COST  ANALYSIS  HANDBOOK



                              FOR



SECTION 208 AREAWIDE WASTE  TREATMENT  MANAGEMENT  PLANNING



             FEDERAL ASSISTANCE  APPLICATIONS
                      m


               ENVIRONMENTAL PROTECTION AGENCY



                  WASHINGTON, D.C.   20460



                         MAY 1975

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          NOTE
    This document is not a replacement to the  Act,  the  Regula-
tions,  the Guidelines or the official  EPA Policy Statements.
It is a supplement to these documents, showing typical  examples
of local responses to the 208 program. Any clarification  and
specific conditions applicable to a local area should be  dis-
cussed  with the EPA Regional 208 Coordinator.  The examples in
this handbook are based on new general grant regulations
(40 CFR, Part 30 and 33) expected to be published in June of
1975.

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                                PREFACE

        This is the third in a series of Handbooks designed to provide local
planning agencies assistance in implementing Section 208 of the Water
Pollution Control Act Amendments.   In carrying out the provisions of that
Section, EPA has published the following regulations and documents:

         .  EPA Grants Administration Manuals (April 7, 1972, and
            revisions.)

         .  40 CFR Part 30 - General Grant Regulations and
            Procedures.

            40 CFR Part 33 - Subagreement (to be effective 10 June,
            1975.)

         .  40 CFR Part 35, Subpart F for Areawide Waste Treatment
            Management Planning Agencies, Grant Applications; Grants;
            Plan Contents and Approval.

            Draft guidelines for areawide waste treatment management
            planning  (May 1974.)

            Area and agency designation handbook for Section 208
            Areawide Waste Treatment Planning (January 1975.)

            Work plan handbook for Section 208 Areawide Waste
            Treatment Management Planning (February 1975.)

        The purpose of this handbook is to provide guidance for completing
cost analysis of Section 208 Planning Grant Cost Proposals and of subagreements
under Section 208 Planning Grants.  The document also contains appendices with
specific guidance concerning review of grantee accounting systems and procedures,
subagreement systems and procedures, and the establishment of indirect cost
rates.

        The instructions are consistent with the above referenced EPA documents
and with Federal Management Circulars 74-4 (Cost Principles Applicable to Grants
and Contracts with State and Local Governments) dated July 19, 1974, and 74-7
(Uniform Administrative Requirements for Grants-in-aid to State and Local
Governments) dated September 13, 1974.  Those documents contain small revisions
and updates to predecessor documents of the Office of Management and Budget
Circulars A-87 and A-102, respectively.

        This handbook was prepared by Peat, Marwick, Mitchell & Co. under
subcontract to Centaur Management Consultants, Inc., with assistance from the
Environmental Protection Agency staff responsible for grants management, audit,
208 Regional Coordinators, and the 208 Areawide Management Branch.
                                              Mark A. Pisano
                                              Director, Water Planning Division
                                              Washington, D.C.

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                         COST  ANALYSIS  HANDBOOK

                                   FOR

        SECTION 208 AREAWIDE WASTE TREATMENT MANAGEMENT PLANNING

                    (FEDERAL ASSISTANCE APPLICATIONS)



                                CONTENTS
PREFACE

INTRODUCTION

COST ANALYSIS

   Part   I
   Part  II
   Part III

EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
EXHIBIT E
EXHIBIT G
EXHIBIT F
        F-l
        F-2
        F-3
        F-4

APPENDIX 1

APPENDIX 2

APPENDIX 3

APPENDIX 4
Application for Federal Assistance
Project Approval Information
Budget Information

DIRECT LABOR COSTS
FRINGE BENEFITS
TRAVEL COSTS
EQUIPMENT COSTS
SUPPLIES
INDIRECT COSTS
SUBAGREEMENTS

REVIEW OF THE GRANTEE'S METHOD OF PROCUREMENT
REVIEW OF THE TYPE OF CONTRACT
REVIEW OF THE WORK STATEMENT
REVIEW OF THE ESTIMATE BY TASK

ADEQUACY OF THE GRANT APPLICANT'S ACCOUNTING
SYSTEM AND PROCEDURES
ADEQUACY OF GRANTEE'S PROCUREMENT SYSTEM AND
PROCEDURES
DEVELOPING AND APPROVING INDIRECT COST RATES
COST ALLOCATION PLAN
TYPES OF CONTRACTS

September 13, 1974 - Federal Management Circular  74-7,
Attachment 0 - Procurement  Standards
PAGE

  i

  1

  2

  2
  4
  6

 10
 10
 12
 12
 14
 14
 16

 16
 18
 20
 24


 27

 30

 41
 48
                                       ii

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                               INTRODUCTION
     In order to approve the grants, it Is necessary that the grantee's systems
are adequate and that the proposed costs are defined correctly and in sufficient
detail.  The guidance provided in this handbook will assist in reviewing the
grantee's proposal and in completing the cost analysis.

     This handbook describes the review process required to assess:

            the grantee's systems for financial management and
            accounting; and

            his planned system for contracting for services required
            in support of completing the planning grant.

     Particular attention is focused on the importance of conducting pre-
application reviews and conferences for reviewing and approving the grantee's
subagreement and cost accounting systems and for specifying format and details
of the grantee's estimated cost information.  An early initiation of the
grantee's efforts to establish an indirect cost rate approvable for the area-
wide grant is also encouraged.  Upon receipt of a grantee's work plan, EPA
efforts will be directed primarily toward a cost analysis of the grant applica-
tion work plan.

     The policy proposed is that grant award officials may approve a 208
application without a cost analysis if the application appears to be technically
sound and contains a grant condition that it may be adjusted downward based upon
a cost analysis to be completed after the award.

Approach to Conducting the Required
Reviews and Analyses	

     Because of the large number of complex grants which must be reviewed within
a limited time, it is necessary that all possible assistance be provided to the
grantee and much of the necessary review be completed prior to actual receipt of
the completed work plan cost estimates.  Accordingly, the handbook provides the
salient aspects of the reviews desired.

     The body of the handbook is oriented to emphasize, in brief form, the cost
analysis process for the grant application and subsequent  (or concurrent)
grantee proposed subagreements.

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                        COST ANALYSIS


     The reasonableness of the costs for each application must be consid-
ered.  EPA's reviews of the grantee's  financial systems and subagreement
plans can be completed separately.   However, providing the definitions of
cost elements and level of detail to the grantee prior to completion of
his application will expedite the review process.

        Upon receipt of application, the regional 208 coordinator will:

               send formal acknowledgement to grantee;

               inform grantee of any missing portions:

               establish validity of designation, application; and

               check overall computations.

A carbon copy of any deficiencies formally noted should be forwarded
to the grantee.
PART I
            Iteta  1 - A clearinghouse identifier establishes that
            the applicant has completed the designation process.
            Item  2 - Applicant's 208 application number.
            Item  3 - U.S. Environmental Protection Agency
            Item  4 - Official name and complete address of the
            organizational entity undertaking responsibility for
            performance of  the grant and management of the grant
            funds.
            Item  5 - "Section 208 Areawide Waste Treatment Manage-
            ment Plan."
            Item  6 - Federal Catalog Number  (66-426.)
            Item  7 - The total amount of the grant which should
            also agree with the amount shown on Part III, Section A,
            Line 5, Column (e).  For subsequent revisions to the
            grant, only the amount of the increase or decrease should
            be shown.
            Item  8 - Areawide or local may be specified.
            Item  9 - As applicable.
            Item 10 - Grant assistance.
            Item 11 - Enter areawide Copulation benefitting.
            Item 12 - a.  Congressional district in which applicant
                          is located.
                      b.  Congressional district(s) in  areawide
                          study area.
            Item 13 - Number of nonths of study.
            Item 14 - Enter date the project  is expected to begin.
            Item 15 - Enter date of application.
            Item 16 - The signature of certifying authority should
            be verified.

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                                                                    EXAMPLE
                                                                                 Form Approved
                                                                             OMB No. 158- fl'0110
   APPLICATION FOR FEDERAL ASSISTANCE
            f/V'TK nnWM.i rion Pr'/^r.irhs )
   *(and  for 208 Planning Grants)
                   PART I
 3 Federal Grantor Agency

I U.S.  Environmental Protection Agency
'   Organizational Unit

i Grants Administrative  Branch	
   Administrative O'fice
 1735 Baltimore Street
  Street Address - P.0 Box

Crystal  City, Montana
                                     22208
                                                1  State Clearinghouse Identifier
                                                  222208
                                                         '
                                              2 Applicant's Application No
                                                 2
                                              4 Applicant Numf
                                                Council of  Governments
                                                Department Division
                                                Main Street
                                                Street Address - P.O Box

                                                Center Citv	
                                                                                Homp
                                                  c,tv
                                                  Montana
                                                                         County
12345

Cdv State Zip Code
Slate Zip Code
5 Descripvive Name of the Project
Areawide Waste Treatment Management Plan (Sec. 208 of PL 92-500)
6 Federal Cata'og No
66-426
8 Grjntee Type
S^atp Cnnnty

9 Type of Application or Request
* NavuCiranl _. .Continuation

10 Type of Assistance
Y
, Grant 1 nan

1 1 . Population Directly Benefiting from the Project
500,000
12 Congressional District
a, 4th Congressional District
b 5th Congressional District
7 Federal Funding Requested
$ 528,300
r.ty Other (Soenfyl

$npplimnt Ofhpr Changes fSpef'ff)

. , Dthr (Sporilyl

13 Length of Project
24 months
14 Beginning Date
May 15, 1975
15 Date of Application
16 The applicant certifies that to the best of his knowledge and be ief the data in this application are true and correct, and that he will
comply with the attached assurances f he receives the grant The applicant agrees that if a grant is awarded on the basis of the appli-
cation or any revision or amendment thereof, he will comply with all applicable statutory provisions and with the applicable terms, con-
ditions and procedures of the Environmental Protection Agency grant regulations (40 CFR Chapter I.Subchapter B) and of the grant
agreement
TYPED NAME TITLE
Mr. A. B. Clean Execut
SIGNATURE OF AUTHORIZED REPRESENTATIVE
TELEPHONE NUMBER
ive Director AR^A NUMBER EXT
201 233-3333
FOR FEDERAL USE ONLY
EPA Application Identification Numhw OatB raraiunri in FPA
EPA Form 5700-33 (5-74)


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PART II
            Item 1 - There is no requirement for a priority system
            under the 208 program.

            Item 2 - No education or health clearance is specifically
            required.

            Item 3 - Clearinghouse action is required.  Approval is
            a part of the designation process and is indicated by
            the states statement of certification during that
            process.  Any statements to the exception should be
            noted and immediately coordinated for clarification.

            Item 4 - Presently no additional approvals are required.

            Item 5 - This consideration is made within the review
            process and council of governments plans and is often
            classified as a local plan.

            Item 6 - if a federal installation is involved, identify
            and note permanent residences or employment as available.

            Item 7 - If susbtantial land area is federal, note briefly
            and identify percent if available.

            Item 8 - Environmental assessments are not required.

            Item 9 - The impact of the study will not normally be
            known at time of application.

            Item 10 - Prior agenda studies should be noted.

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                                                                                             EXAMPLE
                                                       PART II

                                        PROJECT APPROVAL INFORMATION
                                                                                                        Form Approved
                                                                                                   OMB No. 1$8-R0110
Mem 1.
Oott this assistance request Suit. local, regional, or othtr  priority
rating'
                                        _Yes
                                                      No
Name of Governing Body .
Priority Hating ______
I Urn 2.
DODI inn assistance  rquttt require Stale, or local advisory, educa-
tional or health clearancii?
                                        .ves
                                                     . No
Name /* Aoency -or
  Board	
                                                                     0*cumentttion>
N/A
(tarn 3.
Dori thu auntance requeil require clearinghouse review in accord-     lAtrtch
ance with OMB Circular A 95>
                                          Ye.
                                                     .No
                         As Applicable
Item 4.
Ooei thu assistance request require  Suie, local,  regional or other     Name of Approving Agency
planning approval?                                              Date
                                         .Yet
                                                      No
Item 5.
It the proposed  protect  covered by an approved  comprehensive
plan?

                                 	Ye.     X    No
Check one   State    D
           Local    
           Regional O
                                                              Location of Plan ,
Item 6.
Will the assistance requested serve a Federal installation?
                                         . Ye
                                                      No
Name of Federal Iniiall.tion     Camp  Cook	
Federal Population benefiting from Protect       2,QQQ Residents
Item 7.
                                        _Yes
                                                      No
                                                              Narrw ur r-ederai installation ,
                                                              Location of Federal Lanel	
                                                              Percent of Proiect ^__  	
                                     N.W. City
                                      50
Item 8.
Will  the  assistance  requested have  an impact  or e'fect  on the
environment7
See instruction* for additional information to b.provided
                                        -Yes
                                                 X
                                                     .No
Item 9.
Ha.  the  protect  for which assistance is  requested  caused,  since
January  i. 1971, or will it cause, the displacement of any individual,
family, business, or farm'
                                        -Yes
                                                     .No
Number of
  Individuals.
  Families .	
  Businesl_4_
  Farms ___
Item 10.
Is there other related assistance  on  this protect previous, pending,
or anticipated?
                                         .Yes
                                                     .No
See instructions for additional information to be provided.
EPA Pun 3700.11 (5-74)
                                                                                                          PACE 1 OF to

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PART III - BUDGET INFORMATION
     (Section A - Budget Summary
            Section A shows the total grant amount.  For future revisions,
            this section will show those amounts.

            Column A - For 208 grants, show "areawide waste treatment
            plan".  Functions need not be shown.

            Column B - The federal catalog number is shown (66-426).

            Columns C&D - For new grants these are blank.

            Column E - Lines 1 and 5 show the total grant.

            Column F - For 208 grants approved under 92-500 during
            fiscal year 1975, (100% share), this column is left blank.

            Column G - Lines 1 and 5 show the totals of (e) and (b) .
     Section B - Schedule A - Budget Categories
            Object Class Categories - This first column lists the major
            208 budget categories.  Supporting exhibits should be iden-
            tified for each category included in the grant application.
            The supporting exhibits should be reviewed thoroughly.

            Columns (1 thru 4) - Can show functional on other subdivi-
            sions of object class categories.

            Column (5) Total - Shows totals whicn should add to the
            same amount as section A, Column (g), line 5 totals.

            Program Income - No Income is anticipated - N/A.

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EXAMPLE
   OMB IVO IMHUIH'
PART HI-BUDGET INFORMATION
tccriOM -ooCer SUMMARY
GRANT PROGRAM.
FUNCTION OR ACTIVITY
!>
^roawido Waste
1 Treatment Manage-
f , raent plan "Section
i 2 208 of Water PolJLy.
j j tibn Coritr6r~Act
4
FIOCRAL
CATALOG NO
Ib)
66-426



b TOTALS
ESTIMATED UNOBLIGATED FUNDS
FEOCftAl
Id
S  



1
JVON FEDERAL
(01
(



I

NEW on REVISED BUDGET
FEDERAL
III
< 528.300



*J28.300
NON FEDERAL
III
t



t
TOTAL
>
 528,300



t^mr3aa 	 ,
SICTION 'SCHEDULE A CUOOlT CATEGORIES
 Obtrtf CMM CiMftrHf
.. >.~>~* Exhibit A
t F,,A^S.~I.I. Exhibit B
c T"v- Exhibit C
. tvwmM Exhibit D
.. S.WPMI Exhibit E
i c<.i,tu.i Exhibit F
I. C^.t.ml.
ll OlM,
i. Tai Owe* CH9M
i IM^KI CM>n Exhibit C
fc TOTALS
7 Progn Inconw
GRANT PROGRAM. FUNCTION OR ACTIVITY
I.I S-15'75
" 5-14-77
* 121,940
24,388
6.000
7,000
9,000 
319,000
 ....
	
487.328
40,972
 528,300
* N/A
171
S









S
S
131
S









S
S
141
S









S
S
f r* F. ntt.it (?
TOTAL
151
 121,940
24,388
6.000
7.000
9,000
319.000
 	
	
487,328
40.972
* 528 300
 N/A


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Section B - Schedule B (OMB RO 110 Page 6)
Does not apply to 208 planning grants and
can be excluded.
Section C - Nonfederal revenues is not
applicable on 100% sharing.
Section D - Forecasted Cash Needs
            Lines 13 through 15 - Show the amount of the
            grant cash requirements for the first year,
            and quarterly forecasts for the next fiscal
            year.
Section E - Funds for the Balance of the Project
            Shows funds by quarter for the balance of the
            24 month project.
Section F - For Indirect Cost Discussion See
Appendix No. 3.

Note:  If an indirect cost proposal has not been
       submitted to an appropriate federal
       agency, that should accompany the
       application.

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     Section B - Schedule B  (OMB  RO 110 Page 6)
     Does not apply  to 208 planning grants  and
     can be  elemented.
                                                                  EXAMPLE
ICCTION C-MON FtOtRAl RISOUIICES
141 GRANT ftOGRAM
* Not Apolicable
t
10
11.
13. TOTAL!
<} APPLICANT
1



1 
ICISTATC
1



1 	
fl OTHtM SOURCES
s



1 	
(1 TOTALS




S
                                 fICTIOM D-FORECASTtDCAIH NIfM
1J F.dM _J
14 Nwt-FaMM
IS 10TAU
TOTAL FOR Ul VCAn
* 380.000 "I

< 380.000
ill cly/VUTlR
 100.000

 loq.pog
J*4 QUARTtR
 ion onn

 ion nnn
Jffl QUARTER
 inn nnn

* inn nnn
4tn OJARTrR
* 80. 000

* flfi nnn
                  MCTION 1-iUOOIT EtTIMAtlf OF FEDCMAL FUNDS NEtOCO FOR MLANCE OF THE PDOJECT
Ul GMANT ^MOORAM
te
17
ti
w
X fOTAU
FUTURE FUNDING PERIODS (YEARS)
OIFIMT
? 148.000



 148.000
(C) SECOND
$



1
Ml THIRD




S
() FourtTH
s



t
                                SECTION F-OTHfR IUOOET INFOAMATIOM
                                  MKM* Add-liaial SAMU II Nmtuerl
 II. DMclOiWfX
       (See Exhibit G.)   An Indirect cost  rate of 28X of personnel costs plus
      ,ta.                 fringe benefits is based on a proposal prepared in
                        accordance with DHEW OACS-6, and submitted to EPA
                        Cost Review Branch on April 1, 1975.
FA rmi I7N4J IJ-741
                         PART IV-PROGRAM NARRATIVE lAtucti ptr inttructian/
                                                                                PACE 7 OF I 0

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EXHIBIT A.	DIRECT LABOR COSTS


     The grantee's payroll employment records and other personnel classification
information can be used to assist in evaluating the basic labor categories,
positions, and hourly costs submitted.

     Essential data items which should be included in grantee and subagreement
proposals for direct labor include:

                   titles, names, or position classifications
                   which can be matched to verifiable records;

                   tasks and/or supervisory functions of the
                   grantee's 208 program to which the hours are
                   to be applied;

                   direct labor time to be applied and the cost
                   by hour or day; and

                   established D/L hourly costs computed by
                   dividing annual salaries by 2,080 hours.
 EXHIBIT  B.            FRINGE BENEFITS
      Fringe benefits  are  those  costs  directly  related  to  the  costs of  personnel
 employment other  than the employees direct  income  and  related taxes.   The fringe
 benefit elements  should be separately listed and should conform to the policies
 of the grantee and the similar  organizations of the  area.  Data elements which
 should be shown are:

                    insurance paid by  the grantee;

                    retirement vesting costs;

                    sick  leave costs;

                    paid  holiday costs;

                    vacation costs; and

                    other fringe or payroll costs  normally paid
                    by the grantee or  contractor.

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                                        EXAMPLE
EQtlBIT A - ?EKSOSm COSTS - DIRECT LABOR
COUNCIL OF COVEJUJKENTS
TITLE /HAKE
Ex. Director, A.B. Clean
Sr. Reg. Plnr, E. Stewart
Reg. Plnr, L. Burnham
! D. Wright
| Water Quality Spec., R. Hayes
| Systems Analyst, C. Ta;>lor
R. Jefferson
Coordinator, L. Brovn
Draftsman, B. Owens
Secretarial, R. Voods
To:al Personnel Costs


1ST. MRS.
604
1.600
2,fcjO
2.6CO
2,400
800
500
1.200
3,000
3,950



KATE/KR.*
no. oo
10.00
8.00
7.50
6.00
6.00
6.00
5.50
5.00
4.00



EST. COST
$ 6.040
16.000
20,800
19,500
14,400
4,800
3.000
6.600
15,000
15.800
$121.940
1.  Can you correlate  labor or tasks
    or functions.

2.  Did you verify rates  to records?

3.  Did you evaluate escalation projections?

4.  If subagreement, can  you use other
    cognizant Federal  Government agencies
    as required (subagreements can be
    completed after grant approval.)

5.  Did you determine  content and basis for
    direct elements to present their inclusion
    under indirect costs.
                                       EXAMPLE
EXHIBIT B - FRINGE BENEFITS COSTS
COUNCIL OF COVERKKENTS
Retirement
Insurance
Holiday, Vacation and Sick Leave

Direct Labor Proposed

Fringe Benefit Coat*


4.02
2.0*
14.01
20JDI









$121,940
x 201
$ ?4t3fl8
1.  Have vacations  and  paid holidavs been
    estimated in accordance with grantee policy?

2.  Is the factor for sick leave consistent
    with recent experiences?

3.  Has the fringe  benefit rate been calculated
    on a 2,080 hour direct labor basis?

A.  Can you reconcile any material variances
    from past records and trends?
                    11

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EXHIBIT C.	TRAVEL COSTS     |

     Public and private travel costs related to specific tasks and positions should
be shown for grantee staff and consultants when proposals are submitted.  Where
detailed proposals are not prepared, or where sufficiently detailed elements are
not available, past records of similar planning studies may be useful for establish-
ing bench marks.  Data elements which should be shown are:

                   number, purpose, and location of trips;

                   vehicle mileage and rates;

                   commercial travel mode, frequencies, and costs;

                   lodging days  and rates; and

                   per diem days and  rates.
 EXHIBIT D.            EQUIPMENT COSTS
     Item by item listings of all equipment used only for grant purposes is expected.
The primary data elements which should be provided are:
                    quantity and equipment descriptions;

                    task application or description of tunctional
                    application if not self explanatory (such as
                    typewriter or chair);  and

                    current cost by item and unit and total by line item.
                                      12

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                                        EXAMPLE
EXHIBIT C - TRAVEL COSTS
COUNCIL or covnuooors
PESTINATIOH
Kansa* City
Deovar
Per Diem
Car Rental
Local Travel

KO. TRIPS COST /TRIP
20 R/T SO
20 R/T 50
80 dy  $25.00
30 day*  $20.00
5.700 6 14e

TOTAX.
 1.600
1.000
2.000
600
800
I 6.000
 1.
 Do  the number of trips and locations
 appear reasonable for the level of
 man/days involved and locations of
 208 participants?

 Are the estimates for air and auto
 travel consistent with commercial
 costs of travel and in accordance
 with government per diem rates? Per
 diem rates for federal  contracts have
 recently been changed  to  $35 coach
 travel and .15c per  mile  for private
 auto travel.
                                      EXAMPLE
EXHIBIT P - EQUIPMENT COSTS



COUNCIL 07 GOVERNMENTS
Swivel ara chair*
Contemporary desk*
Desk top corter*
Calendar bolder*
Va*t* basketa
Dek pad*
rile*
Cabinet
Cuet chair*
Work table*.
Desk top calculator
IBM II Salactrlc Typewriter
Punch-bind machine
Total Equipment Coat*
49
49

49
46
49
48
49
60
29
13
29
It

* 143.50
268.00
27.00
3.75
11.00
15.00
99.00
95.00
48.00
287.50
871.00
1.126.00
365.00

$ 574.00
1,072.00
108.00
15.00
44.00
60.00
396.00
380.00
288.00
575.00
871.00
2.252.00
365.00
S7.000.00
1.
2.
3.
Based on personnel staffing and the
grantee project office  plans, do the
equipment items requested appear
reasonable?

Are the standard catalog items priced
properly?

Have you conducted further investiga-
tions into any major or unexplained
items?
                    13

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j EXHIBIT E.	SUPPLIES 1
      Item by item listings of all supply items is expected.  The primary data
 elements which should be provided are:

                    application explanations when not self
                    explanatory (such as paper, pencil, etc.);

                    price by category of use, such as drafting,
                    secretarial, field test, etc.; and

                    specific unit costs and quantity if a specific
                    high cost supply item is requested.
 EXHIBIT G.           INDIRECT COSTS
      Indirect costs are those not readily assignable to the cost objectives
 specifically benefitted and are incurred for a common joint purpose  (FMC 74-4)
 Suoervision costs are elieible, nrovided thev meet renu-f rpmnt: for
 a predetermined rate for indirect coats.

      The primary data elements should:

                    show nature and extent of services;

                    show their relevance to the program; and

                    identify all items included.
  NOTE:   See Appendix No.  3 for relevant discussion of indirect costs.

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                                                    EXAMPLE
  EXHIBIT E - SUPPLIES COSTS
          " COUNCIL OF GOVERNMENTS
  SUPPLIES

  Drifting sac! bluiprinting supplies:
      blueprinting paper and chemicals;
      promt* shate of repair expense; end
      drafting paper, ink, pens, pencils,
       presytpe, ziptone, airbrush supplies.

  Secretarial and clerical supplies:
      typing paper, ribbons;
      prorate (hare of repair expense; end
      prorate share of xerox cost.
          (6,000.00




          $3.000.00

          t9.000.00
       1.   Based  on personnel  staffing and  the
            grantee project office plans, does
            the  level of  supplies appear reasonable?

       2.   If supplies  appear  high,  can ratios of
            similar historical  costs  be established?

       3.   Have you investigated into the basis
            for  any high  cost and unexplained
            supply items?                       EXAMPLE
EXHIBIT G - INDIRECT COSTS
           COUNCIL OF GOVERNMENT

Personnel Costs (Exhibit A)
Fringe Benefits
Total Salaries and Fringe Benefits
         Indirect Cost Rate*

Indirect Costs
$121,940
  24.388
$146,326
    28?:

$ 40,972
* Based on Indirect  cost rate proposal submitted to the cognizant
federal agency for the area and the  Environmental Protection Agency,
Cost Review and Policy Branch on April 1, 1974
       1.   Can you  determine the  basis for and methods
            used to  distribute these costs?

       2.   If there is a  substantial increase in the
            direct labor base projected during the
            period of the  grant, has this  been considered
            in establishing  the new rate?

       3.   Does the local agency  responsible for establish-
            ing areawide allocation plans  agree with the
            indirect rate?
                             15

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EXHIBIT F.              SUBAGREEMENTS
EXHIBIT F-l.            REVIEW OF THE GRANTEE'S METHOD OF PROCUREMENT
     At the start of a program, the grantee establishes his program management
staff and Initiates the work program.  Substantial program management planning
and decision making must be accomplished.  This will result in modifications
to schedules and work task content.  This detailing of the work plan is an
iterative process and will be substantial during the early portions of the
program.

     In anticipation of this, the grantee should establish subagreements which
provide for making adjustments to the work plan in the most effective manner.
In order to accomplish this, it is preferrable that contract amounts be identi-
fied to tasks, and that approvable task start dates for unique work packages be
controlled by the grantee during the work program.

        EPA approval of the grant can proceed prior to separate cost
        analysis of the subagreements submitted with the application.

     In determining whether the grantee is approaching procurement properly,
ask  the questions:

        If formal advertising is pursued?

        a.  Is the specification complete, explicit, adequate, and
            realistic?
        b.  Is there evidence that at least two capable sources are
            involved in the competition?
        c.  Are  criteria utilized  to insure determinations of
            qualified, responsive, and responsible bidders, so that
            selection can be made  on price alone?

        If procurement by negotiation is pursued?

        a.  Is the aggregate amount  under $10,000?
        b.  Does the public urgency  prevent the delay  expected
            to result from  formal  advertising?
        c.  Is there only one  source for the material  or  service  to
            be procured?
        d.  Is the contract  for personal or professional  services,
            or with an educational institution?

        If a  noncompetitive  contract is  pursued?

        a.  Have formal bids been  found  unacceptable?
        b.  Is there a logical rationale with  adequate documentation
            provided to support the  decision?
        c.  If the amount is over  $10,000, has  the  grantee been
            authorized to approve  such procurement?
                                    16

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                                                             EXAMPLE
FORMAL PROCUREMENT STATEMENT

     The procurement for 20 transceivers for the Council of Governments
areawide field surveillance units vehicles is contemplated to be by a
formal advertised procurement resulting in a firm fixed price co.ntract.
The transceivers will be bought using the same performance specifications
which previously have been used in cities A, B, and C, for other purposes
and which resulted in receipt of several responsive and responsible bids.
JUSTIFICATION FOR NEGOTIATION

Determination and Findings Authority to Negotiate

     Upon the basis of the following findings and determinations,  which
I hereby make as the Council of Governments' Director of Procurement and
agent for the Crystal City Council of Governments, the proposed procure-
ment under an EPA grant may be negotiated without formal advertising
pursuant to the applicable exception authorized by the grantor (EPA) and
the procurement regulations of the Council of Governments.
Findin&s

    The proposed research study concerning pollution resulting from
numerous landfills in the Crystal City, Montana area is to be conducted
by one of the educational institutions within the state.   Negotiation
is appropriate and this service will be handled by an individual
institution.
JUSTIFICATION FOR A NONCOMPETITIVE PROCUREMENT

    Procurement of the professional services of the PDQ Analytical Co.  is
justified on a sole source basis to conduct a study of the current and
projected basin area industrial waste water disposal capabilities and needs.
PDQ has conducted such studies for the two largest cities in the states of
Montana and Colorado and can move into the areawide level study with a
minimum of indoctrination and orientation.  The analytical techniques
developed by PDQ are unique and are the result of independent development
by PDQ.  There is no known alternative source that can perform the study.

    A cost-plus-fixed-fee contract with an estimated cost of approximately
$100,000 is contemplated based upon preliminary estimates of the labor
hours, rates, and computer time required.  A fixed fee of $8,000 is
anticipated.
                                     17

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EXHIBIT F-2.          REVIEW OF THE TYPE OF CONTRACT
DESCRIPTION OF PROPOSED PROCUREMENT

(For detailed description of types of contracts see Appendix No. 4.)
            What is the type of contract proposed?

            Is  the type of contract appropriate
            for the particular procurement?

            If  the type contract  is not FFP, as
            a result of formal advertising, what
            is  the basis  for making the selection?

            - The basis for selection  and  the
              procedures  to be followed in the
              selection process are set forth
              in EPA-CFR  33.500 (draft.)

            - Special  procedures  for procurement
              of architectural and engineering
              services are included in EPA-CFR
              33.515  (draft.)

            - In general, the criteria for selection
              can be summarized as that proposal
              offering the greatest advantage for
              the project, technical,  economic, and
              other factors considered.

            Does the contract contain  the  standard
            terms and  conditions?  (For listing of
            terms see  Appendix No. 2.)
                                    18

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                                                                    EXAMPLE
          EXHIBIT  F-2.
    JUSTIFICATION FOR TYPE OF COMKACT SELECTED
I    	_
5
s
    Determination and Findings Authorization for Type of Contract Findings

         The Crystal City Council of Governments has a requirement to acquire
    consulting services and reports in furtherance of the existing contract  with
    the University of Montana in the area of collecting and analyzing water  quality

(
|         It is not possible to determine the exact amount of work and/or travel
    necessary to be accomplished either in man-hours, service, travel, or materials
    which  precludes estimating a reliable cost for this effort.   Only the general
    overall nature of the work can be described.

         The Director of Purchasing for the Council of Governments hereby finds
    that the extent of the work to be performed and the complexity of the work
    and services to be performed make it impossible to determine a reliable
    estimate sufficiently definite to serve as a basis for a fixed price contract
    for this effort with Impartial, Inc.

    Determination

         On the basis of the findings set forth above, the Director of Purchasing
    hereby determines that the use of a cost-reimbursement contract is likely to
    be less costly and it is hereby authorized to use said cost-reimbursement
    contract.
                                           19

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EXHIBIT F-3.           REVIEW OF THE CONTRACTOR'S WORK STATEMENT
     The contractor's work statement establishes the basis for future program
schedule cost and technical performance.  Therefore, careful review of these
documents by the grantee and the regional coordinator is required.

              Is the Statement of Work, expressed in clear, concise
              terms for tasks to be accomplished?

              Is this information necessary to assist the contractor
              in understanding what is required of him?

           .  Is the SOW sufficiently specific to permit the
              contractor to identify, and the grantee to evaluate,
              the manpower and resources needed to accomplish it?

           .  Are the specific duties of the contractor stated in
              such a way that he knows what is required and to
              permit the grantee to determine that the requirements
              have been met before acceptance?

              Are the proper reference documents shown?  Are they
              really pertinent to the task?  Fully or partially?
              Are they properly cited?

           .  Are specifications or exhibits applicable?  If so,
              are they properly cited?   (Use the latest available
              revisions   or issue of each document.)

              Are specifications restrictive?  Are only the
              necessities specified?

              Is general information separated from direction,
              such that background information and suggested
              procedures are clearly distinguishable from
              contractor responsibilities?

              Is there a date for the key things the contractor
              is to do and for each thing he is to deliver?  If
              elapsed time is used, does it specify calendar days
              or work days?

              Are the required products  and reporting requirements
              descriptively defined?
                                      20

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                                                           EXAMPLE
CONTRACTOR WORK STATEMENT
             To assist the COG in completing work plan Task #1, "Program
             Management" of the 208 work  plan dated May 15, 1975.  This
             assistance includes the  following  tasks:

             a.  Detailed assessment  of  the work program, Including:

                 - major milestones;
                 - schedules;
                 - budgets;
                 - critical or constraining items; and
                 - responsibility for completion.

             b.  Assess the program  structure and the planning program,
                 including:

                 - project organizational alternatives,
                   program control,  financial reporting,
                   and procurement systems; and
                 - evaluate needs for reporting to  local
                   areawide organizations and the formally
                   established water quality  advisory task  force.

             c.  Develop a data acquisition and analysis procedures for
                 ensuring proper definition of  data elements which can
                 be integrated for conducting efficient evaluation of the
                 alternatives.  This  task includes:

                 - review existing areawide planning data and methods
                   of translating areawide policies into longer range
                   plans and projections;
                 - review existing engineering  and environmental data
                   handling plans;
                 - assess present use of  technical models and land use
                   projection models; and
                 - identify areas of  integration concern, alternative
                   approaches to reduce  the concerns, and complete a
                   plan for integration  and presentation nf study data.

             Four weeks from the date of  contract, a written report will
             be prepared which will:

             a.  integrate the above  tasks into program schedules and a
                 plan for management;

             b.  prepare a program manager's  document describing
                 procedures to be utilized for  the budgeting, accounting,
                 contractor monitoring,  program control, and revisions to
                 the work tasks; and

             c.  identify the grantee project individuals responsible
                 for each task and support function.
                                    21

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FIXED FEE OR PROFIT

     The fixed fee of a cost-reimbursement type contract should always be
expressed in contract's dollars and not in percent.  The inclusion of a
percent contract leads to a cost-plus-percentage of cost type of contract
which is not permitted under any Federal Procurement or Grant Program.  The
contractor's rationale for the fee or profit proposed should be carefully
examined using guidelines of past experience and generally accepted principles
of good business practice.  The elements of fee or profit to be considered in
accordance with accepted practice include:

                    degree of risk;

                    nature of the work to be performed;

                    extent of grantee assistance;

                    extent of the contractor's investment;

                    character of the contractor's business;

                    contractor's performance;

                    extent of subcontracting; and

                    realism of cost estimates.

     Further -information  concerning these considerations of profit or fee
determination may  be  found in Title 41, Code of Federal Regulations; Part  1-3.808
of  the  Federal Procurement Regulations.

ALLOWABLE COSTS  (C.F.R.  35.1062)

     Allowable costs  describing  the interface of  costs  associated with  Sections
201 (construction)  and  208  (planning)  are explained  on  the  facing page.  Note
that 30.701 will be superseded by  30.705  on June  10,  1975,  adding the
definitions below  to  allowable costs.

     Allowability  of  project  costs shall  be determined  by the  following:

                    the costs must be  reasonable  and within the
                    scope of  the project;
                 *>

                     the cost  is  allocable to  the  extent of  benefit
                    properly  attributable to  the  project;

                     such costs must  be accorded consistent  treatment
                     through application of  generally accepted  accounting
                    principles;

                     the cost  must not  be allocable to or included as a cost
                     of  any other federally  assisted program in any  account-
                     ing period  (either current or prior;)  and

                     the cost  must be in conformity with any limitations,
                     conditions,  or exclusions set forth in the grant
                     agreement or this  Subchapter, including appropriate
                    Federal cost principles of this Subpart.

                                        22

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                                                                   EXAMPLE
( S5.1061  Sipcn*ion anJ lei
     oC grant.
  In accordance wtth the  provisions of
55 30902 and 30.903 of this Chapter, the
Rcsional Administrator may suspend or
terminate nny  grant awarded pursuant
to this Subpart.

g 35.1062  Allowable tout.
  In general, cllelfole and Ineligible costs
hall be  determined In accordance with
I 30.701 of this Chapter and by d-mon-
stration that the lypc and dctrrce of work
Is necessary for successful completion of
the project, and that  the costs are  rea-
sonable with respect to the product or
service to be obtained.  While co.'ls In-
curred as a result of followmr an  ap-
proved work program would generally be
allowable, provided that  they are  not
prohibited elsewhere  by Federal, State
or local law, regulations or rule, the costs
incurred by r.ctwity related to the  fol-
lowing shall be ineligible:
    AU costs Incurred In development
of  grant application for an areawido
waste treatment management  planning
grant.
   (b) All costs Incurred in  sewer evalua-
tion surveys RS reaulred under 5 35 927-2.
    All costs of special studies for the
specific benefit, of Indivldiul. industrial
or  commercial establlthmrnts.
   (h)  All costs of activities  which are
primarily of a research nature.
                                  lion   I SOiTOl   Allocation mu* Uow.bJIllr of
  Except as otherwise provided by stat-
ute, allocation and aUowabillty of costs
\vill be  governed in the case of-grants
to educational institutions by the  pro-
visions  of  Office  of Management  and
Budget  (OMB) Circulars Nos. A-21  (Re-
vised),  and A-88.  and in the case  of
grants to State  and local governments
by the provisions of OMB Circular A-87.
All other grants shall  be governed  by
the policies and principles  established
In the Federal Procurement Regulations,
Title  41. Code of Federal Regulations.
Chapter 1, Subpart 1-15.2 to the greatest
practicable extent.
                            23

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EXHIBIT F-4.
COST REVIEW OF THE CONTRACTOR'S WORK
STATEMENT BY TASK
        The staffing plan and subagreement estimates must be related to specific
work plan tasks and budgets.  This is best accomplished when the staffing plans
include specific tasks and hours:
Professional
Classification
Project Director
Senior Analyst
Consultant
Total Hours by Task

A
20
10
60
90

B
10
40
10
60

C
10
80
10
100

D
10
20
20
50
TOTAL
HOURS
50
150
100
300
These hours can be directly correlated with the contractor's overall pricing
proposal, estimated direct labor hours, and dollars.

Suggested Guide for Grantee and EPA Review
Requirements of Contractor's Cost Proposals
Based on Contract Amount
      Cost  analysis  requirements vary based on  the amount of the proposed
 procurement.
                    SUBAGREEMENT COST ANALYSIS REQUIREMENTS
Contract Amount
in Dollars
Under $10,000
$10,000 to under $50,000
$50,000 to under $100,000
Over $100,000

By Grantee
X
X
X
X
COST ANALYSIS REQUIRED
BY EPA
Acceptable
Procurement
Procedures
-
-
-
X
Unaccepted
Procurement
Procedures
-
-
X
X
                                     24

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           EXAMPLE
;
CONTRACT PRICING PROPOSAL Office of M.n.i.emen: and Budget
(RF.SKAKCH "-ll >t required and [
litl luhttitunon lor rhc Opnonal Form ^9 n authorurd by thr contrtctinf officer j
NAMI OF OFFCROR SUPPLIES AND OR SERVICES TO IE FURNISHED
PROGRAM MANAGEMENT COMPANY CONSULTING SERVICES
KOMI C*FICE ADOttSS
Crystal City, Montana
i

DIVISIONS; AND LOCATIONlSl WHERE WORK IS TO IE PERFORMED TOOL AMOUNT OF PROPOSAL COV T SOLICITATION NO
Crystal City i10,000
DETAIL DESCRIPTION OF COST ELEMENTS
1 DIRECT MATERIAL 1 llrmn, m f >*<*il 1; EST COST fly
a PURCHASED PARTS
 SUICONTRACTIO ITEMS ^
( OTHER f t) RAW MATERIAL
tlj YOUR STANDARD COMMfRCIAL ITEMS
fJt INTEROIVISIONAL TRANSFERS 1 1r i/Arr 1^1 xl 1
mi K II/KM / mimni
: MATERIAL OVERHEAD' ' -<. %\( k.,,:-,
I ESTIMATED DATE/ EST
J 0CTLA.O l\*:,/n HOURS HOUR ! COST (t)
Prelect Director 50 $25.00 ; $1,250
Senior Analyst , 150 15.00 , 2,250
Consultant 100 12.00 ; 1,200



IOI 1/ 11IRII 1 1 .< (,l,r) OM RATE < IASI - SSICOUd;
1002 1 $4,700 S4.7QO
;
t
ioi  "


)

ll >nlrit t;
10 IOI 11. DIRK 1 1 m/ 1\DVItRHt1l)
II GENERAL AND ADMINISTRATIVE EXPENSE fJ" '. of .ail i/tmtal Soi ,
TOTAL
EST COST














$4,700




$4 7nn

1


DEFER
ENCE































$ 398 |





-



40
$9,538

I J ROYALTIES ' , _



13 /o/^//^//^M///J('M/ 'ncooi
97 t JJO (
U FEE OR PROFIT 1Q gj^
IS IOI 11 mill 
-------
                                                                                               EXAMPLE
i 1hi propoul it lubmmrd tor ut* m ionne<.don with *nd m rrspnn% to (t)enrtbr Rf-P r/
 ind rcftfCtv our bcsc
                            of the. dJlr, in jitordjiut- * nh tht  ln*irut tiuru in OflWor* and tht Footnotes wJmh tullm
 TYPED NAME AND TITLE
        Buddy Linton,  President
| NAME OF FIRM
        PROGRAM MANAGEMENT COMPANY
                                                                                             April  14,  1975
                  EXHIBIT A-SUPPORTING  SCHEDULE
                                                                     '/ ""  '/""  "
              i  Travel  -  2 trips  -  Crystal  City  to Denver	
EST COST <%>
                                                                                                         $  398.00
   I HAS ANY EXECUTIVE AGENCY OF THE UNITED STATES GOVERNMENT PERFORMED ANY REVIEW OF YOUR ACCOUNTS OR RECORDS IN CONNECTION WITH ANY OTHER

    GOVERNMENT PRIME CONTRACT OR SUBCONTRACT WITHIN THE PAST TWELVE MONTHS'



      [""I  YES  P] NO  I If Hi. idlnlifl bt/ou I
  NAME AND ADDRESS Or REVIEWING OFFICE AND INDIVIDUAL
                                                                                        TELEPHONE NUMBER/EXTENSION
     WILL YOU OUII THf USE Of ANY GOVERNMENT PROPERTY IN THE PERFOKMANCE OF THIS PROPOSED CONTRACT'


      l_J  *E*  Ll  ***^  f'/ n1' '^"A o rettrtt    n ADVANCE PAYMENTS  Q] PROGRESS PAYMENTS o  Q GUARANTEED LOANS
IV  DO YOU NOW HOLD ANY CONTRACT (Or do

   PROPOSED CONTRACT?


    Q] YES  Q) NO {If til. idmlift /
                                           halt jnv ,ndtp/ flk&Dl projtili I fO THE SAME O SIMIIAK WOKK CAUED FOS BY THIS
  V DOES THIS COST SUMMARY CONFORM WITH THt COST PRINCIPLES SET FORTH IN AGENCY REGULATIONS'


      j]  YES  [~J NO  (II  nt).  t\pl^in on rri tnt or ttpurjtt p.l^t i
                                                  Rttirte /or tnitruitiom and / r/vtHol
                                                                                                    OPTIONAI  FORM 60 ( 10-"l )
                                                           26

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APPENDIX 1.          ADEQUACY OF THE GRANT APPLICANTS ACCOUNTING
                     SYSTEM AND PROCEDURES
         The primary requirement for the competent business management of
any project is a good accounting system.  There are seven major areas which
should be of primary concern to the reviewer.  These are defined below:

           Accounting Records

         In order to have an accounting system, there must be records of
     all financial transactions.  The system should document all receipt
     and disbursement transactions, including explanations and identifying
     codes (e.g., invoice number) on a chronological basis.  It should also
     group them by type of account  (e.g., expense, asset) and by individual
     account (e.g., Board of Supervisors payroll, communications expense.)
     Accounts should be set up in such a way as to identify each cost with
     a cost center and cost objective in the form of a task or subtask.  A
     cost center may be an organizational unit, a function, or even an item
     of expense.  Its purpose is to collect costs on a functional basis.
     Thus, accounts might be divided into more than one cost center
     (e.g., payroll expense might be distributed into several departments)
     and cost centers may have more than one account (e.g., the accounting
     department's costs might include payroll expense, supplies, and other
     accounts.)  An important project management objective of accounting
     records is the  derivation of  information regarding actual vs. budgeted
     costs by project task and by performing organization.

         All entries in the chronological and account groupings should be
     cross-referenced in some way.  Furthermore, at least one of the
     groupings should be cross-referenced to the supporting documents.

           Supporting Documents

         Every entry in the accounting records should be supported by a
     document of some sort.  This could be a document from outside the
     grantee's office, as in the case of an  invoice, or it could be an
     internally generated document, as in the case of payroll.  In many
     cases, several documents will  support a single transaction.  For
     instance, a purchase of materials should have a purchase request,
     purchase order, and receiving  report in addition to an invoice.  It
     might also involve requests for proposal, contracts, advisory board
     resolution, progress reports,  and progress payments.  The key is that
     the files of supporting documents should contain all information
     necessary to explain every transaction  completely, and should be cross-
     referenced in such a way that  transactions can be traced from any
     document dealing with the  transaction  back to the initiation of that
     transaction and forwarded to the entry  or entries concerned with that
     transaction.
                                       27

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      Traceability

    Traceability, which is also referred to as an audit trail, is
composed of two elements.  The first is mechanical in nature.  All
entries in a grouping should be traceable to corresponding entries
in other groupings, and to all supporting documents.  This requires
a good filing systeir. based on reference codes for each entry and
document.  In a small system, codes may not need to be as detailed,
due to the lower volume of transactions, but in almost all systems
referencing based solely on a date or name will eventually prove
cumbersome, inefficient, and probably inadequate.  Sequential
numerical codes are usually best, not only for ease of referencing,
but also for internal control.

    The second element of traceability is the logic behind the trans-
action.  One should be able to determine not only what was done, but
why it was done.  It is here that written procedures become important.
Some companies and governmental units survive without them, however,
they constantly experience employee turnover, changes in circumstances,
exceptions to the unwritten rules, and lose internal control.  A
grantee should have or should prepare complete procedures for handling
grant funds.

      Allowable vs. Unallowable Costs

    The preceeding three areas concerned themselves with the basic
set-up of an accounting system.  The next two areas will deal with
functions within the system.  The system must be able to segregate
allowable and unallowable costs if the grantee is to properly utilize
his grant money.  There are two basic guidelines on allowability.  The
first is a general guideline for all grants: Federal Management
Circular (FMC) 74-4.  The second guideline deals mainly with further
unallowable expenses:  EPA Grant Regulations, 40 CFR 35.1062.  The
cost analysis section of this Handbook itemizes costs which  are unal-
lowable under Section 208.  Unallowable costs should be recorded  in
separate accounts and the supporting documents and  traceability of
unallowable costs should be equal to that of allowable costs.

      Direct vs. Indirect Costs

    In the area of allowable costs, a further distinction must be made
between direct, and indirect costs.  All costs should be contained in
some cost center, however, some cost centers contain costs which benefit
other cost centers.  For example, the costs of the  payroll department
would benefit all other  cost centers which have  a payroll.   This  type of
cost center can be referenced  to as a secondary  cost center.  The primary
cost centers are the 208 project office and supporting program functions.
Ultimately, all costs will be  identified with or allocated to a primary
cost center.  Direct costs are those which can be identified directly  to
a primary cost center.  They may have been entered  in  that cost center
initially, or they may have been contained in a  secondary  cost center
whose costs could be identified to one  or more primary cost  centers.
                                 28

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Accounting System  and Procedures, Continued.

     Indirect costs are those which cannot be identified to a particular
     primary center.  They must, therefore, be allocated to primary centers
     using a base that provides an equitable cost distribution.  The key
     here is the ability of the accounting system to segregate all costs
     into cost centers, which can be classified as direct or indirect, and
     to then identify or allocate them to a primary cost center.

         i  Internal Control

         Internal control is the means by which the accounting system is
     regulated.  It serves not only to verify that the numbers are accurate,
     but also to assure management that proper procedures are being followed
     with respect to receipts and disbursements.  Some of the elements of
     internal control are written procedures concerning how things are done
     and who has the responsibility for approving and for doing them,
     written approval at each major step of  the process and an internal audit
     to verify that the procedures are being followed.  For example, the
     disbursing function might require that  an invoice be attached to a copy
     of the purchase order and receiving report and be initialed for payment
     by the supervisor of the department that purchased the goods before any
     funds can be disbursed.  This procedure would then be audited at least
     once a year by examining invoices at random to see if the copies had
     been attached and the invoice initialed.

         Internal controls may be implemented differently for each grantee,
     but each grantee should have controls which act to check the functioning
     of the system automatically and which insure that all major transactions,
     expecially those concerned with cash, have checks and balances on the
     individuals involved.  It should also be remembered that contractors hired
     by the grantee should be supervised, not only with respect to their work,
     but also with respect to their accounting for the costs of that work.
     This supervision should also be provided for as a part of the grantee's
     internal control system.  For example,  costs of contractors efforts by
     task should be recorded and  should have an audit trail which the grantee
     could examine in detail if the contract was significant in amount.

         0  Accounting Reports

         Accounting reports are the ultimate product of an accounting system
     and are often  the least planned aspect  of the system.  This applies more
     to internal reports than to  external reports due to the fact that the
     form of many external reports are prescribed.  The grantee should realize
     that the data which must be  reported  to outside sources is not always  the
     data which is required for management internally.  Like internal control,
     reports will vary from grantee to grantee.  The keys here are simplicity,
     comparability, and thought.  Simplicity refers to the elimination of
     unneeded numbers, the rounding off of unneeded digits, and the clarifica-
     tion of format.  Comparability refers to consistency between current and
     past reports or among the reports of different divisions and to  the
     existence of data on the current report which enables ready comparisons
     with prior years  (e.g., percent change  from last year.)

          The constant question must be:  has the grantee given sufficient
      thought to his plans for the accounting system?  It should be based
      on his analysis of his needs and resources, rather than on a
      standard system copied from a book.  The thing to look for is an
      understanding of those needs and an analysis of how the accounting
      system will fulfill them.
                                        TO

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APPENDIX 2.          ADEQUACY OF GRANTEE'S PROCUREMENT SYSTEM
                     AND PROCEDURES
            Introduction

          The examination of a grantee's procurement system and procedures
     is necessary to ensure good business practices and to verify compliance
     with federal statutes and regulations and EPA policy set forth in Federal
     Management Circular 74-7, Attachment 0 (FMC 74-7, Att. 0) attached, 40
     CFR 30, 33 and 35.1050, and EPA Program Guidance Memorandum AM-6.

          A subagreement is a written agreement between a grantee and third
     party for the furnishing of services or supplies necessary to complete
     the project for which a grant was awarded.  Since EPA does not permit
     subgrants, subagreements include only procurement which result in con-
     tracts purchase orders, and interagency agreements.   (CFR 30, 1000-19
     with interagency agreements added per CFR 35.1054-2).

            Review and Approval Requirements

          Audit of a grantee's procurement procedures is not required prior
     to the approval of a grant application.  EPA Section  208 Grant Program
     Guidance Memorandum AM-6 establishes requirement for grantee implementa-
     tion of adequate procurement procedures for audit by EPA.

          One objective of auditing and determining the adequacy of a
     grantee's procurement system is to permit EPA to eventually delegate
     approvals of certain levels of procurements to the grantee.


           EPA draft  of  40 CFR 33.22  requires  prior written approval  of  the
     EPA  project  officer  for  all  subagreements in  excess  of $100,000 and each
     amendment to a  subagreement  in  excess of $100,000.

           The following checklist items and discussion points are oriented
     to the corresponding standards  set forth in FMC  74-7 Att.  0 attached
     and  provides a  basis for reviewing the adequacy  of a grantee's  procure-
     ment system and procedures.   (The review of individual procurements is
     addressed in the main body of  this handbook.)

             Grantee Contractual  Responsibility (FMC  74-7, Att.  0, para.  2)

           Are there  any contractual  provisions which  the grantee specifies
     for  incorporation  in contracts  which give, a contractor under a  grant
     recourse to EPA?

                  -  If  so,  the procurement system does not meet
                     the standard  and such contractual provisions
                     should be deleted before  system approval.
                                         30

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     *  Procurement Approval Authority

     Does the grantee have documented designated authorities for
approving procurements under EPA grants?

     If the grantee has delegated procurement approval authorities,
are such authorities documented and clearly traceable upward to a
responsible grantee official?

     If approval authority is delegated, do the delegations include
consideration of:

            -  responsibility, i.e., to ensure a maximum
               of competitive procurements;

            -  dollar levels authorized for approval;

            -  necessity of executive level approval of
               major procurements; and

            -  non-competitive procurements?

       Authority to Contract

     Is there a designated focal point in the grantee's organization
with authority to contract, i.e., a purchasing agent, buyer, contracting
official, purchasing official, or equivalent titled person?

     Does the responsible person report to the executive level to en-
sure good business practices are exercised in management decisions
regarding procurements?

       Grantee's Procurement Regulations (FMC 74-7, Att.  0, para. 3)

     Have procurement regulations been adopted by the grantee which
have received prior approval by a Federal department or agency?

            -  If so, which department or agency and when?

     If the grantee's procurement procedures have not had prior approval,
the review by the EPA regional office should address the specifics of
this checklist and in general answer the following questions:

     Do the grantee's procurement standards and procedures meet the
required minimums established by the requirements contained in this
section which reflect the requirements of current Federal law and exe-
cutive orders.

            -  If not, what are the deficient areas?

            -  What actions are being taken or can be
               taken to meet the minimum requirements?

            -  Who has the action responsibility and
               what is the schedule for completing
               necessary actions?
                                31

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Procurement System and Procedures,  Continued.
         Standards of Conduct (FMC 74-7,  Att.  0,  para.  3a)

       Has the.grantee established and promulgated a code or standards
  of conduct which is directive upon all GOG personnel who may be involved
  in any aspect of contracting and expending Federal  grant funds?

              -  Are penalties for violation included in
                 the code or standard?

       Does the code or standard guard against any action which might
  result in, or create the appearance of:

                 Using an official position for private
                 gain?

              -  Giving preferential treatment to any person
                 or contractor?

              -  Losing complete independence or impartiality?

              -  Making an official decision outside official
                 channels?

              -  Affecting adversely the confidence of the
                 public in the integrity of the government
                 or the program?


        *  Competition  (FMC 74-7, Att. 0, para. 3b)

        There are three basic methods of procurement:  public advertising,
  competitive negotiation, and non-competitive negotiation.   Public ad-
  vertising is preferred, negotiated procurements: are permitted under
  certain circumstances.  A cost and price analysis becomes an essential
  element to be considered in negotiated procurements.  Non-competitive
  procruements, due to their very nature of being void of competition,
  are  to be avoided.

        Does the grantee's procurement standards and procedures give recog-
  nition to the requirement for competition?

        Are criteria established for the use of formal advertising?, i.e.,

              -  complete sufficient explicit  specifications
                 (or purchase description(s));

                 stable requirements not likely to change;
                                      32

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               two or more identified capable sources
               willing to bid;

               time requirements necessary to carry out
               necessary procedures?

     Are circumstances permitting negotiated procurements well defined
in the grantee's procedures?

            -  What are the justification requirements?
               Are they consistent with the exceptions
               referenced in FMC 74-7?

            -  Are the approval channels well defined?

     Are cost and price analyses of negotiated procurement required?

            -  Are the procedures adequate?

     Does the grantee's procedures require all negotiated procurements
over $50,000 to be forwarded to an EPA regional office for cost analy-
sis per section 208 EPA Program Guidance Memorandum AM-6?

     Are procedures and criteria established for non-competitive
procurements?

            -  Is the approval authority at the
               grantee's executive level?  For what
               dollar level?
            -  Are procedures established to acquire EPA
               approval?  For what dollar level with EPA
               approved procurement procedures?  Without
               EPA approved procedures?

     How does the grantee's procedures and/or contract provisions
guard against organizational conflicts of interest or non-competitive
practices among contractors?  Such standard clauses included in the
Federal Procurement Regulations as "Covenant Against Contingent Fees",
"Officials not to Benefit", and "Gratuities" are most appropriate.

       Approval of Procurement Requirements (FMC 74-7, Att. 0, para.
     When considering the necessity for a procurement, grantee officials
should validate the requirement with respect to need and extent, ensure
that the requirement is not duplicative, be certain that the task cannot
be accomplished by personnel within the grantee's organization, and be
confident that the requirement cannot be fulfilled using other available
sources.
                                    33

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Procurement System and Procedures, Continued.
       There are many situations in which the government's equipment re-
  quirements may be more economically filled by lease than by purchase.
  This is particularly true in the case of certain expensive commercial
  equipments.  The decision to lease rather than purchase must be made
  on a case-by-case basis.

       Does the grantee have documented procedures and criteria for
  establishing procurement requirements?

       Are there clear channels of authority for review and approval
  of procurement requirements?

       Do the documented procedures and criteria enhance or restrict
  competitive procurement practices?

       Are lease vs. buy evaluation criteria established?

       Are lease vs. buy analyses performed?  Are such analyses reviewed
  and determination made at the grantee executive level?

         Statements of Requirements (FMC 74-7, Att. 0, Para. 3c(2))

       The statement of technical requirements is normally composed of
  the description, or specification, of the requirement (tasks, materials,
  services) which scopes the contractor's effort and sets forth in respon-
  sibilities and authorities, a delivery schedule and a description of the
  data to be delivered by the contractor.

       Do the procurement procedures or other grantee guidance documenta-
  tion include instructions for the technical and managerial personnel in
  the preparation of technical requirements for procurements?


        ,  Small and Minority-Owned Businesses (FMC  74-7,  Att.  0,  Para.
               3c(3))

        Positive efforts may include small business  and minority set-asides,
   and should include,  where feasible,  the breakout  of work that could be
   readily handled by small business or minority firms.
                                     34

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     Are there procedures established for aggressively pursuing the
utilization of small and minority-owned businesses?

       Choice of Contract Type (FMC 74-7, Att.  0, Para.  3c(4))

     Procurement procedures should include guidelines for the selection
of the type of contract most appropriate for the requirement and con-
sideration for good business practices.  For example, cost reimburse-
ment contracts are low risk for the contractor and therefore should
bear a lower fee or profit.  In contrast, fixed price contracts shift
risks to the contractor and therefore should be accompanied by higher
profits.

     Do the grantee's procurement procedures require an analysis of
relevant factors such as those which follow in the determination of the
sost appropriate contract type?  Typical factors for consideration in-
clude:

            -  the type and complexity of the item or
               service being contracted for;

               the urgency of the requirement;

            -  the degree of competition present;

            -  the difficulty of estimating performance
               costs because of the absence of definitive
               specifications, the lack of experience or
               the instability of requirements;

            -  the relationship of risk and profit; and

            -  the extent and amount of subcontracting
               anticipated.

     One form of cost contract is against EPA policy.  This is the cost-
plus-a-percentage-of-cost arrangement.  Under it the contractor receives
payment for the costs of performance, plus a specified percentage of
such actual costs as a fee.  Its undesirable feature is the automatic
increase in the fee as costs increase under the contract.  The cost-
plus-fixed-fee arrangement differs in that a fixed dollar value of fee
is established with consideration of the estimated cost of performance
prior to the actual performance.
                                 35

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Procurement System and Procedures,  Continued.
     Do the procurement standards and procedures preclude the use of
cost-plus-a-percentage-of-cost contracts?

     f  Publically Advertised Procurement (FMC 74-7, App. 0, Para. 3c(5)
            revised to raise $2,500 to $10,000)

     The intent of publically advertised procurements is to minimize
the application of personal subjective judgements to the procurement
award process and thus avoid any doubts as to the integrity of the
grantee in the expenditure of public funds.

     The prerequisites for public advertising are quite specific and
critical to successful use of the method.  The prerequisites include:

            -  adequate specifications;

            -  adequate competition;

            -  adequate time for the preparation of
               complete specifications and solicitation
               documents;

            -  award on the basis of low price;

               responsible contractor;

            -  responsive contractor; and

            -  firm fixed price contract.

     Do the procurement standards give preference to formal advertised
procurements?

     Do the procurement procedures  address the prerequisites for  use
of  formal advertising and specify the steps  through this highly disci-
plined process?

     Are methods  included for determining a  contractor's responsibility?

     How is adequate competition assured?  Are prospective  bidder  lists
maintained or  available for the grantee's use?

       Circumstances Permitting Negotiations  (FMC  74-7, Att.  0,  Para.
            3c(6) with dollar levels revised)

     Justification for use of the competitive  negotiated procurement
method in lieu of the public advertised method should be documented,
reviewed, and  approved by an appropriate grantee official and  retained
in  the procurement file.  When proposed procurements requiring EPA
approval are  submitted, the justification  for  using a negotiated  pro-
curement must  be  submitted.  Similarly, if non-competitive  procurements

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are proposed, approval of the documented justification by a grantee official
is required prior to the submittal to EPA for  approval.


       Do the grantee's procurement  procedures recognize  the limitations
  permitted for the use of negotiated procurements?

       Does the grantee have procedures  established which require  justi-
  fications to be prepared and approved  before using  negotiated  procure-
  ments and procurring on a non-competitive basis?

       Do the grantee's procedures specify the levels of  negotiated and
  non-competitive procurements which require EPA approval?

       Do the grantee's procedures require cost/price analysis to  be per-
  formed on all negotiated procurements?

       Do the grantee's procedures emphasis the necessity to obtain
  competition in negotiated procurements to the maximum extent practicable?

       Does the grantee have procedures  establshed for conducting  cost/
  price analysis?

       Are the grantee's approval authorities  clearly designated?

       Are the responsibilities clearly  assigned for  preparing Justifica-
  tions and for conducting cost/price analysis?

       Are the approved Justification retained in the contract files?

         Responsible Contractor Determination (FMC 74-7,  Atu. 0,  Para.
             3c(7)

       A bidder is considered responsible when the grantee has established
  that he has:

              -  the technical capability to perform;

              -  financial capability to obtain necessary
                 resources;

              -  manpower required to perform;

              -  a record of having  net  schedules, not
                 exceeding estimated costs and satisfactory
                 technical performance;
                                   37

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Procurement System and Procedures, Continued.
            -  a satisfactory record of integrity and
               business ethics;  and

               be otherwise qualified and eligible to
               receive award under applicable public
               policy laws and regulations such as
               Equal Opportunity,  etc.

     Does the grantee have adequate procedures for determining whether
or not a contractor is responsible?

            -  Are pre-award surveys conducted?

            -  Are the normal sources of necessary
               information listed?

     Do the grantee's procedures include the requirement for acquiring
subcontracting authorization from EPA prior to authorizing a contractor
to let subcontracts over $10,000?

     ,  Contract Records (FMC 74-7, Att. 0, Para. 3c(8) with dollar
               level revised.)

     Does the grantee maintain records for each procurement which in-
cludes as a minimum:

            -  the contract;

               contractor selection;

            -  justification for use of negotiation in
               lieu of formal advertising;

            -  justification for non-competitive procure-
               ment;

            -  results of bidder's responsibility determin-
               at ion;

               cost/price analysis upon which negotiations
               were based (or a record of all bids if formal
               advertising were used); and

            -  a memorandum of negotiation regarding the
               cost or price negotiated1!

       Contract Administration (FMC 74-7, Att. 0, Para. 3c(9))

     Is there a person within the grantee's organization assigned the
responsibility for assuring conformance with the terms, conditions, and
specifications of the contract (i.e., for contract administration)?

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            -  Are there documented policies and proce-
               dures?

            -  Do they cover the total requirements or
               the contract?

            -  Are their practices consistent with their
               policies and procedures?

     Is there a person with grantee's organization assigned the respon-
sibility for expediting and timely follow-up of all deliveries (i.e.,
for project monitoring)?

            -  Are there documented policies and pro-
               cedures?

            -  Are their practices consistent with their
               policies and procedures?

     Is the contractor's progress examined and evaluated periodically?
Are there periodic meetings with the contractor to review status and
problems?

     Is the contractor's planned progress and planned expenditures
comparatively evaluated with actual progress and actual expenditures?

     Are inspections, acceptances, and approvals of contractor deli-
veries performed in accord with established procedures against contractual
requirements?

     Is a system established for review of contractor's requests for
payments in comparison with progress prior to payment?  Are contractors
paid promptly by the grantee?

     Are the roles of the persons authorized to commit the grantee and
those responsible for monitoring a contractor's technical performance
clearly delineated?  Are the practices consistent with such delineations?

     Are the procedures established to cover such contingencies as:

            -  Delivery delinquencies?

               Lack of progress?

            -  Termination for default?

            -  Termination for convenience?

            -  Disputes?
                                   39

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Procurement System and Procedures,  Continued.
     Are there provisions to ensure that all work under the contract has
been completed and deliveries made?

     Are there procedures to ensure that work is adequately inspected
and accepted by the grantee prior to final payment?

     Are there procedures to ensure that all costs incurred are allowable
prior to final payment?  Are audit procedures established and exercised?

     Are there procedural requirements that establish periods for con-
tract file retentions?

     Are there procedures established for controlling changes to sub-
agreements by the grantee?

     Are there provisions which prevent contractors from making changes
without prior approval of the grantee?

       Subagreement Provisions (Applicable extracts from FMC 74-7,
            Att. 0, Para. 4)

     Does the grantee's procurement procedures require the following
typically titled provisions to be incorporated into subagreements
 (reference FRP standard contract provision):

            -  Disputes, appeals, and remedies?

            -  Termination for default?

            -  Termination f
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APPENDIX 3.          DEVELOPING AND APPROVING INDIRECT COST RATES
           Introduction

         The grant application usually involves a request by the grantee for
     reimbursement of both direct and indirect costs.  Indirect costs are
     those costs which are not readily identifiable with the program itself,
     but nevertheless are incurred by the governmental unit for the joint
     benefit of the various programs and activities carried out "by the
     organization.  An indirect cost rate is merely a means by which the
     governmental unit determines the relative proportion of indirect
     expenses which each program activity should bear.  In order to develop
     an indirect cost rate, it is necessary to identify the total indirect
     cost pool, exclusive of unallowable costs and an appropriate cost
     allocation base.

         t  Cost Allocation Plan

         The indirect cost pool should include not only the departmental
     indirect costs, but also a proportionate share of central service
     support costs.  In order to recover central service support costs
     incurred outside of the department, a consolidated government-wide
     cost allocation plan must be prepared.  The cost allocation plan simply
     identifies the central service support activities and allocates their
     costs to other benefitting departments and agencies.  An initial step
     in the process, therefore, is to identify the central service support
     activities.  These commonly include personnel, purchasing, data proces-
     sing, finance, and building and facilities maintenance.  The next step
     is to determine the nature and extent of services provided by central
     service support activities to other departments  and agencies.  Once
     this determination is made, the central service  activity expenditures
     must be allocated to the benefitting departments, divisions, or offices.
     Suitable allocation bases must be selected for  this allocation process.
     The allocation base for each central service support activity should be
     related to the type and nature of service provided and will most likely
     differ for each of the central service departments.  For example, the
     cost of the personnel department might be allocated on the basis of
     total numbers of employees in each benefitting department.  On the other
     hand, facilities maintenance costs might appropriately be  allocated on
     the basis of square footage occupied by each benefitting department.

         The next step in the process is to analyze  the operating department
     expenditures.  Unallowable costs must be excluded and the  remaining costs
     must be classified as either direct or indirect  costs.  Direct costs are
     generally defined as those that can be identified specifically with a
     particular cost objective such as a grant, contract, or other program
     activity in contrast to indirect costs that are  incurred for common or
     joint purposes that benefit more than one cost  objective,  and are not
     readily assignable to a specific direct cost activity.

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Indirect Cost Rates, Contined.


      Indirect Cost Proposal

    The departmental indirect costs plus the central service support
activity costs allocated to the department via the cost allocation
plan constitute the indirect cost pool.  Next, an appropriate distri-
bution base must be selected in order to arrive at an indirect cost
rate.  Bases which are commonly used include:

                a.  total direct salaries and wages;

                b.  total direct salaries and wages,
                    plus applicable fringe benefits; and

                c.  total direct costs exclusive of
                    capital expenditures.

    The indirect cost rate is the ratio between the  total  indirect
expense pool and the direct cost base and is expressed as  a percentage.
This latter process, namely the development of the departmental
indirect cost rate, is documented in the form of an  indirect cost
proposal.

       Section  208  Grant Application Requirements

    EPA requires cost allocation plans as well as indirect cost  proposals
to  be  submitted for approval for areawide planning grants  under  the
Section 208 program.  EPA has a responsibility to formally notify  the
grant  applicants of the submittal and approval requirement of EPA.   Such
notification  is required since EPA's procedure differs from that normally
used where the  cost allocation plans are retained by the  local governments
for subsequent  examination by federal auditors.  Ideally,  the cost alloca-
tion plan  and  the cost proposed plan should be submitted  prior to  the
submittal  of  the grant application, for without an approved indirect  cost
rate EPA disallows  all indirect costs, unless  the indirect cost  proposal
has been  submitted  to EPA.   In  that case,  the  rate  can be negotiated
 and is not automatically disallowed.  The  actions required by  the  grantee
 and EPA are summarized  in  the  following  chart.

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                                    INDIRECT COST REQUIREMENT!
                                                          ACTIONS REQUIRED
SUBJECT
r *
Cost Allocation Plan






Indirect Cost Proposal






Audit of Incurred Indirect
Costs (Subsequent year's
indirect cost proposal)





i
I
BY GRANTEE WHEN BY EPA WHEN
. Prepare and submit
proposal annually.





. Prepare and submit
prospective Indi-
rect cost rate
proposal annually.



. Prepare and submit
proposal .

. Make records avail-
able for audit.




. Desired: Prior
to grant appli-
cation.
. Latest: With
application.


. Desired: Prior
to grant appli-
cation.

. Latest: With
application.

. At year end and
when grantee
has major organ-
izational
changes which
affect approved
indirect cost
rate

. Ensure current plan
is approved by cog-
nizant federal agency.
. If EPA is cognizant
federal agency, .eval-
uate, negotiate, and
approve plan.
. Evaluate, negotiate,
and approve a pro-
spective indirect
cost rate if not
already approved by
another federal
agency.
. Audit to determine
allowability and
appropriateness of
allocations of In-
direct costs.

. Establish actual
indirect cost rate
for payment.
. Desired: Prior to
grant approval.

. Prior to allowing
any indirect costs
for reimbursement.*

. Desired: Prior to
grant application.

. Prior to allowing
any Indirect costs
for reimbursement.*

. Prior to final payment
to grantee of indirect
costs.






* Not*: A grant** Bust gain rly approval of hli projected indirect coat rate, since retroactive recovery of indirect
      coit* will not be allowed by EPA (EPA Progrea Guidance Keao AM-6.)
                     Supporting Information Requirements

                   Cost allocation plans must be  supported by a  local government organi-
               zational chart  that shows both the local government-wide organizations
               rendering service and all local  government departments receiving service.
               Only changes  to organizational structure need be  made available in
               subsequent years.   In addition,  the plan must be  certified by the local
               government Budget Officer or other authorized local  government officials.
               The plan itself should, at a minimum,  contain (1) the nature of the
               service provided and the relevance to  government  projects; (2) the items
               of expense to be included in the cost; (3) the methods to be used in
               distributing  costs; and (4) identification of both the local government
               agencies rendering the services  and receiving the services.
                                                 43

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Indirect  Cost Rates,  Continued.
           CERTIFICATION BY LOCAL GOVERNMENT BUDGET OFFICER OR OTHER
                 RESPONSIBLE LOCAL GOVERNMENT OFFICIAL-LOCAL
           	 GOVERNMENT-WIDE COST ALLOCATION    	
        I hereby certify as the responsible official of
                                                (Name of Local Government)

    that the information contained In this local government-wiae allocation plan

    for the fiscal year ended              is correct and was prepared in
                         (Month-Day-Year)

    accordance with the policies  and procedures contained in FMC 74-4.  I further

    certify that a consistent approach has been followed in treating a given type

    of cost as direct or indirect and that in no case have costs charged as direct

    costs of federally-supported programs been included in the indirect costs re-

    flected in the plan.
                                                       Signature
                                                         Title
                                                          Date


     The submittal of each indirect  cost (rate)  proposal  must be  supported
by:

          1.   A certification by  a  responsible local  government
               official  that the proposal has  been prepared in
               accordance with applicable regulations.  The
               sample format should  be used  for this purpose.

          2.   A copy of financial statements  prepared by  either
               certified public accountants,  licensed  public
               accountants, or state or local  government auditors.
               If these  are not available, proposals should be
               supported by any financial documents generated
               either by the local government  agency or higher
               tier local government agency  which can  be used to
               substantiate the authenticity of the amounts
               proposed

          3.   A listing by Federal  agency of  current  and  forecast
               grants and contracts,  the amount of expenditures
               incurred  and forecast to be incurred on each for
               the periods involved  and the  overhead limitations
               (if any)  applicable to each.

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                     GRABTBE CERTIFICATION BY OFFICIAL
                           INDIRECT COST PROPOSAL
       I hereby certify as the responsible official of
                                                 (name of grantee, dept. or
                                                  agency)

   that the Information contained In this Indirect cost proposal for  the fiscal

   year ended 	 Is correct and was prepared In accordance with the
            (Month-day-year)

   policies and procedures  contained In FMC 74-4,  I further certify that

   procedures were utilized (a) to prevent costs from being allocated to federal

   programs as Indirect costs  that have already been treated as direct program

   costs, (b) to assure that consistent treatment was accorded similar costs, for

   11 programs In the Department/Agency, regardless of source of funds, (c) to

   sure that costs have not  been treated as indirect costs of federal programs

   Inconsistent with statutory restrictions governing those programs; and (d) that

   Che forecast Indirect cost  rate for the fiscal year ending 	
                                                      (Month-day-year)

   Includes consideration of the Section 208 grant and other existing and antici-

   pated grants.
                                                     Signature
                                                        Title
                                                         Date

       Approvals by Other Federal Agencies

    EPA regional personnel who have  questions regarding the  approval status
of cost allocation plans or  indirect cost proposals  for establishing
prospective  indirect  ocst rates should refer their questions to the grantee's
cognizant federal agency.  Whenever  the cognizant agency gives prior
approval to  a government-wide allocation plan or indirect  cost proposal,  such
approval is  formalized; distributed  to all  interested federal agencies and is
applicable to all federal grants and contacts.

       Procedures for Federal Agencies When Making Awards

    A  locality may charge federal programs  in accordance with their approved
cost allocation plans and indirect cost rates.  These charges shall be
accepted by  the federal agencies making the awards.

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Indirect Cost Rates, Continued.
      Audits and Negotiation of Cost Allocation Plans

    Responsibility for the audit an- negotiation of cost allocation plans
of individual localities has been assigned to specific federal agencies
by the Office of Management and Budget.  The cognizant federal agency
will be responsible for the audit and acceptance of the cost allocation
plans required under FMC 74-4 and may request the submission of plans for
prior approval., as EPA has done, where it deems such a submission to be
in the best interests of the parties involved.  A current list of agency
assignments is maintained by the Department of Health, Education, and
Welfare.

    Once an audit has been conducted by a federal agency, it is expected
that the federal auditor will be able to reach an agreement with the
local government agency on any audit findings.  The need for involvement
of Federal personnel other than auditors, is contemplated only in those
instances in which there is a disagreement which cannot be resolved
between the auditor and the locality.

    In the event that a local government disagrees with the auditor's
findings, it is the responsibility of the cognizant federal agency to
act as the negotiating agency for the Federal Government, and'to resolve
such differences in coordination with the other federal agencies.

      Audits and Negotiations of Indirect Cost Proposals

    At the grantee level government, the federal agency with the predom-
inant interest in the work of the grantee will be responsible for necessary
negotiation, approval, and audit of  the indirect cost proposal.

      Additional Information for Reviews

    EPA regional personnel needing additional information concerning analysis,
evaluation, and negotiation of acceptable indirect cost rates should contact
the EPA Audit Office in Washington,  D. C.

      Detailed Instructions for Preparation of Cost Allocation
       Plans and Indirect Cost Proposals

    The Department of Health, Education, and Welfare  (DHEW) in consultation
with  the other federal agencies concerned is responsible for developing  and
issuing the instructions for use by  state and local government grantees  in
preparation of cost allocation plans.  This responsibility applies to both
central support services at the state  and local government level and indirect
cost  proposals of individual grantee departments.  DHEW has published a
guide for local government agencies  entitled  "Establishing Cost Allocation
Plans and Indirect Cost Proposals for  Grants  and Contracts with  the Federal
Government."


      Local governments needing  additional  information regarding  the
  preparation of  local government-wide  cost  allocation plans or indirect
  cost proposals should contact  either  their cognizant federal agency or:

               Division of Grants Administration Policy
               Office of  the Assistant Secretary,
               Comptroller, Department of Health,
                 Education and  Walfare
               330 Independence Avenue,  S.  W.
               Washington, D.  C.  20201
                              46

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                                                             CHECK  LIST
Cost Allocation Checklist
Indirect Cost Checklist
Has the grant  applicant submitted his CAP as required  by EPA?

Has his CAP been accepted by a federal agency?

- If so, which one?

What is the allocation to the grantee's department or  organi-
zational entity?

- Is the amount reasonable for the benefits derived?

Doea the CAP project  allocations over the future fiscal year.

- If not, have the allocations in the past been stable?

If the CAP has not been accepted, has the cognizant agency
been requested to audit and accept the CAP?

- Which agency?



Has  the grant applicant  submitted his TCP  to EPA?

Does the grant applicant  have an approved  indirect cost rate?

- If so, what is the  rate?

- Which federal agency approved it?

- When was it approved?

- Does  the approval  include the projection of a
  predetermined rate  (i.e., for the  forthcoming FY?)

If predetermined rate has not been approved, is EPA cognizant
federal agency for  giving approval?

- If not, which agency has been requested by EPA to approve
  a rate?

- Have past rates been stable?

- Does the grantee's  ICP  include the proposed grant in the
  base over which indirect costs will be distributed in
  establishing the  indirect cost rate?

- Have the unallowable costs excluded in establishing prior
  indirect cost rates been excluded  in forecasts of indirect
  -osts?

- Have other federal  agencies involved with the grantee been
  notified of EPA's approval of the  grantee's indirect cost
  rate?
                                         47

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APPENDIX 4.           TYPES OF CONTRACTS

         In establishing agreements with engineering and consulting firms,
there are two basic ways of obtaining the services, through competitive
bid or negotiated procurement.  With a formalized competitive bid, the
grantee solicits firms to bid on the services required with consideration
given first to technical competence and second to cost.  The award is normally
made to the technically qualified firm with the lowest cost.  Generally,
competitive procurement of this type results in a firm fixed price agreement
that: does not change unless the scope of work changes.  As was mentioned
earlier, this is not normally the way the relationship between the grantee
and the firm is established.  Therefore, the reasonableness of cost that can
be presumed from such competition is not present.

         The method of obtaining engineering and consulting services under
grants is generally through a negotiated type of procurement.  While this
type of procurement may also involve screening a number of firms  for technical
competence, more often the firm has been preselected and thus, the important
point is the reasonableness and method of reimbursement.  Under a negotiated
procurement, there are a number of types of reimbursement that can be  affected.
They include firm fixed price  (FFP), cost-plus-a-fixed-fee  (CPFF), and  time
and materials  (or labor hour) contracts.  The Federal Procurement Regulations
(FPR), Section 1-3.4 discusses in detail these forms of contracting, when  they
are considered applicable, and their limitations.  The following  summary of
each is provided.

FIRM FIXED PRICE

         The FFP or lump sum  contract generally provides for  a firm  price
agreed to  in advance for the  services to be procured.  It is  not  subject  to
adjustment by  reason of the contract cost experience and, when appropriately
applied, places maximum risk  upon  the contractor.  Because  the contractor
assumes full responsibility for profit  or loss, he has maximum incentive  for
effective  cost control and contract performance.  The FFP contract  is  suitable
for use in procurement when definite performance requirements are available
and whenever fair and reasonable prices  can be established  at the outset.

         The lump sum form of  reimbursement  that is used by many  engineering
firms  for  the  design phase of  a  construction  grant generally  falls  in  the
category of  an FFP  contract.   The  engineer's  reimbursement  is essentially
predetermined  based on percentages  from the American  Society  of Civil
Engineers  (ASCE)  curve  (or variation thereof)  applied  to grant construction
costs.  While  the FFP form of  contracting  for engineering  services  offers
many  advantages,  it has one  significant disadvantage  from  the government's
standpoint.  It  requires that a  good estimate be made  of  the  expected  cost
of the  services.  Normally,  this would  be  an  independent  estimate prepared by
 the grantee  or government  technical personnel.   It  is  not  satisfactory to
conclude that  the use of  the  percentages  from the  ASCE  curve  (or  variations
thereof) produce  a  reasonable price.
                                      48

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         The use of the FFP form of contracting for services under grants
would generally be effective if procedures and controls as recently prescribed
by EPA for the direct procurement of engineering services could be instituted
at the grantee or EPA (state agency) level.  These procedures are detailed in
EPA Order 1970.2 dated August 13, 1973.  In the event the grantee's records do
not document the necessary determination of reasonableness for the lump sum
contract, subsequent audit will have to be made of the firm's records.

COST-PLUS-A-FIXED-FEE

         The CPFF contract is a cost reimbursement type of contract which
provides for the payment of a fixed fee to the contractor.  The fixed fee once
negotiated does not vary with actual cost.  Because the fixed fee does not
vary in relation to cost, the CPFF contract provides the contractor only
miniraum incentive for effective management control of costs.  The CPFF contract
provides that the contractor receive its actual allowable labor, other direct
coats, and indirect costs, plus a fixed fee profit.  The CPFF contract is
written to provide for a total estimated cost (contract ceiling.)  Prior to
award, a negotiation process which includes either price or cost analysis must
take place between the firm and the grantee to arrive at a reasonable estimate
of cost plus a negotiated profit.  The grantee is required to document this
negotiation.  In addition, the firm's costs are subject to an audit during or
after completion of performance to determine that their claims included only
allowable costs in accordance with applicable regulations.

TIME AND MATERIALS (LABOR HOUR)

         This type contract provides for the procurement of services on the
basis of direct labor hours at specified fixed hourly rates (which include
direct labor, overhead and profit.)  This type of contract does not afford
the contractor with any positive incentive to control cost.  It is essential
that this type of contract be used only where provision is made for adequate
controls, including appropriate surveillance during performance.  Because this
type of contract does not encourage effective cost control and requires almost
constant surveillance, it should be used only after determination that no other
type of contract will suitably serve.  This type of contract shall establish a
ceiling price which the contractor exceeds at his own risk.

         The labor hour contract has been used frequently by engineering and
consulting firms in the past.  While it is an acceptable form of contracting, the
following controls that have not existed in the past are essential.  The grantee
is responsible for obtaining cost data from the consulting engineer for evalua-
tion and negotiation in establishing hourly rates.  This must be documented to
show that a reasonableness determination was made.  In addition, the grantee
is responsible for maintaining (and documenting) surveillance over the hours
charged by the contractor.  The contract must set a reasonable ceiling on the
total cost of these services.  Final audit requires a determination that the
grantee fulfilled the above responsibilities.  Otherwise, audit of the firm's
records to determine reasonableness is necessary.
                                      49

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Types of contracts, continued.


         In summary, any of the above forms of contracting for services can
be acceptable.  However, the grantee is responsible for demonstrating that:

                 the method selected is appropriate for the
                 services to be performed;

                 the necessary evaluation of the reasonableness
                 of the proposed costs was made; and

                 controls required were maintained during performance.

In the event  the grantee does not fulfill these responsibilities and subsequent
EPA review  (technical or audit) reveals unallowable costs or excessive profits
as a result,  the amounts will not be reimburseable to the grantee under the
grant.
                                     50

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September 13, 1974                Federal Management Circular 74-7
                                                    Attachment 0
                     PROCUREMENT  STANDARDS
 1.  This  attachment provides standards for use by the  State  and
 local  governments in establishing procedures for the procurement
 of supplies, equipment, construction,  and  other  services  with
 Federal   grant  funds.   These  standards are furnished to insure
 that such materials and services are  obtained  in  an  effective
 reamer  and  in  compliance  with  the  provisions  of applicable
 Federal law and Executive  orders.   No  additional  requirements
 shall be  imposed by the Federal agencies upon the grantees unless
 specifically required by Federal law or Executive orders.

 2.  The standards contained in this attachment do not relieve the
 grantee of the contractual  responsibilities  arising  under  its
 contracts.   The  grantee  is  the responsible authority, without
 recourse  to the  grantor  agency  regarding  the  settlement  and
 satisfaction of all contractual and administrative issues arising
 out  of   procurements  entered into, in support of a grant.  This
 includes  but is not limited to:  disputes,  claims,  protests  of
 award,  source  evaluation  or  other  matters  of  a contractual
 nature.   Matters concerning violation of law are to  be  referred
 to  such  local.  State,  or Federal authority as may have proper
 jurisdiction.

 3.  Grantees may use their own procurement regulations which  re-
 flect  applicable state and local law, rules and regulations pro-
 vided that procurements made with Federal grant funds  adhere  to
 the standards set forth as follows:

    a.  The grantee shall maintain a code or standards of conduct
 which shall govern the performance of its officers, employees, or
 agents in contracting with and  expending  Federal  grant  funds.
 Grantee's officers,  employees  or agents, shall neither solicit
 nor accept gratuities, favors, or anything of monetary value from
 contractors or potential contractors.  To the extent  permissible
 by State  or local law, rules or regulations, such standards shall
 provide   for  penalties, sanctions, or other disciplinary actions
 to be applied for violations of  such  standards  by  either  the
 grantee   officers,  employees,  or  agents,  or by contractors or
 their agents.

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    74-7                                     September 13, 1974
Attachment 0


    b.  All procurement transactions regardless of whether  nego-
tiated  or advertised and without regard to dollar value shall be
conducted in a manner so as to provide maximum open and free com-
petition.   The  grantee  should  be  alert   to   organizational
conflicts   of   interest   or   noncompetitive  practices  among
contractors  which  may  restrict  or  eliminate  competition  or
otherwise restrain trade.

    c.  The grantee shall establish procurement procedures  which
provide for, as a minimum, the following procedural requirements:

         (1)  Proposed procurement actions shall  be  reviewed  by
grantee  officials to avoid purchasing unnecessary or duplicative
items.  Where appropriate, an analysis shall be made of lease and
purchase alternatives  to  determine  which  would  be  the  most
economical, practical procurement.

         (2)  Invitations for bids or requests for proposals shall
be based upon a clear and accurate description of  the  technical
requirements  for  the  material,  product, or service to be pro-
cured.  Such description shall not, in competitive  procurements,
contain  features which unduly restrict competition.  "Brand name
or equal" description may be  used  as  a  means  to  define  the
performance  or  other salient requirements of a procurement, and
when so "*<3 the specific features cf tha named biaiid which  musr
be met by offerers should be clearly specified.

         (3)  Positive efforts shall be made by  the  grantees  to
utilize  small  business  and  minority-owned business sources of
supplies and services.  Such efforts should allow  these  sources
the  maximum,  feasible opportunity to compete for contracts to be
performed utilizing Federal grant funds.

         (4)  The type of procuring instruments used  (i.e.,  fixed
price  contracts,  cost  reimbursable contracts, purchase orders,
incentive contracts, etc.), shall be appropriate for the particu-
lar procurement and for promoting the best interest of the  grant
program involved.  The wcost-plus-a-percentage-of-cost" method of
contracting shall not be used.

         (5)  Formal advertising, with adequate purchase  descrip-
tion,  sealed  bids,  and  public  openings shall be the required
method of procurement unless negotiation  pursuant  to  paragraph
 (6) below is necessary to accomplish sound procurement.  However,
procurements  of $10,000   or less need not be so advertised unless
otherwise required by State or local law or  regulations.   Where
such advertised bids are obtained the awards shall be made to the
responsible  bidder whose bid is responsive to the invitation and

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September 13, 1974                                 FMC 74-7
                                                  Attachment O


i.3 mo&-'c. advantageous to the  grantee,  price  and  other  factors
considered,    (Factors  such  as discounts, transportation costs,
taxes  may  be  considered  in  determining  the   lowest   bid.)
Invitations  for  bids  shall  clearly set forth all requirements
which the bidder  must  fulfill  in  order  for  his  bid  to  be
evaluated  by  the grantee.  Any or all bids may be rejected when
it is in the grantee*s r.nterest to do so, and such rejections are
in accordance with applicable State and  local  law,  rules,  and
regulations.

         (6)  Procurements may be negotiated if  it  is  impracti-
cable  and  unfeasible  to  use  formal  advertising.  Generally,
procurements may be negotiated by the grantee if:

              (a)  The public exigency will not permit  the  delay
incident to advertising;

              (b)  The material  or  service  to  be  procured  is
available  from  only  one person or firm; (All contemplated sole
source procurements where the aggregate expenditure  is  expected
to  exceed  $5,000  shall  be  referred to the grantor agency for
prior approval.)

              (c)  The aqqrregate amount involved does  not  exceed
$10,000;

              (d)  The contract is for  personal  or  professional
services, or for any service to be rendered by a university, col-
lege, or other educational institutions;

              (e)  The material or services are to be procured and
used outside the limits of the United states and its possessions;

              (f)  No acceptable bids  have  been  received  after
formal advertising;

              (g)  The purchases are for highly perishable  mater-
ials  or  medical  supplies,  for  material or services where the
prices are established by law, for technical items  or  equipment
requiring  standardization  and  interchangeability of parts with
existing equipment, for experimental, developmental  or  research
work, for supplies purchased for authorized resale, and for tech-
nical  or  specialized supplies requiring substantial initial in-
vestment for manufacture;

              (h)  Otherwise  authorized   by   law,   rules,   or
regulations.

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FMC 74-7                                     September 13, 1974
Attachment 0

Notwithstanding  the  existence of circumstances justifying nego-
tiation, competition shall be  obtained  to  the  maximum  extent
practicable.

        (7)  Contracts shall be made only with  responsible  con-
tractors who possess the potential ability to perform sucessfully
under  the  terms  and  conditions  of  a  proposed  procurement.
Consideration shall be given to such matters as contractor integ-
rity, record of past performance,  financial  and  technical  re-
sources, or accessibility to other necessary resources.

        (8)  Procurement  records  or  files  for  purchases   in
amounts  in excess of $10,000 shall provide at least the following
pertinent information:  justification for the use of  negotiation
in  lieu  of advertising, contractor selection, and the basis for
the cost or price negotiated.

        (9)  A system for contract administration shall be  main-
tained  to  assure contractor conformance with terms, conditions,
and specifications of the contract or order, and to  assure  ade-
quate and timely followup of all purchases.

1.  The grantee shall include, in addition to provisions  to  de-
fine  a sound and complete agreement, the following provisions in
all contracts and subgrants:

    a.  Contracts shall contain such  contractual  provisions  or
conditions  which  will allow for administrative, contractual, or
legal remedies in instances where contractors violate  or  breach
contracts  terms, and provide for such sanctions and penalties as
may be appropriate.

    b.  All contracts, amounts for which are in excess of $2,500,
shall contain suitable provisions for termination by the  grantee
including  the  manner by which it will be effected and the basis
for settlement.   In  addition,  such  contracts  shall  describe
conditions under which the contract may be terminated for default
as  well  as  conditions  where  the  contract  may be terminated
because of circumstances beyond the control of the contractor.

    c.  In all contracts for construction or facility improvement
awarded in excess of $100,000, grantees shall observe the bonding
requirements provided in Attachment B to this circular.

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September 13, 1974                                  FMC 74-7
                                                  Attachment O

    d.  All construction contracts awarded by recipients and their
contractors or subgrantees having a value of more than $10,000,
shall contain a provision requiring compliance with Executive Order
No. 11246, entitled "Equal Employment Opportunity," as amended by
Executive Order No. 11375, and as supplemented in Department of
Labor Regulations  (41 CFR, Part 60).

    e.  AH contracts and subgrants for  construction  or  repair
shall include a provision for compliance with the Copeland "Anti-
Kick  Back"  Act (18 U.S.C. 871) as supplemented in Department of
Labor regulations  (29 CFR, Part 3).  This act provides that  each
contractor  or  subgrantee  shall be prohibited from inducing, by
any means, any person employed in the  construction,  completion,
or repair of public work, to give up any part of the compensation
to  which he is otherwise entitled.  The grantee shall report all
suspected or reported violations to the grantor agency.

    f.  When required by the Federal grant  program  legislation,
all construction contracts awarded by grantees and subgrantees in
excess  of  $2,000  shall include a provision for compliance with
the Davis-Bacon Act (tO U.S.C. 276a to a-7) and  as  supplemented
by  Department of Labor regulations  (29 CFR, Part 5).  Under this
act contractors shall be required to pay wages  to  laborers  and
mechanics  at a rate not less than the minimum wages specified in
a  wage  determination  made  Vy  *-Ve  Secretary  of  Labor.   In
addition,  contractors  shall  be  required to pay wages not less
often than once a week.  The grantee shall place a  copy  of  the
current prevailing wage determination issued by the Department of
Labor  in  each solicitation and the award of a contract shall be
conditioned upon the acceptance of the wage  determination.   The
grantee  shall report all suspected or reported violations to the
grantor agency.

    g.  Where applicable, all contracts awarded by  grantees  and
subgrantees in excess of $2,000 for construction contracts and .in
excess of $2,500 for other contracts which involve the employment
of mechanics or laborers shall include a provision for compliance
with  sections  103 and 107 of the Contract Work Hours and Safety
Standards Act  (40 U.S.C. 327-330) as supplemented  by  Department
of  Labor regulations  (29 CFR, Part  5).  Under section 103 of the
act,  each contractor shall be required to compute  the  wages  of
every mechanic and laborer on the basis of a standard work day of
8  hours and a standard work week of 10 hours.  Work in excess of
the standard workday or workweek is permissible provided that the
worker is compensated at a rate of not less than 1-1/2 times  the
basic rate  of  pay for all hours worked in excess of 8 hours in
any calendar day or 10 hours in the work week.   Section   107  of
the   act  is applicable to construction work and provides  that no
laborer or mechanic shall be required to work in surroundings  or
under working  conditions  which  are  unsanitary, hazardous, or

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PMC 74-7                                        September 13, 1974
Attachment 0

dangerous  to  his  health  and  safety   as   determined   under
construction,  safety,  and  health  standards promulgated by the
Secretary of Labor.  These  requirements  do  not  apply  to  the
purchases   of  supplies  or  materials  or  articles  ordinarily
available on the open market, or contracts for transportation  or
transmission of intelligence.

    h.  Contracts or agreements, the principal purpose  of  which
is to create, develop, or improve products, processes or methods;
or  for  exploration  into  fields  which directly concern public
health, safety, or welfare; or contracts in the field of  science
or  technology in which there has been little significant experi-
ence outside of work funded by Federal assistance, shall  contain
a  notice  to  the effect that matters regarding rights to inv/en-*
tions, and materials generated under the  contract  or  agreement
are  subject  to  the  regulations  issued by the Federal grantor
agency .  The contractor shall be advised as to the source of
additional information regarding these matters.

    i.  All negotiated contracts (except those of $10,000 or less)
awarded by grantees shall include a provision to the effect  that
the  grantee, the Federal grantor agency, the Comptroller General
of the United States, or any of their duly authorized representa-
tives, shall have access to any  books,  documents,   papers,  and
records  ot the contractor which are directly pertinent to a spe-
cific grant program for the purpose of making audit, examination,
excerpts, and transcriptions.

    j.  Contracts and subgrahts of amounts in excess of $100,000
shall contain a provision which requires the recipient to agree
to comply with all applicable standards, orders, or regulations
issued pursuant to the Clean Air Act of 1970  (42 U.S.C. 1857 et seq.
and the Federal Water Pollution Control Act  (33 U.S.C. 1251 et seq. )
as amended.  Violations shall be reported to the grantor  agency and
the Regional Office of the Environmental Protection Agency.

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