This prohibition is not applicable to payment conditions issued in accordance with Treasury Circular 1075, individual grantee requirements pursuant to section 10 of the basic circular* or the provisions of this or other OMB circulars.
c. Provisions of current subordinate requirements not conforming to this attachment shall be rescinded by grantor agencies unless approved by the Office of Federal Procurement Policy (OFPP).
2. Grantee/Grantor Responsibility.
a. These standards do not relieve the grantee of any contractual responsibilities under its contracts. The grantee is responsible, in accordance with good administrative practice and sound business judgment, for the settlement of all contractual and administrative issues arising out of procurements entered into in support of a grant. These include but are not limited to: source evaluation, protests, disputes, and claims. Executive agencies shall not substitute their judgment for that of the grantee unless the matter is primarily a Federal concern. Violations of law are to be referred to the local, State, or Federal authority having proper jurisdiction.
b. Grantees shall use their own procurement procedures which reflect applicable State and local laws and regulations, provided that procurements for Federal Assistance Programs conform to the standards set forth in this attachment and applicable Federal law.
3. Grantee Procurement Improvement.
Executive agencies awarding Federal grants or other assistance which require or allow for procurement by the recipients are encouraged to assist recipients in improving their procurement capabilities by providing them with technical assistance, training, publications, and other aid.
4. Procurement System Reviews.
*For HHS grants and subgrants, the requirements referred to are those issued under 45 CFR 74.7, Special grant or subgrant conditions."
a. Executive agencies are encouraged to perform reviews of their grantees' procurement systems if a continuing relationship with the grantee is anticipated or a substantial amount of the Federal assistance is to be used for procurement and review of individual contracts is anticipated. The purpose of the review shall be to determine: (1) whether a grantee's procurement system meets the standards prescribed by this Attachment or other criteria acceptable to the OFPP, such as provisions of the model procurement code for State and local government and (2) whether the grantee's procurement system should be certified by the reviewing agency. Such a review will also give an agency an opportunity to give technical assistance to a grantee to remedy its procurement system if it does not fully comply. In addition, such a review may provide a basis for deciding whether the grantee's contracts and related procurement documents should be subject to the grantor's prior approval, as provided by Section 6.
b. In conducting procurement system reviews, grantor agencies will evaluate a grantee's procurement system in terms of whether it complies with the standards prescribed by this Attachment and represents a fair, efficient and effective procurement system. To the maximum extent feasible, reviewers will rely upon State or local evaluations and analyses performed by agencies or organizations independent of the grantee contracting activity.
c. When a Federal grantor agency completes a procurement review, it shall furnish a report to the grantee, with a copy to OFPP.
d. All agencies should normally rely upon the resultant findings or certification for a period of 24 months before another review is performed.
e. Reviews shall be conducted in accordance with standards and guidelines approved or issued by OFPP.
f. The reviews authorized by Section 6 are waived if a grantee's procurement system is certified.
5. Protest Procedures.
Grantor agencies may develop an administrative procedure to handle complaints or protests regarding grantee contractor selection actions. The procedure shall be limited as follows:
a. No protest shall be accepted by the grantor agency until all administrative remedies at the grantee level have been exhausted.
b. Review is limited to:
(i) Violations of Federal law or regulations. Violations of State or local law shall be under the jurisdiction of State or local authorities.
(ii) Violations of grantee's protest procedures or failure to review a complaint or protest.
6. Grantor Review of Proposed Contracts.
Federal grantor pre-award review and approval of the grantee's proposed contracts and related procurement documents, such as requests for proposals and invitations for bids, is permitted only under the following circumstances:
a. The procurement is expected to exceed $10,000 and is tobe awarded without competition or only one bid or offer is received in response to solicitation.
b. The procurement expected to exceed $10,000 specifies a "brand name" product; or
c. The grantee's procurement procedures or operation fails to comply with one or more significant aspects of this Attachment. The grantor agency shall notify the grantee in writing, with a copy of such notification to the OFPP.
7. Code of Conduct.
Grantees shall maintain a written code or standards of conduct which shall govern the performance of their officers, employees or agents engaged in the award and administration of contracts supported by Federal funds. No employee, officer or agent of the grantee shall 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:
a. the employee, officer or agent;
b. any member of his immediate family;
c. his or her partner, or
d. an organization which employs, or is about to employ, any of the above, has a financial or other interest in the firm selected for award.
The grantee's officers, employees or agents shall neither solicit nor accept gratuities, favors or anything of monetary value from contractors, potential contractors, or parties to subagreements.
Grantees 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 of conduct shall provide for penalties, sanctions, or other disciplinary actions for violations of such standards by the grantee's officers, employees, or agents, or by contractors or their agents.
8. Procurement Procedures.
The grantee shall establish procurement procedures which provide that proposed procurement action shall be reviewed by grantee officials to avoid the purchase of unnecessary or duplicative items. Consideration should be given to consolidation or breaking out to obtain a more economical purchase. Where appropriate, an analysis shall be made of lease versus purchase alternatives, and any other appropriate analysis to determine which approach would be the most economical. To foster greater economy and efficiency grantees are encouraged to enter into State and local intergovernmental agreements for procurement or use of common goods and services.
9. Contracting With Small and Minority Firms, Women's Business Enterprise and Labor Surplus Area Firms,
a. It is national policy to award a fair share of contracts to small and minority business firms. Accordingly, affirmative steps must be taken to assure that small and minority businesses are utilized when possible as sources of supplies, equipment, construction and services. Affirmative steps shall include thefollowing:
(1) Including qualified small and minority businesses on solicitation lists.
(2) Assuring that small and minority businesses are solicited whenever they are potential sources.
(3) When economically feasible, dividing total requirements into smaller tasks or quantities so as to permit maximum small and minority business participation.
(4) Where the requirement permits, establishing delivery schedules which will encourage participation by small and minority business.
(5) Using the services and assistance of the Small Business Administration, the Office of Minority Business Enterprise of the Department of Commerce and the Community Services Administration as required.*
(6) If any subcontracts are to be let, requiring the prime contractor to take the affirmative steps in 1 through 5 above.
b. Grantees shall take similar appropriate affirmative action in support of women's business enterprises.
c. Grantees are encouraged to procure goods and services from labor surplus areas.
d. Grantor agencies may impose additional regulations and requirements in the foregoing areas only to the extent specifically mandated by statute or presidential direction.
10. Selection Procedures.
a. All procurement transactions, regardless of whether by sealed bids or by negotiation and without regard to dollar value, shall be conducted in a manner that provides maximum open and free competition consistent with this attachment. Procurement procedures shall not restrict or eliminate competition. Examples of what is considered to be restrictive of competition include, but are not limited to:
(1) placing unreasonable requirements on firms in order for them to qualify to do business,
(2) noncompetitive practices between firms,
(3) organizational conflicts of interest, and
(4) unnecessary experience and bonding requirements.
b. The grantee shall have written selection procedures which shall provide, as a minimum, the following procedural requirements:
(1) Solicitations of offers, whether by competitive sealed bids or competitive negotiation, shall:
(a) incorporate a clear and accurate description of the technical requirements for the material, product, or service to
*Additional advice and assistance regarding the use of small or minority businesses may be obtained from the following HHS components:
1. The Office of Facilities Engineering and its regional offices (for assistance in identifying minority-owned firms interested in performing construction, alteration, or renovation work).
be procured. Such description shall not, in competitive procurements, contain features which 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, shall 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 shall be clearly stated.
(b) clearly set forth all requirements which offerors must fulfill and all other factors to be used in evaluating bids or proposals.
(2) Awards shall be made only to responsible contractors that possess the potential ability to perform successfully under the terms and conditions of a proposed procurement. Consideration shall be given to such matters as contractor integrity, compliance with public policy, record of past performance, and financial and technical resources,
11. Method of Procurement.
Procurement under grants shall be made by one of the following methods, as described herein: (a) small purchase procedures: (b) competitive sealed bids (formal advertising); (c) competitive negotiation; (d) noncompetitive negotiation.
a. Small purchase procedures are those relatively simple and informal procurement methods that are sound and appropriate for a procurement of services, supplies or other property, costing in the aggregate not more than $10,000. Grantees shall comply with State or local small purchase dollar limits under $10,000. If small purchase procedures are used for a procurement under a grant, price or rate quotations shall be obtained from an adequate number of qualified sources.
b. In competitive sealed bids (formal advertising), sealed 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 lowest in price.
(1) In order for formal advertising to be feasible, appropriate conditions must be present, including, as a minimum, the following:
(a) A complete, adequate and realistic specification or purchase description is available.
(b) Two or more responsible suppliers are willing and able to compete effectively for the grantee's business.
(c) The procurement lends itself to a firm fixed-price contract, and selection of the successful bidder can appropriately be made principally on the basis of price.
(2) If formal advertising is used for a procurement under a grant, the following requirements shall apply:
*2. The Office of Grants and Procurement.
(a) A sufficient time prior to the date set for opening of bids, bids shall be solicited from an adequate number of known suppliers. In addition, the invitation shall be publicly advertised.
(b) The invitation for bids, including specifications and pertinent attachments, shall clearly define the items or services needed in order for the bidders to properly respond to the invitation.
(c) All bids shall be opened publicly at the time and place stated in the invitation for bids.
(d) A firm-fixed-price contract award shall be made by written notice to that responsible bidder whose bid, conforming to the invitation for bids, is lowest. Where specified in the bidding documents, factors such as discounts, transportation costs and life cycle costs shall be considered in determining which bid is lowest. Payment discounts may only be used to determine low bid when prior experience of the Grantee indicates that such discounts are generally taken.
(e) Any or all bids may be rejected when there are sound documented business reasons in the best interest of the program.
c. In competitive negotiation, proposals are requested from a number of sources and the Request for Proposal is publicized, negotiations are normally conducted with more than one of the sources submitting offers, and either a fixed-price or costreimbursable type contract is awarded, as appropriate. Competitive negotiation may be used if conditions are not appropriate for the use of formal advertising. If competitive negotiation is used for a procurement under a grant, the following requirements shall apply:
(1) Proposals shall be solicited from an adequate number of qualified sources to permit reasonable competition consistent with the nature and requirements of the procurement. The Request for Proposals shall be publicized and reasonable requests by other sources to compete shall be honored to the maximum extent practicable.
(2) The request for proposal shall identify all significant evaluation factors, including price or cost where required and their relative importance.
(3) The grantee shall provide mechanisms for technical evaluation of the proposals received, determinations of responsible offerors for the purpose of written or oral discussions, and selection for contract award.
(4) Award may be made to the responsible offeror whose proposal will be most advantageous to the procuring party, price and other factors considered. Unsuccessful offerors should be notified promptly.
(5) Grantees may utilize competitive negotiation procedures for procurement of Architectural Engineering professional services, whereby competitors' qualifications are evaluated and the most qualified competitor is selected, subject to negotiation of fair and reasonable compensation.
d. Noncompetitive negotiation is procurement through solicitation of a proposal from only one source, or after solicitation of a number of sources, competition is determinedinadequate. Noncompetitive negotiation may be used when the award of a contract is infeasible under small purchase competitive bidding (formal advertising) or competitive negotiation procedures. Circumstances under which a contract may be awarded by noncompetitive negotiation are limited to the following:
(1) the item is available only from a single source;
(2) public exigency or emergency when the urgency for the requirement will not permit a delay incident to competitive solicitation;
(3) the Federal grantor agency authorizes noncompetitive negotiation; or
(4) after solicitation of a number of sources, competition is determined inadequate,
e. Additional innovative procurement methods may be used by Grantees with the approval of the Grantor Agency. A copy of such approval shall be sent to OFPP.
12. Contract Pricing.
The cost plus a percentage of cost and percentage of construction cost method of contracting shall not be used. Grantees shall perform some form of cost or price analysis in connection with every procurement action including contract modifications. Costs or prices based on estimated costs for contracts under grants shall be allowed only to the extent that costs incurred or cost estimates included in negotiated prices are consistent with Federal cost principles.
13. Grantee Procurement Records.
Grantees shall maintain records sufficient to detail the significant history of a procurement. These records shall include, but are not necessarily limited to, information pertinent to the following: rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the cost or price,
14. Contract Provisions.
In addition to provisions defining a sound and complete procurement contract, any recipient of Federal grant funds shall include the following contract provisions or conditions in all procurement contracts and subcontracts as required by the provision, Federal law or the Grantor Agency.
a. Contracts other than small purchases shall contain provisions or conditions which will allow for 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.
b. All contracts in excess of $10,000 shall contain suitable provisions for termination by the grantee including the manner by which it will be effected and the basis for settlement. In addition, such contracts shall describe conditions under which the contract may be terminated for default as well as conditions where the contract may be terminated because of circumstances beyond the control of the contractor.
c. All contracts awarded in excess of $10,000 by grantees and their contractors or subgrantees shall contain a provision requiring compliance with Executive Order 11246, entitled "Equal Employment Opportunity," as amended by Executive Order 11375, andas supplemented in Department of Labor regulations (41 CFR Part 60).
d. All contracts and subgrants for construction or repair shall include a provision for compliance with the Copeland "Anti-Kickback" Act (18 USC 874) as supplemented in Department of Labor regulations (29 CFR, Part 3). This Act provides that each contractor or subgrantee shall be prohibited from inducing, by any means, any person employed in the construction, completion, or repair of public work, to give up any part of the compensation to which he is otherwise entitled. The grantee shall report all suspected or reported violations to the grantor agency.
e. When required by the Federal grant program legislation, all construction contracts in excess of $2,000 awarded by grantees and subgrantees shall include a provision for compliance with the Davis-Bacon Act (40 USC 276a to a-7) as supplemented by Department of Labor regulations (29 CFR Part 5). Under this Act contractors shall be required to pay wages to laborers and mechanics at a rate not less than the minimum wages specified in a wage determination made by the Secretary of Labor. In addition, contractors shall be required to pay wages not less often than once a week. The grantee shall place a copy of the current prevailing wage determination issued by the Department of Labor in each solicitation and the award of a contract shall be conditioned upon the acceptance of the wage determination. The grantee shall report all suspected or reported violations to the grantor agency.
f. Where applicable, all contracts awarded by grantees and subgrantees in excess of $2,000 for construction contracts and in excess of $2,500 for other contracts which involve the employment of mechanics or laborers shall include a provision for compliance with sections 103 and 107 of the Contract Work Hours and Safety Standards Act (40 USC 327-330) as supplemented by Department of Labor regulations (29 CFR, Part 5). Under sections 103 of the Act, each contractor shall be required to compute the wages of every mechanic and laborer on the basis of a standard work day of 8 hours and a standard work week of 40 hours. Work in excess of the standard workday or workweek is permissible provided that the worker is compensated at a rate of not less than 1 1/2 times the basic rate of pay for all hours worked in excess of 8 hours in any calendar day or 40 hours in the work week. Section 107 of the Act is applicable to construction work and provides that no laborer or mechanic shall be required to work in surroundings or under working conditions which are unsanitary, hazardous, or dangerous to his health and safety as determined under construction, safety and health standards promulgated by the Secretary of Labor. These requirements do not apply to the purchases of supplies or materials or articles ordinarily available on the open market, or contracts for transportation or transmission of intelligence.
8. The contract shall include notice of grantor agency requirements and regulations pertaining to reporting and patent rights under any contract involving research, developmental, experimental or demonstration work with respect to any discovery or invention which arises or is developed in the courseof or under such contract, and of grantor agency requirements and regulations pertaining to copyrights and rights in data.*
h. All negotiated contracts (except those awarded by small purchases procedures) awarded by grantees shall include a provision to the effect that the grantee, the Federal grantor agency, the Comptroller General of the United States, or any of their duly authorized representatives, shall have access 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.
Grantees shall require contractors to maintain all required records for three years after grantees make final payments and all other pending matters are closed.**
i. Contracts, subcontracts, and subgrants of amounts in excess of $100,000 shall contain a provision which requires compliance with all applicable standards, orders, or requirements issued under Section 306 of the Clean 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), which prohibit the use under non-exempt Federal contracts, grants or loans of facilities included on the EPA List of Violating Facilities. The provision shall require reporting of violations to the grantor agency and to the U.S.E.P.A. Assistant Administrator for Enforcement (EN-329).
j. Contracts shall recognize 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. 94-165).
Grantor Agencies are permitted to require changes, remedies, changed conditions, access and record retention and suspension of work clauses approved by the Office of Federal Procurement Policy.
15. Contract Administration.
Grantees shall maintain a contract administration system insuring that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase
*HHS Department-wide provisions on inventions and patents arising out of activities assisted by a grant are in 45 CFR Parts 6 and 8. Department-wide provisions on copyrights under grants and subgrants are in 45 CFR Part 74, Subpart O. Other provisions on these topics or on rights to data may be in other terms 01 a grant. If any contract may give rise to works, inventions, patents, or data subject to any of these provisions, the recipient shall place a requirement in the contract for contractor and subcontractor compliance with the provisions. The recipient need not place requirements of this kind in all contracts.
**For clarification of paragraph 14.h as it applies
to HHS grants and subgrants, see 45 CFR 74.164.
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Office of the Secretary
45 CFR Part 74
Administration of Grants; Procurement by Grantees and Subgrantees
In FR Doc. 80-16820 appearing at page 37666 in the issue for Tuesday, June 3, 1980, make the following changes:
(1) On Page 37666, first column, the "EFFECTIVE DATE" should read "June 3, 1980"; second column, paragraph numbered 2, second line, "system" should read "systems", and in the fourth line of that same paragraph, "systems" should read "system".
(2) On page 37668, second column, § 74.164, sixth line of paragraph (b), "requires" should read "require".
(3) On page 37669, second column, third line of paragraph numbered 8, "action" should read "actions".
(4) On page 37672, first column, in Footnote 3, the paragraph numbered 4, "engineering" should read "Engineering".
BILLING CODE 1505-01-M
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Office of the Secretary
45 CFR Part 74
Department-Wide Administration of Grants; Implementation of Revised Cost Principles
AGENCY: Department of Health and Human Services (HHS).
ACTION: Final rule,
SUMMARY: This amendment to HHS' Department-wide grants administration regulation implements: (1) a comprehensive revision to the Government-wide cost principles for educational institutions, and (2) changes to the Government-wide cost principles for State, local, and Indian tribal governments. This amendment also changes the way HHS implements Government-wide cost principles.
EFFECTIVE DATE: May 22, 1980
FOR FURTHER INFORMATION CONTACT: Henry G. Kirschenmann, Department of Health and Human Services, Room 544- G, Hubert H. Humphrey Building, 200 Independence Avenue, S.W., Washington, D.C. 20201 (202) 755-7562.
Cost Principles for Educational Institutions
On March 10, 1978, the Office of Management and Budget (OMB) published a notice in the Federal Register inviting comments on a proposed revision to the Government-wide cost principles for educational institutions in OMB Circular No. A-21 (formerly Federal Management Circular 73-8). Numerous comments on the proposal were received and a number of changes were made in response to the comments. OMB published the final changes to the principles in the Federal Register on March 6, 1979 (44 FR 12368). The significant changes to the principles are:
1. The coverage of the principles has been expanded to cover virtually all types of Federal awards (grants, contracts, subgrants, subcontracts, etc.). Previously, the principles covered only research, training and educational service awards.
2. The principles place greater emphasis on the use of special cost analysis studies to allocate each component of indirect costs (e.g., depreciation or use allowances on buildings, equipment, and capital improvements; operation and maintenance expenses; etc.). If an acceptable cost analysis study is not performed, a standard method must be used to allocate each component of indirect costs unless an exception can be justified under conditions specified in the principles.
3. Significant changes were made in the requirements forsupporting charges for salaries and wages, including:
a. Introduction of a new optional method for supporting salaries of faculty members and other professional employees in lieu of after-the-fact activity reporting. This optional method, called a "monitored workload system", allows the charges to be based on the assigned workload of each employee, adjusted to reflect significant changes in workload.
b. Elimination of the "stipulated salary" option previously included in the principles.
c. A reduction in the frequency of after-the-fact activity reporting for faculty members and other professional employees from monthly to once each academic term.
d. A requirement that each activity report account for 100% of each employee's total compensated work at the institution. A similar requirement also applies to workload distributions under the monitored workload system.
4. Charges for depreciation or use allowances must be supported by property records and physical inventories must be taken at least once every two years.
5. The definition of "organized research" has been clarified and now includes an explicit statement that the costs of organized research and development activities must include all costs incurred by the institution in performing the activities. This clarification was needed to ensure that indirect cost rates for organized research activities are properly determined.
6. The final distribution base for computing indirect cost rates has been changed from salaries and wages to modified total direct costs (except for institutions that use the "simplified method" for computing indirect cost rates).
7. Institutions may now use "simplified method" for computing indirect cost rates if their direct costs under Federal awards do not exceed $3,000,000. The previous ceiling was $1,000.000. The computation of indirect cost rates under this method has also been liberalized to allow depreciation of use allowances. However, the allowable indirect costs must be reduced by depreciation, use allowances, and operation and maintenance expenses attributable to "other institutional activities" (e.g., dormitories, student dining halls, etc.).
8. The provision dealing with the costs of specialized service facilities (e.g., computers, wind tunnels, etc.) has been clarified and now includes a specific statement that these facilities must normally be allocated their share of indirect costs.
9. Improvements have been made in the coverage of depreciation and use allowances, equipment costs, pension costs, rental costs, and compensation paid to student-employees.
Cost Principles for State, Local and Indian Tribal Governments
On November 1, 1978 and April 22, 1980, OMB published notices in the Federal Register (at 43 FR 50977 and 45 FR 27363 respectively) amending the Government-wide cost principles for State and local governments in Federal Management Circular 74-4. These amendments resulted in the following changes to theprinciples:
1. The coverage of the principles has been expanded to include federally recognized Indian Tribal governments.
2. The provision concerning general expenses (Attachment B, paragraph D.6.) has been modified to clarify the allowability of costs incurred by the office of the chief executive of an Indian Tribal government.
3. The provision concerning travel costs [Attachment B, paragraph B.28.) has been liberalized to allow travel costs incurred by the offices of chief executives and legislative bodies which are specifically related to grant programs.
4. The provisions concerning rental costs and interest costs (Attachment B, paragraphs C.2.a. and D.7.) have been liberalized to allow interest costs associated with the acquisition of publicly owned buildings which are newly occupied on or after October 1, 1980, provided that a "rental rate" system or equivalent system reflecting actual costs is used.
The affected grantee organizations and Federal grant making agencies were given an opportunity to comment on these charges prior to their adoption.
The expansion in the coverage of the cost principles for State and local governments to include Indian Tribal governments was anticipated by HHS before it was adopted by OMB and was incorporated into the Department's grants administration regulation on August 2, 1978 (43 FR 34076). The amendment to the regulation being made today implements the other changes to the principles for State, local, and Indian Tribal governments as well as the revised principles for educational institutions,
This amendment to the regulation also changes the way HHS implements OMB circulars on cost principles. Until now, HHS implemented these circulars by reproducing them, with minor editorial modifications, in appendices to the regulation. The Department will now incorporate the circulars into the regulation by reference, with no modifications. The Department will also automatically apply any future changes to the circulars as of the start of an organization's first fiscal year beginning after OMB's publication of the change in the Federal Register (unless a different date is prescribed by OMB). This approach will benefit organizations that receive awards from other Federal agencies as well as HHS, and will eliminate duplicative Federal Register publications of the same provisions. It will also reduce the physical volume of HHS regulations and eliminate the necessity of amending the regulation each time an OMB circular on cost principles is changed. Copies of the circulars will be provided to grantees, upon request, by the Department's Regional Offices.
Waiver of Proposed Rulemaking Procedures
Since this amendment to HHS' regulations merely incorporates changes to Government-wide policy made by OMB after obtaining public participation, and HHS has no discretion to modify thepolicy, proposed rulemaking procedures are considered unnecessary.
Timing. The revised cost principles for educational institutions shall be implemented by institutions on the date prescribed in OMB Circular No. A-21. Early implementation, or a delay in implementation, of individual provisions is permitted by mutual agreement between an institution and the cognizant Federal agency designated under OMB Circular No. A-88.
The changes to the cost principles for State, local, and Indian Tribal governments are effective on May 22, 1980. Early implementation of the change concerning general expenses of Indian Tribal] Governments is permitted by mutual agreement between an Indian Tribal Government and the cognizant Federal agency designated under FMC 74-4. The change allowing interest costs on publicly owned buildings applies to publicly owned buildings which are newly occupied on or after October 1, 1980.
Note.-The Department of Health and Human Services has determined that this document does not contain a major proposal requiring preparation of a Regulatory Analysis under Executive Order 12044.
Dated: May 13, 1980.
Patricia Roberts Harris,
Secretary, Department of Health and Human Services.
Part 74 of Title 45, Code of Federal Regulations, is amended as follows:
1. The listing of appendices following the table of sections for Part 74 is revised to read as follows:
Appendix E-Principles for determining costs applicable to research and development under grants and contracts with hospitals,
Appendix F-Principals for determining costs applicable to grants and contracts with non-profit institutions.
2. Section 74.170 is revised to read as follows:
§ 74.170 Basic policy; scope of subpart.
Grant funds may be used only for allowable costs of the activities for which the grant was awarded. This subpart identifies the principles to be used in determining allowable costs. The principles apply to grant-support activities conducted by grantees as well as by subgrantees and cost-type contractors (and subcontractors) under grants.
3. Section 74.171 is revised to read as follows:
§ 74.171 Governments.
(a) The principles to be used in determining the allowablecosts of
activities conducted by governments are confirmed in Federal Management Circular 74-4, including any amendments to the Circular published in the Federal Register by OMB. A copy of this Circular may be obtained from the Division of Cost Allocation in any HHS Regional Office.
(b) Unless otherwise prescribed by OMB, future amendments to the Circular shall apply as of the start of a government's first fiscal year beginning after the amendment is published in the Federal Register.
4. Section 74.172 is revised to read as follows:
§ 74.175 (Amended).
5. Paragraph 74.175(a) is revised to read as follows:
(a) The cost principles applicable to a subgrantee or cost-type contractor under an HHS grant will not necessarily be the same as those applicable to the grantee. For example, where a State government awards a subgrant or cost-type contract to an institution of higher education, OMB Circular No. A-21 would apply to the costs incurred by the institution of higher education, even though Federal Management Circular 74-4 would apply to the costs incurred by the State.
* * * * *
Appendices C and D [Deleted and Reserved].
6. Appendix C and D to Part 74 are deleted and reserved.
[FR Doc. 80-15657 Filed 5-21-80; 8:45 am]
BILLING CODE 4110-12-M