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Handbook of
Procedures
Construction Grants Program
for Municipal Wastewater
Treatment Works
October 1, 1984
Municipal Construction Division
Water Program Operations

Office of Water
United States
Environmental Protection
Agency

Washington DC 20460
               U.S. r.y.-T.-. ,r •  •  •     >,, Agency
               11'/}":.'_!.'• •/

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U
S.
Enii'or >'"j
action Agen

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                      TABLE OF CONTENTS
LIST OF ILLUSTRATIONS

LIST OF ACRONYMS


CHAPTER I.  INTRODUCTION                                     101

  A.  Introduction                                           1°3
  B.  Purpose                                                103
  C.  Methodology                                            1°4
  D.  Organization and Content                               105
      1.  History                                            1°5
      2.  Organization                                       106
      3.  Format                                             106
      4.  Regulations                                        107
          a.  40 CFR Parts                                   108
          b.  Other Regulations                              109
      5.  Policy Memoranda                                   HO
      6.  State Requirements                                 HO
      7.  Related Materials                                  HI
      8.  Updating                                           HI
  E.  Legislative History                                    112
  F.  State Delegation                                       H4
      1.  General                                            114
      2.  Delegation Agreements                              115
          a.  Basic or "Umbrella" Agreement                  116
          b.  Functional Agreements or
              Subagreements                                  116
      3.  Delegated Functions                                116
      4.  EPA Oversight                                      H8
          a.  Developing the Plan for Oversight              118
          b.  Negotiating Annual Outputs                     118
          c.  Monitoring and Evaluating Program
              Performance                                    119
      5.  U.S. Army Corps of Engineers                       119
  G.  Information Management                                 120

CHAPTER II.  WATER QUALITY PLANNING                          201

  A.  Introduction                                           203
  B.  Defining Water Quality                                 203
      1.  Water Quality Goals  and Standards                  203
      2.  Water Quality Monitoring                           204
      3.  Water Quality Report                              205
                                                          TM 86-1

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                                                            PAGE

  C.  Water Quality Management Planning                      205
      1.  General                                            205
      2.  Continuing Planning Process                        206
      3.  Water Quality Management Plans                     207
      4.  Water Quality Management Funding and
          Annual Work Program                                210
  D.  Implementing the Water Quality Management Plan         211
      1.  National Municipal Policy                          211
      2.  Municipal Permits                                  212
      3.  Facilities Plans                                   212
  E.  Funding the Construction Grants Program                213
      1.  General                                            213
      2.  Allotment of Funds                                 213
      3.  State Priority System and Project
          Priority List                                      214
      4.  Reserves                                           217
          a.  Reserve for State Management Assistance        218
          b.  Reserve for Alternative Systems for
              Small Communities                              218
          c.  Reserve for Innovative or Alternative
              Technologies                                   218
          d.  Reserve for Water Quality Management
              Planning                                       219
          e.  Reserve for Advances of Allowance              219
  F.  Summary of the Planning Process                        220


CHAPTER III.  PREAPPLICATION MANAGEMENT                      301

  A.  Introduction                                           303
  B.  Qualifications                                         304
      1.  Applicant Qualifications                           304
      2.  Project Qualifications                             305
  C.  Preapplication Project Management                      306
      1.  Project Identification                             306
      2.  Project Tracking                                   306
      3.  The Uses of GICS Data                              307
  D.  Preplanning Conference                                 308
      1.  Permits and Compliance Schedules                   309
      2.  Procurement of Engineering Services                309
          a.  Procedures                                     309
          b.  Use of Small, Minority, Women's, and
              Labor Surplus Area Businesses                  309
          c.  Use of Debarred or Suspended Firms             310
      3.  Financial Considerations                           310
          a.  State Priority System and Project
              Priority List                                  310
          b.  Federal Grant Share                            311
                                                         TM 86-1

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                                                            PAGE

          c.   Financial Assistance for Facilities
              Planning and Design Work                       311
          d.   Step 2+3 Grants                                311
          e.   Preaward Costs                                 312
          f.   Phased or Segmented Projects                   312
      4.   Limitations on Eligibility                         312
          a.   Collection Systems                             312
          b.   Individual Systems                             313
          c.   Reserve Capacity                               313
      5.   Intergovernmental Review                           313
      6.   Technical Review                                   313
          a.   Water Quality Management Plan                  313
          b.   Facilities Plan                                313
          c.   Value Engineering                              314
          d.   Intermunicipal Service Agreements              315
          e.   User Charge System                             315
          f.   Sewer Use Ordinance                            315
          g.   Plan of Operation                              315
          h.   Project Performance Standards                  315
      7.   Categorical Exclusion                              316
      8.   Project Management                                 316
      9.   Publications                                       317
  E.   Advance of Allowance                                   317


CHAPTER IV.   FACILITIES PLANNING                             401

  A.   Introduction                                           403
  B.   Regulatory Requirements                                403
      1.   Facilities Planning Regulations                    403
      2.   National Environmental Policy Act                  405
      3.   Water Quality Management Plans                     406
      4.   Facilities Planning Review                         407
  C.   Facilities Plan Contents                               408
      1.   Summary, Conclusions, and Recommendations          408
      2.   Purpose and Need                                   408
          2.1.  Study Purpose                                408
          2.2.  Need for the Project                         409
      3.   Effluent Limitations                               410
          3.1.  Secondary Treatment                          411
          3.2.  Marine Discharge Waivers                     413
          3.3.  Advanced Treatment                           414
          3.4.  Land Application                             414
      4.   Existing Environment                               416
          4.1.  Existing Conditions in the
                Planning Area                                416
          4.2.  Existing Wastewater Flows and
                Treatment System Performance                 418
                                                        TM 86-1
                                                          (85-1)

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                                                  PAGE

4.3.   Infiltration and Inflow                     419
Future Conditions                                  423
5.1.   Planning Period                             424
5.2.   Land Use Projections                        425
5.3.   Population Forecast                         427
5.4.   Industrial and Federal Facilities           428
5.5.   Flow Reduction                              430
5,6.   Forecast of Flow and Waste Load             432
5.7.   Reserve Capacity                            434
5.8.   Future Environment without the
       Project                                     434
Development of Alternatives                        434
6.1.   Flow Reduction                              435
6.2.   Optimum Performance of Existing
       Facilities                                  435
6.3.   Unsewered Areas                             437
6.4.   Conventional Sewers                         439
6.5.   Alternative Conveyance Systems              441
6.6.   Interceptor Sewers                          442
6.7.   Regionalization                             444
6.8.   Conventional Treatment                      445
6.9.   Innovative and Alternative
       Technologies                                447
6.10.  Alternative Technologies                    448
       a.  Effluent Treatment                      448
       b.  Sludge                                  449
       c.  Energy Recovery                         449
       d.  Small Alternative Wastewater
           Systems                                 449
6.11.  Land Application Systems                    450
       a.  Site Selection                          451
       b.  Loading Rates and Land Area             451
       c.  Estimated Costs                         451
       d.  Preapplication Treatment                451
       e.  Environmental Effects                   451
6.12.  Innovative Technologies                     452
6.13.  Sludge Management                           455
       a.  Composting                              457
       b.  Landspreading                           457
       c.  Distribution and Marketing              457
       d.  Methane Recovery                        458
       e.  Self-sustaining Incineration            458
6.14.  Identification of Principal
       Alternatives                                459
                                               TM 85-1

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                                                          PAGE

    16.  Infiltration and Inflow                            628
    17.  User Charge System and Sewer Use Ordinance         629
    18.  Reserve Capacity                                   630
    19.  Industrial and Federal Facilities                  634
E.  Additional Considerations for Award                    634
    1.  Small Alternative Wastewater Systems               634
    2.  Marine Discharge Waiver Applicants                 637
    3.  Innovative or Alternative Technology
        Reconfirmation                                     637
    4.  Pretreatment                                       637
    5.  Force Account                                      638
    6.  Intergovernmental Review                           639
    7.  Procurement of Professional Services               640
    8.  General Grant Conditions                           641
F.  Step 2+3 Grants                                        643
    1.  Qualifications                                     64.3
    2.  Application Contents                               643
    3.  Deferred Provisions                                644
G.  Combined Sewer Overflow Grants                         645
    1.  Source of Funds                                    645
        a.  State's Regular Allotment                      645
        b.  Governor's Discretionary Set-aside             645
        c.  Separate Appropriation for Marine
            Projects
    2.  Project Requirements
        a.  State's Regular Allotment                      646
        b.  Governor's Discretionary Set-aside             647
        c.  Separate Appropriation for Marine
            Projects                                       648
H.  Land Acquisition Grants                                651
    1.  Grant  Application  Review                           65.3
    2.  Grant  Application  Contents                         653
    3.  Deferred  Provisions                                654
    4.  Grant  Conditions                                  654A
    5.  Preaward  Costs                                     *CA
    6.  Project Management                                654B
 I.  Innovative or Alternative Technology Field
    Testing Grants                                        655
    1.  Grant  Application                                  «bb
    2.  Deferred  Provisions                                656
    3.  Grant  Conditions                                  657
    4.  Preaward  Costs                                     657
 J.  Innovative or Alternative Technology Modifi-
    cation or Replacement  Grants                           657
 K.  Grants to States  for Advances of Allowance             659
     1.   Defining  the  State Program                         659
         a.  Qualified Communities                          660
         b.  Application Procedure                          661
         c.  Amount of Advance                              661
         d.  Timing of Payments                             661
         e.  Repayment of Advance                           662


                             9                          TM 86-1
                                                         (85-1)

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                                                            PAGE

      2.  Applying for the State Grant                       662
  L.  Federal Grant Share                                    664
      1.  Total Allowable Project Cost                       664
      2,  EPA Grant Share                                    667
          a,  Standard Grant Share                           667
          b.  Uniform Lower Federal Share                    667
          c.  Phased or Segmented Projects                   667
          d.  Projects Using an Innovative or
              Alternative Technology                         667
          e.  Projects for the Modification or
              Replacement of a Failed Innovative
              or Alternative Technology                      668
          f.  Other Projects                                 668
  M.  Grant Award Procedures                                 668
      1.  State Procedures                                   669
      2.  Priority Certification                             670
      3.  Project Certification by Delegated States          670
      4.  Grant Agreement/Amendment                          670
      5.  General Grant Conditions                           671
          a.  Effect of Approval                             672
          b.  Step 2+3                                       672
          c.  Project Changes                                672
          d.  Land Acguisition                               672
          e.  Project Initiation                             672
          f.  Quality Assurance Program                      673
          g.  Project Performance Standards                  673
          h.  Field Testing of Innovative or
              Alternative Technologies                       673
      6.  Special Grant Conditions                           673
CHAPTER VII.  CONSTRUCTION                                   701

  A.  Introduction                                           703
  B.  Procurement System Reguirements                        704
      1.  Procurement System Certification                   704
      2.  Reporting Reguirements                             706
      3.  Public Notice Reguirenents                         707
  C.  Procurement of Professional Services                   708
      1.  Competitive Negotiation                            708
          a.  Public Notice                                  709
          b.  Proposal Documents                             709
          c.  Proposal Evaluation                            710
          d.  Negotiation                                    710
          e.  Contract Award                                 710
      2.  Optional Method for Procuring Engineering
          Services                                           710
          a.  Public Notice                                  711
          b.  Evaluation of Qualifications                   711
                              10

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                                                          PAGE

        c.   Proposal Request and Evaluation                711
        d.   Negotiation                                    711
    3.   Continuation of Engineering Services               711
        a.   Prior Grant                                    712
        b.   Prior Competitive Selection                    712
        c.   Noncompetitive Negotiation                     713
    4.   Small,  Minority,  Women's, and Labor Surplus
        Area Businesses                                    714
    5.   Scope of Work                                      714
        a.   Engineering Services during Construction       714
        b.   Post-construction Engineering Services         714
    6.   Types of Subagreements and Required Provisions     716
    7.   Cost and Price Analysis                            717
    8.   Additional Services                                718
D.   Procurement of Construction Contractors                719
    1.   Competitive Bidding                                719
        a.   Public Notice                                  72°
        b.   Bidding Documents                              720
        c.   Addenda                                        72°
        d.   Number of Bids                                 721
        e.   Bid Evaluation                                 721
        f.   Contract Award                                 722
    2.   Rejection of All Bids                              722
    3.   Small, Minority, Women's, and Labor Surplus
        Area Businesses                                    122
    4.   Grant Adjustment                                   722
        a.   Building Cost                                  723
        b.   Construction Contingency                       723
        c.   Land Acquisition Cost                          723
        d.   Allowance for Planning and/or Design           724
        e.   Grant Amendment                                724
    5.   Contract Award                                     724
    6.   Protests                                           724
E.  Small Purchases                                        726
F.  Noncompetitive Negotiation                             727
G.  Monitoring Construction                                728
    1.   Preconstruction Conference                         "729
    2.   Project Management  Conference                      "730
    3.   Interim Inspection                                 731
    4.   Construction Management  Evaluation                 "732
        a.   Grant Management                               733
        b.   Construction Management                        "733
    5.   Final  Inspection                                   "734
H.  Management  of Claims and Change Orders                 "736
    1.   Conditions that May Warrant a  Change  Order         "737
        a.   Differing Site  Conditions                      738
        b.   Errors and Omissions                          738
        c.   Regulatory Changes                             738
        d.   Design Changes                                 739

                                                        TM 86-1
                             11                           (85-1)

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                                                            PAGE

          e.  Overruns and Underruns                         739
          f.  Time of Completion                             739
      2.  Claims                                             740
          a.  Common Causes                                  741
          b.  Prevention                                     741
          c.  Resolution                                     742
          d.  Allowable Costs                                742
      3.  Prior Approval                                     743
      4.  Submission                                         744
      5.  Change Order Review                                745
  I.  Post-construction Activities                           746
      1.  Engineering Services during the First Year
          of Operation                                       745
          a.  Scope of Engineering Services                  747
          b.  Procurement of Services                        748
          c.  Payment Requests                               749
          d.  Deficiencies                                   749
      2.  Project Performance After One Year                 749
          a.  Certification                                  749
          b.  Corrective Action                              751


CHAPTER VIII.  COMPLETION, AUDIT, AND CLOSEOUT               801

  A.  Introduction                                           q03
  B.  Step 1 and Step 2 Completions                          804
      1.  Step 1 Projects Completed or near Completion       805
          a.  Projects Likely to Receive a Step 2+3
              or a Step 3 Grant                              805
          b.  Projects Unlikely to Receive a Step 2+3
              or a Step 3 Grant                              805
          c.  Review of Facilities Plans for Completeness    806
              i.    Facilities Planning Initiated
                    before May 1, 1974                       806
              ii.   Facilities Planning Initiated
                    after April 30, 1974 and before
                    October 1, 1978                          806
              iii.  Facilities Planning Initiated
                    after September 30, 1978                 807
          d.  Step 1 Grant Increases                         808
          e.  Reduction of Work Effort                       808
              i.    Reduction in Planning Area               809
              ii.   Infiltration and Inflow                  809
              iii.  Public Participation                     809
              iv.   Cultural Resources                       809
              v.    Need Survey                              809
              vi.   Alternatives                             809
              vii.  Treatment Facilities                     809
                              12                         TM 85-1

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                                                      PAGE

        viii. Sewer Design                             809
        ix.   Sludge Disposal                          810
        x.    Environmental information Document       810
2.  Step 2 Projects Completed or near Completion       810
    a.  Projects Likely to Receive a Step 3
        Grant                                          810
    b.  Projects Unlikely to Receive a Step 3
        Grant                                          810
    c.  Step 2 Grant increases                         811
    d.  Reduction of Work Effort                       812
3.  Delayed Step 1 and Step 2 Projects                 812
4.  Termination or Annulment                           812
5.  Other Step 1 and Step 2 Projects                   813
6.  Final Audit Requests                               813
Step 2+3 and Step 3 Completions                        814
1.  Project Schedule                                   815
2.  Phased or Segmented projects                       815
3.  Sewer System Rehabilitation                        816
4.  Special Grant Conditions                           817
Completion and Closeout Process                        817
    a.  Project Completion                             817
    b.  Administrative Completion                      818
    c.  Audit Process                                  819
    d.  Project Closeout                               820
1.  Final Inspection                                   820
2.  Cut-off Date                                       821
3.  Cost Summary and Documentation                     823
4.  Final Building Payment Request                     824
5.  Property Management                                824
6.  Completion Delays                                  825
7.  Continuing Engineering Services                    825
8.  Project Officer Certification                      826
    a.  Aesthetic Features                             827
    b.  Flow Level                                     827
    c.  Abandoned, unused, or  Inoperable
        Facilities                                     827
    d.  Project Files                                  828
9.  File  Retention                                     828
Audit Process                                          829
1.  Request  for Final Audit                            830
2.  Audit                                              831
3.  Draft Audit Report                                 831
4.  Final Audit Report                                 832
5.  Resolution of Audit  Exceptions                     832
6.  Review of  Final Determination                      833
7.  Recovery of Funds                                  833
                         13                          TM  86-1

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                                                            PAGE

CHAPTER IX.  FINANCIAL CONSIDERATIONS                        901

  A.  Introduction                                           903
  B.  Payments                                               903
      1.   Outlay Schedules                                  904
      2.   Payment Requests                                  904
           a.  Standard Form 270                             904
           b.  Standard Form 271                             905
      3.   Initial Payments                                  907
           a.  Preaward Costs                                907
           b.  Estimated Allowance                           907
               i.   Step 2+3 Grants                          907
               ii.  Step 3 Grants                            908
      4.   Retainage                                         908
      5.   Limitations                                       909
      6.   Final Building Payment                            909
      7.   Final Grant Payment                               910
      8.   Special Purpose Grants                            910
           a.  Land Acquisition Grants                       910
           b.  Relocation Assistance Grants                  910
           c.  Grants to States for Advances of
               Allowance                                     910
           d.  Other Grants to States                        911
      9.   Grant Overpayment                                 912
      10.  Grant Related Income                              912
      11.  Grants Information and Control System             913
  C.  Grant Increases and Decreases                          913
      1.   Increases                                         913
           a.  Step 2+3 and Step 3 Grants                    913
           b.  Step 1 and Step 2 Grants                      914
           c.  Award Procedures                              914
      2.   Decreases                                         914
  D.  Disputes                                               915
  E.  Deviations                                             917
  F.  Determination of Allowable Costs                       918
      1.   General                                           918
      2.   Cost Principles                                   919
           a.  Allowability Factors for Government
               Agencies                                      919
           b.  Allowability Factors for Commercial
               Organizations                                 920
           c.  Allowability Factors for Other Organizations  921
               i.   Hospitals                                921
               ii.  Educational Institutions                 922
               iii. Other Nonprofit Institutions             922
           d.  Classification of Costs                       922
               i.   Direct Costs                             922
               ii.  Indirect Costs                           923
                              14                         TM 86-1

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                                                      PAGE

3.   Allowable and Unallowable Costs                    925
4.   40 CFR Part 35,  Subpart I,  Appendix A              926
    A.  Costs Related to Subagreements                 926
        1.  Allowable Costs                            926
            a.  Building the Project                   926
            b.  Complying with the Procurement
                Requirements                           927
            c.  Deciding Procurement Protests          927
            d.  Using Minority and Women's
                Business Liaison Services              928
            e.  Conformance with the Design
                Drawings and Specifications            928
            f.  Negotiating the Settlement of
                a Claim                                928
            g.  Change Orders                          931
            h.  First Year Following Initiation
                of Operation                           935
            i.  Development of a Plan of Operation     935
            j.  Start-up Services                      935
            k.  Field Testing I/A Process of Technique 935
        2.  Unallowable Costs                          936
            a.  Preparing a Facilities Plan and
                the  Design Drawings and Specifi-
                cations                                936
            b.  Services Necessary to Correct
                Defects                                936
            c.  Defending Against  a Contractor
                Claim                                  936
            d.  Bonus Payments                         938
            e.  Costs of More Than  12 Months  Delay     939
        3.  Other Costs                                94[j
             a.  Liquidated Damages                     940
             b.  Bid  Bond Forfeiture                    941
             c.  Public  Liaison Services                941
             d.  Professional  Liability  Insurance       941
             e.   Services Required  by  Law               941
             f.   Field Surveys  to  Identify  Cultural
                 _                                      Q £ ")
                 Resources                              y**
             q.  Travel  Costs                           943
                                                       Q A 7
     B.  Mitigation                                     ^J^
        1.   Allowable Costs                            943
             a.   Direct,  Adverse,  Physical  Impacts      943
             b.   Site Screening                        943
             c.   Groundwater Monitoring Facilities      943
         2.   Unallowable Costs                         944
             a.   Design  Details which  Require
                 Expensive  Building Techniques         944
             b.   Land Acquired for Mitigation  of
                 Adverse Environment Effects           945
     C.   Privately or Publicly Owned Small and
        Onsite Systems                                 946


                         15                         TM 86-1

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                                                  PAGE

     1.  Allowable Costs                            945
        a.   Major Rehabilitation, Upgrading,
             Enlarging, and  Installing              946
        b.   Conveyance Pipes                       945
        c.   Treatment and Treatment Residue
             Disposal                               945
        d.   Treatment or Pumping Units             947
        e.   Restoring Individual System
             Building Sites                         947
     2.  Unallowable Costs                          947
        a.   Modification to Physical Structure     947
        b.   Conveyance Pipes                       947
        c.   Wastewater Generating Fixtures         947
D.   Real Property                                  947
     1.  Allowable Costs                            947
        a.   Integral Part of the Treatment
             Process                                947
        b.   Complying with the Requirements
             of Uniform Relocation Assistance
             and Real Property Acquisition
             Policies Act                           948
        c.   Required Acquisition and/or
             Relocation Services                    949
        d.   Preparation of the Treatment
             Works Site                             950
        e.   Existing Publicly or Privately
             Owned Wastewater Treatment Works       951
     2.  Unallowable Costs                          951
        a.   Sewer Rights of Way, Waste
            Treatment Plan Sites (Including
             Small System Sites), Sanitary
             Landfill Sites, and Sludge Dis-
            posal Areas                            951
        b.   Eligible Land in Excess of Just
            Compensation                           951
        c.   Removal, Relocation, or Replace-
            ment of Utilities                      952
E.  Equipment, Materials,  and Supplies             952
    1.  Allowable Costs                            952
        a.  Reasonable Inventory of Laboratory
            Chemicals and Supplies                  952
        b.  Biological Seeding Materials           952
        c.  Shop Equipment                          952
        d.  Safety Equipment                       953
        e.  Collection System Maintenance
            Equipment                              953
        f.   Mobile Equipment                       953
        g.   Replacement  Parts                      954
        h.   Flow Metering  Devices Used  for
            Billing                                955
                    16                         TM 86-1
                                                (85-1)

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                                                           PAGE

             2.  Unallowable Costs                          955
                 a.  Violation of the Procurement
                     Requirements                           955
                 b.  Office Equipment                       955
                 c.  Building Maintenance Equipment         955
                 d.  Vehicles                               956
                 e.  Items of Routine "Programmed"
                     Maintenance                            956
         F.  Industrial and Federal Users                   956
             1.  Allowable Costs                            956
             2.  Unallowable Costs                          957
         G.  Infiltration/Inflow                            957
             1.  Allowable Costs                            957
             2.  Unallowable Costs                          958
         H.  Miscellaneous Costs                            958
             1.  Allowable Costs                            958
                 a.  Salaries, Benefits, and Expendable
                     Materials                              958
                 b.  Meeting Specific Federal Statutory
                     Procedures                             958
                 c.  Travel                                 959
                 d.  Additions                              959
                 e.  Royalties                              960
                 f.  Multiple Purpose Projects              961
                 g.  Training                               961
             2.  Unallowable Costs                          961
                 a.  Ordinary Operating  Expenses            961
                 b.  Applications and Permits               961
                 c.  Establishment  of Special Depart-
                     ments, Agencies, Commissions,
                     Regions, Districts, or Other Units
                     of Government                          962
                 d.  Sale  of Bonds                          962
                 e.  Reconstruction                        962
                 f.  Personal Injury Compensation          962
                 g.  Fines and  Penalties                   962
                 h.  Costs outside  the  Scope of  the
                     Approved Project                       962
                 i.  Costs for  Which Grant  Payment Has
                     Been or Will Be Received  from
                     Another  Federal Agency                 962
                 j.  Control  of Pollutant  Discharges
                     from a Separate Storm Sewer System    962
                 k.  Environmentally Sensitive  Land          962
                 1.  Corrective Action  Report               963
              3.  Other Costs                                 963
                 a.  Administration Building                 963
                 b.  Computers                               964

INDEX                                                       1001
CONSTRUCTION GRANTS PROCESS                                 H-01


                              17                         TM 86-1

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                    LIST OF ILLUSTRATIONS
                                                            PAGE


Figure 1.    Water Quality Planning and Management           222
Figure 2.    Construction Grants Process                    1103


Table 1.      Wastewater Treatment System Reliability         524
Table 2.      Sludge Handling and Disposal System
             Reliability                                     525
Table 3.      Electric Power System Reliability               526
                              19

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                       LIST OF ACRONYMS
Except for the most commonly used acronyms (e.g., EPA), each acronym,
when first introduced in a chapter of the Handbook, is preceded by
the unabbreviated phrase to which it corresponds.  However, since the
Handbook is intended to function primarily as a reference document,
many users will not read it "cover to cover."  For their convenience,
a list of all acronyms is provided below.
ACHP

ADBF

AJE

AT

B/C

BOD

BOD5

BPWTT

CAPDET


CBODs

CEQ

CFR

CG

CI

CME

COD

COE

CPP
United states Advisory Council on Historic Preservation

Average daily base flow

Alternative justifiable expenditure

Advanced treatment

Biddability and constructibility

Biochemical oxygen demand

Five day biochemical oxygen demand

Best practicable waste treatment technology

Computer Assisted Procedure for Design and Evaluation
of Vvastewater Treatment Systems

Five day carbonaceous biochemical oxygen demand

United states Council on Environmental Quality

Code of Federal Regulations

Construction Grants (series of policy documents)

Construction incentive

Construction management evaluation

Chemical oxygen demand

United states Army Corps of Engineers

Continuing planning process
                               21

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cso




CWA




DHHS




DDL




DOT




BID




EIS




EPA




F/M




FMO




FONSI




FP




FR




GICS




gpcd




GSA




I/A




I/I



MBE/WBE




mg/1




MLSS




M/R




N/A




NEPA




NPDES
Combined sewer overflow



Clean Water Act



United States Department of Health and Human Services




United States Department of Labor



United States Department of Transportation



Environmental information document



Environmental impact statement



United States Environmental Protection Agency



Food to micro-organism  (ratio)



Financial Management Office



Finding of no significant impact



Facilities Planning (policy document)



Federal Register



Grants Information and  Control System



Gallons per  capita per  day



United States General Services Administration



Innovative or alternative



Infiltration and  inflow



Minority  and women's business enterprises



Milligrams per  liter



Mixed  liquor suspended  solids



Modification or replacement



Not  applicable



National  Environmental  Policy Act



National  Pollutant  Discharge  Elimination System
                               22

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OIG




O&M




OMB




OM&R




PG




PH




PL




PMC




POM




POTW




PRM




RA




RFP




RFQ




SAWS




SF




SHPO




SPDES




SS




SUO




TM




UC




VE




WQM
Office of the Inspector General




Operation and maintenance




United States Office of Management and Budget




Operation, maintenance, and replacement




Program Guidance Memorandum




Measure of acidity




Public Law




Project management conference




Program Operations Memorandum




Publicly owned treatment works




Program Requirements Memorandum




Regional Administrator




Request for proposals




Request for qualifications




Small alternative wastewater system




Standard Form




State Historic Preservation Officer




State Pollutant Discharge Elimination System




Suspended solids



Sewer use ordinance




Transmittal Memorandum



User charge




Value engineering




Water quality management
                              23

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              CHAPTER I




             INTRODUCTION
A.  INTRODUCTION




B.  PURPOSE




C.  METHODOLOGY




D.  ORGANIZATION AND CONTENT




E.  LEGISLATIVE HISTORY




F.  STATE DELEGATION
                  101

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A.  INTRODUCTION

    The organization and contents of the Handbook of Procedures
and its use in the administration of the construction grants
program are covered in this introductory chapter.  In addition,
because of the vastly expanded role of State agencies in the
operation of the construction grants program, this chapter also
includes a discussion on delegation and EPA's role in overseeing
delegated activities.

    Section E, Purpose, describes the purpose of the Handbook
and its intended uses.

    Section C, Methodology, describes the procedures which were
used to develop the Handbook and to review its contents to
insure its accuracy and usefulness.

    Section Df Organization and Content, discusses the history,
format, and content of the third edition of the Handbook.

    Section E, Legislative History, outlines the legislative
developments which form the basis for the regulations, policies,
and procedures which govern the construction grants program.

    Section F, State Delegation, describes the relationship
between EPA and the State agencies, to which most of the functions
described in this Handbook have been delegated.
B.  PURPOSE

    This Handbook of Procedures identifies and explains the many
procedures to be followed by project reviewers and other personnel
in State agencies and EPA Regional Offices who are responsible for
the conduct of the construction grants program.  It is intended
to serve as a guide in processing grant applications for Step 2+3
and Step 3 projects as of October 1, 1984.  A companion document,
"Construction Grants 1985" (CG-85), has been written for potential
grant applicants and grantees.
                             103

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    The Handbook is not intended to introduce new requirements
into the construction grants program, since requirements are set
forth only in the EPA regulations.  Rather, regulatory require-
ments and EPA program policies, necessary for effective
program management, have been restated so that they can be under-
stood in terms of operating procedures.  Requirements and policies
are presented in a sequence which closely tracks the development
of a project, and are supplemented by suggested approaches and
procedures which historically have been effective in processing
and managing grant assisted projects.  In the unlikely event of a
conflict between the Handbook and the regulations, the regulations
take precedence.

    The operational tasks and procedures described throughout
the Handbook are applicable to the construction grants program as
a whole.  They are intended to serve as a standard so that this
complex, multifaceted program can move forward as a national
program, uniformly administered.  At the same time, the operational
tasks and procedures are patterned to provide flexibility, so that
State agencies and EPA Regional Offices may jointly administer an
effective program, with variations in State conditions reflected
in State/EPA delegation agreements.

    Through the thoughtful application of the procedures described
in this Handbook, water pollution control goals, to which EPA and
the States are dedicated, can be more effectively achieved.


C.  METHODOLOGY

    The Handbook, including the revisions reflected in this edition,
was prepared under the direction of EPA's Office of Water Program
Operations, Municipal Construction Division.

    The basic organization of the Handbook and the initial drafts
of its contents were prepared under contract by Roy F. Weston, Inc.,
through its subcontractor, A. T. Bowyer, Inc.

    The initial drafts of each chapter were reviewed by a special
task force comprised of Headquarters, Regional, and State
representatives.  Albert L. Pelmoter, Chief, Program Policy Branch,
Municipal Construction Division, was the project manager for the
preparation of the Handbook, served as chairman of the Handbook task
force, and was responsible for the Handbook's overall development,
review, and production.  Thomas J. Moran, Senior Engineer, Program
Policy Branch, served as task manager and was responsible for
editing the Handbook and reviewing and incorporating comments
received during the reviewing process.  Tod A. Gold, Attorney-
                             104

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Advisor, Program Policy Branch, verified the citations of reg-
gulations and policy documents, and also assisted in the review
and editing of its contents.  Sheila Hoover, Grants Assistant,
Program Policy Branch, was responsible for formatting and typing
the final document for printing.

    Membership on the task force included James Brooks (Region VIII),
Steven Burkett (Region VI), Preston Clark and Robert Hampston
(New York State), Jon Craig (Oklahoma), Kirk Lucius and Virginia
Tobin (Region IV), Earl Quance and John Milnor (Maryland), Richard
Salkie (Region II), and John Stetson (Washington State).  As part
of their overall review efforts, this group met with the subcon-
tractor and the staff of the Program Policy Branch to develop uniform
positions on proposed new and revised procedures. In addition,
drafts of the chapters were reviewed by the other six EPA Regional
Offices, \>y several other States, and by numerous other EPA Head-
quarters offices.


D.  ORGANIZATION AND CONTENT

1.  History

    The Handbook of Procedures (MCD-03) was first published in
February 1976, and took into account the laws, regulations, and
policies in effect as of July 1, 1975.  Subsequently, three
transmittal memoranda (TMs), updating the Handbook, were issued
to reflect policy changes occurring after the original text was
published.

    The second edition, published in 1980, reflected changes
brought about by the Clean Water Act of 1977 (PL 95-217), and
included laws, regulations, and policies in effect as of
October 1, 1979.  No TMs were issued for the second edition.

    On December 29, 1981, Congress enacted the Municipal Waste-
water Treatment Construction Grants Amendments of 1981 (PL 97-117),
which amended earlier legislation and mandated significant changes
in the conduct of the construction grants program.  These changes
necessitated the publication of this completely revised third
edition of the Handbook.

    This third edition of the Handbook of Procedures replaces
earlier editions and reflects laws, regulations, and EPA policies
in effect as of October 1, 1984.
                             105

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2.   Organization

    Each chapter of the Handbook is intended to cover a general
review phase of a construction grant project and, to the extent
possible, is placed in the sequence in which the review takes
place.  Chapter II, "Water Quality Planning," discusses those
planning activities conducted by the States which directly relate
to the construction grants program.  This chapter also highlights
the new simplified water quality planning regulations (40 CFR
Part 130).  Chapter III, "Preapplication Management," emphasizes
project management in addition to the dissemination of information
to potential grant applicants.

    Although Step 1 and Step 2 grants are no longer awarded,
facilities planning and project design activities must still be
reviewed prior  to the award of Step 3 grants.  Accordingly,
review procedures for these areas are discussed  in Chapter IV,
"Facilities Planning," and Chapter V, "Design".

    Chapter VI,  "Grant Processing," includes all requirements
for grant award, and discusses combined  sewer  overflows  (CSOs),
land  acquisition,  field testing of  innovative  and alternative
(I/A)  technologies, and I/A modification or  replacement  (M/R)
grants  in separate sections.  Chapter VII,  "Construction,"
discusses all  activities  associated with building the  project,
including procurement, monitoring  of  construction,  and  post
construction  activities during  the  first year  after  project
completion.

     Chapter VIII,  "Grant  Completion,  Closeout  and Audit,"
provides guidance  on  completing  and closing out old  as well
as new grants.  Chapter  IX,  "Financial  Considerations,   includes
new sections  on disputes  and deviations, and,  in the last sec-
 tion, 40 CFR  Part  35,  Subpart I,  Appendix  A, "Determination of
Allowable Costs,"  is  reproduced along with clarifying informa-
 tion and examples  where  appropriate.

      Cross-references are frequently made  in the text to other
 sections of the Handbook.  A reference to "Section V.C.I.a,
 refers to Chapter V,  Section C, Item l.a.


 3.  Format

     Each function and activity described in this Handbook is an
 integral part  of the construction grants program and is necessary
 to insure compliance with statutory or  program requirements.
 individual functions are presented in the following format:

     Purpose;

       A brief  explanation of the need for  the  function
      is given.


                              106

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     Discussion;

       The function is placed in program perspective and
     information is given on such topics as general
     operating policy, important underlying issues, key
     considerations in approaching the function under review,
     and how the function relates to other aspects of the
     construction grants program.

     Procedures;

       The procedures  for reviewing documents submitted and
     activities conducted by applicants and grantees are
     briefly described.   Frequently,  for presentation purposes,
     processing procedures for administrative and technical
     functions are  addressed separately.   However, whenever
     possible, the  review of both functions should take place
     simultaneously. Where specific program items are required,
     they  are  listed,  other more general  review items are  also
     included  as a  reminder.   However,  the review procedures
     listed  here are not  substitutions  for,  nor do they super-
     sede,  the requirements  described  in  the regulations. Check-
     lists developed by State agencies  or  EPA Regional Offices
     and contained  in  delegation  agreements  are also to be
     used  in performing the  review process.

     References;

      Appropriate  laws,  regulations, guidelines,  and  technical
     documents  are  cited.  Copies  of such  reference  material  can
     generally  be found in EPA Regional or State  agency  offices.

     Some of the review procedures are self-explanatory  or  do not
lend themselves to the above format.  In  these cases,  the  require-
ments or procedures are briefly described.


4.  Regulations

    This third edition of the Handbook is based on regulations
T"^  !nfc ?S ?f October 1' 1984' Primarily those contained in
Title 40 of the Code of Federal Regulations (CFR).  The following
regulations are cited  at appropriate locations in the Handbook-
                             107

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a.   40 CFR Parts

      4 - Implementation of the Uniform Relocation
          Assistance and Real Property Acquisition
          Policies Act of 1970

      6 - Implementation of Procedures on the National
          Environmental Policy Act

      7 - Nondiscrimination in Programs Receiving
          Federal Assistance from the Environmental
          Protection Agency

     15 - Administration of the Clean Air Act and the
          Federal Water Pollution Control Act with
          Respect to Federal Contracts, Grants, or Loans

     25 - Public Participation in Programs Under the
          Resource Conservation and Recovery Act, the
          Safe Drinking Water Act, and the Clean Water Act

     29 - Intergovernmental Review of the Environmental
          Protection Agency Programs and Activities

     30 - General Regulation for Assistance Programs

     32 - Debarment and Suspension under EPA Assistance
          Programs

     33 - Procurement Under Assistance Agreements

     35 - State and Local Assistance

          Subpart A - Financial Assistance for
                      Continuing Environmental Programs

          Subpart E - Grants for Construction of Treat-
                      ment Works - Clean Water Act

          Subpart I - Grants for Construction of Treat-
                      ment Works

          Subpart J - Construction Grants Program Delegation
                      to States

     52 - Approval and Promulgation of Implementation Plans

     60 - Standards of Performance for New Stationary Sources
                             108

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 61 - National Emission Standards for Hazardous Air
      Pollutants

122 - National Pollutant Discharge Elimination System
125 - Criteria and Standards for the National Pollutant
      Discharge Elimination System

130 - Water Quality Planning and Management

131 - Water Quality Standards

133 - Secondary Treatment Information

141 - National Interim Primary Drinking Water Regulations

149 - Review of Projects Affecting the Edwards Underground
      Reservoir, a Designated Sole Source Aquifer in the
      San Antonio, Texas Area

257 - Criteria for Classification of Solid Waste Disposal
      Facilities and Practices

261 - Identification and Listing of Hazardous Waste

403 - General Pretreatment Regulations for Existing
      and New Sources of Pollution


Other Regulations

 7 CFR Part 658  - Farmland Protection Policy Act

15 CFR Part 930  - Federal Consistency with Approved
                   Coastal Management Programs

36 CFR Part 63   - Determinations of Eligibility for
                   Inclusion in the National Register
                   of Historic Places

36 CFR Part 800  - Protection of Historic and Cultural
                   Properties
45 CFR Part 84   - Nondiscrimination on the Basis of
                   Handicap in Programs and Activities
                   Receiving or Benefiting from Federal
                   Financial Assistance

48 CFR Part 31   - Contract Cost Principles and Procedures

49 CFR Parts 171
   through 177   - Hazardous Materials Regulations
                         109                        TM 86-1

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5.

    Earlier editions of the Handbook included references to
Program Guidance Memoranda (PCs) and Program Requirements
Memoranda (PRMs).  The PRM series replaced the PG series, and
was supplemented by Program Operations Memoranda (POMs), which
discussed internal EPA operational matters rather than policy
issues.  in July 1982, "Construction Grants 1982" (CG-82) was
published and stated in its foreword, "Upon publication of
CG-82, all PRMs and POMs are cancelled ...."This statement
effectively terminated the codified field communication system
between Headquarters, Regions, and States and replaced it with
the periodic publication of the construction grants (CG) series.

    Since both the CG series and the Handbook are based on
information contained in the same regulatory, policy, and
guidance documents, references in the Handbook seldom cite CG-85.
Rather, source documents, from which statements in both texts are
drawn, are cited to better assist project reviewers in their
research efforts.
6.  State Requirements

    The contents of the Handbook reflect only Federal require-
ments for the construction grants program.  Many States have
laws, regulations, or policies which supplement Federal require-
ments, and in some cases may be more stringent.  Where such cases
exist, it is assumed that during delegation negotiations,
differences will be resolved by the States and EPA to insure
that State requirements will not circumvent the spirit or intent
of Federal requirements.  It is important for State project re-
viewers to be conversant with supplemental State requirements and
insure that they are carried out by grant applicants and grantees.

    In general , supplemental State requirements may be approved
as judged appropriate by EPA as part of the delegation process,
except in the area of grantee procurement, where strict require-
ments have been imposed on all Federal agencies by Attachment 0 to
Office of Management and Budget (OMB)  Circular A-102. The intent
of Attachment O is to give grantees maximum flexibility in the
procurement of goods and services, and to generally eliminate most
advance approvals.  Supplemental State requirements which affect
grantee procurement may only be approved by EPA if all of the
following conditions are met:

    - the requirements are established by State law,
      rather than by regulations or policy documents;
                             110

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    - the requirements apply to all public construction
      projects in the State, regardless of the source
      of funds (e.g., a requirement that all public
      projects be advertised as separate contracts for
      mechanical, plumbing, electrical, and general
      construction);  and

    - the requirements do not directly conflict with
      Federal laws or regulations.

    Those States which have supplemental State grant programs
may impose additional grantee requirements without regard to
the above restrictions, provided that:

    - they do not directly conflict with Federal laws
      and regulations, and

    - they do not apply to Federal grantees who do not
      receive a supplemental State grant.


7.  Related Materials

    The review procedures  in this Handbook describe the essential
or minimum requirements necessary in processing construction grant
applications and related documents.  More detailed information may
be obtained by reading the reference materials which are  identified
throughout the text.  Generally,  references concerning technical
matters have been  limited  to EPA  publications.

    Although the processing steps set  forth in the Handbook are
intended  to bring  about uniformity  in  the processing of construc-
tion grant applications nationwide, differences in the structure of
EPA Regional Offices, State agency  offices, or delegation agreements
may require some adjustment in  the  manner  in  which various review
procedures are followed.


8.  Updating

    This  Handbook  reflects requirements  contained  in the  regulations
as of October  1, 1984.  The Handbook  will  be  updated to reflect
changes  in laws, regulations,  and policies.   Responsibility for
revising  and  updating  the  Handbook  resides  with the  Program Policy
Branch,  Municipal  Construction  Division,  Office of Water  Program
Operations, and  revisions  will  be issued from that office.

     Handbook  revisions will be  forwarded by a TM.  Each TM will be
designated with  a  sequential number (e.g.,  TM 85-11),  indicating
                              111

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 the fiscal year and number of  the issuance,  and will  provide
 specific instructions for removal of  obsolete  and  insertion of
 new pages.  In order for changes to be readily identified,  text
 revisions will be printed in italics.   Additionally,  each revised
 page will show the number of the TM which  transmitted the revision.


 E.   LEGISLATIVE HISTORY

     The Federal Water Pollution Control Act  of 1956  (PL  84-660)
 represented the first authorization for Federal  grants to assist
 in  the construction of waste treatment works.   (A  1948 loan
 program was authorized,  but  never funded.)   Selection of  projects
 to  be funded resided with the  States,  reflecting the  policy of
 Congress to recognize and preserve  the primary responsibility
 of  the States to prevent and control water pollution.  The  1956
 Act authorized fifty million dollars per year,  with grants  limited
 to  30 percent of  the eligible  project  cost,  not  to exceed $250,000
 per project.

     Authorizations  were  increased during the early 1960's,  with
 major amendments  occurring in  1965.  At  that time, authorizations
 were again increased,  the maximum dollar limitation on grants
 was dropped,  the  Federal  share  was  increased to a maximum of 55
 percent,  and  provision was made  for future reimbursement  of  State
 or  local  funds  used  in lieu  of  Federal  funds.

     Between 1965  and  1972 other  initiatives were undertaken,
 the most  important  of which  were  the enactment of the National
 Environmental  Policy  Act  (NEPA)  in  1969 and the creation  of  E^-A
 i n  1970 .
 * 1          °f the Federal Water Pollution Control Act Amendments
ot 1972  (PL 92-500) resulted in extensive changes to the construc-
tion grants program.  The Federal share was increased to 75 percent
and project eligibility was expanded to include sewage collection
systems, sewer system rehabilitation, and correction of CSOs. In
addition, the 1972 Amendments mandated a strong enforcement program
statewide planning, areawide planning, and the issuance of discharge
permits.

    The 1972 Amendments also introduced the three-step grant
process (e.g., Step 1 - planning, Step 2 - design, and Step 3 -
building).  Under the Act, grantees were required to provide a
minimum of secondary treatment to be eligible for a Federal
grant. New concepts were introduced such as facilities planning,
                             112

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infiltration/inflow (I/I) analysis, assessment of environmental
impacts, user charge (UC) systems, industrial cost recovery, cost
effectiveness, best practical waste treatment technology (BPWTT),
etc.  The Act also authorized $18 billion over a five year period
to support the construction grants program and to provide for a
continuity of funding.

    The Clean Water Act of 1977 (PL 95-217) contained mid-course
corrections to the 1972 legislation and authorized $24.5 billion
over a five year period in support of the construction grants
program.  Several significant changes were introduced into the
construction grants program, one of which required grantees to
evaluate I/A technologies when planning their projects.   The
mandatory I/A evaluations conveyed the desire of Congress to
bring about conservation through recycling and more efficient
energy use or recovery.  For approved I/A projects, the Federal
grant share could be increased to 85 percent.

    Another significant provision of the 1977 Amendments was the
encouragement of, and financial support for, States to administer
the construction grants program.  Under this provision,  the EPA
Regional Administrators (RAs) were able to negotiate delegation
agreements with the State agencies, detailing the staffing,
scheduling, functions,  and procedures to be used by the State in
program administration.

    The Municipal Wastewater Treatment Construction Grant Amend-
ments of 1981 (PL 97-117) eliminated Step 1 and Step 2 grants
after December 29, 1981, and replaced them with an allowance to
help defray the costs of planning and design.  Other provisions
reduced the Federal grant share to 55 percent after September 30,
1984; eliminated grants for collection sewer systems, major sewer
rehabilitation, and correction of CSOs after September 30, 1984
(except under certain conditions); required states to reevaluate
their water quality standards; emphasized low cost alternatives,
particularly for small communities; limited the eligibility of
reserve capacity; required engineering services to be provided
for one year after project completion; and required each grantee
to certify, one year after initiation of operation, whether the
project is meeting its performance standards.

    The Handbook reflects the provisions of the 1981 Amendments
and its implementing regulations.  Projects receiving grants
prior to the 1981 Amendments are subject to the policies and
regulations in effect at the time of grant award and, therefore,
are not necessarily subject to the review procedures and regula-
tory requirements contained in this Handbook.
                             113

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    Although the authorizing legislation for the construction
grants program is officially entitled the Federal Water Pollution
Control Act, Section 518 of the Act provides for the use of the
title Clean Water Act (CWA), and this latter title is used
throughout the Handbook.


F.  STATE DELEGATION

1.  General

    The 1977 Amendments added Section 205(g) to the CWA,
authorizing EPA to use a portion of each State's annual allotment
of construction grants funds to award grants to the States to
administer the day-to-day operations of the construction grants
program.  The grants are for 100 percent of the eligible opera-
tional costs.  Under EPA regulations adopted in 1978, the execution
of a delegation agreement between an RA and a comparable level
State official provides the basis for a construction management
assistance grant (frequently called a 205(g) grant).  The purpose
of the agreement is to describe, in specific terms, the relative
roles of the State and EPA in the management of the construction
grants program in that State.

    Delegation agreements were developed and negotiated on a "phase
in" basis.  That is, once the many specific functions of the program
to be delegated were identified, a timetable was established for
transferring (i.e., delegating) those functions.  Each function was
delegated only after the Region determined that the State had trained
staff in sufficient numbers to effectively perform that function
without direct assistance from the Region.

    All agreements describe the procedures to be followed in imple-
menting each function and the forms to be completed by the States
as evidence that each function has been fully performed.  Period-
ically, EPA reviews each State's program and representative grant
projects, to insure that each function is being carried out in
accordance with the delegation agreement.

    Since 1977, forty-nine States and the Commonwealth of Puerto Rico
have entered into delegation agreements with EPA.  During those years,
considerable experience has been gained concerning the form of dele-
gation agreements, the respective roles of each agency, and the most
practical and efficient management implementation practices.   Because
                             114

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of the attention to detail and mutual concern continuously exer-
cised by EPA Headquarters, the Regions, and the States during this
period of transition, the goal of achieving full delegation of the
construction grants program to the States is close to being realized

    Regulations implementing State delegation are found
primarily in three subparts to 40 CFR Part 35:
    Subpart A -
Financial Assistance for Continuing
Environmental Programs.  This subpart
deals primarily with grants for State
water pollution control programs
under Section 106 of the CWA, for State
management of the construction grants
program under Section 205(g) of the CWA,
and for water quality management (WQM)
planning under Section 205(j) of the CWA,
    Subpart I -
Grants for Construction of Treatment
Works.  This subpart deals with grant
requirements for building wastewater
treatment works.
    Subpart J -
Construction Grants Program Delegation
to States.  This subpart addresses the
requirements for delegation agreements,
oversight, and grants to States to perform
delegated functions, in accordance with
Section  205(g) of the CWA.
     In  addition,  "Construction  Grants  Delegation  and  Overview
 Guidance,"  dated  December  1983,  was  prepared  by EPA to  integrate
 in  one  document the  relevant  regulatory  requirements, policies,
 and guidance  for  managing  the delegated  program.   The sections
 below briefly summarize  relevant aspects of  this  publication.
 Program managers  responsible  for delegation  should consult
 the text for  specific  details.


 2.   Delegation Agreements

     Delegation agreements,  which vary  from Region to  Region
 with regard to specific  procedural requirements,  generally
 contain two main  parts:
                              115

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     a.   Basic  or  "Umbrella"  Agreement

             This  part  of  the delegation  agreement  sets
         forth  the basic commitments  between  the  State
         and  the EPA  Regional Office, and  defines the
         operational  framework for  accomplishing  those
         commitments.   In  addition, it  covers  specific
         operational  items such  as  scheduling,  cost
         information, hiring  and  training, accounting
         methods,  and level of effort.


     t>.   Functional Agreements or Subagreements

             Along with the basic agreement are a series of
         individual agreements describing  each  function or
         activity  (or group of activities) to  be  delegated.
         These  agreements  contain information  which State
         reviewers are  expected  to  be familiar with and use,
         including the procedures to be followed  in reviewing
         project documents and conducting  grant activities,
         the  interface with the Regional Office and other
         Federal and State offices, and the criteria to be
         used in evaluating the effectiveness  of  State grant
         program activities.   The format of functional agree-
        ments may vary (e.g., checklists  and/or  evaluation
         procedures may be separated from  review  documents,
         and  included separately as a supplement  or appendix).


     Functional agreements are critical to the operation of the
construction grants program  and need to be kept  current.  That
is,  as improvements in procedures are developed, as regulations
are  revised, and as guidance  documents are changed, modifications
to the agreements will be necessary.   Such revisions can be formally
adopted  by approvals at the  state and EPA program manager's level
(e.g., Division Directors or  Branch Chiefs).   It should be noted
that one of  the purposes of  this Handbook is to help bring about
general agreement on current  review procedures so  that they can
be more uniformly practiced  among the States.

Re;  40 CFR 35.3005,  35.3010


3.  Delegated Functions

    Earlier regulations included a listing of functions which
could be delegated to the States and  those functions which
because of statutory  requirements could not be delegated.
Current regulations do  not contain these  specific listings,
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but rather indicate that all functions may be fully delegated
to the States, except those for which EPA must retain
responsibility under Federal law.  Statutory requirements
continue to preclude full delegation of the following functions:

    - approval of grant awards, grant amendments,
      payments, and terminations;

    - final determinations under Federal statutes and
      Executive Orders (e.g., NEPA determinations, and
      determinations of compliance with Title VI of the
      Civil Rights Act);

    - final resolution of audit exceptions;

    - procurement determinations concerning procurement
      system reviews and protests; and

    - projects where an overriding Federal interest
      requires greater Federal involvement.


    However, States are encouraged to undertake all project-level
activities, including preliminary determinations for nondelegable
requirements.  Preliminary determinations by States will usually
include the preparation of all documentation in anticipation of
EPA's approval and signature.  A summary chart containing dele-
gable and shared activities, their legal or administrative
citations, and brief comments on State/EPA roles is contained in
Appendix A to EPA's publication  "Construction Grants Delegation
and Overview Guidance," dated December 1983.  That same publica-
tion, on pages 28 through 31, contains a clarification of the
delegability of those activities whose delegability previously
had been uncertain.

    The EPA guidance also contains a partial listing of project
conditions for which there may be an overriding Federal interest,
thereby precipitating EPA involvement.  The project conditions
include:

    - projects subject to an Environmental Impact Statement
      (EIS);

    - projects subject to special and/or complex eligibility
      considerations;

    - projects which are the subject of unusually strong
      Congressional  interest;
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    - projects  involved  in  Federal court  cases  or  sub-
      ject  to other directives  (e.g., consent decrees,
      ocean dumping restrictions, international agree-
      ments) that EPA must  administer despite delegation;

    - projects  involved  in  law  enforcement  investigations
      or  in allegations  of  waste, misuse, or mismanagement
      of  Federal funds;

    - projects  subject to review of advanced treatment
      with  an incremental cost  in excess  of $3 million;

    - projects  for which a marine discharge waiver request
      has been  submitted to EPA; and

    - projects  having interstate or international  impacts
      that  go beyond State jurisdiction.


R£:  40 CFR 33.001(g), 35.3015(a) and (c)


4.  EPA Oversight

    EPA maintains overall responsibility  for insuring that
Federal requirements are adhered to and that progress toward
national goals and objectives is maintained.  in carrying out
this responsibility, EPA conducts an annual evaluation of
each delegated State program.  The purpose of this evaluation
is to insure that both the delegated state and EPA efficiently
and effectively execute their respective fiscal and program
responsibilities.

    The annual evaluation consists of three steps,  namely:

    a-   Developing  the Plan for Oversight

            Each year  EPA and the State  establish,
        in advance,  priority objectives, key measures
        of performance,  and monitoring  and evaluation
        activities.

    b.   Negotiating  Annual  Outputs

            In  keeping  with the  oversight plan,  EPA
        and  the  State  negotiate  and  agree upon  specific
        outputs  which  correspond to  priority objectives
        for  the  year.
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    c.   Monitoring and Evaluating Program Performance

            As part of the oversight plan and to confirm
        annual outputs, EPA monitors and evaluates each
        State's performance under delegation.  An onsite
        evaluation is conducted annually, and additional
        monitoring activities, as appropriate for each
        delegated State, are conducted as needed.

    In developing and conducting monitoring programs, extensive
use should be made of the data contained in the Grants Information
and Control System (GIGS) (See Section I.G. below).  GIGS data
allows program managers and analysts to identify critical or
emerging problems and to develop timely plans for alleviating them.
For example, data on State workload (e.g., number of projects
awaiting administrative completion), can be used in developing
State commitments (e.g., number of administrative completions to
be performed)~and in subsequently monitoring the State's progress
against these commitments.

    Carefully structured and conducted, the annual evaluation
should help to solidify the unity of effort between EPA and the
delegated States which is critical to the successful implementa-
tion of the delegation program.


Re;  40 CFR 35.3025; EPA publication, "Construction Grants
     Delegation and Overview Guidance," December 1983.
5.  U.S. Army Corps of Engineers

    EPA entered into an interagency agreement with the U.S.
Army Corps of Engineers (COE) at the national level, under which
the COE provides assistance  in administering portions of the
construction grants program.  The specific functions being
carried out by the COE are identified in regional interagency
agreements developed between EPA Regional Offices and the
corresponding COE Division offices. COE responsibilities and
procedures vary from Region  to Region, and sec-ve as a supplement
to a State's delegation agreement (i.e., in some States, the COE
performs functions which are not delegated to the State until such
time as the State is able to assume those functions, while in other
States, the COE performs functions which have been delegated, but
not yet assumed by the State) .

    COE functions may range  from limited onsite inspection services
to total project management  responsibilities which begin as soon as
the grantee has accepted the grant offer.
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In many States, the COE conducts biddability/constructtbility
reviews of contract documents, including plans and specifications
(see Section V.C.3).  On very large projects or clusters of pro-
jects (e.g., where the building costs exceed $50 million),  the COE
may provide full-time onsite presence. Project reviewers should be
aware of the contents of EPA/COE agreements in their respective
States,  including specific procedures and documentation requirements.

    It is EPA's long term goal to have each delegated State assume
those activities now being performed by the COE as soon as  the
State is able to do so.  However, where temporary shortages in staff
resources exist in a delegated State, the State may request, through
EPA, COE assistance in carrying out program functions for an interim
period.


Re;  EPA publication, "Operating Procedures for Monitoring
     Construction Activities at Projects Funded under the
     Environmental Protection Agency's Construction Grants
     Program," September 1983;  EPA publication, "Guidelines
     for Overviewing Construction Grant Activities Conducted
     under the Interagency Agreement with the Corps of
     Engineers," February 1984.


G.  INFORMATION MANAGEMENT

    The  Grants Information and Control System (GICS)  is a
computerized system which is used to collect,  edit, and
summarize essential information concerning EPA's construction
grants program.  As such, it represents a significant administra-
tive tool which enables EPA and the delegated States  to efficiently
manage the program.  They system also provides for the retrieval of
information for use by program personnel at all levels,  as  well as
members  of Congress and the public.  The core  of the  system is the
computerized data bank which stores data related to a project pre-
application status, stage of application review, milestones during
building, and administrative progress through audit to closeout.

    Once data is entered into the system,  existing computer programs
are capable of producing reports ranging from the status of a single
project  to statewide and nationwide trends.  Typical  reports include
the priority rating and ranking of all projects within a State,
grant application and milestone tracking,  audit and closeout tracking,
payment  tracking,  etc.

    The  uses and limitations of GICS are described in the "Users
Manual," "Reports Library," and "Data Element Dictionary,"  which are
maintained by a GICS coordinator in each State, EPA Regional Office,
and EPA  Headquarters.  These documents provide a detailed description
of the system, a listing of available reports, a definition of data
elements, and coding instructions for data entry.
                             120                           TM 86-1

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    From the perspective of a project reviewer, GIGS output can be
an effective tool in terms of tracking progress during construction,
thereby insuring timely inspections.  Also, the project's progress
may be compared with the approved project schedule by mathematically
converting the sum of all grant payments to a percentage of the
grant award amount, which should be approximately equal to the pro-
ject's percentage of completion.  Program managers may also use GIGS
reports to forecast workloads for use in budget preparation and
resource allocation.

    As with any computerized system, GIGS is only as good as the
information contained therein, and the need to have construction
grants program personnel enter accurate and timely information into
the system cannot be overemphasized.  To help ensure the accuracy of
the inputed data, an edit has been built into the system which will
inhibit obviously erroneous data from entry.  In addition, a GIGS
Audit Report is run monthly for the purpose of detecting other data
errors.

    In most States and Regions, one person has been assigned the
responsibility for maintaining GIGS, including the training of both
project officers and clerical support staff in its use.  Also,
annually, the system is examined and, as needed, upgraded through
user group meetings and the formally conducted meetings of the GIGS
Executive Committee which is comprised of State and EPA Regional and
Headquarters construction grants program staffs.

    Whenever the reviewing agency corresponds with a grant applicant
or a grantee regarding the submission or approval of project documents
or regarding other project milestones, an appropriate entry should be
made in GIGS.  In at least one State, GIGS coding sheets are printed
on the reverse side of standard form letters, and typists have been
instructed not to address and mail the letters unless the coding
sheet has been completed.

    GIGS has been designed to help manage the construction grants
program effectively.  Its usefulness depends largely on the construc-
tion grants program staff providing timely input of accurate informa-
tion.
                             121                         TM 86-1

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                CHAPTER II







          WATER QUALITY PLANNING
A.  INTRODUCTION




B.  DEFINING WATER QUALITY




C.  WATER QUALITY MANAGEMENT  PLANNING




D.  IMPLEMENTING THE  WATER  QUALITY MANAGEMENT PLAN




E.  FUNDING THE CONSTRUCTION  GRANTS PROGRAM




F.  SUMMARY OF THE PLANNING PROCESS
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A.  INTRODUCTION

    The discussion in this chapter is limited to those aspects
of water quality planning which are relevant to the construction
grants program.  It is designed to provide the project reviewer
with background information and a general working knowledge of
the management and planning processes required by the Clean Water
Act (CWA) and  its implementing regulations.  The principle func-
tion of each planning activity is highlighted, placed in perspec-
tive, and related to its impact on the construction grants program.

    Section B, Defining Water Quality, discusses the procedures
used in setting water quality goals and standards, in monitoring
water quality, and in relating current water quality to the goals
and standards.

    Section C, Water Quality Management Planning, describes the
planning processes which are used to produce management plans for
achieving water quality goals and standards.

    Section D, Implementing the Water Quality Management Plan,
describes the  implementation of the plan through EPA's municipal
policy, permit program, and facilities planning requirement.

    Section E, Funding the Construction Grants Program, discusses
the mechanisms for making funds available  to the construction
grants program, for prioritizing projects, and for setting aside
funds in reserves for specific purposes.

    Section F, Summary of the Planning Process, summarizes the
steps in the planning process in a list of activities, followed
by a schematic flow diagram.
 B.   DEFINING WATER QUALITY

 1.   Water Quality Goals  and  Standards

     Water quality goals,  which  are  the  basis  for  all  activities
 authorized  under the  CWA, represent value  judgements  articulated
 by  Congress in  Title  I of the CWA.   The water quality goals  of
 the CWA may be  summarized as: protection and  propagation  of  fish,
 shellfish,  and  wildlife;  provision  for  recreation in  and  on  the
 water  wherever  attainable; restoration  and maintenance of the
 chemical, physical, and  biological  integrity  of  the Nation's
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 waters;  prohibition of  toxic  substances  in  toxic  amounts;  pro-
 tection  of  public  health and  welfare;  and reduction of water
 pollutants  from  nonpoint sources  to  the  maximum extent feasible.

    To translate water  quality goals  into objective, measurable
 terms, water quality standards are established by the States.
 Water quality standards implement the  water quality goals  for a
 water body  or portion thereof by  setting standards necessary to
 achieve  these goals.  These standards  serve as the legal basis
 for water pollution control decisions  (e.g., treatment levels,
 National Pollutant Discharge  Elimination System (NPDES) permit
 effluent limitations, and enforcement  actions).

    Water quality  standards have been  established by the States
 and approved by EPA for practically all of the Nation's water
 bodies.  However,  Section 24 of the 1981 CWA amendments required
 the States  to reevaluate their water quality standards and, where
 necessary,  to revise them to  reflect current and  realistic goals
 and uses.   Construction grant assistance may not  be provided in
 States which fail  to conduct such water quality standards  re-
 evaluation  by December  29, 1984 (see Section VI.D.ll).  The
 establishment and  revision of water quality standards is subject
 to the public participation requirements of 40 CFR Part 25.

 Re:  40 CFR 130.0, 130.3;  40 CFR Part  131


 2.  Water Quality Monitoring

    Once a State establishes water quality standards, the State
 is required to implement a water quality monitoring program which
 includes the collection and analysis of physical,  chemical and
 biological data on water quality.   This data is used by the State
 to evaluate the effectiveness of its water quality management (WQM)
program,  to determine abatement and control priorities, to develop
or revise water quality standards, to develop total maximum daily
 loads and wasteload allocations,  to assess compliance with NPDES
permits,  and to prepare reports which assess the trends in water
quality.

    Water quality monitoring programs must include quality assur-
ance and  quality control programs  to insure that collected data
are scientifically valid.   The monitoring program provides a
scientific basis for the preparation of abatement  and control
reports and for the designation of priority water  quality areas.

Re:  40 CFR 30.503, 130.4
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3.  Water Quality Report

    Section 305(b) of the CWA requires each State to report to
EPA the status of water quality within the State and the programs
underway or needed to attain water quality goals.  The water
quality report (frequently called a 305(b) report) is prepared
every two years,  and for the years submitted, fulfills the annual
water quality reporting requirements under Section 205(j) of the
CWA.  For the years when the water quality report is not submitted,
States may satisfy the annual reporting requirements under Section
205(j) by certifying that the most recently submitted report is
current, or by submitting an update of the outdated sections of
the most recently submitted report.

    The water quality report serves as the.State's primary prob-
lem assessment document, and thus provides basic  input to the
State's planning and implementation activities.  The report must
include recommendations for current and future WQM activities
and other information needed to address problems  in priority
water quality areas such as:

    a.  a description of present water quality and the
        extent to which it meets the goals of the CWA;

    b.  an estimate of the extent to which control programs
        have or will improve water quality;

    c.  an estimate of the environmental, economic, and
        social costs and benefits of achieving the objec-
        tives of  the CWA and an estimate  of  the  date of
        such achievement; and

    d.  a description of the nature and extent of nonpoint
        source pollution and recommendations  for programs,
        including costs, to control nonpoint  sources.

Re: 40  CFR 130.8
 C.  WATER QUALITY MANAGEMENT  PLANNING

 1.  General

    The  objective of  this  section  is to  acquaint  project  reviewers
 with  the many  complex and  interrelated planning activities  which
 impinge  upon construction  grants projects,  and with  the consider-
 able  information that very often has been developed  for a project
 or  planning area before  the construction grants process begins.
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By being aware of existing information or data, the project
reviewer can advise potential grant applicants of its existence,
thereby reducing planning costs and shortening the time required
for project completion.

    The thrust of all WQM planning activities required under the
CWA is to improve water quality.  WQM planning activities must
result in the development of optimum WQM plans, which will be
consistent with the need to protect public health and to achieve
the water quality goals of the CWA.

    Although the States are primarily responsible for the
accomplishment of WQM planning, actual State involvement in the
planning process varies widely.  In some States, the State agency
conducts all WQM planning activities directly, while in others,
planning activities are directed and coordinated by the State
agency, and are carried out by areawide, interstate, regional,
and/or local water quality planning agencies.  In many States,
the State agency performs some of the planning activities, and
assigns others to areawide, interstate, regional, and/or local
agencies.  EPA provides grant assistance for these activities,
and requires planning grant applicants to submit proposed work
plans, schedules, and budgets for EPA approval prior to grant
award, in order to insure efficient management and proper use of
grant funds.


2.   Continuing Planning Process

    The continuing planning process (CPP) describes the method-
ology used by each State in making water quality decisions,
including the development of:

    a.  effluent limitations and schedules of compliance;

    b.  elements of areawide waste management plans and
        basin plans;

    c.  total maximum daily loads for pollutants;

    d.  revisions to WQM plans;

    e.  an inventory and ranking, in the order of their
        priority, of needs for the construction of waste
        treatment works;
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    f.   procedures for obtaining adequate authority for
        municipalities which will build treatment facilities,
        including mechanisms for obtaining intergovernmental
        cooperation from subscriber communities;

    g.   procedures for the implementation of new or revised
        water quality standards, including schedules of
        compliance;

    h.   adequate controls over the disposition of all residuals
        from water treatment processing.


    The CPP is a process, not an end in itself.  It allows new
or changed activities to be properly integrated into the entire
WQM program, while taking into account the activity's impact on
other programs and water quality control decisions.

    The regulations emphasize the importance of effective pro-
cesses which contribute to managing the implementation of water
quality decisions.  Since 1972, each State has maintained a CPP,
and has periodically updated it to meet changing needs and
regulatory requirements.

Re;  40 CFR 130.5


3.  Water Quality Management Plans

    WQM plans provide the framework for managing water quality
on an ongoing basis.  They consist of  initial plans produced in
accordance with Sections 208 and 303(e) of the CWA, as well as
approved updates to those plans.  WQM  plans were initially
required by the 1972 CWA Amendments.   During the earlier years,
WQM plans resulted from the development of two separate but
interrelated plans, namely, a basin plan and an areawide waste
treatment management plan.

    The basin plan, developed by the State, classified all stream
segments in the State as effluent limited or water quality limited.
A stream segment was classified as effluent limited if it was
projected to meet  its water quality standards when all point sources
of pollutants were given secondary treatment.  This designation
meant that construction grant applicants needed only to provide  for
secondary treatment to qualify  for grant assistance.  On the other
hand, a stream segment was classified  as water quality limited  if
it was not projected to meet its water quality standards when all
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point sources were given secondary treatment.  Classification
of a stream segment as water quality limited generally indicated
severe water quality problems and most often was found in indus-
trialized or urban areas.  To solve the water quality problems,
mathematical models were developed and used to predict changes in
water quality resulting from various combinations of advanced treat-
ment for point sources, as well as control techniques for non-point
sources.

    For each area of a State with substantial water quality problems,
the Governor designated a responsible agency to prepare an areawide
waste treatment management plan (frequently called a 208 plan).  In
areas with less severe problems, States conducted limited areawide
planning to identify the problems and to propose implementation
measures necessary for achieving water quality standards.  Among
the many outputs of these plans was the identification of local
agencies or municipalities which would implement construction of
publicly owned treatment works  (POTWs).

    Since 1972, the distinction between basin planning and area-
wide planning gradually became  less clear, and the two planning
functions were eventually combined into one consolidated planning
activity, namely, WQM planning.  Most WQM plans were completed
during the late 1970's or early 1980's.  However, to insure that
WQM plans continue to provide effective frameworks for management,
WQM plans must be updated from  time to time, to reflect changing
water quality conditions, the results of implementation activities,
and new regulatory requirements.

    Ideally, WQM plans should address the following water quality
elements:

    - total maximum daily loads;

    - effluent limitations for  water quality based stream
      segments;

    - anticipated municipal and industrial waste treatment
      works, including treatment facilities for combined
      sewer overflows  (CSO's);

    - nonpoint source management and control, including
      identification of best management practices to con-
      trol nonpoint source pollution;

    - programs for the control  of dredge or fill material;

    - programs for control of groundwater pollution;
                             208

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    - implementation measures necessary to carry out the
      plan,  including financing and scheduling;

    - the economic,  social,  and environmental impacts of
      implementing the plan;

    - identification of relationship to earlier basin
      plans;  and

    - identification of the  agencies which will carry out
      the plan.


In reality,  however, some WQM plans do not include all of the
above elements.

    Several  elements in WQM  plans are of particular significance
to construction grants program personnel, namely:
      The identity of the specific agency or municipality
      which will construct each needed wastewater treat-
      ment works.  Where a proposed project is located in
      a WQM planning area, grant assistance may be awarded
      only to the agency or municipality identified in the
      WQM plan.

      The wasteload allocation assigned to a specific point
      source.  This will dictate the level of treatment
      required by that discharge, and will be reflected in
      the NPDES permit and the alternatives evaluated during
      facilities planning.

      The description of the severity of the pollution
      problems caused by a specific point source.  This will
      influence the project's ranking in the State's project
      priority list (see Section E.3 below).

      Information which can be used by grant applicants in
      preparing facilities plan.  This will reduce costs and
      shorten the time necessary for project completion.
    Several recent changes in terminology or approaches to WQM
planning must be understood.  For municipal point sources, the
term "technology-based effluent limitations" means secondary
treatment or its equivalent, as defined in 40 CFR Part 133.
"Water-quality-based effluent limitations" means treatment to a
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level, more stringent than secondary treatment, necessary to
achieve water quality standards.  With regard to allowable waste
loadings for stream segments, the following definitions are
applicable:

    - load or loading - an amount of matter or energy that
      is introduced or transported into a receiving stream
      from human activities (pollutant loading) or natural
      sources (natural background);

    - assimilative capacity - the greatest amount of loading
      that a water body can receive without violating its
      water quality standards;

    - load allocation - the portion of a receiving water's
      loading capacity that is attributed either to one of
      its existing or future nonpoint sources of pollution
      or to natural background sources;

    - wasteload allocation - the portion of a receiving
      water's loading capacity that is allocated to one of
      its existing or future point sources of pollution; and

    - total maximum daily load - the sum of wasteload allo-
      cations for point sources and load allocations for non-
      point sources and natural background.


    The receiving water's loadings are included in the WQM plan.
The wasteload allocation is of particular importance to construe-
tion grants personnel, since it will determine the water quality
based effluent limitations and consequently the level of treat-
ment required for a specific project.

Re:  40 CFR 35.2023, 35.2102, 130.2, 130.6, 130.7, 130.12(b)


4.  Water Quality Management Funding and Annual Work Program

    EPA provides grant assistance to States to carry out the WQM
activities described in Sections B.I through B.3 and C.I through
C.3 above.  As with all grants, States are required to provide a
work program (i.e., an annual program management document) as
part of the grant application package.

    The work program reflects the problems described in the water
quality report and the WQM plans.  The work program specifies the
planning activities to be carried out during the period of the
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grant, the cost of the specified activities, the outputs to be
produced by each activity, and where applicable, schedules for
the completion of each activity.  Activities to be supported by
grant funds include major functions such as permitting, enforce-
ment, monitoring, planning and standards, nonpoint source imple-
mentation, management of construction grants, overseeing opera-
tion and maintenance (O&M) of treatment works, emergency response,
and program management.  The portion of the work program addressing
compliance with water quality standards by POTWs must be consistent
with the implementation of EPA's National Municipal Policy (see
Section D.I below).

    Payment procedures for WQM planning grants are discussed in
Section IX.B.S.d.

Re:  40 CFR 130.8, 130.11
D.  IMPLEMENTING THE WATER QUALITY MANAGEMENT PLAN

1.  National Municipal Policy

    The CWA requires all POTWs to meet statutory compliance dead-
lines necessary to achieve the water quality objectives of the CWA,
whether or not grant assistance is awarded.  EPA's goal is to
obtain compliance by POTWs as soon as possible, but no later than
July 1, 1988.

    To implement this goal, EPA has focused on: (1) POTWs that
previously received grant assistance and are not currently in com-
pliance with their effluent limitations, (2) all other major POTWs
that are not in compliance, and (3) minor POTWs that are contri-
buting significantly to the impairment of water quality.  Affected
municipalities are required to prepare either a composite correc-
tion plan (when its existing treatment facility is not in compli-
ance), or a municipal compliance plan (when a treatment facility
needs to be constructed).  in either case, the plan must be com-
pleted by September 30, 1985, and must contain an enforceable
compliance schedule developed jointly by the affected municipality
and the enforcing agency (either EPA or the delegated State).

    The compliance schedules and strategies resulting from imple-
mentation of the National Municipal Policy are to be integrated
into each State's overall WQM work program for the coming year
(see Section C.4 above).

Re;  EPA notice of "National Municipal Policy," 49 FR 3832 and 3833
     (January 30, 1984)
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2.  Municipal Permits

    The CWA established the NPDES permit program as the enforce-
ment mechanism for achieving water quality standards.  A discharge
permit is issued under this system to all municipal and industrial
discharges.   Where a WQM plan has been prepared and approved,
permits will require compliance with the approved plan.  For
existing treatment facilities which, because of present or antici-
pated future inadequate treatment, will prevent achievement of
water quality standards, the NPDES permit may contain limitations,
conditions,  or schedules which will prompt the municipality to
apply for a construction grant.

    An applicant for a construction grant must comply with its
existing permit or obtain a new permit.  In accordance with the
National Municipal Policy (see Item 1 above), reviewing agencies
must insure coordination between the construction grant and NPDES
permit programs.

Re:  40 CFR 35.2000(a), 35.2005(b)(15); 40 CFR Part 125


3.  Facilities Plans

    WQM planning develops recommended control measures which, when
implemented, are expected to result in the attainment of water
quality standards.  A WQM plan generally addresses problems for a
large area,  and may recommend the construction of one or more POTWs,
Where the construction of a POTW is recommended in a WQM plan, the
plan will also designate the implementing agency or municipality.
Only this municipality may apply for grant assistance to build the
recommended POTW.  The first major step in the grant application
process is the preparation, by the municipality, of a facilities
plan.

    Facilities planning may be considered as the final implementing
phase in water quality planning for POTWs.  Within the framework
of the WQM plan, facilities planning considers specific wastewater
treatment processes, evaluates various alternatives, and selects
a cost-effective, environmentally sound project (see Chapter IV).
Subsequently, the selected project is designed, grant assistance
is awarded (assuming that all requirements for grant assistance are
met and sufficient funds are available), and the project is con-
structed.

Re:  40 CFR 35.2030, 130.12(b)
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E.  FUNDING THE CONSTRUCTION GRANTS PROGRAM

1.  General

    In the case of POTWs, water quality planning is implemented,
in part, through the construction grants program.  WQM plans
identify priority water quality areas and recommend actions neces-
sary to achieve water quality standards.  NPDES permits may also
require actions necessary to maintain and enhance water quality.
Where such actions include the upgrading or expansion of existing
municipal treatment facilities or the construction of new
facilities, the municipalities may be considered potential grant
applicants and may qualify for grant assistance.


2.  Allotment of Pounds

    The CWA authorizes funding of the construction grants program,
usually for a period of several years.  However, funds only become
available for each fiscal year when Congress appropriates them.

    The CWA specifies the formula to be used in computing each
State's annual allotment of the appropriated grant funds.  (For
the purposes of the CWA, the term "State" includes the fifty
States, as well as the District of Columbia; the Commonwealths of
the Northern Marianas and Puerto Rico; the Territories of American
Samoa, Guam, and the Virgin Islands; and the Trust Territory of the
Pacific Islands.)  Generally, the allotment formula is based on
each State's population and the need for wastewater treatment works
in each State, as identified in the Needs Survey discussed below.
After the allotment formula has been used by EPA to compute each
State's annual allotment, the allotments are published in the
Federal Register (FR).

    Every two years EPA, in cooperation with the States, prepares
the "Needs Survey - Cost Estimates for Construction of Publicly-
Owned Wastewater Treatment Facilities."  The needs survey ident-
ifies, by category, treatment works needed as of the date of the
survey, projected through the year 2000.  The categories of need
correspond with the categories of projects used in the State's
priority system and project priority list (see Item 3  below).   In
addition to cost estimates, the needs survey provides  an inventory
of municipal facilities which may be eligible for grant assistance.

Re:  40 CFR 35.910-1 through 35.910-11, 35.2010; EPA "Notice of
     Allotment," 47 FR 42024-42025 (September 23, 1982);  EPA
     "Notice of Allotment," 47 FR 56177 (December 15,  1982);  EPA
     "Notice of Allotment," 48 FR 51174 (November 7, 1983)
                             213

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3.  State Priority System and Project Priority List

    Purpose;

    Establish a priority system and project priority list for
awarding grant assistance for specific projects.


    Discussion;

    The 1981 CWA amendments stress the importance of achieving
optimal water quality and protecting public health through the
construction grants program.  The implementing regulations empha-
size that high priority should be given to projects in priority
water quality areas (i.e., specific stream segments or bodies of
water where municipal discharges have resulted in the impairment
of a designated use or significant public health risks, and where
the reduction of pollution from municipal discharges will sub-
stantially restore surface or ground water uses).  The concept of
priority water quality areas is also used by the States for
scheduling revisions to water quality standards; computing total
daily maximum wasteloads; issuing major permits; and focusing
monitoring, enforcement, and reporting efforts on critical water
quality problems.

    The methodology used to rate and rank proposed individual
municipal wastewater projects for grant assistance is the State
priority system.  Using the State priority system and the criteria
contained therein, each State develops a list of projects, ranked
in the order of their importance, which are expected to qualify for
grant assistance.  The priority system also includes administrative,
management, and public participation procedures required to develop
and revise the project priority list.

    The concept of priority water quality areas is also embodied
in the development of the State priority system, and is reflected
in the criteria to be used in ranking individual proposed projects.
Some criteria are mandated by legislation or regulation, while
other criteria may be used at the discretion of the State.  The
specific criteria mandated by regulation in the development of the
State's priority system are:


    - the impairment of classified water uses resulting
      from existing municipal pollutant discharges, and

    - the extent of surface or ground water use restor-
      ation or public health improvement which would
      result from the reduction in pollution.
                             214

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Optional criteria include:

    - higher priority for projects employing innovative
      or alternative (I/A) technology;

    - need to complete a waste treatment system for
      which a grant for an earlier phase or segment was
      previously awarded;

    - category of need (e.g., treatment plant, inter-
      ceptor, sewer rehabilitation, etc.); and

    - existing population affected.


    If the State includes new phased or segmented projects in
the priority list,  the projects must meet certain conditions
(see Section VI.D.10).

    All projects listed in the State's project priority list must
fit into at least one of the categories of need described below.
Note that the categories changed after September 30, 1984.

    Categories of need before October 1, 1984:

    - secondary treatment,

    - treatment more stringent than secondary,

    - correction of excessive infiltration/inflow (I/I),

    - major sewer system rehabilitation,

    - new collector sewers and appurtenances,

    - new interceptors and appurtenances, and

    - correction of CSOs.


    Categories of need after September 30, 1984:

    - secondary treatment or any cost effective
      alternative,
                             215

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    - treatment more stringent than secondary or any
      cost effective alternative,

    - new interceptors and appurtenances, and

    - correction of excessive I/I.

    The effect of the change in categories of need is to eliminate
three categories of projects (new collection sewers, major sewer
rehabilitation, and correction of CSOs) as eligible for grant
assistance with two exceptions.  After September 30, 1984, the
Governor of a State may elect to use up to 20 percent of the State's
annual allotment for any of the earlier (before October 1, 1984)
project categories.  Also after September 30, 1984, the Governor may
elect to include a category of need for CSOs (i.e., to use more than
20 percent of the allotment), but only if those projects result in
the correction of impaired uses in priority water quality areas. The
State must demonstrate that the water goals of the CWA will not be
achieved without correcting these CSOs (see Section VI.G).

    The project priority list contains two portions:

    - the fundable portion, consisting of those projects
      anticipated to be funded from the current allotment,
      and

    - the planning portion, consisting of projects antic-
      ipated to be funded from future allotments.

Development of the State's priority system and project priority list
is subject to EPA's public participation requirements, and must be
be approved by the EPA Regional Office.


    Review Procedures;

    Each State must submit its priority system, as well as all sub-
sequent revisions, to the EPA Regional Office for review.  The
Regional Office will review each document to insure that it:

    - is consistent with the criteria and the categories of
      need discussed above, and

    - reflects adequate public participation in the develop-
      ment of both the priority system and the project
      priority list.

The Regional Office will complete its review, and will notify the
State in writing of its approval or disapproval, within 30 days
of its receipt of each document.
                             216

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    By August 31 of each year, each State must submit a project
priority list for use in the following fiscal year.  The Regional
Office will review each State's list, as well as any subsequent
revisions, to insure that each document:

    - is consistent with the State's approved priority system;

    - is properly divided into a fundable portion, which is
      consistent with the amount of funds expected to be
      available for grant awards in the following fiscal
      year, and a planning portion;

    - includes an estimate of the eligible cost of each project;

    - reflects adequate public participation in the development
      of the priority list; and

    - contains only projects which will contribute to
      compliance with the enforceable requirements of
      the CWA, except for projects which are exempt from
      this requirement as described below.

The Regional Office will complete its review, and will notify the
State in writing of its acceptance or rejection, within 30 days
of its receipt of each document.  If the project priority list is
rejected because it contains projects which will not contribute
to compliance with the enforceable requirements of the CWA, the
Regional Office must hold a public hearing before requiring the
State to remove these projects from the priority list.  Further-
more, the Regional Office may not require the removal of any
project if:

    - it is in one of the following categories: major
      sewer rehabilitation, new collector sewers and
      appurtenances, new interceptors and appurtenances,
      and correction of CSOs; and

    - the Federal share of the cost of projects in the
      above categories does not exceed 25 percent of
      the State's annual allotment.

Re;   40 CFR Part 25; 40 CFR 35.2015, 35.2024(a)


4.  Reserves

    Portions of each State's annual allotment of construction grant
funds are reserved for certain specific uses in accordance with EPA's
regulations.  There are five reserves specified in the regulations:
                             217

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a.  Reserve for State Management Assistance

    Section 205(g) of the CWA allows each delegated State
to reserve up to 4 percent of the State's allotment based
on the amount authorized to be appropriated, or $400,000,
whichever is greater, to pay for the State's administration
of the construction grants program.  These funds are used
by EPA to award a grant to the State for the administration
of the program (see Section I.F).  Once these funds are
obligated (as a grant to the State), they remain available
to the State until expended.  However, if the entire reserve
is not obligated during the allotment period, the unobligated
funds are transferred by EPA, at the beginning of the next
fiscal year, to the State's regular allotment for construc-
tion grants.

Re:  40 CFR 35.2020(a)
b.  Reserve for Alternative Systems for Small Communities

    Each State with a rural population of 25 percent or more
must reserve 4 percent of its annual allotment for alterna-
tives to conventional treatment works for small communities.
All other States, at the option of the Governor, may also
reserve 4 percent for the same purpose.  A small community,
for the purpose of this reserve, is any municipality with a
population of 3,500 or less, or a highly dispersed section
of a large municipality.

    These funds are used to fund the base grant (normally 55
percent, unless a different rate is applicable, as described
in Section VI.L.2) for I/A projects which serve small communi-
ties.  Funds for the increased grant for the use of an I/A
technology (normally 20 percent, except that the total Federal
share may not exceed 85 percent) must be taken from the reserve
for I/A technologies (see Item c below).

Re:  40 CFR 35.2005(b)(40), 35.2020(b)
c.  Reserve for Innovative or Alternative Technologies

    Each State must reserve at least 4 percent, but not more
than 7.5 percent of the State's annual allotment, to increase
the Federal grant share by an additional 20 percent for pro-
jects which use I/A wastewater treatment processes and tech-
niques (see Sections IV.C.6.9 through IV.C.6.13, V.C.2.y,
VI.E.3, VI.I, VI.J, VI.L.2.d, VI.L.2.6, and VI.M.S.h).
                         218

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    Not less than 0.5 percent of this amount must be set aside
    for projects using innovative processes or techniques. Note
    that the reserve funds are used to increase the Federal share
    (e.g., where a 55 percent grant is awarded from the general
    allotment, a 20 percent increase is added from the I/A reserve,
    bringing the total Federal share, in this instance, to 75 per-
    cent) .

    Re;  40 CFR 35.2020(c)


    d.   Reserve for Water Quality Management Planning

        Section 205(j) of the CWA requires each State to reserve
    at  least $100,000, but not more than 1 percent of the State's
    annual allotment, to carry out WQM planning, (see Section C
    above), except that the Commonwealth of the Northern Marianas,
    the Territories of American Samoa, Guam, and the Virgin Islands,
    and the Trust Territory of the Pacific Islands must reserve a
    reasonable amount.

    Re;  40 CFR 35.2020(d)


    e.   Reserve for Advances of Allowance

        Each State must reserve a reasonable portion of its annual
    allotment, not to exceed 10 percent, for advances of allowance
    (see Sections III.E, VI.K, and IX.B.S.c).  This requirement
    may be waived by EPA where a State can demonstrate that such a
    reserve is not necessary, either because:

        i.   no small communities in the State will
             need financial assistance to complete
             facilities planning or preparation of
             plans and specifications; or

        ii.  reserve funds from prior allotments
             remain available and are sufficient
             to provide the necessary advances of
             allowance.

    Re; 40 CFR 35.2020(e)


    States may also establish other reserves (e.g., for grant
increases) which the State feels are appropriate.  Unobligated
portions of all reserves, except the reserve for state management
assistance grants (see Item a above), are reallotted to other
                             219

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States if not obligated during the allotment period.  However,
nonmandatory reserves and nonmandatory portions of mandatory
reserves (see Items b through e above) can be released from the
reserve and obligated for other purposes before the end of the
allotment period.

Re:  40 CFR 35.2010, 35.2020, 35.2021
F.  SUMMARY OF THE PLANNING PROCESS

    Water quality planning and management is a dynamic activity,
and is based on initial and continuing planning efforts directed
toward achieving the water quality goals of the CWA.  The
activities involved in water quality planning may, at times, be
conducted separately, but eventually must be integrated into a
unified and goal-directed management program.  A simplified
schematic flow diagram for water quality planning and management
is shown in Figure 1, and may be summarized by the following
steps:

    a.  water quality goals are established by the CWA;

    b.  uses and water quality standards are established
        by the State to fulfill these goals;

    c.  water quality monitoring is conducted to mea-
        sure progress toward meeting the standards;

    d.  WQM plans are developed to identify control
        and implementation measures needed to achieve
        the standards;

    e.  annual water quality report is prepared to assess
        problems and progress and, when necessary, to
        redirect planning efforts;

    f.  annual work program is prepared to define planning
        activities during the year, based on the assess-
        ment of the problems and progress;

    g.  grant assistance is provided to States to carry
        out planning activities;

    h.  permits are issued and enforcement actions are
        undertaken to insure compliance with water quality
        standards;
                             220

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    i.  grant assistance is provided to municipalities
        to construct POTWs; and

    j.  CPP is utilized to integrate all planning
        activities described above.

Re: 40 CFR Part 130
                             221

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NJ
K)
Continuing
Planning
Process:
Coordinates
Development of
All Planning
Activities and
Changes to
Completed
Plans;
Provides
Public
Input.
                                                                       Clean Water Act Goals
                                                                             EPA Grant
                                                                            Assistance
                                                                          State Programs
Water Quality
 Standards
Water Quality
Management
   Plans
                                          Water Quality
                                           Monitoring
                                                 L
                         Construction
                            Grants
                           Program
                                                                                                                J  Permits I   >[ Enforcement  I
                                 Water Quality
                               Report (Problem
                                 Assessment)
                                 Every 2 Years
                                                                           Annual Report
                                                                          Alternate Years
                                                                                     4
                                                                           Annual Work
                                                                             Program
                                                                                                                                     1
                                       Industrial
                                       Point and
                                       Nonpoint
                                       Controls

1
National
Municipal
Policy
                                                                       EPA Grant
                                                                       Assistance
                                                                                                                               Return to
                                                                                                                               top of page
                                                   Figure -1. Water Quality Planning and Management

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             CHAPTER III




      PREAPPLICATION MANAGEMENT












A.  INTRODUCTION




B.  QUALIFICATIONS




C.  PREAPPLICATION PROJECT MANAGEMENT




D.  PREPLANNING CONFERENCE




E.  ADVANCES OF ALLOWANCE
                  301

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A.  INTRODUCTION

    This chapter discusses preapplication project management
activities which should be undertaken by reviewing agencies.
With the elimination of Step 1 and step 2 grants, it is incum-
bent upon reviewing agencies to work with, and track the develop-
ment of projects by, potential grant applicants.  Although  in
theory, a potential grant applicant need not submit documentation
to the reviewing agency prior to formally submitting a Step 2+3 or
a Step 3 grant application, this course of action would not be
advisable, since it is possible that a project could be planned,
designed, and submitted to the reviewing agency, but because of
its failure to satisfy State and Federal regulatory requirements,
be denied grant assistance, or have its grant assisistance  delayed
until all requirements were satisfied.  To preclude this possibility,
and in order to manage the construction grants program effectively,
most reviewing agencies have developed systems to identify  potential
grant applicants, provide them with printed informational materials,
and conduct preapplication conferences.

    This chapter begins by defining applicant and project qualifica-
tions for grant assistance, followed by recommendations for pre-
application project management.  The next section recommends pro-
cedures for conducting preplanning conferences,  including a summary
of the important topics which should be covered.  The chapter con-
cludes with a discussion of advances of allowance for small com-
munities .


    Section B, Qualifications, describes the conditions which must
be met, by a grant applicant and by its proposed projects,  in order
to be eligible to receive a Step 2+3 or a Step 3 grant.

    Section C, Preapplication Project Management, contains  recom-
mendations for reviewing agency management of facilities planning
and design work by potential grant applicants, in order to  insure
a high quality of planning and design outputs, and to preclude de-
lays in the grant award process due to an applicant's failure to
satisfy State and Federal regulatory requirements.  It also dis-
cusses the use of the Grants Information and Control System (GICS),
and highlights the effectiveness of this system  as a management tool.

    Section D, Preplanning Conference, recommends procedures for con-
ducting preplanning conferences with potential grant applicants, and
includes a brief discussion of the important topics which should be
covered in these conferences.  In most cases, this section  includes
cross references to other chapters, where these  topics are  discussed
in more detail.
                             303

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     Section  E, Advances of Allowance, describes  the circumstances
 under which  a potential grant applicant may qualify for an advance
 of  the  allowance  for  facilities planning and/or  design, and the
 procedures to be  followed by the States in making these advances
 to  potential grant  applicants.
B.  QUALIFICATIONS

    The  term  "qualifications" is used in this section to describe
the conditions which must be satisfied by a grant applicant and its
proposed projects in order to be eligible to receive grant assist-
ance.  Additional information on project qualifications is contained
in Section IX.F.I.
1.  Applicant Qualifications

    The primary purpose of the EPA construction grants program
is to assist municipalities in meeting the enforceable require-
ments of the Clean Water Act (CWA).  The term "municipalities"
is broadly defined in the regulations as "a city, town, borough,
county, parish, district, association, or other public body
(including an intermunicipal agency of two or more of the fore-
going entities) created under State law, or an Indian tribe or an
authorized Indian tribal organization, having jurisdiction over
disposal of sewage, industrial wastes, or other waste, or a
designated and approved management agency under Section 208 of
the Act."

    This definition includes State agencies and special districts
which have as one of their principal responsibilities the treatment,
transportation, or disposal of domestic wastewater in a particular
geographic area.  Airports, turnpikes, port facilities, municipal
utilities (e.g., electrical or water utilities),  or other revenue
producing entities do not qualify for grant assistance except in
unusual circumstances.  Similarly, prisons, school districts,
park districts, and other special purpose units of government,
which do not have responsibility for the treatment, transportation,
or disposal of an entire community's wastewater,  do not qualify for
grant assistance.  Refer to the definition of "municipality" in the
regulations for a more complete definition and for additional limi-
tations.

Re:  40 CFR 35.2000(a),  35.2005(b)(27) and (41)
                             304

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2.   Project Qualifications

    After September 30, 1984, all projects must fit into one of the
following categories of need in order to qualify for grant assis-
tance :


    a.   secondary treatment, or any cost effective alternative;

    b.   treatment more stringent than secondary, or any cost
        effective alternative;

    c.   new interceptors and appurtenances; and

    d.   infiltration and inflow (I/I) correction.


    An exception to the above project qualifications may be made for
a limited number of projects if the Governor of a State elects to
include other categories of need which previously (i.e., before
October 1, 1984) qualified for grant assistance (i.e., major sewer
system rehabilitation, new collection sewers and appurtenances (see
Section VI.D.14) and correction of combined sewer overflows (CSOs).
The extent to which projects in these previously qualified categories
of need can be included in a State's project priority list is dis-
cussed in Section II.E.3.  A complete discussion of funding sources
for marine and nonmarine CSO projects is  included in Section VI.G.

    Alternative technology collection systems serving small communi-
ties with populations of 3,500 or less, or serving highly dispersed
sections of larger municipalities, also qualify for grant assistance
(as "any cost effective alternative" shown in the first two categories
above) after September 30, 1984 (see Section VI.E.I).

    Questions will arise concerning whether a sewer is an interceptor,
trunk, or lateral sewer, since after September  30, 1984, with  the
exception noted above, only  interceptor sewers  qualify for grant
assistance.  The definition of an interceptor in 40 CFR 35.2005(b)(24)
is very specific, and provides an answer  to this question.  In essence,
an interceptor may be defined as a sewer  whose  primary purpose is  to
transport rather than collect wastes.


Re:  40 CFR 35.2005(b)(4),  (b)(10)(iii),  (b)(24), and  (b)(40),
     35.2015(b)
                              305

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C.  PREAPPLICATION PROJECT MANAGEMENT

    Effective project management requires that reviewing agencies
make every effort to identify and work with potential grant appli-
cants throughout the planning, design, and construction phases of
a project.  Because of the high construction and operating cost of
wastewater treatment projects and their environmental impacts, it
is essential that they be carefully planned and designed.  Also,
because wastewater treatment projects may be subject to more than
fifty Federal statutes and executive orders, as well as numerous
State laws and regulations, most grant applicants need consider-
able advice and guidance from the reviewing agency as they develop
and implement their construction projects.


1.  Project Identification

    Because of the requirement for a biennial needs survey (see
Section II.E.2), most potential grant applicants have already been
identified, and where appropriate, are included in the State's pro-
ject priority list.  However, since 1981 some States have chosen to
limit their priority lists to include only those projects which are
ready or soon to be ready for construction.

    Potential grant applicants may also be identified in completed
water quality management (WQM) plans, in a State's inventory of
municipal dischargers, or in a list generated by those responsible
for the issuance of National Pollutant Discharge Elimination System
(NPDES) permits or enforcement orders.  Once potential grant appli-
cants are identified, they should be entered into the reviewing
agency's management and tracking system (see Items 2 and 3 below).


2.  Project Tracking

    Once a potential grant applicant has been identified, the
reviewing agency should:


    a.   estimate the time of Step 2+3 or Step 3 grant award,
        based on the community's actual or expected relative
        position on the State's project priority list;

    b.   estimate the amount of time necessary for the
        community to complete the planning, design, and
        related activities which are prerequisites to
        Step 2+3 or Step 3 grant award;
                             306

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    c.   use the above information to set a time for con-
        ducting a preplanning meeting with the potential
        grant applicant (see  Section D below);
        enter the potential  project into its management and
        tracking system (see Item 3 below,  along  with a time-
        table of important milestones in the project's develop-
        ment, as agreed to by both the reviewing  agency and the
        grantee;
    e.   periodically contact the potential applicant to review
        its progress in relation to the project timetable, to
        review outputs for conformance with State and EPA
        requirements, and to assist the potential applicant
        with advice on technical, regulatory,  and administra-
        tive problems; and
    f.   use all of the above information to generate and revise
        forecasts of the reviewing agency's future workload
        and resource requirements.
3.  The Uses of GIGS Data


    GIGS (See Section I.G)  is used by managers at all levels for
the tracking and management of construction projects.  This system
is especially useful because its reports can provide detailed
information on the makeup and status of an individual proje"ctf or
can display selected types of information on a larger number of
projects for purposes of comparative analysis or evaluation at the
State, Regional, or national, level.   For example, a project reviewer
can use GIGS to track project progress during the preapplication
stage to ensure that they move from priority list to grant award in
a timely manner.
                             307                        TM 86-1

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D.  PREPLANNING CONFERENCE
    Purpose;

    Meet with potential grant applicants and review major activities
which must be completed prior to applying for a Step 2+3 or Step 3
grant.
    Discussion;

    While a preplanning conference is not required by the construc-
tion grants regulations, many State/EPA delegation agreements require
that the States conduct such conferences.  The importance of a pre-
planning conference cannot be overemphasized.  It provides an
opportunity for the reviewing agency to meet face-to-face with the
grant applicant and its staff and review the work to be accomplished
during facilities planning and design.

    After determining that a project is likely to be ranked high
enough on the priority list to obtain a grant in the near future, a
potential grant applicant should be encouraged to prepare a plan of
study prior to the preplanning conference.  A plan of study, while
not required by the EPA regulations, would serve as a useful basis
for discussion during the conference.  A typical plan of study in-
cludes: a description of the work tasks to be performed during
facilities planning, a schedule for completing each major work task
and output, and an estimate of the work hours and costs necessary to
complete each  task.
    Procedures;

    After a potential grant applicant has been identified, the
reviewing agency should contact the applicant and schedule a pre-
planning conference.  At the same time, the reviewing agency should
encourage the grant applicant to prepare and submit a plan of study
which will serve as the basis for discussion during the conference.
The following major topics are typically discussed during the pre-
planning conference:
                              308                           TM  86-1

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Permits and Compliance Schedules

Potential grant applicants are to be made aware that
existing projects must be in compliance with schedules
resulting from the implementation of EPA1s National
Municipal Policy (see Section II.D.I), the NPDES per-
mit program, court orders, or State enforcement orders
(see Section VI.C.6).
Procurement of Engineering Services


a.  Procedures

    The procurement of engineering or other pro-
fessional services for facilities planning and/or
design is not subject to the EPA procurement regula-
tions or to an EPA audit.  However, if the grant
applicant anticipates using the same engineer for
Step 3 construction activities, and wishes to avoid
advertising and evaluating proposals for engineering
services during construction, it must have procured
the engineer for facilities planning and/or design
in accordance with EPA procurement requirements
(see Section VII.C.3).


Re:  40 CFR 33.715
b.  Use of Small, Minority, Women's, and Labor
    Surplus Area Businesses
    Grant applicants are encouraged to utilize the
services of small, minority, women's, and labor
surplus area businesses (see Section V.C.l.w)
during facilities planning and design.  At the time
of grant application, they will be required to re-
port the level of minority business enterprises
and women's business enterprises (MBE/WBE) partici-
                     309                          TM 86-1

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    pation  in  facilities  planning  and  design.   Some
    States  and municipalities may  have established goals
    for  this purpose  (see Section  VI.D.5).
    Re:   40  CFR 33.240;  35.2104(d)
    c.   Use of Debarred or Suspended  Firms
        Grant applicants  should be  advised  not to  use
    individuals or firms  included on EPA1s  list of
    debarments and suspensions for  facilities planning
    or design work (see Section VI.D.7).  Grant appli-
    cants should also be  advised to report  any instances
    of misconduct by their contractors (e.g., engineers,
    construction firms, equipment suppliers,  etc.) to
    EPA's office of the Inspector General  (OIG), using
    the hotline (800-424-4000 or 202-382-4977) estab-
    lished for that purpose.
    Re:  40 CFR 35.2105
3.  Financial Considerations
    a.  State Priority System and Project
        Priority List
        Grant applicants should have a clear understanding
    of the State priority system and project priority list.
    Proposed projects should be evaluated and an assessment
    made as to the likelihood of receiving a future grant
    (see Sections II.E.3 and VI.D.3).
    Re:  40 CFR 35.2015, 35.2103
                         310                         TM 86-1

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b.  Federal Grant Share
    Grant assistance is limited to 55 percent for most
projects, except for grants at 75 percent for projects
or portions of projects which use an innovative or
alternative (I/A) technology (see Sections VI.L.2.d
and VI.L.2.e)  or which have received a 75 percent grant
for a previously funded phase or segment (see Section
VI.L.2.C).  A lower Federal share may be set by the
Governor (see Section VI.L.2.b).
Re:  40 CFR 35.2152
c.  Financial Assistance for Facilities
    Planning and Design Work
    Due to the elimination of Step 1 and Step 2 grants
by the 1981 CWA amendments, no grants for facilities
planning or design can be awarded after December 29,
1981.  Instead, an allowance is provided to help off-
set planning and/or design costs (see Section E below,
and Section VI.K.I).  In some cases, a portion of the
estimated allowance may be advanced to potential grant
applicants (see Section E below).  The allowance and
advance of allowance should be explained and the grant
applicant, if qualified, should be instructed on how
to apply for an advance of allowance (see Section E
below).
Re:  40 CFR 35.2025


d.  Step 2+3 Grants
    Qualifying municipalities should be advised to
apply for Step 2+3 grants (see Section VI.F.I).
Re:  40 CFR 35.2109
                     311                       TM 86-1

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   e.  Preaward Costs
        In certain cases, it may be cost effective (or
   may  be required by an emergency situation)  for a
   grant applicant to perform some preaward work which
   is normally  accomplished after grant award.  To be
   allowable  for grant participation, such preaward
   costs must be approved by the reviewing agency prior
   to being  incurred.  The reviewing agency should explain
   to the grant applicant the limitations which apply
   to preaward  costs  (see Section VI.D.15), and should
   remind  the applicant  that preaward costs are subject
   to audit  (see Section VIII.E).
    Re:   40  CFR  35.2118


    f.   phased or  Segmented  Projects


        Projects whose  cost  is  large  in  relation  to  the
    State's  annual allotment, and  projects  with expected
    construction schedules of three years or  more, may
    require  phasing or  segmenting. If the  reviewing
    agency anticipates  such  a situation, the  consequences
    of  phasing or  segmenting should be explained  to  the
    grant applicant (see Section VI.D.10).


    Re:   40  CFR  35.2108, 35.2123,  35.2152(a)  and  (c)


4 .   Limitations  on Eligibility


    a.   Collection Systems

        No grant award  may  be made for  a new sewage  collec-
    tion system  in a community  unless the bulk of the design
    flow (generally two thirds) is attributable to the  resi-
    dential population  which existed  on  October 18,  1972.
    Unless elected by the Governor,  no  grants may be awarded
    for new sewage collection systems after September 30,
    1984 (see Sections  II.E.3 and  VI.D.14).


Re: 40 CFR 35 . 2015(b)(2)(ii) , 35.2116



                         312                          TM 86-1

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   b.  individual Systems

       Costs  for privately owned  individual  treatment
   systems serving one or more principal  residences
   or  small commercial establishments  inhabited or
   in  use prior to December  27,  1977,  qualify  for
   grant assistance  (see Section  VI.E.I).

   Re:  40 CFR 35.2034
    c.   Reserve  Capacity

        Most reserve capacity is no longer eligible
    for grant assistance (see Sections VI.D.18,  and
    VI.L.I).
5.  intergovernmental Review

    Grant applicants should comply with the State intergovern-
    mental review process as early as possible, but no later
    than completion of facilities planning (see Sections
    VLB. 8 and VI.E.6) .

    Re:  40 CFR Part 29; 40 CFR 35.2040(b)(2)


6.  Technical Review

    a.  Water Quality Management Plan

        projects must comply with the approved WQM plan.
    These plans may  also contain information which can be
    used by the grant applicant, thereby  reducing costs
    (see Sections  II.C.I and II.C.3).

    Re:  40 CFR 35.2023, 35.2102


    b.   Facilities Plan

         The required contents  of a  facilities  plan  should
    be reviewed  (see Section  IV.C).   The  reviewing  agency
    should discuss the  level  of  detail  required  in  the
    facilities plan for  the particular  size  and  complexity
    of the project.  Clear  and  concise instructions  should
    be provided  to the  grant  applicant  concerning:
                          313

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    i.     documentation necessary to justify
           the need for the project (see
           Section IV.C.2.2);

    ii.    public participation requirements
           which will allow the State to cer-
           tify that there has been adequate
           public participation based on State
           and local statutes (see Sections
           IV.C.7.4 and VI.C.3);

    iii.   population and waste loading projec-
           tion techniques (see Section IV.C.5);

    iv.    effluent limitations (see Section IV.C.3);

    v.     advanced treatment (AT) review policy
           (see Section IV.E.I);

    vi.    policy on elimination of excessive
           I/I (see Sections IV.C.4.3, VI.D.16,
           and IX.F.4, Paragraph G);

    vii.   environmental review, including the scope
           of the environmental information document
           (BID)  or issuance of a categorical ex-
           clusion (see Section IV.D,  and item 7 below);

    viii.  demonstration of financial and managerial
           capability (see Section VI.D.4);

    ix.    requirements for alternative wastewater
           systems (see VI.E.I);

    x.     limitations on eligibility of reserve
           capacity (see Section VI.D.18); and

    xi.    cost-effectiveness analysis, including
           evaluation of I/A technologies (see
           Section IV.7.1).

Re;  40 CFR Part 6, Subpart E; 40 CFR 35.2030
c.  Value Engineering

    Where applicable, the grant applicant should be
    advised of the need for a value engineering (VE)
    study (see Section V.D).

Re: 40 CFR 35.2114


                     314

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d .  intermunicipa1 Service Agreement ]3

    Where applicable, grant applicants should be made
    aware of the need for executed intermunicipal service
    agreements and the long lead times generally necessary
    to negotiate such agreements (see Section V.H).

Re: 40 CFR 35.2107
e •  H^er Charge System

    The reguirements for a user charge (UC) system should
    be explained, particularly for multimunicipal projects
    or those municipalities with an ad valorem tax based
    system (see Section v.E).

Re- 40 CFR 35.2122, 35.2140, 35.2208


f •  Sewer Use Ordj.nance

    The reguirements for a sewer use ordinance (SUO)
    should be explained, especially if the municipality
    will receive industrial wastes and possibly be sub-
    ject to the pretreatment reguirements (see Section V.F)

Re: 40 CFR 35.2122, 35.2130, 35.2208; 40 CFR Part 403
g .  Plan of Operation

    The reguirements for a draft and a final plan of
    operation, including an operation and maintenance
    (O&M) manual, should be discussed (see Section V.G)

Re: 40 CFR 35.2106
h.  Pro ject_ Performance _Stai2dards

    While project performance certification and
    continuing engineering services are not reguired
    until well after the project has been awarded a
    grant, the grant applicant should be made aware
    of these relatively new reguirements (see
    Sections V.C.2.a, VI.M.S.g, and VII.I.2.a).
                     315

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                Ecclusion
        An environmental review must he conducted by the
    reviewing agency, in accordance with 40 CFR Part 6, for
    each project requesting grant assistance.  The environ-
    mental review may result in the issuance of a categorical
    exclusion, a finding of no significant impact (FNSI),
    or the need to prepare an environmental impact statement
    (EIS).  At the preplanning stage, it may be possible to
    conclude that a categorical exclusion is warranted, or
    alternatively that, because of the significant environ-
    mental impacts resulting from the proposed project, an
    EIS should be prepared concurrently with the preparation
    of the facilities plan (frequently called piggybacking).

        The conditions under which a categorical exclusion may
    be issued should be given consideration at the pre-planning
    stage of a project's development.  If issued, a categorical
    exclusion will reduce the work reguired on the part of the
    grant applicant in preparing a facilities plan, thereby
    saving time and money.  A categorical exclusion from a sub-
    stantitive environmental review is intended to apply to pro-
    jects which are small scale, minor, and routine.  Such pro-
    jects may include replacement, minor rehabilitation, minor
    expansion, or minor upgrading of facilities, which should
    not result in increasing the overall design capacity of the
    treatment works, nor the pipe size of interceptors or collec-
    tion sewers.  Where a categorical exclusion is granted by
    EPA, an EID need not be prepared by the grant applicant.
    However, if it is later found that conditions exist which
    require the preparation of an EA , FNSI or EIS, the categorical
    exclusion will be revoked by EPA, and the grantee will be
    required to furnish an EID (see Section IV. D).

    Re:  40 CFR 6.400(f), 6.506(c), 6.507(a), 35.2030(c)


8 .   Project Management

    Special emphasis should be placed on organizing the grant
    applicant's project team, particularly the selection of the
    engineering consultant, and on the demonstration, by the
    grant applicant, of its financial and managerial capability
    (see Section VI.O.4).  The grant applicant should also be
    advised of the importance of developing and maintaining a
    good record keeping system, with particular emphasis on
    records documenting eligible project costs and demonstrating
    compliance with EPA requirements, including grant conditions.
    In addition , t he applicant should be advised of the need to
    develop and maintain a project schedule (See Section VI. C. 6)
    and that failure to meet dates contained in that scheduli
    could be cause for an enforcement action.
                         316                             TM R6-1

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d.  Inter-municipal Service Agreements

    Where applicable, grant applicants should be made
    aware of the need for executed intermunicipal service
    agreements and the long lead times generally necessary
    to negotiate such agreements (see Section V.H).

Re: 40 CFR 35.2107
e.  User Charge System

    The requirements for a user charge (UC) system should
    be explained, particularly for multimunicipal projects
    or those municipalities with an ad valorem tax based
    system (see Section V.E).

Re: 40 CFR 35.2122, 35.2140, 35.2208


f.  Sewer Use Ordinance

    The requirements for a sewer use ordinance (SUO)
    should be explained, especially if the municipality
    will receive industrial wastes and possibly be sub-
    ject to the pretreatment requirements  (see section V.F

Re; 40 CFR 35.2122, 35.2130, 35.2208; 40 CFR Part 403


g.  Plan of Operation

    The requirements for a draft and a final plan of
    operation, including an operation and  maintenance
    (O&M) manual, should be discussed (see Section V.G).

Re; 40 CFR 35.2106


h.  Project Performance Standards

    While project performance  certification and
    continuing engineering services are  not required
    until well after the project has been  awarded a
    grant, the grant applicant should be made  aware
    of these  relatively new  requirements  (see
    Sections  V.C.2.a, VI.M.S.g, and VII.I.2.a).
                      315

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7.   Categorical Exclusion

        An environmental review must be conducted by the
    reviewing agency, in accordance with 40 CFR Part 6, for
    each project requesting grant assistance.  The environ-
    mental review may result in the issuance of a categorical
    exclusion, a finding of no significant impact (FONSI),
    or the need to prepare an environmental impact statement
    (EIS).  At the preplanning stage, it may be possible to
    conclude that a categorical exclusion is warranted, or
    alternatively that, because of the significant environ-
    mental impacts resulting from the proposed project, an
    EIS should be prepared simultaneously with the preparation
    of the facilities plan (frequently called piggybacking).

        The conditions under which a categorical exclusion
    may be issued should be given consideration at the pre-
    planning stage of a project's development.  If issued,
    a categorical exclusion will reduce the work required on
    the part of the grant applicant in preparing a facilities
    plan, thereby saving time and money.  A categorical exclusion
    from a substantitive environmental review is intended to apply
    to projects which are small scale, minor, and routine.  Such
    projects may include replacement, minor rehabilitation, minor
    expansion, or minor upgrading of facilities, which should
    not result in increasing the overall design capacity of the
    treatment works, nor the pipe size of interceptors or collec-
    tion sewers.  Where a categorical exclusion is granted by
    EPA, an EID need not be prepared by the grant applicant.
    However, if it is later found that conditions exist which
    require the preparation of an EIS, the categorical exclusion
    will be revoked by EPA, and the grantee will be required to
    furnish an EID (see Section IV.D).

    Re:  40 CFR 6.400(f), 6.506(c), 6.507(a), 35.2030(c)
8.  Project Management

    Special emphasis should be placed on organizing the grant
    applicant's project team, particularly the selection of the
    engineering consultant, and on the demonstration, by the
    grant applicant, of its financial and managerial capability
    (see Section VI.D.4).  The grant applicant should also be
    advised of the importance of developing a good record
    keeping system, and of keeping adequate records to document
    eligible project costs and to demonstrate compliance with
    EPA requirements, including grant conditions.
                         316

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    9.  Publications

            While the preplanning conference is an extremely useful
        method of assisting potential grant applicants, publications
        prepared by State agencies or EPA are also an effective tool
        for guiding grant applicants.  Most States have prepared
        packets of information which are directed toward specific
        aspects of the grant application process.  Where these pac-
        kets are available and contain current or updated material,
        they should be used.

            On the National level, the principal publication
        prepared by EPA to assist potential grant applicants is
        "Construction Grants 1985" (CG-85).  The CG series will
        be updated on a periodic basis to reflect current policies
        and regulatory requirements.   The CG series is intended to
        serve as the principal guidance document for grant applicants
        and grantees, throughout the entire grant processing period.

            Other EPA guidance documents are published periodically,
        addressing subjects such as financial and managerial cap-
        ability, project performance standards, abandonment of
        treatment works, failed treatment works, etc.  The reviewing
        agency is responsible for distributing the appropriate
        guidance materials in a timely manner.

            As the reviewing agency distributes guidance materials,
        caution must be exercised to insure that the grant applicant
        is not inundated with so much material, including regulations,
        that the overwhelming volume causes the grant applicant to
        be confused and frustrated.  Rather, the reviewing agency
        should be selective in the volume and timing of distribution
        of guidance materials, and should point out to each grant
        applicant the most important  publication that coincides with
        the current stage of development of its project.
E.  ADVANCE OF ALLOWANCE

    Purpose;

    Provide financial assistance to small communities which would
otherwise be  unable to complete facilities planning and/or project
design.
                             317

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    Discussion;

    The 1981 CWA amendments allow State agencies to apply to EPA
for a grant, under which the State can provide advances of allow-
ance to small communities which are potential grant applicants.
States in turn may request that the advance be paid directly by
EPA to designated potential grant applicants.

    Several important limitations concerning advance of allowance
must be clearly understood by the grant applicant:

    - The State is responsible for establishing the criteria
      under which communities may qualify to receive an advance
      of allowance (see Section VI.K.I.a)

    - The allowance is estimated based on the procedures
      outlined in 40 CFR Part 35, Subpart I, Appendix B.

    - The amount of the advance may not exceed the Federal
      share (generally 55 percent) of the estimated allowance
      (see Section VI.L.2).

    - The State will determine the percentage of the allow-
      ance which will be advanced (not to exceed the Federal
      share), and the timing of payments of the advance
      (see Sections VI.K.l.c and VI.K.l.d).

    - The allowance is based on the estimated allowable
      building costs, including acquisition of eligible
      land and force account, and excluding engineering,
      fiscal, legal, and other costs not considered part of
      the building costs (see Section VI.L.l).

    - The allowance is not to be considered as a guide in
      establishing engineering costs for facilities
      planning and design.  Rather, the portion of the
      allowance which is advanced is intended to help
      offset these costs.

    - If the grant applicant subsequently receives a grant
      award, the advanced funds will be subtracted from the
      computed grant.  If a grant is not subsequently
      awarded, the State agency may seek repayment of the
      advance, on such terms attd conditions as the State may
      determine (see Section VI.K.l.e).
                             318

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    Procedures;

    Unlike most  of the other activities described in this Handbook,
advances of allowance are administered by the State agency, regard-
less of whether  or not it has signed a delegation agreement with
EPA.  Thus, an applicant for an advance of allowance must follow
the procedural requirements established by the State agency.  The
State reviewer is to insure that the applicant has:

    1.  applied  for the advance using the form or format
        specified by the State (see Section VI.K.l.b);

    2.  met the State's definition of a small community
        (see Section VI.K.I.a.i);

    3.  met all other State criteria to qualify for an
        advance (see Section VI.K.l.a.ii);

    4.  correctly computed the estimated allowable building
        cost, which includes the estimated cost of:

            a.  the initial award of all prime sub-
                agreements for building the project
                (but not the cost of inspection and
                other engineering services),

            b.  the initial approved force account
                work to be performed in lieu of
                awarding a subagreement for building
                the project  (but not in lieu of
                awarding a subagreement for inspection
                and other engineering services),  and

            c.  the purchase of eligible real property;


     5.  correctly  computed  the  "percentage of building  cost"  from
        40 CFR  Part 35, Subpart  I,  Appendix B, Table  1  (if  no
        Step  1  or  Step  2 grant  was  previously awarded for  the
        project)  or Table  2  (if  a Step  1, but no  Step 2 grant
        was previously  awarded  for  the  project);

     6.  used  the  correct Federal share  of 55  percent  (unless
        the project has  been  "grandfathered," or  a lower
        Federal share  has  been  set  by  the Governor, with EPA
        approval), plus  an  additional  Federal share of  up  to
        20 percent for  I/A  projects (see  Sections VI.D.lO.d.ii
        and VI.L.2);
                              319

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    7.  correctly computed the estimated allowance as the
        product of the estimated allowable building cost
        (see Item 4 above) and the "percentage of building
        cost (see Item 5 above)/ and correctly computed
        the maximum advance allowed under the EPA regulations
        as the product of the estimated allowance and the
        Federal share (see Item 6 above);

    8.  applied for either the maximum advance allowed under
        the EPA regulations, or a lower amount mandated by
        the State (see Section VI.K.l.c); and

    9.  requested payment of the appropriate percentage of
        the advance, or of the entire advance, depending on
        State requirements (see Section VI.K.l.d).


    Payment procedures for advances of allowance are discussed in
Section IX.B.8.C.
                             320

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           CHAPTER IV




      FACILITIES PLANNING









A.  INTRODUCTION




R.  REGULATORY REQUIREMENTS




C.  FACILITIES PLAN CONTENTS




D.  FACILITIES PLAN APPROVAL




P.  SUPPLEMFNTAL CONSIDERATIONS
               401

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A.  INTRODUCTION

    This chapter describes the requirements and procedures for
reviewing facilities plans.  Some sections provide complete details
for a specific subject, while other sections reference more detailed
discussions in other chapters.

    Section R, Regulatory Requirements, describes regulations and
guidance documents which are applicable, based on the date that
facilities planning was initiated.  This section also discusses
the relationship between facilities plans and water quality manage-
ment (WOM) plans, and provides a brief introduction to the general
requirements for facilities planning.

    Section C, Facilities Plan Contents, representing the bulk of
the chapter, describes the procedures for reviewing facilities plans,
from the need for the project through evaluation of alternatives and
plan selection.

    Section D, Facilities Plan Approval, primarily discusses the
National Environmental Policy Act (MEPA) and related environmental
laws which must be considered as the reviewing agency decides whether
or not to prepare an environmental impact statement (FIR).

    Section E, Supplemental Considerations, describes three items
which are applicable to a limited number of projects: advanced
treatment reviews, industrial pretreatment, and combined sewer over-
flow (CSO) projects.
B.  REGULATORY REQUIREMENTS

1.  Facilities Planning Regulations

    Since 1972, three major sets of regulations describing the
requirements for facilities planning have been published by EPA.
These regulations and the corresponding edition of the Handbook of
Procedures in which they are discussed ae identified below.

    Final regulations for facilities planning, implementing the
1972 Clean Water Act (CWA) amendments, were promulgated on
February 11, 1974, at 40 CFR 35.917.  The first edition of the
Handbook of Procedures, dated February 1976, included procedures
for reviewing facilities plans in accordance with these regulations

    Regulations implementing the 1977 CWA amendments were promul-
gated on September 27, 1978, which revised the facilities planning
requirements at 40 CFR 35.917.  The second edition of the Handbook
                             403

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of Procedures, dated 1980, included changes in the facilities
planning requirements and review procedures resulting from promul-
gation of the revised regulations.

    The 1981 CWA amendments eliminated Step 1 (facilities planning)
and Step 2 (design) grants, replacing them with an allowance to help
defray costs in carrying out facilities planning and/or design work.
Extensive changes to the construction grants regulations were re-
quired to implement these amendments.  Final regulations implementing
the 1981 amendments were promulgated on February 17, 1984, with
facilities planning requirements located at 40 CFR 35.2030.  This
third edition of the Handbook of Procedures reflects changes in the
requirements and review procedures for facilities plans based on the
February 17, 1984 final regulations.

    The preamble to the February 17, 1984 regulations (40 CFR
Part 35, Subpart I) reads in part, "This regulation is effective for
all grants awarded on or after February 17, 1984.  Facilities plans
and design initiated under 40 CFR Part 35, Subpart E continue to be
subject to the requirements in Subpart E.  Unless required by the
1981 amendments, no revisions to the facilities plan or design will
be required.  Work done under Subpart E will be accepted for grant
awards under this subpart."

    In addition to the three editions of the Handbook of Procedures,
for use by reviewing agency officials, EPA has published four
guidance documents for use by grantees and grant applicants. These
four guidance documents include detailed discussions of facilities
planning requirements, and reflect regulations and policies in
effect at the time of publication.  "Guidance for Preparing a
Facility Plan, Revised May 1975" (MCD-46) was based on the Febru-
ary 11, 1974 regulations.  "Facilities Planning 1981" (FP-81)
reflected the September 27, 1978 regulations.  "Construction Grants
1982" (CG-82) provided guidance, including requirements for facili-
ties planning, between passage of the 1981 amendments and publica-
tion of the February 17, 1984, final regulations.  "Construction
Grants 1985" (CG-85), the companion document to this third edition
of the Handbook of Procedures, includes guidance for grant appli-
cants in satisfying the requirements, including facilities planning,
of the February 17, 1984 final construction grants regulations.

    Project reviewers are to insure that facilities plans, as well
as design and construction requirements, are reviewed in accordance
with the regulations, policies, and guidance applicable at the time
the work was initiated.  Where facilities plans were prepared with
Step 1 grant assistance, the preamble statement above clearly indi-
cates that they are to be reviewed in accordance with the 40 CFR
Part 35, Subpart E regulations in effect at the time of grant award.
                             404

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However, prior to Step 3 grant award, older facilities plans
may require updating to reflect current data (e.g., existing
population, land uses, costs, etc.).  The effect of the reduced
Federal grant share after September 30, 1984 (usually 55 percent),
and the resultant larger local share, may require additional public
disclosure and/or financial arrangements.

    The review of facilities plans initiated by a grant applicant
without the benefit of grant assistance (most likely between
December 29, 1981 and February 17, 1984) requires judgement on the
part of the reviewing agency with regard to the application of
either Subpart E or the interim (May 12, 1982)  Subpart I regulations
(see Sections VI.C.2 and VIII.B.l.c).  Facilities planning initiated
by a grant applicant after February 16, 1984 is subject to the final
regulations published by EPA on February 17, 1984.

    To assist construction grants personnel in identifying applicable
regulations and policies in effect at the time of initiating project
work, EPA has published the "Regulation and Policy Matrix - A Guide
to the Rules Governing Grants Awarded under the Construction Grants
Program", dated December 1983.  Using this guide, the project reviewer
has the ability to identify regulations, policies, and the edition of
the Handbook of Procedures applicable to the specific project.

Re:  Preamble to 40 CFR Part 35, Subpart I, 49  FR 6225
     (February 17, 1984) .


2.  National Environmental Policy Act

    Regulations implementing NEPA represent the other major source
of requirements used in reviewing facilities plans.  EPA's regula-
tions implementing NEPA are located at 40 CFR Part 6.

    Proposed regulations based on NEPA, Executive Order 11514, and
the Council on Environmental Quality (CEQ) Guidelines, were first
published by EPA on January 20, 1972.  They became interim regula-
tions on January 17, 1973, were revised as proposed on July 17, 1974
and were finalized on April 14, 1975.  During this period the regu-
lations were expanded to include other Federal  environmental laws
and executive orders.  On June 18, 1979, EPA proposed to completely
revise Part 6, based on changes required by the promulgation of
CEQ's regulations (not guidelines as before).

    The revised 40 CFR Part 6, published as interim regulations on
March 8, 1982 and interim/final on January 7, 1983, included changes
to the criteria for requiring preparation of an EIS; introduced a
procedure for excluding certain types of projects from substantive
environmental review, called a categorical exclusion (see Section
III.D.7); and changed terminology to agree with the new CEQ regula-
tions.  For example, a "negative declaration" was changed to a
"finding of no significant impact" (FNSI).
                             405                         TM 86-1

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    On January 7, 1983, EPA issued a proposed rule to revise Sub-
part E of the 40 CFR Part 6 regulations to reflect the substantial
changes in the construction grants program that were brought about
by the 1981 Amendments to the Clean Water Act and subsequent changes
to the construction grants program regulations (40 CFR Part 35).
When the interim-final rule was published on 6/25/85, it contained
several construction grants related changes that had not been included
in the proposed rule.  At the time of this updating of the Handbook,
EPA was in the process of incorporating its responses to comments
received on the interim final rule into a draft of the final rule.
Until the final rule is published, the interim final rule remains in
effect and is supplemented by a guidance memorandum ("Guidance on
40 CFR 6 Subpart E"), dated 12/13/85, from the Office of Federal
Activities (OFA) to the Regional NEPA Compliance Coordinators. Pro-
ject reviewers are advised to monitor the status of the final Part 6
rule.

    In 1980, OFA proposed regulations describing procedures for com-
plying with Section 106 of the National Historic Preservation Act
(NHPA).  These proposed regulations/ intended for incorporation into
40 CFR Part 6 as Subpart K, were delayed for several years, however,
pending revisions to the corresponding Advisory Council on Historic
Preservation (ACHP) regulations (36 CFR Part 800).  In March 1984,
in the absence of revised ACHP regulations, EPA distributed its pro-
posed Subpart K rule as non-binding guidance to assist Regions and
States in reviewing actions that could affect historic and archaeo-
logical properties, and to fully integrate the statutory requirements
of the NHPA into the NEPA review process.  On 8/1/85, the ACHP issued
draft guidelines for taking into consideration the cultural value of
historic properties in reviews carried out under Section 106 of the
NHPA, and on 10/15/85, the awaited revisions to the ACHP's Part 800
regulations were proposed.  At the time of this Handbook updating,
the ACHP was reviewing comments received on both the proposed guide-
lines and the proposed regulatory revisions.  Until these documents
are published in final form, the existing ACHP regulations (36 CFR
Part 800) and the aforementioned EPA non-binding guidance remain  in
effect.  Project reviewers are advised to monitor the status of the
ACHP regulatory revisions.


Re;  40 CFR 6.301

3.  Water Quality Management Plans

    A portion of the funds allotted to each State are reserved for
grants to carry out WQM planning (see Sections II.C.4 and II.E.4).
Among other things, WQM planning identifies cost effective and
locally acceptable facilities to achieve and maintain the appli-
cable water quality standards.  WQM planning will also determine
which publicly owned treatment works (POTWs) should be constructed,
in which areas, and in what sequence.
                             406                         TM 86-1

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    Two limitations on award of grant assistance (see Section VI.D.2)
require a project to be consistent with the approved elements of any
applicable WQM plan, and the grant applicant to be the wastewater
management agency designated in that WQM plan.

    A complete description of WQM planning is given in Chapter II.
As project reviewers are preparing to review facilities plans, they
should be aware of the WQM plan which has been prepared for the pro-
ject area, and insure that the facilities plan is consistent with
that WQM plan.  Differences or inconsistencies may require revision
of either the facilities plan or the WQM plan.

Re:  40 CFR 35 . 2023(a)(1) and (a)(4), 35.2102

4 .  Facilities Planning Review

    Facilities planning is the first major activity undertaken by
a potential grant applicant as a prerequisite to grant award.
Facilities planning consists of those necessary plans and studies
which directly relate to treatment works needed to comply with
enforceable requirements of the CWA.  Facilities planning investi-
gates the need for proposed facilities through a systematic evalua-
tion of alternatives that are feasible in light of the unique
demographic,  topographic, hydrologic, and institutional character-
istics of the area; and demonstrates that the selected alternative
is cost effective.  The regulations define "cost effective" as "the
most economical means of meeting the applicable effluent, water
quality, and  public health requirements over the design life of the
facility while recognizing environmental and other non-monetary
considerations."

    In order  to further clarify the intent of facilities planning,
the regulations include a description of facilities plan contents
at 40 CFR 35.2030(b), which provides that a facilities plan must
describe both the proposed treatment works and the complete waste
treatment system of which it is a part.  A facilities plan must
also  include  an adequate evaluation of the environmental impact of
alternatives, in accordance with 40 CFR Part 6.  The two regulations
(i.e., 40 CFR Part 6  and 40 CFR Part 35, Subpart I) are the primary
source documents which set forth the requirements for facilities
planning.

    Facilities planning  is considered by many to be the most com-
plex  aspect of the construction grants program.  Its complexity  is
primarily related to  the subjective interrelationships between
engineering feasibility, economic and environmental considerations,
public acceptance, and  institutional arrangements necessary for
project  implementation.  The need to adequately address, evaluate,
and integrate these considerations very often requires expertise
from  several  disciplines.  The  importance of each consideration
may vary from project to project, and may be related to the size
and complexity of the project,  its geographic location, and the
perceived values of the grant applicant.


                             407                         TM 86-1

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    While the regulations describe the contents of a facilities
plan, they do not specify the format for presentation of the re-
quired information.  Recognizing that grant applicants needed
assistance in this area, EPA published "Guidance for Preparing a
Facility Plan" (MCD-46), which was revised in May 1975.  This
publication contained a suggested outline designed to satisfy
regulatory requirements for facilities planning.  Since 1975, EPA
has not found it necessary to revise the suggested outline, since
it continues to present the required information in a sequence
corresponding to the logical preparation of a facilities plan.
EPA has, however, published other documents, targeted to grantees
or grant applicants, which address facilities planning (e.g.,
FP-81, CG-82, and CG-85).  These documents incorporate new statu-
tory requirements and seek to clarify and elaborate many of the
considerations in facilities planning (see Section B.I above).

Re:  40 CFR 35.2030


C.  FACILITIES PLAN CONTENTS

    The following sections describe the contents of a facilities
plan, using a suggested outline for presentation of the required
information.  However, a grant applicant may select his own method
or format.

    The suggested outline uses a numerical system for chapters and
subheadings.  Some of the information is self explanatory and is
so noted.  Other information follows the general format of this
Handbook and is described by a Purpose, Discussion, Review Procedure,
and References.


1.  Summary, Conclusions, and Recommendations

    Self-explanatory.

2.  Purpose and Need

    2.1  Study Purpose

         A facilities plan is prepared as one component of an appli-
    cation for grant assistance.  The facilities plan establishes
    the need for the project; evaluates alternative solutions; and
    selects a cost effective, environmentally sound project.  The
    facilities plan also represents a public record of decision-
    making and should be written to provide the general public,
    municipal officials, and regulatory officials with a clear
    understanding of the problem, solutions, and consequences of
    the project.  The proposed project must satisfy all applicable
    Federal and State laws and regulations.
                             408                         TM 86-1

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2 .2  Need for_the Pro^ec t

     Purpose:

     A facilities plan must establish the need for the
proposed project and demonstrate how the project, or the
complete treatment system of which it is a part, will meet
the enforceable requirements of the CWA.

     J^scjussjLon •.

     Demonstration of project need may range from a rela-
tively simple to a complex justification.  Mcmy cases arise
where an existing treatment works is in violation of its
National Pollutant Discharge Elimination System (NPDES) permit,
or the municipality is under a court or enforcement order re-
quiring corrective action.  The need for the project is based
on an assessment^ that a structural solution is required to abate
water~poIIution , J.JLe^i_that'upgraded operation and maintenance
or a program of flow reduction wil1 be insufficient.

     An example of a more complex case , in terms of demon-
strating need, is where a municipality claims need based on
failing onsite systems.  Since no discharge permit exists,
the facilities plan must demonstrate the need for the project
based on the extent of surface or ground water use, restoration
or public health improvement resulting from the project.  In
order to demonstrate project need, a grant applicant may be
required to document the number, frequency, type, and location
of failing onsite systems through the use of local health
department records, survey questionnaires, or house-to-house
surveys.  Earlier EPA policy required this type of specific
documentation.  However, present agency policy allows States
and EPA Regions to determine the type of documentation re-
quired to substantitate failing onsite systems on a case-by-
case basis. Guidance on evaluating need is presented in "How
to Conduct A Sanitary Survey" which is contained in Appendix R
of CG-85.

     Another relatively complex case, requiring judgement in
terms of demonstrating need, concerns proposed CSO projects.
Depending on the source of funding from the States' allotment,
the State may have to demonstrate that significant uses of the
water for fishing and swimming will not be possible without
the project, and that the project will result in substantial
restoration of an existing  impaired use (see Sections  II.E.3
and VI.G).

     Other types of eligible projects for which a unique approach
may be necessary to demonstrate project need include:  infiltra-
tion/inflow (I/I) correction, treatment more stringent than
secondary and (in States where the Governor elects to  include


                                                    TM 86-1
                         409                           (85-1)

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            categories not normally eligible for grant assistance
    £1 *-®£_§L§ptember 30L_1984)  major sewer system rehabilitation
    (see Section II.E .3 ) .    ~

         A demonstration  of project need  is not necessarily an
    easy task,  and will require unique documentation depending
    on the circumstances  of a  particular  project.  Project need
    may also be demonstrated throughout many sections of a
    facilities  plan, rather than being presented in one chapter
    or section.  With  regard to acceptance of the grant appli-
    cant demonstration of  project need, the principal respon-
    sibility of project reviewers is to insure that the proposed
    project, or the complete treatment system of which the project
    is a part,  meets the  enforceable requirements except as noted
    in the review procedures below.

         RevJew Procedures:

         A facilities  plan must demonstrate project need in terms
    of meeting  the enforceable requirements of the CWA by:

         a.  including a  copy  of regulatory directives
             (e.g., NPDES  permit requirements, court
             or enforcement orders, etc.) in the case
             of existing  treatment facilities; or

         b.  substantiating that the proposed project
             will reduce  pollution and result in sur-
             face or ground water use restoration or
             public health improvement.

    An exception to this  requirement may  apply to certain "sewer
    projects,"  as described in Section II.E.3.

    Re:  40 CFR 35.2000(a), 35.2015(b) and ( f) , 35.2024U),
         35.2030(a)(1)

3 •   E f fluent Limitations

    Purpose;

    Effluent limitations  establish the effluent characteristics
for surface water discharges,  or the quality of groundwater to
be maintained for land application systems.

    Discussion;

    Effluent from a treatment works is either discharged to a
surface water body, recharged  to groundwater, recycled for other
uses, or evaporated in containment ponds.  For containment ponds,
assuming that the ponds are lined to prevent seepage into the
                             410                        TM 85-1

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groundwater,  no effluent limitations are required.  Recycled
effluents must meet the characteristics necessary for their in-
tended use.  However, if the recycled effluent is eventually dis-
charged to a surface water body or to qroundwater , the recycled
effluent must satisfy the applicable effluent limitations.

    Facilities plans are required to describe the Best Practicable
Wastewater Treatment Technology (BPWTT) applicable to each alter-
native under consideration.  BPWTT is defined in the regulations
as the cost effective technology that can treat wastewater, CSOs,
and nonexcessive I/I to meet the applicable provisions oft

    a.  40 CFR 122.44(d) - Water Quality Standards and
        State Requirements?

    b.  40 CFR Part 125, Subpart G - Criteria for Modifying
        the Secondary Treatment Reauirements under Section
        301(h) of the Clean Water Act;

    c.  40 CFR Part 133 - Secondary Treatment information;
        and

    d.  41 FR 6190  (February 11, 1976) - Alternative Waste
        Management  Techniques for BPWTT (treatment and
        discharge,  land application techniques and utili-
        zation practices, and reuse).


    BPWTT defines a minimum level of treatment, as well as pro-
visions for higher  levels, where necessary to achieve or maintain
water quality standards.  Projects proposing higher levels of
treatment (i.e., advanced treatment) may be subject to EPA1s
"Policy for Review  of Advanced Treatment Projects" (see Item 3.3
below).

Re:  40 CFR 35.2005(b)(7) , 35 . 2030(b)(2)


    3.1  gee one! a r y  T r e a t m e n t

         The  1981 CWA amendments added  Section 304(d)(4)  to
    the CWA,  which  states that "such biological treatment
    facilities as oxidation ponds, lagoons, and ditches and
    trickling  filters shall be deemed  the equivalent of
    secondary  treatment."  However, Section 304(d)(4) also
    requires  "that  water quality will  not be adversely affected
    by deeming such facilities as the  equivalent of secondary
    treatment."

        In implementing  these provisions of the CWA, EPA  con-
    ducted extensive studies of existing facilities to determine
    the effluent characteristics of various treatment processes.


                             411                        TM 85-1

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     The  investigation  concluded  that oxidation ditches are
     appropriately  classified  as  treatment  processes capable of
     providing  secondary  treatment.  Oxidation  ponds and lagoons,
     referred  to  as waste stabilization  ponds  in  the regulations,
     and  trickling  filters  were classified  as  equivalent treat-
     ment processes.  All other biological  treatment processes
     were found to  be capable  of  achieving  secondary treatment.

         EPA has  defined  the minimum level  of  effluent quality
     attainable by  secondary treatment in terms of the parameters
     five-day biochemical oxygen  demand  (BOD5), suspended solids
     (SS),  and pH as:

         -  BOD5 and  SS  -  30 day average  shall  not exceed
           30 milligrams  per liter (mg/1);  7 day average
           shall  not exceed 45 mg/1; 30  day average percent
           removal  shall  not be less than 85 percent; and

         -  pH - effluent  maintained  within  the limits of
           6.0 to 9.0 (certain exceptions are  allowed).

         Treatment deemed equivalent to  secondary treatment (i.e.,
     ponds  and trickling  filters  not capable of meeting the 30/30
     mg/1 effluent limits)  is defined in terms of the parameters
     BODs,  SS, and pH as:

         -  BOD5 and SS  -  30 day average  shall  not exceed
           45 mg/1; 7 day average shall  not exceed 65
          mg/1;  30 day average percent  removal shall not
           be less than 65 percent (less stringent SS limits
           are allowed  for waste  stabilization ponds where
           alternative values have been  determined by the
           State  and approved by  EPA);  and

        - pH - effluent maintained within the limits of 6.0
           to 9.0 (certain exceptions are allowed).

     Adjusted effluent limits for existing trickling filters and
waste stabi zation ponds deemed equivalent to secondary treatment,
are  to be set on a case-by-case b sis based on the performance
or design capabilities of the facility  to prevent backsliding. The
effluent limits  are not automatically adjusted to 45 mg/1.  Adjust-
ments of limits  for equivalent treatment must assure that water
quality is not adversely affected.  A State must develop an appro-
priate set of effluent limits for new facilities using trickling
filters or ponds. The regulations also provide for less stringent
limits to be set by the State, with EPA approval, of the equivalent
treatment requirements for existing trickling filters and ponds
(i.e., "Alternative State Requirements"),  in these cases, the  pro-
ject reviewer is to refer to the appropriate section of the secondary
treatment regulations for specific requirements.
                             412                           TM 86-1
                                                             (85-1)

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    Project reviewers should also be aware that the effluent
parameter carbonaceous biochemical oxygen demand (CBOp5)  may
be used in lieu of the more common 8005 under the revised
secondary treatment regulations.   It has been determined  that
CBOD5 more accurately reflects treatment performance with
regard to organic material than BOD5.   Where CBOD5 is used,
the secondary treatment definition changes for 30 and 7 day
averages to 25 mg/1 and 40 mg/1 respectively.  For treatment
processes deemed equiv ent to secondary treatment, the CBOD5
limits for 30 and 7 day averages are 40 mg/1 and 60 mg/1
respectively.

Re:  Final amendment to 40 CFR Part 133, 49 FR 36986
     (September 20, 1984).

    The percent removal provision of the secondary treatment
regulations has been revised to allow more flexibility in terms
of adjusting percent removal requirements for individually
justifiable cases.  The revised regulations allow a lower per-
cent removal requirement or a mass loading limit if:

    - The treatment works  is consistently meeting or will
      meet (for new plants) its permit effluent concentra-
      tion limits  (e.g., 30 mg/1 BOD5 and TSS for secondary
      treatment;  45 mg/1 BOD5 and TSS for equivalent tech-
      nologies except ponds with approved less stringent
      limits, but  its percent removal requirements cannot
      be met due  to less concentrated influent wastewater.

    - To meet the percent  removal requirements, the treatment
      works would  have  to  achieve significantly more strin-
      gent limitations  than would otherwise be required by
      the concentration-based standards  (e.g. , at  least 25
      mg/1 BOD5 and TSS for secondary treatment) or would
      force significant construction or  capital expenditure.

    - The less concentrated influent wastewater is not the
      result of excessive  I/I.  Definition of excessive I/I
      is based on  that  used in the construction grants
      regulations  (i.e.,  20 gpcd dry weather  flow  and  275
      gpcd during  storm events).

Re:  Final amendments  to  40 CFR Part 133.103(d),  50 FR 23387
     (June 3,  1985). Technical correction to  40 CFR Part
     133.103(d),  50 FR  36880  (September  10,  1985).


 3.2  Marine  Discharge  Waivers

     Refer to  Section  VI.E.2  for  a  discussion of  requirements
applicable to  projects  with marine  discharge  waivers.
                                                     TM  86-1
                          413                            (85-1)

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3.3  Advanced Treatment

     Effluent limitations more stringent than secondary
treatment (i.e., advanced treatment)  may be established
by a State for water-quality-limited  stream segments.
These effluent limitations are determined in the WQM
plan, and are based on the wasteload  allocation for the
specific stream segment into which the effluent is dis-
charged (see Section II.C.3).  Where  advanced treatment
is required to achieve or maintain water quality
standards, and where the incremental  costs exceed specific
limitations, such projects are subject to a more inten-
sive review by the State, EPA Regional Office, and possibly
EPA Headquarters.  Refer to Section E.I below for a dis-
cussion of the review and processing  procedures for such
proj ects.
3 »4  Land Application

     Wastewater effluent applied to land may either recharge
the groundwater, be collected for disposal to surface water
bodies, or a combination of both.  Surface water discharges
are subject to the effluent limitations defined in Item 3.1
above.  Effluents which recharge groundwater may not them-
selves be directly subject to effluent limitations.  Rather,
the quality of groundwater is defined, depending on current
or potential uses, which in turn indirectly establishes the
effluent limitations for the applied wastewater.

     EPA1s definition of BPWTT for groundwater discharges
considers three cases:

     a.  groundwater which can potentially be used
         for a drinking water supply,

     b.  groundwater which is used for a drinking
         water supply, and

     c.  uses other than for a drinking water supply.
In the first two cases, the groundwater quality should not
exceed the National Interim Primary Drinking Water Regula-
tions (40 CFR Part 141) for organic and inorganic chemicals.
Where the groundwater is presently used for drinking water,
the groundwater should also satisfy the microbiological
contaminent levels of these regulations.  The groundwater
quality for other uses is to be established jointly by the
State and EPA on a case-by-case basis.
                         414                        TM 85-1

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    Review Procedures;

    The project reviewer is to determine that the correct set of
effluent limitations has been identified for each alternative.
The effluent limitations may vary, depending on the location of
the surface water discharge or the treatment process employed.
Effluent limitations may be contained in NPDES permits for existing
facilities, and in WQM plans or EPA regulations for proposed new
facilities.  Insure that:

    a.  effluent limitations for secondary treatment, or for
        treatment deemed equivalent to secondary treatment,
        are established for each surface water discharge
        alternative;

    Re; Proposed amendment to 40 CFR Part 133, 48 FR 52258
        (November 16, 1983)


    b.  documentation supporting a request for a marine
        discharge waiver meets regulatory requirements;

    Re; 40  CFR  35.2112; 40 CFR Part 125, Subpart G


    c.  treatment more  stringent  than secondary  treatment
        is  required  based  on water quality standards,  and
        the project  has been or will be  reviewed under
        EPA's  Advanced  Treatment  Policy;

    Re: 40  CFR 35.2101;  EPA  notice "Policy  for Review  of
        Advanced  Treatment Projects," 49  FR  21462
         (May  21,  1984)


    d.  CSO projects satisfy case-by-case  determinations
         for effluent limitations;

    Re;  40 CFR 35.2024, 133.103U)


     e.   projects proposing groundwater  recharge  identify
         present and future groundwater  uses, apply appli-
         cable requirements of the National Primary Drinking
         Water Regulations, and propose  a monitoring program.

     Re: 40 CFR Part 141
                              415

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4.   Existing Environment

    4.1  Existing Conditions in the Planning  Area

         Purpose;

         Describe the existing  conditions in  the project
    planning area in order to form a basis of comparison among
    alternatives and to identify unique  features of  the planning
    area which may influence the selection of the recommended
    plan.

        Discussion;

        One alternative required to be discussed in  a  facilities
    plan is "no action" (i.e.,  what happens to the planning  area
    if  no wastewater project is built).   The  existing  planning
    area description,  therefore,  paints  a picture (maps,
    charts, or tables  are  also  useful) which  allows  municipal
    officials,  the general public,  and regulatory officials  to
    gain an understanding  of the existing environment.   It pro-
    vides  the  basis  from which  to assess  future  conditions.


        Review Procedures;

        Suggested topics which  describe  the existing environ-
    ment in the planning area are included  below.  The  listing
    serves  as  a guide  to project  reviewers  to insure that all
    relevant environmental  features  are  included  in  the  facili-
    ties plan.   Where  appropriate,  sources  of information should
    be  cited or referenced:

        a.   surface  and groundwater  hydrology (quantity,
            quality, and uses);

        b.   physiography,  topography, geology, and soils;

        c.   precipitation,  temperature, and prevailing
            winds, if  relevant;

        d.   air quality;

        e.   noise  levels;

        f.   energy production and consumption;

        g.   population  (both historical and present) and
            socioeconomic  conditions;
                            416

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h.  land use and development,  including zoning
    and relationship between all governmental
    agencies involved in the planning,  financing,
    construction, and operation of POTWs;

i.  public facilities and services;

j.  organizational context, including the  role
    and relationship between all governmental
    agencies involved in the planning,  financing,
    construction, and operation of POTWs;

k.  documented cases of septic system failures or
    public health problems, fish kills, or well
    contamination directly related to water
    pollution;

1.  related Federal, State, and other projects in
    the planning area; and

m.  other existing environmental conditions such as:

      i.     wetlands,

      ii.    flood plains,

      iii.   coastal zones,

      iv.    wild and scenic rivers,

      v.     important farm lands,

      vi.    historic and archaeological sites,

      vii.   national and natural landmarks, and

      viii.  plant and animal communities and habitats
             which may be affected, especially those
             on  the  threatened or endangered species
             list.

    The reviewer  is  to take special note of the under-
    lined items  above, since these items are the sub-
    ject of Federal  laws or executive orders, and will
    require special  review procedures  (see Sections
    D.I and D.2  below).

Re: 40  CFR 6.506(a), 6.507(c)(l) and (4)
                     417

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4.2  Existing Wastewater Flows and Treatment System
     Performance

     Purpose;

     Describe the existing treatment facilities, their
performance, and the complete waste treatment system, to
provide an inventory of treatment facilities (including
onsite disposal systems), their interrelationships, and
the base line flow information from which future flows
will be forecast.

     Discussion;

     The information in the description should indicate
the conditions which limit the number of feasible alter-
natives or the severity of the pollution problem.  The
performance of existing facilities should also be included
in the description.  Many existing facilities, including
onsite systems, are not operated at their optimum efficiency,
The reasons for poor performance are numerous.  However, it
is generally more cost effective and environmentally sound
to elevate existing facilities to optimum performance rather
than to abandon them.  Even if existing facilities are not
capable of achieving the applicable effluent limitations,
portions of the system may be used as an alternative or
supplement to construction of new facilities.

    Where the planning area includes a substantial number
of onsite systems, their performance, including the nature,
type, location, and frequency of failure, should also be
described (see Item 2.2 above).
    Review Procedures;

    In reviewing the description of existing facilities and
their performance, the reviewer is to note the conditions
which support the need for the project or limit the selec-
tion of feasible alternatives, and insure that an alterna-
tive which utilizes existing facilities has not been over-
looked.  Items which may be included in the description
include:

    a.  the location of all treatment plants,
        sludge management and pretreatment
        facilities, pumping stations, and col-
        lection systems;
                         418

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   b.  design capacity, existing  flows, charac-
       teristics of wastes,  and overloaded  con-
       ditions;

   c.  location and description of major  industrial
       discharges;

   d.  significantly  developed areas  served by
       onsite systems;

   e.  an  analysis of average, peak,  and  wet
       weather  flows  (also  see Item  4.3 below);

   f.  location of all  bypasses and  overflows;

   g.  extent of  combined  sewers;

   h.  treatment  plant performance compared with
       the NPDES  permit;

    i.  operation  and  maintenance  (O&M)  program
        (compare  with  operating reports  submitted
        to  the  State) ;

    j.   the effects of I/I  (see  Item  4.3 below);  and

    k.  documentation  of problems  with onsite systems
        (see Section  2.2 above).

Re: 40  CFR  35.2030(b)(3)(iii)
4 • 3  Infiltration and inflow

     Purpose:

     The facilities plan must demonstrate that each existing
sewer system discharging into the proposed treatment works
project is not or will not be subject to excessive I/I.
    Discussion/

    I/I represents extraneous flow.  If I/I is discharged
into a treatment works, it utilizes capacity in sewer lines
and the treatment plant, dilutes the wastewater, requires
electrical power for pumping and treatment, and otherwise
                         419

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 increases  the cost of  transport and  treatment of wastes,  infil-
 tration  is generally qroundwater  which  leaks  into  the  sewer
 system through defective joints,  house  connections, defective
 manhole  connections, or broken sewer lines.   Inflow is generally
 related  to storm events, and may  result  from cross connections
 with storm sewers, illegal connections  from down spouts,  area
 drains,  sump pumps, flooded manholes, etc.  Infiltration  tends
 to be an average phenomena, which varies during the year
 according  to the fluctuations in  groundwater level. Inflow tends
 to be a  peaking phenomena, which  varies  with the frequency,
 duration,  and intensity of rain storms.

    Excessive I/I is defined as the quantities of  I/I  which can
 be economically eliminated from a sewer  system, as determined  in
 a cost effectiveness analysis that compares the costs  for elimin-
 ating the  I/I from_the sewer system to  the total costs for trans^
 porta'tion  and treatment of the I/1.

    Earlier EPA construction grants regulations (40 CFR 35.927)
 were procedurally specific with regard  to a determination of
 excessive  I/I.  These regulations required a sewer system evalu-
 ation consisting of an I/I analysis, followed by a sewer  system
 evaluation survey, if required, and a sewer rehabilitation
 program.   Based on more than ten  years of experience,  EPA has
 determined that less procedural specificity is desirable. Current
 regulations allow considerable flexibility in determining if a
 sewer system contains excessive I/I.  State agencies should work
 with grant applicants to establish a program for I/I investiga-
 tions, which is tailored to the unique characteristics of the
 project.

    EPA has also determined that  certain .5Cj:e_enjLnq criteria may
 be used to determine nonexcessive I/I.  Nonexces¥Tve infiltration
 is defined as the quantity of flow which is less than  120 gallons
 per capita per day (gpcd), including both domestic base flow and
 infiltration (J__daiy_average during P_eak_groundwater period and
J25L^!LS tpjrm_ej^njt s) , or the quantity of inf iltration~which cannot
 be economically and effectively eliminated.  Nonexcessive inflow
 is defined as the rainfall induced peak  inflow rate which does
 not result in chronic operational problems related to  hydraulic
 overloading of the treatment works during storm events, or which
^ges ngt_result. ^n a total flow of more  than 275 gallons per
ger capita per day.  Chronic operational "problems may  include
b a ck up s _, by p a s s e s a nd_ o v e r f: 1 ows^  Various studies have found that
 the domestic base flow and nonexcessive  infiltration,  plus this
 inflow rate, is about 275 qpcd for most of the Nation's waste-
water treatment systems.  Therefore, if a grant applicant's
 average daily flow during rain storm events is less than 275
gpcd o^__t.jjere_arg._nj3_chron^c _op_erat.ional problems , it  can gener-
ally be assumed that the wastewater" treatment system is not sub-
 ject to excessive inflow.
                         420                             TM 86-1

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    If a grant applicant can demonstrate that the domestic
base flow plus infiltration is less than 120 gpcd and that no
chronic operational problems are experienced or the total daily
flow does_not exceed ,275 gpcd during rain events, no further I/I
work is requiFed^  lf~the flow rate is not significantly more
than 120 gpcd, the grant applicant may proceed, with reviewing
agency approval, without further study.  However, in this case
the allowable project cost will be limited to the cost of a
project with a capacity of 120 gpcd for the existing residential
population. Any excess_iv<3 inflow must be identified and elimin-
ated. In addTtionT~the~~grant applicant must show that the pro-
ject is cost-effective and sufficient funds are available for
the local share of higher costs, including capital and operating
costs. If a grant applicant cannot demonstrate these conditions,
further I/I investigations will be necessary, as briefly des-
cribed in the next paragraph.  If facilities are planned for the
specific storage _and/or treatment of inflow, a cost effective
anarysTs~shall be required.  The criteria described above is
e qu aTT y~ a ppTT c ab 1 e to excessive infiltration in combined sewers,
but inflow is never considered excessive in combined sewers.

    In determining if a sewer system contains excessive I/I, the
grant applicant will analyze the treatment plant flow records,
compare the sewage flows against water consumption records,
possibly conduct flow monitoring at selected manholes or pumping
stations, and otherwise conduct a field investigation, if
necessary, to determine the quantity and source of I/I.  The
comparison of estimated costs to eliminate portions of the I/I
will determine if the I/I is excessive.  Where a portion of the
I/I is determined to be excessive, the grant applicant must pro-
pose a sewer system rehabilitation program to eliminate the ex-
cessive I/I.  Normally, sewer system rehabilitation is carried
out after grant award, and the excessive I/I to be eliminated
becomes part of the grantee's project performance standards (see
Sections VI.M.S.g and VII. I. 2).

    The facilities plan includes a demonstration of the non-
existence or possible existence of excessive I/I in the sewer
system.  Data supporting  the conclusion may be contained  in or
appended to the facilities plan.  It is important to note that
the results of the I/I  investigation are essentially four numbers
namely: the nonexcessive  infiltration, nonexcessive inflow and
the excessive infiltration  (if any) and excessive inflow  (if any)
Nonexcessive  I/I is added to the existing domestic, commercial,
and  industrial base flow, to establish a total existing flow for
the proposed  treatment  works.  Accordingly, the grantee should
size  the pro j ec t_to_ A_ncJ.ude jsuf f_ic iervt_cajpacity  to transporj^and
                                      *• Itration.  This flow is
r
                  ^------
 p~art!c~uIaFfy~ TmpoFtant  since  after  September  30,  1984,  construc-
 tion grants  are  limited  to  the  capacity  required  to  serve
 existing  needs on the date  of grant award  (see  Section  VI.D.18).


                                                         TM 86-1
                              421                           (85-1)

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    Review Procedures;

    For grant applicants whose project includes existing
sewer systems, insure that the proposed treatment works
is not, and will  not be, subject to excessive I/I though
a determination that:

    a.  An I/I study has been conducted which iden-
        tifies the quantity of I/I.

    b.  Based on  the criteria of 120 gpcd for domestic
        base flow plus  infiltration, and 275  gpcd for
        domestic  base flow plus infiltration  and peak
        inflow, it is concluded that:

          i.   excessive I/I does not exist,  in
               which case no further study is re-
               quired;  or

          ii.  excessive I/I may exist, in which
               case the grant applicant must  either:

               -  conduct further study, including
                 a cost effectiveness analysis, to
                 more accurately determine the ex-
                 istence of excessive I/I, and pro-
                 pose a sewer rehabilitation  pro-
                 gram where appropriate;  or

               -  propose that the treatment works
                 be designed to accomodate domestic
                 base flow plus infiltration  which
                 is not significantly more than 120
                 gpcd,  in which case the allowable
                 project cost will  be limited to the
                 cost of a project  with a capacity
                 of 120 gpcd.


    c.  The methods and data used in analyzing I/I are
        sufficient to support the results and conclusions
        in Items  a and  b above.
        The  quantity of  nonexcessive  I/I has been deter-
        mined  and  is used  as one  component of  the average
        daily  base  flow.
                        422

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        e.   Where a sewer rehabilitation program is pro-
            posed, the cost estimates, schedule, and
            projected results are reasonable, and repre-
            sent realistic expectations for excessive
            I/I reductions which can be included in a
            future grant agreement as part of the
            project's performance standards.  The
            schedule must provide for completion of
            sewer rehabilitation no later than one
            year after project initiation, in order to
            coincide with completion of the project
            performance certification (see Section VII.I.2).


        Project reviewers may find it helpful to read the "Hand-
    book for Sewer System Evaluation and Rehabilitation," EPA
    430/9-75-021 (formerly MCD-19), dated December 1975.  While
    the regulatory and procedural requirements in the Handbook
    are out of date, the technical discussions and approaches
    remain valid .

    Re: 40  CFR 35.2005(b)(16) , (b)(20), (b)(21), (b)(28), and (29);
        35.2030(b)(4), 35.2120, 35.2218(c); 40 CFR Part 35, Sub-
        part I, Appendix A, Paragraph G; EPA publication, "Determin-
        ation of Excessive/Nonexcessive Inflow Rates," May 1984
5-  Future Conditions

    Future conditions in the planning area are described in order
to form a basis for identifying alternative wastewater systems
which will solve the water pollution problems.  Future conditions
are also contrasted with the existing environment in order to
evaluate the environmental impacts of the proposed project.  In
the description of future conditions, the grant applicant should
describe unigue environmental characteristics of the planning
area which must be protected, and suggest mitigation measures
which may be employed to minimize adverse impacts.  Where approp-
riate, the description should also include an analysis of the
potential open space and recreation opportunities associated with
the project.

    The following sections describe several significant consider-
ations which are representative of future conditions.

Re:  40 CFR 35.2030(b)(1) , (b)(3)(ii), and (b)(5)
                             423

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5.1  Planning Period

     The cost effectiveness analysis, which is the core
of facilities planning, includes the evaluation of alter-
native wastewater systems designed to solve the water
pollution problems.  The planning period for the cost-
effectiveness analysis is 20 years.  Therefore, future
projections must be based on a 20 year planning period.

    The planning period is distinguished from the
project's design life and the useful life of the project
and its components.  Design life is the period for which
a treatment works is planned and designed to be operated.
Useful life is the period of time during which a treatment
works or a component of a waste treatment management system
operates.

    The distinction between the planning period and the
design life of a project becomes important during facilities
planning.  A grant applicant must consider needs and compare
alternatives based on a 20 year planning period.  However,
in some circumstances the project's design life may be for
a shorter period, based on the results of the cost effec-
tiveness analysis, the community's financial and managerial
capability, projected environmental impacts, or uncertainty
surrounding population or economic growth forecasts.  In
these cases, staging or construction may be more financially
and environmentally sound.  However, each stage must be a
part of the final 20 year facility and not an interim
facility.  In other cases, such as the upgrading of an
existing treatment plant with no projected growth in the
planning area, existing needs may correspond with the 20
year planning period and the project's design life.

    The distinction between the design and the useful life
may also be significant when reviewing the cost effective-
ness analysis and the user charge (UC) system. As a part
of the cost effectiveness analysis, the cost of each
alternative and its major components are estimated.  Some
components may be estimated to have a 40 year useful life
(e.g., concrete structure) while others may be estimated
to have a 15 to 20 year useful life (e.g., process equip-
ment).  Land, on the other hand, has an indefinite life.
As alternatives are evaluated, the salvage value of the
treatment works and its major components are computed. Also,
replacement costs for process equipment during the planning
period must be considered in the cost effectiveness analysis,
                         424                        TM 86-1

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    Review Procedures;

    During the review of the facilities plan, insure
that the grant applicant has:


    a.  projected future conditions and needs for
        a 20 year planning period;

    b.  evaluated alternatives based on their cost
        effectiveness over the 20 year planning
        period, even though some alternatives may
        have a design life shorter than 20 years;

    c.  for staged facilities, developed a schedule
        and a financing plan for the construction
        of all subsequent stages, to provide
        adequate capacity for wastewater treatment
        needs during the 20 year planning period;

    d.  assigned reasonable, useful lives to major
        components of each alternative, and  con-
        sidered their salvage value at the end of
        the planning period; and

    e.  considered the  replacement costs of  process
        equipment over  the 20 year planning  period.

 Re: 40  CFR  35.2005(b)(36) and (b)(50), 35.2030(b)(3)
 5.2   Land  Use  Projections

      Purpose;

      Land  use  projections  are used  to establish future
 needs,  satisfy or direct future  development,  and identify
 environmentally sensitive  lands  requiring protection from
 development.


      Discussion;

      Section 101(b)  of the CWA states that, "It is the policy
 of Congress to recognize,  preserve, and protect the primary
 responsibilities and rights of States to prevent, reduce, and
 eliminate  pollution, to plan the development and use (including
 restoration, preservation, and enhancement) of land and water
                          425

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resources" (underlining added).  40 CFR Part 35, Sub-
part I, Appendix A, Paragraph H.2.k, identifies as un-
allowable costs, "The cost of treatment works that would
provide capacity for new habitation or other establish-
ments to be located on environmentally sensitive land
such as wetlands or flood plains."  EPA's regulations
implementing NEPA (40 CFR 6 . 506 ( c ) ( 2 ) ( v) and 6.507)
identify additional environmentally sensitive lands,
including important farm lands, acquifer recharge zones,
archaeological and historic sites, National and natural
landmarks, and habitats of endangered and threatened
species.  Other environmentally sensitive lands may
include areas with steep slopes, drainage basins dis-
charging into unique water bodies, parks and recrea-
tional areas, and areas containing unique vegetation.
The facilities plan must identify environmentally sensi-
tive areas, and develop alternatives which will protect
them or which will provide mitigation of adverse environ-
mental impacts.

    Land use development patterns are projected over the
20 year planning period.  After eliminating environmentally
sensitive lands, the facilities plan projects development
patterns and the resulting needs based on existing land
use plans and zoning ordinances.   The grant applicant
should consult with planning agencies in the area, or with
the State, to determine reasonable and environmentally
sound future land uses.
    Review Procedures;

    Typical items which should be reviewed with regard
to land use projections include:
    a.   present land uses as a means of identifying
        developmental patterns over the 20 year
        planning period;

    b.   identification and protection of environ-
        mentally sensitive areas;

    c.   comparison of land use plans and zoning
        ordinances against projected land uses
        to insure compat ability ;  and
                                                               ^^^|
                         426

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    d.   utilization of land use projections in
        estimating future development and waste-
        water flows.

Re; 40  CFR 6.506(c)(2)(v), 6.507, 35.2030(a){1)  and
    (b)(6); 40 CFR Part 35, Subpart I, Appendix A,
    Paragraph H.2.k
5.3  Population Forecast

     Purpose;

     Accurately forecast population growth, which is the
source of future residential wastewater flows.


     Discussion;

     Future population growth over the 20 year planning
period represents one component of future wastewater flows.
EPA regulations require that population forecasting used
in the cost effectiveness analysis be consistent with the
current needs survey.  The needs survey, prepared every
2 years by EPA, includes forecasts of statewide populations,
based on information from the Bureau of Economic Analysis,
U.S. Department of Commerce (see Section II.E.2).  The
statewide population forecast is disaggreated into smaller
political subdivisions such as counties, municipalities,
townships, etc.  The grant applicant is to use the approp-
riate disaggregated population forecast from  the needs
survey, and compare this figure with that in  the applicable
WQM plan.  Since the facilities plan must be  consistent
with approved elements of the applicable WQM  plan, a pos-
sible conflict may arise between the population forecast
in the needs survey and the WQM plan, due to  the level of
refinement in preparing the respective reports.  If a
conflict does exist, the grant applicant must consult with
the reviewing agency in order to arrive at an approvable
forecast.

    Most States have identified disaggregated population
forecasts for their respective political subdivisions.
These figures represent the maximum populations to be used
in facilities planning.  Where disaggregated  population
forecasts are not available for a particular  facilities
planning area, the State should work with the grant applicant
to establish reasonable population projections.
                         427

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    Review Procedures;

    The facilities plan is to identify existing and future
residential population.  Future population forecasts must:

    a.  be projected for the 20 year planning period;

    b.  be consistent with EPA's current needs survey
        and approved elements of the applicable WQM
        plan (conflicts are to be resolved by the
        reviewing agency) ;

    c.  be consistent with disaggregated projections
        for small political subdivisions, within the
        State; and

    d.  be reasonable and acceptable to the State
        in the absence of projections based on the
        needs survey.

Re: 40 CFR 35 . 2030 ( b) ( 3 ) , 35.2102
5.4  Industrial and Federal Facilities

     Purpose;

     Accurately forecast wastewater flows from industries
and Federal facilities located in the planning area, which
are potential wastewater contributors.


     Discussion;

     Wastewater discharged into a POTW from industries and
Federal facilities will influence the capacity of the pro-
posed project.  Opportunities to reduce the volume of these
discharges should be considered during facilities planning.
Such industrial flows may also be subject to EPA's pre-
treatment requirements, which prohibit the discharge of
toxic wastes in toxic amounts, as well as the discharge
of wastes which limit the range of wastewater treatment
and sludge disposal alternatives (see Section E.2 below).

     EPA regulations require that during facilities
planning, grant applicants obtain letters of intent from
significant industrial dischargers, and from all industries
intending to increase their flows or to relocate in the
project planning area.  Such letters must document capacity
                         428

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needs and characteristics of existing and projected flows.
EPA grant assistance, however, may not be used to construct
facilities exclusively or almost exclusively to serve in-
dustrial users.

     Grant applicants may include a reasonable forecast of
future unknown industrial flow, based on existing zoning.
However, this forecast should be supported by documentation
from industrial planning boards or other agencies concerned
with economic growth.  As general guidance, future unknown
industrial flow exceeding 5 percent of the design flow or
25 percent of the existing industrial flow should be care-
fully reviewed and justified.

    Proposed projects may also treat wastes from Federal
facilities.  However, EPA grant assistance may not include
the costs for transport and treatment of wastes from Federal
facilities if the wastes are more than 250,000 gallons per
day, or 5 percent of the design flow, whichever is less.

    Limitations concerning EPA grant assistance for the
transport and treatment of flows from industries and Federal
facilities are discussed in Sections V.I and VI.D.19.
During facilities plan review, concern with industrial and
Federal facilities is generally limited to projections of
future flows.  To the extent that a grant applicant does
not understand the funding limitations associated with
industrial and Federal waste treatment, as reflected in  the
financial section of the facilities plan, the project re-
viewer may wish to contact the grant applicant to discuss
necessary revisions.
    Review Procedures;

    The facilities plan  is  to document existing and  future
 flows  from industries and Federal  facilities.  Documentation
 must  include:

    a.  letters of intent from significant  industrial
        users, and from  all  industries intending  to
        increase  their flows or  to relocate  in the
        planning  area (must  include  capacity needs
        and characteristics  for  existing  and pro-
        jected flows);

    b.  recognition of grant funding limitation
        concerning discharges from industries and
        Federal facilities;
                          429

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    c.  evaluation of opportunities to reduce in-
        dustrial discharges; and

    d.  justification for unknown future industrial
        flows, based on zoning and economic develop-
        ment plans.

Re: 40 CFR 35.2030(b)(3)(ii), 35.2125, 35.2127


5.5  Flow Reduction

     Purpose;

     Evaluate opportunities to reduce flows, thereby
reducing treatment plant capacity and costs.


     Discussion;

     Flow reduction analysis is an integral part of facil-
ities planning, and is required unless explicit conditions
for exemption are met.   Wastewater flows determine the
capacity of the treatment works and consequently the cost.
Reductions in flow, therefore, reduce costs and contribute
towards more efficient treatment by preventing dilution of
wastewater.  Flow reduction focuses on three areas:  I/I
(see Section 4.3 above);  flow from industries and Federal
facilities (see Section 5.4 above) and flows from residen-
tial and institutional contributors (see Section 5.3 above).

     Construction grant regulations require an evaluation
of alternative flow reduction methods unless:

     - the grant applicant  demonstrates that the
       existing average daily base flow from the
       planning area is less than 70 gpcd, or

     - the reviewing agency determines that the area
       has an effective existing flow reduction program.

If these conditions are not met, the facilities plan must
evaluate opportunities for  flow reduction, taking into
account the costs of: administration of a  flow reduction
program; public education and information  programs; and
retrofitting existing buildings with water saving devices.
The evaluation should also  consider savings realized through
reduced or deferred operating costs for water supply and
treatment systems, as well  as wastewater treatment works.
                         430

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    Typical areas of investigation which may result in
flow reduction include:

    - changes in water and sewerage rates to promote
      conservation and flow reduction;

    - installation of water meters or retrofitting
      existing homes and institutions with water
      saving devices; and

    - changes in local ordinances or codes to require
      installation of water saving devices in new
      construction.
    Where cost effective, the facilities plan should
describe actions necessary for implementation of the flow
reduction program.
    Review Procedures;

    Unless the average daily base flow is 70 gpcd or less
or the grant applicant has an effective existing flow
reduction program, the facilities plan must include an
evaluation of flow reduction methods such as:

    a.  public education and information;

    b.  installation of water meters or retrofitting
        existing structures with water saving devices;

    c.  changes in water and sewer rates to encourage
        conservation and reduction in flow; and

    d.  changes in local codes to require installation
        of water saving devices in new construction.

    Where cost effective, considering the costs of im-
plementation and the savings realized by water and waste-
water flow reduction, the facilities plan should describe
implementation steps.

Re; 40 CFR 35.2030(b)(3)(i); EPA publication, "Flow
    Reduction - Methods, Analysis Procedures, Examples,"
    dated March 1981
                         431

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5.6  Forecast of Flow and Waste Load

     The forecast of future flows and wasteloads in the
planning area brings together several topics considered
earlier in the review of facilities plans.  Future flows
and wasteloads result from existing and future residen-
tial (including existing onsite systems to be abandoned),
commercial, institutional, and industrial flows, all ad-
justed to reflect the results of the flow reduction pro-
gram, plus nonexcessive I/I.  Flow and wasteload pro-
jections must reflect limitations imposed by environ-
mentally sensitive lands, or in some cases constraints
resulting from the implementation of air quality plans.

    In projecting flows from future residential popula-
tions, one of two following methods is generally used:

    Method 1 - an estimate is made of the existing average
daily base flow (ADBF).  The ADBF is computed based on
reliable water supply records (ideally individual residen-
tial water meters), adjusted for consumption and other
losses (generally in the area of 15-25 percent).  Alter-
natively, the ADBF is based on analysis of wastewater
flow records over extended dry periods, minus estimated
infiltration, industrial flows, or other (e.g. seasonal)
flows.  The estimated ADBF is divided by the existing
sewered residential population to obtain the per capita
contribution.  This figure is multiplied by the future
population and added to the ADBF to obtain the future flow
contributed by residential population.  Experience has
shown that 70 gpcd is representative of residential flow
contributions.  Per capita flows differing significantly
from this figure should be carefully reviewed to insure
that they are truly representative of existing flows.
Also, increases over time in per capita contributions
should not be allowed unless fully justified with supporting
documentation.

    Method 2 - lacking reasonable water supply or wastewater
flow records, future flows may be estimated by multiplying
the following per capita contributions by the future popula-
tion.  In areas where the population 10 years in the future
is projected to be 5,000 or less, a per capita contribution
of 60 to 70 gpcd should be used.  For larger areas or where
the per capita contribution is greater than 70 gpcd, the
per capita contribution should be justified based on com-
parison with other similar communities in the surrounding
area or some other logical reationale.
                         432

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    The figures presented in the description above are
not absolute, but are representative of program experience.
Where they are exceeded, the project reviewer will carefully
review flow projections to insure that they are reasonable
and acceptable.
    Review Procedures:

    The reviewer should focus on the methods used to fore-
cast future wasteloads and flows.  The review should incor-
porate the following considerations:

    a.  residential future flows are based on an
        analysis of water supply or wastewater
        flow records and/or approximates 70 gpcd;

    b.  residential wastewater strength approximates
        200 mg/1 8005 and SS or is otherwise justified;

    c.  known future industrial flows are supported
        by letters of intent indicating flow volume
        and waste strength characteristics;

    d.  unknown future industrial flows do not exceed
        5 percent of the design flow or 25 percent
        of the existing industrial flow unless justi-
        fied;

    e.  flow projections for commercial and insti-
        tutional facilities are reasonable and are
        supported by documentation where appropriate;

    f.  future flow projections are made considering
        limitations imposed by land use plans, other
        regulatory constraints (e.g., air quality
        implementation plans), flow reduction programs,
        and the results of I/I studies; and

    g.  future flows and wasteloads are in agreement
        with the applicable WQM plan.

Re: 40 CFR 6.506, 6.507, 35.2030(b)(3)(i) and (ii),
    35.2102, 35.2125, 35.2127
                         433

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     5.7  Reserve Capacity

         After September 30, 1984, except  for previously
     phased or segmented projects, grant assistance will be
     limited  to the capacity necessary to serve existing needs
     (including existing needs of  residential, commercial,
     industrial, and other users)  on the date of the approval
     of the Step 3 grant.  In reviewing facilities plans,
     project  reviewers must insure that this limitation on grant
     funding  is understood by the  grant applicant and reflected
     in the financial analysis of  the project.  Because reserve
     capacity is based on existing needs at the time of grant
     approval, and because several years may elapse between the
     completion of a facilities plan and the award of a grant,
     the subject of reserve capacity is addressed in Section
     VI.D.10  for phased and segmented projects and Section
     VI.D.18  for other projects.   The project reviewer should
     evaluate the facilities plan  to determine if the estimated
     date of grant award and the corresponding projected existing
     needs are reasonable.

     Re;  40 CFR 35.2123
    5.8  Future Environment Without the Project

         EPA regulations implementing NEPA require that the
    facilities plan describe the relevant future environmental
    conditions without the project.  This description is used
    to evaluate the "no action" alternative (i.e., using the
    descriptive items discussed in Section 4.1 above, the grant
    applicant describes the future environment in the project
    planning area assuming that the project is not constructed)
    The description may help to demonstrate the need for the
    project by indicating conditions which are unacceptable
    (e.g., continued water pollution or public health hazards),
    or may provide the basis for concluding that the project is
    not warranted.

    Re;  40 CFR 6.507(c) (2)
6.  Development of Alternatives

    The primary objective of facilities planning is to establish
the need for the project, and through a systematic evaluation of
alternatives, demonstrate that the selected alternative is cost
effective.   Alternatives range from no action to the construction
                             434

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of a complete wastewater treatment system.  Within the range
of alternatives, many options are available, including rehabil-
itation of existing systems, sewer alignments, wastewater treat-
ment processes, design life, and staging of construction.  The
grant applicant must evaluate various alternatives, identify
those that are most feasible, and after detailed evaluation of
the principal alternatives, select the proposed project.

    EPA regulations identify specific alternatives that must be
evaluated, as well as other more general alternatives that are
considered basic in the wastewater treatment field.  Where
alternatives are considered and rejected, the reasons for rejec-
tion must be described, and must be based on sound reasoning.
As each alternative is evaluated, the grant applicant is to seek
opportunities that provide for:

    a.  reuse of effluent or sludge;

    b.  generation of revenue through the sale of
        effluent, sludge, or other by-products;

    c.  recovery of or reduction in the use of energy; and

    d.  open space or recreational facilities.


    The following sections describe specific alternatives to be
evaluated, as well as other regulatory requirements which must
be considered during facilities planning:
    6.1  Flow Reduction

         Facilities plans must evaluate the impacts of a
    flow reduction program on all alternatives considered
    (see Section 5.5 above).
    6.2  Optimum Performance of Existing Facilities

         Purpose;

         Evaluate the extent to which improved effluent quality
    is attainable by upgrading the operation and efficiency of
    existing facilities, as an alternative or supplement to the
    construction of new facilities.
                             435

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    Discussion;

    An investigation of existing facilities may reveal that
they can function more efficiently with the addition of new
equipment, operational changes,  and the addition and training
of operating personnel, or it may establish that the facilities
are operating at their optimum efficiency.   This evaluation not
only includes the performance of existing centralized treatment
plants, but also includes an evaluation of  onsite disposal
systems.  Whatever the results of the investigation, optimum
operation of existing facilities will determine what additions,
expansions, or replacements must be made, including improved
design and operation of onsite systems.  The investigation
will also determine the extent to which existing facilities
can be used in the new system.  Any improvements expected
as a result of future pretreatment by industrial dischargers,
elimination of excessive I/I, or reductions in total flow
should be considered in evaluating the optimum performance
of existing facilities.


    Review Procedures;

    In evaluating optimum performance of existing facilities,
the project reviewer is to insure that the facilities plan
considers the following items:

    a.  the optimum performance level possible with
        the existing process design;

    b.  the age and reliability of existing equip-
        ment and its remaining useful life;

    c.  the qualifications, number, and training of
        operating personnel;

    d.  additional operating controls and laboratory
        facilities needed to monitor and improve
        operations;

    e.  possible process modifications (e.g., con-
        version of conventional activated sludge to
        contact stabilization, the addition of
        mechanical aeration to waste stabilization
        ponds, etc.);

    f.  the impact on performance of implementing
        a pretreatment program for industrial dis-
        chargers;
                                        «r
436

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    g.   the impact on performance of removing
        excessive I/I or of other flow reduction
        programs;

    h.   the effectiveness and suitability of existing
        onsite disposal systems,  and possible modifi-
        cations for improving performance through
        public education and public management.

Re; 40  CFR 35.2030(b ) (3 ) (iii ) ;  EPA publication,  "Estimate
    of  Effluent Limitations to be Expected from  Properly
    Operated and Maintained Treatment Works"
6.3  Unsewered Areas

     Purpose;

     Evaluate  the use of onsite systems for unsewered por-
tions of communities with a population of 10,000 or less.
     Discussion;

     This specific requirement for the evaluation of onsite
systems, while mandatory for communities with a population
of 10,000 or less, may also be applicable to any sparsely
populated area within the total planning area.  While once
considered a poor waste disposal practice, onsite systems
offer safe, efficient, and economical waste disposal if
properly designed, installed, and operated.  One principal
reason for the failure of onsite systems is improper O&M
by homeowners.  A solution to this problem may be O&M by a
public body, coupled with a public education program.  The
terms septage management is frequently used to describe O&M
of onsite systems by a public body.

    To encourage consideration of septage management, the
CWA and its implementing regulations allow a public body to
apply for a grant to build privately owned onsite systems
which serve one or more principal residences or small
commercial establishments.  A principal residence requires
habitation by a family or household for at least 51 percent
of the year.  Second houses or recreational residences are
not considered a principal residence.  Small commercial
establishments include private establishments (restaurants,
hotels, stores, filling stations, recreational facilities,
etc.) and non-profit organizations (churches, schools,
hospitals, charitable organizations, etc.) with dry weather
                         437

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wastewater flows less than 25,000 gallons per day.

    Other grant restrictions applicable to privately owned
individual onsite systems include:

    - a demonstration that the total cost and environ-
      mental impact of building individual systems is
      less than that of a conventional waste treatment
      system, and

    - certification that each principal residence and small
      commercial establishment was constructed before
      December 27, 1977.
    While satisfaction of the above definitions and limita-
tions is required for grant assistance, this should not pre-
clude consideration by the public body of assuming manage-
ment responsibility for all onsite systems, regardless of
grant eligibility.  Ideally, a public body would be able to
convince businesses and homeowners of the benefits of
septage management, and to negotiate public ownership of all
onsite systems.  In reality, however, the public body may
not be able to own all systems, but may be able to operate
them.

    Rehabilitation of publicly or privately owned onsite
systems is considered an alternative technology, and there-
fore qualifies for increased Federal grant assistance (see
Item 6.10 below).

    The required comparison between the rehabilitation of
onsite systems and the construction of conventional collec-
tion sewers may point out possible adverse environmental
impacts associated with sewers.  While sewers in the devel-
oped areas may not cause adverse environmental impacts, the
transport of the collected wastes by a trunk or interceptor
sewer may subject environmentally sensitive areas to
developmental pressures.  This condition could prevent
the award of grant assistance.
    Review Procedures;

    For unsewered portions of communities with a population
of 10,000 or less, insure that the grant applicant has
considered rehabilitation and management of onsite systems.
The evalution is to include:
                         438

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     a.   identification  of  the  number,  type,  and
         location  of  onsite systems;

     b.   an analysis  of  the reasons  for onsite
         system failures;

     c.   cost estimates  for rehabilitation and
         the development and operation  of a septage
         management program;

     d.   an analysis  of  the methods  by  which all  on-
         site systems could become publicly managed,
         or a listing of reasons why public management
         is not feasible;  and

     e.   a cost comparison  with a conventional collec-
         tion and  treatment system,  and an environ-
         mental evaluation  of both;


Re:  40  CFR 35.2005(b)(31)  and (b)(39), 35.2030(a)(1), 35.2034;
     40  CFR Part 35,  Subpart I, Appendix A, Paragraphs C and
     H.2.R; EPA publication 625/1-80-012, "Design Manual -
     Onsite Wastewater Treatment and Disposal Systems,"
     October 1980
6.4  Conventional Sewers

     Purpose;

     Demonstrate the need for conventional collection sewers
for unsewered areas by evaluating all three methods of pro-
viding wastewater treatment services to such areas: conven-
tional sewers, rehabilitation of onsite systems, and small
diameter sewers.


     Discussion;

     Conventional collection sewers (i.e., 8 inch or larger
gravity sewers) represent one method of providing waste dis-
posal to developed areas.  Other methods include rehabilita-
tion of onsite systems (see Section 6.3 above), or the use
of small diameter gravity, pressure, or vacuum sewers
carrying partially or fully treated wastewater (see Section
6.5 below).  For unsewered communities or portions thereof,
the facilities plan is to evaluate all three methods of pro-
viding waste collection and disposal.
                         439

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     After September 30, 1984, conventional collection
sewers do not qualify for grant assistance unless the
Governor of a State elects to use up to 20 percent of the
State's allotment to fund such projects (see Section II.E.3).
However, where the rehabilitation of onsite systems is con-
sidered, their total cost and environmental impact must be
compared with a conventional system (see Section 6.3 above).

     In evaluating conventional sewers, the grant applicant
must demonstrate their need, based on an analysis of failing
onsite systems (see Section 2.2 above).  Where conventional
collection sewers are justified, and are within a category of
projects eligible for grant assistance, other grant limitations
(e.g., date of residential occupancy and bulk of flow) must
be satisfied (see Section VI.D.14).  Collection sewers are
also subject to the reserve capacity limitations described
in Section VI.D.18.

     Conventional collection sewers are to be designed in
accordance with State design standards regarding minimum
pipe size, slope, allowable rates of infiltration, and
spacing between manholes.
     Review Procedures;

     Where conventional collection sewers are proposed as
one alternative to serve developed areas, insure that:

     a.  the need for sewers is justified and
         documented;

     b.  other methods of collection and disposal
         (e.g., onsite system rehabilitation and
         alternative conveyance systems) are eval-
         uated and compared to conventional sewers
         with regard to total cost and environmental
         impacts;

     c.  the sewers will not encourage the develop-
         ment of environmentally sensitive areas;

     d.  cost estimates for grant participation re-
         flect the eligibility or ineligibility of
         sewers as a category, as well as grant
         limitations concerning date of residential
         habitation, quantity of existing flow, and
         reserve capacity (see Sections VI.D.14 and
         18); and
                         440

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     e.  preliminary designs and the resulting cost
         estimates reflect State design standards.

Re:  40 CFR 35.2005(b)(10),  35.2015(b)(2), 35 . 2030(a ) (1) ,
     35.2034(b)(1), 35.2116, 35.2123(c); 40 CFR Part 35,
     Subpart I,  Appendix A,  Paragraph H.2.k
6.5  Alternative Conveyance Systems

     Purpose;

     Provide an alternative method of collecting and trans-
porting wastewater.


     Discussion;

     An alternative conveyance system consists of small dia-
meter gravity, pressure, or vacuum sewers conveying treated
or partially treated wastewater.  As a general guide, where
the population density is less than 6 persons, but at least
1.7 persons per acre (one household per 2 acres), both con-
ventional sewers and alternative conveyance systems should
be evaluated.  Where the population density is less than 1.7
persons per acre, conventional sewers generally are not cost
effective, and only alternative conveyance systems should be
evaluated.

     One common application for alternative conveyance
systems is to collect wastes from existing residential and
commercial structures presently served by onsite disposal
systems.  If the problem with the onsite systems is the
failure of the absorption systems, it may be possible to use
the septic tanks to remove the settleable solids, and trans-
port the clarified effluent in small sewers.  The conveyance
system may be small diameter gravity sewers (since settle-
able solids are removed), pressure sewers (where each septic
tank is equipped with a pump), or vacuum sewers with a
cluster vacuum station.  If the septic tank is retained as
part of the system, a septage management program must be
established by the grant applicant to provide periodic
pump-outs and other routine maintenance.  The collected
wastes may be transported either to a centralized conven-
tional treatment plant or to a relatively small soil absorp-
tion field.
                         441

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     Alternative conveyance systems for small communities
are included within the definition of alternative technology,
and therefore qualify for increased Federal grant assistance
(see Item 6.10 below).  Because of their potential cost
savings, alternative conveyance systems should be considered
as one method of collecting and transporting wastewaters.
     Review Procedures;

     For projects which include the construction of collec-
tion sewers, alternative conveyance systems should be
evaluated, particularly for isolated developed areas.  The
evaluation includes:

     a.  justification of the need to abandon exist-
         ing onsite systems (see Section 6.3 above);

     b.  consideration for using existing septic
         tanks and conveyance of treated wastewater
         by small diameter gravity, pressure, or
         vacuum sewers;

     c.  comparison of costs and environmental impacts
         between rehabilitation of existing onsite
         systems and conventional collection sewers;
         and

     d.  consideration of the development of a septage
         management program.

Re: 40 CFR 35.2005(b)(4) and (b)(18), 35.2030(b)(3),
    35.2032U), 35.2034
6.6  Interceptor Sewers

     The location and size of intercepting and collection
sewers will influence growth in the planning area.  Inter-
cepting sewers must be carefully planned, with consideration
given to staging of construction, in order to accommodate
future growth.  Intercepting sewers should not extend into
environmentally sensitive areas, unless absolutely necessary
to eliminate existing raw sewage discharges or discharges
from existing treatment facilities which are to be abandoned,
                          442

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     A problem arises with sizing intercepting sewers,
since the size of the pipe is only a relatively small part
of the total cost of construction.  Very often a larger
interceptor which accommodates full development is more
economical than an initial small sewer and a future parallel
relief sewer.  However, the larger interceptor may increase
pressure for future growth at a rate faster than that which
is planned, or in advance of other utilities and services.
It is therefore important that, the grant applicant consider
the induced growth impacts when sizing and locating inter-
cepting sewers.

     After September 30, 1984, except for previously phased
or segmented projects, grant assistance for intercepting
sewers is limited to the capacity necessary to serve existing
needs (including existing needs of residential, commercial,
industrial, and other users) on the date of grant approval.
Therefore, where reserve capacity is included in the proposed
interceptor, the financial analysis section of the facilities
plan must reflect the increased local share due to the limita-
tions on reserve capacity.  Refer to Sections VI.D.10 and
VI.D.18 for a discussion of reserve capacity and a methodology
for proportioning costs.

     For projects which include the construction of inter-
cepting sewers, insure that:
     a.  the alignment will not induce growth in
         environmentally sensitive areas;

     b.  the size of the sewer reflects an accep-
         table tradeoff between the initial cost
         of construction to accommodate full
         development, and the cost of staged con-
         struction to limit potential induced
         growth; and

     c.  the financial analysis reflects grant
         assistance to serve only existing needs
         on the date of grant award.

Re;  40 CFR 35.2030(b)(3) , 35.2123; 45 CFR Part 35
     Subpart I, Appendix A, Paragraph H.2.k
                         443

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6.7  Regionalization

     Purpose:

     Evaluate regionalization of wastewater treatment services
early  in the facilities planning process, as one alternative
for solving the water pollution problems.


     Discussion;

     Regionalization may have been addressed in the applicable
WQM plan (see Section II.C.3).  Where it has been addressed
in the WQM plan, the facilities plan must be consistent with
its recommendations.

     If a WQM plan has not been prepared or updated for the
planning area, the grant applicant should evaluate region-
alization.  Regionalization may involve various arrangements
for construction and operation of the necessary facilities.
For example, several jurisdictions may form a regional auth-
ority to construct and operate one or more centralized treat-
ment facilities, as well as all interceptor and collector
sewers.  Another approach to regionalization has one community
acting as the lead agency for construction and operation of the
centralized treatment facilities and the interceptors serving
each jurisdiction, while each jurisdiction maintains
responsibility for its own collection system.

     Regionalization may, but need not, involve construction
of physically interconnected facilities.  For example, in-
dividual jurisdictions may be responsible for construction
of local facilities, including any onsite systems, while the
regional authority may construct and operate other service
facilities, such as sludge treatment and disposal facilities.

     Regionalization offers several advantages over smaller
separate facilities, including economies of scale in construc-
tion and purchasing, ability to afford and attract more ex-
perienced operators, better treatment performance, and fewer
treatment sites and discharge points.  Disadvantages may
include longer design and construction periods, potential
for unplanned induced growth and its resultant adverse envir-
onmental impacts,  depleted stream flow, and the need for
intermunicipal service agreements.
                         444

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     Review Procedures;

     Regionalization, while not explicitly identified in
the regulations as a required alternative for evaluation,
should be considered in the facilities plan.   Where region-
alization is considered, insure that:
     a.  the regionalization alternative is consis-
         tant with the recommendations of the applic-
         able WQM plan;

     b.  the alternative considers the cost savings
         realized through economics of scale and more
         efficient operation;

     c.  the disadvantages of potential adverse en-
         vironmental impacts due to induced growth
         have been evaluated and found acceptable; and

     d.  the grant applicant recognizes the need to
         execute intermunicipal service agreements
         before award of grant assistance (see
         Section V.H).

Re:  40 CFR 35.2030(b)(3) and (b)(6), 35.2102, 35.2107


6.8  Conventional Treatment

     Conventional treatment as used in this context refers
to the treatment of wastewater at a centralized treatment
plant by means of biological or physical/chemical unit pro-
cesses, followed by direct point source discharge to surface
waters.  The key words in defining conventional treatment
are underlined in this definition.  Conventional treatment
is distinguished from  innovative or alternative (I/A) tech-
nologies, which are described in later sections.

     Conventional treatment processes and techniques are
primarily used to provide secondary treatment, ranging
from waste stabilization ponds to fixed media (e.g.,
trickling filters) or suspended growth (e.g., activated
sludge and its variations) processes.  Conventional treat-
ment may also be used to provide the first stage of treat-
ment where advanced treatment processes are required.
                         445

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     Where the receiving body of water is classified as
effluent limited and therefore only secondary treatment is
required (see Section 3.1 above), the facilities plan should
evaluate several conventional treatment processes appropriate
to the size and location of the community and the character
and volume of the waste.  For sewered communities with a
population of 10,000 or less, the regulations require that
the facilities plan give consideration to low cost tech-
nologies such as facultative ponds, trickling filters,
oxidation ditches, or overland flow.  Overland flow is
alternative technology, and is discussed in Item 6.9 below.
Larger communities may consider the same processes, as well
as other more sophisticated treatment alternatives (e.g. ,
activated sludge and its variations).  In evaluating con-
ventional processes and preparing preliminary cost estimates,
the grant applicant should use State design standards for
the sizing of various unit processes.

     In evaluating treatment alternatives, the facilities
plan must consider one or more conventional treatment pro-
cesses.  The project reviewer is to insure that:
     a.  appropriate effluent limitations for the
         receiving stream have been used (see
         Item 3 above) ;

     b.  the conventional treatment process eval-
         uated is capable of providing secondary
         or equivalent treatment (see Item 3 above);

     c.  sewered communities with populations of
         10,000 or less  have considered low cost
         treatment technologies such as facultative
         ponds, trickling filters, oxidation ditches,
         and overland flow; and

     d.  the conventional treatment process is
         appropriate to  the size and location of
         the community and the character and quan-
         tity of the wastewater.

Re:  40 CFR 35.2005(b)(7) and (b)(14), 35.2030(b)(2)
     and (b)(3)
                         446

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6 . 9  Innovat iveand_ATtern_at ive_Technologjjes
     Facilities planning initiated after September 30, 1984
must include evaluation of I/A treatment processes.  I/A
technologies provide inherent incentives, since they offer
an opportunity to conserve energy or resources, and to reduce
costs,  To encourage serious consideration of I/A technologies,
the CWA provides additional incentives which include:


     a.  20 percent increased grant assistance, not
         to exceed a total Federal share of 85 per-
         cent, with funds reserved from the State's
         annual allotment to he used exclusively for
         the increase in grant assistance (see
         Section II. E. 4 .c) ;

     b.  a separate grant for field testing I/A
         projects (see  Section VI.I);

     c.  potential higher ranking, at the State's
         option, on the State's project priority
         list  (see Section II. E. 3);

     d.  15 percent cost preference for I/A projects
         when  comparing the total present worth
         costs to the cost of conventional treat-
         ment  processes (see Section 7.1.g below);
         and

     e.  100 percent modification or replacement
         (M/R) grant  for I/A projects which fail
         within two years after the initiation of
         operation  (see Section VI. J).


      In  reviewing I/A technologies evaluated by the grant
applicant  in the facilities plan,  the project  reviewer  is
to  insure  that the grant applicant has given proper credit
to  the  I/A incentives in comparing various wastewater
alternatives.  The  project reviewer may  also wish  to  read
EPA publication 430/9-78-009  (formerly MCD-53), "Innovative
and  Alternative Technology Assessment Manual," dated
February 1980.  While this publication does not reflect
current  grant  regulations, the discussions will provide  the
project  reviewer with a better technical  understanding  of
the  subject.
                          447

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     In addition, each EPA Regional Office and most State
agencies have designated one person as the I/A coordinator.
This person will provide assistance in reviewing the I/A
sections of a facilities plan, and will provide liason
when contacting the Small Alternative Wastewater Technology
Clearinghouse at West Virginia University, or the technical
support group at EPA's Municipal Environmental Research
Laboratory in Cincinnati, Ohio.  Also, to avoid recurrent
funding of poorly performing I/A technologies, project
reviewers should have current information on the status of
100% M/R activities. (See §VI-jT7~~~

Re:  40 CFR 35.2030(b)(3 ) ,  35.2032, 35.2040(e), 35.2152(b)


6.10  Alternative Technologies

      Alternative technologies are defined in the regulations
as "proven wastewater treatment processes and techniques which
provide for the reclaiming  and reuse of water, productively
recycle wastewater constituents, or otherwise eliminate the
discharge of pollutants, or recover energy."  The regulations
further define alternative  technology as specific forms of
treatment or unit processes as follows:


      a.  Effluent Treatment

          i.      land application (rapid infiltration,
                 slow rate  irrigation, and overland
                 flow);

          ii.     aquifer recharge;

          iii.   aquaculture;

          iv.     direct  reuse  (nonpotable);

          v.      horticulture;

          vi.     revegetation  of disturbed lands;

          vii.   containment ponds;  and

          viii.   preapplication treatment and storage
                 of treated effluent prior to land
                 treatment.
                         448                        TM  86-1

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      b.   Sludge

          i.    land application, and

          ii.   composting and drying prior to land
               application.


      c.   Energy Recovery

          i.    self-sustaining incineration, and

          ii.   anaerobic digestion with greater
               than 90 percent methane recovery
               and use.


      d.   Small Alternative Wastewater Systems

          i.     onsite individual or cluster systems,

          ii.    septage treatment, and

          iii.  alternative collection and conveyance
                systems.
      Two alternative technologies are discussed above
(onsite systems in Item 6.3, and alternative conveyance
systems in Item 6.5), and two others (land treatment in
Item 6.11 and sludge disposal in Item 6.13) are discussed
below.

      As part of facilities planning, the project reviewer
is to insure that the grant applicant has considered one or
more alternative technologies for wastewater collection and
treatment.  In reviewing the discussions of alternative
technologies, the following items are to be considered:


      - the proposed process is proven and is with-
        in the definition of an alternative technology;

      - expected treatment results are within normal
        ranges for the process selected, and will meet
        the criteria under BPWTT (see Item 3 above);
                         449

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      - loading rates and other design criteria are
        based on State design standards, and are
        within the normal ranges recommended in EPA
        publications for the process under consider-
        ation; and

      - where applicable, the I/A cost preference
        has been properly applied to the project
        (see Item V.l.g below).

Re:   40 CFR 35 . 2005 ( b) ( 4 ) , (b)(5), (b)(18), (b)(31),
      (b)(39) and (b)(40),  35 . 2030 ( b) ( 3 ) , 35.2032, 35.2034,
      35.2152(b); 40 CFR Part 35, Subpart I, Appendix A,
      Paragraphs C and D
6.11  Land Application Systems

      Land application of wastewater effluent is encouraged
by both the CWA and EPA because of potential cost and energy
savings and the recycling and reclaiming of resources.  Land
application of wastewater effluent is defined as an alter-
native technology, and therefore qualifies for the incentives
described in Item 6.9 above.  Where land is used as an inte-
gral part of the treatment process, land costs (including
a reasonable buffer zone and land acquired for storage of
wastewater prior to land application) are allowable for grant
participation.

      Land application of wastewater effluent is generally
grouped into three broad categories:

      - slow rate irrigation or percolation,

      - rapid infiltration, and

      - overland flow.

Because of the significant advantages of land application,
EPA has conducted considerable research on the subject, and
has published many technical reports and manuals, including
EPA publication 625/1-81-013, "Process Design Manual, Land
Treatment of Municipal Wastewater", October 1981.  This
manual describes a two phase approach to the evaluation of
land application systems.  The first phase focuses on the
availability of suitable sites and preliminary cost estim-
ates to determine if land application is competitive with
other treatment processes.  The second phase is an in-depth
evaluation of sites and refinement of site specific design
factors .
                         450

-------
      Grant applicants should give serious consideration
to land application systems as one alternative for waste-
water treatment.  Where land application has been evaluated,
the project reviewer is to insure that the following key
factors have been adequately addressed in accordance with
EPA's process design manual:


      a.  Site Selection

          The plan should identify suitable sites and
          describe reasons for rejecting other sites.
          Categorical elimination of land treatment
          because of a lack of suitable sites is gen-
          erally unacceptable, unless well documented.


      b.  Loading Rates and Land Area

          Preliminary design values which conflict
          with those in EPA's process design manual
          should be justified by adequate supporting
          data.
          Estimated Costs

          Preliminary costs for land treatment should
          be comparable with those referenced in the
          literature.  Significant differences in
          land costs should be well documented.
      d.  Preapplication Treatment

          The need  for preapplication  treatment more
          stringent  than that  recommended  in  EPA's
          process design manual should  be  well docu-
          mented.
           Environmental  Effects

           The  benefits of  land treatment,  including
           resource  conservation  and  higher levels  of
           treatment,  should  be acknowledged.   The  plan
           should  discuss how the land  application
           process will satisfy BPWTT requirements
           (see Item 3 above).
                          451

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Re:   40 CFR 35.2030(b)(3), 35.2032, 35.2040(e)
      35.2152(b)
6.12  Innovative Technologies

      Innovative technologies are defined in the regulations
as "developed wastewater treatment processes and techniques
which have not been fully proven under the circumstances of
their contemplated use, and which represent a significant
advancement over the state of the art" (underlining added).
The regulations provide examples of "significant advancement
over the state of the art" which include:

      - significant reduction in life cycle costs,

      - significant environmental benefits through
        the reclaiming and reuse of water;

      - other methods of eliminating the discharge
        of pollutants,

      - utilization of recycling techniques such as
        land treatment,

      - more efficient use of energy and resources,

      - improved or new methods of waste treatment
        management for combined municipal and in-
        dustrial systems, and

      - confined disposal of pollutants so that they
        will not migrate to cause water or other
        environmental pollution.

      This definition is similar to the definition of alter-
native technology in many ways (i.e., it emphasizes cost and
energy reduction and resource conservation).   However, the
difference is that innovative technology is developed but
not fully proven, whereas alternative technology jijs fully
proven.   Innovative technology is not a specific •tlreatment
process nor a group of processes.  Rather, it is something
new which is not fully proven, but which appears promising
based on the results of research and demonstration projects.
Innovative technology includes an element of  risk and a
corresponding benefit which outweighs the risk.  It repre-
sents a departure from traditional conservative engineering
design practices.
                         452

-------
      Since innovative technology is not a specific process,
either conventional concepts of treatment or alternative
technology processes are candidates for innovative classifi-
cation, provided that they satisfy certain conditions.  The
first condition, and the most difficult to assess, is the
element of risk.  A proposed innovative project which is not
developed and has not been the subject of a research or
demonstration project is generally not acceptable, since its
risk of failure may be too great.  Conventional concepts of
treatment are not innovative because they are fully proven,
and therefore have no risk and offer no significant advance-
ment over the state of the art.  Somewhere between these
extremes lies a developed process, not fully proven, offering
significant benefits, with a corresponding level of accept-
able risk.  An analysis of the level of risk for a given
technology by the grant applicant and the project reviewer
requires professional engineering judgement and collaboration.
Project reviewers are encouraged to read Chapter IV of EPA's
I/A Assessment Manual (see Item 6.9 above) for a more com-
plete discussion of risk assessment.

      Assuming that a proposed innovative project contains
an acceptable level of risk, the next condition which must be
satisfied is significant advancement over the state of the
art.  Six criteria have been identified by EPA as represent-
ative of significant advancement.  Briefly, these criteria
are:
      - cost reduction  (in the range of 15 percent
        of life cycle costs),

      - net primary energy reduction (in the range
        of 20 percent),

      - improved management of toxic substances,

      - improved operational reliability,

      - improved environmental benefits, and

      - improved joint  industrial/municipal
        treatment.

      The first two criteria, cost and energy  reduction,
are quantative, while the other criteria are qualitative
and tend to be subjective, and therefore more  difficult
to review and assess.
                          453

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      Where the cost or energy reduction criterion is used
as a basis for claiming innovative classification, the
proposed innovative project must be compared with a base
standard in order to measure the claimed reduction.  The
base standard for comparison is the least costly or least
energy consuming noninnovative project which would have been
selected if no innovative process was considered.  Note that
the least costly project and the least energy consuming pro-
ject are not necessarily the same.  Additionally, the base
standard project also must be acceptable from an environmental
standpoint.

      In applying the cost reduction criterion, the costs to
be compared are the present worth costs (i.e., capital costs
plus the present worth costs of operation,  maintenance, and
replacement (OM&R), over the design life of the project, minus
the present worth cost of the project's salvage value.

      In applying the energy reduction criterion, the energy
to be compared is the net primary energy,  which is that which
crosses the treatment plant boundary (electricity or fossil
fuel).  Net primary energy reduction is the difference bet-
ween the primary energy requirement for the least energy
consuming noninnovative alternative, minus  the primary energy
for the proposed innovative project.

      As part of facilities planning, the  project reviewer
is to insure that the grant applicant has  considered the
following items when a potential innovative technology is
evaluated:


      a.  the proposed process must be developed
          but not fully proven;

      b.  the facilities plan must assess  risk, and
          must establish that the level of  risk is
          acceptable in light of the corresponding
          benefits;

      c.  the proposed process must satisfy one of
          the six innovative criteria described above;

      d.  where cost or energy reduction is claimed
          as a basis for innovative classification,
          the present worth costs or the net primary
          energy must be compared with the  least
          costly or least energy consuming  noninno-
          vative project,  respectively;
                         454

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      e.   cost reduction must be in the range of 15
          percent, and net primary energy reduction
          in the range of 20 percent:

      f.   where the risk of a promising technology
          is relatively high, field testing of the
          technology, either under a grant or as an
          allowable preaward cost, must be used to
          further evaluate the proposed project
          (see Section VI.I); and

      g.   where applicable, the I/A cost preference
          must be properly applied to the project
          (see Item 7.1.g below).

Re-   40 CFR 35.2005(b)(14), (b)(17), (b)(23), 35.2030(b)(3),
~    35.2032, 35.2040(e), 35 .2118(a)(1) , 35.2211, 35.2262

6.13  STudge_Ma n ag emervt
      Use and _d^sgosal_of_sl:udg_e__in _a	
whi 1 e avoTding_advejrse_^mpac^s_on_public_health_and_the  environ-
meTST~EPA~actIvelY_££oniotesjnanagement _practices which provj.de
for"the~be"neficial use of_sludqe y as stated in  the_pg_Ucy_on
	__T—.._—-.__r            .   (4g p^ 24358, June  12,  1984).
      Discussign;

      Sludge management must be evaluated  and  planned  with  as
much care as the wastewater treatment  process.   Many  sludge
treatment, utilization and disposal methods  are  available  for
evaluation. In general,  these methods  can  be considered  in  two
major categories-

      -  treatment  and volume reduction:

           - incineration,

           - digestion,

           - composting,  and

           - surface  impoundments;

      -  ultimate  utilization  and  disposal:

           - landfill,

           - ocean dumping,
                          455                         TM 85-1

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           - land spreading, and

           - distribution/marketing .


      Some methods of sludge treatment, utilization  and
disposal may not be feasible, by virtue of a project's size
or location, (e.g., incineration for a small community).
Sludge treatment, utilization and disposal is subject to
Section 405 of the Clean Water Act and may also be subject to
other Federal laws such as the Clean Air Act (stack emissions
from thermal reduction methods) or the Resource Conservation
and Recovery Act (RCRA) (hazardous and non-hazardous wastes).

       Domestic sewage sludge is not listed as a hazardous
waste under RCRA.  However, specific municipal sewage sludges
will be considered hazardous if they exhibit any one of the
four characteristics of hazardous wastes — ignitability,
corrosivity, reactivity, and toxicity (see 261.21 through
261.24).  In general, the characteristic most likely to cause
sewage sludges to be hazardous is toxicity. Since grant
applicants must develop pretreattnent programs (see Section E.2
below), it is reasonable to assume that commercial/industrial
wastes which may cause the grantee's sludge to be considered
hazardous will not be discharged into the sewer system.  Under
RCRA, wastewater treatment authorities have the responsibility
to determine whether or not their sludge is hazardous.  If the
wastewater treatment authority (grantee)  suspects that
commercial or industrial discharges to its sewerage system may
cause its sludge to be classified as hazardous, it is respon-
sible for the appropriate testing of its sludge.  If the testing
indicates the sludge is hazardous,  the generation, treatment,
storage, and disposal of the grantee's sludge is subject to the
RCRA subtitle C regulations (see 260 through 270).


      Some of the intermediate  sludge treatment processes or
ultimate sludge utilization and disposal  methods are encouraged by
the CWA,  and are defined as alternative technology (see Item 6.9
above).   The discussion below briefly describes these alternative
technology unit processes and disposal methods, highlighting some
important considerations for review:
                                                    TM  86-1
                         456                           (85-1)

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alternative technology unit processes and disposal
methods, highlighting some important considerations for
review:

      a.  Composting

          Composting stabilizes and disinfects
          sludge, allowing public distribution
          under a giveaway or sale program, or
          application to land as a soil condi-
          tioner or as a cover for landfills.
          The most common composting technique
          used in the United States uses open
          air systems (e.g., aerated pile and
          windrow), although more complex
          systems (e.g., enclosed mechanical
          systems) are being introduced.  The
          cost of land used for composting and
          for the temporary storage of compost
          residues is allowable for grant
          participation.

      Re; 40 CFR Part 35, Subpart I, Appendix A,
          Paragraph D.l(a)(3)
      b.  Landspreading

          Properly treated sludge may be used in
          agriculture, silviculture, turf grass
          production, revegetation of strip mine
          land, fertilization of roadside grasses,
          and many other applications.  Land-
          spreading of sludge may be subject to
          limitations imposed by State or local
          law.  Care must be exercised to preclude
          adverse health and environmental impacts
          from a buildup of heavy metals and toxic
          organics.  The cost of land used for land-
          spreading may be allowable for grant par-
          ticipation .

      Re; 40 CFR Part 35, Subpart I, Appendix A,
          Paragraph D.I(a)
                          457

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      c.   Distribution  and  Marketing

          Like  land  spreading,  distribution and
          marketing  involves  the  utilization  of
          the  nutrients in  sludge and  its  soil
          conditioning  properties.  The  sludge
          must  be  very  stable,  disinfected, and
          have  a  low moisture content.   Where
          packaged and  sold,  the  sludge  must
          contain  appropriate warnings and
          instructions  for  its  use.  Proceeds
          from  sale  must be used  to offset user
          charges  (see  Section V.E).
      d.   Methane  Recovery

          Anaerobic  digestion employing methane
          recovery and  use  is classified  as  an
          alternative  technology if  90 percent
          or more  of the methane is  recovered.
          The methane may be  used for  heating,
          operation  of  blowers or pumps,  or
          conditioned  and sold to nearby  users.
          Self-sustaining Incineration

          To be classified as an alternative
          technology,  incineration must real-
          ize a net energy gain (i.e., energy
          produced must be greater than the
          energy used  to dewater and condition
          the sludge).
      Because of the importance and the complex nature of
sludge management, EPA has prepared several publications
which provide guidance on sludge disposal.   Several of the
process design manuals are noted in Section V.C.2.p.  EPA
publication 430/9-80-015 (formerly MCD-72), "A Guide to
Regulations and Guidance for the Utilization and Disposal
of Municipal Sludge," dated September 1980, may also be
helpful during facilities plan review.
                         458

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      -  the  grant  applicant  has  given  appropriate
        consideration  to  sludge  treatment,  utilization
        and  disposal by evaluating  several  alternatives;

      -  alternatives evaluated by the  grant applicant
        are  appropriate to  the size and  location of
        the  project;

      -  serious  consideration has been given to sludge
        treatment  and  disposal methods which recycle
        or reclaim sludge (alternative technologies)
        such as  methane recovery, self-sustaining  in-
        cineration, and land application;

      -  proposed sludge treatment,  utilization and disposal
        methods  comply with  applicable local, State  and
        Federal  requirements including those under the
        Clean Water Act,  the Clean Air Act, the Resource
        Conservation and  Recovery Act  and  the Marine
        Protection Research and  Sanctuaries Act;  and

      -  where applicable, the I/A cost preference  has  been
        properly applied  to the  project  (see Item  7.1.g
        below).


Re:  40  CFR 35.2030(b)(3),  35.2032, 35.2040(e), 35.2152(b)
     and 40  CFR 257
6.14  Identification of Principal Alternatives

      Purpose;

      After identifying and evaluating feasible alternatives,
systematically screen them to identify principal alternatives
capable of meeting Federal, State, and local requirements.


      Discussion;

      Ideally, the principal alternatives identified by the
grant applicant will include one or more conventional con-
cepts of treatment, one alternative technology and one pro-
ject proposed as innovative.  While there is no prescribed
                                                      TM 86-1
                         459                            (85-1)

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methodology or procedure for screening alternatives, one
possible method employs monetary evaluation, followed by
evaluation of env ironrnental impacts, engineering feasibility,
public acceptance, and implementability.  The monetary eval-
uation is best considered first, because  it tends to be more
quantitive than the other criteria.  It is to be noted that
neither EPA regulations nor policy guidance suggests that one
criterion is more important than others in selecting the pro-
posed project.  However, EPA policy does  require that the
grant applicant give careful consideration to the financial
impact of the project upon the community, to insure that the
project is affordable (see Item 8.2 below).

      In preparing preliminary cost estimates for each alter-
native, the grant applicant may use published cost estimating
techniques found in the literature, or the grant applicant's
engineer may generate unique estimates to reflect local con-
ditions.  Another cost estimating technique, recommended for
use by grant applicants and available to  States for comparison
purposes, is the Computer Assisted Procedure for Design and
Evaluation of Wastewater Treatment Systems (CAPDET).  Avail-
able from the CAPDET Clearinghouse at Mississippi State
University, this computer program can be  used to quickly
analyze the costs of a large number of alternatives.  CAPDET
can also evaluate the cost of upgrading and expanding waste-
water treatment facilities, and can rank  alternative treat-
ment systems by the present worth of capital and OM&R (in-
cluding energy)  costs.

      Using the preliminary cost estimates, the grant appli-
cant can apply the remaining criteria, considering factors
described in Item 7 below.

      The primary difference between screening feasible
alternatives and analyzing principal alternatives is the
depth and level  of detail.  Principal alternatives are to
undergo a thorough cost effectiveness analysis, although the
level of detail  in the analysis will depend on the size and
complexity of: the project.
      Review Procedures:

      As feasible alternatives are screened for selection
of principal alternatives worthy of a more detailed analysis,
insure that the grant applicant has:
                         460

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          a.   selected  a  reasonable  number of  alter-
              natives  in  light of  the unique demographic,
              topographic,  hydrologic,  and institutional
              characteristics of the area;
          b.   considered conventional concepts of treat-
              ment,  as well as I/A technologies;
          c.   used a logical,  systematic methodology which
              considers costs,  environmental impacts,
              engineering feasibility,  public involvement,
              and implementability;  and
          d.   listed sound reasons for rejecting alter-
              natives not considered worthy of further
              analysis.


    Re:  40 CFR 35.2030(a)(1)  and (a)(3)
7.  Evaluation of Principal Alternatives

    Item 6 above discussed the development of alternatives, and
described one method for screening them in order to identify a
workable number of principal alternatives.  Principal alternatives
are to be thoroughly evaluated, using the criteria described in
Items 7.1 through 7.6 below to compare alternatives and to select
the cost effective, environmentally sound project.


    7.1  Monetary Evaluation

         Monetary evaluation of the principal alternatives is
    one of the criteria used in selecting the proposed project.
    The monetary evaluation procedure is the cost effectiveness
    analysis, and includes the present worth or equivalent
    annual value of all capital and OM&R costs.  It is to be
    noted that the cost effectiveness analysis does not identify
    the source of funds, but compares costs uniformly for each
    alternative over the 20 year planning period.  The following
    cost factors are associated with monetary evaluation:
                             461

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a.  Sunk Costs

    Sunk costs are any investments or financial
    commitments made before or during facilities
    planning.  As sunk costs, they are not to be
    included in the cost effectiveness analysis,
    since they have already been committed re-
    gardless of the alternative selected.  Sunk
    costs typically include the cost of existing
    facilities and associated land, outstanding
    bond indebtedness, and the cost of preparing
    the facilities plan.
b.  Present Worth

    Present worth is the sum which, if invested
    now at a given interest (discount) rate, would
    provide exactly the funds required to pay all
    present and future costs.  Total project cost,
    used to compare alternatives,  is the sum of
    the initial capital cost, plus the present
    worth of OM&R costs, minus the present worth
    of the salvage value at the end of the 20 year
    planning period.  The discount rate to be used
    in computing present worth cost is established
    by the U.S. Water Resources Council for each
    fiscal year, and is published  in the Federal
    Register (FR).

    An alternative method of comparing costs is
    the equivalent uniform annual  cost.  This
    method, used less frequently than present
    worth, is  the expression of a  nonuniform
    series of  expenditures as a uniform annual
    amount.  Either method is acceptable in per-
    forming a  cost effectiveness analysis.

Re; 40 CFR 35.2030(b)(3)


c.  Useful Life

    The planning period  in a cost  effectiveness
    analysis is  20 years.  At the  end of this
    period, portions of  the  project's structures
    or equipment may have  a  salvage value.  When
    computing  the  present  worth,  the  salvage
                     462

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   value of structures or equipment is
   determined by using straight line
   depreciation.  The present worth of
   the salvage value is then computed
   using the discount rate (see Item b
   above).  The useful life to be used
   in a cost effectiveness analysis
   should fall within the following
   ranges:

     i.    land: permanent;

     ii.   wastewater conveyance
           structures (collection
           systems, outfalls,  inter-
           ceptors, force mains,
           tunnels, etc.): 50  years;

     iii.  other structures  (plant
           buildings, concrete tanks,
           basins,  lift station
           structures, etc.):  30  to
           50  years;

     iv.   process  equipment:  15  to
           20  years; and

     v.    auxiliary equipment:  10
           to  15 years.
    Where the grant applicant assigns a
    useful life of less than 20 years (the
    planning period),  the cost effective-
    ness analysis must show the present
    worth of the replacement cost at the
    end of the useful  life, and the pre-
    sent worth of the  salvage value of the
    replacement at the end of the 20 year
    planning period.
d.  Escalation

    Only energy costs and land value may
    be escalated in the cost effectiveness
    analysis.  The cost of labor, equip-
    ment, and materials is not escalated,
    since it is assumed that any increase
                    463

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    will apply equally to all alternatives.
    Different alternatives, on the other
    hand, may use different fuel supplies,
    or one alternative may use land appli-
    cation and another may not.  Escalation
    of energy costs is to be based on data
    periodically published by EPA, or on
    historical data for the area, if justi-
    field.  Land prices should be escalated
    at a uniform rate of 3 percent per year,
    except for rights of way and easements.
e.  Interest During Construction

    If interest during construction is signi-
    ficant and may influence the choice of
    alternatives, it may be included in the
    cost effectiveness analysis using one of
    two methods.  If expenditures are uniform
    and the construction period is less than
    4 years, interest is one half of the
    product of the construction period (in
    years), the total capital expenditures
    (in dollars), and the discount rate
    (see Item b above).   Otherwise, interest
    should be calculated on a yearly basis.
f.   Staging of Construction

    The planning period used in the cost
    effectiveness analysis is 20 years.
    However,  in some circumstances the
    design life may be for a lesser period.
    If the grant applicant proposes a de-
    sign life of less than 10 years, the
    project must be carefully scrutinized,
    since the actual design life (assuming
    that several years elapse between facil-
    ities planning and the initiation of
    operation) may be considerably shorter.
    This situation could possibly result in
    problems, such as the need for future
    expansion soon after project completion.
    Nonetheless, staging of construction
    may be cost effective, or the financial
    and managerial capability analysis may
    indicate  that staging of construction
                    464

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is preferable.  Other conditions which
may suggest staging of construction  in-
clude uncertainties surrounding future
population and economic growth, future
treatment requirements which are more
stringent than secondary, or existing
facilities which are to be used for  an
interim period and later phased out.

While the cost effectiveness analysis does
not consider the source of funding,  staging
of construction may become a more realistic
consideration because of the reduced Federal
grant share and the limitation on reserve
capacity after September 30, 1984, which in
many cases will affect the community's
ability to afford the project.  As a guide-
line, the staging period should be based
on the following:
Qf/Qi Ratio              Staging Period (years)

less than 1.3                    20

1.3 to 1.8                       15

greater than 1.8                 10
Where Of is the flow at the end of the 20 year
planning period and Q^ is the flow at the
initiation of plant operation.
Cost Preference for Innovative or Alternative
Technologies

The cost effectiveness analysis establishes
the present worth cost for each alternative.
Normally, the lowest cost alternative is
selected as the proposed project, assuming
that other criteria (e.g., environmental,
public acceptance, etc.) are satisfied.  The
CWA, however, provides that the present
worth cost of an I/A technology may be as
much as 15 percent greater than the cost of
the least costly non-l/A alternative and
still be considered equal from a monetary
                465

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    standpoint.  Therefore, when an entire pro-
    ject is classified as an I/A technology or
    where the I/A components represent more than
    50 percent of a proposed project, multiply
    the present worth of the least costly non-
    I/A alternative by 1.15 to establish an
    upper ceiling.  In order for an I/A project
    to be cost effective, its present worth cost
    may not exceed the ceiling figure.

    If the present worth cost of the I/A com-
    ponents is 50 percent or less of the pro-
    posed I/A project, the 1.15 multiplier is
    applied to the present worth cost of the
    replaced components in the least costly
    non-l/A project.  The sum of the figure
    so obtained, plus the present worth cost
    of the components common to both alterna-
    tives, establishes the upper ceiling as
    described above.

    Care must be exercised in reviewing the
    grant applicant's use of the I/A cost
    preference.  The project reviewer may
    wish to discuss this aspect of the cost
    effectiveness analysis with the State or
    EPA Regional I/A coordinator.

Re: 40 CFR 35.2032(b)
h.  Multiple Purpose Projects

    Multiple purpose projects combine water
    pollution control practices required to
    meet the enforceable requirements of the
    CWA with other beneficial purposes (e.g.,
    agricultural, codisposal of refuse and
    sludge, etc.).  They are encouraged by
    EPA, based on the assumption that
    achieving several worthwhile purposes at
    the same time should be less costly than
    achieving them separately.

    Projects which are designed only to meet
    the enforceable requirements of the CWA
    are considered single purpose.   For ex-
    ample, a project which includes land
    application as an integral part of the
                    466

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treatment process (an alternative tech-
nology) is considered single purpose.
If this same project, however, treated
the wastewater at the central treatment
facility to a level satisfactory for dis-
charge, but the effluent was used for
agricultural purposes, the project would
be considered multiple purpose.

When projects involve multiple purposes,
the allocation of costs to each purpose
will be based on the Alternative Justi-
fiable Expenditure (AJE) method as des-
cribed in 40 CFR Part 35, Subpart I,
Appendix A, Paragraph H.l.f.  The basic
principle behind the AJE method is to
allocate the costs of a multiple purpose
project among its purposes, so that each
purpose shares the cost savings resulting
from the multiple purpose approach.  In
addition, the use of the AJE method solves
the difficulty of determining the eligible
pollution control cost of a multiple pur-
pose project.

The AJE calculations provide the maximum
value that could justifiably be expended
on the pollution control function in the
multiple purpose project.  With the use
of this method, however, the grant
eligibility for multiple purpose projects
will ordinarily be less than the eligibil-
ity of a single purpose project with the
same pollution control objectives.

If a multiple purpose project is the most
cost effective way of satisfying the en-
forceable requirements of the CWA (e.g.,
for a CSO), it should be treated as a
single purpose project to determine grant
eligibility.  If the project is cost
effective, it is the preferred alterna-
tive regardless of what other purposes it
serves.

While projects that include recreation could
be considered as multiple purpose, they are
more appropriately a multiple use project,
                467

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    and  are  not  subject  to  the AJE method.
    Recreational  components of a  project
    are  not  eligible  and cannot be grant
    funded.   The  project, however, would
    be  funded at  the  level  of the most  cost
    effective single  purpose alternative.

    A multiple purpose project may have I/A
    water  pollution control components.   If
    so,  those components are entitled to  have
    the  I/A  funding percentage applied  against
    the  allowable percentage determined by
    the  AJE  method calculation.   Further,  if
    the  multiple  purpose project  utilizes  I/A
    technology for the water pollution  control
    component, and the use  of the 15 percent
    cost preference makes the multiple  purpose
    project  the  most  cost effective project,
    then it  will  be considered a  single pur-
    pose project  (see Item  g above).

    Revenues generated by multiple purpose
    projects should not  be  deducted  from OM&R
    costs  in the cost effectiveness  comparison
    with single  purpose  projects, except  for
    revenue  from the  sale of excess  energy
    (i.e., energy produced  less  the  energy
    that could have reasonably been  used
    within the water  pollution control  com-
    ponents) from a cogeneration  facility.

i.   User Costs

    Another  aspect of the cost effectiveness
    analysis is  the computation  of  the  total
    cost of  the  project  to  users. Total cost
    as  used  in this context includes  capital
    and financing costs, OM&R  costs,  and
    other  costs  (e.g.,  sunk costs,  hook-up
    fees,  front  footage  assessments,  etc.)
    The facilities plan  is  to  estimate  the
    annual or monthly costs to  residential
    and industrial users for each alterna-
    tive,  and make this  information  available
    to the public as  part of the public par-
    ticipation program  (see Item 7.4  below).
    This information  will also be used  in pre-
    paring the financial and management cap-
    ability analysis  (see Item 8.2 below).

Re: 40 CFR 35.2030(b)(3)(vii)


                    468

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7.2  Engineering Evaluation

     An engineering evaluation of the principal alternatives
is a second criterion used in the selection of the proposed
project.  Engineering feasibility of alternatives is considered
throughout the entire facilities planning process.  However,
several specific areas of engineering evaluation are required
by the regulations, as described below.  Project reviewers are
to insure that the following areas have been adequately eval-
uated and addressed in the facilities plan:
     a.  Reliability

         Each alternative is to be evaluated for its
         reliability in terms of meeting and consistently
         maintaining the applicable effluent limitations
         throughout the project's useful life.  Reliability
         is of particular importance, as reflected in the
         CWA's requirement that grantees certify after one
         year of operation that the project is achieving
         its performance standards (see Section VII.I.2).
         Several approaches to evaluating and achieving
         reliability are discussed in Section V.C.2.g.

     Re: 40 CFR 35.2005(b)(48)
     b.  Energy Use

         While one of the criteria for classification of
         a project as innovative is net primary energy
         reduction, the regulations require that each
         alternative, whether conventional or I/A, be
         evaluated for opportunities to recover, or
         reduce the use of energy.  As mentioned in
         Item 6.13 above, the CAPDET program can be
         used for this analysis.  Where energy reduc-
         tion is the basis for claiming that a process
         is innovative, the energy evaluation will gen-
         erally provide an indepth analysis.

     Re: 40 CFR 35.2030(b)(3)(vi)
                          469

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c.  Water Supply

    The facilities plan is to evaluate the water
    supply implications of the project, considering
    both the impact of future growth upon the water
    resources and the impact of alternatives in
    terms of replenishing or depleting water supplies.

Re: 40 CFR 35.2030(b)(7)


d.  Revenue Generating Applications

    Each principal alternative is to be evaluated for
    revenue generating application (e.g., the sale of
    methane gas from anaerobic digestion, the sale of
    effluent or sludge for agricultural purposes, etc.),
    Revenue generating applications may possibly be con-
    sidered multiple purpose projects  (see Item 7.1.h
    above).  Revenues generated by the project must be
    used to reduce OM&R costs  (see Section V.E).

Re: 40 CFR 30.200, 35.2030(b)(3)(v)
e.  Open Space and Recreation

    Each principal alternative  is to be evaluated for
    potential open space or  recreational opportunities.
    In many cases, relevant  information may be  found
    in the State Comprehensive  Outdoor Recreation Plan,
    or from the National Park Service, United States
    Department of the  Interior.  The project reviewer
    may wish  to have the grant  applicant contact the
    appropriate agencies if  the project has potential
    open space or recreational  opportunities.   While
    recreational or open space  opportunities associated
    with a water pollution control  facility could de-
    note a multiple purpose  project, such  facilities
    are more  appropriately a multiple use  project
     (see Item 7.1.h above).  Typical recreational or
    open space opportunities associated with waste-
    water projects  include:

        - use  of  interceptor  rights  of way  for
         running, hiking,  bicycling, or eques-
         trian trails;
                     470

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   - use  of  project  roadway for  access
     to  waterways for canoeing,  boating,
     fishing,  or swimming;

   - provision for access to natural and
     historic  areas  for camping, photo-
     graphy, or nature appreciation;

   - use  of  project:  site for sports such
     as  target shooting, archery, or field
     sports ;

   - use  of  onsite facilities for educational
     purposes: and

   - use  of  effluent or sludge at onsite
     locations to improve other recreational
     areas .

Re:  40  CFR 35.2030(b) (5)


pis infection

The facilities plan should evaluate the need for
processes capable of providing disinfection.
Disinfection of wastewater prior to discharge has
long been practiced, and in many cases is reguired
by State design standards to protect public health.
Chlorination of effluent has been and continues to
be the most widely used method of disinfection.
Because of the potential toxic ef fects^ of chlorina-
tion on aguatic wildlife, chlor ination* plus de-
chlorination or alternate disinfection methods
(e.g., azonation, ultraviolet radiation, etc.)
should be evaluated  in  the facilities plan  for
environmentally sensitive areas.  If disinfection
reguirements are  not  stated  in  the  NPDES permit,
they should be addressed during  facilities  plan-
ning and resolved in  accordance  with  State  design
reguirements .
        Complexity

The treatment process selected  for  the proposed
project should be appropriate to  the size of the
community and the community's ability to attract
                471

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         and retain qualified operating personnel.
         For example, a sophisticated activated sludge
         process requiring complex monitoring and con-
         trol would usually be inappropriate for a small
         community.

7.3  Environmental Impacts

     An evaluation of environmental impacts is the third
criterion used in the analysis of principal alternatives and
project selection.  The grant applicant is to include within
the facilities plan an environmental information document (BID).
While the EID need not be a separate document, the environmental
information and each alternative's environmental impacts are
usually described in a separate chapter of the facilities plan.
The EID addresses the environmental issues described in 40 CFR
Part 6.  These regulations not only describe the NEPA require-
ments, but also include the requirements of other Federal laws
and executive orders (e.g., protection of wetlands and coastal
zones) .

     An adequate environmental evaluation considers the short
and long term, direct and indirect, beneficial and adverse
impacts of each alternative.  Environmental impacts are eval-
uated during the development of alternatives, the screening
of alternatives, and the analysis of principal alternatives.

     After completing the review of a facilities plan, the
project reviewer is to prepare an environmental assessment
of the proposed project.  The environmental assessment may
result in a FONSI, or a recommendation for the preparation
of an environmental impact statement (EIS).  The project
reviewer may wish to review the detailed environmental con-
siderations which are described in Section D below, to insure
that during the evaluation of principal alternatives, the
grant applicant has considered all significant environmental
issues.

Re:  40 CFR 35.2030(b)(6)


7.4  Public Involvement

     Public involvement is the fourth criterion used in the
evaluation of principal alternatives.  Open discussion and
public involvement during  facilities planning can help a
grant applicant develop a  project that reflects the needs
and values of the community.  Informing the public of the
scope of facilities planning at an early stage and involving
them during the development and evaluation of alternatives,
can help identify issues to be addressed and resolved.  EPA
                         472                        TM 86-1

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is fully committed to public participation in all of its pro-
grams. and has published detailed regulations (40 CFR Part 25)
which contain Agency-wide requirements for public involvement.
Specific
                               ____
    1 c I pa tlorT *£*• '^.Yi til 5_ t °.r _constructibn grant projects _are
set forth"Y'n"the " Ag ejic^^s'^NEPA^^edulatj-ons (40 CFR 6 .513) .
However, because "the elimTnation of Step 1 and 2 grants effec-
tively prohibits EPA financial involvement in facilities
planning and design, the requirements of 40 CFR Parts 6_and 25
do not apply to the activities of a potential grant applicant
prior to the submission of a grant application.  Nevertheless,
grant applicants whose projects are being evaluated to deter-
mine compliance with NEPA are required to involve the public
in the environmental review process, in accordance with both
40 CFR Part 25 and 40 CFR 6 .513 .

     An application for grant assistance submitted to EPA, in
iMLtiPJO. to the public participat ign^activities required  by
§6 .513 T must contain a certification from the State that  there
ha^~been adequate public participation on the part of the grant
applicant, based on State or local statutes.  Some States,
lacking specific State or local statutes, have elected to
require compliance by the grant applicants with 40 CFR Part 25.
Project reviewers are to be familiar with applicable State or
local statutes concerning public participation, insure that
the grant applicant has  involved the public during the
preparation of the facilities plan, and that the facilities
plan reflects the results of those requirements.  The
extent of public involvement is to be described in the
facilities plan  in sufficient detail to allow the State
agency to certify to EPA that there has been adequate
public participation.

Re:  40 CFR 6.400, 6^5 13^ , 35.2030(c), 35 . 2040 ( b) ( 2 )
7 .5  Imp 1 erne n. t a b j. lity_

     Implementability is the fifth criterion used  in  the eval-
uation of principal alternatives and project selection.  Imple-
mentability considers the legal, institutional,  financial,  and
managerial constraints of each alternative, as well as  any
other aspects of the alternative necessary for design,  construc-
tion, and successful operation.  EPA regulations require that
the  facilities plan include a concise description  of  the fin-
ancial, institutional, and managerial arrangements necessary
for  successful implementation of the selected project.  The
                          473                          TM  86-1

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project reviewer may wish to review Item 8.2 below to insure
that during evaluation of principal alternatives, the grant
applicant has considered all significant aspects of project
implementation.

Re:  40 CFR 35.2030(a), (b)(3), and (b)(8)(v)


7 .6  Plan Selection

     After evaluation and comparison of principal alterna-
tives, the grant applicant is to select a project which is
the most economical means of meeting the applicable effluent,
water quality, and public health requirements over the design
life of the facility, while recognizing environmental and
other non-monetary considerations.

     As in the case of preliminary screening of alternatives,
there is no prescribed methodology or procedure for evaluating
principal alternatives and selecting the proposed project.
Using the criteria described in Items 7.1 through 7.5 above,
the grant applicant should be able to identify the cost
effective, environmentally sound alternative.   Neither EPA
regulations nor  policy guidance suggest that one criterion
is more important than the others in selecting the proposed
project.  Grant  applicants may, therefore, exercise their own
value judgements in the weight they assign to each of the
criteria.  The project reviewer must insure that the reasons
for selecting the proposed project and rejecting other
principal alternatives are sound, and reflect the requirements
of all applicable Federal and State laws.  Unless the proposed
project or the application of the evaluation criteria violate
or misapply Federal and State laws, the project reviewer is
not to substitute his judgement for that of the grant appli-
cant.

     The project reviewer is to insure that the grant applicant
has ;

     a.  evaluated a reasonable number of varied waste-
         water management techniques;

     b.  used a  logical, systematic methodology which
         considers costs, environmental impacts, en-
         gineering feasibility, public involvement,
         and implementab il ity; and
                         474

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         c.   listed sound reasons for selecting the pro-
             posed project and rejecting other principal
             alternatives.

    Re:  40  CFR 35.2030(a)(1)
8.   Selected Plan Description

    Once the proposed project is selected, the grant applicant is
to prepare a concise description, at an appropriate level of detail,
of at least the items noted in Items 8.1 and 8.2 below.  This des-
cription includes both the proposed treatment works and the complete
waste treatment system of which it is a part.

Re:  40 CFR 35.2030(b)(1) and (b)(8)


    8.1  Relevant Design Parameters

         Purpose:

         Review relevant design parameters to insure that all
    major components of the system have been included, cost
    estimates are reasonable, design parameters comply with State
    standards, and the proposed process and design are capable of
    meeting the applicable effluent limitations.
         Discussion;

         The level of detail describing relevant design parameters
    varies from project to project, and depends on the project's
    size and complexity.  For example, the description of a stan-
    dard package treatment plant will not require the same level
    of detail as a pure oxygen system with phosphate removal and
    sludge incineration.  Representative design parameters to be
    described include:

         - major process features;

         - unit processes and sizes;

         - a schematic flow diagram;

         - sewer lengths and sizes;
                             475

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     - design criteria (e.g.,  detention times,
       overflow rates, process loadings,  computed
       removal efficiencies,  initial and  design
       flows, etc.);

     - sludge management;  and

     - a schedule for design and construction.


     Review Procedures;

     Insure that the facilities plan describes relevant
design parameters at the appropriate level of detail, in
order to demonstrate that:

     a.  all major components  of the system are
         included;

     b.  cost estimates are reasonable;

     c.  design parameters comply with State
         standards;  and

     d.  the process and design are capable of
         meeting the applicable effluent limita-
         tions.

Re:  40 CFP 35.2030(b)(8)(i)
8.2  Financial and Managerial Capability

     Purpose;

     Demonstrate the grant applicant's legal, institu-
tional, managerial, and financial capability to insure
adequate building and operation of the proposed treatment
works.


     Discussion;

     The requirement stated above is a limitation that must
be satisfied before award of grant assistance.  The  initial
demonstration of financial and managerial capability  is  re-
flected  in  the facilities plan, and fulfills the requirements
to describe:
                          476

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     - estimated capital construction and OM&R costs
       (identifying Federal, State, and local shares);

     - the manner in which local costs will be financed;

     - estimated cost of future expansion and long term
       needs for reconstruction of facilities following
       their design life; and

     - institutional and managerial arrangements
       necessary for successful implementation.
     EPA has published "Financial and Management Capability
for Construction, Operations, and Maintenance of Publicly
Owned Wastewater Treatment Systems; Final Policy" (49 FR
6254-6258, February 17, 1984).  This final policy ties to-
gether many of the financial and managerial responsibilities
which must be satisfied by a grant applicant prior to the
award of grant assistance.  In order to help grant appli-
cants, the policy statement includes sample "Wastewater
Facilities Financial Information Sheets."  EPA has also
distributed its "Financial Capability Summary Foldout - A
Simplified Approach," which may be used by grant applicants.

     The information sheets contain five basic questions,
supplemented by sub-questions, which when answered, will help
grant applicants evaluate their ability to proceed with the
proposed project.  The five basic questions are:

     - What Is Proposed in The Facilities Plan?

     - What Roles And Responsibilities Will Local
       Governments Have?

     - How Much Will The Facilities Cost At Today's
       Prices?

     - How Will The Facilities Be Financed?

     - What Are The Annual Costs Per Household?
     The final policy states that the information sheets and
their companion "Financial Capability Guidebook" are to be
provided to grant applicants to assist in facilities planning.
However, in order to account for unique aspects of State laws
governing local financing and institutional arrangements, all
States are encouraged to develop specific guidance and procedures
                         477

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for grant applicants to use in demonstrating their financial
capability.   The sample information sheets may be used as
the basis for this guidance, and may be modified according
to the State's need.

     The responses to the five questions must be viewed with-
in the overall context of the grant applicant's financial
condition, financial resources, legal constraints, and local
public policy.  After answering the five questions, the grant
applicant must certify that it has the capability to finance
and manage the proposed facility.  Before completing this
certification, the grant applicant is to consider additional
elements relating to its overall financial condition (see
below).  These same factors should be ccnsidered by the pro-
ject reviewer during the review of the facilities plan:

     - reasonableness of population projections
       (see  Item 5.3 above) relative to historic
       trends (if new population growth will be
       relied upon to help finance the proposed
       system);

     - total current outstanding indebtedness;

     - State finance laws and legal debt limits;

     - historic trends in the community's revenue
       sources (e.g., changes in taxable assessed
       property valuation with respect to popula-
       tion; and

     - current bond rating and its historic trend.
     At the time of facilities plan review, the demonstration
of financial and managerial capability may not be as complete
as is necessary prior to grant award.  Prior to awarding grant
assistance, the grant applicant may need to update the answers
to the five basic questions, since several years may have
elapsed between facilities planning and grant application.
During that same period, other application documents (e.g.,
intermunicipal service agreements, draft plan of operation,
UC system, sewer use ordinance (SUO), etc.) will have been
completed, providing further evidence of the applicant's
financial and managerial capability (see Section VI.D.4).
                         478

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     Review Procedures;

     The facilities plan must demonstrate that the grant
applicant has the financial and managerial capability necessary
to finance and implement the selected project.  The demonstra-
tion should include a discussion of the items listed below,
either through the information in the "Wastewater Facilities
Information Sheets" or separate sections in the facilities plan,


     a.  Cost Information

         i.    capital construction and OM&R costs;

         ii.   source of funds (Federal, State, local); and

         iii.  manner in which costs will be financed.


     b.  Cost Impacts on Users

         States must develop criteria  for screening  projects
         on  the basis of their per capita cost, technological
         appropriateness,  or potential  financial  impact.   A
         combination of  several of the  following  criteria
         should be used  for  this  purpose:

          i.     size of  community;

          ii.    extent  of  sewers  to  be  built  in presently
                unsewered  areas;

          iii.    type of  technology proposed;

          iv.     total capital  costs  per household;

          v.      total annual household costs;

          vi.     total annual cost per household  as a
                 percentage of  median income;

          vii.    capital cost of treatment per 1,000
                 gallons per day of capacity;  and

          viii.   other meaningful indicators.
                          479

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c.  Capital Financing Plan

    i.    a projection of future wastewater treat-
          ment services required during the 10 year
          period after initial operations;

    ii.   a projection of the nature, extent, timing,
          and costs of future expansion and reconstruc-
          tion of the treatment works; and

    iii.  the manner in which future expansion and
          reconstruction will be financed.
d.  Project Implementation

    i.    identification of each participating agency,
          and its jurisdiction and responsibilities;

    ii.   demonstration that each agency has the
          ability and authority under State law (or
          a reasonable expectation of obtaining such
          authority) to finance, design, construct,
          acquire access to, operate, and maintain
          facilities within its jurisdiction;

    iii.   identification of referenda or public
          elections necessary to implement the sel-
          ected plan;

    iv.   adopted resolutions of plan acceptance by
          participating agencies;  where opposition
          exists, a description of steps necessary
          to reach agreement;

    v.    proposed intermunicipal  service agreements
          or memoranda of understanding (see Section
          V.H) ;

    vi.   a schedule of specific actions necessary
          to implement the selected  plan,  which
          agrees with the existing NPDES permit and
          the schedule resulting from the  National
          Municipal Policy (see Sections II.D.I and
          II.D.2).
                    480

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             vii.    a schedule of actions necessary to
                    implement a pretreatment program,
                    where appropriate (see Section E.2
                    below);

             viii.   a schedule for the review of advanced
                    treatment projects (see Section E.I
                    below);  and

             ix.     a schedule for securing property rights
                    (including easements and rights of way)
                    for projects which include land acquisi-
                    tion.
         One aspect of project implementation is to insure that
    other responsible agencies within the planning area have an
    opportunity to comment on the proposed project.  In accord-
    ance with the intergovernmental review requirements (see
    Section VI.E.6), the grant applicant should be encouraged to
    submit the completed facilities plan to those agencies,
    identified in the State process, for review and comment.
    Adverse comments should be addressed and resolved, with the
    resolution reflected in the facilities plan.

    Re:  40 CFR 35.2030(b)(8), 35.2101, 35.2104(b), 35.2107;
         40 CFR Part 29; "Financial and Management Capability
         for Construction, Operations, and Maintenance of
         Publicly Owned Wastewater Treatment Systems; Final
         Policy," 40 FR 6254 through 6258 (February 17, 1984);
         EPA publication, "Financial Capability Guidebook,"
         March 1984; EPA publication, "Financial Capability
         Summary Foldout - A Simplified Approach," undated.
D.  FACILITIES PLAN APPROVAL

    The grant applicant will have established the need for the
proposed project, evaluated alternative solutions to the problem,
and based on an evaluation of principal alternatives, selected the
project which is cost effective and environmentally sound.  After
completing the review of the facilities plan, the project reviewer
must decide to approve or disapprove the proposed project.  In
making this decision, the project reviewer will have determined if
the grant applicant has satisfied all requirements for facilities
planning as described in Sections B and C above, and Section E below.
                             481

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    One of the criteria used by the grant applicant to develop and
evaluate alternatives is the alternative's environmental impacts.
Although the grant applicant may have determined that the environ-
mental impacts associated with the proposed project are acceptable,
it is the reviewing agency's responsibility to insure that the
project's environmental impacts do not violate Federal and state
statutes, and represent an acceptable compromise between associated
adverse impacts and the maintenance or enhancement of water quality.

    EPA regulations describe the environmental impacts which must
be evaluated for wastewater treatment projects.  The regulations
consolidate environmental considerations from NEPA, as well as other
applicable Federal statutes and executive orders.  The environ-
mental considerations, as described below, include criteria for
decision, definitions, coordination and consultation with other
agencies, and procedural requirements.  While the environmental
considerations are consolidated here because of the reviewing
agency's regulatory responsibility for decision after the review
of a facilities plan, they are equally applicable in reviewing
the grant applicant's development and screening of alternatives
(see Section C.6 above) and evaluation of principal alternatives
(see Section C.7 above).


1.  Criteria for Preparing an Environmental Impact Statement

    Even if a project has previously been granted a categorical
exclusion (see Section III.D.7), the responsible official at EPA
must insure that an EIS will be issued when it is determined that
any of the following conditions exist:

    a.  The treatment works will induce significant changes
        (either absolute changes or increases in the rate
        of change) in industrial, commercial, agricultural,
        or residential land use concentrations or distribu-
        tions.  Factors that should be considered in deter-
        mining if these changes are significant include,
        but are not limited to:

           i.    vacant land subject to increased
                 development pressure as a result of
                 the treatment works;

           ii.   increases in population which may be
                 induced;

           iii.  faster rate of change in population
                 or changes in population density;
                             482

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       iv.    potential  for  overloading  sewage
             treatment  works;

       v.     extent  to  which  landowners may  benefit
             from  the areas subject  to  increased
             development;

       vi.    nature  of  land use  regulations  in the
             affected area  and  their potential
             effects on development; and

       vii.   deleterious  changes in  the availability
             of or the  demand for energy.


b.  The treatment  works or  collector system  will  have a
    significant adverse effect  on wetlands,  including in-
    direct (i.e.,  induced)  effects,  or  a major part  of the
    treatment works will be located  in  wetlands.


c.  The treatment  works or  collector system  will  signifi-
    cantly affect  a habitat on the U.S. Department of the
    Interior's or  the State's threatened or  endangered
    species lists, or the  treatment  works will be located
    in such a habitat.


d.  The treatment works may directly cause or induce changes
    that significantly:

       i.    displace population;

       ii.   alter  the character of an existing resi-
             dential area;

       iii.  adversely affect a  floodplain;  or

       iv.   adversely affect significant amounts of
             important farm  land or agricultural
             operations on such  land.


e.  The  treatment works will have significant adverse  direct
    or indirect effects on park  lands, or other public  lands
    or areas of recognized scenic,  recreational, archaeological,
    or historic value.
                          483

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    f.  The treatment works may directly or through induced
        development have a significant adverse etfect upon
        local ambient air quality, local ambient noise levels,
        surface or ground water quality or quantity, or on
        fish, shellfish, wildlife, or their natural habitats.


    g.  The treated effluent is being discharged into a body
        of water where the present classification is too lenient,
        or is being challenged as too lenient to protect the pre-
        sent or recent uses, and the effluent will not be of
        sufficient quality or quantity to meet the requirements
        of these uses.


In addition, to these factors, when the proposed treatment works
threatens a violation of Federal, State or local law, or require-
ments imposed for the protection of the environment, the responsible
official at EPA is to consider preparing an EIS.

Re:  40 CFR 6.506(a) and (b)
2.  Environmental Review Process

    The environmental review process applies the criteria described
in Item 1 above to determine whether to issue a FONSI or prepare an
EIS.  The environmental review is conducted by the reviewing agency.
Although EPA retains final responsibility for decisions under NEPA,
delegated States may prepare an environmental assessment of the
proposed project, with recommendations for the issuance of a FONSI
or the preparation of an EIS.  The following additional information
concerning applicable Federal laws and executive orders, and con-
sultation requirements with other agencies will assist project
reviewers in applying the criteria for preparing an EIS.


    2.1  Historical and Archaeological Sites

         The National Historic Preservation Act establishes
    procedures for the identification, evaluation, and protection
    of historical and archaeological properties (i.e., cultural
    resources).  It is EPA's policy to avoid affecting such re-
    sources, through careful consideration and selection of
    alternatives during planning and design.  EPA must consult
    with the ACHP when a proposed project will affect a property
    listed on, or eligible for listing on, the National Register
                             484

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of Historic Places.  To comply with the ACHP regulations,
EPA has developed guidance that integrates the review of
cultural resources with the NEPA review process.

     Under a delegation agreement, a State reviewing agency
may assume responsibility for cultural resources review
activities, including:


     - assisting the grant applicant in determining
       the boundaries of a project planning area and
       the scope of cultural surveys;

     - initiating consultation and providing infor-
       mation to the State Historic Preservation
       Officer (SHPO) concerning the project's nature
       and scope; and

     - making recommendations and preparing materials
       for EPA's decision in the cultural resources
       review process (e.g., NEPA documents, elig-
       ibility determinations, submittals to the ACHP,
       etc. )


     As one component of the EID, the grant applicant  is
responsible for conducting surveys to identify and evaluate
cultural resources.  The State reviewing agency, using Depart-
ment of the Interior standards in consultation with the SHPO,
will assist grant applicants in identifying qualified  profes-
sional consultants to conduct the surveys.  The grant  appli-
cant will provide documentation of survey results, to  enable
the State and/or EPA to carry out its responsibilities under
NEPA and the National Historic Preservation Act.

     Surveys consist of activities necessary to locate cultural
resources within the planning area, and where necessary,  to
develop the information required to apply the National Regis-
ter of Historic Places eligibility criteria and the ACHP's
effect criteria.  Three levels of survey are described in the
guidance, as briefly described below:


     a.  Documentation and Strategy Development Survey

         This  initial level  survey is designed  to document
         previously  identified cultural resources and  to
         identify potential  areas of historic and pre-
         historic habitation.  Information concerning  the
                          485

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    planning area's cultural sensitivity will be
    used to screen and develop measures for mini-
    mizing the project's direct and indirect impacts
    on cultural resources.   At a minimum, the survey
    i ncludes:

        i.    a broad-based literature search;

        ii.   contact with  the SHPO, the State
              archaeologist, historical and
              archaeological societies, libraries,
              museums, and  universities;

        iii.  examination of published accounts,
              models of settlement systems, and
              geomorphology to predict the rela-
              tive sensitivity of the area for
              the discovery of undocumented
              resources; and

        iv.   field inspection for familarization
              with the planning area.

        The resulting survey report is to contain
        an explicit research design for any sub-
        sequent site recognition survey, if appro-
        priate .
b.  Site Recognition Survey

    This level of survey is designed to determine the
    presence or absence of cultural resources in the
    project's direct impact area, and to identify those
    resources requiring further investigation.   The
    survey includes sampling the areas of cultural
    sensitivity identified in the initial level of
    survey.  Subsurface testing to identify undocu-
    mented archaeological sites should be required un-
    less the presence or absence of resources can be
    determined by direct observation.  Survey methods
    t.nd field activities are to be documented by the
    applicant and used, in part, to assess the poten-
    tial impacts of possible project design modifica-
    tions.  If potential impacts cannot be avoided, or
    if sufficient data on the resource is unavailable,
    the applicant should conduct a site definition and
    evaluation survey.
                    486

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Site Definition and Evaluation Survey

This level of survey consists of intensive
investigation of specific resources previously
identified as partially or entirely existing
in the project's direct impact area, or dis-
covered as a result of previous surveys.   This
survey is undertaken when direct effects cannot
be avoided by reasonable project modification,
or when information (e.g., extent,  depth,
significance) is insufficient to assess project
alternatives.  This survey should,  at a minimum,
provide data to allow a determination of National
Register of Historic Places eligibility.   The
State reviewing agency or EPA, in consultation
with the SHPO, uses the survey data to:

    - evaluate methods ot avoiding  adverse
      impacts on the resources, or  make a
      "no effect" determination;

    - assess the need to request a  National
      Register of Historic Places eligibility
      determination from the National Park
      Service, U.S. Department of the Interior;

    - assess the effects of the project on the
      resource;

    - develop mitigating measures;  and

    - assess the need to request ACHP comments.
Should the review result in an adequately documented
determination of no effect, the project may proceed
as proposed.  Should the review result in a deter-
mination of no adverse effect, the ACHP is to be
provided with the documentation in accordance with
its regulations.  If the ACHP concurs or does not
object within 30 calendar days of the submittal,
the project may proceed.

Should the agency review result in a determination
of adverse effect, or if the ACHP objects within
30 calendar days to a determination of no adverse
effect, the ACHP is to be provided with documen-
tation for the full consultation procedure, accord-
ing to ACHP regulations, for the preparation of a
                487

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    memorandum of agreement.  EPA, with  the assis-
    tance of  the delegated State, will:

        - prepare the preliminary case report,
          formally requesting the comments of
          the ACHP;

        - notify the SHPO of this request; and

        - proceed with the consultation  process
          (e.g., on-site visits, public  informa-
          tion meetings) as detailed in  the ACHP
          regulations.

    During this consultation process, EPA will ex-
    amine all feasible and prudent alternatives to
    avoid adverse effects on cultural resources.
    Examples  include the examination of  alternative
    project sites, alternative designs,  or no action.
    Should EPA determine that alternatives to avoid
    affecting cultural resources are not feasible,
    measures to minimize the potential effects will
    be developed in consultation with the SHPO and
    the ACHP.  Generally, the consultation should
    result in a resolution of any adverse effects.
    Specific conditions, including the agreed miti-
    gating measures are to be included in the
    memorandum of agreement signed by EPA, the ACHP
    and the SHPO.  EPA will not approve  any action
    having an adverse effect or no adverse effect
    until the ACHP comments.   Reasonable costs of
    mitigating measures are eligible for grant
    participation.  EPA may condition any subsequent
    grant to require mitigating measures to be under-
    taken by the grantee.

    It is the responsibility of the project reviewer
    to insure that the above procedures are,  or have
    been, carried out.   EPA retains the  final re-
    sponsibility for compliance with the ACHP regula-
    tions.   EPA will publish the review  findings,
    effect determinations,  and consultation results
    as part of the project's environmental assessment

Re; 36 CFR Parts 63 and 800;  40 CFR 6.301, 30.600(a);
    40 CFR Part 35,  Subpart I,  Appendix A, Paragraph
    B.l.b.
                    488

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2.2  Environmentally Sensitive Areas

     Whenever a proposed project will affect environmentally
sensitive areas, the consultations below should be addressed
by the grant applicant in the facilities plan.  The reviewing
agency has the responsibility for carrying out these procedures,
but the grant applicant should be encouraged to do so during
preparation of the facilities plan.  Whether the project will
have an acceptable adverse effect on these resources requires
prudent judgement on the part of the project reviewer:
     a.  Wetlands

         Consult with:

             i.    the Fish and Wildlife Service,
                   U.S. Department of the Interior;

             ii.   the Soil Conservation Service,
                   U.S. Department of Agriculture;
                   and

             iii.  the U.S. Army Corps of Engineers
                   (COE).
         Document consultation and obtain written comments
         from each of these agencies where appropriate.
         Where wetlands may be affected, adverse impacts
         must be avoided to the extent practicable, and
         the responsible official must prepare a flood-
         plains/wetlands assessment as part of the
         environmental assessment or the EIS.

         If the proposed project will affect wetlands,
         impact navigable waters, or cause the discharge
         of dredge or fill materials, contact the COE
         to determine whether a permit for the discharge
         of dredge or fill material will be needed.

     Re: 40 CFR 6.302(a); 40 CFR Part 6, Appendix A,
         "Statement of Procedures on Floodplain Manage-
         ment and Wetlands Protection;" Executive Order
         11990, "Protection of Wetlands"
                         489

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b.  Floodplains

    Floodplains and flood hazard areas are shown
    on maps prepared by the U.S. Federal Emergency
    Management Agency or the COE.  Determine  if
    the grant applicant must participate in the
    flood insurance program; determine if the
    proposed project satisfies applicable flood-
    plain statutes, regulations, and EPA guidance
    with regard to location, elevation, or pro-
    tection of structures.  Where floodplains may
    be affected, adverse impacts associated with
    direct and indirect development should be
    avoided to the extent possible, and a flood-
    plains/wetlands assessment must be included
    in an environmental assessment or EIS.

Re; 40 CFR 6.302(b); 40 CFR Part 6, Appendix A;
    Executive Order 11988, "Floodplain Management"
c.  Important Farm Lands

    It is EPA policy to protect environmentally
    significant farm lands from irreversible
    conversion to uses which result in its loss
    as an environmental or essential food produc-
    tion resource.  Identify important farm lands
    by consulting with the Soil Conservation
    Service, U.S. Department of the Interior.
    If affected by the proposed project, evaluate
    direct and indirect impacts to avoid or mit-
    igate them to the extent possible.

Re; 40 CFR 6.302(c); EPA's "Policy to Protect
    Environmentally Significant Agricultural Lands,"
    44 FR 64181 (September 8, 1978)
d.  Coastal Zones

    Consult with:

        i.   the appropriate State agency, and

        ii.  the Office of Ocean and Coastal
             Resource Management, U.S. Depart-
             ment of Commerce
                    490

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    Document consultation and obtain written
    comments if the proposed project is located
    in a coastal zone.   If the State has an
    approved coastal zone management plan,  a
    consistency determination must be made  by
    the State.   The management plan may also
    include provisions  of the Coastal Barrier
    Resources Act, which prohibits grant awards
    to projects which encourage development
    within the coastal  barrier resources system,
    which is made up of barrier islands and
    related areas containing few manmade struc-
    tures.

Re: 15 CFR Part 930; 40 CFR 6.302(d)
e.  Wild and Scenic Rivers

    Consult with:

        i.   the appropriate State agency, and

        ii.  the National Park Service, U.S.
             Department of the Interior, or,
             where National forest lands are
             involved, the Forest Service,
             U.S. Department of Agriculture

    Determine if there are any wild and scenic
    rivers in the planning area.  Consult with
    and obtain written comments from the approp-
    riate agency.  Projects which have a direct
    and adverse  impact are to be avoided.  If
    the impact cannot be avoided, the project
    may not be approved without notification of
    the Secretary of the appropriate Federal
    agency, and  of Congress, 60 days in advance
    of approval.

Re: 40 CFR 6.302(e)
    Fish and Wildlife

    If the project will result  in the  control or
    structural modification of  any  stream or body
    of water, consult with:
                     491

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             i.   the appropriate State agency, and

             ii.  the Fish and Wildlife Service,
                  U.S. Department of the Interior.

         Document consultation and obtain written
         comments from each of these agencies, where
         appropriate.

     Re: 40 CFR 6.302(f)
     g.  Threatened or Endangered Species

         Consult with:

             i.    appropriate State agency;

             ii.   the Fish and Wildlife Service,
                   U.S. Department of the Interior;
                   and

             iii.  the National Marine Fisheries
                   Service, U.S. Department of
                   Commerce.

         Where the proposed action will have an adverse
         impact on a listed species or its habitat, mit-
         igation measures must be undertaken.

     Re;  40 CFR 6.302(g); 50 CFR Parts 23 and 402
2.3  Air Quality

     The Clean Air Act requires that all Federally assisted
projects conform to the applicable State air quality implemen-
tation plan.  The responsible official must assess the extent
of direct or indirect increases in emissions and the resultant
change in air quality for any proposed project which may signi-
ficantly affect air quality.  Where applicable:

     a.  consult with State or local agencies having
         responsibility for development and implementation
         of the applicable implementation plan, to ascer-
         tain whether the project plan conforms with the
         implementation, including compliance with appli-
         cable emission limitations or standards.
                         492

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            submit the conformity determination to the
            designated lead State or local agency for
            concurrence.  Lack of response by the lead
            agency during the 30 day FONSI and 45 day
            draft EIS review periods will be inter-
            preted as concurrence.
        c.   EPA must provide  in the FONSI or EIS a
             response to  non-concurrence, including
             the basis on which conformity will be
             assured.  If EPA  finds that non-concurrence
             is unjustified, an explanation must be
             included in  the FONSI or EIS.

        Re:  40 CFR  6.303;  40  CFR 30.600(c)
    2.4   Drinking  Water

         The  Safe  Drinking  Water Act  prohibits  EPA  from  awarding
    grant assistance  it  a proposed  project may  contaminate a
    sole  source  aquifer  and result  in a  significant hazard to
    public health.  Determine  if a  sole  source  aquifer is located
    in the project area, and if so, evaluate  the  potential impacts
    (both direct and  indirect) of the project on  drinking water
    quality.

    Re:   40 CFR  30.600(1);  40  CFR Parts  141 and 149
3.  Direct and Indirect Impacts

    Environmental impacts are generally  classified  as  direct  or
indirect.
    3.1  Direct Impacts

         Direct impacts are caused by construction or operation
    of the treatment works, and typically include:


         a.  disruption of traffic, businesses,  or other
             activities during construction;
                             493

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     b.   disturbance  of  sensitive  ecosystems,  such
         as  wetlands  and habitats  of  endangered  or
         threatened species,  during construction;
     c.   impact  on water  quality  by  the  effluent
         discharged from  the  treatment works;
     d.   displacement  of  households,  businesses,
         or services;  and
         destruction of,  or a significant adverse
         effect on,  archaeological and historic
         sites and similar nonrenewable resources.
3.2  Indirect Impacts

     Indirect impacts are caused by development made possible
by the project,  and typically include:
         changes in the rate,  density, location,  or
         type of development;
     b.  increased air, water, or noise pollution
         from induced changes in population and
         land use;
     c.  increased solid waste production or demand
         for potable water from induced changes in
         population and land use; and
         socioeconomic pressures for the expansion
         of existing facilities and services (e.g.,
         housing, schools, highways, police, fire,
         medical, energy) from induced changes in
         population and land use.
     As a facilities plan is reviewed, and as the environ-
mental review process is carried out, the project reviewer
is to note both the direct and indirect impacts of the
                         494

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    proposed project.   Special attention is to be given to
    indirect impacts,  to insure that induced changes will not
    create other environmental problems.  Additionally, many
    of  the criteria requiring the preparation of an EIS are
    based on the induced or indirect impacts of the proposed
    project.

         Where direct  or indirect adverse impacts are unavoid-
    able, the facilities plan or the reviewing agency may suggest
    methods to mitigate them.  These methods may be structural
    (e.g., changes in  facility design,  size, and location) or
    nonstructural (e.g., staging facilities, developing and en-
    forcing land use and environmental  protection regulations,
    etc. ).

         The project reviewer should record in the project files
    the mitigation measures resulting from the environmental re-
    view process, and  use this information during plan and spec-
    ification review.   The requirement  for such measures may also
    be  included in a subsequent grant award as a special grant
    condition.

    Re:  40 CFR 6.507(c)(5) through (c)(7)
4.   Finding of No Significant Impact

    If, after completion of the environmental review process a
preliminary determination is made that an EIS will not be required,
the EPA will prepare, announce publicly, and distribute a FONSI.
EPA will use appropriate means to advise the public and interest
groups (e.g., media advertisements, direct mail, etc.) of its
preliminary decision not to prepare an EIS, and will allow at least
30 days for public response.  At the conclusion of the public notice
response period, and after fully considering all comments received,
EPA will decide either to finalize the FONSI or to prepare an EIS.

    The FONSI is based on the environment assessment, which is a
summary of all potentially significant environmental impacts and
related factors, and which serves as the EPA's written record of
the reasons for not preparing an EIS.  The environmental assessment
is either incorporated into, or attached to, the FONSI.

    The FONSI lists any mitigation measures necessary to eliminate
significant adverse environmental effects and make the proposed plan
acceptable.  Once a FONSI and environmental assessment have been
issued for a facilities plan and after the 30 day comment period has
elapsed, grant award may proceed (after completion and approval of
                             495

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the design), without preparation of an additional FONSI unless the
reviewing agency determines that the project has changed signifi-
cantly from that described in the approved facilities plan.

    For those States where the review of facilities plans has been
delegated, the State agency will prepare the preliminary environ-
mental assessment, which then serves as the basis for EPA's decision
to issue a FONSI or an EIS.  However, the decision whether or not to
prepare an EIS rests solely with EPA, since the ultimate decision
under NEPA cannot be delegated.

    Once a decision is made, the FONSI issued, and the 30 day comment
period has elapsed, the reviewing agency is to:

    a.  notify the grant applicant and the State that the
        facilities plan has been appproved;


    b.  identify, in the official notification letter, any
        special conditions resulting from the environmental
        review which will be made a part of a subsequent
        grant; and


    c.  advise the grant applicant that approval of the
        facilities plan does not obligate EPA to the award
        of future grant assistance.

Re:  40 CFR 6.400(d), 6.507, 6.508
5.  Environmental Impact Statement

    5.1  Notice of Intent

         If after completion of the environmental review process,
    a determination is made to prepare an EIS, EPA will announce
    publicly and distribute a notice of intent to prepare an EIS.
    The notice of intent is based on the conclusion from the
    environmental review that a significant environmental impact
    may occur as a result of the proposed project.  After the
    notice is published in the Federal Register (FR), EPA will
    initiate actions to begin the scoping process.

         As soon as possible after publication of the notice of
    intent, EPA will publicly announce and convene a meeting of
    affected Federal, State, and local agencies, along with the
                             496

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grant applicant and interested parties, to determine the
scope of the EIS.  At the scoping meeting, in consultation
with the other participants, EPA will:

     a.  determine the scope and significant issues
         to be analyzed in the EIS;
     b.  identify those issues which are not sig-
         nificant;
     c.  determine what information is needed from
         cooperating agencies;
     d.  discuss the method for EIS preparation
         and the public participation strategy;
     e.  identify consultation requirements based
         on other environmental laws; and
     f.  determine the relationship between the EIS
         and the facilities plan, and any necessary
         coordinating arrangements between the
         preparers of both documents.

Re;  40 CFR 6.105(e), 6.400(b), 6.507(f) and (g)
5.2  Preparation

     After issuing the notice of intent and completing the
scoping process, EPA will prepare the EIS either by direct
use of agency staff, by contract with a qualified consultant,
or by utilizing the joint EID/EIS process (frequently called
piggybacking), in which the grant applicant enters into a
contract with a qualified consultant, subject to EPA con-
currence, to prepare both documents simultaneously.

     EPA regulations (40 CFR Part 6) include detailed pro-
cedures to be followed in preparing an EIS.  In general, a
draft EIS is prepared, during which time an active public
participation program is carried out by EPA in accordance
with 40 CFR Part 25.  After completion, distribution, and
public review of the draft, the EIS is finalized by EPA.
                         497

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    The EIS may:
         a.  conclude that grant assistance is not to
             be awarded for the proposed project because
             of significant adverse environmental impacts;


         b.  recommend changes to the project or mitigation
             measures; or
         c.  approve the project as proposed.

    Re;  40 CFR 6.105, 6.507(h) and (i)



6.   Grant Award Exception

    EPA regulations allow the award of grant assistance before
facilities plan approval and certification by the State provided
that:

    a.  applicable statutory and regulatory requirements
        (including 40 CFR Part 6) have been met;


    b.  facilities planning related to the project has been
        substantially completed;


    c.  the project for which grant assistance is awarded
        will not be significantly affected by the completion
        of the facilities plan and will be a component part
        of the complete waste treatment system;  and


    d.  the grant applicant agrees to complete the facilities
        plan on a schedule the reviewing agency accepts, and
        such schedule is inserted as a special condition in
        the grant agreement.


Re: 40 CFR 35.2030(a)(2)
                             498

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E.  SUPPLEMENTAL CONSIDERATIONS

    This section discusses three items (advanced treatment (AT),
pretreatment, and correction of CSO's) which, when applicable, are
an integral part of facilities planning.   Because they are not
applicable to all projects, they are discussed separately below:


1.  Advanced Treatment

    Purpose;

    Provide grant assistance to projects designed for treatment
more stringent than secondary treatment if the responsible official
determines that AT is required and will definitely result in sig-
nificant water quality and public health improvements.
    Discussion;

    All projects proposing treatment more stringent than secondary
treatment will be subject to an intensive review in accordance with
EPA's "Policy for Review of Advanced Treatment Projects," published
at 49 FR 21462 through 21469 (May 2, 1984).  The AT review should
be conducted during or at the completion of facilities planning,
and prior to the initiation of project design.

    EPA has defined the minimum level of effluent quality attain-
able by secondary treatment in terms of the parameters 6005, SS,
and pH (see Section C.3 above).  For purposes of the AT review
policy, except as described on the following page under "secondary
treatment processes," an AT project is defined as any project that:


    - is designed to meet effluent limitations for 6005 or
      SS which are less than 30 mg/1 (30 day average); or


    - is designed to meet effluent limitations for the
      removal of ammonia, nitrogen, phosphorous, or other
      pollutants; or


    - is designed to provide stringent disinfection by means
      of coagulation and filtration facilities.
                             498A

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    Except for certain projects exempted as described below, this
policy shall apply to all AT projects prior to award of Step 2 + 3
or Step 3 grant assistance.  In addition to projects meeting the
definition for AT above, two other special classes of projects are
also subject to this policy:


    - projects other than AT projects which, because of
      blanket AT or blanket zero discharge requirements tor
      nearby waters, include long interceptors or outfalls
      for discharge to distant receiving waters,  and whose
      total capital cost exceeds by more than $3  million
      the capital cost of providing secondary treatment
      with discharge to nearby waters; and


    - projects featuring land treatment or other  I/A tech-
      nologies which include reuse or recycling of pollutants
      that resulted from imposition of AT discharge require-
      ments, and whose incremental present worth  cost (i.e.,
      beyond that of providing preliminary treatment prior to
      land treatment or other I/A process) exceeds $3 million.


    Several categories of projects are exempt from the AT review:


    - secondary treatment processes:

        - designed to meet State definitions of secondary
          treatment which are not more stringent  than 20
          mg/1 for BOD5 and SS and which require  only
          secondary treatment technologies to achieve
          these levels; or


        - featuring only the addition of commonly used
          disinfection processes for pathogen inactivation
          (e.g., chlorination/dechlorination, ozonation,
          ultraviolet radiation).


    - phosphorous removal:

        - where required by international agreement in
          the Great Lakes Basin or in the Upper Chesapeake
          Bay; or
                             498B

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        - where incremental  AT costs  are  $3  million or
          less, and where the total phosphorous  effluent
          limitation is not  less than 1 mg/1,  EPA may
          exercise its option to exempt such projects.


    - warm weather nitrification:

        - where incremental  AT costs  are  $3  million or
          less the projects  provide only  for warm weather
          (e.g., 20°C or greater)  nitrification  designed
          to achieve effluent limitations requiring not
          more than 90 percent removal of ammonia on
          streams with designated fishery uses,  and
          effluent flows are greater  than stream flows
          at critical low flows, EPA  may  exercise its
          option to exempt such projects.


    All AT projects with an incremental AT capital cost over
$3 million, unless exempted, must be  approved by the EPA Adminis-
trator prior to award of grant assistance.  All  AT projects with
an incremental AT capital cost of $3  million or  less, unless ex-
empted, must be approved by the EPA Regional Administrator prior
to award of grant assistance.  The Regional  Administrator may
delegate his authority to the appropriate States for such deter-
minations.  Incremental AT cost is defined as the difference in
total capital cost between the cost effective secondary treatment
facility and the proposed AT project.

    It should be noted that the requirements for AT result from
existing NPDES permits or water-quality-based effluent limitations
necessary to achieve water quality standards (see Sections II.B.I,
II.C.3, and II.D.2).  Since all States are required to reevaluate
their water quality standards by December 29, 1984, the project
reviewer must insure that effluent limitations requiring treat-
ment more stringent than secondary treatment remain applicable to
the project.


    Review Procedures;

    Because of  the technical considerations surrounding the review
of proposed AT projects, the project reviewer is encouraged to read
EPA's AT review policy and AT review handbook, which are referenced
below, prior to conducting the review.   In general, review procedures
should allow the project reviewer to:
                             498C

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    a.  determine if the proposed project meets the
        definition of AT or is a special case requiring
        AT review;
    b.  determine if the proposed project is subject to
        exemption from AT review;
    c.  determine the incremental costs for AT:

            i.   if $3 million or less, conduct
                 the AT review in accordance with
                 EPA policy and Regional procedures;
                 or

            ii.  if more than $3 million, conduct
                 the AT review in accordance with
                 EPA policy and Regional procedures,
                 and prepare necessary documentation
                 for submission to EPA Headquarters.

Re:  40 CFR 35.2101; EPA's "Policy for Review of Advanced
     Treatment Projects," 49 FR 21462 through 21469 (May 21,
     1984); EPA publication, "Handbook of Advanced Treatment
     Review Issues," June 1984
2.  Industrial Pretreatment

    Purpose;

    Insure that industrial wastes discharging or proposed for
discharge to the treatment works do not interfere with the treat-
ment process or limit selection of the cost effective, environ-
mentally sound project for treatment and sludge disposal.
    Discussion;

    All owners of POTWs with a total design flow greater than 5
million gallons per day which receive industrial waste pollutants
which:

    - pass through untreated,

    - interfere with the operation of the treatment works, or
                             498D

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    - are included in the National Pretreatment Standards

are required to develop a pretreatment program.


    The requirements for developing and implementing a municipal
pretreatment program are administered through the NPDES permit
program for existing facilities.   Where new treatment works are
proposed in a facilities plan, or where industries subject to pre-
treatment requirements are to be  connected to a treatment works
proposed in a facilities plan, the grant applicant should develop
a pretreatment program in conjunction with the preparation of the
facilities plan.

    The requirements for a pretreatment program are not applicable
to municipal treatment works with flows of 5 million gallons per
day or less unless circumstances  (e.g., industrial discharges
which upset the treatment process, cause violation of NPDES permit,
or contaminate sludge) require the regulatory agency to impose
them.  Two sets of National Pretreatment Standards are established
under the CWA.  The first standard, entitled "prohibited dis-
chargers," identifies the characteristics of waste which may not
be introduced to a POTW.  These characteristics include pollutants
which:
    - create a fire or explosion hazard;

    - cause corrosive structural damage;

    - have a pH lower than 5.0:

    - cause obstructions to the  flow in sewers or other
      interference with operations;

    - because of volume or strength  (e.g.,  BOD, SS,  etc.)
      cause interference with operations;

    - because heat, inhibit biological activity, resulting
      in interference with operations; or

    - contain heat in such quantities that  the influent
      exceeds 40°C (104°F).
    The second set of National Pretreatment Standards,  entitled
"categorical standards," specify the quantity and concentration
of pollutants or pollutant properties which may be introduced or
                             498E

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discharged into a POTW, from a source in a given industrial
category or subcategory (21 categories were identified for initial
development of the standards).  Categorical standards also contain
numerical pollutant discharge limitations for each industrial sub-
category, based on the best available technology economically
achievable.

    Where applicable, the grant applicant must identify industrial
contributors, determine the nature, quantity, and specific charac-
teristics of the industrial waste, determine if the wastes are
subject to National Pretreatment Standards, establish enforcement
authority and monitoring capability, and accomplish whatever else
is necessary to implement a pretreatment program.  The development
and implementation of a pretreatment program by the grant applicant
is related to many other items in the grants process, such as
capacity requirements, including letters of intent from industries
(see Section C.5.4 above),  eligible project costs (see Section IX.F),
UC system (see Section V.E), SUO (see Section V.F), and plan of
operation, including laboratory facilities to analyze wastes (see
Section V.G).  During facilities planning, the grant applicant must
insure that industrial wastes discharging or proposed for discharge
to the treatment works do not interfere with the treatment process
or limit selection of the cost effective, environmentally sound
project for treatment and sludge disposal.

    A complete pretreatment program will include the following
items:

    - an industrial survey, identifying system users by
      industrial category,  location, and character and
      volume of discharge;

    - identification of prohibited discharges and those
      industrial categories subject to categorical standards;

    - negotiation and agreement with affected industries for
      pretreatment prior to discharge into the treatment
      works;

    - an evaluation of the  legal authority of the grant
      applicant to enforce  pretreatment standards, including
      the development of new legislation (ordinances, codes,
      etc.) where required;

    - an evaluation of the  revenue sources and financial
      arrangements necessary to implement the pretreatment
      program;
                             498F

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     -  a determination of  the  technical  information  needed
       to  support development  of  an  industrial  waste enforce-
       ment program which  will  insure compliance with the
       NPDES permit and  to incorporate new  categorical
       standards as they are promulgated by EPA;

     -  design of an enforcement monitoring  program;

     -  a determination of  pollutant  removals  in existing
       facilities (a grant  applicant may apply, on behalf
       of  industrial users, for removal credits for  existing
       treatment facilities; approval of removal credits is
       made only after a technical review in  accordance with
       40 CFR 403.7(b); costs associated with preparing docu-
       ments solely for requesting removal  credits are un-
       allowable for grant  participation; and

     -  a determination of monitoring equipment  (both  sample
       collection equipment and laboratory  needs) required
       at the POTW.


     Because of the complex nature of the technical  issues and the
broad  range of regulatory  requirements (Federal, State, and local),
the project reviewer may wish to consult with the pretreatment
specialist within the reviewing agency.


    Review Procedures;

    Where  a facilities plan indicates that industrial contributors
are or will be connected to the treatment works,  and where the
total design flow is  greater than 5 million gallons per day,  insure
that:


    a.   industrial  dischargers have not  limited the grant
        applicant's alternatives  for treatment and sludge
        disposal  (i.e.,  the proposed project would have been
        selected  in the  absence of industrial discharges);


    b.   the grant applicant has carried  out those  elements
        of a pretreatment  program (see discussion  above)
        necessary for  identifying the  cost  effective,
        environmentally  sound  project  as  proposed  in the
        facilities  plan; and
                             498G

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    c.   where appropriate,  acceptable cost estimates and
        implementation steps related to capacity, the UC
        systems, the SUO, and the plan of operation are
        included in the facilities plan.

Re;  40 CFR Part 35, Subpart I, Appendix A, Paragraph F;
     40 CFR Part 403
3.   Combined Sewer Overflow Projects

    Grant requirements, including date and funding limitations,
for CSO projects are discussed in Section VI.G.  However, regard-
less of whether a project is solely for CSO correction, or CSO's
are a part of the complete treatment system being evaluated in a
facilities plan, the CSO projects are to satisfy the facilities
planning requirements.  This means that the project need must be
established, alternatives identified and evaluated (including
economic and environmental impacts), and a project selected which
is both cost effective and environmentally sound.  The project
reviewer must combine the requirements of Section VI.G and
Sections B through D above when reviewing CSO projects.
                              498H

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              CHAPTER  V




                 DESIGN
A.  INTRODUCTION




B.  PREDESIGN CONFERENCE




C.  REVIEW OF PLANS  AND SPECIFICATIONS




D.  VALUE ENGINEERING




E.  USER CHARGE SYSTEM




F.  SEWER USE ORDINANCE




G.  PLAN OF OPERATION




H.  INTERMUNICIPAL SERVICE AGREEMENT




I.  INDUSTRIAL WASTES AND FEDERAL FACILITIES




J.  DESIGN ACCEPTANCE
                      501

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A.  INTRODUCTION

    This chapter discusses the review of activities which take place
during the design of the project.  It begins with the predesign
conference, followed by a discussion of the administrative and tech-
nical review of the plans and specifications. It also discusses
other activities which are usually accomplished concurrently with
design, and which are prerequisites to grant award.

    Section B, Predesign Conference, describes suggested issues
which may be discussed with the grant applicant and the design
engineer.

    Section C, Review of Plans and Specifications, describes admin-
istrative items to be included in the specifications, based primarily
on construction procurement requirements, and technical requirements
and guidance which EPA feels represent sound engineering design princi-
ples.

    Section D, Value Engineering, describes those conditions
under which a separate value engineering (VE) study is required, the
methodology to be used in conducting the study, and provisions for
implementing the VE recommendations.

    Section E, User Charge System, describes the requirements for
a user charge (DC) system, which must charge each user of the waste-
water treatment system a proportional share of the cost of pro-
viding treatment services.

    Section Ff Sewer User Ordinance, describes the requirements
for a sewer use ordinance (SUO), and its use in implementing EPA
requirements and other municipal requirements for effective
operation of the project.

    Section G, Plan of Operation, describes the requirements for an
effective plan of operation, including staffing, training, budgeting,
and the preparation of an operation and maintenance (O&M) manual.

    Section H, Intermunicipal Service Agreement, describes the require-
ments for an intermunicipal service agreement and its importance in
providing proper financial and institutional support for the project.

    Section I, Industrial Wastes and Federal Facilities,
describes limitations on the eligibility of capacity to treat
industrial wastes and wastes from Federal facilities.

    Section J, Design Acceptance, describes the effect of design
acceptance by the reviewing agency, and discusses other issues
which must be resolved prior to application submission.
                                503

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B.  PREDESIGN CONFERENCE

    Purpose;

    Meet with the grant applicant and the grant applicant's design
team to review administrative and technical requirements for design,
as well as other activities that are usually accomplished concurrently
with design.

    Discussion;

    A predesign conference is not required by EPA regulations, but is
encouraged for all projects whenever possible.  A predesign conference
affords an opportunity for the reviewing agency \.o meet with the grant
applicant and the grant applicant's design team to review the many
activities which take place during project design.  Practically all
reviewing agencies have developed specific procedures for arranging
and conducting a predesign conference, frequently including a checklist
of items for discussion.  The reviewer should use these procedures,
modified as necessary for the specific project.  Particular emphasis
should be placed on the significant changes in the construction grants
program which became effective on October 1, 1984.

    Procedures;

    As soon as possible after completion and approval of a facilities
plan and prior to the initiation of design, the project reviewer
should arrange a predesign conference with the grant applicant and the
design team.  Major program requirements to be discussed include:

    1.  Technical design criteria, which must meet State
        design standards and the EPA requirements and guidance
        discussed in Section C.2 below.  If the reviewing agency
        requires the submission of an engineering design report,
        the format and timing for submission of the report by the
        grantee should be discussed.  Design parameters may
        include items such as loadings, system head curves,
        detention times, peaking factors, and the capacity of
        various components.

    2.  Contract documents, which must comply with State and
        EPA requirements (primarily 40 CFR Part 33),
        as discussed in Section C.I below.  These requirements
        include competitive selection, non-restrictive specifi-
        cations, bonding, insurance, wage rates, labor standards,
        and required subagreement clauses.
                                504

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3.  Recent changes in the construction grants program,
    such as:

    a.  reduced Federal grant share (see Section VI.L.2):

    b.  allowances (see Section VI.L.I)  and advances  of
        allowance (see Section III.E);

    c.  revised definition of secondary treatment
        or its equivalent (see Section IV.C.3.1);

    d.  infiltration/inflow (I/I)  limitation (see
        Section IV.C.4.3)r

    e.  limitations on the eligibility of reserve capacity
        (see Section VI.P.18)?

    f.  project performance certification,  including  sewer
        rehabilitation, after one  year of operation (see
        Section VII.1.2.a):

    g.  limited eligibility of collection sewers, major
        sewer system rehabilitation, and combined sewer
        overflow (CSO) projects (see Section II.E.3).

d.  Compliance with facilities plan and FONSI or EIS conditions
    (see Sections IV.C.8 and IV.D).

e.  UC system (see Section E below) and SUO (see Section F below)

f.  Requirements for VE studies (see Section D below).

g.  Preliminary and final plan of operation (see Section G below)

h.  Acquisition of land, rights of way, and easements (see
    Section VI.H).

i.  intermunicipal service agreements (see Section H below).

j.  Service agreements with major  industrial users (see
    Section I below).

k.  Additional I/I investigations which may be required  (see
    Section VI.0.16).

1.  Pretreatment  (see  Sections IV.E.2 and VI.E.4).

m.  Design features associated with industrial flows (see
    Section I below).
                            505

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    n.  Timing and arrangements for funding the municipal share
        of project costs (see Section VI.D.4).


C.  REVIEW OF PLANS AND SPECIFICATIONS

    Purpose;

    Insure that the proposed project conforms with the selected
alternative in the facilities plan, satisfies State and EPA design
criteria and administrative requirements,  is biddable and construc-
tible, and will satisfy discharge requirements  in accordance with the
project's National Pollutant Discharge Elimination (NPDES) or State
Pollutant Discharge Elimination System (SPDES)  permit.

    Discussion;

    Contract documents, primarily the plans and specifications, are
prepared by an engineer licensed in the State in which the project
is to be constructed.  In designing the project, the engineer must
comply with State design standards, and the enforceable requirements
of the Clean Water Act (CWA).  The engineer is responsible for employing
sound engineering principles, as represented by his seal and signature
on the plans and specifications.

    The reviewer is responsible for insuring that the project conforms
with the selected alternative described in the facilities plan, in-
cludes special considerations which were noted in the facilities plan
(e.g., mitigation of adverse environmental impacts), and in general
meets minimum technical and administrative State and EPA requirements.
Ideally, periodic progress reviews should be conducted with the grant
applicant and the design team to insure compliance with technical and
administrative requirements.

    In performing the review of the plans and specifications, the
reviewer is to note and call to the attention of the design team,
through the grant applicant, any apparant discrepancies with State or
EPA requirements  (e.g., oversized or unnecessary units, "gold plating,"
etc.).  Reviews should also be conducted with a cost conscious eye;
and,  items  judged not to be reasonably required and necessary for the
proper operation and maintenance of the facility and the attainment
of effluent limits, or required to mitigate adverse environmental
benefits, should be recommended for reevaluation and possible
elimination.  However, the review and acceptance of the plans and
specifications by the State or EPA project reviewer does not relieve
the grantee or the design engineer of his legal responsibilities for
the overall integrity of the project  (see Section J.l.c below).

    In addition to reviewing the contract documents for technical and
administrative adequacy, the reviewer should note and resolve any
possible conflicts that could later result in contractor change orders
or claims.  The most common conditions resulting  in change orders


                                506                      TM 86-1

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3.  Recent changes in the construction grants program,
    such as:

    a.  reduced Federal grant share (see Section VI.L.2);

    b.  allowances (see Section VI.L.I) and advances of
        allowance (see Section III.E);

    c.  revised definition of secondary treatment
        or its equivalent (see Section IV.C.3.1);

    d.  infiltration/inflow (I/I) limitation (see
        Section IV.C.4.3) ;

    e.  limitations on the eligibility of reserve capacity
        (see Section VI.D.18);

    f.  project performance certification, including sewer
        rehabilitation, after one year of operation (see
        Section VII.I.2.a);

    g.  limited eligibility of collection sewers, major
        sewer system rehabilitation, and combined sewer
        overflow (CSO) projects  (see Section II.E.3).

d.  Compliance with facilities plan and FONSI or EIS conditions
    (see Sections IV.C.8 and IV.D).

e.  UC system (see Section E below) and SUO (see Section F below).

f.  Requirements for VE studies  (see Section D below).

g.  Preliminary and final plan of operation (see Section G below).

h.  Acquisition of land, rights of way, and easements (see
    Section VI.H).

i.  Intermunicipal service agreements  (see Section H below).

j.  Service agreements with major industrial users (see
    Section I below).

k.  Additional I/I investigations which may be required  (see
    Section VI.D.16).

1.  Pretreatment (see Sections IV.E.2 and VI.E.4).

m.  Design features associated with industrial flows (see
    Section I below).
                            505

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    n.
Timing and arrangements for funding the municipal share
of project costs (see Section VI.D.4).
C.  REVIEW OF PLANS AND SPECIFICATIONS

    Purpose;

    Insure that the proposed project conforms with the selected
alternative in the facilities plan, satisfies State and EPA design
criteria and administrative requirements, is biddable and construc-
tible, and will satisfy discharge requirements in accordance with the
project's National Pollutant Discharge Elimination (NPDES) or State
Pollutant Discharge Elimination System (SPDES) permit.

    Discussion;

    Contract documents, primarily the plans and specifications, are
prepared by an engineer licensed in the State in which the project
is to be constructed.  In designing the project, the engineer must
comply with State design standards, and the enforceable requirements
of the Clean Water Act (CWA).  The engineer is responsible for employing
sound engineering principles, as represented by his seal and signature
on the plans and specifications.

    The reviewer is responsible for insuring that the project conforms
with the selected alternative described in the facilities plan, in-
cludes special considerations which were noted in the facilities plan
(e.g., mitigation of adverse environmental impacts), and in general
meets minimum technical and administrative State and EPA requirements.
Ideally, periodic progress reviews should be conducted with the grant
applicant and the design team to insure compliance with technical and
administrative requirements.

    In performing the review of the plans and specifications, the
reviewer is to note and call to the attention of the design team,
through the grant applicant, any apparant discrepancies with State or
EPA requirements (e.g., oversized or unnecessary units, "gold plating,"
etc.).  However, the review and acceptance of the plans and specifica-
tions by the State or EPA project reviewer does not relieve the grantee
or the design engineer of his legal responsibilities for the overall
integrity of the project (see Section J.l.c below).

    In addition to reviewing the contract documents for technical and
administrative adequacy, the reviewer should note and resolve any
possible conflicts that could later result in contractor change orders
or claims.  The most common conditions resulting in change orders
                                506

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include differing site conditions, errors and omissions in the con-
tract documents, State and Federal government regulatory changes,
design changes, overruns and underruns in quantities, and factors
affecting the time of completion of the project.  Bearing these
conditions in mind, the reviewer should carefully review the plans
and specifications to insure that the information and details con-
tained therein will help to minimize future change orders and claims,
    Review Procedures;

    1.  Administrative Review

        The procurement of construction contractors must comply
    with at least the minimum EPA requirements as set forth in
    40 CFR Part 33.  These minimum EPA requirements may be supple-
    mented by additional State or local requirements provided they
    do not conflict with EPA requirements nor in any other way
    unduly restrict or eliminate competition (see Section I.D.6).
    Practices considered to be unduly restrictive and therefore
    not allowed include:

        - noncompetitive practices between firms;

        - organizational conflicts of interest;

        - State and local laws, ordinances, regulations, or
          procedures which give local or in-State bidders
          preference over other bidders;

        - unnecessary qualification requirements, such as
          excessive experience or bonding in lieu of
          experience;

        - placing other unreasonable requirements on firms
          in order for them to qualify to do business.

        Re:  40 CFR 33.230

    a.  Formal Advertising

            Except for very unusual circumstances, the formal
        advertising procurement method must be employed.
        Formal advertising procurement essentially consist of:

          i.  formal advertising or solicitation of bids
              through a public notice,
                                507

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       ii.   public receipt and opening of bids, and

       iii.  award of the contract to the lowest
            responsive, responsible bidder.

    Items b through f below briefly describe EPA's admin-
    istrative requirements for bidding documents and
    procedures.  See Sections VII.B and VII.D for a more
    complete discussion.

    Re:  40 CFR 33.405, 33.430


b.  Public Notice

        The public notice soliciting bids must state when
    and how bidding documents, including plans and spec-
    ifications, can be obtained or examined, and the time,
    date, and location for receipt of bids.  The public
    notice must provide adequate time (normally 30 days)
    between the date of public notice and the date for
    receipt of bids.

        The advertisement or invitation for bids is placed
    in newspapers and trade journals, and in the case of
    large projects, in publications with nationwide distri-
    bution.

    Re:  40 CFR 33.410, 33.415;
         40 CFR Part 33, Appendix A


c.  Prequalification of Contractors and Products

        If allowed by State law, grant applicants may
    use a prequalified list of contractors and/or
    major items of equipment before receipt of bids
    provided the following conditions are met:

        i.     prequalified list is updated at least
              every six months;

        ii.   requests for inclusion on the list
              made 30 days before bid opening are
              considered and acted upon;

        iii.  adequate public notice of the pre-
              qualification procedure is provided;
              and
                            508

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        iv.  the procedure does not unnecessarily
             restrict competition.

        Re:  40 CFR 33.230(c) and (d)

d.  Addenda

        Prior to the receipt of bids, it is sometimes
    necessary for the grantee to issue addenda to the plans
    or specifications.  Such addenda may be required to up-
    date a wage rate determination (see Item q below) or to
    clarify the plans or specifications.  The proposal form
    or other bid submission documents should include a
    statement to be completed by bidders acknowledging receipt
    of each addendum (see Section VII.D.l.c).

e.  Bid Proposal

        The bid proposal is a form which briefly describes
    the required items of equipment, materials, and work to
    be performed, and provides blank spaces to be completed by
    the bidder, indicating the amount being bid for each bid
    item.   The amount will be a fixed price (lump sum), or in
    the case of estimated quantities, unit prices.  The price
    is generally expressed in words and numbers, with a separate
    price  for each major item or system and a total for the
    entire contract.  The proposal is to be signed by an
    authorized official of the bidding firm.  The individual
    items  on the proposal form should set forth, in clear and
    understandable terms, the limits of work for each item.

f.  Basis  for Award

        The contract documents must clearly describe the method
    of bidding, the method of evaluating bid prices, and the
    method of awarding the contract.  A contract will be awarded
    to the lowest responsive, responsible bidder.  The selection
    of tne successful bidder is to be made principally on the
    basis  of price.

        A  responsible contractor is one that has:

          i.    financial resources, technical qual-
                ifications, experience, organization,
                and facilities adequate to complete
                the project within the required schedule,
                or a demonstrated ability to obtain these;

          ii.   a satisfactory performance record;
                            509

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      iii.  adequate accounting and auditing
            procedures; and

      iv.   demonstrated compliance or willing-
            ness to comply with the civil rights,
            equal employment opportunity, labor
            law, and other requirements of
            40 CFR Part 30.
        A contract may not be awarded to a contractor,
    nor a subcontract to a subcontractor, who has been
    suspended, debarred, or voluntarily excluded under
    40 CFR Part 32, nor may any portion of the work be
    performed at any facility listed on EPA's List of
    Violating Facilities.

        The contract documents should also include a
    description of conditions under which all bids may
    be rejected.  Such conditions must be based on sound
    business reasons which are in the best interests of the
    construction grants program.

    Re:  40 CFR Part 15; 40 CFR 33.220, 33.250, 33.405,
         33.420, 33.430
Sole Source Procurement

    Noncompetitive negotiation is allowed when:

      i.     it is necessary to test or demonstrate
            a specific thing, such as equipment or
            processes used in innovative technology
            designs;

      ii.    an item is available only from a single
            source;

      iii.   a public  exigency or emergency exists
            and the urgency will not permit delay,
            or

      iv.    after solicitation from a number of
            sources,  competition is inadequate
            (e.g., after formal advertising, no
            bids or only one bid is received).

      Re:   40 CFR 33.605
                        510

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h.  Scope of Work

        The contract documents must include a clear
    statement of work, especially where multiple
    contracts may be awarded.  The statement of work
    must establish the limits of work for each con-
    tract, in order to eliminate confusion or over-
    lapping of work between contractors. To the extent
    feasible, the limits of work for each contract
    should also be indicated on each page of the design
    drawings (i.e., plans).  The statement of work must
    also include a required performance schedule for
    each contract and a requirement for coordination
    between contractors.

    Re:  40 CFR 33.420(a)
i.  Responsibilities of Parties

        The specifications should provide a clear descrip-
    tion of the responsibilities of each party, including
    the owner (grantee), the grantee's representative
    (generally the engineer's project inspector), and the
    construction contractor.  The specifications should in-
    dicate who may authorize a change in the work (procedures
    for change orders are described in Section VII.H), who
    is responsible for checking quantities and quality of
    materials, who is authorized to allow extensions of time,
    who is authorized to approve the construction contractor's
    payment requests, who is authorized to interpret the plans
    and specifications and resolve conflicts, and how disputes
    are to be resolved.  The specifications may also describe
    the role of the State, EPA and/or the U.S. Army Corps of
    Engineers (COE).  In general, however, regulatory officials
    are observers to help insure that the project is constructed
    in accordance with the approved plans, specifications, and
    change orders. Their recommendations for compliance are
    provided only to and through the grantee.

    Re;  40 CFR 33.210; EPA publication "Operating Procedures
         for Monitoring Construction Activities at Projects
         Funded under the Environmental Protection Agency's
         Construction Grants Program," September 1983
                            511

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j.  Subagreement

        The contract documents must include a proposed
    subagreement which clearly sets forth the terms and
    conditions of the subagreement including payment,
    delivery schedules, points of delivery, and accep-
    tance criteria.  The subagreement must be a fixed
    price (lump sum) or unit price subagreement and
    shall incorporate by reference all contract docu-
    ments, including plans,  specifications, and addenda.

    Re:  40 CFR 33.285, 33.420


k.  Lower Tier Subagreements

        The contract documents must require the prime
    contractor to include specific requirements in any
    lower tier subagreement  awarded by the prime con-
    tractor.   This requirement will be satisfied by
    inclusion in the contract documents of the required
    provisions described in  Item m below.

    Re:  40 CFR 33.295

1.  Bonding and Insurance

        For construction contracts of  $100,000 or less,
    grantees  may use local or State requirements for
    bonding.   For construction contracts in excess of
    $100,000,  the minimum EPA bonding  requirements are:

        i.     bid guarantee  (bond,  certified check,
              or other negotiable instrument)  equal
              to 5 percent of the bid  price;

        ii.    performance bond for 100 percent of
              the bid price;  and

        iii.   payment bond for 100 percent of  the
              bid price.

    Bonds obtained by bidders must be  from companies holding
    certificates of  authority as acceptable  sureties in the
    State in  which the project is located.   It is recommended
    that  that  performance and payment  bonds  remain in  effect
    for one year after contract  completion.
                           512

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        Contractors should be required to obtain ade-
    quate construction insurance (e.g., fire and
    extended coverage, workmen's compensation, public
    liability and property damage,  and all risk) in
    accordance with local or State  laws.

        EPA regulations require that a grantee participate
    in the National Flood insurance Program if the pro-
    posed project involves construction or property acquisi-
    tion in a flood hazard area.  Adequate flood protection
    insurance must be provided for structures such as new
    or reconstructed surface structures which are walled or
    roofed (e.g., control building  or pumping station), have
    a value of $10,000 or more, and are located in flood
    hazard areas.  Construction contractors must also obtain
    adequate flood insurance during construction.

    Re:  40 CFR 30.600(b), 33.265;  Treasury Circular 570

m.  Regulatory Provisions

        The contract documents must include a copy of the
    most recent EPA specification inserts, including
    40 CFR 33.295 ("Subagreement Awarded by a Contractor"),
    Subparts F ("Subagreement Provisions") and G ("Protests"),
    and EPA Form 5720-4 ("Labor Standard Provisions for
    Federally Assisted Contracts").  By including these in-
    serts in the contract documents, many of the administra-
    tive requirements will be satisfied.

        Subpart F includes Subagreement provisions such as
    labor standards provisions, patents data and copyrights
    clause, violating facilities clause,  energy efficiency
    clause and model Subagreement clauses.  The model sub-
    agreement clauses include the Buy American requirements
    (see Item 2.aa below) and the quality assurance require-
    ments (see Section VI.S.M.f).  With regard to the model
    Subagreement clauses, the grant applicant may use the
    exact wording in 33.1030 or their equivalent, and should
    exclude those clauses which are not applicable to cons-
    truction contracts.  Grant applicants should be encour-
    aged to have their model Subagreement or substitute
    cluases reviewed by their legal counsel, to insure their
    compatibility with State laws and prevailing legal prac-
    tices.

    Re:  40 CFR 30.302(d)(3), 30.503(f) and  (h), 33.420(f),
         33.710; 40 CFR Part 33 Subparts F and G
                            513

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 n.   Safety

         Project specifications must require  contractors
     to comply with applicable  regulations  issued  by  the
     Occupational Safety and Health Administration,
     U.S.  Department of  Labor (DOL).  In  addition,  where a
     State has promulgated  additional regulations  concerning
     safety in design of structures or safety during
     construction,  such  regulations should  be incorporated
     into  the  specifications (generally  by  reference).

        At the time of  plan and specification review,
     the reviewing  agency should insure  that  the
     specifications require  contractor compliance  with
     applicable State  and DOL safety  requirements, as
     well  as the specific additional  safety provisions
     for chlorination  facilities, wet  and dry wells,
     and other hazardous locations  which are  described
     in Items  2.c through 2.e below.

o.   Schedule

        Each  construction contract must include a
     completion schedule and  provisions for coor-
     dination  among  contractors.  Since the grant
     applicant  is required to submit a project schedule
     with  the  grant  application,  the construction
     schedule  should be  reviewed  for reasonableness
     and conformance with the project  schedule, as well
     as with any permits, compliance schedules, court
     orders, or  State administrative orders.  The construe-
     tion completion schedule is generally given in
     calendar  days  from  the date of the notice to proceed,
     and forms  the basis for assessing liquidated damages
     against the contractor  (see Item r below).  Any
     circumstances under which the completion schedule
     would be amended should be clearly defined in the
     contract documents,  which should also indicate that
     a  formal change order is required in such cases.

    Re:  40 CFR 33.420(a),  35.2040(b)(6)

p.  Permits

        The contract documents should require that,  to the
    extent possible, contractors obtain  all necessary permits
    for construction. (Some permits may  be  required to be
    held  by the owner of the project.)
                            514

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q.  Wage Rate Determination

        Each EPA funded project with construction
    contracts in excess of $2,000 must contain the
    prevailing wage rate determination issued by DDL
    under the Davis-Bacon Act.   The wage rate determin-
    ation will include the prevailing wages and fringe
    benefits for various construction labor categories.
    Contractors are required to pay employees at least
    these prevailing wage rates. Since wage rate deter-
    minations are periodically  revised, provision should
    be included in the contract document for updating
    the determination by an addendum if the determination
    is issued by DOL at least 10 days prior to bid receipt.
    Where project-specific rates are requested from DOL,
    this 10 day limitation does not apply, and the rates
    are applicable regardless of the date of issuance by
    DOL.

    Re:  40 CFR 30.603(a), 33.420(e), 33.1016

r.  Liquidated Damages

        The assessment of liquidated damages by the grantee
    is a potential source of disputes and contractor counter-
    claims, and must therefore be carefully evaluated.  EPA
    regulations contain no provisions for liquidated damages.
    However, many engineers include liquidated damages (e.g.,
    $1,000 per day for each day of delay beyond the construc-
    tion completion date) in the specifications.  Where
    liquidated damages are included in the contract documents,
    they should be reviewed against applicable State laws and
    court decisions.  The amount of liquidated damages should
    be adequate to cover additional costs which would be
    incurred by the grantee as a result of delay  (e.g., addi-
    tional inspections, interest on borrowed funds, etc.).
    Liquidated damages may affect allowable project costs
    (see Section IX.F.4, Paragraph A.3.a).

s.  Change Order Procedures

        A clause for changes (Paragraph 3) is included in
    the model subagreement clauses in 40 CFR 33.1030.  How-
    ever, the contract documents should also clearly describe
    the specific procedures, including negotiation, for
    reviewing and approving change orders  (see Section VII.H).
                            515

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t.   Payment Request Procedures

        The contract documents should clearly describe
    the procedures and timing for processing contractor
    payment requests, including payment request forms,
    documentation (e.g.,  paid invoices or inspector's
    verification of work  in place), retainage, and time
    from receipt of payment request until payment.

u.   Retainage

        Many project specifications include a requirement
    for retainage of a portion of a progress payment request
    until the project is  substantially or fully completed.
    Typical retainage is  5 to 10 percent of the monthly
    progress payment request until the project is substan-
    tially complete (e.g., 90 percent completion).  When the
    project is substantially complete, the retainage is re-
    duced to an amount at least equal to the value of any
    uncompleted or deficient work.  Retained amounts are
    paid when remaining work items are satisfactorily com-
    pleted.

        Contract documents should clearly describe the
    grantee's retainage policy in order to preclude future
    disputes, and should be reviewed to ensure that the
    retainage policy is in accordance with State laws and
    requirements.

        EPA regulations do not address retainage.  However,
    EPA will only pay the grantee the Federal share of
    allowable project costs which are currently due and
    payable to the grantee (i.e., costs incurred by the
    grantee, minus any retainage).  EPA may also withhold
    grant payments otherwise due a grantee for failure to
    comply with specific requirements and conditions of the
    grant agreement, but only to the extent necessary to in-
    sure compliance.  In order to avoid any future cash flow
    problems, grantees should be advised of EPA's withholding
    policy (see Sections IX.B.2.b and IX.B.4).

    Re:  40 CFR 30.902
                            516

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v.  Construction Incentive Clause

        A construction incentive (CI) clause is an option
    which may be included in the contract documents if
    not prohibited by State and local laws. The CI clause
    allows a contractor or subcontractor to propose changes
    in the project which will:


      i.    provide at least a $50,000 gross capital
            savings,


      ii.   result in a net savings over the life
            of the project as demonstrated in a
            cost-effectiveness analysis, and


      iii.  not reduce the quality or integrity of the
            project, including compliance with NPDES
            or SPDES permit requirements.


        Where a CI clause is  included in the contract docu-
    ments and the accepted CI proposal results in a savings
    of $1 million or less, the contractor may receive up to
    50 percent of the net capital savings.  Above $1 million,
    the contract may receive up to $300,000 plus 20 percent
    of the net capital savings.

        Care must be exercised in reviewing contract documents
    which contain a CI clause to insure that it conforms with
    EPA's model CI clause.


    Re;  EPA publication, "The Construction Incentive Program,"
         1984


w.  Small, Minority, Women's, and Labor Surplus Area Businesses

        It is EPA policy that grantees award a fair share of
    subagreements to small, minority, women's and labor surplus
    area businesses.  In doing so, EPA regulations require that
    grantees and prime contractors which award subcontracts
    take affirmative steps to assure that small, minority, and
    women's businesses are used when possible as sources of
                            517

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supplies, construction, and services.  However, EPA
no longer requires grantees to include goals in their
specifications, nor will EPA Regions set goals for
minority or women's business enterprises (MBE/WBE)
participation for a particular grant.  Rather, EPA
Regions will negotiate a fair share and the procedures
for implementation with State reviewing agencies.
Grantees may also use their own goals, State goals, or
other standards if desired.

    In reviewing project specifications, the reviewer
is to insure that the affirmative steps described below
are reflected in the specifications, public notice,
solicitation, or other activities which will be used by
the grant applicant to obtain contractors and suppliers.
In addition, the specifications must clearly indicate
that if a prime contractor awards a subcontract, he must
also follow these affirmative steps:

    i.    include qualified small, minority,
          and women's businesses on
          solicitation lists;

    ii.   insure that small, minority, and
          women's businesses are solicited
          whenever they are potential sources;

    iii.  divide total requirements, when
          economically feasible, into smaller
          tasks or quantities to permit
          maximum participation of small,
          minority, and women's businesses;

    iv.   establish delivery schedules,
          where requirements of the work
          permit, which will encourage
          participation of small, minority,
          and women's businesses;

    v.    use the services and assistance
          of the Small Business Administra-
          tion and the Office of Minority
          Business Enterprise of the U.S.
          Department of Commerce as approp-
          riate; and

    vi.   for projects which benefit American
          Indians, give American Indians
          preference in the award of sub-
          agreements .
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        EPA also encourages grantees to procure
    supplies and services from labor surplus area
    firms.

    Re:  40 CFR 30.600(j), 33.240;  preamble to
         40 CFR Part 33, 48 FR 12923, "Small, Minority,
         Women's, and Labor Surplus Area Businesses"
         (March 28, 1983)
2.  Technical Review

    Except in the case of approved marine discharge waiver
applicants, project designs must meet the minimum require-
ments for achieving secondary treatment or its equivalent,
as defined in EPA's regulations (40 CFR Part 133), in order
to be eligible for grant assistance.  Plans, specifications,
and contract documents must conform to State design criteria
and also meet the requirements for competitive bidding in
accordance with EPA's procurement regulations (40 CFR Part 33).
Based on past experience, EPA has established, as described
below, several basic policies concerning the design of treat-
ment works which are to be incorporated into the plans and
specifications.  These items do not represent a complete
list of design standards, and should be used only to supplement
a State's design criteria.

    a.  Project Performance Standards

        Grantees are required to certify, after one
    year of operation, whether the project meets its
    project performance standards.  Therefore, at the
    time of plan and specification review it is necessary
    to establish the parameters which constitute project
    performance standards and judge whether the proposed
    project is likely to achieve a minimum of secondary
    treatment or its equivalent, in accordance with
    40 CFR Part 133.

        Project performance standards are performance and
    operational requirements applicable to the project,
    including the enforceable requirements of the CWA and
    the design upon which the specifications are based.
    For projects which will contribute to compliance with
    the enforceable requirements of the CWA, project per-
    formance standards include design criteria (e.g.,
    engineers design report, facilities plan, plans and
    specifications) and effluent requirements.  For
                             519

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    projects which will not contribute to compliance
    with the enforceable requirements of CWA,  such as
    interceptor sewers and pumping stations,  project
    performance standards include only the design criteria,
    For projects which include sewer rehabilitation,
    the quantity of excessive infiltration and inflow
    which is to be eliminated is also considered a
    component of the project performance standards.

        During the technical review of the plans and
    specifications, those parameters which constitute
    project performance standards should be identified
    and recorded in the project files and in the Grants
    Information and Control System (GIGS) for later use.
    (This can usually be done even if a NPDES permit
    has not been issued at the time of design, since
    effluent limitations should have been established
    during facilities planning.)  It may also be prudent
    to contact the grant applicant and reach agreement
    concerning project performance standards as a basis
    for future evaluation. At a minimum, the grant
    applicant should be informed of the parameters which
    have been identified as project performance standards
    (see Sections VI.M.S.g and VII.I.2.a).

    Re:  40 CFR 35.2005(b)(15) and (b)(33), 35.2218;
         40 CFR Part 133
b.  Mitigation of Adverse Environmental Impacts

        Plans and specifications should be compared to the
    facilities plan and the finding of no significant impact
    (FONSI) or the environmental impact statement (EIS)  pre-
    pared for the project to insure that the project design
    incorporates all measures for the mitigation of adverse
    environmental impacts (i.e., measures to protect envir-
    onmentally sensitive areas and cultural resources).
    Mitigation measures may include a soil erosion and con-
    trol plan, fencing of "off-limits" areas to avoid
    physical disturbance, restrictions on hours of the day
    or seasons of the year for construction activities,
    backfilling and immediate seeding requirements, avoid-
    ance of impacts on cultural resources, structural
    designs for facilities located in floodplains or wet-
    lands, etc.

    Re:  40 CFR 6.509(b), 40 CFR 35.2030(b)
                            520

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c.  Chemical Storage and Hazardous Materials

        All chemicals are to be properly stored,  with
    curbs that would hold the entire volume in the
    event of an accidental spill.  Adequate safety
    protection equipment (e.g., gas mask and self-
    contained air supply, eye wash, showers) is to
    be provided, placed in accessible locations,  and
    ready for emergency use.

        Hazardous materials, such as chemicals used
    in physical/chemical plants and chemicals used for
    conditioning sludge prior to filtration, may be
    subject to the provisions of the Resource Conser-
    vation and Recovery Act and/or the Toxic Sub-
    stances Control Act.  Where the reviewing agency
    anticipates that hazardous materials may be
    utilized in the treatment project, contact should
    be made with appropriate regulatory personnel to
    determine the applicable State or Federal regulations.

d.  Chlorine Safety

        Where the use of gaseous chlorination is justified
    (see Section IV.C.7.2.f), adequate safety provisions
    must comply with Federal and State requirements.  At a
    minimum, these safety provisions should include the
    following :


         i.    Gas-tight partition  separating the
              chlorination  room from other parts
              of the building.
Doors equipped with panic hardware
opening to the outside at ground
        ii.

              level .

        iii.  Separate  storage and feed areas
         iv.   Clear, gas-tight glass window in
              exterior door or interior wall
              permitting viewing of the chlorina-
              tion  room without entering the room
                             521

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v.    Provision for heating feed and
      storage areas and shielding
      chlorine containers from direct
      sunlight.

vi.   Level rails or cradles designed
      for the specific purpose of storing
      chlorine cylinders.

vii.  Forced mechanical ventilation of
      chlorine areas providing a complete
      air change every minute, with inlets
      and outlets at opposite ends of the
      room.  Exhaust outlets should be at
      floor level, since chlorine gas is
      heavier than air.  The system should
      be activated by external switches or
      automatic systems such as door
      activated mechanisms.

viii. Emergency eye baths and showers located
      external to but close by the chlorine
      room.

ix.   Chlorine cylinder emergency repair kits
      readily available.

x.    Strong solution of aqueous ammonia
      (18° Baume or higher) readily available
      for detecting sources of leak.

xi.   Automatic chlorine detection system for
      plants of 1 mgd or more capacity  (optional
      but encouraged for smaller plants) which
      sound alarms, flash lights, or notify
      operator or emergency response (police
      or fire) teams.

xii.  Delivery of chlorine must comply  with
      the U.S. Department of Transportation
      (DOT) regulations  (49 CFR Parts 171
      through  177).  Rail delivery requires
      dead-end sidings used for chlorine
      delivery only (49  CFR 174.204).
                     522

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                xiii.  Tank  barge  delivery  of  chlorine
                      must  comply with  the COE  and  DOT
                      regulations.
^^            xiv.   Chlorination  and  storage  facilities
                      must  not  be below ground  level ,  and
                      storage cylinders must be  secured
                      when  not  in use.
               xv.   Appropriate  facilities and  tools must
                     be provided  to  allow  for  the  transport,
                     handling, and repair  of chlorine
                     cyl inders .

               xvi.  At least  two self-contained positive
                     pressure  headgear units with  self-
                     contained compressed  air  supply and
                     full face mask, located external
                     to but close by the chlorination room.

               xvii. Color coding and labeling of  chlorine
                     piping and valves.
       e"  -WmdDry Wells
               Wet wells are subject to the introduction of hazardous
           gases through the inadvertent discharge of volatile pro-
           ducts or the possible production of sewer gases.  Wet wells,
           therefore, are classified under some circumstances as Class'
           I, Division I, Groups C and D areas under the National
           Electrical Code, in such cases, the code reguirements may
           be satisfied by the use of explosion-proof motors and non-
           sparking electrical eguipment in these areas.  Additionally,
           all electrical motors, enclosures,  and eguipment located in
           such wet wells should be protected  against potential ex-
           plosion .

               Where adeguate protection has been made against the
           introduction of hazardous gases, dry wells generally need
           not be classified under the National Electrical  Code.

               Wet and dry wells should be properly ventilated, with
           eguipment activated  by an external  switch.  wet  well
           ventilation should be designed  to provide the introduction
           of fresh air into the wet well  in such a way as  to prevent
           drawing in gases from the influent  sewer.   This  may be
           accomplished by using a fresh air supply fan rather than
           an exhaust fan.
                                   523

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f.   Protection of Potable Water Supply

        All potable water supplies must be protected
    from possible contamination by wastewater cross-
    connections by the use of approved reduced-
    pressure zone backflow prevention devices.  EPA
    publication 430/9-73-002, "Cross-Connection Control
    Manual," 1973, contains design objectives and per-
    formance criteria, and may be used to evaluate the
    acceptability of proposed backflow prevention
    devices.  All control devices must conform with
    State design standards.

g.   Reliability

        Facilities must be designed to preclude direct
    discharge of inadequately treated sewage, even
    during periods of major repairs or maintenance.

        Equipment, unit processes, and the overall treat-
    ment system must be designed to provide reliable,
    continuous service.  Depending on the size and com-
    plexity of the treatment plant, reliability may be
    assured through an analysis considering risk, costs,
    and benefits, or through the use of redundant components
    or unit processes.  Many State design standards require
    the use of duplicate unit processes or the stocking of
    spare or standby equipment.  The class of reliability
    designed into a project should take into account measures
    which are necessary to:

        i.    protect the public health,

        ii.   achieve water quality standards for both
              surface and groundwater discharges, and

        iii.  prevent environmental damage.


        The class of reliability may also be determined by
    the use of the receiving waters and the probable adverse
    impact of an inadequately treated discharge upon them.
    One system for establishing the reliability class depends
    on the use of the receiving waters as follows:

            Class I - discharge to waters that could
        be permanently or unacceptably damaged by
        inadequately treated effluent discharged for
        only a few hours  (e.g., drinking water supplies,
        shellfish waters).
                            524

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               Table 1  Wastewater Treatment System Reliability
                       KASTEWATER TREATMENT SYSTEM
Features Common to Class I, II, III;

Trash removal or comminution

Grit removal - not applicable to treatment works which do not pump or dewater
               sludge (e.g., stabilization ponds)

Provisions for removal of settled solids - applicable to channels, pump wells,
                                           and piping prior to degntting or
                                           primary sedimentation

Holding basin - applicable to Class 1 with adequate capacity for all flows

Unit operation bypass - not applicable where two or more units are provided
                        and operating unit can handle peak flow; applicable
                        to comminution regardless of number of units
Component Backup
Features
Backup bar screen
for mechanically
cleaned bar screen
or comnunutor
Backup pump
Primary sedimenta-
tion basins
Trickling filters
Aeration basin
Aeration blowers or
mechanical aerators
Air diffusers
Final sedimentation
basins
Chemical flash mixer
Chemical sedimentation
basins
Filters and activated
carbon columns
Flocculation basins
Disinfectant contact
basins
Class I
Yes
Yesa
Multiple basinsb
Multiple filtersc
Minimum of two of
equal volume
Multiple unitsd
Multiple sectionse
Multiple basinsc
Minimum of two or
backup*
Multiple basins0
Multiple units0
Minimum, two
Multiple basinsc
Class II
Yes
Yes8
Multiple basinsb
Multiple filtersb
Minimum of two of
equal volume
Multiple unitsd
Multiple sections'*
Multiple basinsb
No backup
No backup
No backup
No backup
Multiple basinsb
Class III
Yes
Yesa
Minimum, twob
No backup
Minimum of two
of equal volume
Minimum, twod
Multiple sections'
Minimum, twob
No backup
No backup
No backup
No backup
Multiple basins'3
aSufficient capacity of remaining pump to nandle peak flow with one pump
 out of service
*>With largest unit out of service remaining units have capacity for at least
 50 percent design flow
cWith largest unit out of service remaining units have capacity for at least
 75 percent design flow
dWith largest unit out of service remaining units able to maintain design
 oxygen transfer; backup unit may be uninstalled
eWith largest section out of service oxygen transfer capability not
 measurably impaired
flf only one basin, backup system provided with at least two mixing devices
 (one may be uninstalled)
                         525

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      Table 2  Sludge Handling and Disposal System Reliability


                SLUDGE HANDLING AND DISPOSAL SYSTEM

Features Common to Class I, II, III;

Alternate methods of sludge disposal and/or treatment - applicable
  to unit operations without backup capability

Provisions for preventing contamination of treated wastewater


Component Backup Features Common to Class I, II, Ii:i:

Sludge holding tanks - permissible as alternative to backup capability
                       with adequate capacity for estimated time of
                       repair

Backup pump - sufficient capacity of remaining pump:; to handle peak
              flow with one pump out of service; backup pump may be
              uninstailed

Anaerobic sludge digester

     Digestion tanks - at least two digestion tanks

     Sludge mixing equipment - backup equipment or flexibility of
                               system such that with one piece of
                               equipment out of service total mixing
                               capability  is not lost; backup equip-
                               ment may be uninstal.led

Aerobic sludge digester

     Aeration basin - backup not required

     Aeration blowers or mechanical aerators - at l
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                                                   Table 3  Electric power System Reliability
ui
to
ELECTRIC POWER SYSTEM
Features Cannon to Class I, II. Ill:

Power sources - two separate and independent electric power sources
or one substation and one standby generator.
Capacity of backup power source
Mechanical bar screen or commuters
Main ptHps
Degritting
Priaary sedimentation
Secondary treatment
Final sediMentation
Advanced waste treatment
Disinfection
Sludge handling and treatment
Critical lighting and ventilation
Class I
Yes
Yes
Optional
Yes
Yes
Yes
Optional
Yes
Optional
Yes
treat either two separate
Class IIa
Yes
Yes
No
Yes
Optional
Optional
Optional
Yes
No
Yes
utility substations
Class IIIa
Yes
Yes
No
Yes
No
No
No
Yes
No
Yes
            *At least treatment equivalent to sedimentation (and disinfection it required to protect public health),
             unless a ditterent level of treatment is required by Uie state agency.

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            Class II - discharge into waters that
        would not be permanently or unacceptable
        damaged by short-term discharges of in-
        adequately treated sewage, but could be
        damaged by continued (several days) dis-
        charge (e.g., recreational waters).

            Class III - All other discharges not
        included in Class I or Class II.

        For each class, Tables 1 through 3 provide recommend-
    ations for backup or standby unit processes or equipment.
    Table 1 concerns the wastewater treatment system, Table 2
    the sludge hauling and disposal system and Table 3 the
    electrical power system.  The reviewer must exercise
    judgement with regard to evaluation of reliability and
    should at least insure that the design complies with
    minimum State requirements.

    Re:  EPA publication 430/99-74-001 (formerly MCD-05),
         "Design Criteria for Mechanical,  Electric, and
         Fluid System and Component Reliability," 1974


h.  Shellfish Waters

        Projects which discharge into shellfish waters
    may be subject to more stringent requirements with
    regard to reliability, disinfection, or other pro-
    tective design features.  These projects may be
    subject to requirements from the State water pollu-
    tion control agency, State health agency,  or inter-
    state organizations, and should be reviewed against
    such requirements.


i.  Electrical Power

        Treatment plants and pumping stations  are to be
    designed to preclude bypassing of inadequately treated
    sewage.  Depending primarily on the size of the facility,
    this may be accomplished through the use of high level
    overflows, diversions to temporary storage facilities,
    or alternate power sources during a period of power
    outage.  Where available,  power should be  supplied from
    two independent power sources (e.g., two separate power
    lines not on the same pole, which come from two differ-
    ent major power substations,  which in  turn are supplied
    from two independent sources),  or supplemented by a
    standby generator.
                             528

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    Alternate power sources should be sufficient to
operate essential equipment (see Table 3 above), and
in the case of a treatment plant without temporary
storage, to provide at least sedimentation (and
disinfection, if required to protect public health),
unless a different level of treatment is required by
the State agency.  Standby power may be either por-
table (for use with multiple small pumping stations)
or permanent (for larger pumping stations and treat-
ment facilities).  Permanent standby generators may
be used to supplement normal power sources during
peak demand, and should be equipped with trickle
transformers and running clocks.  Trickle trans-
formers allow the standby generator starting battery
to be continuously charged, and running clocks
(generally required as part of the warranty by
equipment manufacturers) display the number of hours
that the generator has operated.
    Because of its high vulnerability to overturning,
all electrical power equipment (e.g., transformers,
generators, batteries, etc.) must be securely anchored
to prevent movement in the event of an earthquake.
(In some areas, more extensive seismic safety measures,
beyond the scope of this Handbook, will also be required.)

    The plans and specifications should include a clear
explanation of the responsibilities of and coordination
between the utility company and various contractors.  The
specifications should clearly identify:

    i.    the electrical utility company which
          will supply electrical service to the
          treatment works;

    ii.   the specific equipment or service to be
          supplied by the utility company and
          contractor which will result in a
          complete and operable electrical system;

    iii.  the specific equipment or service to be
          supplied by the mechanical and electrical
          contractor in providing a complete operable
          electrical power system for all mechanical
          equipment, control systems, and instrument-
          ation; and
                         529

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        iv.   the parties responsible for
              providing temporary electrical
              power during construction.


    Loadings

        The design loadings for various unit processes should
    comply with State design standards and in the case of land
    application systems, EPA's minimum requirements (see Item 1
    below).  Loadings such as surface settling rates, detention
    times, food to microorganism (F/M) ratios^ sludge return
    rates, loadings on sludge dewatering equipment, pump capa-
    cities, and peaking factors should be adequate for both
    initial operation and the design flow, taking into account
    diurnal variations in flow.
k.  Hydraulic Profile

        The hydraulic profile of the treatment, plant must be
    reviewed to insure that elevations are adequate, taking
    into account head losses through pipes anc channels.
    Particular attention should be given to projects using
    trickling filters with dosing siphons.


1.  Land Application Systems

        Land application systems for both the treatment and
    disposal of wastewater should be based on the applicable
    loading and other design criteria discussed in EPA publi-
    cation 625/1-81-013, "Process Design Manual,  Land Treat-
    ment of Municipal Wastewater," October 1981.

        The specifications must describe the climatic condi-
    tions under which construction may take place and the
    specific size of construction equipment necessary to
    protect soil integrity during construction.

        Particular attention must be given to the level of
    treatment and temporary storage prior to land application
    of  wastewater, as this may effect the eligibility of
    portions of the treatment facilities.   Extensive and un-
    necessary treatment  or storage capacity prior to land
    application will not be eligible for grant assistance.
                             530

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m.  Sewers

        Sewers and interceptors should be adequately
    sized to insure minimum scouring velocities and
    reasonable peaking factors.  Collection sewers
    should conform with State standards and include
    properly designed fittings for house connections.
    Manhole spacing, grades, alignment, elevations,
    materials of construction, and connections should
    conform to State standards and be designed to
    minimize possible sources of infiltration and
    inflow.  Bedding, backfill materials and compac-
    tion requirements should be specified to insure
    the integrity of the sewers for their useful life,
    Infiltration and exfiltration testing by the
    contractor should be required as a criteria for
    acceptance.

n.  Sewer Rehabilitation

        Where sewer system rehabilitation is an
    eligible part of the project, the specifications
    should dictate the sequence of construction
    (e.g., where necessary, sewer cleaning and
    closed circuit television inspection with
    possible air pressure testing of joints followed
    by joint grouting, manhole grouting, slip lining,
    or sewer replacement).  Because of unforeseen
    construction difficulties, bid prices for sewer
    rehabilitation should be unit prices based on
    estimated quantities.  The specifications may
    also include provisions for post testing as a
    condition of acceptance after rehabilitation
    of various sections.  This may be particularly
    important since grantees are required to certify
    after one year of operation whether the project
    is meeting its performance standards, including
    the elimination of excessive infiltration/inflow.

o.  Small Systems

        Small wastewater treatment projects may range
    from rehabilitation of failed onsite septic
    systems to larger cluster systems using small
    diameter gravity, vacuum, or pressure sewers.
    Since long term experience with these systems
    (excluding septic systems) is not readily
                             531

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available, the technical review of the plans
and specifications must carefully consider
both design and O&M criteria.   Design should
conform with EPA's design manual (see Item 1
above) and with State standards for percolation
rates, distribution systems,  and depth to ground-
water and bedrock.  Where pressure systems are
employed using individual pumps, the specifica-
tions should provide for the stocking of a
reasonable number of replacement pumps or spare
parts. Small systems are also discussed in
Sections IV.C.6.10.d and VI.E.1.

Re:  40 CFR 35.2034, 35.2110;   EPA publication
     625/1-80-012, "Design Manual, Onsite
     Wastewater Treatment and Disposal Systems,"
     October 1980.

Sludge Management

    In most cases, sludge must be disposed of in
one of three ways: land application, burial in a
secure landfill, or incineration.  Design of
facilities for the disposal of sludge, including
intermediate steps such as conditioning, di-
gestion, dewatering, and composting, should be based
on the minimum requirements set forth in the follow-
ing EPA manuals:

   i.    EPA publication 625/1-83-016, "Process
        Design Manual, Land Application of
        Municipal Sludge," October 1983;

   ii.   EPA publication 625/1-79-011, "Process
        Design Manual, Sludge Treatment and
        Disposal," September 1979;

   iii.  EPA publication 625/1-78-010, "Process
        Design Manual, Municipal Sludge Landfills,"
        October  1978;

   iv.   EPA publication 625/1-82-014, "Process
        Design Manual  for Dewatering Municipal
        Wastewater Sludge,"  October 1982;

   v.    EPA publication 430/9-81-011  (formerly
         (MCD-79),  "Technical Bulletin, Composting
        Process  to Stabilize and Disinfect  Municipal
        Sewage Sludge," June 1981; and
                          532

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  vi.    EPA publication 625/6-82-006, "Handbook for
         Remedial Action at Waste Disposal Sites,"
         June 1982.

     For incineration or thermal reduction, the
Clean Air Act requires that the discharge gases
meet the requirements of an approved State
Implementation Plan (40 CFR Part 52), the New
Source Performance Standards (40 CF'R Part 60),
and the National Emission Standards for Hazardous
Air Pollutants (40 CFR Part 61).  Ash (residuals)
resulting from incineration must be disposed of
in a manner which protects the public health and
water quality (both surface and ground water).

    An alternate means of sludge disposal is ocean
dumping.  Ocean dumping of municipal sludge has
been the subject of considerable controversy and
litigation.  Where ocean dumping is proposed by a
grant applicant, special review procedures beyond
the scope of this Handbook are to be employed.

    Design of sludge disposal processes must comply
with applicable State and EPA standards.  The use
of individual process units (e.g., centrifuges,
belt presses, vacuum filters, incinerators) should
not exceed manufacturers' recommended loadings.
Sufficient capacity must also be included to allow
for time lost to equipment startup and maintenance
(e.g., capacity based on a six hour day if only
one work shift is used).

    Domestic sewage sludge is not listed as a
hazardous waste under the Resource Conservation
and Recovery Act.  Furthermore, since grant
applicants must develop a pretreatment program if
industrial discharges are likely to interfere with
the treatment process or sludge disposal, it is
reasonable to assume that industrial wastes which
may cause sludge to be considered hazardous will
be prohibited from discharge into the sewer system.
However, if an existing facility, under very
unusual circumstances, is receiving industrial
wastes which may cause the sludge to be classified
as a hazardous waste, the storage, transport, and
disposal of sludge may be subject to EPA regulations.
It is the grant applicant's responsibility to deter-
mine if the sludge is a hazardous waste and if so, to
comply with the appropriate regulations and permit
procedures.  In general, the characteristic most
                        533

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  likely to cause sludge to be hazardous is the
  toxicity level as determined by the extraction
  procedure test, with cadmium being the most frequent
  contaminant.

    Re;  40 CFR 35.2005(b)(12)(iii); 40 CFR Part 257;
         40 CFR Part 261, Subparts C and D; EPA
         publication 430/9-80-015 (formerly MCD-72),
         "A Guide to Regulations and Guidance for the
         Utilization and Disposal of Municipal Sludge,"
         1980; EPA publication 430/9-80-001 (formerly
         MCD-61), "Evaluation of Sludge Management Systems,
         Evaluation Checklist and Supporting Commentary,"
         October 1979.

q.  Bypassing during Construction

        Bypassing of inadequately treated sewage
    during construction is normally not allowed.
    The construction sequence must be such that
    wastes are provided a minimum of sedimentation
    (and disinfection if required to protect public
    health) during all phases of construction, unless
    a different level of treatment is required by the
    State agency.  Where absolutely unavoidable, by-
    passing may be employed for short periods, but
    only after approval by the reviewing and
    permitting agency.

r.  Ease of Maintenance

        Equipment which will require routine
    maintenance (e.g., lubrication of bearings,
    changing of oil and filters, replacement of belts)
    should be designed and located in such a way to
    provide ease of maintenance.  Piping should be
    color coded, with arrows indicating the direction
    of flow.  Valves and controllers should be readily
    accessible, especially those used to control
    routine operations.  Adequate railings, guards,
    and other safety devices should protect operating
    personnel during routine maintenance.

s.  Emergency Alarms

        Emergency sirens, lights, or other alarms
    should be provided, depending on the size and
    complexity of the project.  Emergency alarms
    should notify operators or emergency personnel
                             534

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    (e.g.,  police, fire, disaster coordinator, etc
    in the  event of failures such as power outage,
    major eauipment failure, chlorine leak, or
    explosive gases in influent wastewater or
    digestion facilities.
t-

        In reviewing the plans and specifications, it
    is necessary to compare the design considerations
    against the municipal pretreatment program
    developed by the grant applicant in accordance
    with 40 CFR Part 403 (see Section IV. E. 2).  Where
    allowed, some nonresident ial wastes may increase
    pollutant or solids loadings (e.g., dairy process-
    ing or pulp and paper mill wastes), thereby reguir-
    ing special design for various unit processes.  This
    review may also help identify those portions of a
    treatment plant, if any, which are not eligible for
    grant participation.

u .  Aesthetics

        One area of particular difficulty in reviewing
    treatment plant designs concerns the inclusion of
    reasonable and compatible aesthetic features.  It
    is EPA policy that only essential structures, eguip-
    ment , and unit processes necessary to meet the
    projects performance standards are allowable for
    grant participation.  This policy, however, must
    be tempered by thoughtful consideration of the
    project's location, visibility, and proximity
    to nearby residential, commercial, and historic
    properties.  Reasonable aesthetic features such
    as plantings in buffer zones, revegetation of dis-
    turbed lands, compatible architectural features, etc
    may be considered allowable costs if approved by
    the reviewing agency (see Section IX. p. 4, Paragraph
    B.2.a).  Other features such as brick veneer on
    process units, unusual building shapes,  special
    siding on buildings, covered walkways, fountains,
    or office paneling must be guestioned, and where
    necessary, justified by an analysis similar to a
    value engineering study.

    Re: EPA Audit Resolution Board Decision 13/14,
        "Criteria for Assessing the Allowability of
        Aesthetic Features and Landscaping on EPA
        Construction Grant Projects," February 24,
        1984.
                            535

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v.  Laboratory Facilities

        Laboratory facilities and supplies should be
    sufficient to provide for sampling and testing,
    according to approved methods, that is necessary
    tor daily operational control and for preparation
    of reports submitted to State regulatory agencies
    for those effluent parameters specified in the
    NPDES or SPDES permit.  Except where mandatory
    implementation of the pretreatment program is
    required for a major wastewater treatment works,
    expensive and sophisticated tests should not be
    performed.  Where periodic expensive and
    sophisticated tests are to be conducted (e.g.,
    periodic checking on industrial waste discharges)
    consideration should be given to contracting with
    a nearby university laboratory facility, larger
    adequately equipped treatment plant, or licensed
    commercial testing firm in lieu of onsite facilities,
w.  Handicapped Design Considerations

        Design of wastewater treatment facilities
    initiated after February 13, 1984 must comply with
    EPA nondiscrimination regulations.  These regulations
    require wastewater treatment facilities to be designed
    to provide accessibility to the maximum extent possible
    to potential handicapped employees.  In meeting these
    accessibility requirements, a grant applicant is not
    required to take any action that would result in a
    fundamental alteration in the nature of the treatment
    facility, or an undue financial or administrative
    burden.  Thus, accessibility for handicapped persons
    would not have to be provided solely to allow all
    members of the general public to tour all areas of
    the facility.  Similarly, accessibility would not
    have to be provided to areas where, because of the
    nature of the facility and the requirements of the
    jobs there, it is unlikely that persons with parti-
    cular handicaps could meet the physical requirements
    for those jobs, even with reasonable accommodation.
    For example, elevator access need not be provided
    to those areas of a treatment plant in which full
    mobility would be necessary to perform the essential
    functions of the jobs in those areas.  However,
    administrative and laboratory areas must be access-
    ible to persons in wheelchairs.
                            536

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    Recent court decisions have limited the extent
to which these regulations can be enforced in certain
States.  However, this limitation applies only to
grantee employment practices, and does not change the
design requirements for physical accessibility.

    Any construction for which design was initiated
prior to February 13, 1984, must comply with the
U.S. Department of Health and Human Services (DHHS)
nondiscrimination regulations, or with equivalent
standards that ensure that the facility is readily
assessible to and usable by handicapped persons.

    Both the EPA and DHHS regulations require that
alterations to existing facilities must, to the
extent feasible  (both structurally and financially),
be designed and constructed to be readily accessible
to and usable by handicapped persons.  If structural
changes are necessary, a transition plan must be
prepared by the grant applicant.

    Designs conforming with the "American National
Standard Specifications for Making Buildings and
Facilities Accessible to and Usable by the Physically
Handicapped" published in 1980 by the American
National Standards Institute  (ANSI A 117.1) constitute
compliance with  both the EPA and DHHS regulations.
The principal areas of judgement are the extent to
which  various areas of the treatment works must be
accessible and the classification of various
structures as either "existing" or "new".

Re;  40 CFR Part 7, Subpart C; 45 CFR Part 84,
     Subpart C;  preamble to 40 CFR Part 7,
     49 FR 1656  and 1657 (January 12, 1984).

Use of Mercury

    While EPA continues to have concerns about  the
safe use of mercury seals, the cost of process
equipment such as  rotary distributors on trickling
filters and comminutors that  use mercury seals  is
no  longer listed as an unallowable cost.
                         537

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    Mercury float switches or other such devices
using small quantities of mercury are acceptable
provided reasonable care is exercised by the use of
self contained, leak proof, or corrosion resistant
enclosures.

    Where a project involves the rehabilitation of
existing facilities on which mercury seals have
been used, grantees are encouraged to replace
the mercury seals with other types of acceptable
(e.g., mechanical) seals.  If significant
additional cost or operating and maintenance
problems will  result  from  the conversion from
mercury seals, their  continued use may be approved
provided the grant applicant:

   i.    agrees to comply with the  applicable
        provisions of  the  Toxic  Substances
        Control Act,  Resource Conservation
        and Recovery  Act  and Solid Viaste
        Disposal Act;

   ii.   acknowledges  potential  liability  for
        damages  related to the  discharge  of
        mercury  contaminated  effluent  or
        sludge;

   iii.   establishes  a mercury  spill  monitoring
        program,  including an annual mercury
         inventory;

   iv.    establishes an emergency response
         program for the safe disposal  of  mercury
         contaminated effluent or sludge and the
         immediate notification of downstream
         water users of possible mercury contamina-
         tion; and

   v.    requests modification of  the NPDES or SPDES
         permit to identify a potential mercury
         contamination hazard.

 Re:  Preamble to 40  CFR Part 35,  Subpart I,
      49 FR 6232 (February 17, 1984).
                          538

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 y.   Reconfirmation of Innovative or Alternative  Technology

         While not specifically required  by EPA regula-
     tions,  review of  project design may  also afford
     an opportunity to reconfirm earlier  decisions,
     generally made on the basis of preliminary infor-
     mation  in the facilities plan, concerning the
     classification of the project or project components
     as innovative or  alternative (I/A)  technology  (see
     Section VI.E.3).   Grant applicants  should be notified
     of any  changes to the I/A classification, since this
     will affect  project financing.

 z.   Project Sign

         The specifications must require  the contractor
     to provide and erect a project sign  in accordance
     with the project  sign details found  in the EPA
     publication, "Construction Grants 1985" (CG-85),  or
     in accordance with alternative State requirements
     which have been approved by EPA.

aa.   Buy American

         By  inclusion of the model subagreement clauses
     or their equivalent in the specifications (see
     Item l.m above) the grant applicant  has initially
     satisfied the Buy American provision.   However, the
     regulations  further clarify this issue by providing
     that contractors  must use domestic  construction
     material in preference to nondomestic  material if
     it is priced no more than 6 percent  higher than the
     bid or  offered price of the non-domestic material,
     including all costs of delivery to  the construction
     site and any applicable duty, whether  or not assessed.
     Where a product consists of domestic and nondomestic
     materials the product shall be considered domestic
     if the  American manufactured components represent
     50 percent or more of the product.

         EPA may  waive the Buy American  provision based
     upon relevant factors such as:

     i.    such use is not in the public  interest,

     ii.   the cost is unreasonable,
                             539

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     iii.  available EPA resources are riot sufficient
           to implement the provisions (requires EPA
           Headquarters approval),

     iv.   products are not reasonably eivailable or of
           satisfactory quality in the United States, and

     v.    provisions conflict with multilateral govern-
           ment procurement agreements (requires EPA
           Headquarters approval).

     Re;  40 CFR 33.710; 40 CFR 33.1030, Paragraph 12

bb.  Nonrestrictive Specifications

         Specifications must be written to encourage
     free and open competition.  The spescifications
     shall contain a clear and accurate description
     of the technical requirements for the material
     or product.  The description shall include
     a statement of the qualitative nature of the
     material or product and set forth those minimum
     essential characteristics and standards to which
     it must conform.

         When, however, in the judgement of the grant
     applicant 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 to define the performance
     or other salient requirements of the material or
     product.  In so doing, the specifications must
     clearly state the salient requirements which must
     be met by the material or product.

         With regard to materials such as pipe or grout,
         O r"\ V^4 r £1 V* ^ V^ 1 y"i 4- s^ i i r* A i-% ^ 4- •! y™\ n ^ 1 T * r v"^k /"« ******* *^ 1 rr *~\/^
    With regard to materials such as pipe or g
it is preferable to use nationally recognized
performance specifications such as AWWA, ASTM,
Rpdftral sne>n i f i r?a t~ i ons .
     Federal specifications.
                                                     or
         While the decision to use a  "brand name or  equal"
     specification rests with the grant applicant, the
     project reviewer is to insure that the exercise of
     this provision does not frustrate the requirements
     for free and open competition.
                             540

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         An  exception  to  the  nonrestrictive  specifications
      requirement  is allowed where  the  features of a
      material  or  product  are  necessary to demonstrate
      a  specific thing,  such as  in  the  case of proposed
      innovative technologies, or to  provide  for  the
      interchangeability of parts or  equipment.

         Where a  grant applicant uses  restrictive
      specifications,  it may be  prudent to advise the
      grant applicant  that the project  files  should contain
      a  justification  for  such actions, developed prior  to
      the bid opening  date,  in the  event of a future bid
      protest.

      Re: 40  CFR 33.255

 cc.   Subsurface Information

         Adequate subsurface  information (soil borings,
      etc.) must be provided to  allow each bidder to
      accurately estimate  the  cost  of excavation  required
      by the  plans and  specifications.   Failure to provide
      such  information increases the  probability  of a
      future  contractor claim  under the "differing site
      conditions"  clause.

 dd.   Storage of Equipment and Materials

         The specifications should require  that  equip-
      ment  and  materials delivered  to the project site
      are properly secured and stored in accordance
      with  the  manufacturer's  recommendations.   If the
      grantee purchases equipment directly  from a
      supplier, specific provisions must be made  for
      transfer  of  ownership of the  equipment  from the
      grantee to the contractor.

3.  Biddability and Constructibility  Review

    In order  to prevent unnecessary costs due to  such  problems
as unclear  specifications  or unusual  construction techniques,
it is important that plans and specifications be  reviewed for
biddability and constructibility (B/C).  While the B/C  review
does not involve an evaluation of the adequacy of design to
achieve the required level of  treatment, it  does  attempt to
insure that the plans and  specifications are  suitable  for
bidding and that  the project can be constructed  as proposed.
                              541

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 a.   Biddability - A "biddability" review esentially attempts
      to insure that:

      i.   the bid documents are clear and understandable,

      ii.  all necessary information has been included,

      iii. the project is divided into biddable packages
           or contracts,

      iv.  specific bid items are clearly defined to
           facilitate bidding and evaluation, and

      v.   the plans and specifications are sufficiently
           detailed to allow reasonable bidding.

 b.   Constructibility - A "Constructibility" review
      evaluates the suitability of the proposetd project
      and its components in relation to the project site,
      including:

      i.   any potential construction constraints imposed
           by the site,

      ii.  real or possible conflicts inherent, in the
           plans  and specifications,

      iii. compatability between plans and specifications,

      iv.  compatability of the plans and specifications
           with construction procedures and equipment, and

      v.   other  potential problems in constructing the
           project.

    Because this  review requires an up-to-date1 knowledge
of current construction practices and the cost and availability
of various categories of labor and construction equipment, it
is usually performed by specialized personnel who maintain
this up-to-date knowledge.  In some States, the COE performs
this review for the State agency, under an interagency
agreement with EPA (see Section I.F.5).

4.  Discrepancies

    Contract documents, plans, and specifications are reviewed
by the reviewing  agency to insure that they meet minimum State
and EPA requirements concerning treatment level and competitive
bidding.  Implicit in this review is the assumption that the
project, if constructed in accordance with the plans and
                              542

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specifications, will achieve the effluent limitations and
project performance standards required by the NPDES or SPDES
permit.  The review is also to insure that sound engineering
design principles are employed, primarily with regard to
sanitary engineering process considerations.  Structural,
electrical, and mechanical details of design are not normally
reviewed, as they are the responsibility of the engineer whose
seal appears on the plans and specifications.  Obvious ir-
regularities, however, should be called to the attention of
the design team through the grant applicant.

    Discrepancies or deviations from State or EPA require-
ments are to be noted and brought to the attention of the
grant applicant for resolution.  Failure on the part of the
grant applicant to resolve discrepancies or to provide
documentation supporting a deviation from the requirements
may form the basis for denial of grant assistance.

    The conduct of the review by the reviewing agency does not
relieve the design engineer or grantee of their legal liability
for the adequacy of the design.  Neither EPA nor the State agency
is responsible for increased costs resulting from defects in
the plans, design drawings and specifications, or other contract
documents.
D.  VALUE ENGINEERING

    Purpose;

    A VE study is a specialized cost control technique which
identifies unnecessary high cost in a project and recommends
more economical means of satisfying performance requirements
without sacrificing quality or reliability.

    Discussion;

    A VE study is required for all projects which have not
received design (Step 2) grant assistance from EPA and whose
total estimated building costs are more than $10 million
(including sewers).  A VE study is also required for all
projects which received a Step 2 grant after July 1, 1976 and
whose total estimated building cost (excluding interceptor and
collection sewers) is $10 million or more.  A VE study is
encouraged for all other projects because of the potential
savings which may be realized.
                                543

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    The reviewing agency should insure that the VE team and
the VE scope of work are commensurate with the size and
complexity of the project.  At the time of plan and specific-
ations review, the reviewer is to note the VE recommendations
and whether or not these recommendations have been incorporated
into the project design.

    A VE team consists of multidisciplinary design pro-
fessionals guided by a VE coordinator.  Disciplines"re-
presented on the team may include sanitary, electrical,
mechanical and civil/structural engineers, a treatment plant
operator and a cost estimator.  The VE coordinator should have
demonstrated technical and managerial capability, have completed
a 40-hour VE workshop and have participated in at least two VE
studies on wastewater treatment projects.  It is desirable for
the VE coordinator to be a Certified Value Specialist.  Other
team members should be experienced professionals with VE
training, and ideally should have participated in other VE
studies on wastewater treatment projects.  Because it is
essential that the VE team be independent and objective, it
is strongly recommended that a separate VE contractor be
employed in lieu of a subcontractor to the design firm.  Where
it is necessary to have the same firm provide both the design
team and the VE team, specific measures must be taken to ensure
the independence of the VE team (e.g., no person can be a
member of both teams; teams work in separate offices; teams
report to two different vice presidents, etc.).

    The scope of work for the VE study should be commensurate
with the siz^ and complexity of the project, and should include
a review of all components of the project.  Depending on the
size and complexity of the project, the VE effort may vary from
one VE team and one review session to multiple teams  and multiple
review sessions.  The VE study for a large wastewater treatment
plant should include at least two review sessions: at the 20 to
30 percent design stage, an evaluation of plant layout, structural
design process units, and hydraulic capacity; and at  the 65 to
15 percent design stage, an evaluation of the electrical and
mechancial systems.

    The VE methodology will employ several phases of  investi-
gation such as:

    -  information phase,

       speculative or creative phase,

       evaluation and analytical phase,

       investigation phase, and

       development of recommendations.

                                544

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     The VE study will conclude with a final report (intermediate
reports may also be issued) which incorporates:

        accepted VE recommendations,

        costs and schedules for implementing the accepted
        recommendations,

        rejected recommendations and reasons for rejection, and

        net savings from the VE recommendations  over the useful
        life of the project.

     In order to better understand the VE recommendations,
it may be helpful for the reviewer to attend key sessions
of the VE review.  Grant applicants should be encouraged
to implement all feasible recommendations of the VE study,
and rejection of recommendations should be adequately
justified before acceptance of the study by the  reviewing
agency.  However, reviewing agencies must exercise reason-
able judgement in questioning those recommendations not
accepted by the grant applicant.

    Review Procedures;

1.  Conduct of the Study

    During periodic progress reviews with the grant applicant,
review:

    a. the scope of the VE study to insure that it is
       commensurate with the size and complexity of the
       project;

    b. the qualifications of the VE coordinator and team
       members;

    c. the independence and objectivity of the VE team;
       and

    d. the methodology proposed or employed during the
       study.

2.  Implementation of Recommendations

    At the completion of the VE study and during review of
the plans and specifications:

    a. obtain a copy of the final VE report, noting
       recommendations accepted and net cost savings
       (both capital and O&M over the life of the
       project);

                                545

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     b.  insure  that  accepted  recommendations  are  incor-
        porated  into the project design  and reflected  in
        the plans  and specifications; and

     c.  review VE  recommendations  rejected by the grant
        applicant  and the justification  for rejection.


     Re: 40 CFR  35.926, 35.2114;   EPA publication 430/9-76-008,
        "Value  Engineering Workbook for Construction  Grant
        Projects,"  July 1976.

E.   USER CHARGE SYSTEM

     Purpose;

     Develop a municipally enacted financial  nanagment system
which provides  for  the collection of revenues from users in
proportion to their use.  Collected revenues must be
sufficient to offset the costs of operation, maintenance, and
replacement of equipment (OM&R).

     Discussion;

     As a prerequisite to Step 3 grant award, the UC system
submitted by the grant applicant and by each subscriber
community must be approved by the reviewing  eigency.  The UC
system provides for the collection of revenues from all system
users to offset OM&R costs,  including salaries, supplies,
chemicals, utilities, insurance, and replacement of equipment
and  accessories (e.g., pumps, motors, bearings, etc.) which are
necessary during the useful  life of the project to maintain
capacity and performance.   As a component of the UC system, the
term "replacement" does not  include the replacement of the
treatment works at the end of its useful life.  The UC system
mandated by EPA regulations also does not include charges
levied on customers to pay bond interest, retire bonds, or
amortize debt.

    The charge to each user must be based on actual use, ad
valorem taxes,  or a combination of both.  A  system based on
actual use (or estimated use during the first year for new
facilities) assumes that discharges are measured in some way,
such as through water meters (or sewage flow meters for
large industrial dischargers), and that each user or class
of users pays its proportionate contribution relative to the
total flow.  Very often the basic UC will be proportionate
to the volume of discharge with a surcharge added for non-
domestic wastes, considering items such as sewage strength
and rate of discharge (e.g., peak flows).   The UC system must
                                546

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also provide that each user which discharqes pollutants that
cause an increase in the cost of managing effluent or sludge
pay for such increase based on the actual additional cost.

    The use of ad valorem taxes as a basis for a UC system is
allowed under EPA regulations for a grant applicant which had
in existence on December 27, 1977, and in continuous use
thereafter 7~a system of dedicated ad valorem taxes for the
collection of revenues to offset wastewater treatment OM&R
costs.  In most cases, the existing system will reguire
revision to meet EPA reguirements.  To be approvable, the
proposed UC system must distribute co^ts to residential and
small nonresidential users (including, at the grant applicant's
option, commercial and industrial users discharging no more
that the eguivalent of 25,000 gallons per day of domestic
sanitary waste) in proportion to their use as a class, and must
charge each commercial and industrial user discharging more
than 25,000 gallons per day its share based upon actual use.
This last reguirement is normally met through the use of a
surcharge based on sewage strength and/or rate of discharge.
In some cases, rebates of property taxes may be reguired for
industries with large property taxes and proportionately
smaller wastewater loadings.

    Communities with combined sewer systems, or with significant
amounts of inflow into nominally separate sewer systems, may dis-
tribute the OM&R costs of treating this flow among all users based
either on actual use, or on a system which uses factors such as
flow, the land area of each user, or the number of hookups or
discharges (or property value for ad valorem systems).  Projects
which generate revenues from the sale of wastewater byproducts
(e.g., sale of crops, sludge fertilizer, digester gas, etc.) must
use the revenues to reduce all user charges proportionately.

    The UC system represents part of the financial management
system developed by the grant applicant and must include an
accurate accounting of generated revenues, expenditures and
reserves for replacement.  The financial management system
must provide for periodic revision to UC rates and an annual
notification to users, in conjunction with a regular bill,
of the UC rates (including surcharge rates) and the portion
of total charges attributable to wastewater treatment.  If the
grant applicant will provide wastewater treatment services
to other subscriber communities, each such community must also
enact a UC system as described above.  The UC system developed
in accordance with EPA regulations will take precedence over
any terms or conditions of other inconsistent agreements.
                                547

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Review Procedures;

The reviewer of a proposed UC system should:

1. Compare the proposed UC rates against those
   presented to the public during facilities
   planning.  If a significant increase has occurred,
   it may be necessary to provide for additional
   public participation.

2. Insure that the budget upon which the user charges
   are based include reasonable OM&R costs.  Debt,
   bond costs, and other costs not associated with
   OM&R are not subject to EPA regulations, and must
   be separately identified by the grantee and
   recovered separately from the UC system.

3. For systems based on actual use, insure that each
   user or class of users will pay its proportionate
   share, and that a reasonable means of determining
   actual use has been or will be established.

4. For systems based on ad valorem taxes, insure
   that the limitations described in the discussion
   above are satisfied.

5. Insure that OM&R costs for treating I/I (and storm
   water in systems with combined sewers) are proportioned
   among all users based either on actual use, or on
   factors such as flow volume, land area of users, or
   number of hookups or discharges (or property valuation
   only for ad valorem systems).

6. Insure that the system provides for an accurate
   accounting of revenues and expenditures, periodic
   updating (first year may be based on e:5timates
   for new systems and ideally annual updating
   thereafter) and annual notification to users of
   the UC rates and portion of charges for wastewater
   treatment services.

7. For multijurisdictional projects, insure that each
   participating community will enact a UC system.

8. Insure that the UC system will take precedence over
   any other inconsistent agreement.

9. Insure that the UC system is in a form which will
   allow municipal enactment before the project is
   placed in operation, and will continue for the life
   of the project.
                            548

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    Re: 40 CFR 35.2140, 35.2122, 35.2208;  EPA publication
        430/9-84-006, "User Charge Guidance Manual for
        Publicly-Owned Treatment Works," June 1984;  EPA
        publication, "Utility Manager's Guide to Financial
        Planning," May 1984.

F.  SEWER USE ORDINANCE

    Purpose;

    Develop an ordinance which will limit the types and amounts of
materials discharged into the sewer system, preclude the intro-
duction of new inflow sources, and protect the integrity of the
wastewater treatment and disposal system.

    Discussion;

    As a prerequisite to Step 3 grant award, the reviewing agency
must approve the grant applicant's SUO or other legally binding
instrument.  Regulatory requirements for the SUO include:

       prohibition of new intlow sources;

       proper design and construction of new sewers and
       connections, and

       prohibition of toxic waste or other pollutants in
       amounts or concentrations that:

         o  endanger the public safety or the physical
            integrity of the plant,

         o  cause violation of effluent limitations, or

         o  preclude the selection of the most cost effective
            alternative for wastewater treatment and sludge
            disposal.

    While the three  items above are required, the SUO may also be
used as a legal basis for other municipal requirements which
represent good management practices.  These requirements may
include:

       removal of illegal connections or rehabilitation of
       deficient sewer connections as a condition of property
       sale,

       limitations on wastewater strength from non-domestic
       users,
                                549

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        prohibition against dilution,

        notification procedures concerning accidental spills,

        discharge reporting requirements,

        rights of all parties, including the right of the
        municipality or authorized EPA/State personnel to
        enter all properties for testing and measurement,

        rights of industrial users, including protection of
        trade secrets, and

        safety requirements.

     Subscriber communities must also enact SUOs,  in order to
provide protection for the entire system.  These subscriber
communities' ordinances must also be approved by the reviewing
agency.

    Review Procedures;

    An approved SUO must, at a minimum:

    1. Prohibit new inflow sources.

    2. Require the proper design and construction  of
       new sewers and sewer connections.

    3. Prohibit toxic or other pollutants in amounts
       or concentrations which:

       a.  endanger public safety or the physical
           integrity of the treatment works,

       b.  cause a violation of effluent limita-
           tions, or

       c.  preclude selection of the most cost
           effective alternative for wastewater
           treatment and sludge disposal.

    4. Be adopted before the project is placed in
       operation.

      Re:  40 CFR 35.2122, 35.2130, 35.2208
                                550

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G.  PLAN OF OPERATION

    Purpose:

    Develop a descriptive, chronological planning schedule for
the operation and maintenance of the treatment works which
considers activities necessary during construction, startup,
and continuing operations.

    Discussion;

    As a prerequisite to Step 3 grant award, a draft plan of
operation must be submitted by the grant applicant.  The
plan of operation should include both a description of and a
schedule for significant actions required during construction,
startup, and the first year of operation.  The plan of operation
should address the development and implementation of an operating
budget, administrative procedures, staffing and training plans,
and an O&M manual.  Since the dates for specific actions contained
in the plan of operation's schedule are not known at the time of
design, they may be related to a percentage of construction
completion.  A final plan of operation must be approved before
more than 50 percent of the EPA grant may be paid (see Section
IX.B.S.a).

    Review Procedures;

    The draft plan of operation shall consist of a descriptive
schedule which addresses the development and implementation of
the following items:

    1. Budget

           An adequate budget is needed to provide for
       the efficient administration of the project. ' The
       budget should include estimates for salaries,
       supplies,  utilities, training, contract services,
       replacement parts, and other items necessary for
       operation and maintenance.   The budget will form
       the basis for computing user charges (see Section E
       above).   Particular attention should be directed at
       estimated operator salaries and benefits to insure
       that they are sufficient to attract and retain
       qualified personnel.

    2. Administrative Functions

           These  include procedures for submission of State
       required operating reports,  purchasing procedures,
       and the  development and implementation of a maintenance
       system,  a  financial management system, and a property
       management system.

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3. Staffing and Training

       An adequate staffing plan (compatible with the
   size and complexity of the facilities)  should include
   the organizational structure, job descriptions,  salaries,
   numbers of staff, and license requirements for operators.
   The chief operator should be hired before construction
   is 50 percent complete and hiring problems, if any,
   should be identified 60 days before startup and resolved
   within the next 30 days.  Employee training in safety
   and operations should begin 30 days prior to startup
   and should continue during at least the first year of
   operation.

4. Operation and Maintenance Manual

       An adequate O&M manual is needed as a day-to-
   day guide for operators.  It includes items such as:

       a.  design information, including desiign
           and peak flows, pump capacities,
           detention times, F/M ratios, mixe;d liquor
           suspended solids (MLSS) levels, and other
           design criteria;

       b.  startup procedures for each unit process
           and piece of equipment;

       c.  unit process monitoring and control
           information;

       d.  maintenance management system and
           schedule for lubrication, oil and filter
           changes, and other preventive and routine
           maintenance;

       e,  laboratory tests for monitoring and
           controlling unit processes and specific
           laboratory test reports to be sent to
           State agencies;

       f.  safety procedures, with particuleir
           emphasis on hazardous areas such as wet
           and dry wells, chlorination facilities
           or anaerobic digestors;

       g.  troubleshooting procedures for problems
           which typically occur in treatment
           facilities;
                            552

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         h.   emergency operating plan which anticipates
             emergency conditions (e.g.,  power outage,
             chlorine leak,  excessive flows)  and
             designates officials to be notified and
             procedures to be followed until  normal
             operations can be resumed.

           The final O&M manual must be approved before more
       than 90 percent of the grant may be paid (see Section
       IX.B.S.b).

       Re;  40 CFR 35.2106;  EPA publication 430/9-74-001,
            "Considerations for Preparation of Operation and
            Maintenance Manuals," 1974.
H.  INTERMUNICIPAL SERVICE AGREEMENT

    Purpose;

    Develop an intermunicipal agreement for projects serving two
or more municipalities, which legally defines each community's
responsibilities for financing, building, and operating the
proposed treatment works.

    Discussion;

    As a prerequisite to Step 3 grant award, an executed inter-
municipal service agreement must be submitted by the grant
applicant for projects serving two or more municipalities.  The
agreement or other legally binding instrument describes, in
detail, the responsibilities of each community for financing,
building, and operating the project.  At a minimum, the details
must include the basis upon which costs are allocated, the
formula by which costs are distributed, and the manner in which
the cost allocation system will be administered.

    Other provisions of the agreement may include the frequency
and basis for periodic revision to proportionate costs, methods
for measuring flows or sewage strength, allocation of reserve
capacity, enactment and enforcement of sewer use ordinances,
implementation of the user charge system, implementation of
sewer system rehabilitation where applicable, conditions under
which the agreement may be changed, and procedures for resolving
intermunicipal disputes.  The intermunicipal service agreement
therefore must include sufficient detail to form the basis for
project implementation and a long range working relationship
betweeen the communities.
                                553

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    The requirements for an intermunicipal service agreement
may be waived by the reviewing agency if certain conditions,
described below, are met.  However, reviewing agencies should
waive these requirements with great care, since the undertaking
of a substantially increased role or financial burden has
frequently caused a strain in the relationship between a
grantee and a subscriber community.  In the absence of an
intermunicipal service agreement, such a strain could seriously
impair the financial and institutional support for the waste-
water treatment facility.

    Review Procedures;

1.  An approvable intermunicipal service agreement must include
the following provisions:

    a. the basis upon which costs are allocated,
       including the value of existing facilities,
       value of land, periodic capital requirements
       for expansion, and costs for OM&R and adminis-
       tration;

    b. the formula by which costs are allocated, based
       on such factors as quantity, strength, and rate
       of flow; and

    c. the manner in which the cost allocation system
       will be administered (e.g., cost accounting
       records, management systems).

2.  The requirements for an intermunicipal service agreement may
be waived by the reviewing agency if the grant applicant can
demonstrate:

    a. that such an agreement is already in place,
       in which case a copy of the agreement must be
       submitted and reviewed; or

    b. evidence of:

       i.  historic service relationships for
           water supply, wastewater, or other
           services between affected communities
           regardless of the existence of formal
           agreements, and

       ii. financial strength of the grant applicant
           which is adequate to continue the project
           even if the subscriber community which
           lacks an intermunicipal agreement fails
           or ceases to participate in the project.
                                554

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    Re;   40 CFR 35.2104(b),  35.2107:  EPA final policy
         "Financial and Management Capability for Construction,
         Operation and Maintenance of Publicly Owned Wastewater
         Treatment Systems," 49 FR 6254 through 6258
         (February 17, 1984)

I.   INDUSTRIAL WASTES AND FEDERAL FACILITIES

      Purpose;

      Insure that grant funds are not utilized to construct a
  project or portion thereof for the  transport and treatment of
  industrial wastes or wastes from Federal facilities unless
  regulatory limitations are satisfied.

      Discussion;

      During the review of the plans  and specifications,  it is
  necessary to insure that the capacity for the treatment work-
  does not include industrial wastes  nor wastes from Federal
  facilities unless specific conditions are satisfied.   Grant
  assistance may be awarded  only when a project is included in a
  complete waste treatment system, and the principal purpose of
  both the project and the system is  the treatment of domestic
  wastewater of the entire community, area, region,  or district
  concerned.  Where industries will discharge wastes to a project,
  the significant industrial users and all industries intending
  to increase their flows or relocate in the area must submit
  "letters of intent" during facilities planning, documenting
  capacity needs and characteristics  for existing and projected
  flows.

      Since Federal law prohibits the use of EPA funds to support
  the operations of other Federal agencies, the cost of construct-
  ing significant treatment  capacity  for the use of  other Federal
  agencies must be avoided.

      Review Procedures;

      During review of the plans and  specifications, identify
  those process units or portions of  capacity of the project which
  are attributable to the transport and treatment of industrial
  wastes.   This information  will be utilized in determining
  allowable project costs,  which must not include:

      1.  costs of interceptors or collector sewers or
         other facilities constructed exclusively or
         almost exclusively  to serve  industrial users;
         and
                                555

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      2. costs for control or removal of pollutants in
         wastewater introduced by industrial users, unless
         the grant applicant is also required to remove
         such pollutants from nonindustrial users.

    Similarly, the process units or portions of capacity of a
project attributable to the transport and treatment of wastes
from a Federal facility must be identified during the review of
the plans and specifications.  This information also will be used
in determining allowable costs of the project.  Grant assistance
will not include costs to transport and treat wastes from a
Federal facility if the wastes constitute more than 250,000 gallons
per day or five percent of the design flow, whichever is less.
The grant applicant should obtain funds for these costs directly
from the Federal facility which causes these limitations to be
exceeded.

Re:  40 CFR 35.2030(b ) (3 ) (ii ) , 35.2125, 35.2127

J.  DESIGN ACCEPTANCE

    Purpose and Discussion;

    After review of the contract documents, including plans and
specifications and other required documents, the grant applicant
should be notified in writing that specific items have been
accepted.  In no instance should the grantee be informed that
the plans and specifications have been "approved," except at the
time of grant offer,  since the CWA provides that such approval
constitutes a contractual obligation of EPA to financially assist
construction of the project.

    In addition,  it will be beneficial to advise the grant
applicant of other documents or actions necessary as part of the
grant application process.   The procedure below suggests items
which should be communicated to the grant applicant.

      Procedure;

    1.   Plans and Specifications

             In the letter to the grant applicant accepting
        plans and specifications,  include language which conveys
        the following:

        a.  Plan and specification acceptance does not
           constitute  a commitment for grant award.

        b.  Acceptance  of plans and specifications by the
           reviewing  agency does not relieve the grantee and
           the design  engineer of  their legal liability  for
           the adequacy of  the  design.


                                556

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  c. The review of the plans and specifications is for
     administrative purposes only, to assess the likelihood
     that the project will achieve its wastewater treatment
     purposes.  The structural, mechanical, and electrical
     aspects of the plans and specifications are not reviewed
     in detail.

  d. Contract documents are subject to regula-
     tions in effect at the time of grant award,
     and may require revision or updating (e.g.,
     wage rate determination).

  e. Identification of project performance
     standards against which performance will be
     measured.

  f. Eligible capacity of treatment facilities is limited
     to the capacity required to serve existing needs
     (i.e., needs on the date of grant award), except
     for interceptor segments for which the first segment
     was awarded a grant before December 29, 1981.

   Re;   40 CFR 35.2050

2.  Preparation for Grant Application

        In the letter to the grant applicant accepting items
   discussed in Sections D through H above (e.g.,  UC system,
   SUO, etc.), it will be beneficial to briefly review the
   required items for a grant application (particularly the
   limitations on award) in Sections VI.C through VI.J, and
   identify those which are applicable to the specific
   project.  These items should be brought to the attention
   of the applicant in order to preclude delays in processing
   the  application.  Experience has shown that the following
   items have caused undue delay and are generally worthy
   of special note:

   a. Reassessment of financial capability based on
      revised cost estimates after completion of
      construction drawings and specifications.

   b. Method and timing of raising local  shares of project
      costs to insure that all construction subagreements
      are awarded within 12 months after grant award.

   c. Intermunicipal agreements.

   d. Acquisition of land, rights of way,  and easements.

   e. MBE/WBE participation requirements.


                            557

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 No Future Grant

    Where a project is unlikely to receive grant assistance
in the near future, the letter to the applicant should so
indicate.  Comments concerning deficiencies in the plans,
specifications, or other items discussed in this Chapter
should be limited to those which will be useful to the
municipality if the project is constructed without Federal
funds.  Where appropriate, the project should be prepared
for closeout (see Section VIII.B).
                         558

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                CHAPTER VI

             GRANT PROCESSING
A.  INTRODUCTION

B.  APPLICATION CONTENTS

C.  APPLICATION REVIEW

D.  LIMITATIONS ON AWARD

E.  ADDITIONAL CONSIDERATIONS FOR AWARD

F.  STEP 2+3 GRANTS

G.  COMBINED SEWER OVERFLOW GRANTS

H.  LAND ACQUISITION GRANTS

I.  INNOVATIVE OR ALTERNATIVE TECHNOLOGY
    FIELD TESTING GRANTS

J.  INNOVATIVE OR ALTERNATIVE TECHNOLOGY
    MODIFICATION OR REPLACEMENT GRANTS

K.  GRANTS TO STATES FOR ADVANCES OF ALLOWANCE

L.  FEDERAL GRANT SHARE

M.  GRANT AWARD PROCEDURES
                   601

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A.  INTRODUCTION

    This chapter describes the documents which constitute a
Step 3 grant application package, the review procedures for each
document, and the limitations which must be satisfied before
grant award.  Later sections describe Step 2+3 and other special
purpose grants and the limitations which must be satisfied before
these grants can be awarded.  The final sections discuss the method-
ology for establishing the EPA grant amount and the procedures
associated with the award of a grant.

    Section B, Application Contents, lists those items specif-
ically required by the regulations for a Step 3 grant application.

    Section C, Application Review, describes the review of the
basic documents which constitute a Step 3 grant application.  It
does not include limitations on award.

    Section D, Limitations on Award, describes those limitations,
specifically required by the regulations, which must be satisfied
before grant award.  This section also discusses phased and
segmented projects and limitations on the eligibility of reserve
capacity.

    Section E, Additional Considerations for Award, describes
other considerations which may have to be satisfied before grant
award, but which are not listed under the specific heading
"Limitations on Award" in the construction grant regulations.

    Section F, Step 2+3 Grants, describes the conditions under
which a Step 2+3 grant may be awarded.

    Section G, Combined Sewer Overflow Grants, describes conditions
for the award of grants for both marine and nonmarine combined sewer
overflow (CSO) Step 3 projects.

    Section H, Land Acquisition Grants, describes conditions and
limitations for the award of grants for the acquisition of eligible
land.

    Section I, Innovative or Alternative Technology Field Testing
Grants, describes conditions and limitations for the award of grants
for field testing of an innovative or alternative (I/A) technology.

    Section J, Innovative or Alternative Technology Modification
or Replacement Grants, describes the regulatory requirements which
must be satisfied before a 100 percent modification or replacement
(M/R) grant may be awarded for a failed I/A technology.
                             603

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    Section K, Grants to States for Advances of Allowancef  describes
the procedures tor awarding a grant to a State, in order tor the
State to provide advances of the allowance for facilities planning
and/or design to small communities.

    Section L, Federal Grant Share, describes the methodology
for computing the EPA grant share.

    Section M, Grant Award Procedures, describes the procedures
for awarding grants and the circumstances under which special
grant conditions may be added to the grant agreement.,


B.  APPLICATION CONTENTS

    The basic items to be included in a grant application pack-
age for a Step 3 grant are listed below.  The requirements for
other grants (e.g., Step 2+3, correction of CSO, land acquisition,
etc.) are described later in this chapter.  The items; below are
only those submitted by the applicant, and do not include items
prepared by the State and submitted to EPA.  The items are listed
here for quick reference, while the review procedures for each item
are described later.  The reviewer is to make a preliminary review
of the application package to insure that all items are included
(some may be contained within the facilities plan), that all appli-
cable portions of the forms are completed, and that the documents
are signed by the appropriate officials.  If items are missing or
an explanation is necessary, the reviewing agency should contact the
grant applicant; however, the review is to proceed as far as possible,
to minimize delays once corrections are made.  A complete application
package includes:


    1.  application (EPA Form 5700-32), including the author-
        izing resolution and site certificates;

    2.  facilities plan prepared in accordance with 40 CFR
        Part 35, Subpart E or Subpart I as appropriate;

    3.  evidence of adequate public participation based on
        State or local statutes;
                             604

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4.  notification of any previous advance of allowance or
    Step 1 or Step 2 grant received;

5.  final design drawings (i.e., plans)  and specifications;

6.  project schedule;

7.  evidence of compliance with the applicable
    limitations on award, including:

    a.   advanced treatment review;

    b.   conformance with the approved water quality
        management (WQM) plan;

    c.   demonstration and certification  of  financial
        and management capability to  build, operate,
        and maintain the proposed project;

    d.   certification that the  grant  applicant has
        not violated any Federal, State,  or local  law
        relating to corrupt practices in connection
        with facilities planning or design;

    e.   indication of the level of  participation
        for minority and women's business enter-
        prises (MBE/WBE) during facilities  planning
        and design (EPA Form 6005-1);

    f.   indication of whether or not  the  grant
        applicant has used the  services  of  an
        individual,  organization, or  unit of
        government whose name appears  on EPA's
        master list of debarments,  suspensions,
        and voluntary exclusions;

    g.   draft plan of operation;

    h.   executed intermunicipal service  agreements,

    i.   environmental review;

    j.   value engineering (VE)  study;
                        605

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    k.   for collector sewers,  evidence that either:

         i.  the existing collection system being
             replaced or rehabilitated */as not built
             with Federal funds awarded on or after
             October 18, 1972, or

         ii. the new collection system will serve a
             community which was in existence on
             October 18, 1972;
    1.  prior approval of any preaward costs;


    m.  analysis of infiltration and inflow  (I/I);


    n.  user charge (UC) system;


    o.  sewer use ordinance  (SUO);


    p.  estimate of capacity required  to treat  current
        needs,  and amount of reserve ccipacity;


    q.  amount  and nature of industrial and  Federal
        facility wastes  to  be  treated;  and


    r.  assurance  of  access  to individual  systems;


 8.   intergovernmental review;


 9.  procurement system certification (EPA Form 5700-48)
     and related documents;  and


10.   certification of  nondiscrimination (EPA Form 4700-4)


Re:   40 CFR Part 7; 40 CFR Part 29; 40 CFR Part 33;
—   40 CFR 35.2040,  35.2100 through 35.2140
                          606

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C.  APPLICATION REVIEW

1.  Application Form

    Purpose;

    Present information from the grant applicant which is necessary
for a grant award.  The application also contains a list of assur-
ances from the applicant which are necessary to satisfy statutory
requirements.  Additional assurances may also be necessary.


    Discussion;

    The application for grant assistance is submitted by the munic-
ipality designated in the approved WQM plan and in the facilities
plan for the project. The application must be signed by an official
of the municipality, and must be accompanied by a resolution from
the municipal governing body, designating this official as the
municipality's authorized representative.

    Individual items in the application form are reviewed for
completeness and accuracy.  In reviewing the application form, the
reviewer insures that the grant applicant:

       has the legal, institutional, managerial, and
       financial capability to insure adequate building
       and operation of the project;

       has the ability to expeditiously initiate procure-
       ment and to complete the project in accordance
       with the project schedule;

       has complied with all applicable statutory and
       regulatory requirements prior to grant application;

       recognizes and agrees to comply with all other
       applicable statutory and regulatory requirements
       during construction and for the useful life of the
       project; and

       provides documentation or narrative statements
       supporting the cost estimates included in the
       application.

    During the review of the application form,  particular atten-
tion should be given to the source of funds for the local share
of project costs (e.g., State grants, sale of bonds, other Federal
grants which are authorized by statute to be used as non-Federal
                             607

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funds on EPA-funded construction projects, etc.).  In addition,
title to ineligible land, easements, and rights-cf-way must be
acquired prior to application, or have progressed to the stage
where title or interest in the property may be obtained prior to
the award of construction contracts.  Problems with local share
funding and land acquisition must be satisfactorily resolved prior
to grant award in order to prevent costly delays in building the
project.  Condemnation proceedings, if required, are usually time
consuming, and therefore should be undertaken well in advance of
submitting the grant application.


    Review Procedures:

    Review the application form and insure that:

    a.  the name, project number, description of the
        project, and grant amount requested agree with
        the approved State project priority list;

    b.  the application  form  is signed by the municipality's
        authorized representative, and a  certified copy of
        the authorizing  resolution  is attached;

    c.  documentation of  the  applicant's  interest  in  the
        project  site, easements,  and  rights-of-way  is
        complete;  the method  of acquisition,  including
        relocation, complies  with applicable  provisions of
        40 CFR Parts 4  and  30;  and where  land acquisition
        costs are  eligible  for  grant  participation,  the
        Federal  interest in  the eligible  land  is protected
         (sees Sections  H.l.f, H.3.b,  and  M.5.d  below);

     d.  the applicant  can obtain  funds  for  the  balance  of
        project  costs  beyond  the  EPA  grant  to allow the
        prompt  initiation of  construction;

     e.   the applicant  has the legal,  institutional,
        managerial, and financial capabilities  to  build,
        operate, and maintain the project (see  Section  D.4
         below);

     f.   the estimated  project costs reasonably compare  with
         the costs in  the facilities plan, the financial
         capability analysis,  and presentations to the public;
                              608

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    g.  estimated project costs are separated into allow-
        able and unallowable costs, and allowable costs
        are separated into the following cost categories:
        construction, administration, legal, fiscal,
        engineering services (both during construction
        and for one year after the initiation of operation),
        contingency allowance, allowance for facilities
        planning and design, force account, and land acquisi-
        tion and relocation;

    h.  the assurances section of the application is attached
        to the application form; and

    i.  all items in the application form are either complete
        or marked "not applicable" (may be abbreviated "N/A"),
    Re; 40 CFR 30.302, 30.520, 30.535, 35.2040(b), 35.2104,
        35.2212
2.   Facilities Plan

    An approvable facilities plan which satisfies the requirements
of  40 CFR Part 35 must accompany the application for grant assis-
tance .

    If work on facilities planning was initiated before May 12,
1982 (the effective date of 40 CFR Part 35, Subpart I), the
facilities plan must satisfy the requirements of 40 CFR Part 35,
Subpart E, rather than Subpart I.  If the facilities plan was not
prepared under an EPA Step 1 grant, a grant applicant claiming
initiation of facilities planning before May 12, 1982 will need to
substantiate this claim with appropriate documentation.  If
facilities planning was initiated prior to May 12, 1982, and meets
the requirements of Subpart E, no revisions to the facilities plan
will be required solely to satisfy the requirements of Subpart I.
However, if considerable time has elapsed since the completion of
the facilities plan, this work should be carefully reviewed and
updated as necessary, since it may have been based on information
(e.g., existing population, flows, costs, etc.) which is no longer
valid.

    Facilities planning initiated after May 12, 1982 must satisfy
the requirements of 40 CFR Part 35, Subpart I, as described in
                             609

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Chapter IV.  Where a facilities plan has been submitted, reviewed,
and approved by the reviewing agency prior to grant application, the
reviewer is to insure that the project described in the application
agrees with the selected plan in the approved facilities plan and
that the environmental review has been completed (see Section D.12
below).

Re:  40 CFR 35.2040(b)(1)


3.  Public Participation

    State agencies, when certifying a project to EPA for grant award,
are required to certify that adequate public participation was pro-
vided by the grant applicant, based on applicable State and local
statutes.  in making this certification, the State agency should
review the application documents, primarily the facilities plan, to
verify that this requirement was met  (see Section IV.C.7.4 for a
full discussion of public participation requirements).

Re:  40 CFR 35.2040(b)(2)


4.  Notification of Advance of Allowance

    Where  a State has made an advance of allowance to help a grant
applicant  prepare a facilities plan and/or design documents, the
grant applicant must so  indicate in the application,, and state  the
date and amount of the advance and any conditions attached to the
advance.   Refer to Section III.E for  procedures on providing an
advance of allowance to  a potential grant applicant,.

Re:   40 CFR 35.2025,  35.2040(b)(3)


5.  Plans  and  Specifications

    Approvable contract  documents,  including plans  (i.e.,  final
design  drawings)  and  specifications,  must accompany  the application
for grant  assistance.   The plans and  specifications  must comply with
all State  requirements  and EPA  regulations  and  policies, and must be
consistent with  the  facilities  plan and any  mitigating  measures as
a result  of the  project's environmental review  (see  Sections  IV.C.7.3
and IV.D).
                              610

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    Design work initiated after May 12, 1982 must satisfy the
requirements of 40 CFR Part 35, Subpart I, as described in
Section V.C.  Where the plans and specifications have been sub-
mitted, reviewed, and accepted (i.e., found to be approvable) by
the reviewing agency prior to grant application, the reviewer is
to verify that the project described in the application agrees
with the previously approved plans and specifications.

    If the design work was initiated before May 12, 1982 (the
effective date of 40 CFR Part 35, Subpart I), the design must sat-
isfy the requirements of 40 CFR Part 35, Subpart E, rather than
Subpart I.  If the design work was not accomplished under a Step 2
grant (or in rare cases, a Step 2+3 grant which was terminated prior
to the initiation of construction), a grant applicant claiming
initiation of design work before May 12, 1982, will need to substan-
tiate this claim with appropriate documentation.  If design work was
initiated prior to May 12, 1982, and meets the requirements of Sub-
part E, no revisions to the design work will be required solely to
satisfy the requirements of Subpart I.  However, if considerable time
has elapsed since the completion of the design work, this work should
be carefully reviewed and updated as necessary, since it may be based
on information (e.g., site conditions, availability of construction
materials and labor, etc.) which is no longer valid.

    In all cases, a current wage rate determination, current labor
standards provisions, and all current procurement requirements must
be incorporated into the contract documents.


Re:  40 CFR Part 33; 40 CFR 35.2040(b)(5)
6.  P ro j e c t Schedule


    Purpose;

    Set forth a timetable for key project events, provide for the
timely completion of the project, and insure compliance with permit
and compliance schedules, court orders, and State enforcement orders,
                             611

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    Discussion;

    A project schedule is an important part of the grant
application.  It is to be reviewed carefully to verify that
the grant applicant has anticipated all key project events,
including procurement actions, construction initiation,
building milestones and completion, implementation of the plan
of operation, startup, pretreatment program actions (where
needed) , engineering supervision during the first year of
operation and project certification. Since the date of grant
award is not known at the time the grant applicant prepares the
schedule, the timetable may be expressed in terms of the number
of weeks from the date of grant award.

    The project schedule must be carefully reviewed for reason-
ableness, and may require review and coordination with other
sections within the State agency, EPA, or other Federal agencies
(e.g., National Pollutant Discharge Elimination System (NPDES)
permit section, U.S. Army Corps of Engineers (COE), U.S. Fish
and Wildlife Service, etc.).  The project schedule forms a part
of the grant agreement, and significant changes in the schedule
require a formal grant amendment.


    Review Procedures;

    Review the project schedule to insure that:

    a.  the schedule includes key project events (e.g.,
        procurement, initiation of construction, bu^ldjLng
        milestones , project completion, startup, certifica
        tion, etc.), and that the timetable is reasonable,
        considering the size and complexity of the project;


    b.  the schedule agrees with other regulatory compliance
        schedules (e.g., NPDES permits), court orders, and
        State enforcement orders; and


    c.  the schedule is coordinated, as appropriate, with
        the schedule in the draft plan of operation and,
        where appropriate, with the schedule for the develop-
        ment of a pretreatment program.


        Re:  40 CFR 35.2005(35) , 35.2040(b)(6) , 35.2204(b)(3)
                             612                         TM 86-1

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D.  LIMITATIONS ON AWARD

    The following sections describe regulatory limitations to grant
award.  At the time of grant application, the grant applicant must
provide evidence of compliance with the applicable limitations des-
cribed below.  The documentation supplied by the grant applicant
forms a part of the application package.


1.  Advanced Treatment

    Projects which propose advanced treatment are subject to a
special EPA Regional or Headquarters review and approval prior to
grant award.  Ideally, this review will have taken place during
facilities planning, or at least prior to the initiation of design.
Refer to Section IV. E.I for specific details concerning the advanced
treatment review.  At the time of the application review, insure that
the proposed project and supporting documents agree with the results
of the advanced treatment review.

Re:   40 CFR  35.2101


2.  Water Quality Management Plans

    The proposed project must  be consistent with  the  approved ele-
ments of the applicable WQM plan approved under Section  208 or
303(e) of the Clean Water Act  (CWA).  The grant applicant must be
the wastewater management agency designated  in  the WQM plan.  Refer
to Section  IV.B.3  for specific details.

Re:   40 CFR 35.2023,  35.2030,  35.2102


3.  Priority Determination

    Each State  annually prepares a  State project  priority  list based
on the State's  approved priority system.  To  be eligible for  a grant,
a project must  be  listed  on  the  project priority  list and must be
within the  fundable  range  for  the  State's current allotment.

    At the  time  of the  application  review,  insure that  the  scope of
the proposed project  and  the  amount of  the  grant  request agree with
the  corresponding  information  on the project priority list.   All
States have established  internal processing procedures  for  insuring
                              613

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that the funds needed for grant award will not cause the State's
allotment to be exceeded, and that the use of reserve funds  (e.g.,
I/A technologies, alternative systems for small communities, etc.)
is properly noted and recorded.  These procedures should be  followed.
Refer to Section II.E.3 for a more complete discussion of the State
priority system and project priority list.

Re;  40 CFR 35.2015, 35.2103


4.  Financial and Managerial Capability

    Purpose;

    Insure that the grant applicant agrees to pay the non-Federal
project costs, and has the legal, institutional, managerial, and
financial capability to insure the adequate building and operation
of the project.


    Discussion;

    By signing the application and the grant agreement, the appli-
cant agrees to pay the non-Federal share of project costs if a grant
is offered.  if, however, after review of the application package,
the reviewing agency determines that the grant offered will be signi-
ficantly lower than the grant requested, it may be advisable to con-
tact the grant applicant and confirm that the grant applicant agrees
to pay the increased non-Federal share.  It may also be necessary to
reassess the applicant's financial capability (see below).

    The grant applicant is required to demonstrate its legal, insti-
tutional, managerial, and financial capability to insure the adequate
building and operation of the treatment works throughout the entire
area to be serviced by the applicant.  As part of the grant applica-
tion package, the grant applicant certifies that it has this capa-
bility and has analyzed the local share of the estimated project cost,
including the financial impact on each community and the residents of
the service area, and finds it to be affordable.  The reviewing agency
must,  however, be satisfied that the application and supporting docu-
ments do in fact demonstrate the applicant's capability.

    The principal information necessary to demonstrate the applicant's
financial and managerial capability is contained in the responses to
five basic questions contained in EPA's "Financial and Management
Capability" policy statement.  To assist grant applicants in answering
these questions, EPA has prepared a sample format whic'T suggests one
method for displaying responses to the questions.  The format, entitled
                             614

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"Wastewater Facilities Financial Information Sheet," is included
as Attachment A to the policy statement.   Additional guidance is
provided to the applicant in a publication entitled "Financial
Capability Guidebook."  While the five basic questions must be
answered, both the information sheet and  the guidebook are only
guidance, and States are encouraged to modify them according to the
individual State's needs.

    Other documents submitted by the grant applicant will also pro-
vide evidence of the applicant's financial and managerial capability.
In the case of a project serving more than one municipality, the
executed intermunicipal service agreement (see Section V.H) will be
an indication of the institutional and financial obligations of each
participating municipality.   Additionally, the draft plan of opera-
tion (see Section V.G) will  demonstrate that the applicant has con-
sidered the financial and managerial needs, including a staffing plan
and budget, for the operation of the facility.  The UC system (see
Section V.E) will provide further evidence that the applicant will be
able to collect adequate revenues for operation, maintenance, and
replacement (OM&R).  Finally, the SUO (see Section V.F) will demon-
strate that the grant applicant has considered the problems resulting
from extraneous or nonresidential wastes, and has the legal authority
to prevent or correct such problems.

    The initial demonstration of financial and managerial capability
should have taken place either during or  at the time of completion of
facilities planning.  At the time of grant application, however, it
may be necessary to reevaluate this information and request that the
grant applicant update some  of the information to reflect current
conditions.  Such an update, combined with a review of the entire
application package (with particular emphasis placed on the items
cited above), will collectively allow the reviewing agency to deter-
mine whether or not the grant applicant has the financial and man-
agerial capability to finance, build, and operate the proposed project
successfully.


    Review Procedures;

    Review the application documents to insure that the grant appli-
cant has agreed to pay the non-Federal share of project costs.  The
authorized representative's  signature on  the application form will
usually satisfy this requirement.  However, more specific assurances
should be required from an applicant which has previously failed to
provide the non-Federal share in a timely manner, or when there are
other reasons to suspect that the applicant may not be able to pay
the non-Federal share.
                             615

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    Review the applicant's demonstration that it has the legal,
institutional, managerial, and financial capability to adequately
build and operate the treatment works.  Again, more specific assur-
ances should be required from an applicant which has previously
failed to adequately build and operate a treatment works or other
construction project, or when there are other reasons; to suspect
that the grantee lacks the required capability.

    Review the applicant's answers to the five basic questions con-
tained in the "Financial and Management Capability" policy statement.
These answers, combined with the information in the intermunicipal
service agreement, draft plan of operation, UC system, and SUO, must
demonstrate the applicant's financial and managerial capability.

    The reviewing agency should have developed screening procedures
for identifying applicants whose projects need greateir attention to
satisfy the above requirements (e.g., based on high cost per user,
the use of unusually complex technology, etc.), and should not approve
applications which do not adequately demonstrate that, the project can
be successfully financed, constructed, and operated.  Where an ade-
quate demonstration has not been made, the reviewing agency should
provide advice to the applicant on both the technical and financial
aspects of the proposed project, in order to help the1 applicant im-
prove its capabilities or decrease the complexities of the project

Re;  40 CFR 35.2104; EPA final policy on "Financial and
     Management Capability for Construction, Operation
     and Maintenance of Publicly Owned Wastewater Treatment
     Systems," 49 FR 6254 through 6258 (February 17, 1984);
     EPA publication, "Financial Capability Guidebook,"
     March 1984


5.  Utilization of Small, Minority, Women's, and Labor Surplus
    Area Businesses

    In order to increase the utilization of small, minority, women's,
and surplus area businesses during facilities planning and design, it
is EPA's policy to encourage potential grant applicants to adopt
procurement procedures which, at a minimum, include the six affirma-
tive steps in EPA's procurement regulations (see Section V.C.l.w)
for all activities of their construction program.

    At the time of grant application, the grant applicant is required
to indicate to the reviewing agency the level of .MBE/WBE participa-
tion in facilities planning and design by completing EPA Form 6005-1.
This information will be used by EPA to meet its obligation to report
MBE/WBE participation in the construction grants program.

Re:  40 CFR 33.240, 35.2104(d)
                             616

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6.  Unlawful Practices

    The grant applicant is required to certify to the reviewing
agency that it has not violated any Federal,  State,  or local law
pertaining to fraud,  bribery, graft,  kickbacks,  collusion,  conflict
of interest, or other unlawful or corrupt practices  in connection
with facilities planning or design work for the  wastewater  treatment
project.  This certification will normally be in the form of a letter
signed by the authorized representative.


7.  Debarment and Suspension

    Purpose;

    Determine if an individual, organization, or unit of government
which is listed on EPA's master list of debarments,  suspensions, and
voluntary exclusions has performed facilities planning or design
work for the grant applicant, and if so, what remedial action may be
appropriate on the part of the State agency or EPA.


    Discussion;

    It  is EPA policy to limit financial assistance and grant sub-
agreements to participants which properly use Federal funds, and to
deny participation in its programs to those who have been debarred
or suspended in accordance with 40 CFR Part 32.   A grant applicant
is required to indicate whether it has used the services of an
individual, organization, or unit of government, which is listed in
EPA's master list, to perform facilities planning or design work
(the master list is printed  in the Federal Register  (FR) and updated
quarterly).  If the grant applicant responds affirmatively, the
reviewing agency will closely examine the facilities plan and the
design work to determine whether to award a grant.  EPA will also
determine whether the grant  applicant should be found non-responsible
and therefore not eligible for a grant, and whether the grant appli-
cant should be debarred or suspended.


    Review Procedures;

    Review the application or separate submission to deter-
mine:

    a.  whether the grant applicant has used the services of
        an individual, organization, or unit of government,
        which is on EPA's master list of debarments and sus-
        pensions for facilities planning and design work; and
                             617

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    b.  if the grant applicant answers affirmatively,  deter-
        mine whether to award a grant or whether to recommend
        inclusion of the grant applicant on the master list.

    Re: 40 CFR 30.301(d), 32.400, 32.500, 35.2105
8.  Plan of Operation

    A draft plan of operation is part of the application package.
The draft plan is to address the development of a plan to provide
adequate wastewater treatment during construction, an operation and
maintenance (O&M) manual, an emergency operating program, personnel
training, an adequate budget consistent with the UC system,  operator
reports, laboratory testing capability, and an O&M program for the
complete waste treatment system of which the project is a part. The
draft plan may be in the form of a descriptive chronological schedule
which provides a timetable for the preparation and submission of the
required documents and for actions to be taken by the grantee during
construction.   Refer to Section V.G for a more complete discussion.

Re:  40 CFR 35.2106


9.  Intermunicipal Service Agreement

    An executed intermunicipal service agreement is to accompany the
grant application for projects which will serve more than one munic-
ipality.  At a minimum, the agreement must include the following
information:

    a.  the basis upon which costs are allocated,

    b.  the formula by which costs are allocated, and

    c.  the manner in which the cost allocation system
        will be administered.

In order to prevent costly delays in building the project (due to
a lack of funds to pay the grantee's non-Federal share), and later
in implementing necessary UC increases, the agreement, should include
provisions for rapidly resolving disputes between the grantee and  a
subscriber community.  The intermunicipal service agreement  may also
serve as the legal document which commits each participating munici-
pality to developing, enacting, and enforcing a UC system, a SUO
and if required, a pretreatment program.  The intermunicipal service
                             618

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agreement will provide partial evidence concerning the grant appli-
cant's legal, financial, institutional, and managerial capability.
See Item 4 above, and refer to Section V.H for a more complete dis-
cussion.

Re:  40 CFR 35.2107


10.  Phased or Segmented Treatment Works

     Purpose:

     Provide grants to build a phase or segment of a treatment works
where such phasing or segmenting is justified, and where specific
regulatory conditions have been satisfied.

     Discussion;

     EPA regulations do not make a distinction between a treatment
works phase or segment.  In practice,  however, phasing is  the term
used where an entire treatment works construction subagreement is
awarded to the selected contractor (e.g.,  the low bidder for a
formally advertised procurement), but  the  contractor  is only author-
ized to proceed  to construction on specific phases of the  treatment
works.  This practice has  been used on a  limited number of  projects
where building took several years, and funding for the entire treat-
ment works was not available  from a single year's allotment.  While
this practice is  not prohibited by EPA regulations,  the inherent
potential problems are  such that it is discouraged and, where pro-
posed,  should be  very carefully reviewed,  especially  with  regard  to
the applicant's  financial  capability  to successfully  build  the entire
project.

    Segmenting of projects is a more  common practice, which involves
the building  of  the  complete  treatment works  in  segments,  over a
period  of time.   The  complete treatment works  is described in a
facilities plan,  but  a  separate grant  agreement/amendment  is  issued,
and a  separate subagreement  is awarded, to build each segment.

    Grants  for phased or  segmented treatment  works may  be  awarded
provided  that one or  more  of  the conditions described in  the  review
procedures  below are  satisfied.  In addition,  the grantee  must agree
to make the  treatment works operational,  in accordance  with a schedule
which  is  acceptable  to  the reviewing  agency,  whether or not future
grant  funding  is available.

     In "grandfathering" phased or  segmented projects, problems often
arise  in  establishing allowable  reserve  capacity,  and in  determining
the  initial  and  future  Federal grant  share,  including grant increases,
where  a Governor has elected  to  provide  a uniform lower Federal  share.
                              619

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The review procedures below describe how these problems are resolved
and suggest the order in which the review should proceed.

    Finally, where a project involves more than two phases or seg-
ments, it is EPA policy that subsequent phases or segments be built
in the sequence that will first make previously funded phases or
segments operational and in compliance with the enforceable require-
ments of the Act, before other phases or segments are funded.  For
example, where an interceptor segment has been built, the next seg-
ments to be funded will be those which make the interceptor opera-
tional.  A segment of a different interceptor would not be funded
until this first interceptor is operational.  Individual
phases or segments, however, do not in and of themselves have
to result in compliance with the enforceable requirements of
the Act, provided that the grantee agrees to complete the treatment
works, as described in the facilities plan, regardless of the avail-
ability of future Federal funding.


    Review Procedures;

    In reviewing applications for phased or segmented treatment
works, care must be exercised that the conditions and limitations
described below are satisfied.
    a.  Conditions

        One or more of the following conditions must be in
    existance before an award of grant assistance can be made
    for a phased or segmented treatment works:
        i.   the Federal share of the cost of building
             the entire treatment works would require
             a disproportionate share of the State's
             annual allotment relative to other needs,
             or would require a major portion of the
             State's annual allotment;

        ii.  the period to complete the building of
             the treatment works will cover three years
             or more; or,

        iii. phasing or segmenting is necessary to meet
             the requirements of a Federal or State
             court order.
                             620

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    The first condition should be verified by reviewing
the State's project priority system and list; the second
by reviewing the project schedule, and the third by
reviewing appropriate court order, which usually can be
obtained from the reviewing agency's compliance group.
b.  Grantee Commitment

The grantee must agree, in writing, to make the treatment
works, of which the phase or segment is a part, operational
and in compliance with the enforceable requirements of the
CWA, according to a schedule which is acceptable to the
reviewing agency, regardless of whether grant funding is
available for the remaining phases or segments.  Prior to
awarding a grant, the reviewing agency should contact the
grant applicant to insure that it understands and agrees
to this commitment.  If a grant is awarded, compliance
with this commitment is to be included as a grant condi-
tion in the grant agreement/amendment (see Section N.5
below).
c.  Reserve Capacity

    This discussion of reserve capacity is limited to
phased or segmented treatment works:
    i.    interceptor Awarded a Step 3 Grant
          Before December 29, 1981

          Future grants for remaining interceptor
          segments, which are included in the
          approved facilities plan, may be awarded
          with planned reserve capacity for as much
          as 40 years.
    ii.   Treatment Plant and/or Interceptor Awarded
          a Step 3 Grant Before October 1, 1984

          Future grants for any remaining segments
          included in the approved facilities plan
          may be awarded with planned reserve cap-
          ability for as much as 20 years.
                         621

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    i i i.  Treatment Plant and/or Interceptor Awarded
          a Step 3 Grant After September 30, 1984

          Where a previous grant was not awarded as
          described in Item i or Item ii above, no
          reserve capacity will be eligible for grant
          assistance.  Eligible costs will be limited
          to the capacity necessary to serve existing
          needs on the date of grant approval.   Refer
          to Item 18 below for a method of establishing
          existing needs.
d.  Federal Share

    This discussion of the Federal share is limited to phased
or segmented treatment works, and does not include provisions
for I/A projects.  Under the provisions of the 1981 CWA
amendments, the Governor of a State, with EPA approval, may
uniformly lower the Federal grant share for all categories
of projects.  After approval by EPA, the lower Federal grant
share will prevail until revoked by the Governor.  Where this
option has been exercised, the Federal grant share for phased
or segmented treatment works must be at the percentage pre-
vailing at the time of grant award for each subsequent phase
or segment (i.e., succeeding phases or segments of a treat-
ment works may have Federal grant percentages which differ
from that of the initial phase or segment).  The Federal share
is based on the total allowable Step 3 costs, plus the allow-
ance for facilities planning and/or design (if applicable),
and shall be at the percentages indicated below:

    i.   Before October 1, 1984

         The Federal grant share is 75 percent, or the
         lower uniform rate if set by the Governor.


    ii.  After September 30, 1984

         The Federal grant share is 55 percent, or the
         lower uniform rate if set by the Governor,
         except that the Federal grant share is 75 per-
         cent, or the lower uniform rate which existed
         at the time of the Step 3 grant award for the
         initial phase or segment, if set by the
         Governor, provided that:
                         622

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              -  the treatment works being phased or
                 segmented is described in a facilities
                 plan which was approved by the reviewing
                 agency before October 1, 1984;

                 the Step 3 grant for the initial phase
                 or segment was awarded before October 1,
                 1984;

                 the phase or segment is a sequential
                 phase or segment of a primary, secondary,
                 or advanced treatment facility or its
                 interceptors, or I/I correction; and

                 the phase or segment is necessary to:

                   - make a previously funded phase
                     or segment operational and in
                     compliance with the enforceable
                     requirements of the CWA, or

                   - complete the treatment works, pro-
                     vided that all previously funded
                     phases or segments are operational
                     and in compliance with the enforce-
                     able requirements of the CWA.

        Re:  40 CFR 35.2108, 35.2123, 35.2152(a) and (c)


11.  Revised Water Quality Standards


     The 1981 CWA amendments require each State to review and revise,
as appropriate, its water quality standards by December 29, 1984.
After that date, no construction grants can be awarded for projects
which discharge into stream segments for which the State has failed
to review and revise, as appropriate, water quality standards within
the previous three years.

    While the responsibility for reviewing and revising water quality
standards generally does not reside with the construction grants pro-
gram staff, the project reviewer should be aware of the status of
this review as it relates to a particular project and the stream seg-
ment into which it will discharge.
                             623

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    After December 29, 1984, insure that no grant is awarded unless
the State has reviewed and revised, as appropriate, its water
quality standards within the last three years.  This limitation on
award is satisfied if:

    a.  water quality standards for the entire State, or for
        the particular stream segment into which the pro-
        ject will discharge, have been reviewed and revised,
        as appropriate, within the last three years and
        approved by EPA; or

    b.  the State agency, in good faith, has submitted to
        EPA the results of its review, with appropriate
        revisions, but EPA has failed to act on them within
        120 days of receipt.

    Re: 40 CFR 35.2111; 40 CFR Part 131
12.   Environmental Review

     A facilities plan, which is a part of the grant application
package, is subject to an environmental review in accordance with the
EPA regulations implementing the National Environmental Policy Act
(NEPA).  The environmental review may result in:

    a.  a categorical exclusion from further environmental
        review;

    b.  a finding of no significant impact (FONSI); or


    c. the need to prepare an environmental impact statement
       (EIS).


The environmental review is most often performed prior to the initia-
tion of design, and the grant applicant should have been informed of
the need for the review to be performed at that time, to prevent sub-
sequent delays in the award of grant assistance.   At the time of
application review, insure that the environmental review has been
completed, and that the project described in the grant application
reflects the conclusions of, and is consistent with, the results of
the environmental review.  In the absence of a previous environmental
review, and in the case of significant changes to the project since
the previous environmental review, the proposed project must be
reviewed in accordance with requirements described in Section IV.D.

Re:   40 CFR Part 6; 40 CFR 35.2113
                             624

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13.   Value Engineering

     If the proposed project has not received a Step 2 grant, and if
the total estimated cost of building the treatment works (including
sewers) is more than $10 million, the grant applicant must have con-
ducted a VE study, and the recommendations of the VE study must have
been implemented by the applicant to the maximum extent feasible.
Projects which were awarded a Step 2 grant are subject to the regula-
tions which were in effect at the time of grant award.  Refer to
Section V.D for a complete discussion of value engineering.

Re:   40 CFR 35.926, 35.2114
14.   Collection System

     Purpose;

     Insure that grant assistance is awarded only for collection
system projects which are eligible for grant assistance and which
satisfy the date and resident population limitations.


     Discussion;

     After September 30, 1984, projects involving new collector sewers
and  appurtenances (other than small diameter I/A sewers), and major
sewer system rehabilitation (for reasons other than I/I correction),
are  not eligible for grant assistance unless the Governor elects to
use  a specific portion of the State's annual allotment for such
project categories (see Section II.E.3).  If this option is exercised
by the State,  these projects are subject to additional preaward
limitations.

    The review procedures below address each project category and
limitations separately.  However, many State/EPA delegation agreements
include specific details or additional criteria concerning documenta-
tion and justification for new sewers.  The specific details may in-
clude documentation of septic system failures by survey questionnaire
or house-by-house surveys, minimum number of septic system failures
on a block-by-block basis for determining eligibility, continuity
of eligible collection lines, etc.  Where delegation agreements in-
clude this type of detail and where the criteria or procedures do not
conflict with  the grant regulations, they are to be followed.
                             625

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    Review Procedures:

    The reviewer must first verify that the project has been correctly
included on the State's project priority list.  New collector sewers
and major sewer system rehabilitation are two categories of projects
whose eligibility for grant assistance was eliminated after
September 30, 1984.  Such projects may nevertheless be included in
the State's project priority list under certain conditions.  See
Section II.E.3 for a complete discussion of these conditions.

    These procedures do not address the replacement of failed I/A
collection sewers, and are limited to the regulatory requirements for
determining the eligibility of other (non-I/A) collection systems.
After September 30, 1984, collection system projects are eligible for
grant assistance provided that:


    a. the project is for the replacement or major rehabili-
       tation of an existing collection system which was not
       built with Federal funds awarded on or after
       October 18, 1972, and is necessary to the integrity
       and performance of the complete waste treatment system;
       or,


    b. the project is for a new collection system which is
       cost effective and will serve a community in existence
       on October 18, 1972, and:


         i.   the community has sufficient existing or
              planned capacity to treat the collected
              wastes;


         ii.  the bulk (generally two thirds) of the
              expected flow (i.e., the flow from
              existing plus future residential users)
              will be from the resident population
              which existed on October 18, 1972;


         iii. the collection and trunk sewers are sub-
              ject to the same limitations on reserve
              capacity as interceptor sewers  (see
              Item 18 below), except where minimum dia-
              meters  (generally 8 inches) are required
              by State design standards; and
                             626

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        iv.   the grantee provides assurances that
             if grant assistance is awarded, the
             existing population will connect to
             the collection system within a
             reasonable time (as determined by
             the reviewing agency) after project
             completion.

        Re;   40 CFR 35.2116


15.   Preaward Costs

     Purpose;

     Provide grant assistance for the cost of work which was accom-
plished prior to the date of grant award, if such work is normally
accomplished after the award of a Step 3 grant, only if such work has
been approved in advance by the reviewing agency.


    Discussion;

    Where a potential grant applicant requests approval of prelimin-
ary work normally accomplished after the award of a Step 2+3 or a
Step 3 grant, approval may be given by the reviewing agency only in
an emergency or an instance where delay could result in a significant
cost increase, and only after completion of the environmental review
(see Item 12 above).  Examples of the types of preliminary Step 3
3 work which may be approved are:

    a.  procurement of major equipment requiring long lead
        times;


    b.  field testing of I/A technologies (see Section I
        below);


    c.  minor sewer rehabilitation;


    d.  acquisition of eligible land or of an option for
        the purchase of eligible land (see Section H
        below); and


    e.  advance building of minor portions of treatment
        works.
                             627

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    Review Procedures;

    Where the grant application requests EPA participation in the
cost of preaward work which is normally accomplished after the award
of a Step 3 grant, insure that:

        prior written approval by the reviewing agency has
        been given;

        the work is eligible for grant participation; and

        associated procurement actions satisfy the require-
        ments of 40 CFR Part 33, or in the case of acquisi-
        tion of eligible real property, 40 CFR Part 4.


     Where approval of preaward costs is given by the reviewing
agency, the potential grant applicant should be advised in writing
that: approval is not an actual nor implied commitment of grant
assistance (i.e., that the applicant proceeds at its own risk);, and
that if a grant is awarded, this preaward work will be eligible only
if it was procured in accordance with 40 CFR Part 33 for services,
equipment, or supplies, or 40 CFR Parts 4 and 30 for the acquisition
of real property.

    This limitation on preaward costs applies equally to Step 2+3
and Step 3 grants, but concerns only work which is normally accom-
plished after the award of a Step 3 grant.  Work which is normally
accomplished before the award of a Step 3 grant is classified as
design-related work,  whose cost is not directly eligible for grant
assistance, but instead is expected to be defrayed by the allowance
for facilities planning and/or design.


Re:  40 CFR 35.2118;  40 CFR Part 35, Subpart I, Appendix A,
     Paragraph A.2.a, and Appendix B, Paragraph 3


16.  Infiltration and Inflow

     This limitation on award is applicable only to grant applicants
with existing sewer systems.  Before grant award, the grant applicant
must demonstrate that the existing sewer system is not or will not be
subject to excessive I/I.

    The analysis of the sewer system to determine the presence of
excessive or nonexcessive I/I is performed during the facilities
planning and is used to establish present and future flows.  If a
                             628

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preliminary investigation indicates the possible presence of
excessive I/I, the grant applicant may conduct further investiga-
tions, either during facilities planning or concurrent with design.
It  is recommended that as much work as possible be accomplished
during facilities planning, since the results may affect the design.

    Where further sewer system evaluation confirms the presence of
excessive I/I, the grant applicant will propose a sewer system
rehabilitation program and prepare the necessary contract documents,
including construction drawings and specifications.  During the
application review, it is necessary to determine that where needed,
a rehabilitation program has been proposed. Refer to Section IV.C.4.3
for a more complete discussion of I/I.

    The documents supporting a grant application must demonstrate
that:
    a.  the sewer system discharging into the proposed treat-
        ment works is not, or will not be, subject to excessive
        I/I; and

    b.  where excessive I/I is present, a program for sewer
        system rehabilitation has been proposed, and is des-
        cribed in the contract documents, including plans and
        specifications.

    Where total flow, including infiltration, does not significantly
exceed 120 gallons per capita per day (gpcd), the grant applicant may
propose and the reviewing agency may approve the project without
further study.  in this case, however, the allowable project cost will
be limited to the cost of the treatment works with a capacity of
120 gpcd for the existing residential population.

Re;  40 CFR 35 . 2030(b)(4), 35.2120; 40 CFR Part 35,
         Subpart I, Appendix A, Paragraph G
17.  User Charge System and Sewer Use Ordinance

     A UC system and a proposed or existing SUO must be approved by
the reviewing agency before grant award.  The UC and SUO need not be
enacted as a municipal ordinance by the grant applicant at the time
of grant application, but must satisfy the content requirements des-
cribed in Sections V.E and V.F.  The UC system and the OM&R costs
contained therein must be consistent with the grant applicant's draft
plan of operation (see Item 8 above), and must support the applicant's
demonstration of financial and managerial capability (see Item 4 above)
                             629

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    If the applicant has a UC or SUO in effect, the grant applica-
tion must demonstrate that the UC or SUO meets all EPA. requirements
and is beinq enforced

Re   40 CFR 35-2122, 35.2130, 35-2140
18 •

     Purpose

     Insure that qrant assistance is awarded after September 30, 1984,
only for the wastewater treatment, transportation, aid disposal cap-
city which is required to serve existing needs.
    The 1981 CWA amendments restrict qrant assistance awarded after
September 30, 1984 to the capacity necessary to serve existing needs
on the date of grant approval, or on September 30, 1990, whichever is
earl^ier.  Two problems arise for proposed projects which include
reserve capacity (i.e., capacity not needed to serve existing needs).
The first concerns establishing the capacity which represents existing
needs on the date of qrant award, and the second concerns apportioning
costs between allowable and total treatment works capacity.  This dis-
cussion does not include the allowable reserve capacity for phased or
segmented treatment works (see Item 10 above).

    In general, a facilities plan will have been prepared one year or
more before the estimated date of grant award,  Tn preparing the
facilities plan, the qrant applicant is required to consider waste-
water treatment needs over a 20 year planning period.  In so doing,
the facilities plan may have estimated wastewater flows for 5 year
increments, or may have used a straight line projection between the
present (at the time of facilities plan preparation) and the esti-
mated future flow (at the end of the 20 year planning period).  In
either case, the existing needs on the date of grant award may be
estimated by noting the elapsed time between the date1 used for the
"present" flow in the facilities plan and date of grant award.  Care
must be exercised in using this procedure, however, to insure that
the capacity projections are reasonable and are not unduly distorted,
either by a large future residential or industrial development, or by
a sewer connection or development ban which has reduced or eliminated
the projected growth in wastewater volume.
                             630

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    For communities with existing treatment facilities, it will
usually be possible for the grant applicant to provide the actual
current flow data, based on current records at the treatment
plant, adjusted to exclude excessive I/I.  Anticipated flows from
failing onsite systems may be added to this figure.  In the case of
communities without an existing centralized treatment plant, existing
flow is based on the population presently served by onsite systems
which are proposed to be connected to the project.  For estimating
purposes, a figure of 70 gpcd should usually be used (see
Section IV.C.5.6), plus a reasonable allowance for infiltration.
In no case, however, may the anticipated domestic flows exceed
120 gpcd, excluding inflow during storm events (see Section IV.
C.4.3).  Estimates of existing flow must be based on studies
which have been updated to the estimated date of grant award.

    Once the capacity required to serve the existing needs has been
established, it is necessary to determine a cost ratio, using the
estimated building cost of the treatment works necessary to serve the
existing needs, divided by the estimated building cost for the pro-
posed project.  The preferred method for determining the cost ratio
involves the use of the Computer Assisted Procedure for Design and
Evaluation of Wastewater Treatment Systems (CAPDET).  Using CAPDET,
design and process parameters are entered into the program, and the
estimated cost of building the project is computed.  By using the
existing needs and the total design capacity, two cost estimates may
be produced.  The ratio of the cost estimates is applied to the total
project cost to determine the allowable cost.

    The recommended procedure for determining the cost ratio for
sewers and pumping stations is identical to that described above,
except that where the existing need could be met by sewers smaller
than the minimum s^ize required by the State,__the reguired minimum
size (usually 8 inches) will constitute the capacity required to
serve the existing needs.

    When using CAPDET, it is important to note that while the cost
estimates generated by CAPDET may not agree with the design engineer's
cost estimates, the ratio of the two CAPDET cost estimates is reason-
ably accurate and therefore provides a fair method for determining
allowable costs.  The cost ratio is used to apportion costs for
building the treatment works and other associated allowable costs
(i.e., construction, contingency allowance, engineering, legal, fis-
cal, administrative, future change orders, etc.).

    The limitation on reserve capacity may have an effect on existing
Step 1 and Step 2 projects.  Grantees may feel that they are entitled
to a grant increase because of the necessity to reevaluate their pro-
jects due to these limitations.  The criteria discussed in Sections
VIII.B.3 and 5 are to be used in determining if a grant increase is
warranted.
                             631                         TM 86-1

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Review Procedures:

a.  Grant assistance awarded after September 30, 1984 roust be
    limited to the capacity required to serve existing needs
    (including existing needs of residential, commercial,
    industrial, and other users) on the date of grant award,
    or on September 30, 1990, whichever is ejif-LifiE •  To
    establish the eligible project cost:
      i.    review the facilities plan to determine if
            population and/or capacity projections are
            provided over the 20 year planning period,
            which will allow a reasonable estimate of
            the capacity required to serve existing
            needs;

      ii.   insure that the required capacity is
            reasonable, does not include excessive
            I/I, is supported by letters oE intent
            from significant industrial users, and
            has not been distorted, subsequent to
            facilities plan preparation, by events
            such as lower-than-expected population
            or industrial growth, sewer connection
            restrictions, or development bans;

      iii.  in the absence of reasonable data from
            the facilities plan which allows a
            determination of the capacity required
            to serve existing needs, request a
            facilities planning amendment 1:rom the
            grant applicant which, in the case of
            existing facilities, should be based on
            current records at the treatment plant
            adjusted to exclude excessive I/I, and
            if appropriate, to include anticipated
            flows from failing onsite systems which
            will be connected to the proposjed project;

      iv .   determine a cost ratio, using the estimated
            building cost for the capacity required to
            serve the existing needs, divided by the
            estimated building cost for the total pro-
            posed project, with cost estimcites from
            CAPDET or the sewer cost curves;;
                         632

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      v.    use the cost ratio to compute the total
            allowable project costs, including
            building, construction contingency,
            engineering, legal, fiscal, and admin-
            istrative;

      vi.   also use the cost ratio to compute the
            allowable costs for approved future
            change orders; and

      vii.  compute the Federal grant share by
            multiplying the allowable project cost
            by the applicable grant percentage (see
            Section L below).


b.  Where the proposed project contains reserve capacity (i.e.,
    capacity beyond that required to serve existing needs),
    the following provisions apply to all projects, including
    phased or segmented projects:

      i.    All incremental costs for capacity beyond that
            required to serve existing needs or in the case
            of phased or segmented projects, beyond that
            allowed under Item 10 above, shall be paid by
            the grant applicant (see item 4 above).  This
            includes change order costs (see Item a.vi above).

      ii.   The actual treatment works to be built (i.e.,
            the entire proposed project) must satisfy
            the NEPA regulations (40 CFR Part 6), as
            well as all other applicable laws and regula-
            tions (see Item 12 above).

      iii.  Plans,  specifications, and cost estimates for
            the entire proposed project must be approved
            by the  reviewing agency.

      iv.   The grant applicant must assure the reviewing
            agency  that it has assessed the financial
            impacts of the entire proposed project, and
            that it has the capability to finance and
            manage  the construction and operation of the
            facilities (see Item 4 above).

      v.     The user charge system must apply to  the entire
            serve area.
                         633

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          vi.   The grantee must execute a grant agree-
                ment which includes a grant condition
                which releases the Federal Government
                from any claim for any of the costs of
                construction due to the additional capa-
                city (see Section M.5 below).

    Re:  40 CFR 35.2030(b)(3)(ii), 35.2123(c) and (d)


19.   Industrial and Federal Facilities

    Grant assistance is not to include the costs of sewers con-
structed exclusively or almost exclusively to serve industrial users,
nor may the treatment facilities include process units for the re-
moval of pollutants from industrial discharges unless the grant appli-
cant i«r required to remove such pollutants from nonindustrial dis-
charges.  Grant assistance also may not include costs for the trans-
port and treatment of wastes from a Federal facility if the wastes
are more than 250,000 gallons per day or constitute over five percent
of the design flow, whichever is less.  Refer to Section V.I for a
complete discussion of industrial and Federal discharges.

    For projects which will treat industrial wastes, the grant appli-
cant must submit letters of intent from significant industrial users,
and from all industries intending to increase their flows or to re-
locate in the area.  Such letters must document capacity needs and
wastewater characteristics for existing and projected flows.

Re:  40 CFR 35.2030(b)(3)(ii), 35.2125, 35.2127
E.  ADDITIONAL CONSIDERATIONS FOR AWARD

    The items listed below are additional considerations which must
be satisfied, where applicable, prior to grant award. Some of the
items are considered limitations on award, but are listed separa-
tely here because they are not applicable to all projects.


1.  Small Alternative Wastewater Systems

    A small alternative wastewater system (SAWS) is characterized
by onsite treatment and disposal, and/or alternative conveyance
systems (i.e., pressure, vacuum, or small diameter gravity sewers).
A SAWf project qualifies as an alternative technology, and may there-
fore receive a higher Federal grant share.  A SAWS may be privately
                             634

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or publicly owned, but the responsibility for management and opera-
tion of the system must reside with the grant applicant.  Where a
SAWS is proposed, it is necessary to insure that the grant applicant
recognizes and accepts the managerial responsibilities which are
unique to these projects.


    Review Procedures;

    The review procedures  below assume that a SAWS was selected as
the cost effective alternative in the facilities plan.  Much of the
information necessary to satisfy the limitations on award described
below may be found in the  facilities plan or the applicant's demon-
stration of financial and  managerial capability.  The reviewing
agency is to insure that a SAWS project satisfies the following
conditions:


        a.  the limitations on award described in Section D
            above;


        b.  as an alternative technology, is eligible for
            an additional  Federal grant share of 20 percent,
            but not more than a total of 75 percent of the
            allowable costs;


        c.  must serve communities with a population of 3500
            or less, or highly dispersed sections of larger
            municipalities;


        d.  may be either  a privately owned treatment works
            serving one or more principal residences (re-
            quires habitation by a family or household for
            at least 51 percent of the year, and does not
            include second homes or vacation residences) or
            small commercial establishments (restaurants,
            hotels, stores, filling stations, recreational
            facilities, churches, schools, hospitals, or
            charitable organizations with dry weather waste-
            water flows less than 25,000 gallons per day),
            and/or a publicly owned treatment works (POTW);


        e.  for a privately owned individual system, the
            facilities plan must demonstrate that the total
            cost and environmental impact will be less than
            that of a conventional system;
                             635

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f.   the grant applicant must certify that each prin-
    cipal residence or small commercial establish-
    ment, for which grant assistance is requested,
    was constructed and inhabited or in use on or
    before December 27, 1977;

g.   the application must be on behalf of a number
    of individual units to be served in the facil-
    ities planning area;

h.   where privately owned individual systems are
    included in the project, the grant applicant
    must certify that public ownership is not
    feasible; must list the reasons for this,
    which must be acceptable to the reviewing
    agency; and must agree to provide access to
    the systems at all reasonable times for such
    purposes as inspection, monitoring, building,
    operation, rehabilitation, and replacement;

i.   the grant applicant must certify that the pro-
    posed facilities will be properly operated and
    maintained; and

j.   the draft plan of operation must address the
    development of an adequate O&M program for:

       i.    physical inspection of all onsite
            systems in the planning area at
            least every 3 years, or more
            frequently if necessary to insure
            proper operation;

       ii.   pumpouts, renovation, and replace-
            ment as needed;

       iii.  routine maintenance and servicing
            of mechanical and electrical com-
            ponents;

       iv.    testing of  selected existing pot-
            able water wells  once a year;

       v.    additional monitoring of water
            supply aquifers,  if appropriate,
            where  substantial  numbers  of on-
            site systems  exist; and
                      636

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              vi.   a UC system reflective of the
                    system's OM&R costs.


        Re:  40 CFR 35.2005(b)(31),  (b)(39), and (b)(40),
             35.2032(b), 35.2034, 35.2110


2 •  Marrne Discharqe^ Waiver Applicants

    Section 301(h) of the CWA allows grant applicants which dis-
charge into marine waters to apply for a waiver from EPA's secondary
treatment requirements.   The application for the waiver must be
accompanied by substantial documentation to support the request.
Waiver applications require special  reviews and considerations beyond
the scope of this Handbook.  However, if the marine discharge waiver
is approved the project design must  include provisions for possible
future additions of treatment processes or techniques to meet
secondary treatment requirements.  Such provisions may include suffi-
cient land for expansion, stubs in piping to allow future connections,
arrangement of unit processes or piping to accommodate future pro-
cesses, etc.

    Re:  40 CFR 35.2112; 40 CFR Part 125, Subpart G


3.  innovative or Alternative Technology Recpnfirmation

    While not specifically required  by EPA regulations, the review of
the grant application and supporting documents affords an opportunity
to reconfirm or revise earlier decisions concerning the classification
of a project or project components as I/A technology.  In general, a
preliminary classification of a project or its components as I/A
technology will usually be made on the basis of information contained
in the facilities plan.   This classification should be confirmed
prior to grant award.  Refer to Section IV.D.6.9 for a discussion of
I/A technology.


4.  Pretreatment

    A project receiving  grant assistance must not include components
for the control or removal of pollutants introduced into the treat-
ment works by industrial users, unless the grant applicant is re-
quired to remove these same pollutants from wastes introduced by non-
industrial users.  An approvable SUO must prohibit the introduction
of wastewater into the treatment works which contains toxics or other
pollutants in amounts or concentrations that endanger public safety or
the physical integrity of the treatment works, cause violations of
                             637

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effluent or water quality limitations,  or preclude the selection
of the cost effective alternative for wastewater treatment and
sludge disposal.

    Grant applicants who presently treat or anticipate treating
industrial wastewaters should have evaluated the quantity and
character of the wastes and,  where appropriate,  have established
a pretreatment program which  satisfies the requirements of EPA's
pretreatment regulations (40  CFR Part 403), and  which will insure
compliance with the grantee's NPDES or State Pollutant Discharge
Elimination System (SPDES)  permit.  Refer to Section IV.E.2 for a
more extensive discussion of  pretreatment.

    Review Procedures;

    At the time of grant application review, insure that:

    a.  where applicable, the grant applicant has developed
        a pretreatment program in accordance with 40 CFR
        Part 403;

    b.  estimated project costs associated with pretreatment
        are allowable for grant participation and necessary
        for implementation of the pretreatment program;

    c.  the pretreatment program will insure compliance
        with the grantee's NPDES or SPDES permit.

    d_.  where applicable, the pretreatment program develop^
        roent schedule is incorporated into the project
        schedule.


    Re:  40 CFR 35.2125(b)(2), 35.2130; 40 CFR Part 35,
         Subpart I, Appendix A, Paragraph F


5.  Force Account

    Purpose;

    Allow grantees to perform project work using  their own employees
under certain circumstances.

    Discussion;

    While generally  not  encouraged by EPA, grant  applicants may use
their own employees  or equipment  for construction or construction
related activities (e.g., resident inspection services).  This use
of  in-house forces is frequently  called force account work.   When
                             638                      TM 86-1

-------
proposed, and where the costs will exceed $25,000, it is necessary
for the grantee to obtain prior approval from the reviewing agency.
The reviewing agency may approve force account work as an allowable
project cost provided the conditions described in the review pro-
cedures below are satisfied.  There are no restrictions on the use
of force account work for facilities planning, design, or design-
related work which is accomplished under an allowance (see
Section lli.D.B.c) rather than a Step 1 or Step 2 grant.

    Review Procedures;

    a.  The reviewing agency may approve force account construction
        or construction related work provided that:

          i.   the grant applicant demonstrates that
               municipal employees can complete the work
               competently and more economically than
               contractors; or

         ii.   an emergency circumstance arises which
               makes the use of force account necessary.

    b.  Where force account work is approved by the reviewing agency,
        the grant applicant should be advised that force account
        costs are subject to audit, and that records or documents
        supporting such costs must be maintained. Substantiating
        records must include:

          i.   time sheets approved and signed by a
               responsible supervisor, accounting for
               all hours worked during the period,
               showing separately the hours worked on
               the EPA funded project and on all other
               activities; and

          ii.  documentation of an approved indirect cost
               rate (see Section IX.F.2.d.ii) where such
               burden rate is to be applied to force account
               work.

        Re;  40 CFR 30.520


6.   Intergovernmental Review

    Under 40 CFR Part 29, States are encouraged to establish a State
process, which is the framework under which States and local officials
carry out intergovernmental review of proposed projects.  The State
process replaces the  clearinghouse review process previously required
                             639

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by Office of Management and Budget (OMB) Circular A-95 (frequently
called A-95 review),  and allows States to select the EPA programs
which will be subject to intergovernmental review.

    The regulations governing the establishment of the State process
are designed to allow the States considerable flexibility in estab-
lishing procedures, while still insuring that proposed projects re-
ceive adequate review by concerned or interested parties and agencies,
and that these parties and agencies are provided an opportunity to
comment on proposed projects.  Because the details of the State pro-
cess will vary from State to State, only general review procedures
are described below.

    Based on the intergovernmental review regulations and the State
process developed for a specific State, determine if the construction
grants program is subject to an intergovernmental review, and if so,
verify that the grant applicant has followed the specific procedures
and requirements of the State process, and that any problems have been
satisfactorily resolved.


Re:  40 CFR Part 29;  40 CFR 35.2040(b)(2)
7.  Procurement of Professional Services

    Procurement of professional services (e.g., engineering, construc-
tion management, legal, accounting, land appraisel, etc.) should be
undertaken only after EPA reviews the completed "Procurement System
Certification"  (EPA Form 5700-48).  Note that the review of the
"Procurement System Certification" may not be delegated to State re-
viewing agencies.  If the grant applicant procures professional ser-
vices before grant award, the costs associated with the procurement
action and any work performed under the subagreement prior to grant
award are unallowable for grant participation (see Section IX.B.S.e),
unless approved as a preaward cost (see Section D.15 above).  How-
ever, if this work is classified as facilities planning or design work,
it may be defrayed in part by an allowance for facilities planning
and/or design (see Section III.E), or may be an eligible cost under an
existing Step 1 or Step 2 grant.  Preapplication review of the  "Pro-
curement System Certification"  is encouraged, and is described  in
Section VII.B.I.


Re:  40 CFR 33.001(g), 33.110
                              640

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8.  General Grant Conditions

    Along with the demonstration that the grant applicant has the
financial and managerial capability to build and operate the pro-
posed treatment works, the grant applicant is required to demonstrate
its ability to comply with 40 CFR Part 30.

    Among other things, 40 CFR Part 30 addresses the requirements for
a grant application, payments, project management,  deviations,
etc.  At the time of grant application review, particular attention
should be given to property management standards and compliance with
other Federal laws.  Compliance with some Federal laws will be  satis-
fied initially by including the "Labor Standards Provisions for
Federally Assisted Construction Contracts" (EPA Form 5720-4) in the
contract documents.  Compliance with other Federal  laws will also be
fulfilled initially by the grant applicant's "assurance of compliance"
in the grant application form (see Section C.I above).  The review
procedures below highlight some of the requirements from the general
grant regulations which may require special consideration during appli-
cation review.

    Where applicable, insure that the grant applicant has or will have
the ability to fulfill the general grant requirements listed below:


    a.  property management standards;

    Re;  40 CFR 30.530 through 30.537


    b.  compliance with the Flood Disaster Protection Act
        (if the proposed project involves construction or
        property acquisition in a special flood hazard area
        and if the project is located in a community partic-
        ipating in the National Flood Insurance Program,  the
        grant applicant must purchase flood insurance as  a
        a condition of receiving grant assistance);

    Re:  40 CFR 30.600(b)


    c.  the grant applicant may not propose the performance
        of any work on the proposed project by a
        facility on EPA's  List of Violating Facilities,
        which includes facilities which have violated either
        the Clean Air Act  or the CWA;

    Re:  40 CFR 30.600(c) and (d)
                             641

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d.  discrimination on the grounds of race,  color,
    national origin, age, sex, and handicap is pro-
    hibited, and the grant applicant is required to
    submit a certification of non-discrimination
    (EPA Form 4700-4) with the grant application;

Re; 40 CFR 7.8(b), 30.600(d) through (g)
e.  compliance with the Uniform Relocation Assistance
    and Real Property Acquisition Policies Act, whether
    or not the real property is eligible for grant
    assistance (see Section VI.H).

Re: 40 CFR 30.600(i)
f.  if the proposed project will benefit Indians,
    compliance with the Indian Self-Determination and
    Education Assistance Act, which requires that
    Indians be given preference in training and employ-
    ment opportunities;

Re: 40 CFR 30.600(j)
g.  compliance with the Hatch Act, which requires State
    and local government employees to comply with re-
    strictions on political activities if their prin-
    cipal employment activities are funded in whole or
    part by Federal Assistance;

Re: 40 CFR 30.600(k)
h.  compliance with the Safe Drinking Water Act, which
    prohibits EPA grant assistance if the proposed pro-
    ject may contaminate a sole source aquifer which
    will result in a significant hazard to public
    health; and

Re: 40 CFR 30.600(1)
i.  compliance with the reporting requirements for MBE/WBE
    utilization (see Sections B.7.E and D.5 above).

Re: 40 CFR 35.2104(d)
                         642

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F.  STEP 2+3 GRANTS

    Purpose;

    Provide grant assistance for smaller projects  (meeting specific
size and cost limitations) after completion of facilities planning
but prior to the completion of design.


    Discussion;

    Grant assistance may be provided to a community with a popula-
tions of 25,000 or less, for a project with an estimated building
cost of $8 million or less, prior to the completion of the design
work (i.e., a Step 2+3 grant).  The grant is based on the estimated
allowable costs, derived from the facilities plan, plus the appro-
priate allowance for facilities planning and/or design.  The pro-
cedure assists smaller communities in financing their design costs
and provides assurance that grant funds will be available (i.e.,
funds have been obligated) for building the project, assuming
successful completion of the design and the satisfaction of all other
requirements.

    The review procedures below describe the conditions which must
be satisfied before a Step 2+3 grant can be awarded.

    Review Procedures;

1.  Qualifications

    Applicant and project qualifications for Step 2+3 grant award
include:

    a.   the population of the applicant's municipality is
        25,000 or less, according to the most recent U.S.
        Census;

    b.   the total building cost is estimated to be $8 million
        or less; and

    c.   the project is not for a treatment works phase or
        segment.


2.  Application Contents

    The application package for a Step 2+3 grant must include:

    a.   application,  using EPA Form 5700-32 (see
        Section C.I above);
                             643

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    b.  facilities plan (see Section C.2 above);

    c.  State certification of adequate public participa-
        tion (see Section C.3 above);

    d.  notification of any previous advance of allowance
        or Step 1 grant received (see Section C.4 above);

    e.  evidence of compliance with all applicable limita-
        tions on award described in Section D above, except
        draft plan of operation, intermunicipal service
        agreement, UC system, and SUO; and

    f.  evidence of compliance with all applicable addi-
        tional considerations for award described in
        Section E above.

3.   Deferred Provisions

    During the course of  a Step 2+3 project, the grantee is required
to submit the following documents to the reviewing agency:

    a.  prior to initiating action to acquire eligible
        real property, a  plat which shows the legal
        description of the property to be acquired, a
        preliminary layout of the distribution and
        drainage systems, and an explanation of the
        intended method of acquiring the real property
        (see Section H below) and

    b.  before initiating a procurement action for building
        the project (i.e., advertising for bids):

          i.    contract  documents, including plans
                and specification (see Section C.5
                above);

          ii.   a project schedule (see Section C.6
                above);

          iii.  a draft plan of operation (see Section D.8
                above);

          iv.   an executed intermunicipal service agree-
                ment (see Section D.9 above);

          v.    a UC system (see Section D.17 above); and

          vi.   an SUO (see Section D.17 above).

    Re:    40 CFR 35.2040(a), 35.2109, 35.2202
                             644

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G.  COMBINED SEWER OVERFLOW GRANTS

    Purpose:

    Award grants to CSO projects which are designed to restore uses
of the receiving waters in priority water quality areas which have
been impaired by the impact of CSOs.


    Discussion;

    The 1981 CWA amendments and the implementing regulations make a
distinction between marine CSO and nonmarine CSO projects.  The dis-
tinction is primarily related to the source of funding for such pro-
jects and the corresponding regulatory requirements which must be
satisfied prior to grant award.  The most significant difference in
regulatory requirements, depending on the source of funding, is
whether or not the State must provide a special demonstration that
the proposed CSO project is necessary to restore impaired uses of the
receiving waters.

    Procedures;

1.  Source of Funds

    Three potential funding sources for CSO projects are available:


    a.  State's Regular Allotment

        After September 30, 1984, the Governor may include in
    the State's priority system a category of projects needed
    to correct CSOs which impair water uses in priority water
    quality areas.  Such projects require a special demonstra-
    tion as described in Item 2a below.  Funds from the State's
    regular allotment may be used only for nonmarine CSO pro-
    jects.

    Re:  40 CFR 35.2015(b)(2)(iv), 35.2024


    b.  Governor's Discretionary Set-aside

        After September 30, 1984, up to 20 percent of a State's
    regular allotment, at the discretion of the Governor, may
    be used to fund categories of projects which were previously
    eligible for grant assistance before this date.  Among the
    previous categories of projects is the correction of CSOs,
    either marine or nonmarine.  For CSO projects funded from the
                             645

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    Governor's discretionary set-aside, the State is not
    required to provide the special demonstration described
    in Item 2a below.   However, this source of CSO funding
    is subject to certain restrictions, as explained in
    Section II.E.3.

    Re:  40 CFR 35.2015(b)(2)(iii), 35.2024
    c.   Separate Appropriation for Marine Projects

        After September 30, 1982, marine CSO projects may be
    funded through a separate Congressional appropriation.
    Unlike other construction grant appropriations, funds to
    be  used for marine CSO projects are not allotted to each
    State, but instead are administered at EPA headquarters.
    Hence, proposed projects are subject to a national (rather
    than State) priority system.  Projects awarded grant assist-
    ance using the marine CSO fund are to address impaired uses
    or  public health risks in priority water quality areas in
    marine bays and estuaries caused by the impacts of CSOs.
    These projects require a special demonstration as described
    in  Item 2c below.

    Re:  40 CFR 35.2024(b)
2.   Project Requirements

    The regulatory provisions which must be satisfied for CSO pro-
jects depend on the source of the funds which will be used for
providing grant assistance:


    a.   State's Regular Allotment

        After September 30, 1984, nonmarine CSO projects
    may be awarded grant assistance from the State's regular
    allotment provided that:


        i.    the Governor has included this category
              of projects in the State's priority system;

        ii.   the specific project is within the fundable
              range on the State's project priority list;
                             646

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    iii.   the grant application includes the information in
          Section C above, (i.e., facilities plan, plans and
          specifications, etc.), and satisfies the applicable
          limitations on award (see Section D above), the
          applicable additional considerations for award (see
          Section E above), the EPA procurement requirements
          (see Sections VII.B through VII.F), and all other
          applicable wastewater treatment project requirements.

    iv.   the State has demonstrated to EPA that the water
          quality goals of the CWA will not be achieved in
          a priority water quality area without correcting
          the CSO, and specifically that, at a minimum:

            - significant usage of the water for fishing
              and swimming will not be possible without
              the proposed project; and

            - the project will result in substantial
              restoration of an existing impaired use.


    The State may, at its discretion, use the marine CSO guidance
(see Item c below) in preparing a demonstration for a nonmarine
CSO project, except that this demonstration would address fishing
rather than shellfishing;


Re:  40 CFR 35. 2015 ( b) ( 2) ( iv) , 35.2024U)


b.  Governor's Piseretionary Set-aside

    After September 30, 1984, marine or nonmarine CSO projects
may be awarded grant assistance from the Governor's discretion-
ary set-aside funds, provided that:

    i.    the Governor has included this category of
          projects in the State's priority system
          (see Item l.b above);

    ii.   the specific project is within the fundable
          range on the State's project priority list;

    iii.   the grant application includes the informa-
          tion described in Item a.iii above; and
                         647

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    iv.   the project falls within the 25 percent
          limitation on "sewer projects" described
          in Section II.E.3.

    The State is not required to provide a special demonstra-
tion of project need beyond that required as a routine part
of facilities planning.  If the need for the project can be
demonstrated as described in Item 2.a.iv above, it would be
eligible for funding from the State's regular allotment, and
would not be subject to the 25 percent limitation described
in Section II.E.3.

Re:  40 CFR 35.2015(b)(2)(iii)
c.  Separate Appropriation for Marine Projects

    After September 30, 1982, marine CSO projects may be awarded
grant assistance from a separate Congressional appropriation.
To be eligible for grant assistance, such projects must meet all
of the following requirements:

    i.    Funds must have been appropriated for
          the marine CSO fund and must be avail-
          able for obligation.

    ii.   The project must satisfy the priority
          criteria established by EPA, which are
          based on:

            - the extent of water use benefits,
              including swimming and shell-
              fishing, that would result from the
              project;

            - the relationship of water quality
              improvements to project costs; and


            - the national and regional signifi-
              cance of the project.

          Re: 40 CFR 35.2024(b)(2)
     iii.  The State must demonstrate  (see  the
          guidance referenced below for  a  tech-
          nical discussion of this demonstration)
          to EPA  that  the proposed project addresses
          impaired uses or public health risks  in
                          648

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IV.
priority water quality areas of marine bays
or estuaries which are due to the impacts
of the CSO, and specifically that, at a
minimum:

  -  significant usage of the water for
     shellfishing and swimming will not
     be possible without the proposed
     project; and

  -  the proposed project will result in
     substantial restoration of an
     existing impaired use.

 Re: 40 CFR 35.2024(b)(2)


The project must satisfy all applicable
limitations on award, grant conditions,
Federal grant share provisions, and
allowable cost provisions, except for:


     allotment and reallotment
     (see Sections II.E.2 and II.E.4);

     State priority system and project
     priority list (see Section II.E.3);

     reserves and reallotment of reserves
     (see Section II.E.4);

     advances of allowance to potential
     grant applicants (see Sections
     II.E.4.6, III.D.3.C, III.E, VI.K,
     and IX.B.8.C);

     review of grant applications and
     priority determinations (see
     Sections VI.M.I through VI.M.3);
     and

     Step 2+3 projects (see Section VI.F).

  Re: 40 CFR 35.2024(b)(4)
                     649

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v.    Two regulatory provisions for marine CSO
      projects vary slightly from those for other
      construction grant projects:

           final plans and specifications may,
           but need not, accompany the grant
           application; however, the grant
           applicant must commit itself to
           providing them by a date set by
           the reviewing agency; and

           if the proposed project is a phase
           or segment described in the
           facilities plan, the criteria used
           to demonstrate the need for the
           project (see Item ii above) must be
           applied to the entire facilities
           plan proposal and to each segment
           proposed for funding.

      Re:  40 CFR 35.2024(b)(3)
vi.   Marine CSO project applications and supporting
      documents are submitted to the State by the
      grant applicant.  The State reviews the pro-
      ject, prepares the special demonstration des-
      cribed in Item iii above, and submits the
      project to the EPA Regional Office.  The
      Regional Office determines whether all Federal
      requirements have been met, completes the
      environmental review, prepares a statement of
      regional and national significance, determines
      the eligibility of the project for considera-
      tion of funding, and submits the required
      information to EPA Headquarters.

vii.  Once a year, EPA Headquarters will prepare a
      priority list, based on the criteria in
      Item ii above, for proposed marine CSO pro-
      jects .

viii. On the basis of the priority list described
      in Item vii above, EPA headquarters will
      provide obligating authority for grant award
      to the appropriate EPA Regional Office.
                     650

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        Re;  40 CFR 35.2024(b),  35.2040(f);  EPA publication,
            "Guidance for the Preparation and Review of
            Applications, Special Fund for Abatement of
            Combined Sewer Overflow Pollution in Marine
            Bays and Estuaries (The Marine CSO Fund),"
            dated January 1984

H.  LAND ACQUISITION GRANTS

    Purpose:

    Provide grant assistance for the acquisition of real property
(i.e., land) which will be an integral part of the treatment process
or provide for ultimate disposal of residuals and assure grantee
compliance with land acquisition regulations for all land acquired
for the project.

    Discussion;

    During facilities planning, the grant applicant will have eval-
uated various treatment alternatives, including land application of
wastewater or sludge, and selected the cost effective alternative.
Land associated with the proposed project may already be owned by the
applicant, may be available for lease or purchase, or may be avail-
able for use without payment. Since most acquisitions are fee simple
purchases of eligible land, this section will generally deal with
that acquisition method.  Other types of acquisitions methods for
eligible land  (e.g., long-term lease, permanent easements) are also
grant eligible and should be considered where appropriate.  Regard-
less of the acquisition method, acquisition must be accomplished in
accordance with the Uniform Relocation Assistance and Real Property
Acquisition Policies Act of 1970 (The Uniform Act) and EPA's imple-
menting regulations, 40 CFR Part 4. The Uniform Act and regulations
are applicable to the acquisition of real property necessary for EPA
assisted projects whether or not the land so acquired is eligible for
grant assistance.  Regardless of the method of acquisition, owners
must be fully  informed by the grantee, in writing, of their rights
under The Uniform Act.  After being  informed of these rights, land-
owners may voluntarily waive their right to an appraisal. Such
waivers should be in writing and include a statement that the land-
owner has read and understood the summary of his rights under The
Uniform Act.

     Arrangements for long-term lease, permanent easement, and use
without payment of the treatment site need to be reviewed to insure
that they are  adequate for the successful construction and operation
of the project  (e.g., that they are  not subject to an expiration or
revocation which would prevent the continuing operation of the
project).


                                                         TM 86-1
                             651                            (85-1)

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    Acquisition of eligible real property may generally be accom-
plished in one of three ways under the construction grants program:

    - under authorization to proceed as a preav/ard cost

    - under a grant solely for land acquisition,  or

    - as a part of the grant for the construction of the project.

    In any of the above situations, the provisions of 40 CFR Part 4
must be satisfied if the land is to be eligible for grant assistance.
40 CFR Part 4 in essence is separated into two parts:

    - requirements for the acquisition of real property, and

    - requirements applicable when persons, businesses or farms
      will be displaced as a result of such acquisition.

    In view of the potentially high costs and legal fees associated
with land acquisition, grant applicants and reviewing agencies
should use personnel experienced in all phases of the acquisition
process, including qualified appraisers.  The reviewing agency
should provide guidance to the grantee in the selection of qualified
appraisers.  For example, the selected appraiser  should; have
experience in appraising property similar to the  subject property;
be familiar with Federal appraisal standards andacceptable pro-
cedures; and, preferably, be affiliated with a professional organi-
zation.  Alist ofprofessional appraisal organizationscanbefound
in Appendix G of CG-85.  In some areas^other Federal agencies main-
tain lists of appraisers experienced in appraisal work for Federal
projects (e.g., General Services Administration,  Corps of Engineers,
Housingand Urban Development and Department of Transportation.

    Note that revised 40 CFR Part4 regulations were issued in late
February 1986 to be effective in May 1986.  Many  ofthe new require-
ments are incorporated herein.  These new requirements are not retro-
active .

    All appraisals must be reviewed.  Review of appraisals must be
conducted by a qualified review appraiser who is  either under con-
tract to the grantee, or an employee of, or under contract to, a
State agency (e.g., transportation department). In some cases, it
may be appropriate to use qualified review appraisers working
for a Federal agency.

    The review procedures below address the highlights of the regula-
tory requirements, but are not a substitute for a detailed review by
professional personnel to insure compliance with 40 CFR Part 4.
Eligibility of land acquisition and associated costs is discussed in
Section IX.D which should be consulted prior to grant award.
                                                         TM 86-1
                             652                           (85-1)

-------
    Because few wastewater construction grant projects result in
displacement, regulatory requirements and recommended management
procedures on this topic are not discussed. Should a displacement
problem arise,  the land acquisition coordinator in the EPA Regional
Office or, as needed/ the Office of Municipal Pollution Control and
provide assistance.


Re:   4.101, 4.102, 4.103, 4.104, 4.108


    Review Procedures;


1.  Grant Application Review

    In reviewing the grant application, the reviewing agency should
determine that;

    a•  only land required directly for treatment works is
        determined to be eligible for cost participation;

    b.  methods less costly than fee-simple acquisition were
        considered;

    c.  the proposed acquisition method provides sufficient
        control for project purposes;

    d.  the proposed acquisition schedule is realistic; and

    e.  projected land purchase and 40 CFR Part 4 compliance
        costs are realistic.


2.  Grant Application Contents

    A grant application which requests funds for the acquisition of
real property must include;

    a.  all applicable information and documents described in
        Sections C through E above, except that grant applications
        solely for the acquisition of real property need not include
        the information described in Item 2 below;

    b.  a plat map which includes the legal description of the pro-
        perty to be acquired as well as other land being acquired
        for project purposes,  in addition, the map should differ-
        entiate between lots which are fully and partially acquired,
        (i.e.,  landholding split by project land acquisition);
                                                          TM 86-1
                             653                            (85-1)

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    c.   a preliminary layout  of the  distribution and  drainage
        system (in lieu of  design and  specifications  if  not
        available, applies  to pre Step 3  authorizations/grants
        only for eligible  land purchases);

    d.   an identification  of  the interest in  real property to be
        acquired (e.g., fee simple purchase,  long-term lease,
        permanent easement) .  If available,  lease agreements must
        be included;

    e.   a copy of the appraisal reports for the  property,  including
        a review appraisal  if conducted by  the grantee;

    f.   information demonstrating that the  project is still cost-
        effective if land  costs significantly exceed  estimates in
        the approved facilities plan;

    g.   assurances that the property will be  used only for the
        purpose for which  it  is purchased,  and  that EPA's  interest
        in the property will  be adequately  reflected  and protected
        in compliance with  all recordation  or registration require-
        ments of applicable local laws on real  property  (see CFR
        Part 30; Item 3.b  and Section  M.5 below);

    h.   information showing funds requested for  land  purchase
        separate from those for 40 CFR Part 4 compliance activities;
        and

    i.   assurances of compliance with  The Uniform Act.

    Re:  40 CFR 30.535, 30.600(1), 35.2040(b)
        40 CFR Part 4, Subpart B


3.  Deferred Provisions

    Grant applications which request funds  solely for land acquisi-
tion need not include information regarding the  following  items
whose submission may be deferred until the  award of grant  assistance
to build the project:

    a.   debarment and suspension (see  Section D.7 above);

    b.   user charge system (see Section V.E and  Section  D.17
        above) ;

    c.   sewer use ordinance (see Section V.F and Section D.17
        above);
                                                         TM 86-1
                             654                           (85-1)

-------
    d.  O&M manual payment limitations (see Section IX.B.5);

    e.  adoption of UC system and SUO (see Sections V.E and
        V.F, and Section D.17 above); and

    f.  final design drawings and specifications.


    Re;  40 CFR 35.2122, 35.2260, 35.2040


4.  Grant Conditions

    Grant awards which include the acquisition of eligible real
property are to include grant conditions (see Section M.5.d below)
stating that:

    a.  real property must not be acquired until the reviewing
        agency has determined, based on documentation submitted
        by the grantee, that the applicable provisions of 40 CFR
        Part 4 have been or will be met;

    b.  consistent with 40 CFR Part 30, the Federal interest in
        the property to be acquired must be protected by the
        inclusion of the following language in the title or other
        recordation instrument:

            "Federal lien:  Federal grant funds have been
            used to purchase this property. The United
            States interest is 	 percent (depending
            on the Federal share at the time of grant award)
            of the proceeds from any subsequent sale or
            current fair market value of the property on the
            date of the transaction which removes it from
            the use for which it was purchased. (See 40 CFR
            30.535(e), revised on September 30, 1983). A lien
            to this effect and extent is hereby asserted."

    £.  all land necessary for the project will be acquired prior
        to the initiation of construction.

    In addition, it is recommended that the grantee provide a
land acquisition management schedule indicating key activities
and target dates.


Re:  40 CFR 30.535, 35.2210


5.   Preaward Costs

    Potential grant applicants requesting approval, as a preaward
cost,  of the acquisition of eligible land or of an option for the
purchase of eligible land may receive such approval after completion
of the environmental review (see Section D.12).  In addition, the
reviewing agency should request sufficient information from the


                                                          TM 86-1
                             654A                           (85-1)

-------
applicant, such as that required for grant award in Items 2.b through
2.g above, to insure that grant application requirements will be met
for a subsequent grant.  The approval letter from the reviewing
agency should include notification that the acquisition of real pro-
perty, to be eligible, must be procured in accordance with the appli-
cable provisions of 40 CFR Parts 4 and 30.

    The approval letter should note that these costs will only be
reimbursed if a grant is subsequently made and thus does not repre-
sent a commitment of funds.  Grantees should be advised that certain
costs incurred prior to grant award may not be deemed allowable if
specific authorization for preaward costs was not obtained.   Refer
to Section D.15 above for additional warning language to be  included
in the approval letter.  In order to reduce project costs and main-
tain construction schedules, reviewing agencies may encourage the
early acquisition of real property.


Re: 40 CFR 35.2118

6.  Project Management

    After grant award (or pjre-award authorization), the grantee is
required to manage its acquisition activities :in compliance  with
40 CFR Part 4 regulations and submit to the reviewing agency appro-
priate documentation of such compliance.  Reviewing agencies are
encouraged to;

    a.  provide guidance to grantees on their responsibilities
        to comply with 40 CFR Part 4;

    b.  provide assistance to grantees in the selection of
        appraisers and guidance regarding appropriate level  of
        detail and standards for appraisal work;

    £.  establish procedures for conducting review appraisals;

    d_.  establish minimum standards for project file documenta-
        tion (e.g., checklists, standard letters);

    e_.  establish procedures to assure that site certificates
        are submitted and compliance with 40 CFR Part 4 require-
        ments is documented prior to grant reimbursement; and

    £.  establish procedures for approving amounts of just
        compensation, requiring updated appraisals when necessary
        and conducting administrative settlements to approve
        payments higher than just compensation when negotiated
        purchase is unsuccessful.


Re:  40 CFR 4.102(d), 4.102(g)f 4.102(1), 4.103(b), 4.103(e),
     4.103(f), 4.104.


                             654B                         TM 86-1

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1•   lNNOVATIVE_OR_ALTERNATiyE_TECHNOLOGY FIELD TESTING GRANTS

    Pujrpqse:

    Provide grant assistance for field testing of higher risk I/A
projects which require verification of design parameters.
    Discussion:
    Field testing of I/A projects may be accomplished either as a
preaward cost (see Section D.15 above)  or under a separate grant.
Field testing of: T/A proiects may be requested by the grant
applicant, or may be suggested by the reviewing agency.  Prior
to making a decision concerning I/A field testing, the State I/A
coordinator should discuss the proposed project with the EPA
Regional I/A coordinator, and if necessary, seek the advice of
the I/A support group at EPA's Municipal Environmental Research
Laboratory in Cincinnati, Ohio.

    Field testing of I/A projects is recommended for higher risk
technologies, in order to verify design parameters prior to
building the full scale project.  Field testing is to be practical
and generally small scale, with the objective of verifying per-
formance, refining insufficiently tested design parameters, or
resolving technical uncertainties.  Considerable professional
judgement is required to determine whether the field testing costs
represent a reasonable trade-off in comparison with the corres-
ponding risk of failure of the full scale project if field testing
is omitted.  Project reviewers are encouraged to review the
"Innovative and Alternative Technology Assessment Manual" (MCD-53),
particularly Chapter 4, when making this judgement.  The review
procedures below describe the regulatory requirements for I/A field
testing projects.  Where specific State or EPA Regional procedures
have been developed, they should be followed.

    Review Procedures:

1.  Grant Application

    A grant application which requests funds for I/A field testing
must include:

    a.  all applicable information and documents described
        in Sections C through E above, except that grant
        applications solely for I/A field testing need not
        include the information described in Item 2 below;
        and
                             655

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    b.  a field testing plan, which includes:

          i.   identification, including size,, of all principal
               components to be tested;

          ii.  location of testing facilities in relationship
               to full scale project location;;

          iii. critical design parameters and performance
               variables that are to be verified as the basis
               for I/A determinations;

          iv.  schedules for construction of field testing
               facilities and duration of proposed testing;

          v.   capital and O&M cost estimate of field testing
               facilities, with documentation of cost effective-
               ness of field testing approach; and

          vi.  design drawings,  process flow diagrams, equipment
               specifications,  and related engineering data and
               information,  sufficient to describe the overall
               design and proposed performance of the field
               testing facility.

    Re;  40 CFR 35.2040(e)


2.  Deferred Provisions

    Grant applications which request funds solely for I/A field
testing need not include information regarding the following items,
whose submission may be deferred  until the award of grant assistance
to build the approved full scale  project:

    a.  debarment  and suspension  (see  Section D.7 above);

    b.  draft plan of operation  (see Section D.8 above);

    c.  UC system  (see Section V.E,  and Section D.17 above.);

    d.  SUO (see Section V.F,  and Section  D.17 above);

    e.  O&M manual payment limitations (see Section IX.B.5); and

    f.  adoption of UC system and SUO  (see Section V.E and V.F,
        and Section D.17 above).


    Re;  40 CFR 35.2122,  35,2262
                             656                     TM 86-1

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3.  Grant Conditions

    Grant awards which include I/A field testing are to include
grant conditions which require the grantee to submit a quality
assurance program and a report which describes the procedure,
cost, results, and conclusions of field testing in accordance
with the schedule contained in the grant agreement (see
Section M.5 below).


Re:  40 CFR 30.302(d)(3),  30.503(f) and (h), 35.2211


4.  Preaward Costs

    Potential grant applicants requesting approval of I/A field
testing as a preaward cost may receive such approval after comple-
tion of the environmental review  (see Section D.12).  The reviewing
agency should obtain  sufficient information from the applicant, such
as that required for  grant award  in Item l.b above, to substantiate
that the I/A  field  testing is warranted and is  likely to satisfy
grant application requirements for a subsequent grant.  The  approval
letter from the reviewing agency  should remind  the applicant that
the procurement of  services, supplies, and materials must comply
with 40 CFR Parts 30  and 33, and  that the acquisition of real pro-
perty must comply with 40 CFR Parts 4 and 30, if such costs  are to
be allowable  for grant participation.  Refer to Section D.15 for
additional warning  language to be  included in the letter.


Re;  40 CFR 35.2118


j.   INNOVATIVE OR ALTERNATIVE TECHNOLOGY MODIFICATION OR
     REPLACEMENT GRANTS

     Purpose;

     Provide grant  assistance  to  fund  100 percent of the allowable
cost of  the modification or replacement  (M/R) of any  project
funded with increased funds under the  I/A technology  provisions
of the CWA and  the  implementing  regulations.

     Discussion;

     The  1977  CWA  amendments introduced  I/A  technology  provisions
into the  construction grants  program.   The  I/A  provisions were
designed  to conserve  resources and reduce costs for wastewater
treatment  projects through  the use of  new or  improved technologies,
which  are  inherently  subject  to  a greater than  normal  risk  of  failure,
As an  incentive for using  I/A technology  and  accepting  this higher
degree  of  risk,  I/A projects  were made  eligible for increased  grant
 funding,  and  for  100  percent  M/R grants in  the  event  of  failure.


                              657

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    The review procedures below address the regulatory and program
guidance provisions applicable to 100 percent M/R grants.  It is to
be noted that I/A projects which received grant assistance after
December 29, 1981 are subject to project performance standards, as
required by the 1981 CWA amendments.

    The reguirements for project performance (40 CFR 35.2218) apply
equally to all projects, including those projects where an I/A funded
process or unit has been identified as the reason, or part of the
reason, preventing the grantee from certifying the project's per-
formance.   When a prospective I/A failure is documented under
40 CFR 35.2032(c), grantees are encouraged to independently remedy
the problem to prevent such failure through minor modifications such
as the corrective action activities described :Ln §35.2218.  Where
such minor modifications are not successful or possible,  the
corrective action analysis required by §35.2218 will be arTTntegral
element of the documentation of an I/A failure which has  occurred
within two-years after initiation of operation of the project.

    One hundred percent M/R grants must be viewed as a one-time
correction for a failed system.  For this reason, innovative
technologies generally should not be used to modify or replace
a failed I/A system.

    Review Procedures;

    Grant  assistance,  either as a grant amendment or a new grant,
to fund 100 percent of the allowable costs (including planning and
design costs)  for the M/R of any I/A project,  may be awarded only
if the reviewing agency determines that:

    a.  the I/A elements of the project have ca.used the
        project, or significant elements of the complete
        waste treatment system of which the project is a
        part,  to fail  to meet the project performance
        standards;

    b.  the failure has significantly increased O&M ex-
        penditures for the project,  or for the complete
        waste treatment system of which the project is a
        part,  or requires significant additional capital
        expenditures for corrective action;

    c.  the failure has occured prior to two years after
        the initiation of operation of the project; and

    d.  the failure is not attributable to negligence on
        the part of any person.
                             658                      TM 86-1

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    The report or documentation necessary to substantiate the above
four items will vary from project to project,  and will depend on the
extent and nature of the failure and the size,  cost and complexity
of the project.  Projects which satisfy Item a through d above are
also required to receive priority certification from the State agency
It should be noted that some alternative technology projects which
received increased grant assistance may have included conventional
components which also received increased funding (e.g., treatment
prior to land application).  It is intended that the conventional
components receive 100 percent M/R funding only if their failure was
caused by an I/A component of the project.

    OMPC and WERL are working jointly on a phased assessment and
advisory procedure to keep State and EPA regional staff apprised
of current developments. Project reviewers should check the status
of 100% M/R activities with their local I/A coordinator when
reviewing projects with I/A technology components.


Re:  40 CFR 35.2032(c)
K.  GRANTS TO STATES FOR ADVANCES OF ALLOWANCE

1.  Defining the State P rogram

    Purpose;

    Provide financial assistance to small communities which would
otherwise be unable to perform planning and/or design work prior to
the award of a Step 2 + 3 or a Step 3 grant.


    Discussion;

    The 1981 CWA amendments provide for an advance of allowance to
certain potential grant applicants.  State agencies are to identify
small communities, as defined by the State, which would be unable to
complete an application for a Step 2+3 or a Step 3 grant (i.e., to
perform facilities planning and/or design work) without such an
advance.  States are also required to reserve a reasonable portion
of their annual allotment, up to 10 percent, for advances of allow-
ance, unless this requirement is waived by EPA (see Section II.E.4.e)

    The amount of funds provided to potential grant applicants is
computed in accordance with 40 CFR Part 35, Subpart I, Appendix B.
Note that the maximum amount of the advance is not the allowance,
but is the allowance times the appropriate EPA grant percentage (see
                             659                          TM 86-1

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Sections L.I and L.2 below).  This advance may be less than this
maximum amount, at the discretion of the State.  Also note that
the allowance is based on the estimated allowable building costs,
which do not include other associated Step 3 costs such as
engineering, legal, accounting, etc.

    Unless the total amount of the advance is small and the work
is to be performed in a short period of time (e.g., less than six
months) , it may be advisable to divide the advance into two or more
payments (e.g., one for facilities planning, one at the initiation
of design, and the balance when 50 percent of the design work has
been completed) .

    If Step 2+3 or Step 3 grant assistance is subsequently awarded
to a community which received an advance, the cimount of the advance
is subtracted from the grant amount.  If Step 2+3 or Step 3 grant
assistance is not awarded , the State may seek repayment of the
advance on such terms and conditions as the State may determine.
    Before applying for a grant for advances of allowance, a State
must define the following procedures for the administration of
advances of allowance:
    a>  Qualified Communities

        Advances may be made only to small communities, as
    defined by the State, which would otherwise be unable
    to perform the necessary planning and/or design work.
    The State must?
             define a "small community" (e.g., by
             population size), and
        ii .  set objective criteria by which it will
             determine whether a community would be
             "otherwise unable to perform" (e.g., by
             income per capita in relation to the
             estimated per capita cost of planning
             and/or design) .

    Re: 40 CFR 35.2025(b)(3)
                             660

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b.  Application Procedure

    Application forms and their required contents, as
well as review and approval procedures, must be defined
by the State.  At a minimum, the applicant for an advance
should be required to agree to complete the facilities
planning and/or design work for which the advance is
provided.

Re:  40 CFR 35.2025(b)(1)


c .  Amount of Advance

    The State is to determine the amount of each com-
munity's advance, subject only to the requirement that
the total advance cannot exceed the Federal share of the
estimated allowance (see Section III.E).  The advance can
be equal to this maximum, or lower; the decision as to
whether it should be lower, and if so, how much lower,
must be defined by the State, in language that is objec-
tive and treats all communities equally.

    In most States, all of the anticipated allotment for
the next several years could easily be consumed by high-
priority Step 3 projects which have already been designed.
Since advances in these States would reduce the amount of
money available for high-priority Step 3 projects, some
States may decide to limit each advance to a smaller
amount which would still meet the minimum needs of each
community.

Re:  40 CFR 35.2025(b)(4)
d.  Timing of Payments

    The advance can be paid at any time after the State
approves the community's application for an advance.  The
advance can be paid in one lump sum, or in several partial
payments, depending on the procedures established by the
State.  A State may decide to mandate multiple payments,
since expenses for planning and design are incurred over
a substantial period of time, and the payment of the
maximum allowable advance during the planning stage would
result in most of the funds being advanced long before the
expenses are incurred.
                         661

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         State  requirements  for  the  timing  of  payments  must
     apply  equally  to  all  communities.


     Re:  40  CFR  35.2025(b)(4)


     e.   Repayment  of  Advance

         The  State must define the conditions,  if any,  under
     which  a  municipality  which  never receives  a Step 2+3 or  a
     Step 3 grant would have to  repay an advance of  allowance.
     The  1981 CWA amendments authorize, but do  not require, the
     State  to seek  repayment of  the  advance, "on such terms and
     conditions as  it  may  determine."  The  terms and conditions
     for  repayment may include the collection of interest, at
     the  discretion of the State, as long as all communities
     are  treated equally.

         There  is no Federal requirement for the collection of
     interest,  since once  the State makes an advance to a third
     party, the advance loses its character as  Federal  funds.
     On the other hand, any funds recovered from a municipality
     by the State (advance and/or interest) must be returned  to
     the  grant  account for re-use in advancing  funds to other
     municipalities.   However, interest earned  by the State on
     funds received from EPA but not yet advanced to a munici-
     pality (or recovered  from a municipality but not yet
     advanced to another municipality) may be retained by the
     State for other uses, as specified in 40 CFR 30.526.


     Re:  40  CFR 35.2025(b)(5)


2.  Applying for the  State Grant

     Purpose:

    Award Federal grant funds to the State, for the State to pro-
vide advances of allowance to small communities.


    Discussion;

    To acquire funds for making advances of allowance,  the State
agency applies to EPA for a State grant which will be used for
providing advances to small communities.   The application includes
                             662

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a list of small communities which, in the judgement of the State,
are eligible for the advance.  The application may also include a
request by the State that payments under the grant be sent directly
from EPA to each community, after the State has approved the com-
munity's application from an advance (see Section iX.B.S.c).


    Procedures;

    In order to receive a grant for advances of allowance, a State
must:

    a.  submit an application, using EPA Form 5700-31;


    Re: 40 CFR 35.2040(d)


    b.  define an acceptable program for the administration
        of advances of allowance (see Item 1 above);


    Re: 40 CFR 35.2025(b)


    c.  notify EPA of the basis for the grant amount re-
        quested (normally, by submitting a list of the
        small communities which are expected to receive
        an advance, and the amount of the advance which
        is expected to be provided to each community);
        and


    Re: 40 CFR 35.2040(d)(2)


    d.  include with the application a list of the com-
        munities which received an advance of allowance
        under the previous grant to the State, and the
        amount of the advance received by each community.


    Re: 40 CFR 35.2040(d)(1)
                             663

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L.  FEDERAL GRANT SHARE

    in order to compute the Federal grant share, several factors
must be taken into account.  While the grant applicant will have
computed  its grant request, the grant amount offered may be
different after the application package and supporting documents
have been reviewed.  if the grant to be offered is less than that
requested, the grantee should be contacted to determine if further
clarifying information is available.  The letter forwarding the
grant offer should clearly explain the reason for any difference
in the grant amount.


    Procedures;


1.  Total Allowable Project Cost

    Total project cost consists of many elements of cost, not all of
which are allowable for grant participation.  Allowable/unallowable
costs are determined in accordance with 40 CFR Part 35, Subpart I,
Appendix A, as discussed in Section IX.F.

    One additional factor arises where the project includes unallow-
able reserve capacity.   The allowable project costs for grants
awarded after September 30, 1984, must be limited to the treatment
capacity required to serve existing needs on the date of Step 3
grant approval.  if the project includes ineligible reserve capacity,
it will be necessary to establish a cost ratio (see Section D.18
above). All Step 3 costs which are normally allowable for grant
participation are reduced, using the cost ratio.  Phased and seg-
merited projects which received a previous Step 3 grant before
October 1, 1984 may be exempt from this limitation (see Section D.10
above). A suggested method for determining the total allowable pro-
ject cost is given below:


    a.   Establish an estimated total building cost, which
        is the sum of the estimated award amount of all
        prime subagreements for building the project, plus
        amounts approved for force account work performed
        in lieu of awarding a subagreement for building
        the project,  plus the estimated purchase price
        of eligible real property.   The estimated total
        building cost so determined does not include pro-
        ject components which are ineligible for grant
        participation (e.g., collection sewers and related
        pumping stations).  The estimated total building
                             664

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cost so determined would be the estimated allow-
able building cost of the project, except for
projects which include ineligible reserve capacity
(see Item d below).
Establish the cost ratio for projects (treatment
plants, interceptors, and if eligible, collection
sewers) with capacity beyond that required to
serve existing needs.  The cost ratio is the frac-
tion obtained by dividing the estimated building
cost to serve existing needs by the estimated total
building cost (see Section D.18 above).
Determine other allowable cost items associated with
the eligible project.  If the items described below
are not clearly separated between eligible and in-
eligible project components, they should be distri-
buted proportionately.  Allowable cost items include;
  i.     professional services during step 3, such
        as engineering cost (including services
        for one year following initiation of
        operation),  construction management, legal,
        and accounting;

  ii.    administrative costs;

  iii.   approved costs relatedto preaward
        building costs (approved preaward
        building costs are included in Item a
        above);

  iv.    costs related to the acquisition of
        eligible land, including relocation
        (eligible land costs are'included in
        Item a  above);

  v.     costs related to the direct purchase
        of major items of equipment by the
        grant applicant  (eligible equipment
        costs are included in Item a above);
                    665

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d.  Where the project includes ineligible reserve
    capacity, multiply the estimated building cost
    (from Item a above) by the cost ratio (from
    Item b above) to determine the estimated
    allowable building cost.


e.  Where the project includes ineligible reserve
    capacity, multiply the total of other allowable
    cost items (from Item c above) by the cost ratio
    (from Item b above).


f.  Where the project has not received both a Step 1
    and a Step 2 grant, compute the allowance for
    facilities planning and/or design, using the
    appropriate table in 40 CFR Part 35, Subpart I,
    Appendix B, based on the estimated allowable
    building cost for the capacity required to serve
    existing needs  (see Item d above, or for projects
    which do not include ineligible reserve capacity,
    see Item a above).  Note that the grantee does not
    receive the full allowance, but only the appropriate
    percentage (see Item 2 below).


g.  The total estimated allowable project cost is the
    sum of the estimated allowable building cost  (see
    Item d above, or for projects which do  not include      ^IMP
    ineligible reserve capacity,  see Item a above),         ^^^T
    the estimated allowable other costs  (see Item e         ^^
    above, or for projects which  do  not  include  in-
    eligible reserve capacity, see  Item b above), and
    the estimated allowance for facilities  planning
    and/or design (see  Item f above).


  h. The EPA  grant amount  is calculated  by multiplying
    the  total estimated allowable project cost by  the
    appropriate  EPA grant percentage  (see Item 2  below),
    and  subtracting the amount of any advance  of
    allowance previously  paid to  the grant  applicant.


  Re:  40  CFR  35.2123
                          666

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2.  EPA Grant Share

    In computing the EPA grant share,  the project reviewer is to
examine the applicable conditions noted below to determine the EPA
grant percentage,  and multiply this percentage by the total allow-
able project cost  (see Item l.g above).  The resulting figure,
minus any advance  of allowance, is the EPA grant amount.

    a.  Standard Grant Share

        After September 30, 1984 the EPA grant is 55 percent,
    except as described below.

    b.  Uniform Lower Federal Share

        The Governor of a State may elect to uniformly lower
    the EPA grant  share for all categories of projects.  Except
    for I/A projects, the EPA grant will be the percentage
    established by the Governor and approved by EPA.

    c.  Phased or  Segmented Projects

        These projects are discussed in Section D.lO.d above.

    d.  Projects Using An Innovative or Alternative
        Technology

        The EPA grant share for eligible treatment works or
    unit processes determined to meet the definition of an
    I/A technology (including an I/A field testing project)
    shall be increased by 20 percent of the total allowable
    cost of the I/A project or the I/A portion of the pro-
    ject, but in no event shall the total Federal share
    exceed 85 percent.  Only I/A components and unique
    non-I/A components necessary to make the I/A components
    operate may receive the additional grant percentage.
    Where a State grant program exists, the State grant
    percentage of  the non-Federal share must not be
    decreased for an I/A project.  For example, assume an
    EPA standard grant share of 55 percent, a State stan-
    dard grant share of 10 percent, and a local standard
    grant share of 35 percent, for a total non-Federal
    share of 45 percent.  The State share of the non-
    Federal share is 10 divided by 45, or 22.2 percent.
    For an I/A project, the Federal share is 75 percent and the
    non-Federal share is 25 percent.  The State's proportional
    contribution must be at least 22.2 percent of the 25 percent
    non-Federal share (i.e., at least 5.55 percent of the eligible
                             667                        TM 86-1

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    I/A project cost.   This requirement is expected to be met in
    most States by providing the same State percentage grant  to all
    projects (in this  example,  10 percent), but the State percentage
    grant may be reduced for I/A projects at the discretion of the
    State, provided that all I/A projects are treated equally, (in
    this example,  to a share not lower than 5.55 percent).

    e.   Projects for the Modification or Replacement of
        Failed Innovative or Alternative Technologies

        The EPA grant  is 100 percent of the allowable cost
    of  the M/R of  failed I/A projects, including specific planning
    and design costs incurred on these projects funded under
    §35.2032(c), which meet the conditions described in Section J
    above.

        The source of  funds for 100% M/R grants can be determined
    as  follows;

          -  When  a failed I/A technology system is being modified
             or replaced with an innovative or an alternative
             technology, as a minimum, an amount equal to the uniform
             Federal share for the State for conventional technology
             projects  (i.e., 55% or a reduced share amount  set in
             accordance with 40 CFR 35.2152(c) must come from the
             regular portion of the State's allotment (which  includes
             the Governor's discretionary fund).  The remaining
             portion of the grant to bring the Federal share  to 100%
             can come  from the I/A set-aside, the regular portion of
             the allotment or any combination of the two.  The
             "regular  portion of the State's allotment" can include
             the reserve for alternative systems for small  communities'
             if the community qualifies.

          _  When  a failed I/A system is being modified or replaced
             with  a conventional technology, the entire grant amount
             must  come from the regular portion of the State's
             allotment.

    f.   Other Projects

        The EPA grant  share does not change because a pro-
    ject receives  a Step 2+3, a land acquisition, or a CSO
    (including a marine CSO) grant.  The standard EPA grant
    share for such projects is 55 percent, unless this per-
    centage is changed as discussed in Items b through e above.


    Re:  40 CFR 35.2024(b), 35.2032(c), 35.2109, 35.2152

M.  GRANT AWARD PROCEDURES

    Detailed grant award procedures may vary from State to State,
depending on internal  State procedures and the requirements of
the State/EPA delegation agreement.  Fully delegated States may
only need to submit project and priority certifications to EPA


                             668                       TM 86-1

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(see Items 2 and 3 below), while those States without delegation
will need to submit complete application packages.  In all cases,
however, a grant may only be awarded by EPA.  The procedures below
are general, and are not a substitute for detailed procedures
established in each State and EPA Regional Office.


1.  State Procedures

    All States have developed internal grant approval procedures
which are to be followed prior to submission of the appropriate
documentation to EPA.  Such procedures usually include:


    a.  preparation of a one-page project summary for
        the head of the reviewing agency;

    b.  preparation of the State Priority Certification
        (EPA Form 5700-28) ;

    c.  preparation of the letter of approval from the
        State to EPA, including an explanation of any
        differences between  the grant amount requested
        by  the applicant  and the grant amount approved
        by  the State;

    d.  approvals by other offices within the State
        agency  (e.g., compliance, permits,  etc.);

    e.  approval by the State's fiscal office, to
        verify  that funds,  including  reserves if
        appropriate (e.g.,  I/A, small communities),
        are available;

    f.  preparation of the grant award  input coding  sheet
        for the computerized Grants  Information  and  Con-
        trol  System (GICS);  and

    g.  preparation of a  draft grant  agreement/amendment
         (EPA  Form  5700-20A), with recommended general  and/
        or  special grant  conditions  (see  Items 5  and  6
        below).

    hjL  preparation of  innovat i v e/ a 11 e r na t i v e Jj/A)__fagiljlty_
         technology  file^ata_base_entry_jEorni OMB No.  2040-
         0 Q9 |TTo r  a 11' s t e p 3 _and_step_2+_3_grant awards for
        I/A~p r oji e c t s'~ i nclud i rig lP_Oi_mod i f ica t ion/repl acement
         andffjeld_testing of I/A  technology. ~TSee  I/A
         Fa£JlitY_Technoloqy File  Data Base  Users_Manual_for
         sample  form).
                              669                      TM 86-1

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2.  Priority Certification

    All States are to review each grant application to verify
that  it is complete.  if the project is listed on the State's
project priority list for the current fiscal year and is within
the fundable range, the State will complete the State Priority
Certification (EPA Form 5700-28) for submission to EPA.

Re:   40 CFR 35.2042(a), 35.2103
3 •  Project Certification by Delegated_s_tates

    States which have been delegated authority to manage the
construction grants program must submit a written certification
to the EPA Regional Office for each project, stating that the
applicable Federal requirements, within the scope of authority
delegated to the State, have been met.  The certification must
be supported by documentation retained by the State, which will
be made available to EPA upon request.

    Upon receiving a certification covering all delegable preaward
requirements, EPA must either approve or disapprove the grant
within 45 calendar days.  If disaproved, EPA will state the rea-
sons and have an additional 45 days to review any subsequent re-
vised submissions.  If EPA fails to approve or disapprove within
45 days, the grant shall be deemed approved and EPA must issue the
grant agreement to the applicant.

Re:  40 CFR 35.2042(a) and (b)
4•  Grant Agreement/Amendment

    After receipt, review, and approval of the State certifications
and supporting documents, if any, EPA will prepare the Grant Agree-
ment/Amendment (EPA Form 5700-20A) for the Regional Administrator's
signature.  EPA will also complete the following actions or docu-
ments which may already have been prepared (or partially prepared)
by the delegated State:


    a.  briefing memorandum to the EPA Regional Administrator,
        if required by Regional procedures?
                             670

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    b.  Commitment Notice (EPA Form 2550-9) for transmittal
        to the appropriate EPA fiscal office;
    c.  preparation and entry of applicable information into
        GICS (see Section III.C.3); and
    d.  Grant Agreement/Amendment (EPA Form 5700-20A):
          i.    the first page is to be data-
                phoned to EPA Headquarters
                immediately after signature by
                the Regional Administrator (RA);

          ii.   the entire form, with a transmittal
                letter, is mailed to the grant
                applicant 5 days after EPA Head-
                quarters data-phone notification
                (not before); and

          iii.  the form must be signed by the
                applicant's authorized represent-
                ative (see Section C. l.b above)
                and returned to the Regional Office
                within 3 weeks of receipt by the
                applicant.
5.  General Grant Conditions

    The Grant Agreement/Amendment contains award conditions which
require the grantee to comply with all applicable provisions of
40 CFR Chapter I, Subchapter B.  (Subchapter B includes 40 CFR
Parts 30 through 35, and references all other applicable regulations,
including 40 CFR Parts 4, 6, 7, 25, and 29.)

    The reviewing agency may wish to supplement these preprinted
grant conditions by adding grant conditions which emphasize specific
regulatory provisions.  Although the inclusion of these additional
conditions does not increase the grantee's obligation to comply with
with these regulations, they are frequently added to increase the
grantee's awareness of its obligations under the regulations.
Representative samples of these conditions are identified below:
                             671

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 a.   Effect  of Approval

     Approval or certification of project documents  (e.g.,
 facilities  plan, plans and  specifications, etc.) by  the
 reviewing agency is  for administrative purposes only,  and
 does not relieve the grantee of its responsibility  for the
 entire project.

 Re;   40 CFR 35.2050

 b.   Step 2+3

     The grantee must obtain reviewing agency approval  before
 initiating  acquisition of eligible real property, procurement
 of equipment, or selection of construction contractors.

 Re;   40 CFR 35.2202

 c.   Project Changes

     The reviewing agency must approve certain project  changes,
 as specified in 40 CFR 35.2204, by formal grant amendment.

 Re;   40 CFR 35.2204

 d.   Land Acquisition

     The reviewing agency must verify that the requirements
 of 40 CFR Part 4 have been met before real property  is ac-
 quired, and the Federal interest in the property to  be
 acquired must be protected (see Section H.3.b above).

 Re;   40 CFR 30.535, 35.2210

 e.   Project Initiation

     The grantee shall expeditiously initiate and complete
 the  project in accordance with the schedule contained  in
 the  application and the grant agreement.   Failure to award
 contracts and to issue notices to proceed for building all
 significant elements of the project within 12 months of
grant award (or of  final approval of plans and specifica-
 tions, and the related documents described in Section F.3
above, under a Step 2+3 grant)  may result in a limitation
on allowable costs  or the imposition of sanctions (see
Sections VIII.B.4  and IX.F.4,  Paragraph A.2.e).

Re/.  40 CFR 30.900  through 30.906,  35.2212
                         672

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    f.  Quality Assurance Program

        The grantee must submit a quality assurance program
    within 30 days of grant award for projects which include
    environmental studies, field testing of I/A technologies,
    evaluation of wastewater treatment plant performance
    (e.g., during the one year project performance period),
    or other activities which entail gathering environmental
    or environmentally related data.

    Re:  40 CFR 30.302(d)(3 ), 30.503(f) and (h)
    g.  Project Performance Standards

        The grantee should be informed of the parameters which
    have been identified by the reviewing agency as project
    performance standards (see Sections V.C.2.a and VII.I.2.a),

    Re:  40 CFR 35.2218(c)
    h.  Field Testing of Innovative or Alternative Technologies

        See Section 1.3 above.
6.  Special Grant Conditions

    Where there are compelling reasons, special grant conditions
may be included in the grant agreement.  Unlike general grant con-
ditions, special grant conditions do not repeat EPA's regulatory
requirements, but rather are special conditions under which the
grant has been awarded, due to unusual circumstances.  All proposed
special grant conditions should receive a technical and legal review,
to insure that their inclusion in the grant agreement/amendment is
appropriate.
                             673

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             CHAPTER VII




             CONSTRUCTION












A.  INTRODUCTION




B.  PROCUREMENT SYSTEM REQUIREMENTS




C.  PROCUREMENT OF PROFESSIONAL SERVICES




D.  PROCUREMENT OF CONSTRUCTION CONTRACTORS




E.  SMALL PURCHASES




F.  NONCOMPETITIVE PROCUREMENT




G.  MONITORING CONSTRUCTION




H.  MANAGEMENT OF CLAIMS AND  CHANGE  ORDERS




I.  POST-CONSTRUCTION ACTIVITIES
                  701

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A.  INTRODUCTION

    This chapter begins with a discussion of EPA requirements for
grantee procurement systems, and for the procurement of professional
and construction services.  Later sections discuss activities which
take place during project construction, including project inspection
and management of change orders.  The chapter concludes with a
discussion of the requirements for project performance during the
first year following initiation of operation.  Payments, payment
limitations, and grant increase/decrease procedures are discussed
in Chapter IX.

    Section B, Procurement System Requirements, describes certifi-
cation and reporting requirements for grantee procurement systems.

    Section C, Procurement of Professional Services, describes
specific requirements for the procurement of engineering, legal,
accounting, and other professional services.

    Section D, Procurement of Construction Contractors, describes
competitive bidding procedures, grant adjustment, and protests
concerning grantee procurement actions.

    Section E, Small Purchases, describes EPA's simplified require-
ments for purchases costing $10,000 or less.

    Section F, Noncompetitive Procurement, describes the limita-
tions and approvals necessary for this type of procurement.

    Section G, Monitoring Construction, describes monitoring
activities, including preconstruction conferences, project management
conferences (PMCs), interim inspections, construction management eval-
uations (CMEs), and final inspections.

    Section H, Management of Claims and Change Orders, describes
management activities which should be employed by grantees for
the effective control of claims and change orders, and reviewing
agency procedures for processing change orders.

    Section I, Post-construction Activities, describes engineer-
ing services during the first year following project completion
and the requirements for the grantee's certification concerning
project performance standards.
                             703

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B.  PROCUREMENT SYSTEM REQUIREMENTS

1.  Procurement System Certification

    In the interest of reducing the time and paperwork needed for
processing grant applications,  each grant applicant is encouraged to
use its own procurement system, provided that the system meets all
applicable Federal, State, and  local laws and regulations.   Each
grant applicant is required to  evaluate its procurement system,
compare the system against EPA's procurement regulations, and
complete the Procurement System Certification (EPA Form 5700-48)
before any procurement action is undertaken with EPA grant  assistance.

    Where the grant applicant affirmatively certifies that  its
procurement system meets the intent of the requirements of
40 CFR Part 33, EPA will accept the applicant's certification
unless EPA or the State agency  has reason to question it.  Where
the grant applicant does not affirmatively certify, the grant appli-
cant is required to comply with the requirements of 40 CFR Part 33,
and to submit specific documentation to the reviewing agency.

    It is to be noted that most review and approval activities re-
lated to grantee procurement actions may be delegated to the State
agency, including the review of a grantee's Procurement System
Certification (EPA Form 5700-48)  and the authorization for a grantee
to use an innovative procurement method.  However, EPA can not
delegate the actual review of a grantee's procurement system under
40 CFR 33.115, nor the resolution of protests of grantee procurement
actions under 40 CFR Part 33, Subpart G.

    Review Procedures;

    a.  Each grant applicant is required to complete a
        Procurement System Certification (EPA Form
        5700-48), indicating whether its procurement
        system meets the intent of all requirements
        in the EPA procurement  regulations (40 CFR
        Part 33).


    b.  If the grant applicant  affirmatively certifies, EPA
        must accept the applicant's certification.  However,
        EPA reserves the right  to review the procurement
        system or any individual procurement action:

          i.    to determine if the EPA procurement
                requirements are being met, or
                                           «f
704

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      ii.   if there is reason to believe that the
            procurement system is unacceptable based
            on:

            - information from other Federal agencies
              or from Congress,

            - information from the applicant's cognizant
              audit agency,

            - information from State agencies or other
              organizations,

            - information contained in the certification
              form,

            - previous EPA experience with the applicant, or

            - information from contractors or prospective
              contractors.
c.  Prior written approval must be received from the
    reviewing agency, even though the applicant's procure-
    ment system was previously certified, if the applicant
    intends to:
    i.   use an innovative procurement method, or

    ii.  use the provisions of 40 CFR 33.715(a)(2)
         to noncompetitively procure the services
         of an engineer who provided facilities
         planning or design services, but whose
         selection for such previous work was not
         accomplished in accordance with the then-
         applicable EPA procurement regulations
         (if the work was performed under a Step 1
         or a Step 2 grant) or the provisions of the
         current EPA procurement regulations which
         are listed in 40 CFR 33.715(a)(3).
d.  An applicant's affirmative certification is valid for
    two years or for the length of the project period, which-
    ever is longer, unless the procurement system is substan-
    tially revised, or EPA determines that the intent of the
    EPA procurement regulations is not being followed.
                         705

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        If the grant applicant does not affirmatively certify,
        the applicant is required to comply with the additional
        requirements of 40 CFR Part 33, Appendix A, for all
        procurement actions undertaken with EPA grant assistance.
        These requirements are described in Items 2.b and 3 below.

        Re:  40 CFR 33.001(g), 33.105, 33.110,  33.115
2.   Reporting Requirements

    a.   All grantees must submit the following information
        to the reviewing agency, in writing,  within ten
        calendar days of contract award,  for  all construc-
        tion contracts whose cost is expected to exceed
        $10,000 within a 12 month period  (e.g.,  a $15,000
        contract with a 24 month performance  period would
        not be reportable, nor would a $7,000 contract
        with a two month performance period):

          i.    name, address, telephone  number, and
                employer identification number of
                the construction contractor;

          ii.   amount of the contract award;

          iii.  estimated starting and completion dates;

          iv.   project number,  name, and site location;  and

          v.    copy of the tabulation of bids or
                offerers and the name of  each bidder
                or offerer.

        This information will be sent by  EPA  to the U.S.
        Department of Labor (DOL).  In some states, the
        State/EPA delegation agreement provides for the
        State agency to perform this function.

        Re: 40 CFR 33.110(e)(2), 33.211,  35.2212(d)


    b.   Grantees without a certified procurement system are
        required by 40 CFR 33.110(b){2) to allow the reviewing
        agency to conduct a preaward review of all proposed
        procurement actions.  The manner, timing, and extent
        to which this review is conducted is, therefore,  at
        the discretion of the reviewing agency.   Some agencies
        may require only a notice of intent from the grantee,
        with the actual documents to be submitted only at the
        request of the reviewing agency,  while others will

                             706

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        require the submission of complete documentation.
        Unless otherwise instructed by the reviewing agency,
        grantees without a certified procurement system must
        submit the following information for all contracts
        (not only construction contracts) in excess of $10,000.
        All other grantees must retain these documents
        in their files, and make them available at the
        request of the reviewing agency and/or auditing
        agency:

          i.    basis for contractor selection;

          ii.   justification for the procurement
                method selected, if other than competi-
                tive bidding (i.e, formal advertising);

          iii.  justification for the use of any specifi-
                cation which does not provide for maximum
                free and open competition;

          iv.   justification for the type of contract,
                if other than fixed price;

          v.    basis for the award cost or price, including
                a copy of the cost or price analysis and
                documentation of negotiations, if other
                than a fixed price contract with the lowest
                responsive, responsible bidder (includes
                all contracts over $10,000 which are not
                competitively bid; must include EPA Form
                5700-41 for all contracts awarded by grantees
                without a certified procurement system); and

          vi.   justification for the rejection of any or
                all bids (see Section D.2 below).

        Re:  40 CFR 33.250, 33.290(b); 40 CFR Part 33,
             Appendix A


3.  Public Notice Requirements

    Except for grantees whose certified procurement systems
include provisions which meet the intent of EPA's public notice
requirements, all grantees must give adequate public notice of
all proposed procurement actions, as defined in the EPA procure-
ment regulations.  These regulations require a notice of the
proposed procurement action to be published in professional
journals, newspapers, or publications of general circulation
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over a reasonable area  (depending on the size of the project;
extremely large projects will usually warrant nationwide
advertisement), for at  least 30 days prior to the deadline for
receipt of proposals or bids.  Posted public notices or written
notifications mailed or delivered to interested persons, firms,
or professional organizations may also be used.

Re:  40 CFR 33.415, 33.510; 40 CFR Part 33, Appendix A,
     Paragraphs (b)(4) and (b)(5)
C.  PROCUREMENT OF PROFESSIONAL SERVICES

    This section discusses the procurement of professional
services normally associated with Step 3 grant activities. The
term "professional services" is used to designate engineering,
architectural, construction management, legal, and accounting
services, as opposed to services provided by construction
contractors and equipment suppliers.  All procurements made
in whole or part with EPA grant assistance, however, are sub-
ject to EPA's procurement regulations (40 CFR Part 33), which
describe four types of procurement:

    - formal advertising (i.e., competitive bidding),

    - competitive negotiation,

    - noncompetitive negotiation, and

    - small purchases.

    While formal advertising, with contractor selection based on
competitive prices, is the preferred method of procurement,
practically all professional services procurement is accomplished
using the competitive negotiation procedure.  For this reason,
the discussion below is limited to procurement using the competi-
tive negotiation procedure.


1.  Competitive Negotiation

    Purpose;

    Advertise, receive, and evaluate proposals,  negotiate with
the best qualified offerers, and award a subagreement to the
responsible offerer whose proposal is determined to be the most
advantageous to the grantee, taking into account price and
other objective evaluation criteria.
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    Discussion;

    As with all procurements using EPA funds, procurement trans-
actions are to be conducted in a manner that provides maximum
open and free competition.  The competitive negotiation method
of procurement applies equally to the procurement of engineering,
architectural, construction management, legal, and accounting
services.  Competitive negotiation differs from competitive
bidding procurement primarily in the manner in which price is
considered.  Price, while important, may be only one of several
criteria used to evaluate offers in competitive negotiation,
while in competitive bidding, price competition is the primary
consideration.
    Procedures;

    All grantees must follow the procedures described below,
except that grantees which have certified procurement systems
(see Section B.I above)  may follow their own procedures, if
those procedures meet the intent of the procedures described
below:
    a.   Public Notice

        When advertising a request for proposals (RFP),
        the grantee must give adequate notice to the
        public (see Section B.3 above).  The public
        notice must include adequate information to allow
        interested parties to readily obtain the proposal
        documents.
    b.   Proposal Documents

        Proposal documents must include:

        i.     a copy of 40 CFR 33.295 and 40 CPR
              Part 33,  Subparts F and G;

        ii.    sufficient information to enable an
              interested party to prepare a proposal;

        iii.   a description of all evaluation criteria
              and the relative importance attached to
              each;

        iv.    the objective basis which will be used to
              select the firm to which the subagreement
              will be awarded; and
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         v.     the  deadline  and  the  place  for  submission
               of proposals.


     c.   Proposal Evaluation

         Proposals  are  to be uniformly  and objectively
         evaluated  solely on the  basis  of  the  evaluation
         criteria stated in  the RFP.


     d.   Negotiation

         Unless the request  for proposals  states  that contract
         award may  be based  on initial  proposals  alone, the
         grantee must conduct meaningful negotiations with the
         best qualified offerers  (i.e., those  which have sub-
         mitted acceptable proposals within the competitive
         range), and must permit  these  offerers to make revi-
         sions to their proposals, in order to obtain the best
         final offers.  The  best  qualified offerers must have
         equal opportunities to negotiate and  to  revise their
         proposals.  During  negotiations,  the  grantee must not
         disclose the identity of competing offerers, nor any
         information from competing proposals.


     e.   Contract Award

         A subagreement must be awarded to the responsible
         offerer whose proposal is determined  in writing
         (see Section B.2.b above) to be the most advantageous
         to the grantee, taking into consideration price
         and other evaluation criteria  stated  in the RFP.

         Re:  40 CFR 33.505, 33.510,  33.515, 33.520;
             40 CFR Part 33, Appendix A


2.  Optional Method for Procuring Engineering Services

    The grantee may use the optional procedures described below,
in lieu of the procedures  described  in item 1 above, for the
procurement of engineering services.  Grantees with a certified
procurement system may follow their  own procedures, if those
procedures meet the intent of the procedures described below:
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         Public  Notice

         The  grantee must  give  adequate  notice  (see  Item
         l.a  above) to  develop  a  prequalified  list  (see
         Section V.C.l.c)  or  to request  statements of
         qualifications.
     b.   Evaluation of Qualifications

         Either  responses  to  the  request  for  qualifications
         (RFQ),  or the information  about  firms  in  the  pre-
         qualified list, must  be  used  to  determine the
         most  technically  qualified firms.


     c.   Proposal Request  and  Evaluation

         After selecting and  ranking the  most qualified
         firms,  the grantee issues  an  RFP to  request
         technical proposals,  and indicates in  the RFP
         the objective evaluation criteria to be used  for
         ranking proposals.  The  best  technical proposal
         is selected, based upon  the criteria stated in
         the RFP.
    d.  Negotiation

        Negotiation of fair and reasonable compensation
        is undertaken with the offerer which submitted
        the best technical proposal.  If agreement cannot
        be reached, negotiations are formally terminated
        (i.e., in writing), and new negotiations are begun
        with the firm which submitted the next best proposal.
        Once negotiations with an offerer have been formally
        terminated, they cannot be reopened.  If necessary,
        the process continues with other firms which have
        submitted proposals, in the order of their rank
        (see,.. Item c above), until successful negotiations
        have been completed.


3.  Continuation of Engineering Services

    Purpose;

    Allow grantees to continue using the same engineering firm
which performed all or part of the facilities planning or design
work, without further public notice or evaluation of qualifications,
                             711

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    Discussion;

    Earlier EPA procurement regulations, in effect when separate
grants were provided for facilities planning (Step 1), design
(Step 2), and construction (Step 3), allowed grantees to continue
using the same engineering firm from one grant step to another
without further advertising, provided that certain limitations were
met.  This option is to be continued, even though separate grants
are no longer awarded for facilities planning and design.  The
regulations and review procedures below describe three circum-
stances under which a grantee may continue to use the same
engineering firm.


    Review Procedures;

    If the grantee is satisfied with the qualifications and
performance of the engineering firm which provided any or all
of the facilities planning or design services for the project,
that firm may be retained during the building of the project.
To do so, without further public notice and evaluation of qual-
ifications, the grantee must have documentation which provides
evidence that one of the following conditions has been met:

    a.  Prior Grant

        The grantee received a facilities planning
        (Step 1) or design (Step 2) grant, and selected
        the engineering firm in accordance with the
        EPA procurement regulations which were in effect
        when the grant was awarded (generally 40 CFR
        35.936,  35.937, and 35.939);

    b.  Prior Competitive Selection

        The grantee did not receive a previous EPA grant,
        but used a competitive selection procedure to obtain
        previous engineering services, and can document that:

          i.    the initial RFP clearly stated the
                possibility that the successful
                offerer could later be awarded a
                subagreement for services during
                construction;

          ii.   the firm was selected for facilities
                planning or design services using
                procedures which satisfy the require-
                ments of:
                             712

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                  - competition (40  CFR 33.230);

                  - documentation (40 CFR 33.250);  and

                  - one of the following three procure-
                    ment methods:

                     - small purchases (40 CFR
                       33.305 through 33.315),

                     - formal advertising
                       (40 CFR 33.405 through
                       33.430), or

                     - competitive negotiation
                       (40 CFR 33.505 through
                       33.525); and

          iii.   no conflicts of interest existed.


    c.   Noncompetitive Negotiation

        Based on information submitted by the grantee, the
        reviewing agency finds sufficient justification to
        allow noncompetitive procurement for'reasons other
        than simply using the same individual or firm which
        provided facilities planning or design services.
        Such justification must be based on sound business
        reasons (e.g., emergency conditions, inadequate
        competition, services available only from a single
        source, etc.).  This condition requires prior
        approval from the reviewing  agency (see Section F
        below).
The procurement of engineering services for Step 3 work must also
satisfy all other provisions of the current EPA procurement regu-
lations (e.g., type of subagreement, cost and price analysis,
required subagreement clauses, etc.), and must comply with the
documentation and reporting requirements discussed in Section B.2
above.

Re:  40 CFR 33.715
                             713

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4.
Small, Minority, Women's, and Labor Surplus Area Businesses
    The affirmative action steps described in Section V.C.l.w
are equally applicable to grantee actions in the procurement
of professional services.  Evidence that the grant applicant
recognizes his responsibilities with regard to these businesses
should be submitted with the grant application.  The reviewing
agency must insure that the affirmative steps were carried out,
and that the applicant complied with State or local goals or other
applicable standards.

Re:  40 CFR 33.240
5.  Scope of Work

    Purpose;

    Provide sufficient detail to clearly define the nature,
scope, extent of work, time frame for completion, total
compensation, and payment provisions for grantee subagreements
for professional services.


    Discussion:
    a.  Engineering Services during Construction

       The scope of work will generally include:

         i.    those applicable services normally associated
              with engineering supervision and inspection
              during construction (e.g., interpretation of
              plans and specifications, resolution of tech-
              nical problems, preparation of estimates of
              work in place, review of claims and change
              orders, etc.); and

         ii.   preparation and implementation of the final
              plan of operation, including the preparation
              of the operation and maintenance (OSM)  manual,
    b.   Post-construction Engineering Services

        The 1981 Clean Water Act (CWA)  amendments require the
        grantee to select the engineer or engineering firm
        principally responsible for either supervising,  or
                             714

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        providing engineering services during construction
        (i.e., facilities planning, design, and/or building
        of the project), to provide engineering services
        during the first year following initiation of opera-
        tion.  Such services should be reflected in the scope
        of work and will generally include:


          i.     directing the operation of the project,
                including both sewer projects and treat-
                ment facilities, commensurate with the
                type and complexity of the project;

          ii.   conducting studies regarding the elimina-
                tion of excessive infiltration/inflow (I/I);

          iii.  revising the O&M manual as necessary to
                accommodate actual operating experience;

          iv.   training, including the preparation of
                curricula and training material, for
                operating personnel;  and

          v.     advising the grantee  whether the project
                is meeting the project performance
                standards (see Section 1.2 below).


    Procedures;

    The scope of work of the subagreement is to be reviewed to
insure that it clearly defines:

       the nature, scope, and extent  of the work to be
       performed;

    -  the time  frame or schedule for performance;

       the total cost or compensation of the contractor;
       and

       payment provisions, including  retainage, if any.


    Re:  40 CFR 33.1015,  35.2218(b); preamble to 40 CFR
        Part  35, Subpart I,  49 FR 6228, "Project Performance,"
        and 49 FR 6231,  "Building" (February 17, 1984)
                             715

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6.  Types of Subagreements and Required Provisions

    All professional services subagreements (contracts) must
include the applicable provisions and clauses, described in
40 CFR Part 33, and must not include any provisions which are
prohibited by 40 CFR Part 33.  The reviewing agency must
verify that the following subagreement requirements have been
satisf ied:

    a.  Subagreements must be awarded only tc responsible
        contractors (see Section V.C.l.f).

    b.  Prohibited types of subagreements are the cost-
        plus-percentage-of-cost (e.g., a multiplier which
        includes profit) and the percentage-of-construction-
        cost .

    c.  The type of subagreement selected should be based
        on the nature of the work and the degree of risk
        inherent in performing the work.  Typical types of
        subagreements used for professional services
        include:

          i.  fixed price (lump sum), where the scope
              of work is clearly defined; or

          ii.  cost-plus-fixed-fee, where the scope of
              work is less clearly defined.  These
              subagreements include a cost ceiling
              which may not be exceeded without
              negotiation and the preparation of a
              contract amendment (i.e., change order).


    d.  in addition to including provisions which define a
        sound  and complete subagreement (see Etem 5 above),
        all subagreements must include the applicable
        provisions of 40 CFR Part 33 regarding labor
        standards; patents, data and copyrights; violating
        facilities; energy efficiency; and the model
        subagreement clauses or their equivalent.  The
        grantee and the contractor must first determine
        which  of these provisions apply to the work to  be
        performed, and then create a contract clause to
        address each requirement.
        Re:   40  CFR 33.220,  33.285,  33.1005 through 33.1030
                             716

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 7.  Cost and Price Analysis

    Purpose;

    Insure  that the total cost of a subagreement,  including each
 component of its cost,  is reasonable, allowable, and commensurate
 with the scope and complexity of the work.


    Discussion;

    The procurement regulations require the grantee to conduct
 a cost analysis, based  on information submitted by contractors
 and subcontractors, of  all negotiated change orders and negotiated
 subagreements in excess of $10,000.  Cost analysis is the process
 of examining, verifying, and evaluating cost data, and projecting
 from the basic cost data to determine a reasonable estimated price
 that will be representative of the total cost of performance of the
 negotiated  subagreement.  To be allowable for grant participation,
 cost must comply with the cost principles in 48 CFR Part 31,
 "Contract Cost Principles and Procedures" (see Sections IX.F.I and
 IX.F.2).  Profit must be negotiated as a separate element of price
 where there is no price competition, or where price is based on a
 cost analysis.

    In general, total cost consists of three elements:  direct
 costs (labor, materials, and supplies for a specific project),
 indirect costs (overhead and/or general and administrative
 burden such as rent, utilities, fringe benefits, employee taxes,
 accounting costs, etc., where such costs cannot be directly
 assigned to a specific  project), and profit.

    The estimated hours necessary to perform a specific task times
 the hourly rate paid to the employees, which varies with their
 level of skill, represents direct labor costs.

    Some costs  included in an indirect cost category are not
 allowable for grant participation even though they are a cost of
 doing business.  Examples of these costs are interest on borrowed
 capital, bad debts, advertising, entertainment, and business
 development expenses.    Indirect costs may be allocated to all
 projects within the business, but must be reasonable and allocated
 on a rational basis.

    The last element of cost is profit.   While the EPA regulations
 do not discuss  a specific level of profit, grantees are required
 to negotiate a  "fair and reasonable" profit.  The determination
of a "fair and  reasonable"  profit requires judgement by all
parties, and may be guided by practices  in the area and the
degree of risk  incurred by the contractor.  For example,  a fixed
                             717

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price contract, assuming that the costs were accurately estimated,
exposes the contractor to a higher level of risk than a cost-plus-
fixed-fee contract.


    Review Procedures;

    For all negotiated subagreements in excess of £10,000, the
reviewing agency is to insure that the grantee has conducted a
cost analysis for all contractors and subcontractors and that:


    a.  estimates of work hours, level of required skills,
        and direct labor rates are reasonable and commensurate
        with the work to be performed;

    b.  indirect cost rates are reasonable, allocated on
        a rational basis, conform with Federal cost
        principles, and do not include any unallowable
        costs; and

    c.  profit is negotiated as a separate element of
        cost, and is commensurate with the complexity
        of the work and the type of contract (i.e.,  the
        level of risk assumed by the contractor).


    Re; 40 CFR 33.235, 33.275, 33.290; 40 CFR Part 33,
        Appendix A; 48 CFR Part 31
8.  Additional Services

    At times, additional professional services, beyond those
originally envisioned (either in scope or extent) at the time of
contract preparation, will be required by the grantee.  Such
additional services are most frequently required for deciding pro-
curement protests filed by potential construction contractors and
equipment suppliers (see Section IX.F.4, Paragraph A.l.c), and for
assessing the merits and negotiating the settlement of claims
filed by construction contractors and equipment suppliers (see
Section IX.F.4, Paragraph A.l.f).

    To be eligible for grant participation, the additional services
must be within the scope of the project (i.e., the work necessary
to construct the facility described by the facilities plan).
If the additional work is within both the scope of the project and
the scope of the existing contract for professional services
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(see Item 5 above), a change order may be issued to the con-
tractor by the grantee, with the price of the additional services
negotiated as an equitable adjustment to the contract.  If the
change order requires prior approval by the reviewing agency
(see Section H.3 below, and Section IX.F.4, Paragraph A.l.f),
the review procedures described in Section H.5 below, modified
to suit contracts for professional services, should be used.

    If the additional work is within the scope of the project, but
outside the scope of work of the existing contract, the additional
services must be procured through the procedures described in
Section C.I or C.2 above, unless the procedures described in
Section E or F below are appropriate.


Re; 40 CFR 33.1030, Paragraph 3(b)
D.  PROCUREMENT OF CONSTRUCTION CONTRACTORS

    The grantee is required to award subagreements and issue notices
to proceed for building all significant elements of the project as
soon as possible, but no later than 12 months, after grant award.
All grantees must submit limited information concerning each sub-
agreement award to the reviewing agency.  Grantees without a certi-
fied procurement system must submit more detailed information.


1.  Competitive Bidding

    In almost all cases, procurement of construction contractors
and suppliers of equipment and materials must be done using the
competitive bidding method (referred to as formal advertising in
40 CFR Part 33).  Competitive bidding involves advertising for bids,
receipt of sealed bids, public opening of bids, and the award of the
contract to the responsive and responsible bidder who submits the
lowest bid.  in practically all cases (see Section B.2.a above), a
bid tabulation must be prepared by the grantee's engineer, showing
the prices bid by each contractor for each item in the contract
proposal form.  The reviewing agency is to insure that all required
competitive bidding procedures were used, including:
                             719

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a.  Public Notice

    When advertising for bids under the formal
    advertising (i.e., competitive bidding) method,
    the grantee must give adequate notice to the
    public.  The public notice must include
    sufficient information to enable bidders to
    readily obtain and review bidding documents.

b.  Bidding Documents

    The bidding documents must include:

        i.    a copy of 40 CFR 33.295; 40 CFR
              Part 33, Subparts F and G; and if
              appropriate, "Labor Standard
              Provisions for Federally Assisted
              Contracts" (EPA Form 5720-4);

        ii.   a complete statement of the work
              to be performed, including where
              appropriate, design drawings,
              specifications, and the required
              performance schedule;

        iii.  the terms and conditions of the
              subagreement to be awarded,
              including payment, delivery
              schedules, point of delivery,
              and acceptance criteria;

        iv.   the place and deadline  for sub-
              mitting bids;

        v.    a clear explanation of  the bidding
              procedures and the method to be
              used by the grantee to  evaluate
              bid prices and to award  the sub-
              agreement ;

        vi.   the criteria to be used  in
              evaluating bidders' compliance
              with the  responsibility  require-
              ments;  and

        vii.  the DOL prevailing wage  rate
              determination,  if applicable.
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c.   Addenda
    Prior to bid opening, the grantee may have issued
    addenda to correct errors, to clarify information in
    the bidding documents, or to incorporate the current
    wage rate determination. Contract proposal documents
    should include a form for certification that the bidder
    has received all addenda before the bid date.  Where
    addenda have been issued by the grantee, the reviewing
    agency is to insure that receipt of such addenda is
    acknowledged by each bidder, and that the addenda were
    issued in a reasonable time (generally 5 days) before
    the deadline for the receipt of bids (see Section V.C.l.d)
    Number of Bids

    Sufficient bids (two or more) must have been received.
    If only one bid was received, the procurement action
    becomes, by definition, a non-competitive procurement
    (see Section F below).  As an alternative to non-
    competitive procurement, the grantee may reject all
    bids if there are sound business reasons for doing so
    (see Item 2 below).
    Bid Evaluation

    Evaluation of all bids must have been made using the
    objective criteria described  in the bidding documents,
    All necessary bid bonds and certifications must have
    been submitted, and all required forms completed and
    signed.  If only two responsive and responsible bids
    were received and the low bid exceeded $10,000, the
    grantee must have conducted a price analysis of the
    winning bid and determined that it was reasonable.
 f.  Contract Award

    A  fixed price contract must be awarded  to  the  lowest
    responsive and  responsible bidder  (see  Section V.C.l.f)
    The contractor  to which  the contract  is awarded must
    not be on EPA's Master List of suspended and debarred
    contractors.
Re:  40 CFR  33.211,  33.220,  33.235,  33.290(b),  33.405,  33.410,
     33.415
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2.  Rejection of All Bids

    The grantee may reject all bids only if it has sound, docu-
mented business reasons for doing so.  The reviewing agency may
approve such actions where justified as being in the best interests
of the construction grants program.  Because of varying State
statutory requirements, it may be prudent to request that the
grantee's legal counsel submit documentation supporting such
actions under State law.  If the grantee improperly rejects all
bids, any additional costs incurred (including a contract price
which is higher than the original low bid) will be ineligible
for grant assistance. It is therefore advisable for the grantee
to consult with the reviewing agency before rejecting all bids.

    After rejection of all bids, the grantee may either readver-
tise using the competitive bidding method (see Item 1 above), or
negotiate the procurement (if appropriate) in accordance with
40 CFR 33.505 through 33.525 or 33.605.

Re:  40 CFR 33.430(c)
3.  Small, Minority, Women's, and Labor Surplus Area Businesses

    The reviewing agency is to insure that affirmative actions
have been taken by the grantee, and where appropriate, by the
grantee's contractors, to include small, minority, women's, and
labor surplus area businesses in the bidding process (see Section
V.C.l.w).  Where State or local goals have been established,
the reviewing agency is to compare those goals against the
contract awards.

Re:  40 CFR 33.240
4.   Grant Adjustment

    Each grant award is originally based on the estimated
allowable costs of building the project, a reasonable construc-
tion contingency, the cost of eligible land, and the estimated
allowance for planning and/or design.  After the receipt of
bids and the acquisition of eligible land, the costs of building
the project are more accurately known, and the grant should be
adjusted accordingly.  Any grant adjustment requires a formal
grant amendment.
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allowance for planning and/or design.   After the receipt of bids
and the acquisition of eligible land,  the costs of building the
project are more accurately known, and the grant should be adjusted
accordingly.  Any grant adjustment requires a formal grant amendment

    a.  Building Cost

        The sum of all prime contracts and subcontracts
         (including contracts for the direct purchase of
        equipment, materials, or supplies by the grantee),
        plus the cost of approved force account work in lieu
        of awarding construction contracts, equals the total
        allowable building cost. If the total allowable
        building cost is less than the estimates used for
        grant award, the grant  is to be reduced accordingly
         (see Section IX.C.2).   If the total allowable building
        cost is more than the estimated allowable building
        cost plus the construction contingency, the grant may
        be  increased  (see Section IX.C.I) if the bids are
         judged reasonable, and  sufficient funds are available
         in the State's allotment  (many States maintain a
         reasonable  reserve of grant funds for this purpose).
         If bids are significantly higher than anticipated, it
        may be necessary for the grantee to reevaluate  its
         financial capability in light of the higher costs.
        Also, if bids are significantly higher, it may be
         appropriate for the grantee to reevaluate the scope
         of  work, or when appropriate, reject all  bids and
         readvertise.  This last course of action may only be
         undertaken  in accordance with State  law and EPA pro-
         curement regulations  (see Item 2 above).

     b.   Construction  Contingency

         After receipt of bids,  the  construction contingency  is
         usually  reduced to between  2  and  5 percent  of the total
         allowable  building costs.  The construction contingency
         is  available  for unanticipated cost  increases  (i.e.,
         change  orders)  during  construction.  However, as  a result
         of  regulations  revised  in November  1985,  for grants  awarded
         on  or after February  10,  1986, the maximum  allowable
         project  cost  is equal  to  the  allowable  project  costs  plus
         5%  excluding  an allowance.   For  grants  awarded  prior  to
         that date,  see  Section  IX.C.I.

     c.   Land Acquisition Cost

         Assuming that the  requirements of  40 CFR  Parts  4  and  30
         have been  satisfied  with  regard  to the  acquisition of
         eligible land,  the  grant  amount  may  require adjustment
         after  the  actual  cost  of  eligible  land  and  allowable
         costs  of complying  with 40  CFR Part  4  are known.


                                                        TM 86-1
                              723                           (85-1)

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     d-   Allowance  for Planning and/or Design

         The  final  allowance  for planning and/or design is deter-
         mined only once, and  is based on the  initial allowable
         award amount of all  prime construction contracts.
         (including contracts  for the direct purchase of
         equipment, materials, and supplies by the grantee),
         plus the initial amount approved for  force account
         work in lieu of awarding construction contracts, and
         the  purchase price of eligible land.  The amount of
         the  allowance does not change, even if the actual
         building costs increase or decrease during the per-
         formance of the work.  The final allowance is com-
         puted in accordance with 40 CFR Part 35, Subpart I,
         Appendix B (see Section VI.L.I).

     e.   Grant Amendment

         Any grant adjustment, as determined in Items a through
         d above, requires the preparation of a formal Grant
         Agreement/Amendment  (EPA Form 5700-20A).  States are
         to verify  that sufficient funds are available in the
         State's allotment, certify the grant amendment and
         other documents required by the State/EPA delegation
         agreement, and submit the grant amendment to EPA for
         approval (see Section VI.M).

         Re:  40 CFR 30.700, 35.2204; 40 CFR 35.2205


5.   Contract Award

     Grantees are to award contracts and issue notices to proceed
for  building all significant elements of the project as soon as
possible, but no later than 12 months, after grant award (see
Section  IX.F.4, Paragraph A.2.e).

Re;  40  CFR 35.2212


6.  Protests

    A protest is a written complaint concerning the grantee's
solicitation or award of a subagreement,  and may be filed with
the grantee only by a party with a  direct financial interest
which has been adversely affected by the grantee's action.
Protests may be filed during the procurement of professional
services or construction services (including the direct purchase
of equipment, materials,  and supplies by the grantee),  and  should
normally be submitted to the grantee prior  to the closing date for
the receipt of proposals or bids.
                             724                         TM 86-1

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    Grantees  bear  the primary  responsibility  for  the  resolution
of protests,  and should  establish procedures  for  their  prompt
resolution.   It  is  advisable that these procedures  require  pro-
tests  involving  allegations of  improprieties  in the grantee's
solicitation  practices to be submitted to  the grantee prior to
bid opening or the  closing date  for  the receipt of  proposals.
Upon receipt  of  a  protest, the grantee should first determine
whether  it is appropriate to defer the protested  procurement
action.   If the  procurement action is not  deferred, the protester
files  an  appeal  with EPA, and  EPA finds in favor  of the protester,
the cost  of the  protested procurement action may  be disallowed
for grant participation.  Grantees should  investigate the basis
for the protest, seek the advice of  legal  counsel,  document all
meetings  and  actions, correspond by  registered mail, and resolve
the protest promptly and equitably.

    EPA regulations primarily  address the  procedures to be  used
by EPA in considering a protest  appeal.  A protest  appeal is a
written complaint  filed with EPA by  a party with  a  direct finan-
cial interest which has been adversely affected by  the grantee's
decision  on the  initial protest.  Protest  appeals are to be filed
with the  Office of Regional Counsel  in the  appropriate EPA  Regional
Office (or for grants awarded by EPA Headquarters,  the Assistant
General Counsel  for Grants).

    EPA will  not accept a protest appeal unless the protester has
exhausted all administrative remedies at the grantee level.  A
protest appeal is limited to:

    a.  issues arising under the procurement provisions
        of 40 CFR Part 33 (e.g., an appeal concerning the
        rejection of all bids);

    b.  alleged violations of State or local law,  but only
        where EPA determines that there is an overriding
        Federal interest; and

    c.  issues arising over the award of a lower tier
        subagreement (subcontract)  by a prime contractor.


    When the protester files appeal documents with  the Office of
Regional Counsel (or for grants awarded by EPA Headquarters, the
Assistant General Counsel for Grants), all protest documents and
attachments must be concurrently transmitted by the protester to
all other parties with a direct financial   interest which may be
adversely affected by the appeal.
                             725

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    The EPA official designated to resolve the appeal will
consider only written appeals filed within seven calendar
days after the adversely affected party (initial protester or
other party)  received the grantee's determination.  This require-
ment can be met if the adversely affected party transmits a tele-
gram to EPA within the seven calendar days, indicating an intent
to file a protest appeal, and the complete protest appeal is
received by EPA within seven days thereafter.

    When EPA receives a protest appeal and the grantee has not
deferred the procurement action, EPA will promptly request that
the grantee defer the protested procurement action with respect
to the subagreement or item at issue until the appeal is resolved.

    EPA may summarily dismiss the appeal if:

    - procurement issues are not involved,

    - the appeal is otherwise not reviewable,

    - procedural requirements (i.e., meeting deadlines)
      have not been complied with,

    - the protester does not agree to extend the bid and
      bid bond period, or

    - the appeal lacks merit.


    If a review is warranted, EPA may arrange  for the submission
of written arguments or participation in a conference by all
parties who may be adversely affected by the appeal.  EPA will
then determine whether the protest has a rational basis.  EPA's
determination will constitute the final action, from which there
is no further administrative appeal.  State reviewing agencies may
not be delegated responsibility for the resolution of protest
appeals under EPA's procurement regulations.

Re;  40 CFR 33.001{g); 40 CFR Part 33, Subpart G
E.  SMALL PURCHASES

    Small purchase procurement procedures provide for a simpli-
fied method of procurement where the dollar value is relatively
small.  Small purchases, however, must be conducted in such a way
as to insure competition, so that the product or service is the
best value for the lowest price.  In reviewing small purchase
procurements, insure that:
                             726

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    1.  the aggregate amount of any one procurement does
        not exceed $10,000, or a lower amount established
        by State or local law;
        the procurement was not divided into smaller amounts
        to avoid the dollar limitation for small purchase
        procurement; and
    3.  price or rate quotations were obtained and documented
        from an adequate number of qualified sources.
    Re:  40 CFR 33.305, 33.310, 33.315
F.  NONCOMPETITIVE NEGOTIATION

    Noncompetitive negotiation (i.e., sole source procurement) is
the least favored method of procurement, and may only be used if the
other three methods of procurement are inappropriate, or where the
requirements for continuation of engineering services have been
satisfied (see Section C.3.c above).  Noncompetitive negotiation for
the continuation of engineering services requires the prior written
approval of the reviewing agency.

    Noncompetitive negotiation may only be used if the other three
procurement methods (i.e., competitive bidding, competitive negotia-
tion, and small purchase) are inappropriate because:

    1.  the item is available only from a single source;


    2.  a public exigency or emergency exists;


    3.  after solicitation from a number of sources,
        competition is inadequate (e.g., after formal
        advertising, only one responsive and responsible
        bid is received) (see Section D.l.d above); or


    4.  the reviewing agency authorizes noncompetitive
        negotiation for continuation of engineering
        services (see Section C.3.c above).

    Re: 40 CFR 33.605, 33.715
                                                     TM 86-1
                             727                       (85-1)

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G.  MONITORING CONSTRUCTION

    Purpose -•

    Insure that the qrantee manages the project in accordance with
the commitments made in the grant application and the grant accep-
tance, and that the project is constructed in accordance with the
approved plans, specifications, and change orders.


    Discussion:

    To insure adequate performance by all equipment vendors and
construction contractors, the reviewing agency must provide for
sufficient monitoring of construction activities.  The reviewing
agency's monitoring program should begin with a preconstruction
conference, extend through interim construction monitoring
activities, and conclude with a final inspection.  The extent and
frequency of monitoring will depend on the size and complexity of
the project, and the needs and performance of the grantee, the
resident inspection team, and the construction contractors.  The
agency performing the monitoring activities will be designated
in the State/EPA delegation agreement, with monitoring activities
carried out by the State, E^ and/or the U.S. Army Corps of
Engineers (COE).  In some States, one of these agencies has been
given the responsibility for all monitoring activities, while in
others, two or all three agencies share this responsibility.
Each agency is to follow the detailed monitoring procedures in
the State/EPA delegation agreement and/or the EPA/COE interagency
agreement.

    To assist reviewing agencies in carrying out a thorough and
efficient monitoring program, EPA has prepared two guidance
documents which include a complete discussion oE the specific
actions to be undertaken during construction monitoring:
"Operating Procedures for Monitoring Construction Activities at
Projects Funded under the Environmental Protection Agency's
Construction Grants Program," dated September 1<)33, and "Construc-
tion Management Evaluation and Project Management Conference
Manual," dated December 1983.  The documents should be used in
conducting onsite construction monitoring activities.  However,
reviewing agencies must also maintain off-site (i.e., in the
reviewing agency's office) construction monitoring through the
review of payment requests, inspection reports, change orders,
correspondence, and telephone communications.  This information,
when compared with the project schedule in the grant agreement,
will provide an indication of the adequacy of construction
progress, and may form the basis for changing the frequency of
                             728

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onsite monitoring activities.  The reviewing agency is to insure
that the grantee also submits guarterly reports (EPA Form 6005-1)
concerning the use of minority and women's business enterprises
(MBE/WBE) -

    For construction monitoring activities to be effective, it
is essential for the monitoring staff to carefully review the
project files for factual information prior to conducting onsite
monitoring activities, to carefully document all deficiencies
observed, to submit completed monitoring reports promptly, and to
take follow-up action to insure the correction of all deficiencies.
The procedures below briefly highlight the key activities which
take place during construct ion monitoring , but are not intended to
be a substitute  for the detailed procedures in the two guidance
documents discussed above, and in the delegation and interagency
agreements .
    1 •  Preconst ruction Confere^nce

        After the award of construction contracts, the reviewing
    agency  is to insure that the grantee arranges a preconstruc-
    tion conference.  This conference may be conducted separately
    by  the  grantee, or in combination with a preconstruction
    conference conducted by DOL's Egual Employment Opportunity
    Office  (generally conducted only on projects of $1 million or
    more) .  Where the reviewing agency plans to conduct a PMC
    (see  Item 2 below), the preconstruction conference should
    concentrate on construction activities which directly
    involve the construction contractors.  In addition to
    defining the role of the reviewing agency and establishing
    procedures and responsibilities for interim inspections,
    typical items to be clarified during the conference are:

        a.  points of contact  for all parties;

        b.  lines of authority and responsibility;

        c.  interrelationships among the grantee, the engineer,
            the construction contractors,  the eguipment
            suppliers, the  State, the COE , and  the EPA Regional
            Office ;

        d.  periodic progress  meetings;

        e.  access  to the work for  interim  inspections;
                              729

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    f.  insuring adherence to the construction
        schedule, and notification procedures for
        excusable delays;

    g.  flow of documents such as payment requests,
        change orders, and inspection reports;

    h.  change order review and approval process;

    i.  payment process, including development of
        payment schedules;

    j.  contractor responsibilities with regard to
        the project sign, posting of wage rate
        determinations, compliance with th€'. require-
        ments of DOL's Occupational Safety and Health
        Administration and the U.S. Equal Employment
        Opportunity Commission, and compliance with EPA1s
        requirements for MBE/WBE and small business
        subcontracting;

    k.  need for adequate documentation of the grantee's
        procurement procedures and project costs; and

    1.  EPA and State audit requirements.
    When the grantee conducts the preconstruction conference,
the reviewing agency should participate and insure that the
items listed above are discussed.
2.  Project Management Conference

    A PMC, which may be held any time between the pre bidding
period and initiation of construction, should be conducted on
virtually all Step 2+3 and Step 3 projects.  The primary
purpose of the PMC is to provide detailed guidance to the
grantee and the construction management team in overseeing
and managing the construction grant.  A PMC generally should
take one to three days to complete, and can be conducted by
either one person or a team, depending on the size and com-
plexity of the project.  The points of primary focus are:

    a.  grant management by the grantee:

         i.     regulatory requirements, including
                procurement procedures and property
                control;

         i i .    adherence to the project schedule;
                         730                      TM 86-1

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        iii.   special grant conditions (see
               Section VI.M.6);

        iv.    resident inspection;

        v.     recordkeeping (both fiscal and
               correspondence), including the
               need for adequate documentation
               of procurement procedures and
               project costs;

        vj.    project performance certifica-
               tion; and

        vii.   project closeout procedures,
               including  EPA and State audit
               requirements;
    b.   construction  management  activities:

         i.      the engineer's  responsibilities  and
                authority,  including  review  of as-
                built and  shop  drawings;

         ii.     resident  inspection activities,
                including  insuring conformance
                with  the  approved plans  and
                specifications,  daily logs,  and
                materials  testing;

         iii.    insuring  adherence to the construc-
                tion  schedule;

         iv.     progress  payments; and

         v.      change order procedures.

    Re:   EPA publication,  "Construction  Management
         Evaluation and Project Management Conference
         Manual," December 1983
3.  Interim Inspection

    Interim inspections are essential to insure that the
grantee, the construction management team,  and the construc-
tion contractors are fulfilling their respective responsi-
bilities.  The frequency of interim inspections should be
determined by the size and complexity of the project, the
rate of progress being achieved, and the nature of problems
                         731                        TM 86-1

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or  issues arising during construction.  Each project should
normally be  inspected monthly, but where a project is
progressing  well and the grantee has demonstrated a high
level of project management capability, bimonthly or
quarterly inspections may suffice.  in unusual cases, such
as  extremely large, complicated, or troublesome projects,
weekly or even daily inspections may be necessary.  Regular
interim inspections may also provide an opportunity to focus
on  one specific area at a time, such as materials testing,
fiscal records, project files, procurement, management of
claims and change orders, etc.  Using this approach, all
significant  aspects of grant management should be covered
over the life of the project.  Where necessary, unannounced
interim inspections may also be conducted, based on the findings
of  earlier inspections or other information brought to the
attention of the reviewing agency.

    Principal areas of focus during interim inspections typic-
ally include:

    a.  grant management and recordkeeping;

    b.  compliance with grant and permit conditionsr

    c.  contract administration, including claims
        and change order management;

    d.  construction inspection activities and records,
        including verification of work in place, material
        testing, and replacement of defective work; and

    e.  implementation of the plan of operation, including
        preparation of the O&M manual.

Re: EPA publication, "Operating Procedures for Monitoring
    Construction Activities at Projects Funded under  the
    Environmental Protection Agency's Construction Grants
    Program," September 1983

4.  Construction Management Evaluation

    A CME is a comprehensive onsite review of the entire project,
including all phases of the grantee's and contractor's respon-
sibilities and performance. It is a more formalized inspection
procedure than an interim inspection, and differs primarily in
the depth, duration, and purpose of the review.  A CME typically
ranges from 4 to 5  days for a medium  sized project, up to 10
days for a large multi-contract project, and  is generally
conducted when the  project is 40 to 60 percent complete (20 to
40 percent if a PMC has not been conducted).
                         732

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    The CME is conducted by a multi-disciplinary team, with
one member serving as the team leader.  Team members must be
experienced in their areas of investigation, so that they can
detect inefficiencies and irregularities, and assist the
grantee in the successful completion of the project, including
preparation for project startup, operation, and audit.

    A CME should begin with a formal entrance briefing, conclude
with an exit briefing, and be followed by the preparation of a
CME report.  The objective of the CME is to evaluate the grantee's
grant management procedures, and through this process gain insight
into overall program management.  Typical areas of review include:


    a.  Grant Management

         i.    grant requirements,

         ii.   procurement requirements,

         iii.  accounting systems, and

         iv.   recordkeeping systems.


    b.  Construction Management

         i.    inspection reports,

         ii.   materials testing and certificates,

         iii.  shop drawings;

         iv.   as-built drawings;

         v.    progress payments,

         vi.   claims,

         vii.  change orders,

         viii. correspondence,

         ix.   labor requirements, and

         x.    organizational requirements.
                         733

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    At the conclusion of the CME, a formal report is prepared
under the direction of the team leader.  A typical report will
will average 10 to 20 pages, and will generally be divided in-
to five parts:  introduction, grant management, construction
management, action items, and conclusions.  Of particular
importance are the action items, which may include actions by
the grantee to correct deficiencies; actions to be undertaken
by the reviewing agency to insure the successful completion
and audit of the project; and actions to be taken by EPA to
improve its regulations, guidance, or procedures to prevent
similar problems on future projects.

Re:  EPA publication, "Construction Management Evaluation
     and Program Management Conference Manual," December 1983


5.  Final Inspection

    A final inspection is generally made within 60 days after
the grantee notifies the reviewing agency that the building
of the project has been completed.  The grantee must also
notify the reviewing agency of the actual date of initiation
of operation, which represents the beginning of the one year
performance period, at the conclusion of which the grantee
must certify whether or not the project meets its performance
standards.  The depth and duration of a final inspection will
depend, to a large extent, on the quality and frequency of
earlier onsite monitoring inspections.  The purpose of the
final inspection is to verify that the project has been
completed in accordance with the approved plans, specifica-
tions, and change orders; that all grant conditions and other
regulatory requirements have been satisfied; that the project
is operable; and that the grantee is prepared for audit. Once
these conditions have been verified, the final building pay-
ment is to be made to the grantee (see Section VIII.D.4).
During final inspection insure that:


    a.  construction has been completed and conforms
        with the approved plans, specifications, and
        change orders;

    b.  all grant conditions have been satisfied;

    c.  all equipment has been delivered and installed,
        and is operating properly;

    d.  all equipment manuals, guarantees, and
        warranties have been assembled;
                         734

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e.  all deficiencies noted during interim
    inspections have been corrected;

f.  records are complete and readily available
    for audit;

g.  the user charge (UC) system and sewer use
    ordinance (SUO) have been enacted by
    municipal ordinance, and are being imple-
    mented and enforced by all participating
    municipalities;

h.  the plan of operation has been implemented,
    including the hiring and training of all
    personnel:

i.  the O&M manual is complete and usable, and
    copies are readily available for operating
    personnel;

j.  laboratory facilities are complete, stocked
    with required supplies, and ready for use
    in monitoring operations;

k.  all change orders have been completed and
    summarized, and all claims have been
    satisfactorily resolved;

1.  aesthetic features, flow level, and abandoned
    unused, or inoperable facilities are noted,
    for use in preparing the project officer
    certification (see Section VIII.D.8);

m.  a property management system is in place;

n.  the title to eligible land includes Ian-
    gauge which protects the Federal interest
    in such land (see Sections VI.H.B.b and
    VI.M.S.d) .

o.  continuing engineering services during the
    first year of operation have been procured
    and are being carried out;

p.  final cut-off date for incurring allowable
    project costs, except for continuing engin-
    eering services during the first year of
    operation, has been established; and
                     735

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        q.   any related  projects,  such  as  sewer  system
            rehabilitation or  other  project  phases  or
            segments,  are  on schedule.

        Re,  40 CPR 35.2208, 35.2216,  35.2218;  EPA publication,
            "Operating Procedures  for Monitoring Construction
            Activities at  Projects Funded  under  the Environmental
            Protection Agency's Construction Grants Program"
            September  1983
H .   MANAGEMENT_0F .CJLAIMS _AND CHANGE ORDERS

    Purpose:

    Insure that changes to the original contract documents are
necessary, reasonable, and managed in such a way as to maintain
the project's integrity, schedule, and costs.


    Discussion:

    A change order is a written document, issued by the grantee to
a contractor, which alters the price, time of completion, or any
other requirement of the original contract documents, but does not
increase  the scope of work of the contract.  Change orders may
originate from  the contractor as a proposal or claim, or may be
initiated by the grantee.  Historically, the lack of change order
management has  caused considerable delay, increased costs, and in
some cases, lengthy and costly litigation. This section discusses
change orders for construction contracts.  Change orders for
contracts for professional services are discussed in Section C.8
above.

    To be eligible for grant  participation, the change addressed
 in  the change order must be within  the  scope of the project.   The
 scope of  the project  is the work necessary to construct the facility
described in the approved  facilities  plan.   If  the change  is within
 the scope of the project,  but outside  the general scope of work of
 existing  contracts on  the  project,  the  work  required by the change
must be  procured as  a  separate contract through formal advertising
 procedures,  (see Section  D above),  unless  the procedures described
 in  Section E or F are  appropriate.   However, where the work required
 by  the change  is within the  scope  of  the project  and  the general
 scope of  work  of an  existing  contract,  i .^., the  proposed  change_js
 within the  "general  quantity" of  the  existing contract and is  con-
 •^gfrgnt  with the~e^ is ting  contractor's "trade",,, a change  order may
                              736                          TM 86-1

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be issued to the contractor, and the price of the change negotiated
as an equitable adjustment to the contract.

    Management of change orders by the grantee and the grantee's
construction management team is one of the principal areas of
discussion and review during the preconstruction conference and the
PMC.  Regulatory provisions concerning project changes have been
included in all EPA funded projects, and are identified in 40 CFR
33.1030, Paragraphs 3 through 9, for grants awarded on or after
May 12, 1982; comparable provisions are included in 40 CFR Part 35,
Subpart E, Appendix C-2, for grants awarded prior to May 12, 1982.

    It is the reviewing agency's responsibility to insure that the
grantee has an operating change order management system in place,
and that the grantee reviews and acts upon all change orders
promptly.  All State agencies, and particularly those with delega-
tion agreements, have developed detailed change order review check-
lists and reviewing procedures.  These established procedures should
be followed.  In order to prevent costly delays, a strong effort
should be made to review all change orders and issue approval/denial
decisions promptly.

    EPA's guidance document, "Management of Construction Change
Orders - A Guide for Grantees," March 1983, includes a chapter
entitled "Reviewing Agency Procedures."  Review of change orders
is also discussed in EPA's "Construction Management Evaluation and
Project Management Conference Manual," December 1983.


    Procedures;

    The procedures discussed below highlight considerations to be
taken into account by the grantee in managing claims and change
orders, and by the reviewing agency during the processing of change
orders:


    1•  Conditions that May Warrant a Change Order

        The six conditions below are those which are most
    frequently encountered as the basis for a change order.
    The reviewing agency must carefully evaluate the circum-
    stances surrounding the change and compare the proposed
    change against the original contract documents, including
    the plans and specifications. In some cases, the contractor
    may be entitled to a change order under State contract law,
    but the change may be ineligible for EPA grant assistance.
                             737                        TM 86-1

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a •   Differing Site Conditions

    When bidding, contractors generally
    investigate site conditions and review
    information in the contract documents
    such as soil boring logs, quantities
    of rock, depth to groundwater, etc.
    After initiating construction, if the
    site conditions significantly differ from
    those described in the contract documents
    or differ from those normally encountered
    in construction, the contractor may be
    entitled to a change in the contract price.
    Judgement is required to determine whether
    the contractor should have anticipated the
    conditions as a normal risk in bidding the
    the project.
    Errors and Omissions

    Errors and omissions are usually design or
    drafting deficiencies in the plans and
    specifications.  Where the error or omission
    would normally have been included in accurate
    plans or specifications, and can be added to
    the contract at approximately the same cost
    as the work would have cost if included in
    the original bidding documents, the change
    order may be considered an allowable cost.
    If the error or omission results in re-
    construction or other additional effort
    beyond that which would have been required
    if the work had been included in the
    original bidding documents, the cost of
    such additional work will not be allowable.
    In such cases, the grantee may seek redress
    from the designer or other responsible
    parties. See Section IX.F.4, Paragraph z^.l.g
    (2)(i), for an additional discussion of the
    allowability of the cost of correcting errors
    and omissions.
 c •  Regulatory Changes

    At  times, new  laws or  regulations  are enacted
    by  the  local,  State, or  Federal government
    requiring retroactive  application  of new
    requirements  (e.g.,  revised  State  water quality
                      738

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    or design standards).  Where applicable,  such
    statutory or regulatory changes may warrant
    a change order,  which  may be considered  an
    allowable cost.
d.  Design Changes

    A design change is a modification to an existing
    adequate design. In order to be approved,  it
    should be cost effective and offer a net life
    cycle savings (i.e., including future O&M costs).
    Design changes usually originate as proposals
    from a construction contractor, based on the
    construction incentive (CI) clause (see
    Section V.C.l.v). Where a design change other
    than a CI proposal represents a substitution
    of equipment or material, care should be
    exercised to insure that the nonrestrictive
    specifications or sole source procurement
    provisions are not violated.
e.  Overruns and Underruns

    Bids for materials are often based on estimated
    quantities and unit prices.  Actual quantities
    will usually differ, and the contract price will
    be adjusted accordingly.  However, grant payments
    for such adjustments may be limited.  (See
    Section IX.C.I.a.)  Care must be exercised to
    insure that quantities are continually monitored
    and where possible, significant overruns are
    avoided.  Many specifications contain a clause
    which allows unit prices to be renegotiated if
    the final quantity differs from the estimated
    quantity by 15 percent or more.   (The term
    "renegotiated" is traditionally used, even when
    the original price was bid, rather than
    negotiated.)
f.  Time of Completion

    Because of the potential for claims and possible
    litigation, special care must be exercised in
    this area.  Claims may arise with regard to the
    time of completion because the contract provides
    for the assessment of liquidated damages against
    the contractor if the contract completion date
                     739                       TM 86-1

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       is not met.  Liquidated damages assess the contrac-
       tor a specific dollar amount for each day of delay
       beyond the contract completion date to cover the
       grantee's extra costs (see Section IX.F.4, Para-
       graph A.3.a). However, the contract completion time
       may be extended for cause  (e.g., work added by change
       orders, unusually adverse weather conditions, etc.)
       by the grantee, thereby reducing or eliminating the
       assessment of liquidated damages.

       Conditions which may arise with regard to the time
       of completion include termination (either for con-
       venience or  for default), suspension of work,
       directed acceleration, time extensions or
       constructive acceleration.  Each condition has its
       own  inherent problems, and very often their use will
       be guided by existing State law.

       A change order which merits an extension of the
       contract completion date must  include a provision
       for  an appropriate extension of that  completion
       date.   (When no time extension  is required, the
       change order should clearly document  that both the
       grantee and  the contractor agree that no extension
       is  needed.)  Such changes  will usually extend the
       time  of project completion beyond the end of the
       grant budget period,  in which  case  the change will
       also require the preparation of a formal grant
       amendment.
        Re;  40 CFR 33.1030;  40 CFR Part  35,  Subpart I,
            Appendix A,  Paragraphs A.l.f,  A.l.g,  and
            A.2.C.;  40 CFR 35.2205.
2.  Claims

    When a written demand (voucher,  invoice or other request
for payment )  or a written assertion (seeking money or an
adjustment, interpretation or relief from contract terms!
is submitted by a contracting party it is NOT a claim.
However, when such a request is rejected or otherwise
disputed by the recipient, it becomes a claim.  If such
claims are not addressed promptly and in an objective
manner, costs can escalate dramatically, especially if
the dispute leads to arbitration or litigation.  For this
reason, it is imperative that grantees develop and apply
management techniques for the avoidance and quick resolution
of claims.  When a claim is made, the grantee should
attempt to resolve the claim as promptly as possible, either
                            740                    TM 86-1

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by negotiating a change order if warranted, or by notifying
the contractor that the claim has been evaluated and found
to be without merit.
        Common Causes

        Claims most frequently result from the
        conditions listed in Item 1 above, and less
        often from other more unusual circumstances.
    b.   Prevention

        A grantee must insure that good management
        practices are employed throughout the pro-
        ject cycle, even when tasks are performed
        by others (e.g., grantee's engineer), since
        the grantee remains solely responsible for
        the planning, design, construction, and
        operation of the treatment works.  Specific
        management techniques that have been shown
        to prevent or at least minimize the occurence
        of claims can be found in the "Claims Pre-
        vention"  section of the EPA publication,
        "Claims Management Guidance," September 1984.
        While all of the practices noted in that
        section are important to know and apply,
        grantees  should be particularly encouraged
        to follow the practices listed below, which
        have been found to be critical to a well-
        managed project;
                Insure that a fully adequate sub-
                surface investigation is made,
                and that the results of the inves-
                tigation are included in the final
                plans and specifications (see
                Section V.C.2.cc).
          ii.    Maintain close  management control
                over the construction  project,  and
                act quickly to  resolve problems
                at the  time they arise.
                         741

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      iii.   Insure that the plans and specifi-
            cations are biddable and construc-
            tible (see Section V.C.3),  that all
            conflicting language has been re-
            moved, and that all ambiguities
            have been clarified prior to adver-
            tising for bids.

      iv.    Specify an adequate construction
            schedule commensurate with the com-
            plexity of the project.

      v.     Insure that the schedule provisions
            are enforced,  that the schedule is
            periodically reviewed, and that
            revisions are  made (by change order)
            whenever circumstances justify the
            extension of the schedule dates.
c.  Resolution

    After a claim is filed,  the grantee must insure
    that everything possible is done to address the
    issues raised, and to mitigate the future costs
    of the claim.  This usually entails making a
    thorough analysis of each issue raised by the
    claim, and negotiating a fair and equitable
    settlement of the meritorious portions of the
    claim, if any.  Grant funding is available for
    assessment and negotiation costs, but only if
    prior approval is received from the reviewing
    agency.  A list of good management practices
    leading to quick and effective resolution of
    claims may be found in the "Claims Resolution"
    section of the EPA publication, "Prevention
    and Resolution of Contractor Claims," March 1985.

d.  Allowable Costs

    Certain claim related costs are allowable, pro-
    vided that the proper procedural steps have been
    followed. However, grant payments  for claim
    costs/ except for differing site conditions,
    cannot exceed the regulation controlling
    such payments.   (See Section IX.C.I.a.)  A
    detailed analysis and explanation  of the
    pertinent regulations may be found in the  "Claims
    Allowability" section of the EPA publication,
    "Prevention  and  Resolution of Contractor Claims,"
    March  1985.   In  summary, the following  rules
    apply:

                     742                       TM  86-1

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          i.     The  reasonable  costs  of  indepen-
                dent assessment and  negotiation of
                costs (including legal,  technical,  and
                administrative  costs)  are  allowable,
                but  only if  prior approval is
                received from the reviewing  agency
                and  certain  other conditions,  dis-
                cussed in the "Claims Management
                Guidance,"  are  met.

          ii.   Meritorious  contractor claims are
               allowable, provided that  all  the
               rules of change  order  approval  have
               been  met, and the costs were  not
               caused by the grantee's mismanage-
               ment  or vicarious liability for the
               improper actions of others  (see
               Section IX.F.4,  Paragraph A.l.f,
               A.I .g , and A.2.c) .

          iii.  The reasonable costs  (including
               legal, technical, and  administra-
               tive  costs)  of defending  against
               a claim, or  of prosecuting  a  claim
               to enforce a  subagreement,  are
               unallowable  unless six specific
               conditions,  discussed  in  the  "Claims
               Management Guidance,"  are met,  and
               prior approval is received  from the
               reviewing agency.


    A grantee may request technical  or legal assistance
    from the  reviewing agency.   Such assistance may be
    provided, but generally is  given  only  after all
    possible  sources of assistance at the  local level
    have been exhausted.

    Re; 40 CFR  35.2350; 40  CFR Part  35,  Subpart I,
        Appendix A,  Paragraphs  A.l.f, A.l.g, and  A.2.C;
        40 CFR  35.2205; and "Prevention  and  Resolution  of
        Contractor Claims,"  March 1985.


3.   Prior Approval

        Minor changes in the project work, consistent with the
    objectives  of the project and within the scope  of the
    grant agreement, do not require  a formal grant  amendment.
    Prior approval by formal grant amendment is required
                         743                        TM 86-1

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for changes (either by change order  or  by initiating  a
new procurement action)  which:

    a.  increase grant funding (i.e.,  require
        additional funds beyond that provided
        in the contingency allowance);

    b.  transfer the project to another grantee
        (includes a reorganization which forms a
        new unit of government to build and/or
        operate the project);

    c.  alter the project performance standards;

    d.  alter the type of wastewater treatment
        provided by the project;

    e.  significantly delay or accelerate the
        project schedule;

    f.  substantially alter the facilities plan,
        design drawings and specifications, or the
        location, size, capacity, or quality of any
        major part of the project; or

    g.  require rebudqeting of amounts from one
        activity to another (e.g., from construction
        to non-construction activities, from in-
        direct costs to direct costs, from employee
        training to another cost category, etc.).

    Re: 40 CFR 30.700, 30.705, 35.2204


4.  Submission

    Change orders, other than  those involving a formal
grant amendment as discussed  in  Item 3 above, do not have
to be submitted to the reviewing agency prior to execution
and implementation, regardless of whether or not the grantee
has a certified procurement  system. However, grantees
should be  encouraged to  submit  all change orders to the
reviewing  agency  in a timely manner, since eventually, any
cost  increases  (using part of  the contingency allowance) or
decreases  will  have to be reconciled with  the existing pro-
ject  grant to determine  the  final grant amount.  Also, it is
to  the grantees advantage to  have allowability  of costs
determined by  the  reviewing  agency  prior  to  project closeout,
to  provide a basis for  the review of project costs by EPA's
Office of  the  Inspector  General  (OIG) .
                          744

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    Except for grantees whose certified procurement
systems include provisions which meet the intent of EPA's
change order requirements, all grantees must conduct a
cost or pricing analysis for negotiated change orders
exceeding a net change of $10,000, (i.e., both additive
and deductive changes), with profit negotiated as a separate
element of the price, and obtain cost or price data from
the contractor using EPA Form 5700-41, or a similar format
which provides the same information.  The cost or pricing
analysis need not be submitted to the reviewing agency,
but must be maintained in the grantee's files for review
by the reviewing agency if desired.

Re:  40 CFR 33.235, 33.290,  35.2204;  40 CFR Part 33,
     Appendix A
5.  Change Order Review

    Prior to change order approval,  the reviewing agency
is to insure that:

    a.   Justification of the need for the change order
        has been documented, and includes an evaluation
        of alternate ways of achieving the same
        objective.


    b.   A comparison has been made between the change
        order and the approved contract's scope of
        work, including plans and specifications, and
        the model change order clauses in the contract
        documents.
    c.   A method has been established for determining
        the price of the change order,  and any additional
        time required for contract completion, including
        grantee/contractor negotiations,  price or cost
        analysis, and comparison with the engineer's
        independent estimates.
    d.   The effect of the change order on  other structures
        and items  of  equipment  (secondary  effects),  the
        additional cost of extended engineering inspection
        services,  and the additional O&M costs  over
        the useful life of the  project have  been deter-
        mined.
                         745                      TM 86-1

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        e.   The  effect of  the change order on  the  quality
            of  the  work,  including  the  project performance
            standards and  the capacity  of the  treatment
            works,  has been  determined.
        f.   The  change  order  will  not  circumvent  EPA's
            procurement regulations,  including  the  require-
            ment for  competitive equipment  specifications.


        g.   A comparison with the  reviewing agency's  on-
            site inspection reports has  been made.


        h.   The  change  order  requires  prior approval  and/or
            the  preparation of a  formal  grant amendment
            before implementation.
            The cost of the change order is allowable for
            grant participation,  or a percentage of  the
            change order is allowable, excluding costs
            associated  with reserve capacity (see
            Section VI.D.18).
        Re:  40 CFR 30.700,  30.705,  33.1030,  35.2050,
            35.2204;  EPA publication,  "Management of
            Construction Change Orders - A Guide for
            Grantees,"  March 1983
I.  POST-CONSTRUCTION ACTIVITIES

    This section is concerned only with engineering services
during the first year of operation and the project performance
certification.  Section G.5 above discusses the final project
inspection.  Closeout of projects is discussed in Section VIII.D.
1.  Engineering Services during the First Year of Operation

    The 1981 CWA amendments require that the grantee procure the
services of the engineer or firm that provided engineering
services during construction, or the engineer or firm that super-
                             746                    TM 86-1

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vised construction,  to assist in operating the project during its
first year of operation.  The term "construction" includes planning,
design, and engineering services during the building of the project,
and is not to be confused with the term "building," which includes
only Step 3 activities.  These terms are defined in 40 CFR
35.2005(b)(8) and (b)(13).

    The 1981 CWA amendments use the term "supervise," whereas the
regulations use the  word "direct," when referring to the services to
be provided by the engineer.  The word "direct" better reflects the
intent of the services, since it does not imply a daily "in charge"
presence at the treatment works, nor a role as employee supervisor
or chief operator.


    a.  Scope of Engineering Services

        The regulatory requirements for the scope of
        engineering  services during the first year of
        operation are described in Section C.S.b above.
        In essence,  the engineer is to direct the opera-
        tion of the  treatment works, particularly with
        regard to problems which develop; revise the O&M
        manual to reflect actual operating experience;
        train employees; and provide engineering advice
        to the grantee as to whether the treatment works
        is meeting the project performance standards.

        The intent of these requirements is that the
        engineer with the most experience in the plan-
        ning, design, and building of the project will
        utilize this expertise to help the grantee in-
        sure that the project meets its performance
        standards.  The engineering services will
        normally include reviewing laboratory procedures,
        including the frequency and results of tests to
        control unit process operations; recommending ways
        to maintain  appropriate levels of solids or dis-
        solved oxygen in the aeration tanks; determining
        the best conditions for the withdrawal of sludge
        from the digesters; etc.

        Engineering  services are also required for projects
        which include only sewers (collection, trunk, and/
        or interceptors) and pumping stations. Such services
        will be less extensive than those required for a
        treatment plant, but will typically include:
                             747                      TM 86-1

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       i.   for pumping  stations,  periodic  site
            visits to check operations (e.g.,  to
            insure that  float control  mechanisms
            are operating  properly,  that  pump
            cycling is the most efficient,  that
            seals are properly maintained and
            not leaking, etc.);

       ii.  for sewers,  opening and  inspecting
            manholes to  observe signs  of  sur-
            charging or  sand deposits; after
            storms, checking for inflow or
            flooding; etc. If the  project In-
            cluded rehabilitation  of sewers
            to eliminate excessive I/I, the
            engineering  services may also
            include a limited amount of flow
            monitoring at  sites within the
            collection system, to  supplement
            flow measurements at the treat-
            ment facility.

    Engineering services during the  first year of opera-
    tion, therefore, are those necessary  to insure the
    efficient operation  of the treatment  works project,
    and are directed toward achieving  compliance with
    the project performance standards. The  extent of
    such services will vary from project  to project,
    depending on the size, type, and complexity  of the
    project and the needs  of the grantee's  operating
    staff.

    Re;  40 CFR 35.2218(b)


b .  Procurement of Services

    The scope of work for  the engineering contract for
    inspection and supervision services during the building
    of the project should  also include engineering services
    during the first year  of operation. As  an  alternative,
    the grantee may procure the engineering services re-
    quired for the first year of operation  as  the construc-
    tion of the project nears completion.  Regardless of  the
    timing of procurement  of engineering  services, the
    procurement must be conducted  in accordance  with 40  CFR
    Part 33 (see Sections  B, C, E, and F  above).  While  a
    fixed price contract is acceptable, because  of uncer-
    tainties during the first year,  a cost-plus-fixed-fee
    type contract may be more appropriate.
                         74B

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    c.   Payment  Requests

        Payments for  the  Federal  share  of   engineering  services
        during the  first  year  of  operation  are  to  be  processed
        as  discussed  in Section IX.B.   For  fixed price  contracts,
        payment  is  related  to  the completion  of specific  tasks.
        For cost-plus-fixed-fee contracts,  payments are made  as
        the work is completed  (generally no more frequently  than
        monthly).
    d.   Deficiencies

        During  the  first  year of  operation,  problems  may develop
        with  regard to equipment,  unit  processes,  or  deficiencies
        due to  poor construction.   The  grantee  is  responsible  for
        correcting  such deficiencies, using  appropriate  means
        such  as:  invoking the provisions  of  equipment warranties,
        construction  contractor performance  bonds, and guarantees
        from  the  design engineer;  initiating enforcement action
        against industrial dischargers; etc.

        As  a  part of  good project management, reviewing  agencies
        should  establish  a program which  tracks the performance
        of  completed  projects during the  first  year of operation.
        Such  a  program could include periodic onsite  inspections
        and a review of monthly operation reports  submitted by
        grantees.  When onsite inspections or monthly reports
        indicate  that a project is experiencing difficulties
        in  meeting  its project performance standards, the
        reviewing agency  should work with the grantee and offer
        technical assistance or guidance  as  appropriate.
2.   Project Performance After One Year

    a.   Certification

        One year after the initiation of the operation of the
        project, the grantee is required to certify to the
        reviewing agency whether the project meets the project
        performance standards.  Project performance standards
        are performance and operational requirements appli-
        cable to the project, including the enforceable
        requirements of the CWA, and the design criteria upon
        which the plans and specifications are based.  For
        projects required to satisfy the enforceable require-
        ments of the CWA, the performance standards include
                             749

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    the design criteria (usually contained in the
    engineer's design report and/or the facilities plan)
    and the effluent limitations contained in the National
    Pollutant Discharge Elimination System (NPDES) permit
    (see Section II.D.2).   For projects not required to
    satisfy the enforceable requirements of the CWA (e.g.,
    sewers and pumping stations), performance standards
    include only the design criteria. For projects which
    include sewer rehabilitation, the quantity of excessive
    I/I to be eliminated is one of the project performance
    standards.

    Project performance standards will normally have been
    established at the time of grant award, and should
    have been included in the grant agreement as a grant
    condition (see Section VI.M.S.g).

    Where the grantee certifies that the project is meeting
    its project performance standards and where all grant
    conditions have been satisfied, the project may be
    prepared for audit and closeout (see Section VIII.D).
    If the grantee is unable to certify that the project
    is meeting its performance standards, the grantee
    must undertake corrective action as described in Item b
    below.
b.  Corrective Action

    If the reviewing agency or the grantee concludes that
    the project is not meeting its project performance
    standards, the grantee is required to submit the
    following:

      i.    a corrective action report which includes
            an analysis of the cause of the project's
            failure to meet the performance standards,
            and an estimate of the nature, scope, and
            cost of the corrective action necessary
            to bring the project into compliance;

      ii.   a schedule for undertaking, in a timely
            manner, the corrective action necessary
            to bring the project into compliance; and

      iii.  the scheduled date by which the grantee
            will be able to certify that the project
            is meeting its performance standards.
                         750

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The reviewing agency is to insure that the proposed
schedule is in conformance with, or will become a
part of, the State-developed schedule for imple-
menting EPA's National Municipal Policy.  For a
municipality whose project is not in compliance with
its NPDES permit, this policy requires that the com-
munity prepare a composite correction plan (see
Section II.D.I).

Except in the case of projects which qualify for a
100 percent grant for the modification or replace-
ment (M/R) of a failed innovative or alternative (I/A)
technology (see Section VI.J), or the extent allowed
by EPA's policy on project additions (see Section IX.F.4,
Paragraph H.l.d), the cost of preparing the corrective
action report and undertaking the corrective action
necessary to bring the project into compliance with
the project performance standards is not eligible for
grant participation.
Re:  40 CFR 35.2218(c) and (d); 40 CFR Part 35,
     Appendix A, Paragraphs H.l.d (3)(b), H.2.e,
     and H.2.1; EPA notice, "National Municipal
     Policy," 49 FR 3832 and 3833 (January 30, 1984)
                     751

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             CHAPTER VIII




   COMPLETION, AUDIT, AND CLOSEOUT
A.  INTRODUCTION




B.  STEP 1 AND STEP 2 COMPLETIONS




C.  STEP 2+3 AND STEP 3 COMPLETIONS




D.  COMPLETION AND CLOSEOUT PROCESS




E.  AUDIT PROCESS
                 801

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A.   INTRODUCTION

     This chapter describes basic considerations  for  completing
and  closing out projects.  It begins with a discussion of  EPA's
policies and procedures  for completing and closing out Step  1
and  Step 2 projects, all of which were awarded grant assistance
prior to the enactment of the 1981 amendments to the Clean Water
Act  (CWA), which eliminated Step 1 and Step 2 grants.  EPA's
goal is to complete all  Step 1 and Step 2 projects by
September 30, 1985, and  to do so without grant increases unless
they are absolutely necessary.

     Later sections describe the completion and closeout of
Step 2+3 and Step 3 projects.  The chapter concludes with  a
discussion of audits, including the resolution of audit excep-
tions.

     Since the completion and closeout processes  are based  on
internal administrative procedures rather than EPA regulations,
there are relatively few regulatory citations in  this chapter.
Therefore, although the procedures and sequence  of events
described in this chapter represent basic considerations for
completing and closing out projects, specific step-by-step
procedures are to be developed by the EPA Regions and the
delegated states.

    Section B, Step 1 and Step 2 Completions, describes EPA
policies and goals concerning the completion of  step 1 and Step
2 projects, and includes guidance on the level of review,  the
conditions under which the work effort should be reduced,  and
the conditions under which a grant increase should be awarded.

    Section C, Step 2+3 and Step 3 Completions,  describes  con-
siderations for completing construction projects, with particular
emphasis on pre-1982 projects involving phased or segmented treat-
ment works or sewer system rehabilitation.

    Section D, Completion and Closeout Process,  describes
activities leading up to closeout,  including final inspection,
cutoff date,  documentation,  payments,  property management,  delays,
engineering services,  project officer certification,  and file
retention.

    Section E, Audit Process,  describes procedures for requesting
and performing audits,  and for resolving audit issues.
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B.  STEP 1 AND STEP 2 COMPLETIONS

    Purpose;

    Complete Step 1 and Step 2 projects by September 30, 1985.


    Discussion;

    The 1981 CWA amendments eliminated the award of Step 1 and
Step 2 grants after December 29, 1981.  It is EPA policy to make
every effort to complete all Step 1 and Step 2 projects (except
large, complicated, or involved projects)  by September 30, 1985.
In so doing, reviewing agencies are to insure that all applicable
regulatory requirements and EPA policies in effect on the date
of grant award are satisfied, and that all grant conditions
contained in the grant agreement are fulfilled.  All of these
projects are subject to EPA regulations contained in 40 CFR
Part 35, Subpart E.  However, since Subpart E has been amended
several times over the years, EPA has published the "Regulation and
Policy Matrix - A Guide to the Rules Governing Grants Awarded
under the Construction Grants Program," dated December 1983, to
assist project reviewers in identifying the regulations and policies
applicable to earlier projects.  The "Regulation and Policy
Matrix" includes a summary of all revisions to 40 CFR Parts 30, 33,
and 35, as well as all other EPA regulations and policy documents
which pertain to the construction grants program.  This publication
should be consulted to identify the applicable regulations and
policies in effect on the date of grant award.

    In completing Step 1 and Step 2 projects, problems can arise
with respect to requests for grant increases, evaluation of a
project's likelihood for receiving a future grant, and the depth
of review, primarily with regard to facilities plans.  In all cases,
every effort should be made to complete the project within its
existing budget, without a grant increase, and in accordance with
any applicable compliance schedule.

    Step 1 and Step 2 projects must be completed in conformance
with the approved scope of work in the grant agreement and the
regulations which were in effect at the time of grant award, and
are subject to audit to insure that these requirements have been
met (see Section E below).  It is therefore essential that project
files document how decisions were made, and that proper value was
received for the funds expended.
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Review Procedures;

1•   Step 1 Projects Completed or near Completion

    a.  Projects Likely to Receive a Step 2+3 or a
        Step 3 Grant
        11.
Review the facilities plan against all
applicable regulations and grant conditions

Complete the environmental review.
        iii.   Advise the grantee to apply for a Step 2+3
              grant, to request an advance of allowance
              for design work,  or to undertake design
              using local funds, whichever is applicable.

        iv.    Make the final payment and administratively
              complete the project up to the point of
              audit request, but do not request an audit
              unless unusual conditions warrant it (see
              Item 6 below).

    b.   Projects Unlikely to Receive a Step 2+3 or a
        Step  3 Grant

        i.     Review the facilities plan against all
              applicable regulations and grant conditions
              to insure that all required items are present
              and complete (see Item c below).

        ii.    Limit review comments to those that are
              substantive or will affect the plan
              recommendat ions.

        iii.   Require the grantee to perform only the
              work necessary for conformance with the
              applicable regulations and grant conditions.

        iv.    Prepare a letter  to the grantee,  identifying
              discrepancies  which would have to be
              corrected by an addendum to the facilities
              plan if a grant were ever to be awarded in
              the future.

        v.     Make final payment and administratively
              complete the project.

        vi.    Request a final audit,  if warranted (see
              Item 6 below).
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c.   Review of Facilities Plans for Completeness

    In cases where a facilities plan is unlikely to
result in the award of a Step 2+3 or a Step 3 grant,
it  is necessary for the facilities plan to be reviewed
for completeness (see Item b above).  The minimum
requirements for completeness depend on the date of
initiation of facilities planning:

    i.  Facilities Planning Initiated before
        May 1, 1974

        B'acilities plans initiated before May 1, 1974,
    may be approved under the regulations published on
    February 11, 1974, if a Step 2 grant: was awarded
    before April 1, 1980. In those cases where facilities
    planning was initiated before May 1, 1974, but the
    project failed to receive a Step 2 grant before
    April 1, 1980, the facilities plan must comply with
    the requirements described in Item ii below.

    Re:  40 CFR 35.917(c)
    ii.  Facilities PlanningInitiated after
        April 30, 1974 and before October 1, 1978

        If each of the following items is present and
    complete in a facilities plan which was initiated
    after April 30, 1974 and before October 1, 1978,
    the  facilities plan can be considered complete
    for  grant payment purposes:

        - description of the treatment works
          for which construction drawings and
          specifications will be prepared,
          including design flow and analysis;

        - description of the entire waste
          treatment system of which the proposed
          treatment works is a part;

        - infiltration and inflow (I/I) documentation;

        - cost effectiveness analysis of alter-
          natives including renovation, upgrading
          operation and maintenance (o&M), and use
          of on-site or non-conventional systems;
                     806

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     - effluent discharge limitations and
       National Pollutant Discharge Elimin-
       tion System (NPDES) permit number,
       if issued:

     - comments or approvals of relevant
       State, interstate, regional, and
       local agencies;

     - public participation summary;

     - demonstration of the grantee's legal,
       financial, institutional, and  manage-
       rial resources;

     - resolution adopted by the grantee,
       accepting the facilities plan;

     - statement regarding grantee compliance
       with the Civil Rights Act of 1964:

     - municipal pretreatment program (if
       reguired by 40 CFR 35.907);

     - estimate of total project costs and
       customer charges, which include both
       user charge (UC) rates and debt service
       costs;

     - site availability and cost;

     - environmental information document (BID);
       and

     - fulfillment of all grant conditions.

 Re: 40 CFR 35.917-1
iii. Facilities Planning Initiated after
     September 30,  1978

     To be considered complete for grant payment
purposes, a facilities plan which was initiated
after September 30, 1978,  must include all of
the items described in Item ii above.  In addition,
each of the following items must be present and
complete :
                  807

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        - analysis of innovative or alterna-
          tive (I/A)  treatment processes;

        - analysis of net primary energy
          requirements; and

        - description of potential recreational
          and open space opportunities.

    Re: 40 CFR 35.917-Hj)


d.  Step 1 Grant Increases

    Grant increases may be awarded only to complete
work included in the original scope of the grant as
identified in the grant agreement, required by 40 CFR
35.917-1, and described in the plan of study.  However,
if the project is already physically complete, it cannot
be "reopened" with a grant amendment for any reason.  In
addition, an amendment can only be approved if the work
proposed will not interfere with bringing the project to
physicalandadministrative completion by the end of
Fiscal Year 1987.  Examples of items which may warrant a
Step 1 increase include:

  i.    cost overruns on cost-plus-fixed-fee
        contracts;

  ii.   archaeological surveys;

  iii.  sewer systerti evaluation surveys;

  iv.   necessary "onsite" studies;

  v.    higher grant share for the use of an
        I/A technology (see Section VI.L.2.d);

  vi.   management plans for sludge and
        residuals; and

  vii.  replanning attributable to changes  in
        the CWA or its implementing regulations
        (e.g., definition of secondary treatment,
        ocean discharge, revised water quality
        standards, etc.).

e.   Reduction of Work Effort

     Grant increases should not be awarded for projects
which  are unlikely to receive a Step 2-1-3 or a Step  3
grant  award.  Where a grant increase is  requested for



                     808                         TM  86-1

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such a project,  the project should be reviewed with
the intent of rescoping or reducing the work effort
through one or more of the following mechanisms:
  i.     Reduction in Planning Area

        Most applicable in rural areas, where work
        can be focused on population centers.

  ii.   Infiltration and Inflow

        Apply current limitations for nonexcessive
        I/I (see Section IV.C.4.3), and reduce
        field monitoring or other labor intensive
        activities.

  iii.   Public Participation

        Reduce the work effort and the number of
        meetings.

  iv.   Cultural Resources

        Reduce the scope, complete only work in
        progress, and identify and document future
        work which would be required if a grant
        were ever to be awarded.

  v.     Need Survey

        Consider eliminating house-to-house surveys,

  vi.   Alternatives

        Reduce to only those which appear feasible,
        and consider the revised definition of
        secondary treatment or its equivalent (see
        Section IV.C.3.1).

  vii.   Treatment Facilities

        Efforts in site planning and preliminary
        design can be eliminated.

  viii.  Sewer Design

        Detailed sewer routes and  profile work
        can be eliminated.
                     809

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      ix.    Sludge  Disposal

            Reduce  the  number  of  alternatives  and  the
            level of  detail  at which the  alternatives
            are  evaluated.

      x.     Environmental  Information Document

            Reduce  the  scope of the BID to correspond
            with the  reduced project scope.
2.  Step 2 Projects Completed or near Completion

    a.  projects Likely to Receive a Step 3 Grant

        i.    Review the plans and specifications and
              other required documents (e.g., UC
              system, sewer use ordinance (SUO), etc.)
              to verify compliance with the applicable
              regulations.

        ii.   Review the plans and specifications to
              determine the percentage of the construction
              work which would be grant eligible, and notify
              the grantee that only  this percentage of the
              design cost is an eligible Step 2 cost.                 ^


     b.  projects Unlikely to Receive a Step  3 Grant


         i.    Review Step 2  work  against applicable  regula-
              tions  to  insure  that  all  items are  present
              and  complete.  The biddability  and construct-
              ability  (B/C)  review  of plans  and specifications
               (see Section  V.C.3) will  usually  be omitted,
              but  may  be  performed  as a  service to the  grantee
               if  the project is  likely  to  proceed to construc-
               tion without  a Step 3 grant.

         ii    Limit review  comments to  those that are
               substantive,  or will  affect  the capacity,  cost,
               treatment process,  or other  major items.
                          810

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                        iii.   Require  the grantee  to  perform only  the  work
                              necessary  to  complete work  in conformance  with
                              the  applicable  regulations  and grant conditions.

                        iv.    prepare  a  letter  to  the grantee  identifying
                              discrepancies which  would have to be corrected
                              if a grant were ever to be  awarded in  the  future.

                        v.     Review the plans  and specifications  to determine
                              the  percentage  of the construction work  which
                              would be grant  eligible, and notify  the  grantee
                              that only  this  percentage of the design  cost  is
                              an eligible Step  2 cost.

                        vi.    Make final payment and  administratively  complete
                              the  project (see  Section D.b below).

                        vii.   Request  a  final audit,  if warranted  (see Item 6
                              below).
                    c.   Step  2  Grant  Increases

                        Grant increases may  only  be made  to  complete  work  in-
                    cluded  in the  original scope  of the grant.  However,  if the
                    project, is  already physically complete,  it  cannot be "re-
                    opened" with a grant  amendment for any reason.  In addition,
                    an  amendment can  only be ajpproved  if  the work proposed will
                    not interfere  with bringingtheproject  to  physical  and
                    administrative completion by  the end  of  Fiscal  Year  1987.
                    Examples  of items which  may warrant a Step  2  increase
                    include:
                        i.     cost  overruns  to  cost-plus-fixed-fee
                              contracts;

                        ii .    archaeological  surveys;

                        iii.   additional  environmental  studies;

                        iv.    redesign  attributable  to  changes  in  the  CWA
                              and  its  implementing regulations  (e.g.,
                              definition  of  secondary treatment, marine
                              discharge waivers,  revised  water  quality
                              standards,  etc .);

                        v.     higher grant share  for the  use  of an  I/A
                              technology  (see Section VI.L.2.d);
*
                                         811                       TM  86-1

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        vi.   value engineering (VE) studios required by
              the regulations; and

        vii.  additional work on UC systems-..


    d.  Reduction of Work Effort

        Grant increases should not be awarded for projects
    which are unlikely to receive a Step 3 grant award.
    Where a grant increase is requested, the project should
    be reviewed with the intent of rescopirig or reducing
    the work effort, through one or more of: the mechanisms
    described in Item l.e above.


3.  Delayed Step 1 and Step 2 Projects

    A delayed project is any Step 1 or Step 2 project where the
work (i.e., facilities planning or preparation of construction
drawings and specifications)  has been delayed for an excessive
period of time, generally for six months or more.

    Grantees with delayed Step 1 or Step 2 projects should be
notified that they will be expected to complete the scope of
work described in the grant agreement.  The notification should
include a time frame for requiring the grantee to submit a re-
vised project schedule, if one is needed, and a reminder of the
FY-87 physical and administrative completion deadline.


4.  Terminationor Annulment

    If a grantee cannot, or will not, meet the conditions
of the grant agreement, its grant may be terminated or
annuled in accordance with the regulations applicable at
the time of grant award.  Termination results in a
financial settlement, and is reflected in a grant amend-
ment.  Annulment results in the repayment to the Federal
Government of all funds previously paid to the grantee.

    If the regulatory criteria for annulment are not
satisfied, the grant may be terminated, based upon the
grantee's failure to comply with the terms and conditions
of the grant agreement.  Negotiation of a termination
agreement with the grantee is the preferable method of
termination.  However, if the grantee refuses to enter into
a termination agreement, EPA may unilaterally terminate the
grant.  Upon termination, EPA must pay the grantee the
Federal share of the allowable costs for non-cancelable
obligations incurred by the grantee prior to the effective
date of termination.
                         812                       TM 86-1

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    The reviewing agency should use its best judgment in
determining the most effective approach for annulling or
terminating grants and negotiating termination agreements.
All termination agreements should provide assurances that
the Federal Government has received full value for the
funds expended.  Any termination agreement that is
negotiated with a grantee must conform to EPA policies,
regulations, and guidelines, and must be supported by
factual data.  All terminations require the concurrence
of the Regional Counsel (or, in the case of Headquarters-
awarded grants, the Assistant General Counsel for Grants).
Additionally, all terminated and annuled grants are
subject to audit (see Section E below).  After completion
of the audit process, these grants are closed out in the
same manner as completed grants (see Section D.d below).

Re:  For grants awarded prior to October 1, 1983,
     40 CFR 30.920, 30.950; for grants awarded
     after September 30, 1983, 40 CFR 30.903
     through 30.905


5.  Other Step 1 and Step 2 Projects

    The circumstances described in Items 1 through 4 above
represent the most common conditions likely to be encountered
for Step 1 and Step 2 projects.  However, other less common
circumstances may arise which do not fall within these
categories (e.g., phased, segmented, Step 2+3, large, or com-
plex projects).  In these circumstances the reviewing agency
must exercise judgement on  a case-by-case basis, taking  into
account the availability of present and future grant funds,
the State's priority system, the project's contribution  toward
improvement  in priority water quality areas, and the likelihood
of the grantee receiving a  Step 2+3 or  a Step 3 grant at some
future time.  As decisions  are made for these projects,  the
integrity of the construction grants program must be maintained,
and decisions must not circumvent  the  intent of the  CWA  (e.g.,
planning and design work for new projects should be  accomplished
under  an allowance, not a grant).


6•  Final Audit  Requests

    Before  they  can be closed  out, all  Step  1 and Step  2 projects
must either  be audited or be approved  for closeout  without an
audit.  Accordingly, a Step 1  or  Step  2 project for  which the
claimed grant  amount  (i.e., the  Federal share of  allowable pro-
ject costs)  exceeds $250,000,  and  for  which  a Step  2+3  or a
Step 3 grant is  not expected  to be awarded,  should  be  forwarded
to EPA's Office  of the  Inspector  General  (OIG) with  a  request
                          813                          TM  86-1

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    for a final audit.  In addition, at the beginning of each
    month, the reviewing agency should provide the OIG Divisional
    Office with a list of Step 1 and Step 2 projects for which the
    claimed grant amount does not exceed $250,000, as is done for
    Step 2+3 and Step 3 projects.  Within 30 days of the receipt
    of this list, OIG will advise the reviewing agency, in writing,
    which of these projects will be audited and which can be closed
    out without an audit.

        If a Step 2+3 or a Step 3 grant is expected to be awarded,
    a final audit for the Step 1 or Step 2 project should not be
    requested until all work on the Step 2+3 or Step 3 grant has
    been completed, unless overriding circumstances require an
    immediate audit.
C.  STEP 2+3 AND STEP 3 COMPLETIONS

    Purpose;

    Complete Step 2+3 and Step 3 grants in a timely manner, in
accordance with the project schedule.


    DiscussjLon;

    All Step 3 grants awarded under 40 CFR Part 35, Subpart I must
include a project schedule for key milestones, including the date
°f building completion and initiation of operation.  Step 2+3 and
Step 3 grants awarded under 40 CFR Part 35, Subpart E also should
have included a project schedule, and although the regulations do
not include a specific requirement for key milestones to be included
in the schedule, these should have been included as a good manage-
ment practice.  Significant changes to all project schedules must be
consistent with the schedule contained in^ the NPDES permit and, re-
quire reviewing agency approval and the preparation of a formal grant
amendment (see Section VI.M).

    Renewed emphasis is being placed on the timely completion of all
Step 2+3 and Step 3 projects in accordance with their project sche-
dules.  Timely completion will result in the earliest possible
achievement of water quality goals, and will allow projects to be
efficiently managed and closed out.

    The review procedures below address several problems associated
with completing a project and preparing it for audit.  The procedure
for closing out projects is discussed in Section D,d below.
                             814                             TM 86-1

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    Review Procedures;

    The subjects discussed below are those which have caused
extended delays in completing projects.   Each project, however,
has its own unique characteristics which will require careful
selection of the methods used to complete the project.

    1.   project Schedule

        Grant agreements for all projects must include a project
    schedule, and work must be accomplished in such a way as to
    maintain that schedule.  Schedules should be reasonable, and
    must conform with other compliance or enforcement schedules,
    including those contained in court or State enforcement orders

        Requests for significant changes to project schedules must
    be critically reviewed.  Approval cannot be given without
    coordinating the proposed changes with NPDES permit require-
    ments and with those of other applicable schedules. Significant
    revisions to project schedules must be accomplished by formal
    grant amendment.  Failure of a grantee to maintain a project
    schedule may form the basis for grant termination or annulment
    (see Section B.4 above).


    Re:  40 CFR 35.935-11, 35.2040(b)(6) , 35.2204, 35,2212,
         35.2214, 35.2216; for grants awarded prior to
         October 1, 1983, 40 CFR 30.345-3, 30.900-1; for
         grants awarded after September 30, 1983, 40 CFR
         30.700
    2.  Phased or Segmented Projects

        One grant condition included in all phased or segmented
    projects, with the possible exception of very old projects,
    is a commitment from the grantee to complete the remaining
    phases or segments in order to make the treatment works, of
    which the phase or segment is a part, operational and in com-
    pliance with the enforceable requirements of the CWA.  This
    commitment includes a schedule specified in the grant agree-
    ment, and must be accomplished regardless of whether grant
    funding is available for the remaining phases or segments.
    This schedule must also be incorporated into the grantee's
    NPDES permit.
                             815                          TM 86-1

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    All phased or segmented projects should be periodically
reviewed by the reviewing agency to insure that the grantee
is performing according to the schedule.  Wiere this is not
the case, and where negotiations with the grantee have failed
to accomplish compliance with the schedule, enforcement action
or action to initiate grant termination or annulment should be
undertaken (see Section B.4 above).

Re:  40 CFR 35.2108, 35.2214


3.  Sewer System Rehabilitation

    Step 2+3 or Step 3 grant awards may have been made for
projects which included both building of treatment facilities
and rehabilitation of sewer systems.  In some of these cases,
the building of treatment facilities was completed, but the
grantee was permitted to continue sewer system rehabilitation
for a period of time after the treatment facilities became
operational. The grant agreement for each of these projects
contains a grant condition which requires the grantee to
complete the rehabilitation on a schedule contained in the
agreement.

    A grantee whose project includes sewer system rehabilita-
tion, and whose grant was awarded after December 29, 1981, is
required to certify whether or not the project meets its per-
formance standards after one year of operation (see Section
VII.I.2.a), including the elimination of excessive I/I
through rehabilitation.  A grantee whose grant was awarded
before December 29, 1981 is not required to certify the pro-
ject's performance after one year of operation.

    Reviewing agencies should periodically review all projects
which include sewer system rehabilitation (with special emphasis
on pre-1982 projects) to insure that the grantee is performing
according to the schedule in the grant agreement.  Where this
is not the case, and where negotiations with the grantee have
failed to accomplish compliance with the schedule, enforcement
action or action to terminate or annul the grant should be under-
taken (see Section B.4 above).

    An alternative action which may be appropriate in some
instances is the reduction in the allowable capacity of treat-
ment facilities and interceptors to the equivalent of 120 qallons
per capita per day (gpcd), based on the approved and allowable
design flow.  If this option is considered, care must be
exercised that the project remains affordable, meets its NPDES
permit requirements, and has received a deviation under the
provisions of 40 CFR Part 30 (see Section IX.E).
                         816

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    Re:   40  CFR 35.2214


    4 .   §|>ecial Grant Conditions

        Many grant agreements  contain  special  grant  conditions
    (i.e., grant conditions unique  to  the  project  and  beyond  the
    regulatory requirements which apply to all grants) .   Such
    conditions may have  addressed phased or segmented  project
    completions, a sewer system rehabilitation schedule,  enactment
    of  ordinances forbidding connection to certain sewers (e.g.,
    interceptors adjacent to environmentally sensitive or prime
    agricultural land),  etc. (see Section  VI.M.6).

        Before any project can be completed, the reviewing  agency
    must insure that all grant conditions  have been  fulfilled,  with
    particular attention given to special  grant conditions.  Refusal
    by  the grantee to fulfill  all grant conditions may form  the
    basis for grant termination or  annulment (see  Section B.4 above)

    Re:   40 CFR 35.2200
D•   COMPLETION AND CLOSEOUT PROCESS

    Purpose;

    Insure that projects are completed on schedule,  that all  appli-
cable regulations and grant conditions have been satisfied,  and that
project records are complete and available for audit.

    Discussiont

    The process of project completion and closeout will  include many,
if not all, of the items discussed below in the review procedures,
which are presented in the order in which events should  occur.   How-
ever, because of unique circumstances surrounding each project, the
order of events may vary.

    There are four major milestones in the completion  and closeout
process:

    a •  Project Completion

        A Step 1 project is considered physically complete
    when the project reviewer determines that the scope  of work
    contained in the grant agreement has been accomplished and
    is approvable.  For projects not expected to receive a
                             817

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Step 2+3 or a Step 3 grant, a Step 1 project is considered
physically complete when it has met the minimum require-
ments listed in Section B.l.c above.

    A Step 2 project is considered physically complete when
the plans and specifications are either approved or judged
approvable (i.e., accepted) by the reviewing agency.  For
projects not expected to receive a Step 3 grant, a Step 2
project is considered complete when it has met the minimum
requirements listed in Section B.2.b above.

    A Step 2+3 or a Step 3 project is considered physically
complete when an official final inspection (see Item 1 below)
determines that:

    i.    All but minor components of the project
          have been completed (e.g., landscaping)
          in accordance with the approved plans,
          specifications, and change orders.

    ii.   The facility is capable of functioning as
          designed.

    iii.  All equipment is operational and performing
          satisfactorily.

    iv.   Laboratory facilities are complete and
          available to conduct appropriate tests.


    All administrative requirements need not be satisfied at
the time of physical completion (e.g., final payment, change
order approval,  fulfillment of grant conditions).

    For Step 1 and Step 2 grants,  project completion and physical
completion are synonymous.  For Step 2+3 and Step 3 grants, pro-
ject completion, physical completion, and construction completion
are synonymous.


b.  Administrative Completion

    The administrative completion phase includes all activities
occurring after physical completion of the project.  These
activities, which normally occur in the following order, include:
completion of minor components,  satisfaction of all grant condi-
tions, resolution of all claims, final building payment (excluding
payment for engineering services during the: first year of opera-
tion), completion of engineering services during the first year of
operation, grantee's certification that the project meets its
                         818                           TM 86-1

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performance standards, receipt of the grantee's final grant
payment request, and project officer certification.  A project
is considered administratively complete when a final audit is
requested from OIG.

(NOTES; (1) There are many instances where the completion/
close-out process can be initiated before final resolution of
all claims.  Steps in this direction will have to be taken very
carefully on a project-by-project basis.  In some cases the
nature of the claim will prevent any close-out action until
after the claim is resolved.  However, where the claim is
clearly separable from the rest of the grant, and the limits of
grant participation can be determined, the reviewing agency needs
to deobligate and audit around the claim to more efficiently
manage the close-out process.

    After it has been determined that the claim is separable,
then the grantee should be requested to submit a final payment
request contingent on resolution of the claim.  Upon receipt of
the request, adjust the grant to include an estimate of possible
Federal exposure and then the audit procedure can be followed.

    It is essential that the reviewing agency makes  it absolutely
clear to the grantee that the purpose of this action is to imple-
ment management steps to facilitate auditing the grant in a timely
manner and that a determination of the validity of the claim is
not being made.  When the claim is resolved, the grantee must
then submit a grant amendment request identifying elements of work
requested for allowability in accordance with EPA claims guidance.
The amended request will then be audited after whichtimethe
entire project will be closed out.

    Factors critical to making this process work are;

° A careful examination of the nature of the claim to ascertain
  whether this procedure is applicable; and

0 A record of communication to the grantee assuring  that the
  grant will remain open until all claims are resolved.


    (2) A project  may also be considered administratively com-
plete when it is a segment of a group of projects  and ready for
audit-but-is not being sent to audit  until other segments of that
group are also  administratively complete.)


c.  Audit  Process

    See Section E  below for a detailed  discussion  of the audit
process.


                         819                         TM  86-1

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d.  Project Closeout

    The project closeout phase includes all activities which
occur after the completion of the audit process (either the
conduct of an audit, or a determination by OIG that the project
can be closed out without an audit).  The project closeout phase
includes the resolution of audit issues anc the final financial
settlement, if any, with the grantee.  A project is considered
to be closed out when a final closeout letter has been sent to
the grantee.


Review Procedures;

    Once the final inspection has been completed (see Item 1
below), and the project has been found to be acceptable, the
grantee may submit its final building payment request, for pay-
ment of 100 percent of the allowable cost of construction (less
any previous payments).  However, the grant cannot be closed out
until the completion of the first year of operation, the certifi-
cation by the grantee that the project is meeting its performance
standards (see Section VII.I.2.a), the submission of the grantee's
final grant payment request, and the submission of the project to
to OIG for audit.

    Projects are to be managed by reviewing agencies in such a
way that project completion and closeout are accomplished as soon
as possible.  EPA Directive 2750 (April 20, 1984) states that
audit resolution must occur within 180 days after completion of
the final audit.  The Office of Water Accountability System
states that closeout is expected to occur within three months of
audit resolution.  These time based goals also apply to Step 1
and Step 2 closeouts.  If a final audit is not required, closeout
is expected to occur within six months of project completion.
    The items discussed below are primarily post-construction
activities, which must be completed before a project can be
considered administratively complete.  In practically all cases,
reviewing agencies have developed checklists to be completed by
the project reviewer, and forms to be completed by the grantee,
which address these post-construction activities.  These
procedures, forms, and checklists should be used.

    1.  Final Inspection

        A final inspection is requested by the grantee
    when building of the project has been completed.
    The final inspection is generally accomplished
    within 60 days from the date requested.  The final
    inspection insures that the project is completed
                         820                         TM 86-1

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in accordance with the approved plans,  specifica-
tions, and change orders,  and that all  necessary
records are complete and available for  audit (see
Section VII.G.5).  In addition, information is
gathered at the final inspection which  will allow
the preparation, by the reviewing agency, of the
project officer certification concerning flow
level (75 percent or more of the anticipated initial
flow), aesthetic features, and abandoned, unused, or
inoperable facilities (see Item 8 below).

    At the time of the final inspection, the reviewing
agency will usually establish a cut-off date, after
which any costs  incurred by the grantee are unallowable
for grant participation (see Item 2 below).

    At times, a grantee may request a final inspection,
but when the  reviewing agency's inspector arrives at the
project site, conditions exist  (e.g., unsatisfied grant
conditions, lack of flow data on which to base  the pro-
ject  officer  certification, etc.) which prevent  the
project from  being considered administratively  complete.
In  such cases,  the  inspection  should be conducted, but
the grantee should be informed, in writing, of  the
deficiencies  which prevented the  conduct of a  final
inspection, that the  inspection which was conducted will
be  considered an  interim  inspection, that a final  inspec-
tion  will be  rescheduled after  the grantee  informs the
reviewing agency  that the  deficiencies which prevented  the
conduct of  a  final  inspection  have been  corrected, and
that  the  grantee's  final  grant  payment will  be withheld
until the final inspection has  been conducted.

Re;   40 CFR 35.2216


 2.   Cut-off Date

     The establishment of  a cut-off date  is  one of  the
actions  required to ready  a project  for  administrative
 completion.   The basis  for a cut-off date  is  found in
 the definition  of  the project's budget  period  in 40  CFR
 Part 30,  since  eligible project costs  are  limited  to
 those incurred  during the  budget  period.   The  budget
 period must start on or after the date  of  grant award,
 and must  be consistent  with the project  schedule
 contained in the grant  agreement.
                      821                       TM 86-1

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    A cut-off date may be established fen: the entire
project or for individual subagreements.   The cut-off
date is the date by which all work and costs associated
with a particular subagreement will have been incurred,
and after which work or costs incurred are not allowable
for grant participation.  In very unusual circumstances
it may be necessary to revise a cut-off date, if costs
were incurred by the grantee due to circumstances be-
yond its control.  Where a cut-off date is established,
the "cut-off" letter to the grantee must clearly document
the specific work or subagreement to which the cut-off date
applies.  This documentation will preclude misunderstandings
during audit.  For Step 1 and Step 2 projects, the "cut-off"
letter should also remind the grantee that, since the 1981
CWA amendments prohibit the award of new Step 1 and Step 2
grants, any future revisions to the completed Step 1 or
Step 2 project will have to be performed without EPA assis-
tance .

    The cut-off date is generally established at the time
of final inspection, and usually with the agreement of
the grantee.  However, if the grantee will not agree to
a cut-off date, the end of the project budget period should
be used, since by regulation, no costs Ccin be incurred after
the end of the budget period.  The cut-off date for all
costs (except startup services and engineering services
during the first year of operation) will usually coincide
with the date of the final inspection, prior to which the
grantee will normally have accepted the project from the
construction contractor.  If a project is essentially
complete except for minor punch list items, the reviewing
agency and the grantee may agree to a future cut-off date,
by which time the contractor will have completed the punch
list items.

    Another cut-off date which must be established and
documented in the project files concerns the termination
of services provided by the engineer, including inspection,
start-up, and supervision of the first year of operation.
This cut-off date will almost always be established as one
year after the initiation of operation for the project, to
provide for continuing engineering services during the one
year project performance period.

    Once a cut-off date is established, the grantee should
prepare cost summaries (relating to the work for which the
cut-off date has been established) for submission to the
reviewing agency (see Item 3 below).
                     822                        TM 86-1

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Re:  40 CFR 35.2040(b)(6);  for grants awarded
     prior to October 1, 1983, 40 CFR 30.135-6;
     for grants  awarded after September 30, 1983,
     40 CFR 30.200


3.  Cost Summary and Documentation

    The grantee  is required to submit cost summaries for
all costs incurred during the project.  The cost summary
for previous Step 1 or Step 2 projects which receive a
Step 3 grant should be in the project files and available
for audit.  Cost summaries must be prepared for all
categories of work identified in the grant application
and the grant agreement, and typically include costs for:

    a.  administration,

    b.  subagreements for building the project,

    c.  engineering subagreements,

    d.  force account work,

    e.  land  acquisition,

    f.  legal services, and

    g.  accounting services.

    Cost  summaries should  identify the initial costs for
each category of work and  the final  costs,  including all
change  orders and  adjustments to cost-plus-fixed-fee type
contracts.   If  not previously submitted with a payment
request or  reviewed during  the  final  inspection, documen-
tation  such as  paid  invoices  or vouchers must be provided
to support  the  cost  summaries.

    Construction contract  cost  summaries should  be  compared
with cost data  in  the project files  to verify that  all  change
orders  have been reviewed  and acted  upon by the  reviewing
agency, and that a final change  order adjusting  estimated
quantities  to actual quantities  for  unit price items is
 included.   Cost summaries  for services (e.g., engineering,
legal,  and  accounting)  should be compared  against  the
original  subagreement  to  insure  that all services  have
been performed  and that claimed  costs are  in agreement  with
direct  costs, indirect  costs, and  profit  items  in  the sub-
agreement .
                      823                             TM 86-1

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    The unused portion of the construction contingency
allowance is omitted from final project cost summaries and
should be deobligated for use on other projects (see
Section IX.C.2).
4.  Final Building Payment Request

    Processing of payment requests is discussed in Section
IX.B.  This section addresses only the final building pay-
ment.  While this payment is referred to as the final
building payment, since it represents the last payment for
building the project, additional payments will be made
during the first year of operation for appropriate
engineering services (see Section VII. E. 1).

    Payments are made to the grantee during the course of
the project for costs which have been incurred.  When the
grantee requests the final building payment, such payment
is to be made promptly, and may only be delayed if it is
determined that the payment request includes unallowable
costs, or if information available or not available to the
reviewing agency (e.g. , a final inspection report or lack
thereof) indicates a previous overpayment, a failure to
comply with all grant conditions, or other irregularities.

    If the grantee has  received any grant related income
(e.g., refunds, rebates, credits, etc.} such amounts are
to be used to reduce the total project cost, thereby
reducing the amount of  the grant (see Section IX.B.10).
Final payment is based  on the cost summaries and
supporting documentation discussed in Item 3 above.
Re:  40 CPR 35.2300(a) and (b); for grants awarded
     prior to October 1, 1983,  40 CFR 30.615-1,
     30.620 through 30.620-3, 30.815; for grants
     awarded after September 30, 1983,  40 CFR
     30.400(a) and (b)(3), 30.526, 30.802
5.  Property Management

    Grantees are required to have a property management
system which identifies and traces property through its
useful life or until disposal.   The property management
                     824                        TM 86-1

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system must meet the minimum requirements in the regula-
tions, and must include both personal property (e.g.,
movable equipment) and real property (e.g., land and
structures).

    Before a project is administratively completed, the
reviewing agency must verify that the grantee has a
property management system in place.  The review of the
property management system should take place during
project monitoring, and should be completed before the
final building payment is made.
Re;  For grants awarded prior to October 1, 1983,
     40 CFR 30.810 through 30.810-9; for grants
     awarded after September 30, 1983, 40 CFR
     30.530(b), 30.531, 30.532, 30.535, 30.536
6.  Completion Delays

    Completion delays most often occur where there is an
unresolved dispute between the grantee and the construc-
tion contractor, resulting in the contractor filing a
claim for additional construction costs (see Section VII.H).
Projects may not be considered administratively complete
until the claim is resolved either through negotiation,
arbitration, or litigation.  The reviewing agency is to
make every effort to assist the grantee in resolving
disputes and may, at the grantee's request, provide tech-
nical or legal assistance.  However, the primary respon-
sibility for resolving disputes rests with the grantee.
Costs associated with defense against contractor claims
may be allowable for grant participation provided certain
limitations are satisfied (see Section IX F.4, Paragraphs
A.I.f and A.2.c).

    The reviewing agency is to insure that unresolved
disputes are settled as quickly and efficiently as possible.
Re:  40 CFR 35.2214, 35.2350
7.  Continuing Engineering Services

    A grantee which was awarded a Step 2+3 or a Step 3 grant
on or after December 29, 1981, is required to retain the
                     825                           TM 86-1

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engineering firm which was principally responsible for pro-
viding engineering services during construction to also
provide engineering services during the first year after
initiation of operation (see Section VII.1.1). The project
may not be considered administratively complete until the
grantee affirmatively certifies, after one year of operation,
that the project is meeting its performance standards (see
Section VII.I.2).  During the first year of operation, the
engineer will submit invoices and the grantee will prepare
payment requests in the routine manner (see Section IX.B.2.b).
However, the cut-off date should have already been established
as the date at the end of the first year of operation (see
Item 2 above).  The final grant payment, assuming affirmative
certification by the grantee, will be made at the conclusion
of the project performance period. However, when the final
grant payment request is unjustifiably delayed, the grantee
should be notified, in writing (certified mail, return receipt
requested) that it should submit the final payment request
within 90 days (or a similar reasonable time period), and
that, if the final payment request is not received within
the specified time, the last payment request will be con-
sidered as the final request and remaining unexpended grant
funds will be deobligated.  Where this action is taken,
immediately after the deobligation, normal procedures would
be followed in certifying the project and in requesting and
resolving the audit.

Re:  40 CFR 35.2216, 35.2218


8.  Project Officer Certification

    Prior to requesting a final audit, the reviewing  agency
is to prepare a project officer certification.  This
certification is to accompany the request Eor a final audit,
and in essence confirm that:

    - funds have not been used for unnecessary
      or unreasonable aesthetic features;

    - the flow at the treatment facilities at
      the time of final inspection was 75 per-
      cent or more of the anticipated flow on
      the date of initiation of operation;

    - no facilities constructed with grant funds
      are unused, abandoned, or inoperable; and

    - the project files are complete and contain
      all relevant documents necessary for the
      conduct of an audit.
                     826                          TM 86-1

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Detailed information on the four primary subjects of the
project officer certification is provided below:

    a.  Aesthetic Features

        Aesthetic features must be reasonable and
    necessary in order to be allowable for grant
    participation (see Section IX.F.4, Paragraph
    B.2.a).  A determination of the allowability
    of aesthetic features should have been made
    during the review of plans and specifications
    (see Section V.C.2.u).  If aesthetic features
    which were not included in the approved plans,
    specifications, and change orders are dis-
    covered during the final inspection, they will
    be considered unallowable unless  otherwise
    justified.

    Re; 40 CFR Part 35, Subpart I, Appendix A,
        Paragraph B.2.a

    b•  Flow Level

        Before requesting a final audit, the reviewing
    agency is to determine whether the treatment
    facilities (including sewers) are receiving 75
    percent or more of the estimated  initial flow.
    If the flow is less than 75 percent, the
    reviewing agency is to determine  the cause, and
    in preparing the project officer  certification,
    note the exception to the flow level.

    c.  Abandoned, Unused, or Inoperable
        Facilities

        For purposes of project officer certifica-
    tion, this section deals with observations at
    the time of final inspection.  On-going State
    programs are required to address  abandoned,
    unused, or inoperable facilities  which occur
    after a project is closed out but before the
    end of the project's useful life.

        If any equipment or facilities are abandoned,
    unused, or inoperable at the time of final inspection,
    the project officer is to prepare an explanation of
    the circumstances, which is to be attached to the
    project officer certification and forwarded to OIG
                     827                        TM 86-1

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    along with the request for an audit.   In such cases,
    grantees are required to seek redress from other
    parties (e.g. , design engineer,  construction con-
    tractor, equipment supplier,  etc.)  responsible for
    such conditions, and to make  every  effort to make
    the facilities useful and operational.   Unless justi-
    fied by the grantee, any abandoned,  unused,  or inoper-
    able equipment will be considered unallowable for
    grant participation.

    Re:  40 CFR 35.2214
    d.  Project Files

        Project files must be organized to facilitate the
    location of documents during the project audit,  and
    must contain adequate documentation to support grantee
    procurement actions and all project costs which  have
    been claimed for grant participation.
9.  File Retention

    Grantees and their contractors must maintain their pro-
ject files for a period of three years after final grant
payment (i.e., the payment which is made after affirmative
certification by the grantee that the project meets its
performance standards).

    Reviewing agencies will maintain project files for a
period of three years after project closeout.  At the con-
clusion of the three year period, project files are to be
stored in the U.S. General Services Administration (GSA)
Regional Federal Records Center in accordance with EPA/GSA
federal records management requirements.  Since the con-
struction grants regulations now prohibit the use of grant
funds for the replacement of a facility during its design
life if the facility was constructed with grant assistance,
it will be necessary to store at least part of the project
file for the design life of the facility (normally 20 years),

    EPA Regional Offices should establish a records tracking
system which will facilitate the retrieval and restorage of
project files.


Re;  For grants awarded prior to October 1, 1983,
     40 CFR 30.805; for grants awarded after
     September 30, 1983, 40 CFR 30.501
                     828                          TM 86-1

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E.  AUDIT PROCESS

    Purpose:

    Review grantee records, and if necessary those of its contrac-
tors, to determine whether the costs claimed under the EPA grant
are reasonable, allowable, and allocable to the grant project;
whether the management controls exercised by the grantee were ade-
quate to insure that costs claimed are allowable; and whether the
grantee has complied with all EPA regulations (including the appli-
icable procurement regulations) and grant conditions.


    Discussion;

    All completed construction grants projects are subject to a
final audit.   Audits may be conducted by EPA, by private sector or
State auditors under contract to EPA, or by another cognizant Federal
agency.  Audits are generally performed after construction, and
where Step 1  and Step 2 grants have been awarded, will include the
review of records and costs for all three steps.  Audits may also be
performed at the conclusion of a Step 1 or Step 2 grant, but
generally only in those instances where the project is unlikely to
be awarded a Step 3 grant in the near future, or when unusual circum-
stances warrant an immediate audit.

    The decision to conduct a final audit of the grantee's records
will depend on the size and complexity of the project, and the
amount of grant funds involved.  (Audits are not usually conducted
where claimed grant funds are $250,000 or less, unless information
available to the reviewing agency suggests that a final audit is
warranted.)

    Historically, two problems arise during audits.  The first
problem concerns the identification of the regulations and policies
which were in effect on the date of grant award, since audits may
take place anywhere from 5 to 10 years after the initial grant award.
In addition,  a project which has progressed through the entire three
step grant process may have different regulations and policies
applicable to each of the three steps.  In the case of phased or
segmented projects, even more grants will be involved.  To identify
the regulations and policies in effect on the date of grant award,
EPA has published the "Regulation and policy Matrices - A Guide to
the Rules Governing Grants Awarded under the Construction Grants
Program," April 1985.

    The "Regulation and Policy Matrices" traces the publication of
all EPA regulations which have a bearing on procurement and allowable
costs, from July 1, 1971 through September 30, 1984, and will be up-
dated periodically.  The publication also includes matrices for all
                             829                            TM 86-1

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EPA policy memoranda issued since January 1,  1970,  as well as the
three editions of the Handbook of Procedures, the decisions of the
Audit Resolution Board, and the decisions of  the Board of Assistance
Appeals.  Wherever a question arises concerning regulations or
policies in effect on the date of grant award, the  "Regulation and
Policy Matrices" should be consulted.

    The second problem concerns the decision  as to  whether a particu-
lar cost is eligible or allowable under the construction grants pro-
gram.  EP^ regulations, policy memoranda, and the Handbook of
Procedures have, over the years, provided guidance  for decisions con-
cerning the most common allowable costs.  However,  by the very nature
and sheer number of construction grant project?;, it is not possible
to anticipate all possible situations concerning allowable costs.
Therefore, in those "gray" areas where such costs are not clearly
defined in the applicable regulations or EPA policy documents,
construction grants personnel are responsible for making such
decisions.  These decisions, and the rationale behind them, should be
documented in the project files, to prevent misunderstandings at the
time of audit.

    Such documentation should explain the rationale for the decision
and cite the specific regulation or policy which provided the broad
or similar framework for the decision.  Similarly,  if an auditor
takes exception to a cost not otherwise clearly defined in the
regulations or EPA policies as allowable, such exception should
also cite the specific regulation or policy which provides the
broad or similar framework for the exception.  By the proper use
of the "Regulation and Policy Matrices" to identify applicable regu-
lations a.nd policies, and by the proper documentation and citation
of specific regulations or policies, projects can be completed and
closed out with a minimum of delay.

    Final EPA decisions concerning allowable costs may be decided
by the Audit Resolution Board if a difference of opinion cannot be
resolved between OIG and the construction grants program.

    The procedures below outline the major activities of the auditors
grantees, and construction grants staff in the audit process.
    Procedures;

    1.  Request  for Final Audit

        After preparation of the project officer certifica-
    tion  (see Section D.8 above),  the reviewing agency will
    request  an audit  (or a determination that  the project can
                              830                         TM  86-1

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be closed out without an audit) from OIG.  This is the last
action for administratively completing a project,  and is re-
quested when all of the following conditions have  been met:

    a.  Construction is complete (see Section D.a  above).

    b.  All administrative requirements have been
        satisfied (see Section D.b above).

    c.  The final inspection has been performed (see
        Section D.I above).

    d.  The plan of operation has been implemented, or
        for projects awarded after December 29, 1981,
        the project performance certification has  been
        received (see Section VII.I.2.a).

    e.  The "cut-off" letter has been issued to the
        grantee (see Section D.2 above).

    f.  The final grant payment has been requested
        (see Section IX.B.7).
    The criteria for selecting projects to be audited (and
for determining which projects can be closed out without an
audit) are discussed in Section B.6 above.
2.  Audit

    Unless the OIG Divisional Office has determined that the
project can be closed out without an audit, the cognizant
audit agency will conduct an onsite audit of the grantee's
records, followed by the preparation of a draft audit report.
At the completion of the onsite audit, the auditor will
conduct an exit interview with the grantee, and will provide
an opportunity for the grantee to furnish additional documen-
tation supporting any costs which have been questioned or set
aside by the auditor (i.e., identified as unallowable for
grant participation).
3.  Draft Audit Report

    The auditor will prepare a draft audit report for distri-
bution to both the reviewing agency and the grantee.  Where
audit exceptions are noted, the specific regulation or policy
which forms the basis for the exception is to be cited.
                         831                          TM 86-1

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    Upon receipt of the draft audit report,  the project officer
should review the findings and respond to the auditing office
on those findings which appear to be incorrect.  At the same
time, the project officer should ensure theit the grantee has
also received a copy of the audit report arid, as appropriate,
the grantee also sends written comments to the auditing office
on matters of issue.

4 -  Final Audit Report

     After evaluating all comments received on the draft audit
report, the auditor will prepare the final audit report for
distribution to the grantee and the reviewing agency.

     When the reviewing agency is in full etccord with the audit
findings, it sends a final determination letter to the grantee
indicating that the final audit has been conducted and that
any funds due and payable to the U.S. Government must be paid.
The letter will also indicate that the grantee has certain
rights under Subpart L of the grant regulations to dispute any
statements made in the audit and that dispute should be filed
within a 30 day period from the date of the final determination
letter.  (See Section IX.D.j.

     Where a final determination differs from the auditors
findings, the jreviewing agency must address each finding or
'recommendation Tthis includes both questioned and set aside
costs)either in the final determination letter or in separate
correspondenceto the Divisional Inspector General for Audit
JDIGA),  including references to supporting documentation, legal
basis  and/or precedent.  If the total questioned costs in the
audit  report are =

        (1)  equal to orexceed $100,000, the final determi-
            nation  letter must receive PICA  concurrence.
            The PICA has 15 days to act.  During that period,
            the PICA can (a) concur,  (b) allow  theperiod to
            elapse  after which concurrence is  automatic,
             (c) attempt to resolve  any differences with the
            Feviewing  agency or,  (4)  elevate the problem
            to Office  of the Assistant Inspector General
            fcrF Audit's  (OAIGA).  The OAIGA  has 45 days to
             resolve  the  issue with  the Headguarters  program
            office. _ If  resolution  has not happended in that
            period  it  may  be elevated  to the Audit Resolution
            Board  (ARE).   If  it  is  not raised  to the ARE, it
             is  considered  resolved.

        (2)   less  than  100,000,  the  final determination  letter
            must  be issued within  150  days of  the  final audit
                          832                          TM 86-1

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            report date.  The PICA will advise the reviewing
            agency of issues where disagreement occurred
            on final determination letters not requiring
            concurrence.

    In the absence of an appeal by the grantee under the disputes
provisions of the regulations or by the PIG to the ARE, the pro-
ject is then closed out, and the files are retained by the
reviewing agency and subsequently shipped to the Federal Records
Center (see Section D.9 above).

5.  Resolution of Audit Exceptions

    Audit exceptions, if any, are to be resolved between the
reviewing agency and the auditors at the lowest possible level.
The grantee should be involved in the resolution process, since
the grantee's financial interests are involved. Decisions con-
cerning the allowability of costs which are not clearly defined
in regulation or policy (i.e., fall into the "gray" area) should
have been previously made and documented by the construction
grants staff.

6.  Review of Final Determination

    If the grantee disagrees with the decision of the reviewing
agency (other than a decision by the Audit Resolution Board),
it may file a request for review of the decision in accordance
with 40 CFR Part 30, Subpart L.  (The procedures in Subpart L
are applicable after September 30, 1983, regardless of when EPA
awarded grant assistance.)

    Unresolved issues arising prior to receiving a final deter-
mination letter  (based upon an audit) may be appealed by the
grantee to the program office level at the State or Regional
Office.  A Disputes Decision Official's determination (see
Section IX.D.) may be appealed to the Regional Administrator.
The Regional Administrator's decision is the final agency
action, although the grantee may petition the Assistant
Administrators for review of the Regional Administrator's
decision.  However, after receiving a final determination
letter, the grantee must appeal directly to the RA and then,
if needed, to Headquarters.

7.  Recovery of  Funds

    When the audit reveals an overpayment of grant funds, and
where this opinion is sustained in an appeal or other proceedings,
the grantee is required to refund the amount of overpayment to
the U.S. Treasury.

    If the grantee fails to pay what is owed within 30 days after
receiving a final decision from a dispute decision official (see
Section IX.D.),  interest will be assessed on the unpaid debt at
                        833                         TM 86-1

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a rate established by the U.S.  Treasury,  even if a review of that*
decision is requested.  However, should,  under a review, the
amount of the debt be reduced,  EPA will refund the interest paid
on the amount restored.

    Upon repayment, the total grant award is reduced by the
principal amount of the overpayment and,  the deobligated
funds are reallotted to the State's construction grant account.
However, the interest portion of the overpayment remains with
the U.S. Treasury.
Re_:  For grants awarded prior to October 1, 1983, 40 CFR
     30.815; for grants awarded after September 30, 1983,
     40 CFR 30.802 and 30.1230 amended February 21, 1986.
                          834                    TM  86-1

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                CHAPTER IX




         FINANCIAL CONSIDERATIONS









A.  INTRODUCTION




B.  PAYMENTS




C.  GRANT INCREASES AND DECREASES




D.  DISPUTES




E.  DEVIATIONS




F.  DETERMINATION OF  ALLOWABLE COSTS
                    901

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A.  INTRODUCTION

    This chapter discusses financial considerations in the construc-
tion grants program, including disputes and deviations, which usually
arise with regard to financial issues.

    Section B, Payments, discusses outlay schedules, payment request
forms, payments, payment limitations, retainage, and other items
related to grant payments.

    Section C, Grant Increases and Decreases, describes procedures
for increasing ana decreasing grants, and the circumstances under
which they should be used.

    Section D, Disputes, briefly describes the dispute resolution
procedures available to a grant applicant or grantee when a dis-
agreement occurs with the reviewing agency.

    Section E, Deviations, briefly describes procedures for re-
questing and reviewing deviations from the grant regulations.

    Section F, Determination of Allowable Costs, describes the
Federal cost principles and their applicability, and reproduces
the EPA regulations on the determination of allowable costs (40 CFR
Part 35, Subpart I, Appendix A), supplemented by clarification and
examples for specific cost items.
B.  PAYMENTS

    Purpose;

    Insure that grantees receive reimbursement for project expendi-
tures as promptly as possible, based on the receipt of adequately
documented payment requests from the grantee, fulfillment of
grant conditions, and satisfaction of payment limitations.


    Discussion:

    With the exception of certain eligible costs for relocation
assistance (see Item 8.b below) and grants which are made only to
States (see Items 8.c and 8.d below), EPA payments to grantees are
made only on a reimbursement basis (i.e., payments are made only
after costs have been incurred).  The amount of the Federal payment
is a percentage  (i.e., the EPA grant share) of those eligible project
costs which the grantee has incurred, and is currently and legally
obligated to pay.
                             903

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    It is the responsibility of the reviewing agency to insure that
each grantee, prior to incurring eligible costs,  Is apprised of the
payment procedures and of the documents needed to support payment
requests.


    Review Procedures;

    Payment requests are to be promptly reviewed and processed in
accordance with the procedures in the State/EPA delegation agree-
ment.   Typical items to be considered during payment processing are
described below:

    1.  Outlay Schedules

        Grantees are to prepare outlay schedules and update
    them as necessary, in accordance with State or EPA Regional
    Office requirements.


    2.  Payment Requests

        Payment requests are to be made using the proper form
    (see Items a and b below),  and are to be accompanied by
    the supporting documentation required by the EPA Regional
    Office (e.g.,  engineer's certification of work in place,
    invoices from contractors and suppliers, etc).

        a.  Standard Form 270
                           __

            Payment requests for grants to States for
            advances of allowance (see Sections li.E.4.e,
            III.E, and VI.K, and item 8.b below), State
            management assistance (see Sections I.F and
            II.E.4.a,  and item 8.c below), and water
            quality management  (WQM)  planning (see
            Sections II.C.4  and ll.E.4.d,  and Item 8.c
            below), are to  be made using Standard Form
            270 (SF-270).  Grantees (i.e., States) are
            to submit  the SF-270 to the EPA Regional
            Office, which will  review it to insure that:

               i.    the form has been properly completed,
                    and

               ii.  the computations  are correct.

            Payment to the  State may  be by letter of
            credit, payment  in  advance, or reimbursement.
                             904

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    Payments may not be assigned to"a third party,
    except that payments under a grant for advances
    of allowance may be assigned to the small com-
    munities which are to receive the advances
    (see Item 8.c below).

Re: 40 CFR 30.400(b), 30.405, 35.2300(e)(1)

b.  Standard Form 271

    For all grants except those discussed in Item a
    above, payment requests are to be made using
    Standard Form 271 (SF-271). Routine payment re-
    quests are reviewed to insure that:

      i.   the form has been properly completed,

      ii.  the computations are correct,

      iii. all costs are eligible and allowable
           for grant participation,

      iv.  only costs for approved change orders
           are included,

      v.   costs are displayed by category
           corresponding to the grant agreement,
           and

      vi.  the amount requested is consistent with
           the outlay schedule (see Item 1 above).

    Specific grant payment processing procedures vary
    from Region to Region, and should be detailed in
    the State/EPA delegation agreements.  In some
    Regions, grantees submit the SF-271 simultaneously
    to EPA1s Regional Financial Management Office (FMO)
    and to the State reviewing agency which, when de-
    ficiencies or inaccuracies are found,  acts to insure
    that the next payment will reflect the necessary
    correction.  In other Regions, the SF-271 is sub-
    mitted first to the State agency, where it receives
    a priority review, and immediately thereafter, is
    sent to the FMO. In either case,  after processing
    the SF-271, the FMO instructs the appropriate U.S.
    Department of the Treasury disbursing office to
    issue a check to the grantee in the amount approved
    by the FMO.  Payments may not be  assigned to a third
    party (e.g., engineer, construction contractor, equi-
    valent supplier, bond or note holder,  etc.).
                     905

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Grantees are expected to submit payment requests
no more than once a month, and routine payments
are expected to be processed without delay.
Certain requests for payment, however, which
occur at critical points in a project's progress,
require a program review before funds are dis-
bursed.  Generally, these payments are:

  - the initial request, to insure that the
    allowance and the supporting documentation
    are correct;

  - the 50 and 90 percent grant payment requests,
    which are governed by statutory requirements
    for a plan of operation and an operation and
    maintenance (O&M) manual; and

  - the final payment request.

In addition, payment request issues may arise during
construction which would preclude the reviewing
agency from making prompt payment because:

  - unallowable or ineligible items are included
    in the request,

  - project deficiencies exist,

  - the grantee has failed to comply with Federal
    or State reporting requirements, or

  - the grantee has failed to comply with grant
    conditions or regulatory requirements.

In these instances, the grantee will be notified of
the deficiency, and either the State or the FMO will:

  - deduct the unallowable or ineligible items,

  - insure that the sums in question are excluded
    from subsequent payment requests,

  - withhold an amount sufficient to insure
    compliance or correction of the deficiency, or

  - disapprove the entire payment.

To further insure that grantee payment requests are  in
keeping with construction progress,  copies of these
requests, along with the engineer's  certification of
                 906
«r

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        work in place, invoices from contractors and
        suppliers, copies of approved change orders,
        substantiation of force account work (see
        Section VI.E.5) and administrative costs, etc.,
        are to be made available to, and reviewed by,
        construction field inspectors (see Section VII.G),
        Field inspector observations, based on these
        reviews, should be made available to the project
        reviewers, so that they can better assess future
        payment requests.  This information should also
        be made available to those responsible for devel-
        oping State and Regional outlay projections.

        Where grant payments include funds from reserves
        (e.g., for innovative or alternative (I/A)
        technologies, small community assistance, etc.),
        State and EPA Regional Office procedures are to
        insure proper accounting for these funds.
Re:  40 CFR 30.400(b)(3), 30.405, 35.2300



3.  Initial Payments

    Initial payment  requests may include:


    a.   Preaward Costs

        Approved preaward costs allowable for grant
        participation (see Section VI.D.15).


    b.   Estimated Allowance

        The Federal  share of the estimated allowance for
        facilities planning and/or design according to
        the following schedule:


        i.    Step 2+3 Grants

             If  the  grantee did not receive a
             facilities planning (Step 1) grant,
             30  percent of the estimated allowance
             immediately after grant award, half
                         907

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            of  the  remaining estimated
            (or re-estimated) allowance when
            design  is  50 percent complete,
            and the  remainder of the actual
            allowance  after award of all
            prime contracts, approval of
            all force  account work  in lieu of
            awarding construction contracts,
            and acquisition of  all  eligible
            land.

            If  the  grantee received a facil-
            ities planning grant, 50 percent
            of  the  estimated allowance when  the
            design  is  50 percent complete, and
            the remainder of the actual allow-
            ance after award of all prime con-
            tracts,  approval of all force
            account work in lieu of awarding
            construction contracts, and
            acquisition of all  eligible land.

        Re;  40  CFR  Part 35, Subpart I,
            Appendix B, Paragraph 9

        ii.  Step 3  Grants

            50  percent of  the estimated allowance
            immediately after grant award,  and  the
            remainder  of the actual allowance  after
            award of all prime  construction  con-
            racts,  approval of  all  force  account
            work in lieu of awarding  construction
            contracts, and  acquisition  of  all
            eligible land.

        Re;  40  CFR  Part 35, Subpart I,  Appendix B,
            Paragraph  8
4.  Retainage

    Payment requests are to include only costs which the
grantee is currently and legally obligated to pay.  Therefore,
if a construction contract allows the grantee to retain a
portion of its contractor's payment requests, the Federal
payment request is to reflect the same retainage policy (i.e.,
if a contractor bills the grantee for $10,000 worth of work in
place, and the grantee is allowed by the contract to retain
10 percent, or $1,000, of the contractor's payment request,
                         908

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 then  the  payment  request must  be  based  on  the  $9,000
 legally required  to  be  paid  by the  grantee.

 Re:   40 CFR  30.400(b)(3),  35.2300


 5.  Limitations

    Grant payments are  limited by EPA regulations  to  the
 Federal share of:
     a.   50 percent of.  the  total eligible project
         costs, unless  the  final plan of operation
         has been approved;

     b.   90 percent of  the  total eligible project
         cost, unless the O&M manual has been
         approved;

     c.   for a phased or segmented project, 90
         percent of the total eligible cost for
         the entire treatment works  (i.e., for
         the sum of all phases or segments),
         unless the o&M manual has been approved;

     d.   for a project  in which a component has
         been placed in operation before completion
         of the entire project, no additional pay-
         ment, unless the O&M manual for the
         operating component has been approved; and

     e.   the allowable costs incurred within the
         budget period for  the project.

Re:  40 CFR 30.200, 35.2206
6.   Final Building Payment

    The final building payment is based on the grantee's
submission of the final building payment request.  This is
not a final grant payment, since the grantee is required
to retain an engineer during the project's first year of
operation (see Section VII.I.I, and item 7 below). A final
onsite inspection of the project by the reviewing agency
should be made before the final .building payment is made
(see Sections VII.G.5 and VIII.D.I).  The payment request
should be accompanied by the vouchers and cost summaries
                         909

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required by the reviewing agency (see Section VIII. D. 3),
releases from the grantee and its contractors, and doc-
ments indicating that all grant conditions and limita-
tions, including the adoption and implementation of the
user charge (UC) system, and sewer use ordinance (SUO) ,
have been complied with (see Section VIII. D. 4 for a
further discussion of the final building payment request).

7.  Final Grant Payment

    The final grant payment is made after the project's
first year of operation, provided that the grantee affir-
matively certifies that the project meets; its project  per-
formance standards (see Section VII. 1.2).  Payments made
during the first year of operation will be primarily  for
engineering services performed during that period, and may
be made no more frequently than monthly.

8.  Special Purpose Grants

    a.  Land Acquisition Grants

        If a grant is awarded  solely  for  the
        acquisition of  eligible  land, grsint pay-
        ments  are not subject  to the  limitations
        listed  in Items 5 and  6  above for a UC
        system, SUO, plan of operation,  or  O&M
        manual .

     Re: 40 CFR 35.2260
     b.   Relocation  Assistance  Grants

         Advance payment,  as distinct  from a
         reimbursement payment, may be made for
         projects which involve relocation
         assistance, but only for the  relocation
         assistance  costs.

     Re:  40 CFR 4.502(c),  40 CFR 35.2300(cl)


     c.   Grants to States for Advances of Allowance

         For grants  to States for advances of allow-
         ance (see Sections H.E.4.e,  III.E, and VI. K),
         payments may be made to the State by letter
         of credit,  payment in advance, or reimbursement.
                          910

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    Instead of receiving payments,  however, the
    State can request EPA to assign payment of
    each advance directly to the small community
    for which the State has approved an advance.
    In this latter case, the following procedures
    must be followed by the Stater
       i.   a separate SF-270 must be used
            for each community's advance;

       ii.  the community's name and mailing
            address must be shown as the
            payee on the SF-270;

       iii. the State's accounting system
            must treat the advance on an
            accrual, rather than a cash basis;

       iv.  the State must execute an agreement
            with each community, authorizing
            the State to request EPA to assign
            payment directly to the community,
            and must provide a copy of the
            agreement to EPA;

       v.   the State must inform the community,
            in writing, that the advance has
            been approved; and

       vi.  the State must enter the approved
            advance in its accounting system
            as an obligation of grant funds,
            prior to submitting the SF-270,
            requesting reimbursement from EPA
            for the approved advance.

Re: 40 CFR 30.400(b), 30.405, 35.2025(b),
    35.2300(e)

d •  Other Grants to States

    For State management assistance grants (see
    Sections I.F and li.E.4.a) and State WQM plan-
    ning grants (see Sections II.C.4 and II.E.4,d),
    payments may be made to the State by letter of
    credit, payment in advance, or reimbursement.
    Payments may not be assigned to a third party.

Re: 40 CFR 30.400(b), 30.405
                     911

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 9 •   Grant Overpayment

     Grantees must repay interest earned on Federal  grant funds.
 Therefore ,_if_a grantee i recej^ej^jayerpayments and deposited them
 In  Tnteres t-beaf ing accounts L actual^ 'Interest .or ^s t imated actual
 interest earned on the^funds roust be "repaid to ~EPA.  But ,  if a
 g r a n t'e e k ep t its _o ve rgayme nts'Tn an _^ter6!s't-bearTnq account and
 c an d em o n s t r a t e t h at i t promptly used  them to~pay the Federal
 share of allowable project costs Incurred "s'Tnce  the date of its
 most recent payment request so that no Interest  was earned on the
 overpayment^ then no payment of Interest Is
     If overpayments are received but the grantee did not earn
 Interest on them, no interes_t repayment is due .  Overpayments
 must be repaid to the United States  Treasury within 30  days of
 EPA1 s final decision that an overpayment has been made. After
 the 30 day period, EPA may charge interest, (or additional
 interest)  on outstanding balances.


 Re: 40 CFR 30.400(a), 30.802


1 0 .   Grant Rel a ted I ncome

     All income received by a grantee as a result of its conduct
 of  the project (e.g., interest on grant funds received  from EPA
 but not paid to contractors, proceeds frotn the sale of  bidding
 documents, bid bond forfeitures (see Section F.4, Paragraph A. 3.
 below), refunds, rebates, credits, discounts for prompt payment,
 reimbursements, etc.) must be returned to the project account.
 However, liquidated damages collected from a contractor are not
 considered grant related income (see Section F.4, Paragraph A. 3. a
 below) .

     Normally, the grantee is not required to make a cash payment,
 but rather to report the amount of grant related income in the
 space provided on the SF-270 or SF-271. However, after  the final
 grant payment has been requested, the Federal share of  any
 remaining grant related income must be paid to the united States
 Treasury, and credited to the State's current allotment.

     An exception to this requirement is that interest earned by
 States and American Indian Tribes is not considered grant related
 income.  Also, income which results from the operation  of a
 wastewater treatment system is not considered grant related in-
 come, but is required to be used to offset operation, maintenance,
 and replacement (OM&R) costs (see Section V.E) .

 Re: 40 CFR 30.525(b) through (d), 35.2300(b)
                          912                      TM 86-1

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   11.   Grants Information and Control System

        Grantee payments are to be entered into the Grants Informa-
    tion and Control System (GICS) by the responsible reviewing
    agency per State/EPA delegation agreement (see Section III.C.3).

C.  GRANT INCREASES AND DECREASES

1.  Increases

    a.   Step 2+3 and Step 3 Grants

        Increase reguests on these grants most often occur when:

        - construction bids exceed estimated building costs,

        - guantities for unit price items exceed those esti-
          mated in bidding documents,  or

        - change orders are reguired (see Section VII.H.I).

        Often,  minor increases in building costs can be accom-
        modated by the construction contingency allowance.  Where
        this allowance is insufficient to cover cost increases,
        and where the reguest for a grant increase is justified
        and approved, a grant increase may be made if:

        i.     the grantee's justification for the increase
              is acceptable under Federal regulations;

        ii.    the costs are allowable  for grant participation;

        iii.   the costs are for work which is within the
              existing scope of work of the project  (see
              the "Discussion"  portion of Section VII.H);

        iv.    the increase can be funded from the State's
              allotment;  and

        v.     the State has certified  the increase for grant
              assistance.

        However,  for Step 2+3  and Step 3  grants  awarded on  or after
        February 10,  1986,  increases in the allowable costs of  the
        project  will  be limited to five (5)  percent  of  the  sum  of
        the  initial  award amount of prime subagreements, the initial
        amount  approved for force account work,  the  purchase price
        of  eligible  real  property,  and the initial amount  approved
        for  other project costs,  excluding amounts approved for
        facilities planning and design allowances.   For grants
        awarded  prior to  2/10/86,  the  5%  limit  also  applies to
        contracts awarded after that date —  expect  that contracts
        (on  these grants)  finally advertised  or  otherwise  awarded
        before  2/10/86  are  NOT  subject  to the  5%  increase  limit.
                            913                         TM 86-1

-------
        (Note;  Costs  of  equitable  adjustments  for  differing
        site  conditions  are  exempt from the  5% limitation
        provided  the  requirements  of  Section IX.F.4.A.1,g.
        and all other applicable  laws and  regulations  have
        been  met.)


        Rei 50  FR 218 (November  12,  1985)


    b.   Step  1  and Step  2 Grants

           Grant increases  for  Step 1 and Step 2  projects
        are discussed in detail  in Sections  VIII.B.l.d
        and VIII.B.2.c.   As  an alternative to a grant  in-
        crease  for a  project which is unlikely to  receive
        a Step  2+3 or a  Step 3 grant, a reduction  of the
        current work  effort  may  be preferable. Reductions
        of  work effort for Step  1  and Step 2 grants are
        discussed in  detail  in Sections VIII.B.l.e and
        VIII.B.2.d.

    c.   Award Procedures

           Approval  of  a grant  increase requires  prepara-
        tion  of a formal grant amendment.  Each State  has
        internal  procedures  which are to be  followed in
        processing the grant amendment. Grant increases
        may  only  be awarded  by EPA, and are  suDJect to
        the  requirement  for  advance Congressional  notifi-
        cation.  Refer to Section VI.M for a detailed
        discussion of grant  award procedures.

2.  Decreases

    Grant decreases most often occur when construction bids are
less than the estimated  contract  costs included in the grant
application.   Grant decreases may also occur at the completion
of any project, including Step 1 and Step 2  grants.  In most
instances,  a  request  for a grant decrease is not made  by the
grantee, but  is initiated by the reviewing agency.  Project
reviewers are to  be alert for legitimate opportunities to  reduce
grants, since recovered funds, after being returned to EPA, are
realloted to the  same State for funding other projects on  the
State's project priority list.  Grant decreases require the pre-
paration of a formal grant amendment.  Once  this amendment  has
been approved by  the Regional Administrator, a copy is sent to
the Regional  Financial Management Officer who deobligates  the
funds and, subsequently, arranges for their  reallotment to the
State. Refer to Section VI.M for a detailed  discussion of  grant
award procedures.



                             914                        TM 86-1

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D.  DISPUTES

    In the construction grants program, a dispute is a disagree-
ment between a grant applicant or grantee and the reviewing agency
(either the State or EPA) concerning a decision by the reviewing
agency with regard to a grant requirement.  Disputes are different
from protests or appeals of protests (see Section VII.D.6) and
claims (see Section VII.H.2), both of which arise between grantees
and their contractors and potential contractors.

    Disputes which concern a State action are to be submitted to the
State, and reviewed by the State in accordance with its own pro-
cedures.  The State will:

    - review its initial decision,

    - issue a final decision, labeled as such, and

    - notify the applicant or grantee of its right to
      request a review by the EPA Regional Office of the
      State's final decision.

If the dispute involves an initial decision by EPA, it is to be
submitted directly to the EPA Regional Office (or for Headquarters-
awarded grants, to EPA Headquarters) as described below.

    The formalized procedure for resolving disputes at the EPA
Regional Office level involves the designation of a Regional dis-
putes decision official (DDO), who reviews the grant applicant's or
grantee's request and issues a final decision.  If the DDO is a
person other than the Regional Administrator (RA), the grant appli-
cant or grantee may request that the RA review the DDO's final
decision. If the DDO is the RA, the grant applicant or grantee may
request that the RA reconsider his final decision.

    Where a State has established a disputes resolution procedure
which the EPA Regional Office determines to be equivalent to that
provided by the DDO, the State's final decision will be considered
equivalent to a DDO's final decision, and the grant applicant or
grantee will only be entitled to one review at the Regional level
(i.e., a review by the RA).  Otherwise, the request for review of
a State's final decision should be submitted to the DDO.

    If the grant applicant or grantee requests that the RA review
the State's final decision or reconsider the DDO's final decision,
the request must include:

    - a copy of the final decision,

    - a statement of the amount in dispute,
                             915

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    - a description of the issues involved, and

    - the grant applicant's or grantee's objection to
      the final decision.

    When the request for review or reconsideration is filed, the grant
applicant or grantee is entitled to:

    - be represented by counsel,

    - submit documentary evidence and briefs,

    - participate in an informal conference with EPA
      officials, and

    - receive a written decision from the RA.


    The RA will review the State's or the DDO's final decision, or
reconsider his own final decision, and issue a determination.  if
the grant applicant or grantee is dissatisfied with the RA's
determination, it may file a petition for a discretionary review by
the Assistant Administrator for Water at EPA Headquarters. The
petition must include a copy of the RA's determination, and a concise
statement of the grant applicant's or grantee's reasons for believing
that the determination is erroneous.  The Assistant Administrator for
Water, upon examination of the dispute, will decide whether or not to
review the RA's determination.  if the decision is not to review, the
Assistant Administrator for Water will advise the grant applicant or
grantee that the RA's determination remains the final EPA action.
If the Assistant Administrator for Water decides to review the RA's
determination, the review will generally be limited to the written
record, although the grant applicant or grantee may be allowed to
submit briefs and/or to attend an informal conference.  The decision
of the Assistant Administrator for Water will be EPA's final action.

    Several EPA decisions are exempt from the disputes process. Grant
applicants or grantees may not appeal EPA's decisions concerning:


    1.  disapprovals of deviations from regulatory require-
        ments (see Section E below);

    2.  bid protest decisions made under 40 CFR Part 33,
        Subpart G (see Section VII.D.6);

    3.  National Environmental Policy Act (NEPA) decisions
        made under 40 CFR Part 6 (see Section IV.D.I);
                             916

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    4.  advanced wastewater treatment decisions made by
        the EPA Administrator (see Section IV.E.I); and

    5.  decisions of the EPA Audit Resolution Board
        (see Section VIII.E.5).

Re; 40 CFR Part 30, Subpart L; 40 CFR 35.3030


E.  DEVIATIONS

    A grant applicant, grantee,  State agency, EPA Regional Office,
or EPA program office may request an exception to the regulations
(i.e., a deviation).  Deviation requests are considered on a case-
by-case basis, although deviations will not be issued from those
regulations which implement statutory or executive order require-
ments.  Deviation requests from a grant applicant, grantee, or State
agency are initially submitted to the EPA Regional Office, which in
turn forwards the request to the Director, Grants Administration
Division, at EPA Headquarters, with a recommendation, supported by
detailed reasons, for approval or disapproval.  To facilitate the
concurrence process (see below), a copy of the entire deviation
request package should be sent to the Municipal Construction Division
at EPA Headquarters.

    The deviation request is to include the following information:

    1.  the grantee's name, project number, date of grant
        award, and grant amount;

    2.  identification of the section of the regulations from
        which the deviation is requested;

    3.  a complete description of what the deviation will
        accomplish and a justification of why the deviation
        is necessary; and

    4.  a statement of whether the same or a similar deviation
        has been previously requested, and if so, an explanation
        of why it was requested and the outcome of the request.

    The Director, Grants Administration Division, approves or
disapproves the deviation request after consultation with, and
concurrence by, the Director, Municipal Construction Division.
Deviations may be requested before or after grant award, although
approval before grant award does not guarantee an award. Decisions
on deviation requests may not be appealed under the disputes pro-
visions of 40 CFR Part 30, Subpart L (see Section D above).

Re;  40 CFR Part 30, Subpart J
                             917

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 F.  DETERMINATION OF ALLOWABLE COSTS

 1.  General

    In the process of reviewing grant applications and payment
 requests, the project reviewer is confronted with having to make
 decisions concerning the eligibility or allowability of project
 costs.  The terms "eligible" and "allowable" are often used inter-
 changeably by regulatory officials, grantees, and engineers when
 discussing whether an incurred cost may be reimbursed under the
 construction grants program.  Although technically there is a
 difference between these terms as defined below, their synonymous
 use will not influence the outcome of a cost determination.

    "Eligible costs" were defined in earlier regulations as, "those
 costs in which Federal participation is authorized pursuant to
 applicable statute" (40 CFR 30.135-8, prior to October 1, 1983;
 current regulations do not contain a definition of eligible costs).
 Allowable costs were and are defined as, "those project costs that
 are: eligible, reasonable, necessary, and allocable to the project;
 permitted by the appropriate Federal cost principles; and approved
 by EPA in the assistance agreement" (40 CFR 30.200).  An example
 best illustrates the difference between the two terms.

    Building of treatment works is authorized under Title II of the
 Clean Water Act (CfoA), and the costs are therefore eligible for
 grant assistance.  Building of highways, airports, dams, water
 supply projects, etc.  are not authorized in the CWA,, and are there-
 fore ineligible  for grant assistance.   Even within a generic
 eligible category of projects (e.g., building of treatment works),
 some subcategories associated with the eligible prelect may be
 specifically authorized by statute and therefore described as an
 eligible cost.  For example, the CWA authorizes (i.e., makes eligible)
 the cost of acquiring land which will be an integral part of the
 treatment process.  Therefore, where items of cost are specifically
 cited in an applicable statute, the term "eligible cost" is used.

    Within a generic eligible category of projects, costs may be
 allowable or unallowable for grant participation.  Using the same
 example, engineering and legal costs associated with the acquisition
of eligible land are allowable for grant participation.   These same
 costs,  if incurred for the acquisition  of ineligible land (e.g.,
 land on which a conventional technology treatment plant is built),
    unallowable for grant participation.
                             918

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2.  Cost Principles

    Allowable and unallowable costs are generally defined in two
ways: by cost principles applicable to all Federal agencies, and
by the regulations and policies of the agency responsible for the
implementation of a specific program.

    In the case of EPA's construction grants program, two govern-
ment-wide cost principles are used:

    - "Cost Principles for State and Local Governments,"
      Office of Management and Budget (OMB) Circular A-87,
      dated February 1981.  These cost principles are used
      in determining allowable costs incurred and claimed
      by a grantee, but are not applicable to the grantee's
      contractors (e.g., engineer, attorney, construction
      manager, etc).

    - "Federal Acquisition Regulations" (48 CFR Part 31,
      Contract Cost Principles and Procedures), formerly
      "Public Contracts and Property Management" (41 CFR
      Part 1-15, Contract Cost Principles and Procedures).
      These cost principles are applicable to most grantee
      subagreements, with the exception of formally
      advertised (i.e., competitively bid), fixed price
      contracts where price is the primary factor in con-
      tract award.
        Allowability Factors for Government Agencies

            OMB Circular A-87 describes factors affecting the
        allowability of costs for State, local, and Federally-
        recognized Indian tribal governments.  In the absence
        of guidance for a specific cost item described in Item 4
        below, to be allowable under the construction grants
        program, costs must meet the following general
        criteria:

            i.    Be necessary and reasonable for the
                  proper and efficient administration
                  of the grant project, be allocable
                  to the project, and not be a general
                  expense required to carry out the
                  overall responsibilities of the unit
                  of government of which the grantee is
                  a part.

            ii.   Be authorized or not prohibited under
                  State or local laws or regulations.
                             919

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    iii.   Conform to any  limitations or
          exclusions set  forth in Federal
          cost principles,  Federal laws,
          or other governing limitations
          as to types or  amounts of cost
          items.

    iv.    Be consistent with policies,
          regulations, and  procedures that
          apply uniformly to both Federally
          assisted and other activities of
          the unit of government of which
          the grantee is  a  part.

    v.     Be accorded consistent treatment
          through the application of generally
          accepted accounting principles  appro-
          priate  to the circumstances.

    vi.    Not be  allocable  to, or included as,
          a cost  of any other Federally
          financed program  in either the
          current or a prior period.

Re: 40 CFR 30.410(a)
Allowability Factors for Commercial Organizations

    Factors affecting the allowability of cossts for
commercial organizations are similar to those in
OMB Circular A-87 (see Item a above). General factors
to be considered in determining the allowability of
individual cost items include:

    i.    reasonableness;

    ii.   allocability;

    iii.  standards promulgated by the U.S.
          Cost Accounting Standards Board, if
          applicable; otherwise, generally
          accepted accounting principles and
          practices appropriate to the par-
          ticular circumstances; and

    iv.   any limitations or exclusions set
          forth in the regulations or other-
          wise included in the contract as to
          types or amounts ot cost items.
                     920

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    The  regulations  also  include a discussion of
    selected  items of  cost beyond the general factors
    listed  above.  Representative items are:

        - definition of reasonableness and
         allocability,

        - advertising  costs,

        - bad debts,

        - bidding  costs,

        - bonding  costs,

        - entertainment costs,

        - fringe  benefits,

        - job-site expenses,

        - field personnel,

        - travel  costs, and

        - bidding  and  proposal  costs.

    Re:  40  CFR 30.410(d); 41  CFR Part  1-15;
        48  CFR Part  31


c.  Allowability  Factors  for  Other Organizations

        In  rare instances,  grantees  may  enter  into
    subagreements with other  State or  local  govern-
    ment agencies, hospitals, educational institutions,
    or other nonprofit institutions.  Allowable cost
    factors for State  and local governments  are des-
    cribed  in Item a above.   Allowable cost  factors have
    also been established for the  following  organi-
    zations:

        i.     Hospitals

              Described in 45 CFR Part 74,
              Appendix E.

        Re:   40  CFR 30.410(e)
                         921

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        i i.    Educational Institutions

              Described in OMB Circulars A-21
              and A-88.

        Re:    40 CFR 30.410(b)
        i i i.   Other Nonprofit Institutions

              Described in OMB Circular A-122.

        Re;   40 CFR 30.410(c)


d.   Classification of Costs

        The total allowable cost of a project includes
    its allowable direct costs,  plus its allocable por-
    tion of allowable indirect costs, less applicable
    credits (see Section B.10 above).  There is no
    universal rule for classifying certain costs as
    either direct or indirect under every accounting
    system (see Section VII.C.7).  A cost may be direct
    with respect to some specific service or function,
    but indirect with respect to the grant or other
    ultimate  cost objective.  For a given project, it
    is essential that each cost item be treated con-
    sistently , either as a direct or an indirect cost.

        i.   Direct Costs

             Direct costs are those that can be
             identified specifically with a
             particular cost ob3ective.  Typical
             direct costs are:

             - compensation of employees
               (including supervisory and
               clerical personnel) for the
               time and effort devoted spec-
               ifically to the execution of
               the funded project;

             - cost of materials acquired,
               consumed, or expended specifi-
               cally for the funded project;
                         922

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      equipment and other approved
      capital expenditures;

      other  items of expense  incurred
      specifically to carry out the
      grant  agreement or  the  contrac-
      tor's  subagreement; and

      services  furnished  specifically
      for  the funded project  by other
      agencies, contractors,  or sub-
      contractors .
ii.   Indirect Costs

     Indirect costs are those incurred
     for a common or joint purpose bene-
     titting more than one cost objective,
     and those not readily assignable to
     the cost objectives specifically
     benefited, without an effort which
     is disproportionate to the results
     achieved.  Typical indirect costs
     consist of general overhead items
     such as:

     - salaries of supervisory and
       support personnel not working
       directly on the project;

     - office space and utilities,

     - telephones  and other communi-
       cation services,

     - office supplies and services
       not  readily assignable  to  the
       project,

     - administrative expenses,

     - employee  and general  insurance,
       and

     -  contributions  to  Social Security
       and  other pension plans.
                  923

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Indirect costs are allowable for grant
participation only if they are determined
on  the basis of a negotiated indirect
cost agreement, which is incorporated
by  reference in the grant agreement (in
the case of a municipality) or in a sub-
agreement  (in the case of a contractor).

In  general, the parties to a contract
(other than contractors procured through
competitively bid, fixed price contracts)
will negotiate an indirect cost rate for
the contract or project.  The indirect
cost rate will usually be a percentage
of  certain specified direct costs.  For
example, an engineering firm nay negotiate
an  indirect cost rate which iss 150 percent
of  direct labor costs, while another firm's
indirect cost rate may be negotiated as
100 percent of total direct costs.

The negotiated indirect cost rate,
based on an annual budget,  is con-
sidered provisional for the firm's up-
coming fiscal year.  During negotia-
tions, an indirect cost rate ceiling
(e.g., 160 percent),  which may not be
exceeded in any case, may also be es-
tablished.  At the conclusion of the
firm's fiscal year, the indirect cost
rate is finalized (based on actual
costs) and where appropriate, adjust-
ments are made to previous invoices
paid during the covered period.  The
final indirect cost rate may be higher
(although it may not exceed the ceiling
rate) or lower than the provisional
rate.  A new indirect cost  rate is then
negotiated for the next fiscal year.

Grantees which claim indirect costs
associated with administrative or
force account work conduct  similar
indirect cost rate negotiations with
EPA or another cognizant Federal agency.
            924

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                 At the conclusion of the contract or
                 project,  all costs,  including indirect
                 costs and rates,  are subject to audit
                 and consequent adjustments.   It is
                 essential, therefore, that grantees
                 and their contractors (other than
                 contractors procured through competi-
                 tively bid, fixed price contracts)
                 develop and retain adequate documenta-
                 tion to support all costs claimed for
                 grant assistance (see Section VIII.D.9).


3.  Allowable and Unallowable Costs

    As described in Item 2 above, allowable and unallowable costs
are defined, within the framework of the applicable cost principles,
by EPA for the construction grants program.  Allowable cost deter-
minations are based on regulations promulgated by EPA or on policies
representing sound fiscal and managerial practices.

    Regulations implementing the construction grants program prior
to the 1981 CWA amendments  (40 CFR Part 35, Subpart E) contained a
partial list of allowable and unallowable costs.  The regulations
were supplemented by a listing titled "Allowability of Miscellaneous
Costs" in Chapter VII of the first and second editions of the Hand-
book of Procedures.  Projects awarded grants prior to May 12, 1982
are subject to allowability determinations based on the provisions
of 40 CFR Part 35, Subpart  E, and the appropriate earlier edition
of the Handbook.

    Regulations implementing the 1981 CWA amendments  (40 CFR
Part 35, Subpart I) were published in interim final form on
May 12, 1982, and  in final  form on February 17, 1984.  Both sets
of regulations contain "Appendix A -  Determination of Allowable
Costs." The February 17, 1984 Appendix A, which is a  revised interim
final rule, is included verbatim  in  Item 4 below,  supplemented by
clarification and  examples  for specific cost  items.   To distinguish
the exact reproduction of  the regulations  from  the  text of the
Handbook, the regulations  are typed  entirely  in capital  letters. To
aid the reader in  locating  specific  provisions  in  the  regulations,
underlining has been added  to the major subject headings.

    When a project  reviewer is confronted  with  an  item of cost whose
allowability  is uncertain,  the reviewer should  take  the  following
actions, in the order  in which they  are  listed:

     a. review Item  4  below;
                              925

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     b. review 40 CFR Parts 4, 30, and 33 for issues con-
        cerning the costs of relocation and land acquisition,
        general grant management, and procurement, respectively;

     c. review the appropriate cost principles described
        in Item 2 above; and

     d. refer unresolved issues to the appropriate EPA Regional
        Office or to EPA Headquarters for resolution.


4.  40 CFR PART 35, SUBPART I, APPENDIX A, REVISED INTERIM FINAL
    RULE - DETERMINATION OF ALLOWABLE COSTS

    (a) PURPOSE.  THE INFORMATION IN THIS APPENDIX REPRESENTS
        AGENCY POLICIES AND PROCEDURES FOR DETERMINING THE
        ALLOWABILITY OF PROJECT COSTS BASED ON THE CLEAN WATER
        ACT, EPA POLICY, APPROPRIATE FEDERAL COST PRINCIPLES
        UNDER PART 30 OF THIS SUBCHAPTER AND REASONABLENESS.

        In order for these policies and procedures to be applied,
        project costs must be supported by adequate documentation.
        It is essential that project reviewers insare that grantees
        establish and maintain adequate recordkeeping systems for
        this purpose.

    (b) APPLICABILITY.  THIS COST INFORMATION APPLIES TO GRANT
        ASSISTANCE AWARDED ON OR AFTER THE EFFECTIVE DATE OF
        THIS REGULATION (FEBRUARY 17, 1984).  PROJ3CT COST
        DETERMINATIONS UNDER THIS SUBPART ARE NOT LIMITED TO
        THE ITEMS LISTED IN THIS APPENDIX.  ADDITIONAL COST
        DETERMINATIONS BASED ON APPLICABLE LAW AND REGULATIONS
        MUST OF COURSE BE MADE ON A PROJECT-BY-PROJECT BASIS.
        THOSE COST ITEMS NOT PREVIOUSLY INCLUDED IN PROGRAM
        REQUIREMENTS ARE NOT MANDATORY FOR DECISIONS UNDER
        GRANTS AWARDED BEFORE THE EFFECTIVE DATE.  THEY ARE
        ONLY TO BE USED AS GUIDANCE IN THOSE CASES.

        In making allowability determinations, project reviewers,
        disputes officials, and auditors should consider the
        reasonableness of commitments previously made to grantees
        in the absence of pertinent statutes, regulations, or EPA
        policy.


A.  COSTS RELATED TO SUBAGREEMENTS

    1.  ALLOWABLE COSTS RELATED TO SUBAGREEMENTS INCLUDE:

        a.  THE COSTS OF SUBAGREEMENTS FOR BUILDING THE
            PROJECT.
                              926

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    The subagreements referred to here are the prime
    contracts (including any subcontracts) for building
    the project,  including the direct purchase of equip-
    ment and materials by the grantee.

b.  THE COSTS OF  COMPLYING WITH THE PROCUREMENT
    REQUIREMENTS  OF PART 33 OF THIS SUBCHAPTER,
    OTHER THAN THE COSTS OF SELF-CERTIFICATION
    UNDER §33.110.

    To be allowable, the costs of complying with
    Part 33 must  be incurred after grant award, or
    must be approved as a preaward cost (see
    Section III.D.S.e).  However, preaward costs are
    limited to the procurement of major equipment re-
    quiring long  lead times, field testing, minor
    rehabilitation or building, and land acquisition.
    Other procurement costs incurred before grant
    award are not allowable.

    Normally, the only unallowable procurement costs
    which the applicant would incur before grant
    would be those associated with procuring services
    (e.g., engineering services during construction,
    legal services, etc).  These procurement costs are
    generally very small compared with the cost of
    building the  project or the cost of the services
    themselves.

C.  THE COST OF LEGAL AND ENGINEERING SERVICES INCURRED
    BY GRANTEES IN DECIDING PROCUREMENT PROTESTS AND
    DEFENDING THEIR DECISIONS IN PROTEST APPEALS UNDER
    SUBPART G OF  40 CFR PART 33.

    Services, such as legal and engineering, must be
    procured in accordance with 40 CFR Part 33 (see
    Sections VII.B, VII.C, VII.E, and VII.F).  Normally,
    a grantee's existing subagreements will include the
    necessary services within the scope of work.  How-
    ever, the extent of the services may exceed that
    originally defined in the existing subagreement, in
    which case the grantee will be required to negotiate
    a change order  (see Section VII.C.8).  The cost of the
    legal and engineering services are allowable regard-
    less of the outcome of the protest, provided there
    was not a covert attempt by the grantee to violate or
    circumvent EPA's procurement regulations.
                     927

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d.  THE COSTS OF ESTABLISHING OR USING MINORITY AND
    WOMEN'S BUSINESS LIAISON SERVICES.

    Grantees are required to undertake affirmative
    actions concerning the use of small, minority,
    women's, and labor surplus area businesses (see
    Sections V.C.l.w, VII.C.4 and VII.D.3).  The cost
    of establishing and using liaison services for
    this purpose is allowable tor grant participation,
    provided that the services are reasonable and
    contribute towards EPA's goal of awarding a fair
    share of contracts to such businesses.  These ser-
    vices may include establishing and maintaining a
    list of qualified businesses, interviews with these
    firms to establish their qualifications for specific
    work, meetings with the grantee's contractors to make
    them aware of the capabilities of qualified firms, pre
    paration of necessary reports (e.g., EPA Form 6005-1),
    and other reasonable and necessary actions to further
    EPA's goal.
e.  THE COSTS OF SERVICES INCURRED DURING THE BUILDING
    OF A PROJECT TO INSURE THAT IT IS BUILT IN CONFOR-
    MANCE WITH THE DESIGN DRAWINGS AND SPECIFICATIONS.

    These services are primarily engineering and con-
    struction management services provided during the
    building of the project, including inspection ser-
    vices, materials testing (e.g., concrete strength,
    soil compaction, etc.) required by the specifica-
    tions, inspecting and expediting the delivery of
    equipment and material purchased directly by the
    grantee, review of shop drawings and as-built
    drawings, etc.
f.   THE COSTS (INCLUDING LEGAL,  TECHNICAL AND ADMINIS-
    TRATIVE COSTS)  OF ASSESSING  THE MERITS OF OR NEGO-
    TIATING THE SETTLEMENT OF A  CLAIM BY OR AGAINST A
    GRANTEE UNDER A SUBAGREEMENT PROVIDED:

    The reasonable costs incurred by a grantee to analyze
    a claim and to negotiate a settlement can be charac-
    terized as negotiation costs.  Those costs which are
    incurred prior to either party filing a complaint
    with the courts or making a  demand for arbitration
    will be treated as explained in this paragraph and
    its subparagraphs.  Those costs which are incurred
                     928

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after the filing will be treated as described  in
Paragraph 2.c below  (i.e., unallowable  unless
all six conditions listed in Paragraph  2.c are
met).  The grantee must demonstrate that  the
pre-filing costs were incurred as a result of  a
timely and meaningful negotiation process and  were
not caused by mismanagement.

The negotiation costs, which are allowable to  the
extent explained below, are normally included  with-
in the scope of the grantee's contract  for construc-
tion management services, but the extent of the
services may require a change order (see Section
VII.C.8).  If it is necessary to award  a new sub-
agreement (e.g., for claim analysis), the require-
ments of 40 CFR Part 33 must be met.  These regu-
lations require, among other things, access to
records, cost and pricing data, and separate
negotiation of profit (see Sections VII.B, VII.C,
VII.E, and VII.F).

Unless clearly allocable to allowable or unallowable
cost categories (see Sections F.2 and F.3 above),
negotiation costs are allowable to the  same ex-
tent that the project is allowable, provided that:
   (1) THE CLAIM ARISES FROM WORK WITHIN THE
       SCOPE OF THE GRANT;

       See the "Discussion" portion of Section
       VII.H.
   (2)  A FORMAL GRANT AMENDMENT IS EXECUTED
       SPECIFICALLY COVERING THE COSTS BE-
       FORE THEY ARE INCURRED;

       See Section VI.M,  and Section C.I
       above.
   (3)  THE COSTS ARE NOT INCURRED TO PREPARE
       DOCUMENTATION THAT SHOULD BE PREPARED BY
       THE CONTRACTOR TO SUPPORT A CLAIM AGAINST
       THE GRANTEE;  AND
                 929

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    A claim presented by  a contractor should
    be complete  and  adequately documented.  It
    it is not,  it should  be returned with in-
    structions  to correct or augment the  doc-
    umentation.  Costs for preparing  documen-
    tation or  incurring administrative ex-
    penses to  assess an  incomplete claim  are
    not allowable.
(4)  THE REGIONAL ADMINISTRATOR DETERMINES
    THAT THERE  IS A SIGNIFICANT FEDERAL
    INTEREST IN THE ISSUES INVOLVED IN THE
    CLAIM.
    A claim in this context is a disagree-
    ment between the grantee and a  con-
    tractor which cannot be resolved in  the
    manner normally employed tor negotiating
    change orders (see Section VII.H.2).
    There is a significant Federal  interest in
    using a fair and timely negotiation  process
    to resolve claims, thereby avoiding
    lengthy and costly arbitration  and/or
    litigation.  In general, EPA has a strong
    interest in the assessment process used
    to evaluate the merits of a claim.
    Depending upon the results of the assess-
    ment, the Federal interest may  change.
    The Federal interest will depend upon the
    reviewing agency's evaluation of the
    merits of the claim and the relative  merits
    of the parties' stated positions and  their
    negotiating posture.

    Where an unresolved claim appears to  be
    headed for protracted negotiations or possibly
    arbitration or litigation after all  reasonable
    attempts have been made at resolution, the
    grantee must obtain cost estimates for the
    legal and technical services deemed  necessary
    for such proceedings (see Paragraph  2.c be-
    low) .

    Re: 40 CFR 35.2350
              930

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g.  CHANGE ORDERS AND THE COSTS Of MERITORIOUS CON-
    TRACTOR CLAIMS FOR INCREASED COSTS UNDER SUB-
    AGREEMENTS AS FOLLOWS:

    A meritorious contractor claim is a claim which
    has been stripped of its spurious or nonvalid
    parts (i.e., a meritorious claim is that portion
    ol the total claim for which the grantee is
    legally liable).  The allowability of  these  costs
    are determined in accordance with the  following
    rules:

       (1) CHANGE ORDERS AND THE COSTS OF  CON-
           TRACTOR CLAIMS PROVIDED THE COSTS ARE:

           (i)   WITHIN THE SCOPE OF THE PROJECT;

                 See the "Discussion" portion of
                 Section VII.H.

           (ii)  NOT CAUSED BY THE GRANTEE'S MIS-
                 MANAGEMENT; AND

                 The reviewing agency will eval-
                 uate the grantee's performance
                 during project construction,
                 noting such indications of
                 grantee mismanagement as  undue
                 delays in processing change
                 orders, the lack of adequate
                 supervision and control of the
                 project at all times, etc.

           (lii) NOT CAUSED BY THE GRANTEE'S VICAR-
                 IOUS LIABILITY FOR THE  IMPROPER
                 ACTIONS OF OTHERS.
        (2)   PROVIDED  THE  REQUIREMENTS OF PARAGRAPH g(l)
             ARE  MET,  THE  FOLLOWING ARE EXAMPLES OF ALLOW-
             ABLE CHANGE ORDERS  AND CONTRACTOR CLAIM COSTS

             (i)    BUILDING COSTS RESULTING FROM DEFECTS
                   IN  THE  PLANS,  DESIGN DRAWINGS AND
                   SPECIFICATIONS, OR OTHER SUBAGREEMENT
                   DOCUMENTS,ONLY TO THE EXTENT THAT THE
                   COSTS WOULD HAVE BEEN INCURRED IF THE
                   SUBAGREEMENT DOCUMENTS ON WHICH THE
                   BIDS WERE BASED HAD BEEN FREK OF THE
                      931

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DEFECTS, AND EXCLUDING THE COSTS OF
ANY REWORK, DELAY, ACCELERATION OR
DISRUPTION CAUSED BY SUCH DEFECTS;
Additional costs to correct detects
(i.e., errors and omissions in the
contract documents), and other costs
caused by the impact of such defects
on other portions of tne project, are
not allowable (see Section VII.H.l.b).
For example, if the construction
drawings had omitted return sludge
piping from the secondary clarifiers
to the aeration tanks (an actual case),
and the engineer or contractor de-
tected this before building was under-
taken, the cost of a cHange order to
include the piping would be an allow-
able cost, since:

  - the piping would have been in-
    cluded in the original bid,

  - no additional construction or
    rework was required (beyond
    what would have been required
    if the work had originally
    been included), and

  - there was no cost impact on
    other portions of the project
    (since construction work had
    not begun).

If this omission had been realized
after substantial construction work
had been completed, and therefore
required rework, delay, or additional
work beyond that which would have been
required by detect free drawings, the
cost of the piping would still have
been allowable, but tne additional
cost of rework or delay would have
been unallowable.
The additional cost is measured as the
difference between tne cost which would
have been included in the bid based on
   9.32

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      defect free drawings and the actual cost
      of the change order. For example,  if  a
      concrete tank had been constructed, and was
      later found to  be at an  incorrect  elevation
      due to an error  in  the design drawings, and
      if it was necessary to demolish  the tank  and
      reconstruct it  at the correct elevation,  the
      entire change order would  be unallowable,
      except for differences in  excavation  costs.
      If additional excavation was required to
      enable the tank  to  be constructed  at  the
      correct elevation (i.e., the incorrect
      elevation was too high), the cost  of  the
      additional excavation would be allowable.
      However, if too much excavation  had been
      undertaken, and  fill was required  to  enable
      the tank to be  constructed at the  correct
      elevation  (i.e., the  incorrect elevation  was
      too low), both  the  entire  change order  and
      the cost of the unnecessary excavation  would
      be unallowable.  In these  cases, the  grantee
      is free  to seek remedial action  from  the
      responsible parties involved.

      Regardless of the allowability or  unallow-
      ability  of construction  costs to correct
      errors and omissions,  in no case are  addi-
      tional engineering  costs allowable, except
      for the  cost of inspecting allowable  con-
      struction work,  to  the extent that such
      inspection costs would have been incurred
      to  inspect the  same construction if  such
      construction had originally been included in
      defect  free drawings.
 Re:  40 CFR 33.1005(b)
(ii)   COSTS OF EQUITABLE ADJUSTMENTS UNDER
      CLAUSE 4,  DIFFERING SITE CONDITIONS,
      OF THE MODEL SUBAGREEMENT CLAUSES
      REQUIRED UNDER §33.1030 OF THIS SUB-
      CHAPTER.
          933

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            The reviewing agency must determine
            that:

            - an adequate site  investigation was
              performed,

            - the  results of  the site investiga-
              tion were  included in  the bidding
              documents  (see  Section V.C.2.cc),

            - costs were reasonable  and necessary,
              and

            - the  grantee was timely and  efficient
              in resolving  tne  change orde'r to
              minimize  impact costs  (i.e.,  the
              costs caused  by the  impact  of the
              differing  site  conditions on  other
              portions  of tne project).

            If  these  conditions are  met,  EPA will
            participate  in  both the  direct  and,
            because of  the  Agency's  risk-sharing
            policy tor  differing site conditions,
            the impact  costs  arising from the
            differing site  conditions  (see
            Section VII.H.I.a).
(3)   SETTLEMENTS,  ARBITRATION AWARDS AND COURT JUDGE-
     MENTS WHICH RESOLVE CONTRACTOR CLAIMS SHALL BE
     REVIEWED BY THE GRANT AWARD OFFICIAL AND SHALL
     BE ALLOWABLE ONLY TO THE EXTENT THAT THEY MEET
     THE REQUIREMENTS OF PARAGRAPH g(l), ARE REASON-
     ABLE, AND DO NOT ATTEMPT TO PASS ON TO EPA the
     COST OF EVENTS THAT WERE THE KESPONSIBILITY
     OF THE GRANTEE, THE CONTRACTOR, OR OTHERS.

     The grantee has the burden of substantiating
     that the costs of settlements, arbitration
     awards, and judgements are reasonable and
     necessary, and are therefore allowable.  This
     substantiation includes a showing that tne in-
     curred costs were not the result of mismanage-
     ment by the grantee or the improper action of
     others.
                 934

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         If the claim seeks recovery for the costs of
         delay, the grantee must demonstrate that the
         delay impacted activities critical to timely
         completion (i.e., that the delayed activities
         affected the critical path for project comple-
         tion ).

h.  THE COSTS OF THE SERVICES OF THE PRIME ENGINEER RE-
    QUIRED BY §35.2218 DURING THE FIRST YEAR FOLLOWING
    INITIATION OF OPERATION OF THE PROJECT.

    The cost and the scope of these services are to be
    reasonable and appropriate to the nature, size, and
    complexity of the project (see Sections VII.C.5.b,
    VII,I.I, and VIII.D.7, and Paragraph l.j below).

i.  THE COST OF DEVELOPMENT OF A PLAN OF OPERATION IN-
    CLUDING AN OPERATION AND MAINTENANCE MANUAL REQUIRED
    BY §35.2106.

    The cost of preparing the draft plan of operation,
    which is required as part of the grant application
    package, is not an allowable cost, but is part of the
    preapplication work which is intended to be defrayed,
    in part, by the allowance for facilities planning and/or
    design  (see Section VI.D.8).

j.  START-UP SERVICES FOR ONSITE TRAINING OF OPERATING
    PERSONNEL IN OPERATION AND CONTROL OF SPECIFIC TREAT-
    MENT PROCESSES, LABORATORY PROCEDURES, AND MAINTENANCE
    AND RECORDS MANAGEMENT.

    While start-up services are an allowable cost, care
    must be exercised to insure that there is not a
    duplication of services, and therefore costs, bet-
    ween start-up services and the engineering services
    to be provided during the first year of operation
    (see Sections VII.C.5.b, VII.I.1, and VIII.D.7, and
    Paragraph  l.h above).

k .  THE SPECIFIC AND UNIQUE COSTS OF FIELD TESTING AN
    INNOVATIVE OR ALTERNATIVE PROCESS OR TECHNIQUE, WHICH
    MAY INCLUDE EQUIPMENT LEASING COSTS, PERSONNEL COSTS,
    AND UTILITY COSTS NECESSARY FOR CONSTRUCTING, CONDUCTING,
    AND REPORTING THE RESULTS OF THE FIELD TEST.

    It should  be noted that normal operation and  maintenance
    costs,  as defined in  §35.2005(b ) (30 ), are not allowable
    as construction costs of a field test.
                     935                        TM 86-1

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2.  UNALLOWABLE COSTS RELATED TO SUBAGREEMENTS INCLUDE:

    a.   THE COSTS OF ARCHITECTURAL OR ENGINEERING SERVICES
        OR OTHER SERVICES INCURRED IN PREPARING A FACILITIES
        PLAN AND THE DESIGN DRAWINGS AND SPECIFICATIONS FOR
        A PROJECT. THIS PROVISION DOES NOT APPLY TO PLANNING
        AND DESIGN COSTS INCURRED IN THE MODIFICATION OR RE-
        PLACEMENT OF AN INNOVATIVE OR ALTERNATIVE PROJECT
        FUNDED UNDER §35.2032(c).
        The costs of these services are part of the work which
        is intended to be defrayed, in part, by the allowance for
        facilities planning and/or design.  Also, if the engineer
        has provided services to prepare other documents supporting
        the grant application (e.g., UC system, SUO, intermunicipal
        agreements, draft plan of operation, value engineering  (VE)f
        etc.), the costs associated with such services are not
        allowable, but again are part of the work which is intended
        to be defrayed, in part, by the allowance for facilities
        planning and/or design (see Section III.D.S.c).  However,
        specific planning and design costs are allowable as part
        of a 100 percent grant for the modification or replacement
        (M/R) of a failed I/A technology  (see Section VI.J).

    b.  EXCEPT AS PROVIDED IN l.g ABOVE, ARCHITECTURAL OR
        ENGINEERING SERVICES OR OTHER SERVICES NECESSARY TO
        CORRECT DEFECTS IN A FACILITIES PLAN, DESIGN DRAWINGS
        AND SPECIFICATIONS, OR OTHER SUBAGREEMENT DOCUMENTS.

        An example of these unallowable costs would be the
        engineering costs to update data  in the  facilities plan
        (e.g., cost estimates, current population for determining
        existing needs, etc.), or  to evaluate a  required alterna-
        tive  (e.g., I/A technology) which was not properly evalu-
        ated  in the facilities plan.  Another example would be  the
        engineering costs of redesigning  a  treatment plant unit
        process if the original design did  not conform to State
        design standards, was impractical,  or was excessively
        costly.  However, revisions to a  facilities plan, design
        drawings and  specifications, or other subagreement docu-
        ments which are necessary  because of changes in EPA or
        State standards are not considered  defects  under this sec-
        tion, and are  therefore allowable  (see Section VII.H.l.c).

    C.  THE COSTS  (INCLUDING LEGAL, TECHNICAL AND ADMIN-
        ISTRATIVE) OF  DEFENDING AGAINST A CONTRACTOR CLAIM
        FOR  INCREASED COSTS UNDER  A SUBAGREEMENT OR OF
        PROSECUTING A  CLAIM TO ENFORCE ANY  SUBAGREEMENT
        UNLESS:
                          936                         TM 86-1

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    Defense and prosecution costs are those costs (in-
    cluding legal,  technical,  and administrative costs)
    incurred after  any party files a complaint in court
    or a demand for arbitration.   When such action is
    taken,  or appears likely to be taken,  the grantee
    must obtain cost estimates for the legal and tech-
    nical services  deemed necessary for such proceedings.
    A description of the claim, the facts  and issues
    involved, and cost estimates for the proceedings must
    be submitted through the State to EPA  for approval and
    the preparation of a grant amendment.   This procedure
    allows  the State and EPA to review the claim and, where
    appropriate, to utilize their experience and expertise
    to attempt to obtain a resolution before expensive pro-
    ceedings are undertaken.  Where it is  determined that
    there is a significant Federal interest in the claim,
    EPA will prepare a grant amendment for the reasonable
    costs necessary for defense or prosecution, and if
    requsted, may provide technical and legal assistance
    (see Sections VII.H.3 and VII.H.5, Section C.I above,
    and Paragraph l.f above).

Re: 40 CFR 35.2350

       (1)  THE CLAIM ARISES FROM WORK WITHIN THE SCOPE
           OF THE GRANT;

           See the "Discussion" portion of Section VII.H.

       (2)  A FORMAL GRANT AMENDMENT IS EXECUTED SPECIFI-
           CALLY COVERING THE COSTS BEFORE THEY ARE
           INCURRED;

           After the grant amendment has been approved
           (see Section VI.M,  and Section C.I above),
           the legal and technical services must be pro-
           cured in accordance with EPA's  procurement
           requirements, as discussed in Section VII.C.8.

       (3)  THE CLAIM CANNOT BE SETTLED WITHOUT ARBITRA-
           TION OR LITIGATION;

           In order to determine whether the claim can be
           settled without arbitration or litigation, the
           reviewing agency should request and review the
           following items from the grantee:

           (i) Sufficient documentation that timely, good
               faith efforts were made to pursue negotia-
               tions in order to avoid arbitration or liti-
               gation, such as:
                     937                        TM 86-1

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                 - a memorandum of negotiation (see EPA
                   publication, "Management of Construc-
                   tion Change Orders - A Guide for Grantees,"
                   March 1983, page 10);

                 - timely analysis of the merits of the
                   claim by the grantee's construction
                   engineer (or other consultant)  and
                   legal staff;

                 - proof of a timely response; and

                 - a record of attempts made to perform
                   timely and meaningful negotiations.

           (ii)  The engineer's independent estimate of the
                 value of the claim.

           (iii) An independent consultant's report, where
                 appropriate.

           (iv)  Any other pertinent correspondence between
                 the contractor and the grantee and/or the
                 grantee's engineer.
       (4) THE CLAIM DOES NOT RESULT FROM THE GRANTEE'S
           MISMANAGEMENT;
       (5) THE REGIONAL ADMINISTRATOR DETERMINES THAT
           THERE IS SIGNIFICANT FEDERAL INTEREST IN THE
           ISSUES INVOLVED IN THE CLAIM; AND

           See Paragraph l.f above.
       (6) IN THE CASE OF DEFENDING AGAINST A CONTRACTOR
           CLAIM, THE CLAIM DOES NOT RESULT FROM THE
           GRANTEE'S RESPONSIBILITY FOR THE IMPROPER
           ACTION OF OTHERS.
d.  BONUS PAYMENTS, NOT LEGALLY REQUIRED, FOR COMPLETION
    OF BUILDING BEFORE A CONTRACTUAL COMPLETION DATE.

    Many construction contracts provide that liquidated
    damages will be assessed against a contractor for
    failure to complete the project on schedule (see
    Section VII.H.l.f).  In some instances, contracts
                     938

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also provide monetary incentives (i.e., a bonus)
as an inducement to complete the project ahead of
schedule.  Unless the bonus provision is required by
law, a bonus paid by the grantee is an unallowable cost.
ALL INCREMENTAL COSTS DUE TO THE AWARD OF ANY SUBAGREE-
MENTS FOR BUILDING SIGNIFICANT ELEMENTS OF THE PROJECT
MORE THAN 12 MONTHS AFTER THE STEP 3 GRANT AWARD OR
FINAL STEP 2+3 APPROVALS UNLESS SPECIFIED IN THE PRO-
JECT SCHEDULE APPROVED BY THE REGIONAL ADMINISTRATOR
AT THE TIME OF GRANT AWARD.
If the grantee delays the award of any subagreements
for building significant elements of the project be-
yond 12 months after the date of the Step 3 grant
award or the final Step 2 + 3 approvals;  (1) the Region
should analyze the impact of this delay upon the
completion dates of other significant elements of the
project as proposals which delay the completion dates
of those other elements are not acceptable; and (2) the
incremental costs caused by the delay are not allowable
allowable, even if the delay is justifiable (e.g., due
to circumstances beyond the grantee's control) unless
the delay was specified in the project schedule approved
by the Regional Administrator when the grant was awarded.
The incremental costs include building costs, as well
as other costs for services, such as engineering super-
vision during construction and start-up, and continuing
engineering services for the first year after the
initiation of operation.  The incremental costs for
building may be determined by using  the ratio of approp-
riate cost indices  (e.g., the construction cost index
published  in Engineering News Record, or the EPA index
published  in the Journal of the Water Pollution Control
Federation) applied to the subagreement cost awarded to
the successful bidders.  The numerator in the ratio would
be the index 12 months after the date of the Step 3 grant
award, or  the final Step 2+3 approvals, and the denomin-
ator would be the index nearest the  date of subagreement
award.  The ratio, assuming it is less than 1.0, is
multiplied by the subagreement amount to determine the
allowable  cost.  This same ratio is  applied to other
appropriate project costs (e.g., engineering supervision)
to determine the allowable cost.  The allowable building
cost resulting from this adjustment  is used to determine
the final  allowance for facilities planning and/or design
(see Sections III.D.3.C and VI.L.l.f).
                  939                      TM  86-1

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        The project reviewer should also be aware that
        failure to promptly initiate and complete a
        project may result in the imposition of  sanctions,
        including termination,  pursuant  to 40 CFR Part  30,
        Subpart I. The objective of this requirement is to
        improve water quality as quickly as possible and
        to prevent unnecessary increases in construction
        costs due to inflation.

        (Note;  Where (1)  a grantee opens bids on a  significant
        element of a project prior to the project schedule date
        and (2) all bidders agree to hold their  bids firm until
        after the date in  its project schedule,  no grant penalty
        would be assessed  for the delay.  The reason being that,
        through the hold firm agreement, the before  and after
        schedule costs would be the same.  However,  any increase
        in ancillary costs (A/E sevices, administrative expenses,
        legal costs, etc.) attributable  to the grantee  delay
        would not be eligible for grant  participation.)
3.  Other Costs

    The following items are not explicitly included in 40 CFR
Part 35, Subpart I,  Appendix A, but represent prudent fiscal and
management principles, and precedent cases:


        a.  Liquidated Damages

            Monies recovered by grantees based on the
        assessment of liquidated damages have no effect on
        the determination of allowable costs (i.e., are not
        considered to be grant related income). Moreover, any
        additional costs (e.g., building, engineering, legal,
        or administrative) incurred because of a contractor's
        lack of timely performance are assumed to be offset
        by the liquidated damages, and therefore are unallow-
        able, even in the event that the grantee elects not to
        exercise its right to recover liquidated damages, or
        the liquidated damages are insufficient to cover the
        grantee's additional costs.
                         940                       TM 86-1

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    Bid Bond Forfeiture

        All bid bond forfeitures are treated as a reduction
    in the project's costs (i.e.,  are considered to be grant
    related income).  However,  the allowance for facilities
    planning and/or design continues to be based on the total
    allowable building cost,  without regard to the bid bond
    forfeiture.
c.  Public Liaison Services

        Such services are unallowable, since they constitute
    a type of public information service, and as such are
    not directly related to, or necessary for, the building
    of the project.


d.  Professional Liability Insurance

        Insurance premiums for a contractor (e.g., engineer,
    construction manager, attorney, accountant, etc.) are
    allowable only for insurance which the contractor main-
    tains in connection with the general conduct of its
    business.  The types and extent of coverage must be in
    accordance with sound business practice, and the rates
    and premiums must be reasonable under the circumstances.
    The maintenance of professional liability insurance is
    a sound business practice, and the premiums are allowable,
    but only as part of the contractor's indirect cost agree-
    ment.  The cost of additional insurance (e.g., for a
    specific project), beyond that normally carried by the
    contractor, is unallowable for grant participation.


e.  Services Required by Law

        The cost of services, other than engineering services
    during construction  (see Paragraph l.e above), such as
    railway or highway flagmen, or utility or highway  inspec-
    tors, required during the building of the project, are
    allowable  for  grant participation provided  that:
                          941                        TM  86-1

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        i.    the agency responsible for the affected
              railway, highway, or utility requires
              such services for all parties conducting
              similar types of work, regardless of the
              source of construction funding for the
              proj ect;

        ii.   the project work requiring such services
              is allowable, and is included in the scope
              of the approved project;

        iii.  the cost of such services has not been
              included in the construction contractor's
              bid price;

        iv.   the cost of such services is incurred
              directly by the grantee;

        v.    the cost is reasonable; and

        vi.   the services are required by State or
              local law.
f .   £i^ld^urveyj5_tg ' jdentify Cultural Resources
        The costs of field surveys to identify historical,
    architectural, archaeological, and cultural resources
    in the primary impact areas of the project are not
    allowable costs, but are part of the preappl icat ion
    activities which are intended to be defrayed, in
    part, by the allowance for facilities planning and/or
    design.  Where intensive surveys conducted during
    facilities planning or design indicate a high probability
    of discovering important cultural resources, and
    where the proposed project may have an adverse impact
    upon such cultural resources , the reasonable cost of
    services required durj.ng_ the building of the project
    (i.e., costs to protect previously identified artifacts,
    structures, etc.) are allowable.  Such costs reguire
    prior approval by the reviewing aqenev, and must be
    supported by documentation justifying their need. The
    allowability of such work and the associated costs are
    determined on a case-by-case basis, and must be recom-
    mended by the State Historic Preservation Officer (SHPO) ,
    and in some cases, the Advisory Council on Historic Pre-
    servation (ACHP).
                         942

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       v.     contain architectural details (including
             hardware that is an integral part of the
             structure)  that are designed to enhance
             the function and appearance of the building,
             and to reflect regional architectural tra-
             ditions; and

       vi.   facilitate the highest productivity
             and efficiency of the treatment works
             and its employees.

    Decisions concerning the allowability of specific
    item (particularly those associated with aesthetics)
    are to be well documented in the project files and
    made available to the grantee and the project auditor.
    Allowability decisions which cannot be made using the
    principles discussed above (see also Section V.C.2.U)
    are to be submitted from the State to the EPA Regional
    Office and, if necessary, to EPA Headquarters for review,

    Re:  EPA Audit Resolution Board Decision 13/14,
         "Criteria for Assessing the Allowability of
         Aesthetic Features and Landscaping on EPA
         Construction Grant Projects," February 24, 1984
b.   THE COST OF LAND ACQUIRED FOR THE MITIGATION OF
    ADVERSE ENVIRONMENTAL EFFECTS IDENTIFIED PURSUANT
    TO AN ENVIRONMENTAL REVIEW UNDER NEPA.
    Section 212(2) of the Act states that only two
    categories of land are included in the definition of
    treatment works; Land that will be used as an integral
    part of the treatment process and land that will' be
    used for the ultimate disposal of residues resulting
    from such treatment.  Because land acquired to mitigate
    adverse environmental^ effects is not included in the
    definition of "treatment works, the cost of that  land
    purchase is not allowable.	However, although the cost
    of land purchased to mitigate adverse environmental
    impacts is unallowable, it dges__not_a_ffect_ the require-
    ment to mitigate.	4j) CFR Part 6 requires that effective
    mitigation measures be devgj.oped^ a^nd implemented. Also,
    the applicant must provide in the facilities plan a
    cost-effectiveness analys_is of the feasible alterna-
    tives , including the purchase of ineligible land.
                     945                      TM  86-1

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C.  PRIVATELY OR PUBLICLY OWNED SMALL AND ONSITE SYSTEMS

1.  ALLOWABLE COSTS FOR SMALL AND ONSITE SYSTEMS SERVING
    RESIDENCES AND SMALL COMMERCIAL ESTABLISHMENTS IN-
    HABITED ON OR BEFORE DECEMBER 27, 1977 INCLUDE:

    (Note; There is a conflict between this paragraph and
    40 CFR 35.2034.  EPA has proposed amending this paragraph
    to agree with the provision of 40 CFR 35.2034 that the
    requirement for habitation on or before December 27, 1977
    applies only to privately owned small and onsite systems.)

    a.  THE COST OF MAJOR REHABILITATION, UPGRADING,
        ENLARGING AND INSTALLING SMALL AND ONSITE SYSTEMS,
        BUT IN THE CASE OF PRIVATELY OWNED SYSTEMS, ONLY
        FOR PRINCIPAL RESIDENCES.

        Major rehabilitation may include, as an allowable
        cost, the demolition and removal of an existing
        onsite system provided that:

        i.   the system, including the septic tank,
             has failed beyond reasonable repair, and
             the replacement system is more cost
             effective than salvaging portions of the
             existing system; and

        ii.  either:

             - there is only one reasonable location
               on the site for the new system, and the
               use of that location requires the re-
               moval of the existing system, or

             - the existing system constitutes a real
               and present hazard to safety, public
               health, or water quality, which can
               only be abated by the removal of the
               existing system.

        The demolition and removal of an existing onsite
        system for the convenience of the owner as a means
        of increasing property value or property use  is
        unallowable for grant participation.

    b.  CONVEYANCE PIPES FROM PROPERTY LINE TO OFFSITE
        TREATMENT UNIT WHICH SERVES A CLUSTER OF BUILDINGS.

    C.  TREATMENT AND TREATMENT RESIDUE DISPOSAL PORTIONS OF
        TOILETS WITH COMPOSTING TANKS, OIL FLUSH MECHANISMS,
        OR SIMILAR INHOUSE DEVICES
                         946                        TM  86-1

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        d.  TREATMENT OR PUMPING UNITS FROM THE INCOMING FLANGE
            WHEN LOCATED ON PRIVATE PROPERTY AND CONVEYANCE PIPES,
            IF ANY, TO THE COLLECTOR SEWER.

        e.  THE COST OF RESTORING INDIVIDUAL SYSTEM BUILDING SITES
            TO THEIR ORIGINAL CONDITION.

        UNALLOWABLE COSTS FOR SMALL AND ONSITE SYSTEMS INCLUDE:

        a.  MODIFICATION TO PHYSICAL STRUCTURE OF HOMES OR
            COMMERCIAL ESTABLISHMENTS.

        b.  CONVEYANCE PIPES FROM THE HOUSE TO THE TREATMENT UNIT
            LOCATED ON USER'S PROPERTY OR FROM THE HOUSE TO THE
            PROPERTY LINE IF THE TREATMENT UNIT IS NOT LOCATED ON
            THAT USER'S PROPERTY.

        C.  WASTEWATER GENERATING FIXTURES SUCH AS COMMODES, SINKS,
            TUBS, AND DRAINS.
D.  REAL PROPERTY

    1.  ALLOWABLE COSTS FOR LAND AND RIGHTS-OF-WAY INCLUDE:

        a.  THE COST (INCLUDING ASSOCIATED LEGAL, ADMINISTRATIVE
            AND ENGINEERING COSTS) OF LAND ACQUIRED IN FEE  SIMPLE
            OR BY LEASE OR EASEMENT UNDER GRANTS AWARDED AFTER
            OCTOBER 17, 1972, THAT WILL BE AN INTEGRAL PART OF
            THE TREATMENT PROCESS OR THAT WILL BE USED FOR  THE
            ULTIMATE DISPOSAL OF RESIDUES RESULTING FROM SUCH
            TREATMENT PROVIDED THE REGIONAL ADMINISTRATOR APPROVES
            IT IN THE GRANT AGREEMENT.  THESE COSTS INCLUDE:

            (1)  THE COST OF A REASONABLE AMOUNT OF LAND, CON-
                 SIDERING IRREGULARITIES IN APPLICATION PATTERNS,
                 AND THE NEED FOR BUFFER AREAS, BERMS, AND  DIKES:
                 (NOTE;  Buffer areas are designed as part  of the
                 project to screen sites from public view to con-
                 trol public access, to improve aesthetics  and  to
                 meet other prescribed state regulatory require-
                 ments if applicable.)

            (2)  THE COST OF LAND ACQUIRED FOR A SOIL ABSORPTION
                 SYSTEM FOR A GROUP OF TWO OR MORE HOMES:

            (3)  THE COST OF LAND ACQUIRED FOR COMPOSTING OR
                 TEMPORARY STORAGE OF COMPOST RESIDUES WHICH
                 RESULT FROM WASTEWATER TREATMENT;
                                                           TM  86-1
                             947                             (85-1)

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(4)  THE COST OF LAND ACQUIRED FOR STORAGE OF TREATED
     TREATED WASTEWATER IN LAND TREATMENT SYSTEMS
     BEFORE LAND APPLICATION.  THE TOTAL LAND AREA
     FOR CONSTRUCTION OF A POND FOR BOTH TREATMENT
     AND STORAGE OF WASTEWATER IS ALLOWABLE IF THE
     VOLUME NECESSARY FOR STORAGE IS GREATER THAN
     THE VOLUME NECESSARY FOR TREATMENT.  OTHERWISE,
     THE ALLOWABLE COST WILL BE DETERMINED BY THE
     RATIO OF THE STORAGE VOLUME TO THE TOTAL VOLUME
     OF THE POND.
Where properties are only partially acquired for pro-
ject purposes, it may be necessary to compensate pro-
perty owners for the reduced value of their remaining
land. The appraisal reports should provide findings
on the value of property to be acquired as well as
compensatory damages due to partial land takings.
THE COST OF COMPLYING WITH THE REQUIREMENTS OF THE
UNIFORM RELOCATION ASSISTANCE AND REAL PROPERTY
ACQUISITION POLICIES ACT OF 1970 (42 U.S.C 4621
et.seq., 4651 et seq.), UNDER PART 4 OF THIS CHAPTER
FOR LAND NECESSARY FOR THE BUILDING OF TREATMENT WORKS,
The Uniform Relocation Assistance and Real Property
Acquisition Policies Act of 1970 (The Uniform Act),
as implemented by EPA under 40 CFR Part 4, is appli-
cable to the acquisition of land necessary for pro-
jects receiving EPA grant assistance regardless of
whether the land so acquired is eligible for grant
assistance (e.g., sewer easements). The cost of
complying with 40 CFR Part 4 is allowable; it is
only the cost of the land itself which may or may
not be eligible for grant assistance.

Representative costs of complying with the Uniform
Relocation Assistance and Real Property Acquisition
Policies Act of 1970 include:
   i.   cost of appraisal and review appraisal
        (including supplemental engineering or other
        studies necessary to properly value improve-
        ments, minerals, timber or other resources
        on the property); costs for surveys and legal
        boundary descriptions are allowable only where
        land costs are allowable.
                                             TM  86-1
                 948                            (85-1)

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       ii.   necessary  services  associated  with  the
            acquisition  such  as title  search; documen-
            tation  relating to  just  compensation/offer
            amount;  purchase  negotiations;  preparation
            of  purchase  agreement  (including  options
            if  applicable), proposed deed  convenants,
            legal description,  lease agreements and
            related legal  documents;

       iii.  related costs  such  as  legal  notices, closing
            costs  (e.g., transfer  tax,  evidence of  title,
            recording  fee), mortgage prepayment penalties
            and certain  pro-rata prepaid property taxes;

       iv.   certain legal  and other  costs  relating  to
            abandoned  or unsuccessful  condemnation  pro-
            ceedings or  inverse condemnation  proceedings
            decided in favor  of the  landowner;

       v.    advice  on  relocating and on moving  and  related
            expenses for displaced persons, businesses  and
            farms;

       vi.   replacement  housing payments for  displaced
            persons; and

       vii.  other  administrative costs of complying with
            The uniform  Act.
    Each of the above cost limitations are more fully
    described in 40 CFR Part 4. The reviewing agency
    should inform grantees regarding their potential
    eligibility for reimbursement of these costs;  and
    should determine the adequacy of documentation prior
    to making reimbursement.


Re: 40 CFR 4.3, 4.102(c), 4.102(f), 4.102(g), 4.106, 4.107,
    4.207, 4.301 et. seq. (Subpart D), 4.401 et. seq.
    (Subpart E)
    THE COST OF CONTRACTING WITH ANOTHER PUBLIC AGENCY
    OR QUALIFIED PRIVATE CONTRACTOR FOR PART OR ALL OF
    THE REQUIRED ACQUISITION AND/OR RELOCATION SERVICES
                                                TM 86-1
                     949                          (85-1)

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d.  THE COST ASSOCIATED WITH THE PREPARATION OF THE TREAT-
    MENT WORKS SITE BEFORE, DURING AND, TO THE EXTENT
    AGREED ON IN THE GRANT AGREEMENT, AFTER BUILDING. THESE
    COSTS INCLUDE:
       (1) THE COST OF DEMOLITION OF EXISTING STRUCTURES
           ON THE TREATMENT WORKS SITE (INCLUDING RIGHTS-
           OF-WAY) IF BUILDING CANNOT BE UNDERTAKEN WITH-
           OUT SUCH DEMOLITION;

           Demolition of existing structures on the
           treatment works site (including rights-of-way),
           when not required for building the project, will
           be considered to be an allowable cost only if the
           existing structures constitute a real and pre-
           sent hazard to safety, public health, or water
           quality, which can only be abated by the removal
           of the existing structures.  The demolition of
           an existing structure for the convenience of the
           owner as a means of increasing property value or
           property use is unallowable for grant participa-
           tion.
       (2)  THE COST (CONSIDERING SUCH FACTORS AS BETTER-
           MENT,  COST OF CONTRACTING AND USEFUL LIFE) OF
           REMOVAL, RELOCATION OR REPLACEMENT OF UTILITIES,
           PROVIDED THE GRANTEE IS LEGALLY OBLIGATED TO
           PAY UNDER STATE OR LOCAL LAW; AND
       (3)  THE COST OF RESTORING STREETS AND RIGHTS-OF-WAY
           TO THEIR ORIGINAL CONDITION.   THE NEED FOR SUCH
           RESTORATION MUST RESULT DIRECTLY FROM THE CON-
           STRUCTION AND IS GENERALLY LIMITED TO REPAVING
           THE WIDTH OF TRENCH.
           Repaving beyond the trench width may be con-
           sidered to be an allowable cost if uniformly
           required by State or local law for all projects
           involving road construction,  regardless of the
           source of project funding.  Sometimes referred
           to as "saw width," this provision requires that
           the road surface and subsurface be cut one or two
           feet beyond the trench width.   This is not, how-
           ever, to be interpreted as allowing the cost of
           complete or partial repaving  of a road beyond
           the "saw width."
                     950                         TM 86-1

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    e.  THE  COST  OF ACQUIRING ALL OR PART OF AN EXISTING
       PUBLICLY  OR PRIVATELY OWNED WASTEWATER TREATMENT WORKS
       PROVIDED  ALL THE FOLLOWING CRITERIA ARE MET:


           (1)  THE ACQUISITION, IN AND OF ITSELF, CONSIDERED
               APART FROM ANY UPGRADE, EXPANSION OR REHABIL-
               ITATION, PROVIDES NEW POLLUTION CONTROL BENEFITS;


           (2)  THE ACQUIRED TREATMENT WORKS WAS NOT BUILD  WITH
               PREVIOUS FEDERAL OR STATE FINANCIAL ASSISTANCE;


           (3)  THE PRIMARY PURPOSE OF THE ACQUISITION  IS NOT
               THE REDUCTION, ELIMINATION, OR REDISTRIBUTION
               OF PUBLIC OR PRIVATE DEBT; AND


           (4)  THE ACQUISITION DOES NOT CIRCUMVENT THE REQUIRE-
               MENTS OF THE ACT, THESE REGULATIONS, OR OTHER
               FEDERAL, STATE OR LOCAL REQUIREMENTS.


2.  UNALLOWABLE COSTS FOR LAND AND RIGHTS-OF-WAY  INCLUDE:


    a.   THE COSTS OF ACQUISITION  (INCLUDING ASSOCIATED LEGAL,
        ADMINISTRATIVE AND ENGINEERING, ETC.) OF  SEWER RIGHTS-
        OF-WAY, WASTE TREATMENT PLANT SITES  (INCLUDING SMALL
        SYSTEM SITES), SANITARY LANDFILL  SITES  AND SLUDGE
        DISPOSAL AREAS EXCEPT AS PROVIDED IN  PARAGRAPH l.a.
        AND b. OF THIS SECTION.

        Costs  of  complying with the Uniform Relocation Assistance
        and Real  Property Acquisition Policies  Act of 1970 are
        allowable  even  if the  property being  acquired js not  (see
        Section D  l.b  above).   Costs  for  property surveys  and the
        preparation  of  legal boundary descriptions are not
        allowable  where  land costs  are not allowable.

    b.  ANY AMOUNT  PAID  BY THE  GRANTEE FOR ELIGIBLE LAND IN EXCESS
        OF JUST COMPENSATION,  BASED ON THE APPRAISED VALUE, THE
        GRANTEE'S  RECORD OF  NEGOTIATION  OR ANY CONDEMNATION PRO-
        CEEDING,  AS  DETERMINED BY THE REGIONAL ADMINISTRATOR.

        An amount  higher than  the  determination of just  compensa-
        tion may  be  found allowable  through an administrative
        settlement if  the grantee  provides sufficient written
        documentation  to the  Regional Administrator prior to the
                                                      TM 86-1
                          951                            (85-1)

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            actual acquisition. Such an administrative settlement may
            be appropriate where negotiated purchase is unsuccessful
            and where a condemnation action may entail a long delay
            or excessive costs. Administrative settlements may be used
            when it is reasonable, prudent and in the public interest.
            Documentation may include evidence of purchase negotiations,
            real property sales data, estimated court settlement and
            legal costs based on previous condemnation proceedings.
            Such documentation may form the basis of an administrative
            settlement with Regional Administrator approval.


        c.  REMOVAL, RELOCATION OR REPLACEMENT OF UTILITIES LOCATED
            ON LAND BY PRIVILEGE, SUCH AS FRANCHISE.

            These costs are not allowable unless the grantee is re-
            quired to pay such costs under State or local law.


E.  EQUIPMENT, MATERIALS AND SUPPLIES


    1.  ALLOWABLE COSTS OF EQUIPMENT, MATERIALS AND SUPPLIES INCLUDE:


        a.  THE COST OF A REASONABLE INVENTORY OF LABORATORY
            CHEMICALS AND SUPPLIES NECESSARY TO INITIATE PLANT
            OPERATIONS AND LABORATORY ITEMS NECESSARY TO CONDUCT
            TESTS REQUIRED FOR PLANT OPERATION.

            A suggested list of equipment, supplies, and chemicals
            for various sizes of treatment plants is given in
            Appendix B of EPA publication 430/9-74-002, "Estimating
            Laboratory Needs for Municipal Waste Water Treatment
            Facilities," 1974. Large stocks of expendable materials
            are, however, not allowable.


        b.  THE COSTS FOR PURCHASE AND/OR TRANSPORTATION OF
            BIOLOGICAL SEEDING MATERIALS REQUIRED FOR EXPED-
            ITIOUSLY INITIATING THE TREATMENT PROCESS OPERATION.


        c.  COST OF SHOP EQUIPMENT INSTALLED AT THE TREATMENT
            WORKS NECESSARY TO THE OPERATION OF THE WORKS.

            The need for installed shop equipment necessary for the
            operation of the treatment works should be carefully
            reviewed to insure that it is cost effective when
                                                        TM  86-1
                             952                           (85-1)

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    compared to the cost of equipment rental or the pro-
    curement of a contractor to perform the required work.
    The need will depend on the specific item, its fre-
    quency of expected use, and the size and complexity
    of the treatment facility.  Undoubtedly, larger
    treatment facilities will have a greater need for
    installed shop equipment than smaller ones. For example,
    a portable welding machine may be appropriate for a
    large facility, whereas it may be more economical
    for a smaller community to employ a local welder when
    necessary. Also, smaller projects may not have the
    staff (e.g., skilled machinists) necessary to operate
    some of the equipment.  Where the proposed items of
    equipment are inappropriate to the size of the treat-
    ment works, the reviewing agency may determine that  the
    proposed installed shop equipment is unallowable for
    grant participation.


d.  THE COSTS OF NECESSARY SAFETY EQUIPMENT, PROVIDED THE
    EQUIPMENT MEETS APPLICABLE FEDERAL, STATE, LOCAL OR
    INDUSTRY SAFETY REQUIREMENTS.
    A PORTION OF THE COSTS OF COLLECTION SYSTEM  MAINTENANCE
    EQUIPMENT.  THE PORTION OF ALLOWABLE COSTS SHALL BE  THE
    TOTAL EQUIPMENT COST LESS THE COST ATTRIBUTABLE  TO THE
    EQUIPMENT'S ANTICIPATED USE ON  EXISTING  COLLECTION
    SEWERS NOT FUNDED ON THE GRANT.  THIS CALCULATION SHALL
    BE BASED ON:
        (1) THE PORTION OF THE TOTAL  COLLECTION  SYSTEM
            PAID FOR BY THE GRANT,

        (2) A DEMONSTRABLE FREQUENCY  OF  NEED,  AND

        (3) THE NEED FOR THE EQUIPMENT TO  PRECLUDE
            THE DISCHARGE OR BYPASSING OF  UNTREATED
            WASTEWATER.
    See Paragraph E.2.c below  for  a  discussion of other
    allowable maintenance equipment.
f.  THE COST OF MOBILE EQUIPMENT  NECESSARY FOR THE OPERA-
    TION OF THE OVERALL WASTEWATER TREATMENT  FACILITY,
    TRANSMISSION OF WASTEWATER  OR SLUDGE,  OR  FOR THE
    MAINTENANCE OF EQUIPMENT.   THESE  ITEMS INCLUDE:
                      953                       TM 86-1

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   (1) PORTABLE STAND-BY GENERATORS;
   (2) LARGE PORTABLE EMERGENCY PUMPS TO PROVIDE
       "PUMP-AROUND" CAPABILITY IN THE EVENT  OF
       PUMP STATION FAILURE OR PIPELINE BREAKS:
       AND
   (3) SLUDGE OR SEPTAGE TANKERS, TRAILERS,  AND OTHER
       VEHICLES HAVING AS THEIR SOLE PURPOSE THE
       TRANSPORTATION OF LIQUID OR DEWATERED WASTES
       FROM THE COLLECTOR POINT (INCLUDING  INDIVIDUAL
       OR ONSITE SYSTEMS) TO THE TREATMENT  FACILITY
       OR DISPOSAL SITE.
Mobile equipment necessary for  the  operation  of  the
overall wastewater treatment facility may  also include
vehicles necessary for the daily  removal and  disposal
of grit.  While vehicles used for other purposes
(e.g., sludge tanks or trailers)  would normally  serve
this purpose, large facilities  may  have a  sufficient
need to justify a separate vehicle  to be used solely for
the transportation and disposal of  grit.   Additionally,
for projects which involve the  landspreading  of  sludge
as the method of ultimate sludge  disposal,  the necessary
vehicles and equipment for proper sludge application
are allowable for grant participation.
REPLACEMENT PARTS  IDENTIFIED  AND  APPROVED IN ADVANCE
BY THE REGIONAL ADMINISTRATOR AS  NECESSARY TO ASSURE
UNINTERRUPTED OPERATION OF THE  FACILITY,  PROVIDED THEY
ARE CRITICAL PARTS OR MAJOR SYSTEMS  COMPONENTS WHICH
ARE:
   (1) NOT IMMEDIATELY AVAILABLE  AND/OR WHOSE
       PROCUREMENT  INVOLVES AN  EXTENDED "LEAD-TIME";
    (2) IDENTIFIED AS CRITICAL  BY  THE  EQUIPMENT
       SUPPLIERS(S); OR
    (3) CRITICAL BUT NOT  INCLUDED IN THE INVENTORY
       PROVIDED BY THE EQUIPMENT SUPPLIER(S).
                  954                        TM 86-1

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    h •   Flow metering devices used for billing purposes
           _._  _            _  _       * ng sewage
        flow metering devices uied f or"b 11 lTng_ i n ter-
        rnunicTpal flows ~are eligibTe costs'.  Meters
        constructed or installed for the primary purpose
        of bTlling individual residential,, commercial "or
        Tnd us t rTa 1 us er i~jar e not eligible."

        ( NOTE ;  Prior to this update to the Handbook , there
        was no c lear na tip nal "program position regarding the
        eligTbTTity of flow meters for bTll ing' purposes .
        There fore, prior RegTonaI7state 'decisions regarding
        a 1 1 o wabT 1 i t y o n these items wl 11 ^tand as long as they
        are clearly documented . )
2.   UNALLOWABLE COSTS OF EQUIPMENT, MATERIALS, AND
    SUPPLIES INCLUDE:
    a.  THE COSTS OF EQUIPMENT OR MATERIAL PROCURED IN VIOLA-
        TION OF THE PROCUREMENT REQUIREMENTS OF 40 CFR PART 33.
    b.  THE COST OF FURNISHINGS INCLUDING DRAPERIES, FURNITURE
        AND OFFICE EQUIPMENT.
        Because of their wide range in price and their trans-
        portability,  office furnishings such as chairs, desks,
        file cabinets, typewriters, coffee tables, pictures,
        draperies, televisions, radios, telephones, tape
        recording devices, office supplies, calculators, in-
        door plants,  copiers, book cases or shelves, lamps,
        food preparation equipment, postage meters, and other
        items of a similar nature are not allowable costs for
        grant participation.
    c.   THE COST OF ORDINARY SITE AND BUILDING MAINTENANCE
        EQUIPMENT SUCH AS LAWNMOWERS AND SNOWBLOWERS.

        Site and building maintenance equipment also includes
        rakes, shovels, brooms, picks, hedge trimmers, and
        other such equipment which is transportable and is
        used for routine maintenance.  Such equipment  is not
        allowable for grant participation.
                         955                     TM 86-1

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            Hand tools (other than those which are specified by
            the equipment supplier or manufacturer as special
            purpose tools necessary for the repair and adjustment
            of specific process components) such as screw drivers,
            pliers, socket wrenches, electric drills or saws, etc.
            are not allowable for grant participation.
        d.   THE COST OF VEHICLES FOR THE TRANSPORTATION OF THE
            GRANTEES' EMPLOYEES.

            This includes buses, trucks, cars, motorcycles, golf
            carts,  bicycles, etc. However, mobile training units
            may be allowable for grant participation under State
            training grants authorized by Section 109(b)(l) of
            the CWA.
            ITEMS OF ROUTINE "PROGRAMMED" MAINTENANCE SUCH AS
            ORDINARY PIPING, AIR FILTERS, COUPLINGS, HOSE, BOLTS,
            ETC.
F.  INDUSTRIAL AND FEDERAL USERS
    1.  EXCEPT AS PROVIDED IN PARAGRAPH F.2.a, ALLOWABLE COSTS FOR
        TREATMENT WORKS SERVING INDUSTRIAL AND FEDERAL FACILITIES
        INCLUDE DEVELOPMENT OF A MUNICIPAL PRETREATMENT PROGRAM
        APPROVABLE UNDER PART 403 OF THIS CHAPTER, AND PURCHASE
        OF MONITORING EQUIPMENT AND CONSTRUCTION OF FACILITIES TO
        BE USED BY THE MUNICIPAL TREATMENT WORKS IN THE PRETREAT-
        MENT PROGRAM.

        The costs of developing a municipal pretreatment program
        must be carefully examined, primarily in relation to the
        timing of preparation.  The subject of industrial pre-
        treatment would normally be examined during facilities
        planning  (see Section IV.E.2), at which time the grant
        applicant is able to consider alternative treatment pro-
        cesses and sludge disposal techniques only if the charac-
        teristics and flow rate of wastes are known.  Similarly,
        a project may only be designed and construction drawings
        prepared when the specific waste treatment requirements
        are known.  EPA regulations also require that the UC
        system and the SUO be approved prior to grant award.  Both
        of these  items require specific consideration of industrial
        waste discharges.
                             956
TM 86-1

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        Where the costs of developing  a  pretreatment program have
        been incurred prior to grant award,  such costs are un-
        allowable.  Where the costs of development of a pretreatment
        program are included in the grant  application, approved by
        the reviewing agency, and  incurred after grant award, such
        costs are allowable for grant  participation.


    2.  UNALLOWABLE COSTS FOR TREATMENT  WORKS  SERVING INDUSTRIAL
        AND FEDERAL FACILITIES INCLUDE:
            THE COST OF DEVELOPING AN  APPROVABLE MUNICIPAL PRETREAT-
            MENT PROGRAM WHEN PERFORMED  SOLELY FOR THE PURPOSE OF
            SEEKING AN ALLOWANCE  FOR REMOVAL OF POLLUTANTS UNDER
            PART 403 OF THIS CHAPTER.
        b.  THE COST OF MONITORING  EQUIPMENT  USED BY INDUSTRY FOR
            SAMPLING AND ANALYSIS OF  INDUSTRIAL DISCHARGES TO
            MUNICIPAL TREATMENT WORKS.
            ALL INCREMENTAL COSTS  FOR  SLUDGE  MANAGEMENT INCURRED AS
            A RESULT OF THE GRANTEE  PROVIDING REMOVAL CREDITS TO
            INDUSTRIAL USERS UNDER 40  CFR 403.7 BEYOND THOSE SLUDGE
            MANAGEMENT COSTS THAT  WOULD OTHERWISE BE INCURRED IN THE
            ABSENCE OF SUCH REMOVAL  CREDITS.
G.  INFILTRATION/INFLOW


    1.  ALLOWABLE COSTS  INCLUDE
        a.  THE COST OF TREATMENT  WORKS CAPACITY ADEQUATE TO TRANS-
            PORT AND TREAT  NONEXCESSIVE INFILTRATION/INFLOW UNDER
            §35.2120.

        b.  THE COSTS OF  SEWER SYSTEM REHABILITATION NECESSARY TO
            ELIMINATE EXCESSIVE INFILTRATION/INFLOW AS DETERMINED
            IN A SEWER SYSTEM  STUDY UNDER §35.2120.
                              957                       TM 86-1

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    2.   UNALLOWABLE  COSTS  INCLUDE:
            WHEN THE  REGIONAL ADMINISTRATOR DETERMINES  THAT  THE  FLOW
            RATE IS NOT SIGNIFICANTLY  MORE  THAN  120  GALLONS  PER
            CAPITA PER DAY UNDER §35.2120(c)(2)(ii) , THE  INCREMENTAL
            COST OF TREATMENT WORKS  CAPACITY WHICH  IS MORE THAN  120
            GALLONS PER CAPITA PER DAY.

            See Section IV.C.4.3 for a more complete discussion  of
            infiltration/inflow (I/I).

            The cost  of chemical grouting of sewers  having structural
            problemsTncludlng longitudinally and  otherwise  badly
            cracked pipes.
H.  MISCELLANEOUS COSTS
    1.  ALLOWABLE COSTS INCLUDE:

        a.  THE COSTS OF SALARIES, BENEFITS AND EXPENDABLE MATERIALS
            THE GRANTEE INCURS FOR THE PROJECT.

            In general, the salaries and benefits referred to here
            are for the grantee's employees (other than elected and
            appointed officials,  as discussed in Paragraph 2.a
            below), and may be either:

               i.   specifically identified administrative work
                    which is not a general expense of local
                    government, or

               ii.  force account work (see Section yi.E.5) for
                    building or building related activities.

            Such costs must be included in the grant application
            and approved by the reviewing agency.  Benefits (e.g.,
            health insurance, vacation and holiday compensation,
            etc.) are overhead items, and to be allowable for grant
            participation, they must be included in a negotiated
            indirect cost agreement (see Section F.2.d.ii above).


        b.  UNLESS OTHERWISE SPECIFIED IN THIS REGULATION, THE COSTS
            OF MEETING SPECIFIC FEDERAL STATUTORY PROCEDURES.

            To be allowable, the costs of meeting Federal statutory
            requirements must be either approved as a preaward cost,
                             958                         TM 86-1

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or incurred after grant  award.   Costs incurred to satisfy
statutory requirements for  grant award (e.g.,  preparation
of a facilities plan, construction  drawings and specifi-
cations, UC system, SUO, etc.)  are  not allowable for
grant participation, but are  part of  the preapplication
work which is  intended to be  defrayed, in part, by the
allowance for  facilities planning and/or design.
COSTS FOR NECESSARY TRAVEL  DIRECTLY  RELATED TO ACCOMPLISH-
MENT OF PROJECT OBJECTIVES.   TRAVEL  NOT DIRECTLY RELATED
TO A SPECIFIC PROJECT,  SUCH AS TRAVEL TO PROFESSIONAL
MEETINGS, SYMPOSIA, TECHNOLOGY TRANSFER SEMINARS, LECTURES,
ETC., MAY BE RECOVERED  ONLY UNDER  AN INDIRECT COST AGREE-
ment.
THE COSTS OF ADDITIONS TO  A TREATMENT WORKS THAT WAS
ASSISTED UNDER THE FEDERAL WATER POLLUTION CONTROL ACT
OF 1956 (PUB. L. 84-660),  OR  ITS AMENDMENTS, AND THAT
FAILS TO MEET ITS PROJECT  PERFORMANCE STANDARDS PRO-
VIDED:
   (1) THE PROJECT  IS  IDENTIFIED ON  THE STATE PRIORITY
       LIST AS A PROJECT  FOR  ADDITIONS TO A TREATMENT
       WORKS THAT HAS  RECEIVED PREVIOUS FEDERAL FUNDS;
    (2) THE GRANT APPLICATION  FOR THE  ADDITIONS INCLUDES
       AN ANALYSIS OF WHY THE TREATMENT WORKS CANNOT
       MEET ITS PROJECT  PERFORMANCE STANDARDS; AND
   (3) THE ADDITIONS  COULD HAVE  BEEN INCLUDED IN THE
       ORIGINAL GRANT AWARD AND:
        (a) ARE THE  RESULT  OF  ONE  OF THE FOLLOWING:

           (i)   A  CHANGE  IN  THE  PROJECT PERFORMANCE
                 STANDARDS REQUIRED BY EPA OR THE
                 STATE :

           (ii)  A  WRITTEN UNDERSTANDING BETWEEN
                 THE REGIONAL ADMINISTRATOR AND
                 GRANTEE PRIOR TO OR INCLUDED IN
                 THE ORIGINAL GRANT AWARD:
                  959                        TM 86-1

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               (iii)  A WRITTEN DIRECTION  BY  THE
                     REGIONAL ADMINISTRATOR  TO DELAY
                     BUILDING PART OF THE TREATMENT
                     WORKS; OR
               (iv)  A MAJOR CHANGE  IN THE  TREATMENT
                     WORKS' DESIGN CRITERIA THAT THE
                     GRANTEE CANNOT  CONTROL; OR
           (b) MEET ALL THE FOLLOWING  CONDITIONS:
               (i)   IF THE ORIGINAL  GRANT AWARD WAS
                     MADE AFTER  DECEMBER 28, 1981, THE
                     TREATMENT WORKS  HAS NOT COMPLETED
                     ITS FIRST FULL YEAR OF OPERATION;
               (ii)  THE ADDITIONS  ARE NOT CAUSED BY
                     THE GRANTEE'S  MISMANAGEMENT OR
                     THE IMPROPER ACTIONS OF OTHERS;
               (iii) THE COSTS  OF  REWORK,  DELAY, ACCELER-
                     ATION  OR DISRUPTION THAT ARE A RE-
                     SULT OF BUILDING THE ADDITIONS ARE
                     NOT INCLUDED  IN THE GRANT; AND
                (iv)  THE  GRANT  DOES NOT INCLUDE AN
                     ALLOWANCE  FOR FACILITIES PLANNING
                     OR DESIGN  OF THE ADDITIONS.
    (4)  THIS PROVISION  APPLIES TO FAILURES THAT OCCUR
         EITHER BEFORE OR  AFTER THE INITIATION OF OPERA-
         TION.  THIS  PROVISION DOES NOT COVER A TREATMENT
         WORKS THAT FAILS  AT  THE END OF ITS DESIGN  LIFE.
e.  COST OF ROYALTIES  FOR THE USE OF OR RIGHTS  IN  A  PATENTED
    PROCESS OR PRODUCT  WITH THE PRIOR APPROVAL  OF  THE
    REGIONAL ADMINISTRATOR.

    Reasonable royalties associated with the procurement of
    the right to use,  or the rights in, a patented product,
    apparatus, or  process are allowable costs,  provided that
    they are:
                      960                          TM 86-1

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           - necessary,

           - cost effective,

           - based on a  published  fee schedule or on
             reasonable  fees  charged  to other users
             under similar  conditions,  and

           - receive prior  written approval from the
             reviewing agency.

        Periodic payment of royalties for the right to operate
        under a patent are  considered operating costs, and are
        unallowable for  grant participation (see Section V.E
        for a discussion of operating costs).
        COSTS ALLOCABLE TO WATER POLLUTION CONTROL PURPOSE OF
        MULTIPLE PURPOSE PROJECTS AS  DETERMINED BY APPLYING THE
        ALTERNATIVE JUSTIFIABLE  EXPENDITURE (AJE)  METHOD DES-
        CRIBED IN THE CG SERIES.   MULTIPLE PURPOSE PROJECTS THAT
        COMBINE WASTEWATER TREATMENT  WITH RECREATION DO NOT NEED
        TO USE THE AJE METHOD, BUT CAN  BE FUNDED AT THE LEVEL OF
        THE MOST COST-EFFECTIVE  SINGLE-PURPOSE ALTERNATIVE.

        See Section IV.C.V.l.h.
    g.  COSTS OF GRANTEE EMPLOYEES  ATTENDING TRAINING WORKSHOPS/
        SEMINARS THAT ARE NECESSARY TO  PROVIDE INSTRUCTION IN
        ADMINISTRATIVE, FISCAL OR CONTRACTING PROCEDURES REQUIRED
        TO COMPLETE THE CONSTRUCTION  OF THE  TREATMENT WORKS, IF
        APPROVED IN ADVANCE BY THE  REGIONAL  ADMINISTRATOR.

        To be allowable, attendance at  such  training workshops
        or seminars may only occur  after grant award.


2.   UNALLOWABLE COSTS INCLUDE:
    a.   ORDINARY OPERATING EXPENSES  OF THE  GRANTEE INCLUDING
        SALARIES AND EXPENSES OF ELECTED  AND APPOINTED OFFICIALS
        AND PREPARATION OF ROUTINE FINANCIAL REPORTS AND STUDIES.


    b.   PREPARATION OF APPLICATIONS  AND PERMITS  REQUIRED BY
        FEDERAL, STATE OR LOCAL REGULATIONS OR PROCEDURES.
                         961                           TM 86-1

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c.  ADMINISTRATIVE, ENGINEERING AND LEGAL ACTIVITIES ASSOC-
    IATED WITH THE ESTABLISHMENT OF SPECIAL DEPARTMENTS,
    AGENCIES, COMMISSIONS,  REGIONS, DISTRICTS OR OTHER UNITS
    OF GOVERNMENT.
d.  APPROVAL, PREPARATION,  ISSUANCE AND SALE OF BONDS OR
    OTHER FORMS OF  INDEBTEDNESS REQUIRED TO FINANCE THE
    PROJECT AND THE INTEREST ON THEM.
    THE COSTS OF  REPLACING,  THROUGH RECONSTRUCTION OR SUB-
    STITUTION,  A  TREATMENT WORKS THAT WAS ASSISTED UNDER
    THE FEDERAL WATER POLLUTION CONTROL ACT OF 1956  (PUB. L.
    84-660), OR ITS  AMENDMENTS, AND THAT FAILS TO MEET  ITS
    PROJECT  PERFORMANCE STANDARDS.  THIS PROVISION APPLIES
    TO FAILURES THAT OCCUR EITHER BEFORE OR AFTER THE INITI-
    ATION OF OPERATION.  THIS PROVISION DOES NOT APPLY  TO AN
    INNOVATIVE  AND ALTERNATIVE TREATMENT WORKS ELIGIBLE FOR
    FUNDING  UNDER §3 5. 2032 (c) OR A TREATMENT WORKS THAT FAILS
    AT THE END  OF ITS DESIGN LIFE.
f.  PERSONAL  INJURY COMPENSATION OR DAMAGES ARISING  OUT  OF
    THE  PROJECT.


g.  FINES  AND PENALITIES DUE TO VIOLATIONS OF,  OR FAILURE
    TO COMPLY WITH, FEDERAL, STATE OR LOCAL LAWS,  REGULATIONS
    OR PROCEDURES.


h.  COSTS  OUTSIDE THE SCOPE OF THE APPROVED PROJECT.


 i.  COSTS  FOR WHICH GRANT PAYMENT HAS BEEN OR WILL BE RECEIVED
    FROM ANOTHER FEDERAL AGENCY.


 j.  COSTS  OF TREATMENT WORKS FOR CONTROL OF POLLUTANT DIS-
    CHARGES FROM A SEPARATE STORM SEWER SYSTEM.


 k.  THE  COST OF TREATMENT WORKS THAT  WOULD  PROVIDE CAPACITY
     FOR NEW HABITATION OR OTHER ESTABLISHMENTS TO BE LOCATED
    ON  ENVIRONMENTALLY SENSITIVE LAND SUCH  AS WETLANDS OR
     FLOODPLAINS.

    After September  30,  1984,  grant  assistance is limited
     to the capacity  necessary  to serve  existing needs on the
     date of grant  award  (see Section VI.D.18).  Therefore,
                       962                          TM 86-1

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        the cost of providing capacity for new habitation is
        unallowable in all cases.   However, if a treatment
        works includes any reserve capacity which could induce
        development on environmentally sensitive lands (see
        Section IV.D.2.2), the cost of the entire treatment
        works will be unallowable  for grant assistance.


    1.   THE COSTS OF PREPARING A CORRECTIVE ACTION REPORT
        REQUIRED BY §35.2218(c).

        See Section VII.I.2.b.


3.   Other Costs

    The following items are not explicitly included in 40 CFR
    Part 35,  Subpart I, Appendix A, but represent prudent fiscal
    and management principles, based on statutory requirements,
    regulations,  and precedent cases:


    a.   Administration Building

        Allowable costs for an administration building include
        those portions of  the building which are directly re-
        lated to the project  and necessary for operating  per-
        sonnel,  including  the laboratory,  employee locker rooms
        (separate locker  rooms should be provided for men and
        women),  workshop  area, storage facilities for operational
        supplies, spare parts and  equipment,  necessary lavatory
        facilities,  operator  office space,  etc.   Those portions
        of an administration  building which are  not necessary
        for the  daily operation and maintenance  of the project
        are unallowable costs, including portions of the
        building  used for  public works functions (other than
        wastewater treatment), general accounting functions,
        conference rooms with associated audio-visual equipment,
        or other  general uses not  necessary for  the operation
        of the project.  Where larger facilities include  con-
        ference  rooms to be used exclusively for training of
        employees,  and such training is demonstrated to be a
        part  of  the  project's plan of  operation,  such space is
        allowable if reasonable, and if approved by the reviewing
        agency as part of  the grant award.

        Where unallowable  building space is included in an other-
        wise  allowable administration  building,  the allowable
        cost  is determined by using the ratio of  allowable floor
                        963                         TM 86-1

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       space divided by the total floor space in the building.
       The costs of buildings and portions of buildings which are
       unallowable are to be deducted from the allowable project
       building costs for grant computation purposes.  Costs
       associated with unallowable buildings and portions of
       buildings (e.g., landscaping, driveways, parking spaces,
       electrical service, and other utility costs) are also
       unallowable, and must be deducted proportionately from
       the allowable building costs.


   b.  Computers

       Computers, display monitors, and computer software which
       are designed into the control system  for the daily opera-
       tion of  the treatment works, are allowable  project costs,
       but only to the extent that such equipment  is dedicated
       solely to the operation of the treatment works.

       Portable or personal computers are  normally not allow-
       able  for grant participation, unless  justified by the
       grantee  and approved by the reviewing agency as necessary
       for the  operational control and analysis of the treatment
       works.   Examples of such allowable  uses  include the
       scheduling of equipment maintenance and  replacement,  and
       the operation of the grantee's pretreatment program,
       including the scheduling of tests  to  verify industrial
       compliance with pretreatment requirements.  Where portable
       and personal computers are  intended to be used  for
       accounting and billing services as  well  as  the operational
       control  of the treatment works, the costs are  to be  pro-
       rated, based on the estimated  use  for each  purpose.

       The cost of computer programs  (i.e.,  software)  specifi-
       cally designed for  the operation  and  maintenance of  the
       treatment works  is  allowable  for  grant  participation.
       This  includes  the  cost of  developing  unique operating
       programs for  the  specific  grant  funded  project.
                         964                         TM 86-1


•6U.S. GOVERNMENT PRINTING OFFICE: 1986_491_191_52926

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*«.
     \      UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
     I                     WASHINGTON. D.C. 20460
                                                          OFFICE OF
                                                           WATER
                                       Transmittal Memorandum
                                       TM 86-1
   MEMORANDUM

   SUBJECT:  Updating of Handbook

   FROM:     James A. Hanlon, Director
             Municipal Construction Division (WH-547)
                                        /'
   TO:       Users of Handbook of Procedures


        Attached is a copy of the second*updating to the Handbook
   of Procedures.  The replacement pages are marked "TM 86-1" on the
   bottom right side to distinguish them from both the originals and
   those revised in the first updating (TM 85-1).  Revised or added
   text material has been underlined so that the latest changes are
   readily recognized.  All previous underlinings on the TM 86-1
   pages have been removed.  The TM noted pages without underlinings
   contain either shifted material, to accommodate lengthy insertions,
   on adjacent pages, or clarifications which are primarily editorial.

        Also attached is a summary chart listing each revised page,
   its location and the reason for the change.

        For persons interested in maintaining continuous records,
   it is suggested that this memorandum, the summary chart and the
   replaced pages be filed behind the flow chart.

   Attachments

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                   TRANSMITTAL MEMORANDUM (TM)  86-1
                         HANDBOOK OF PROCEDURES

                          SUMMARY OF REVISIONS
PAGE
             LOCATION AND REASON FOR CHANGE
 109

 119

 120


 121

 307
 308-
 312

 316
 405

 406


 407

 408

 409

 412

 413


 420

 421

 424

 448

 456


 459


 472
Par. b; added regulation cited.

2nd par; use of GICS in overseeing delegated activities added.

Par. G "Information Management".  Discussion of GICS moved from
Chapter III to end of Chapter I.

2nd & 3rd pars; discussion of GICS expanded.

Last par. Use of GICS in tracking projects in preapplication stage
discussed.
Space Accommodation (SA)
to Chapter I.
due to transferring of GICS discussion
2nd par.; "EA" and "FNI" added as a condition for disallowing a
categorical exclusion. Last par;  importance of project  schedule in
project management added.

Space accomodation (SA)

1st & 2nd pars.; rewritten to update status of NEPA regulations and
guidance.

SA

SA

2nd par.; explanation of need for a project clarified.

Last par.; editorial changes.

2nd par.; verb change to reflect publication of regulations in final
form.

4th par.; edit to clarify non-excessive inflow.

1st par.; edit to clarify I/I.

2nd par.; revision of definition of useful life.

1st par.; added information for I/A reviewers.

2nd par.; elimination of certain action by grantee when sludge
found to be hazardous.

4th par.; proposed sludge treatment required to comply with additional
Acts.

SA

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PAGE
              LOCATION AND REASON FOR CHANGE
 473
 506
 612
 631
 638

 651
 652
 653
 654
 654A
 654B

 656-7

 658
 659

 667

 668



 669


 723

 724

 727

 730

 731

 736


 737

 739
1st and 2nd pars.; NEPA regulatory cite added for guidance on public
participation activities.

4th par.; statement added to call attention to need for more cost
conscious reviews of plans and specs.

1st & last pars.; phrases added to call attention to need for considering
the status of pretreatrnent programs in reviewing project schedules.

3rd par; use of CAPDET for determining cost ratios of sewers and pumping
stations added.

2nd par.; (see 612).
Additions and revisions made regarding grantee land acquisition
activities to reflect changes brought about by the publication of
Part IV (The Uniform Act) regulations in final form on 2/27/86.
SA

Par. 3; points up need to consider program guidance in reviewing I/A
projects. Par. 4; Guidance an one year certification vs two year
limit to declare I/A failure added.

Par. 2; indicates availability of assistance in conducting I/A reviews.

SA

Par. 2; added phase on allcwability of planning and design costs
when modifying or replacing failed I/A projects.  Par. 3; guidance
on source of funds for 100% M/R grants aded.

Last par.; added to note need to complete data base form on I/A
projects.

Par. 3; added to note recent regulation limiting cost overruns to 5%.

Par. 2; cite new regulation (see 723).

Par. F.3.; back reference on single bids added.

Par. 2; phrase added on timing of Project Management Conference.

SA

Last par.; words and phrases added to clarify when change orders can
be negotiated rather than be formally advertised.

SA

Par. e; sentence added to reflect 5% cost overrun ceiling.
                                   II

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PAGE
              LOCATION AND REASON FOR CHANGE
 740

 742


 743


 745


 746

 747

 808
 811
 812

 814

 815

 818

 819


820-22

 823

824-25

 826

827-30

 831

 832



 833
 912

 913
3rd par.; 5% ceiling regulation cite added.

Last par.; sentence added on exemption provision (differing site
conditions) of 5% cost ceiling regulation.

4th par.; two cites added: new 5% cost ceiling and recent publication
on contractor claims.

1st par.; phrases added to clarify reguirement on conducting cost or
pricing analysis on change orders.

Reguirement that agency's legal counsel review all change orders dropped.

2nd par.; spelling error corrected ("word" not "work".)

Step 1 and Step 2 grant increases modified to reflect EPA policy
(issued 9/27/85) on managing these grants.


4th par. NPDES permit tied to project schedule.

3rd par. (See 814).

Last par; administrative completion steps clarified.

1st par; NOTE 1; administrative completion of segments;  NOTE 2;  separation
of certain claims to facilitate close-outs.

SA

Error in cite date corrected.

SA

First par; procedure for managing certain final payments added.

SA

Last par; edited for clarity.

1st par; expanded procedures on handling draft audit reports. 3rd and
4th pars; expanded procedures on handling final audit reports.  Last
par; appeals concept expanded.

3rd par; expanded procedures on handling final determination letters.
4th par; last sentence expanded to relate interest payments on debts,
not paid within 30 days, to disputes process per regulations issued
2/21/86.   Last par; expanded procedures on recovering grantee
overpayments determined at completion of audit.

1st & 2nd pars.; policy on interest earned on grant overpayment clarified.

Last par.; 5% ceiling on cost overruns added.
                                  Ill

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 PAGE
LOCATION AND REASON FOR CHANGE
 914    1st par.;  exception (for differing site conditions)  to 5%  overrun ceiling
        noted.   Last par.;  deobligation procedure expanded to clarify sequence
        of approvals prior to reallotment.

 935    Last pars.;  new regulations on the allowability of field testing on I/A
        projects added.

 936    1st par.;  new regulation added on the allowability of planning and design
        costs re M/R costs on I/A projects.

 937    SA

 939    2nd and 3rd pars.;  new regulation added,  and explanatory paragraph
        modified to note that increased costs incurred as a result of awarding
        contracts on significant elements of a project more than a year after the
        Step 3  grant awarded,  are unallowable unless approved in advance by RA.

 940    1st par; continuation of 939 above.   2nd par;  guidance an  awarding bids
        after project schedule date when bidders agree to hold prior bids firm.

 941    SA

 945    Last par.; new regulation added disallowing the cost of land purchased
        to mitigate adverse environmental impacts.

 946    SA

 947    2.b. -  regulation revision added to clarify unallowability of certain
        small and onsite system conveyance pipes.

 948    2nd par.;  statement added re allowability of partially acquired property:
        par. b; regulatory phrase added to clarify allowability statement, b.i.;
        surveying costs allowable only on allowable land.

 949    v.; revised to clarify wording:  7th par.; added review guidance per
        grantee activities re The Uniform Act: 8th par.;  new citation added.

 950    SA

 951    2.a.: 1st par.; regulation correction.  2nd par.; unallowability of surveys
        and preparation of legal boundary descriptions added.

 952-3  SA

 954    (3); regulation correction

 955    1st par.;  allowability of flow meters used for billing added.

 956-7  SA

 958    2nd par; the unallowability of the cost of grouting structurally
        damaged sewers under I/I added.

959-64  SA
                                   IV

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