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                                                                                             April  14,  1975
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  NAME AND ADDRESS Or REVIEWING OFFICE AND INDIVIDUAL
                                                                                        TELEPHONE NUMBER/EXTENSION
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      l_J  *E*  Ll  ***^  f'/ n1' '^»»"A o« rettrtt    n ADVANCE PAYMENTS  Q] PROGRESS PAYMENTS o«  Q GUARANTEED LOANS
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                                                                                                    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.
-------
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.
-------
                                    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
-------
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.
-------
                     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.
-------
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
-------
                                                             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
-------
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
-------
         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
-------
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.
-------
    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  V»y  *-V»e  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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