r/EPA
           United Slates
           Environmental Protection
           Agency
            Office of Water
            Program Operations (WH-547)
            Washington, DC 20460
                                   Fall 1979
           Water
Handbook of
Procedures

Construction  Grants
Program for
Municipal  Wastewater
Treatment Works
Interim
Issuances
                                   MCD-03

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INTERIM ISSUANCE
                Handbook
                       of
               Procedures
            Construction Grants Program
              for Municipal Wastewater
                 Treatment Works
                     Fall 1979
               Municipal Construction Division
                Water Program Operations
            Off ice of Water and Waste Management
               U.S. Environmental Protection Agency
                  Washington, D.C. 20460

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                          FOREWORD
     This Handbook identifies and explains the many procedures to
be followed by those in the Regional Offices and the States who are
responsible for bringing municipal wastewater treatment projects
from their conception to completion.

     The procedures are set forth sequentially and are expressed in
logical and concise terms.   The operational  tasks described are
applicable to the program as a whole and are intended to serve as an
operational standard so that this complex, multifaceted Construction
Grants Program can move forward as a national program, uniformly
administered.

     Through the thoughtful application of the procedures described
in the Handbook, the water pollution control  goals to which the
Environmental Protection Agency is dedicated can be more effectively
achieved.

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                       ACKNOWLEDGMENTS
     The Handbook, including the revisions reflected in  this  edition,
was prepared by the Municipal  Construction Division, Office of Water
Program Operations, Office of Water and Waste Management.

     The basic organization of the Handbook and initial  drafts of its
revisions were prepared under a consulting contract with EcolSciences,
Inc.  Albert L. Pelmoter,  Chief, Program Policy Branch,  was the project
manager and responsible for the Handbook's overall  development.   Most
of the basic text was prepared by Albert T. Bowyer, the  contractor's
project officer, along with Joseph Grieshaber of his staff.  Construction
Grants Program staff from  Headquarters  and the Regions,  too numerous
to mention, contributed considerably to the reviewing and  editing of
the drafted text.

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                             CONTENTS
                                                              Page

FOREWORD 	         i

ACKNOWLEDGMENT 	       ill

  CHAPTER I.  INTRODUCTION

              A.   General   	      I- 1
              B.   Second Edition Changes 	      1-2
              C.   Legislative History  	      1-3
              D.   Handbook Organization and Use	      1-6
                  1.   Purpose	      1-6
                  2.   Structure	      1-6
                  3.   Format	      1-7
                  4.   Related Material  	      1-8
                  5.   Updating	      1-8
                  6.   Appendices	      1-9

 CHAPTER II.  STATE  PROGRAM

              A.   Planning Processes 	     II- 1
                  1.   General	     II- 1
                  2.   State Continuing  Planning Process  .     II- 1
                  3.   Waste Load Allocations	     II- 2
                  4.   Water Quality Management Plans ...     II- 3
                  5.   Facilities Plans  	     II- 5
                  6.   Municipal Permits  	     II- 5
                  7.   Reviews of Advanced Treatment
                      Projects	     II- 6
              B.   State Planning and Implementation
                  Programs	     II-7
                  1.   State/EPA Agreement  	     II- 7
                  2.   State Strategy	     II- 7
                  3.   State Priority System and Priority
                      List	     II- 8
                  4.   Funding	     11-11
                  5.   State Delegation  	     11-13
                  6.   U.S. Army Corps of Engineers ....     11-15

CHAPTER III.  PREAPPLICATION INFORMATION

              A.   General   	    Ill- 1
              B.   Applicant Eligibility  	    Ill- 2

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                                                             Page

             C.   Preapplication  Conference  	  Ill- 3
                  1.   Important Dates	Ill- 3
                  2.   Contracts,  for Personal and
                      Professional Services  	  Ill- 5
                  3.   Administrative Requirements  	  Ill- 5
                  4.   Technical Requirements  	  Ill- 9
CHAPTER IV.  STEP  1 GRANT  PROCESSING
             A.   Introduction	   IV- 1
             B.   Schematic  Flow Diagram	   IV- 2
             C.   Application Contents	   IV- 3
             D.   Review of  the Plan of Study (POS) ....   IV- 4
                  1.  Contents	   IV- 4
                  2.  Planning Considerations 	   IV- 6
                  3.  Prior  Costs	   IV- 6
             E.   Administrative Review 	   IV- 8
                  1.  Clearinghouse Comments  	   IV- 8
                  2.  Priority List Compliance and Certi-
                     fication   	   IV- 9
                  3.  Application  Form	   IV-10
                  4.  Contracts and Subagreements  	   IV-11
             F.   Grant Award Procedures   	   IV-13
                  1.  Regionalized Procedures 	   IV-13
                  2.  Notification of Grant Award Action   .   IV-13
                  3.  Grants Information and Control
                     System (GICS) 	   IV-14
                  4.  Clearinghouse Notification   	   IV-14
                  5.  Grant Agreement/Amendment  	   IV-14
             G.   Preparation of the Facility Plan  ....   IV-16
             H.   Administrative Review (Facility Plan) .  .   IV-17
                  1.  Clearinghouse Comments  	   IV-17
                  2.  State  Review and Certification   . .  .   IV-18
             I.   Facility Plan Review	   IV-19
                  General	   IV-19
                  NEPA	   IV-20
                  Contents	   IV-21
                  1.  Summary, Conclusions and Recommenda-
                     tions  	   IV-21
                  2.  Introduction	   IV-22
                     2.1  Study, Purpose and Scope ....   IV-22
                     2.2  Planning Area (Map)	   IV-22
                  3.  Effluent Limitations  	   IV-22
                  4.  Current Situation 	   IV-25
                     4.1  Conditions in the Planning Area.   IV-25
                                VI

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                                            Page

    4.2  Existing Wastewater Flows and
         Treatment Systems  	    IV-26
    4.3  Infiltration and Inflow  ....    IV-27
    4.4  Performance of Existing Systems    IV-33
 5.  Future Situation 	    IV-34
    5.1  Land Use	    IV-34
    5.2  Demographic and Economic Pro-
         jections  	    IV-35
    5.3  Forecasts of Flow  and Waste
         Load	    IV-36
    5.4  Future Environment of the
         Planning Area Without the
         Project	    IV-37
 6.  Alternatives	    IV-37
    6.1  Optimum Operation  of Existing
         Facilities	    IV-37
    6.2  Regional Solutions  	    IV-38
    6.3  Waste Treatment Systems  ....    IV-39
    6.4  Evaluation  (Monetary, Environ-
         mental, Implementation)   ....    IV-49
 7.  Plan Selection	    IV-54
    7,1  Evaluation  and Comparison of
         Proposals	    IV-54
    7.2  Views of Public and Concerned
         Interests on Alternatives  .  .  .    IV-54
    7.3  Selected Plan  (major feature
         summary) and Reasons for
         Selection	    IV-57
    7.4  Environmental  Impacts of
         Selected Plan	    IV-57
    7.5  Energy Consideration   	    IV-59
    7.6  Recreational Opportunities   .  .    IV-59
 8.  Cost Estimates,  Preliminary Designs.    IV-59
    8.1  Description of Design	    IV-59
    8.2  Summary  of  Cost Estimates  .  .  .    IV-60
 9.  Arrangements  for Implementation   .  .    IV-61
    9.1  Institutional  Responsibilities.    IV-61
    9.2  Implementation Steps   	    IV-62
    9.3  Operation and  Maintenance  .  .  .    IV-63
    9.4  Financial Requirements   ....    IV-63
    9.5  Pretreatment Program   	    IV-64
10.  Summary  of  Environmental  Considera-
    tions   	    IV-66
    10.1  Existing  Environmental Conditions  IV-67
    10.2  Future  Environment Without  the
         Project	    IV-67
               vn

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                                                            Page

                   10.3  Evaluation of Alternatives  . . .   IV-67
                   10.4  Environmental Effects of the
                         Selected Plan	   IV-67
                   10.5  Interacting Environmental Con-
                         siderations   	   IV-67
                         a.  Criteria  for Determining
                             when to Prepare an EIS  . . .   IV-67
                         b.  Required  Coordination and
                             Consultation 	   IV-68
                         c.  Environmental Review ....   IV-76
                         d.  Finding of No Significant
                             Impact (FNSI)  	   IV-76
                         e.  Notice of Intent	   IV-77
                         f.  EIS Preparation	   IV-78
CHAPTER V.  STEP 2 GRANT PROCESSING
            A.   Introduction	    V- 1
            B.   Schematic  Flow Diagram	    V- 3
            C.   Application Contents   	    V- 4
            D.   Facility Plan  Approval   	    V- 6
            E.   Administrative Review  	    V- 7
                 1.   Priority List Compliance and
                     Certification  	    V- 7
                 2.   Application Form	    V- 8
                 3.   Contracts  and Subagreements  	    V-10
                 4.   Intermunicipal Agreements  	    V-ll
                 5.   Value  Engineering Proposal   	    V-ll
                 6.   Project Progress Schedule  	    V-12
                 7.   Evidence of Compliance	    V-13
                 8.   Pretreatment Requirements  	    V-15
                 9.   Public Participation Work  Plan   .  .  .    V-17
               10.   Other  Requirements and Limitations.  .    V-17
            F.   Combination Step 2 + 3 Grants	    V-19
            G.   Grant Award Procedures	    V-20
            H.   Predesign  Activities   	    V-21
            I.   Predesign  Conference   	    V-22
            J.   Review  of  Plans and Specifications   .  .  .    V-26
                 1.   Administrative Review  	    V-27
                     a.  Supplemental General Provisions  .    V-28
                     b.  Equal  Employment Opportunity  (EEO)
                        and MBE Utilization	    V-28
                     c.  Davis-Bacon Act	    V-29
                     d.  Flood  Insurance	    V-29
                     e.  Bonding and Insurance	    V-30
                     f.  Construction Incentive Program.  .    V-30
                              vm

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                                                            Page

                 2.  Technical  Review  	   V-30
                    a.   Environmental Considerations  .  .  .   V-30
                    b.   Safety	   V-31
                    c.   Bypassing	   V-31
                    d.   Project Sign	   V-31
                    e.   Reliability and  Flexibility   .  .  .   V-31
                    f.   Operation  and Maintenance   ....   V-31
                    g.   Public Water  Supply   	   V-32
                    h.   Chemical Storage 	   V-32
                    i.   Ventilation	   V-32
                    j.   Laboratory Facilities  	   V-32
                    k.   Emergency  Alarms 	   V-32
                    1.   Hazardous  Materials   	   V-32
                    m.   Sewers	   V-33
                    n.   Equipment	   V-33
                    o.   Shellfish  Waters 	   V-33
                    p.   Pretreatment	   V-33
                    q.   I  & A  Technology Confirmation   .  .   V-33
                 3.  Plans  and  Specifications  Approval   .  .   V-34
             K.   O&M Facility/Training Grants  	   V-35
CHAPTER VI.   STEP 3 GRANT PROCESSING
             A.   Introduction	VI-  1
             B.   Schematic Flow Diagram	VI-  2
             C.   Application Contents  	   VI-  3
             D.   Plans and Specifications	VI-  4
             E.   Administrative Review  	   VI-  5
                 1.   Priority  List Compliance and  Certifi-
                     cation 	VI-  5
                 2.   Application Form	VI-  6
                 3.   Contracts and Subagreements   	   VI-  8
                 4.   Intermunicipal  Agreement 	   VI-  9
                 5.   Plan of Operation	VI-  9
                 6.   Pretreatment Requirements  	   VI-10
                 7.   User Charge System	VI-12
                 8.   Industrial Cost Recovery System  .  .  .   VI-13
                 9.   Evidence  of Compliance	VI-15
                     a.  Flood Disaster Protection Act  .  .   VI-15
                     b.  Sewer Use Ordinance	VI-15
                     c.  Sewer System  Rehabilitation
                         Schedule	VI-16
                10.   Public Participation  Work Plan ....   VI-16
             F.   Grant Award Procedures 	   VI-17
                               IX

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                                                              Page

              G.  Procurement of Construction Contracts. .  .   VI-19
                  1.  Authorization and Formal Adver-
                      tising for Bids	VI-19
                  2.  Review of Bids	VI-19
                  3.  Grant Increases/Decreases	VI-20
                  4.  Protests	VI-22
                  5.  Rejection of All Bids	VI-23
                  6.  Authorization to Award Contracts  . .  .   VI-24
              H.  Preconstruction Conference  	   VI-25
              I.  Monitoring of Construction Activities  .  .   VI-28
                  1.  Change Orders	VI-28
                  2.  On-Site Inspection  	   VI-31
                  3.  Payment Conditions  	   VI-34
                  4.  Plan of Operation	VI-35
CHAPTER VII.  FINANCIAL CONSIDERATIONS
              A.  Introduction	VII- 1
              B.  Allowable and Unallowable Costs  	 VII- 2
                  1.  General   	VII- 2
                  2.  Allowability Determinations  	 VII- 2
                  3.  Allowability of Miscellaneous Costs.  . VII- 3
                        Indirect Costs  	 VII- 3
                        Travel Costs  	 VII- 3
                        Bond Costs	VII- 4
                        Liquidated Damages 	 VII- 4
                        Bid Bond Forfeiture	VII- 5
                        Rate Studies	VII- 5
                        Financial Reports and Studies  .   .  . VII- 5
                        Establishment of Special Assessment
                         Districts	VII- 6
                        Public Liaison  Services  	 VII- 6
                        Assistance with State and Federal
                         Regulations	VII- 6
                        Public Participation On-Site Visits. VII- 7
                        Cost of Grantee Training Workshops  . VII- 7
                        Redesign/Replanning Costs Resulting
                         from Changes in Federal Require-
                         ments  	 VII- 8
                        Cost of Implementing the Uniform
                         Relocation Assistance and Real
                         Property Acquisition Policies
                         Act of 1970  (PL 91-646)	VII- 8
                        Field Surveys to Identify Cultural
                         Resources	VII- 9
                        Industrial Planning  	 VII- 9

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                                               Page

          Facilities  Serving Communities
           and  Federal  Facilities  	  VII- 9
          Site  Acquisition  vs.  Site Pre-
           paration Costs	VII-10
          Certificate as to Title  to
           Project Site 	  VII-11
          Acquisition of Privately or Publicly
           Constructed Waste Treatment
           Facilities 	  VII-11
          Demolition  of Existing Structures  .  VII-12
          Utilities  	  VII-12
          Restoration of Streets and Rights-
           of-Way  	  VII-13
          Mobile Equipment   	  VII-13
          Office Equipment  and  Furnishings.  .  VII-14
          Shop  Furnishings	VII-14
          Laboratory  Equipment  and Supplies  .  VII-14
          Safety Equipment	VII-15
          Tools	VII-15
          Replacement Parts 	  VII-15
          Collection  System Maintenance
           Equipment   	  VII-16
          Project  Inspection	VII-16
          Groundwater Monitoring Facilities  .  VII-17
          Biological  "Seeding"   	  VII-17
          Service  Charges  	  VII-17
          Fringe Benefits  	  VII-18
          Labor Charges and Related Costs  .  .  VII-18
          Start-up Services 	  VII-18
          Pretreatment Program	VII-20
          Individual  Systems   	  VI1-20
          Royalties  and Patents 	  VI1-20
          Crossover  Sewers   	  VI1-21
C.  Force Account  	  VII-27
    1.   General 	  VII-27
    2.   EPA Prior  Approvals 	  VII-27
    3.   Other Considerations   	  VII-28
D.  Payments  	  VII-30
    1.   General 	  VII-30
    2.   Prior Costs  	  VII-30
    3.   Schedules  	  VII-31
    4.   Interim Payments  	  VII-32
        a.  Payment  Requests  Review	VII-33
        b.  Documentation  	  VI1-33
        c.  Grant  Conditions   	  VII-34
                  XI

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APPENDICES

Appendix A
Appendix B
Appendix C
                   5.   Final  Payments  	 VII-34
                   6.   Refunds,  Rebates,  Credits,  etc.   ... VII-34
                   Increases  and Decreases   	 VI1-36
                   1.   Increases  	 VII-36
                   2.   Increase  Notification Procedure   .  .  . VII-36
                   3.   Decreases	VII-37
                   4.   Decrease  Notification Procedure   .  .  . VI1-37
                   Audits  	 VI1-38
                   1.   General   	 VII-38
                   2.   Objective  	 VII-38
                   3.   Types  of  Audits   	 VII-38
                   4.   Criteria  for  Choosing Projects .... VII-39
                   5.   Major  Activity Areas  for Audit Focus  . VII-40
                   6.   Final  Report  .'	VII-41
Flow Diagram
Forms
Transmittal Memoranda
                           LIST OF  FIGURES
FIGURE

III-l   Review of A  &  E  Contracts
                                                III-  6
 IV-1   Schematic  Flow  Diagram	IV- 2
 IV-2   Procedures for  Infiltration/Inflow  Review	IV-28
 IV-3   Procedures for  Review of Cultural Resources  ....  IV-70
 IV-4   Procedures for  NEPA Review	IV-79

  V-l   Schematic  Flow  Diagram	   V- 3

 VI-1   Schematic  Flow  Diagram	VI- 2
                                Xll

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           CHAPTER I



         INTRODUCTION







A.  GENERAL



B.  SECOND EDITION CHANGES



C.  LEGISLATIVE HISTORY



D.  HANDBOOK ORGANIZATION AND USE

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A.  GENERAL

    This chapter describes the organization of the Handbook and
its use in administering the construction grants program.   The
Handbook of Procedures (MCD-03) was first published in  February
1976 and took into account laws, regulations and policy in effect
as of July 1, 1975.   Subsequently three transmittal memoranda
(TM's) were issued to reflect policy changes occurring  after the
original text was published.

    On December 27,  1977 Congress enacted "The Clean Water Act"
PL 95-217 (CWA) which provided mid-course corrections to "The
Federal Water Pollution Control Act Amendments of 1972" (PL
92-500).  "The Clean Water Act" mandated significant changes in
the conduct of the construction grants program necessitating the
publication of this  second edition of the Handbook of Procedures.
                              1-1

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B.   SECOND  EDITION  CHANGES

     The  second  edition  of the  Handbook  of Procedures replaces
the  first edition dated February '1976,  and reflects the laws,
regulations  and policies  in  effect as of October 1, 1979.

     The  first edition used italics when a direct quotation was
cited from  the  law  or regulations.  The second edition uses
quotation marks for this  purpose and cites references as appro-
priate.  Italics are reserved  for use of future updates of this
second edition  as explained  in  this chapter under item D.5
Updating.  Previous italicized  updated material from the first
edition  are  not specifically identified in the second edition
but  are  included in normal typeface.

    The  first edition made reference to Program Guidance Memo-
randa (PG's) and cross-referenced the corresponding Program
Requirements Memoranda  (PRM's).  Only PRM's are referenced in
the second edition.
                                1-2

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C.  LEGISLATIVE HISTORY

    Federal financial  aid in the construction of municipal
sewage treatment works was first authorized in 1948.   This
was a loan program which was never implemented because neces-
sary funds were not appropriated by Congress.

    The Federal Water Pollution Control  Act of 1956,  Public Law
84-660 (PL 84-660), included the first authorization  for Federal
grants to assist in the construction of waste treatment works.
Selection of the projects to be funded was made the responsibility
of the States, reflecting the policy of Congress to recognize,
preserve and protect the primary responsibilities of  the States
in preventing and controlling water pollution.  The Act autho-
rized an appropriation of fifty million dollars a year for  such
grants to be allocated to the States on the basis of  relative
population and per capita income.   Grants from the State alloca-
tions were made directly to applicants for projects certified
by the State as entitled to priority for a grant over other
eligible projects in the State on the basis of water  pollution
control and financial  needs.  The grants were limited to 30% of
the eligible project cost not to exceed $250,000.

    Appropriations were increased during the early 1960's,  and
major amendments to PL 84-660 occurred in 1966.  At that time
appropriation authorizations were increased, the maximum dollar
limitation on grants was dropped,  the Federal share was increased
to a maximum of 55%, and provision was made for future reimburse-
ment of State or local funds used in lieu of Federal  funds  in
construction of projects when Federal funds were inadequate
to provide grants for all eligible projects within a  State.

    The 1966 Amendments were the last major legislative changes
prior to the passage of PL 92-500 in 1972.  There were, however,
other legislative actions which occurred in that period which
had a major impact upon the program.  Most important  of these
were enactment of the National Environmental Policy Act (NEPA)
in 1969, and creation of the U.S.  Environmental Protection
Agency (EPA) in 1970.
                                1-3

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      Enactment of PL 92-500 in 1972  resulted  in extensive changes
 in  the  construction grants  program.   The  Federal share was
 increased  to  75% of eligible costs and  projects involving sewage
 collection system construction,  sewer system  rehabilitation, and
 (under  certain conditions)  combined  sewer system separation
 became  eligible for grants.   In  addition,  funds were included to
 reimburse  those projects which had proceeded  under the reimburse-
 ment  provisions of the earlier statutes.   Also, a strong enforce-
 ment  program  was called for which would encompass the statewide
 planning process,  areawide  planning,  facilities planning, the
 construction  grants program, and discharge permits.

      PL 92-500 also introduced the three  step grant process i.e.
 Step  1  - planning;  Step 2 -  design;  Step  3 -  construction.
 Under this Act,  grantees were required  to  provide a minimum of
 secondary  treatment to be eligible for  a  Federal grant.  New
 terminology and concepts were introduced  such as facilities
 planning,  infiltration/inflow analysis, environmental assessment,
 user  charge/industrial  cost recovery, cost-effectiveness, best
 practical  waste treatment technology, etc.  The Act also
 authorized $18 billion over a five year period to support the
 construction  grants program and  provide for a continuity of
 funding.

      PL 92-500 was  amended  on December  27,  1977 by the Clean
 Water Act,  PL  95-217 (CWA).   This bill  contained mid-course
 corrections to the  earlier  legislation  and  authorized $24.5
 billion in support  of the construction  grants program over a
 five year  period.   Several  significant  changes were introduced
 into  the construction grants program.   For  example grantees are
 now required  to  evaluate innovative and alternative (I&A)
 technologies when planning  their projects.  The mandatory I&A
 evaluations reflect the desire of Congress  to bring about
 conservation through recycling and more efficient energy
 utilization or recovery.  For approved  I&A  projects,  the Federal
 grant share for  Step 2  and Step  3 projects  may be increased to
85%.
                                 1-4

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     In addition,  the CWA encouraged and provided support funds
for, the delegation of the operation of the construction grants
program to State agencies which can demonstrate the necessary
competency to effectively conduct the program.   And, to  facilitate
administering grants for small  communities, a combined Step 2+3
grant can be used where appropriate.
                                  1-5

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 D.   HANDBOOK ORGANIZATION AND USE

     1.   Purpose

         This Handbook is intended to serve as  a  guide  in processing
 grant  applications for Step 1, Step 2,  Step 3  and  Step 2 + 3 pro-
 jects  and addresses the processing of grants as  of October 1, 1979.

         Generally, the Handbook addresses processing procedures for
 administrative and technical  functions  separately.  However, when-
 ever possible, the review of administrative and  technical functions
 should  be done concurrently.

         While the administrative procedures to be  followed in
 processing construction grant applications are summarized in this
 Handbook,  a more comprehensive discussion of overall administrative
 requirements is contained in  the Grants  Administration Manual
 prepared by the Grants Administration Division,  Office of Resources
 Management, Office of Planning and Management, EPA.
    2.   Structure

         The  processing  of grant  applications for Step 1, Step 2,
Step 3,  and  Step 2  +  3  projects  is  described in Chapters IV, V,
and VI respectively.  These  Chapters  are  preceded by background
and general  information in Chapters  I,  II  and III and followed by
the financial  considerations  of  Chapter VII.  The latter chapter
contains  information  common  to the  processing of each step grant.
Particular attention  is given to eligible  costs and the processing
of payment requests.

        The  Handbook  begins with recommendations for the pre-
application  conference  and proceeds through the completion of
construction,  including start-up and  operation and maintenance
requirements.  Review procedures relating  to administrative and
technical requirements  are identified separately but grouped
together where they apply to  a single function wherever possible.
Technical requirements,  which are either complex or extensive,
are in sufficient detail  to assure uniform treatment of key
aspects of these requirements.
                                  1-6

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        The construction grant program is concerned with four
types of projects:

                Step 1 Projects - Planning
                Step 2 Projects - Design
                Step 3 Projects - Construction
                Step 2 + 3 Projects - Design and Construction

        An applicant receiving a grant for a Step 1 project,
prepares a facilities plan.  The completed facilities plan is an
application requirement for a Step 2 project grant.  However, the
review of the facilities plan is described in Chapter IV as a part
of the Step 1 project grant processing procedures.  Once the
facilities plan is approved by both the State and EPA, the applicant
need only submit the additional administrative and technical require-
ments for a Step 2 project grant as described in Chapter V.  Simi-
larly, the review of plans and specifications is described in Chapter
V as part of the Step 2 project grant processing procedures although
it is a requirement for a Step 3 project grant.
    3.  Format

        Each review function is necessary to insure compliance with
statutory or program requirements.  Review procedures are presented
in the following format:

        Purpose:

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

        Discussion:

        The program requirement is placed in program perspective and
information is given on such things as general  operating policy,
important underlying issues, key considerations in approaching the
topic under review and how the topic relates to the greater problem
of which it is a part.

        Procedures:

        The procedures in the review process are briefly described.
Where specific program items are required, they are listed.   Other
more general review items are included as a reminder.   However,  the
review procedures listed here are not substitutions for nor do they
supersede requirements described in greater detail  in the appro-
priate references.   Check lists may be utilized as  reminders of
review requirements.
                              1-7

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        References:

        Appropriate  laws,  regulations,  Program Requirements Memoranda
(PRM), Program Operations  Memoranda  (POM),  guidelines, technical
bulletins, etc.  are  cited.   Copies of such  reference material can
generally be found in  the  EPA  Regional  or State Agency Offices.

        Some of  the  review procedures are self-explanatory or do
not lend themselves  to the above  format.  In these cases, the
requirements or  procedures are briefly  described.
    4.  Related Material
        The review  procedures  in  this  Handbook describe the essence
or minimum requirements  necessary in processing of construction
grants.  More detailed  information may be obtained by reading the
reference materials which  are  identified throughout the text
wherever they are applicable.   Generally, references concerning
technical matters have  been  limited to EPA  publications.

        Although the  processing steps  set forth in the Handbook
are intended to bring about  uniformity in the servicing of
construction grant  applications nationwide, differences in the
structure of EPA Regional  or State Agency Offices may require
some adjustment in  the manner  in  which various review procedures
are followed.
    5.  Updating

        The Handbook will be updated as changes in laws, regulations,
or policy occur.  Responsibility for revising and updating the Hand-
book rests with the Program Policy Branch, Municipal Construction
Division, Office of Water Program Operations, and revisions will  be
issued from that office.

        In July 1976,  EPA ceased to use Program Guidance Memoranda
(PGMs) to communicate  Construction Grant Program directives.  In
their place, an issuance system was established designed to
differentiate between  policy and operational matters.  Included in
the new system was a mechanism for assuring that the essence of
emerging policy and procedure changes were concurrently readied
for inclusion in the Handbook.
                              1-8

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        The new system consists of (1) Program Requirements Memoranda
(PRMs) which convey program policy.  (In terms of administering the
Construction Grants Program, the provisions of PRMs are to be carried
out to the same extent as regulations); (2) Program Operations Memo-
randa (POMs) which are for internal or "housekeeping" matters, i.e.
they relate to administrative procedures to be followed by Regional
or State staffs in processing grant documents or preparing program
reports; and (3) Transmittal Memoranda (TMs) which contain changes
to the Handbook.  In implementing the new system, all PGMs were
reviewed.  Those no longer needed were purged and those which
remained in effect were redesignated as PRMs 75-1 through 75-40.
(See PRM 76-2).

        As indicated above, Handbook revisions will be forwarded
by a Transmittal Memorandum (TM).  Each TM will be designated with
a sequential number (e.g., TM: 80-1) indicating the fiscal year
and number of the issuance, and will provide specific instructions
for removal of obsolete pages and exhibits and insertion of new
material.  So that changes can be readily identified, text revisions
will be printed in italics and underlined.

        Additionally, each revised page will show the TM number,
month and year (bottom right side) in which revision was made.

        The TM may be detached from the material  transmitted and
inserted in Appendix C.  "Transmittal Memoranda".  Regularly, for
verification purposes, a listing of the changes will be distributed
to holders of the Handbook.
    6.  Appendices

        This Handbook contains the following appendices:

        Appendix A:   a schematic flow diagram for the processing
of construction grants.

        Appendix B:   exhibits of frequently used OMB and  EPA
forms.

        Appendix C:   "Transmittal  Memoranda", (TMs), issued by
Headquarters to explain  revisions  to the Handbook may be  stored
here.
                              1-9

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          CHAPTER II



         STATE PROGRAM








A.  PLANNING PROCESSES



B.  STATE STRATEGY AND PROGRAM

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A.  PLANNING PROCESSES

    1.  General
        This chapter is designed to provide a general  working
knowledge of those planning portions of The Clean Water Act,
PL 95-217, (CWA) which directly affect the construction grants
program.

        PL 92-500 contained complex and far reaching pollution
control measures and firmly committed the Federal Government
to eliminate pollution of the nation's waterways.  PL  95-217 amended
PL 92-500 strengthening its goals and reaffirming its  commitments.
Even though there is a firm Federal commitment, the States continue
to retain primary responsibility for the establishment of water
quality standards, the control  of waste discharges, and the enforce-
ment of these standards.   However, to insure a sound basis of
control PL 95-217 authorized the continuation of the planning
processes being carried out by the States under earlier legis-
lation.
    2.  State Continuing Planning Process

        Section 303(e) of the CWA requires each State to establish
and maintain a continuing planning process (CPP) which must be re-
viewed and approved periodically by the Regional Administrator.
The continuous planning process must be consistent with the Act
and include, as a minimum, the following:

        a.  effluent limitations and schedules of compliance to
            achieve water quality standards;

        b.  an areawide waste treatment management plan or basin
            plan under sections 208 and 209 of the Act;

        c.  total maximum daily waste load allocations;

        d.  procedures for revisions of the plans;

        e.  adequate authority for intergovernmental  cooperation;
                               II-l

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        f.  adequate  implementation procedures and schedules of
            compliance for new or revised water quality standards,

        g.  methods of obtaining control over the disposal  of all
            residual  waste from any water treatment processing;

        h.  an inventory and ranking, in order of priority, of
            waste treatment works necessary to be constructed to
            meet water quality standards.

        The output of the continuing planning process is a  document
which describes the operating policies, procedures and practices
of a State in implementing the eight requirements listed above.  The
actual function of planning, implementing, reassessing, revising and
implementing these requirements has been labeled the Water  Quality
Management (WQM) process.  Three of the eight requirements  listed
above are of particular concern to the construction grants  program,
namely:

            water quality management plans (referred to in  earlier
            years as  "208" plans)

            waste load allocations (referred to in earlier  years
            and contained in "basin plans")

            State priority system and list (discussed in Section B
            of this chapter).

        All of these  agency programs and functions have as  their
common objective the  attainment of water quality standards.  These
standards are or have been established by the States and approved
by EPA under the CWA  or earlier legislation.

        Re:  40 CFR Part 35, Subpart G
    3.  Waste Load Allocations

        As an integral  part of  the WQM process and as a first step
in achieving the established water quality standards, the State
must classify segments  of  its waters as either "water quality limited"
or "effluent limited".  To make this classification, the State
generally employs mathematical  modeling pf the river basin and notes
                                II-2

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all point and non-point sources of wastes, low flows and other
physical conditions.   Using the assumptions that all point sources
achieve at least secondary treatment,  the model  is able to predict
whether the water quality standards are met.   If the standards are
met, the stream segment is classified  as "effluent limited" and
publicly owned treatment works (POTW's) need  only achieve secondary
treatment.

        If the model  of the basin predicts that water quality stan-
dards will not be met when all point sources  achieve secondary
treatment, the segment is classified as "water quality limited".
The inputs to the model are varied with the result that waste load
allocations are established for each discharge in this segment and
represent the minimum of treatment to  be achieved by any future
publicly owned wastewater treatment works.  With regard to projects
receiving a construction grant, the reviewer  ensures that the proposed
project meets the State established waste load allocation for the
segment of stream into which the project may  discharge its effluerit.
This is distinct from the effluent limitations which may be imposed
by the State agency for other alternative discharges (land appli-
cation, groundwater recharge, industrial reuse for example).

        It should be noted that in establishing waste load alloca-
tions for publicly owned treatment works no direct controls are
exercised to limit the non-point sources.  Non-point source control
is addressed in appropriate water quality management plans.

        Re:  40 CFR Part 35 Subpart G
    4.  Water Quality Management Plans

        Regulations published after the passage of PL 92-500
(40 CFR Parts 130 and 131) made a distinction between Basin Plans
and Areawide Waste Treatment Management Plans (the latter more
commonly referred to as 208 Plans).  As program experience was ob-
tained it became clear that the planning efforts were not distinct
and should be more closely coordinated and integrated.  On May 23,
1979 EPA published Subpart G to 40 CFR Part 35 entitled "Grants for
Water Quality Planning, Management, and Implementation".  Subpart G
replaces entirely the earlier 40 CFR Parts 130 and 131.
                               II-3

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         Section 208 of the CWA provides for the Governor  of  a  State
 to designate a region for areawide waste treatment management
 planning.   In general, the designated regions have substantial  water
 quality control problems caused by urban-industrial  concentration
 or other factors.   The stream segments in these areas  (generally
 water quality limited) require comprehensive areawide  planning  to
 meet water quality standards.  Planning considerations  not only
 include limitations on municipal  and industrial  point  sources  but
 also address land  use policies to control non-point  sources, storm-
 water discharges,  water supply and other limiting factors which may
 be controlled to achieve water quality standards. The  208 planning
 is broad based and geared toward  the more complex cases.  EPA  is
 authorized to provide grants to agencies having  jurisdiction under
 State law  to carry out such planning.

         In non-designated areas the State agency is  responsible to
 conduct water quality management  planning to the extent necessary
 for the water quality problem.

         In both designated and non-designated areas  the responsible
 planning agency will  conduct a v/ater quality assessment and develop
 a  WQM work program.   The State Agency will  utilize the  individual
 work programs as well  as its own  to develop a State  strategy.  The
 State strategy document will  address items  such  as funding, resources,
 priorities,  etc. and  is submitted annually  to the Regional Administra-
 tor of EPA for approval  and eventual  funding.  The final output from
 these planning activities is a water quality management plan.

         The  construction grant project reviewer  is concerned with
 WQM planning  as it relates  to a specific  project  under review.   In
 designated 208 planning areas the applicant for  a  construction grant
must  be  the  agency identified in  the approved WQM plan.  Also,
 population forecasts  used in facilities  planning  must agree,  with
 few exceptions, to those contained in the approved WQM plan.   It is
of  utmost  importance  that the construction  grant  project reviewer
 and  the  grantee coordinate  their  activities  with  the appropriate
WQM  planning  agency.

         EPA  policy concerning coordination  between applicants and
 (208)  planning  agencies  is  explained  in  "Guidance for Preparing a
Facility Plan"  (MCD-46).

         Re:   40 CFR Part  35  Subpart  G
              40 CFR Part  35  Subpart  E, 35.925-2 and Appendix  A
              PRM 75-38
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     5.   Facilities Plans

         Facilities plans are required by Section 201 of the CWA.
 They may be considered as the implementation part of the States Con-
 tinuing  Planning Process.  Facilities plans are the first stage
 of  the three part construction grant process.  The facilities
 planning area  is designated by the State agency and may include one
 or  more  political jurisdictions.  Overlapping may exist between
 (208) areawide planning areas and 201 facilities planning areas.
 Coordination and cooperation are essential to avoid duplication,
 but the  completion of facilities plans should not be delayed or
 postponed pending completion of WQM plans.  Rather, the WQM plans,
 when completed, should incorporate the provisions of the completed
 facilities plans.

         Ideally, the WQM plan establishes the waste load allocations,
 and  designates the facilities planning areas and the implementing
 agencies.  The facilities plan develops a specific project which
 is  the most environmentally sound and cost-effective for achieving
 the  stated water quality standards.  In the case of non-designated
 areas, the State agency will  establish the boundaries of the
 facility planning area, subject to the approval  of EPA.  After
 September 30, 1979, the project must be based on waste load
 allocations from the approved WQM plan, unless a deviation is
 granted.

         Facilities planning is discussed in greater detail  in
 Chapter  IV and is the subject of the publication:  Guidance for
 Preparing a Facility Plan.

        Re:   40 CFR 35.917
    6.  Municipal  Permits

        The Clean  Water Act establishes the National  Pollution Dis-
charge Elimination System (NPDES)  as the enforcement  mechanism for
achieving water quality standards.   The discharge permit  issued
under the system is applicable to  all  municipal  and  industrial
discharges.  Where WQM plans under Sections 208  or 303(e)  or
facilities plans under Section 201  have been established,  the
permits will  require compliance with such plans.   In  the  case  of
existing sewage treatment facilities which, because of  present or
                               II-5

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anticipated future  inadequate treatment, will not achieve the water
quality standards,  the NPDES permit may contain limitations, con-
ditions or schedules which will prompt the municipality to apply
for a construction  grant.  The State agency will designate the
boundaries (if not  previously designated) of the facilities planning
area and the construction grant process will begin.  An applicant
for a construction  grant must comply, at a minimum, with applicable
existing permits.   The coordination of grants process and the
NPDES permit issuance process is vital.  Policy and procedures to
achieve this coordination are set forth in "the National Munici-
pal Policy and Strategy" (October 1979).

        Re_:  40 CFR Part 125
             40 CFR 35.925-6
    7.  Reviews of Advanced Treatment Projects

        Current EPA  policy requires a rigorous review of projects
designed for treatment more stringent than secondary.  The incre-
mental , additional capital costs of a project, which are attri-
butable to effluent  limitations or water quality requirements more
stringent than secondary, must be based on a justification showing
significant receiving water quality improvement and mitigation of
public health problems where they exist.  Furthermore, projects re-
quiring treatment more stringent than secondary should be evaluated
for their financial  impact on the community.  Under this policy,
the Regions have primary responsibility for reviewing such projects,
and will decide how  to proceed in accordance with PRM 79-7.  In
general, where projects have incremental costs beyond secondary of
$1 million or less,  the Region retains the decision-making authority.
Where  incremental costs exceed $1 million, approval must be given
by EPA Headquarters.  Specific procedures to be followed in the
review of applicable projects are identified in PRM 79-7.
                                II-6

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B.  STATE PLANNING AND IMPLEMENTATION PROGRAMS

    1.  State/EPA Agreement

        After fiscal year 1979, the State/EPA agreement (SEA)  pro-
vides the basis for the planning and implementation programs under
CWA as well as under other EPA legislation including the Resource
Conservation and Recovery Act and Safe Drinking Water Act.   Each
year the Regions and States negotiate SEA's which identify  the
States' environmental problems, objectives and priorities and  des-
cribes coordination and integration among the covered programs.
It includes the annual work programs of the covered programs,  a
summary of the major work elements, and, by reference, the  State's
strategies.  It focuses the attention of top EPA and State  managers
on the major expected accomplishments and establishes the res-
ponsibilities of each necessary to achieve those accomplishments.
Grants for FY 1980 under Section 106, 205(g) and 208 cannot be
awarded until the 1980 SEA is executed.
    2.  State Strategy

        The State strategy,  which is incorporated into the SEA by
reference, includes:

        a.  goals for a five-year period and estimated costs  of
            activities to control priority water quality  problems;

        b.  an identification of governmental  entities expected
            to be responsible for conducting the activities;  and

        c.  a summary of anticipated Federal and other funds  for
            the strategy period.

        Contained within these three items and of particular  con-
cern to the construction grants reviewer is the State project
priority list.  It is from this list that projects are certified
by the State for funding and the construction  grants  process  begins,

        Re:  40 CFR 35.915(c), (e),  1503, 1509-1, -2, 1511-2
                               II-7

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    3.  State Priority System and Priority List

        As a part of  its  program stragegy, the State must prepare a
needs inventory which ranks all of the significant municipal dis-
charges within the State.  This inventory must consider the con-
struction grants needs and priorities set forth in certified and
approved State and areawide water quality management (WQM) plans.

        The State priority system describes the methodology used to
rate and rank projects considered eligible for grant assistance.
It also sets forth the administrative, management and public
participation procedures  required to develop and revise State
project priority list.

        The project priority list is a ranked listing of projects
for which Federal assistance is expected during the five year
planning period starting  at the beginning of the next fiscal year.

        The State priority system is based upon the following
criteria:

        a.  the severity  of the pollution problem;

        b.  the existing  population affected;

        c.  the need  for  preservation of high quality waters;

        d.  at the State's option, the specific category of need
            that is addressed.

                The State has the sole authority to determine the
                priority  for each category of need.  These cate-
                gories comprise mutually exclusive classes of
                facilities which were identified in the needs
                survey prepared under Section 516(b) of the CWA
                and include:
                    Category  I:
                    Category  II:
                    Category  IIIA:
                    Category  IIIB:

                    Category  IVA:
secondary treatment
more stringent treatment
infiltration/inflow correction
sewer system replacement or
major rehabilitation
new collectors and appurtenances
                                II-8

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                    Category IVB:   new interceptors and appurten-
                                    ances
                    Category V:     correction of combined sewer
                                    overflows.

        e.  Step 2, Step 3, and Step 2 + 3 projects utilizing pro-
            cesses and techniques meeting innovative and alterna-
            tive guidelines in Appendix E, 40 CFR part 35, may re-
            ceive higher priority.  Also 100% grants for projects
            that modify or replace malfunctioning treatment works
            constructed with an  85% grant may receive a higher
            priority;

        f.  other criteria, consistent with these, may be considered
            (including the special needs of small and rural
            communities).  The State may not consider:  the project
            area's development needs not related to pollution
            abatement, the geographical region within the State,  or
            future population growth projections; and

        g.  in addition to the criteria listed above, the State must
            consider the treatment works and step sequence; the
            allotment deadline; total  funds available; and other
            management criteria.

        The project priority list is developed by applying the
priority system to projects included in the needs survey prepared
under Section 516(b) of the CWA.   In addition, the State must con-
sider construction grants needs and priorities set forth in certified
State and areawide water quality  management plans.

        While the project priority list must be developed in accord-
ance with the criteria listed above, the criteria are not to be
construed as removing all  flexibility  in the establishment of the
list.  For example,  large city  projects should be precluded from
using all, or almost all,  of a  State's  allocation.   This may be
accomplished by:   1) the State  reserving funds for  projects of
smaller communities  (as defined by the  State and  approved by the
Regional  Office), or 2) by dividing the work into several  segments
or smaller projects.   (This could  be two lists.)   In the latter case,
both the State and  the applicant must  recognize that:

        a.   all  grants must be  awarded  at  the 75% level  except in
            the  case of projects meeting  the innovative  or  alterna-
            tive  technology criteria or 100% grant  funded  projects
                               II-9

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            that modify or replace malfunctioning treatment works
            constructed with and 85% grant;

        b.  the project must be comprised of a discrete and meaning-
            ful segment of the treatment system;

        c.  the awarding of the grant does not bind EPA to fund the
            remaining parts of the treatment system; and

        d.  the acceptance of the grant commits the grantee to the
            completion of both an operable treatment works and the
            complete sewage treatment system of which the assisted
            project is a part.

        The project priority list must reflect the funding cutoff.
The fundable portion will include those projects planned for grant
award during the first year of the five year period.  The total
grant awards on the fundable portion may not exceed the total  funds
expected to be available during the year less all applicable re-
serves (see 4 "Funding" below).  The remaining portion will include
all projects outside the fundable portion that may, under anticipated
allotment levels, receive funding during the five year period.

        The format for and project information required on the
project priority list is contained in the regulations (40 CFR
35.915(c)(2)) and annual guidance issued by the Administrator.  The
annual guidance also outlines the funding assumptions and other
criteria useful in developing the five year priority list.

        In reviewing the State priority list, it is necessary to
insure that:

        a.  the information in 40 CFR 35.915(c)(2) is included
            for each project;

        b.  the grant funds involved equal or do not exceed the
            State allotments available;

        c.  known problem areas in the State have been properly
            considered;

        d.  target application dates and cost estimates appear to
            be reasonable; and
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        e.  previously approved Step 1 and Step 2 projects are
            properly reflected and realistically scheduled for
            funding.

        The State's priority list is submitted annually as part of
the State's program strategy.  The list is not accepted by the
Regional Administrator unless it has been the subject of a public
hearing.  During the year, certain amendments may have to be made to
the list.  These amendments do not require a public hearing if the
Regional Administrator does not consider them significant.

        Re:  40 CFR 35.915,.930-4, .935-1, .960
             40 CFR 35.1509-2
             PRM 75-14, PRM 75-24,
             PRM 77-1, PRM 79-6
    4.  Funding

        a.  General:

            Under the CWA, authorization for funding construction
grants projects are provided over a five year period.   However, such
funds only become available if and when Congress appropriates them.
Generally, each fiscal year, Congress appropriates an  amount equal
to or less than the amount authorized.  EPA, in turn,  allots these
appropriated funds to the States in accordance with the Congression-
al ly mandated formula (generally based upon need and population).
Allotments are available to the States for two fiscal  years after
which time the unobligated funds in each State are pooled  together
and reallotted to those States which utilized all  their funds.

        b.  Reserves:

            In developing the fundable portion of the  priority  list,
the State must set aside several reserves.   Some reserves  are re-
quired by law; others are optional.  For example:

            (1) Reserve for innovative and  alternative technology.
                Each  State has to set aide  from its annual  allot-
                ment  a specific amount which is to be  used  to
                increase the Federal  share  from 75 percent  to 85
                percent for those eligible  portions of a project
                               11-11

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    meeting the innovative or alternative technology
    criteria.   The set-aside is 2 percent of the  State's
    annual  allotment for FY 1979 and 1980 and 3 percent
    for FY  1981.  Of this amount not less than one  half
    of one  percent is to be used for innovative projects.
    The increased Federal share (from 75 to  85 percent)
    is applicable only to Step 2, Step 3 or  Step  2+3
    projects (not Step 1).  Reserves not obligated
    during  the initial allotment period will  be removed
    from the State and real lotted to States  which did
    obligate their full annual allotment.

(2)  Reserve for grant increases.  Each State must set
    aside not less than 5 percent of its annual allot-
    ment for grant increases to cover cost overruns or
    to fund the development of municipal pretreatment
    programs.

(3)  Reserve for Step 1 and Step 2 projects.   Each State
    has the option of reserving funds for Step 1  and
    Step 2  projects which may be approved for funding
    by the  State after the approval of its project
    priority list.  The reserve may be up to 10 percent
    of the  State's annual allotment.

(4)  Reserve for alternative systems for small communi-
    ties.

    (a) Each State with a rural population of 2b  percent
        or  more must set aside 4 percent of  its annual
        allotment to fund alternatives to conventional
        treatment works for small communities.

    (b) For non-rural States the Regional Administrator,
        at  the request of the Governor, may  authorize a
        reserve of up to 4 percent to be used for funding
        alternatives to conventional treatment works
        for small communities (3,500 or less or dis-
        persed sections of larger municipalities).

        NOTE:   If funds placed in reserves under  (2),
               (3), or (4)(b) are not obligated  prior to
               the end of the initial allotment  period,
               they can be used to fund other projects
               on the priority list to avoid being  sub-
               ject to reallotment.
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            (5)  Reserve for State management  assistance  grants
                under Section  205(g)  of the Act.   Where  an  agree-
                ment between the Regional  Administrator  and a
                State is entered into under which  the day-to-day
                operation of the Construction Grant  Program is  dele-
                gated to that  State,  on a  function-by-function  basis,
                a Construction Management  Assistance (CMA)  Grant
                may be awarded to the State to cover the State's
                costs in carrying out the  functions  delegated under
                the agreement.  To fund a  CMA grant, the State  must
                reserve from its allotment an amount not to exceed
                2 percent of each year's allotment or $400,000
                whichever is greater.

        c.   Optional Use Other Than Reserves:

            Each State may use 25 percent  of  its annual  allotment to
fund certain categories of projects.   These categories  include:

            - sewer system replacement or  major rehabilitation

            - new collectors,  new interceptors and appurtenances

            - correction of combined  sewer overflows

            All  projects proposed to  be funded which would  exceed
this 25 percent  limitation will  be reviewed by the Regional  Adminis-
trator to determine whether or not the proposed project  meets the
enforceable requirements of the Act.

        Re:  40  CFR 35.904, .910-2(b), .915(g), .915-1,  .930-4,
             .935-1, .935-11
             PRM 79-6
    5.  State Delegation

        Delegation to the State agencies  of  various  review functions
of the construction grants program is  intended  to  eliminate duplica-
tion of effort, improve program efficiency and  speed its  processing
of grants.   Regulations issued  under  PL  92-500  encouraged the
Regional Administrators to enter into  written agreements  with  the
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State agencies whereby  the State would certify the technical  or ad-
ministrative adequacy of  specifically required documents.  According-
ly, agreements have existed between specific States and Regions per-
mitting State agency certification of plans and specifications, O&M
Manuals and other documents under the construction grants program.

        Section 205(g)  of PL 95-217 extended this concept considerably
by providing for the State to assume responsibility for conducting  a
full range of construction grant activities, and for funds needed to
effectively administer  the delegated program.  Section 205(g) dele-
gation agreements can be  entered into between the Region and  State
after the Regional Administrator is assured that the State can and
will administer the full  gamut of Construction Grant Program  activi-
ties in accordance with EPA requirements.  Functions delegated under
the agreement are "phased-in"--i.e., the agreements prescribe their
sequence and timing.  Generally grant application and award procedural
type functions and Step 2 activities are delegated initially  while
the review and approval of facility plans  (because of their com-
plexity) and construction inspections (because, on an interim basis,
this activity can be conducted by the Corps of Engineers under an
interagency agreement with EPA--see 6 below) are deferred until
later.  During the "phase-in" period extensive training of State
personnel is conducted  by experienced Regional and State staffs and
the State's grant certification procedures are closely monitored by
the Region.

        Where delegation  agreements exist, the reviewer must  become
familiar with the terms of the agreement and know which functions and
activities are delegated, which are not,and the mechanisms for co-
ordination in order that  State-EPA duplication is eliminated  and a
unified effort is maintained.  In addition, reviewers must know the
review and approval procedures to be followed by the State, the
scope, depth, and frequency of Regional Office monitoring activities,
and the specific actions  to be taken when  inadequate performance is
found.

        By law, certain functions of EPA may not be delegated.  Hence,
under delegation agreements, EPA must continue to perform or  provide
final certification of  the following:

        a.  award of grants or amendments
                                11-14

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        b.  National Environmental Policy Act (NEPA) reviews, de-
            cision and preparation of Environmental Impact State-
            ments if necessary

        c.  decisions and enforcement of Civil Rights, minority
            business business enterprise (MBE) participation, Equal
            Employment Opportunities and other Federal require-
            ment related to discrimination

        d.  dispute determinations concerning project eligibility

        e.  determinations of protests under A/E or construction
            contract procurements

        f.  resolution of construction grant audit exceptions

        g.  determination that an overriding Federal interest
            exists in a particular project which requires greater
            Federal  oversight or participation

        h.  final determinations under Federal statutes other
            than the CWA.

        The ultimate purpose of the State delegation program is to
develop a self-sustaining Federal construction grant program at the
State level.  Hence, training and monitoring activities must be
carried out so that this goal can be achieved.

        Re.:  40 CFR 35.912, .960(a), Subpart F
             POM 78-5
    6.  U.S.  Army Corps of Engineers

        In January, 1977 EPA entered into an interagency agreement
with the U.S. Army Corps of Engineers under which the Corps would
provide assistance to EPA primarily in administering the Step 3
aspects of the Construction Grants Program.  The specific functions
to be carried out by the Corps are provided for in each  of the ten
separately developed regional  agreements between the Regional
Office and the geographically adjacent Division Office of the Corps.
Corps responsibilities and procedures for dealing with grantee
projects and  project documents vary from Region to Region and State
                               11-15

-------
to State.  However, in general, in the case of new Step 3 projects,
the Corps is responsible for project management from grant offer
acceptance to project close-out (with certain exceptions, i.e.,
making payments, UC/ICR system approvals, final resolution of audit
exceptions, etc.).  Corps activities on Step 3 projects which were
well under construction prior to the Corps agreement will vary from
interim inspections to full project management.

        In addition, the Corps conducts biddability and constructibi
lity reviews on plans and specifications on all Step 2 projects in
nearly every State prior to their approval; and, on very large
projects, or clusters of projects in a metropolitan area, with
construction costs totaling about $50 million or more, the Corps
provides full time on site presence--i.e., continuous inspection.

        Fundamental to all agreements is that functions which are
delegated to a State will not be performed by the Corps.  However,
where temporary shortages in staff resources exist in a delegated
State, that State may request (of EPA) Corps assistance in carrying
out interagency agreement assignments for interim periods.  Again,
such activities must be carefully documented in Regional agreements
so that all necessary requirements are fulfilled and maximum
efficiency is achieved in moving grantee projects to a successful
operation.
                               11-16

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         CHAPTER III



 PREAPPLICATION INFORMATION






A.  GENERAL



B.  APPLICANT ELIGIBILITY



C.  PREAPPLICATION CONFERENCE

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A.  GENERAL

    An applicant is often unfamiliar with the requirements  and/or
limitations of the construction grants program.   Lack  of knowledge of
all key aspects of the grants program can be  costly and  time-consuming
for the applicant, the State and EPA.  The State,  in conjunction with
the Region, should insure that applications being  submitted are
responsive to all  technical, administrative and  legal  requirements of
the program.

    Guidance to applicants is presently provided through a  variety of
sources, including State and Federal forms, instruction  booklets, EPA
guidance publications, and copies of Federal  regulations.   However,
this information is not always clear to applicants and emphasis  is
often incorrectly placed on less important matters. To  avoid such
occurrences, a preapplication conference between the applicant,  the
State and EPA to jointly review both program requirements  and appli-
cant needs, is strongly urged.

    To assist applicants in understanding the program, EPA has pre-
pared a booklet entitled, "How to Obtain Federal Grants  to Build
Municipal Wastewater Treatment' Works" (MCD-04).   This  booklet should
be provided to a prospective applicant with the  grants application
package and reviewed at the preapplication conference.
                               III-l

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B.  APPLICANT ELIGIBILITY

    "Municipalities,  intermunicipal agencies, States,  or interstate
agencies are eligible for grant assistance."  The regulations  also
provide a more detailed description of an eligible applicant under
definition of a "Municipality" which reads in part:

    "Municipality.  A city, town, borough, county, parish,
    district, association, or other public body (including  an
    intermunicipal agency of two or more of the foregoing
    entities) created under State law, or an Indian tribe or an
    authorized Indian tribal organization, having jurisdiction
    over disposal of  sewage, industrial v/astes, or other waste,
    or a designated and approved management agency under section
    208 of the Act."

    In essence, an eligible applicant must satisfy a three  part  test.
The applicant must:

    1.  have as one of its principal responsibilities  the treat-
        ment, transport or disposal of liquid wastes of the
        general public in a particular geographic area;

    2.  have the legal authority to subsequently construct  and
        manage the proposed facility, and

    3.  be the designated agency identified in an approved
        Water Quality Management plan authorized under
        Section 208 of the Act (where applicable).

    Notably excluded  from eligibility are revenue producing entities
and special districts (such as school or park districts) not having
as one of their principal responsibilities the treatment, transport
or disposal of liquid wastes.  Under the CWA, the treatment of
water for human consumption is considered an industrial undertaking
and whether publicly  or privately owned, it is in the  same  category
as any other industrial service (power plants, airports, mass  trans-
portation) and not eligible for a construction grant.

    Grant assistance  may be provided small wastewater  (individual)
systems where such systems are more cost effective than centralized
systems, and where public ownership is proven not feasible. However,
the applicant must be a municipality.

    Re:  40 CFR 35.920-1, .905, .917-3(a), .925-2, .925-5
         PRM 75-17, PRM 75-18, PRM 77-1, PRM 79-8
                                III-2

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C.  PREAPPLICATION CONFERENCE

    The regulations encourage preapplication assistance,  including
a preapplication conference for each project on the State's priority
list.  The importance of the preapplication conference cannot be
overly stressed.  A meeting where the applicant,  the State and the
Region sit down together to discuss the approaching work  has the
potential of setting the stage for a well  coordinated work program
which is void of major misunderstandings and time delays.

    The preapplication conferences may be with one applicant or a
group of applicants and will generally involve only those applicants
included on the State project priority list.

    While the entire three step grant process should be discussed at
the preapplication conference, the primary emphasis should be on the
administrative and technical requirements of a Step 1 project grant
application and the preparation of the facility plan.  Applicant
conferences throughout the three step grant processing procedures are
encouraged, with emphasis to be placed on specific aspects of the
program at the appropriate time.

    The Regions should develop outlines of points to be covered in
the preapplication conferences which may be tailored to the individ-
ual State's and applicant's needs and capabilities.  Several impor-
tant matters which should be discussed in the conference are as
follows:

    Re_:  40 CFR 35.920-2

    1.   Important Dates

        October 18. 1972 - Passage of PL 92-500.  No award may be
made  for a new  sewage collection system in a community unless the
bulk of  the design flow (generally two-thirds) is attributable to
that  part of the comnunity in existence as of October 18, 1972.

         Re_:  40 CFR 35.925-13

         June 30. 1975 - After this date the applicant must not initi-
ate work until  a Step 1 grant has been awarded, or unless a plan of
study  has been  approved and  is accompanied by a request -from  the State
agency to reserve  funds for  a Step 1 project.

         Costs  incurred for  project planning prior  to  this date may or
may  not be eligible for grant assistance depending on the specific
date  and nature of  the work  conducted.  The regulations set forth
 1 imitations.

         Re:  40 CFR 35.925-18
                                III-3

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         December 27, 1977 - Passage of PL 95-217.   Costs for pri-
 vately owned treatment works, serving one or more  principal resi-
 dences or small  commercial establishments inhabited or used prior to
 this  date,  are grant eligible.

         Re'-   40 CFR 35.91801 (a)

         September 30. 1978 -  Facilities planning begun after this
 date,  whether or not prepared under a Step 1  grant, requires analysis
 of innovative and alternative treatment processes  and technologies,
 primary energy requirements,  and potential  opportunities for recrea-
 tion,  open  space and access to bodies of water.

         Re:   40  CFR 35.917-l(d)  (8),  (9), .917-l(j)

         February 1, 1979 - Procurement of subagreements initiated on
 or after this date  must be in compliance with the  minority business
 enterprise  (MBE)  policy of EPA.

         Re_:   43  FR  248 pp. 60220-60224

         February 16.  1979 - Public  participation program requirements
 must be met  in the  development of :   the State priority system and
 annual  fundable  project list, plans for wastewater treatment facili-
 ties,  UC/ICR systems,  and State  delegation  on or after this date.

         Re_:   40  CFR Part 25
              44  FR  34 pp. 10300-10304

         October  1.  1979 - After  this  date,  in order to be grant
 eligible, facility  planning must be based on  information in approved
 Water  Quality Management plans (unless excepted).

         Re.:   40  CFR 35.917(e)

         June  30,  1980 - After this  date pretreatment requirements
must be  met where applicable  to  Step  2 grant  assistance.

         Re_:   40  CFR 35.907, .920-3(b)  (9)

         December  31,  1980 - After this date pretreatment require-
ments must be  met where applicable  to  Step  3  grant assistance.

         Re_:   40 CFR 35.907, .920-3(c)  (4)
                               III-4

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    2.  Contracts, for Personal and Professional  Services

        It is EPA's policy to ensure that procurement of subagree-
ments is conducted in a manner which provides free and open competi-
tion, and is negotiated on the basis of demonstrated competence and
qualifications with a fair and reasonable price.

        In the procurement of subagreements, the  procedures detailed
in the regulations must be followed (a copy of the regulations should
be provided to the applicant).  The applicabilities of specific
clauses of the regulations are outlined in Figure III-l.  Procure-
ment initiated on or after February 1, 1979 must  be in compliance
with the goal oriented policies and procedures regarding minority
business enterprises (MBE) set forth in 43 FR 248, which outlines
responsibilities of EPA, grantees, consulting firms, prime contrac-
tors, and MBEs.

        It is the intent of the agency that simple, clearcut con-
tracts which leave no room for future disagreement, be negotiated:
These contracts should be such that the engineer  receives a fair
price with a reasonable profit for his work, and  the municipality
receives competent, complete professional services at a fair cost.
Cost reimbursement or fixed price contracts, or combinations thereof,
may be negotiated for architectural or engineering services.  Per
diem may be used where no other types are applicable.  Specifically
prohibited are cost-pius-percentage-of-cost and percentage-of-con-
struction cost contracts which penalize the engineer for designing
the most economical facility.  All contracts should clearly establish
a maximum price which may not be exceeded without formally amending the
contract.

        The employment of any contract arrangement requires a careful
analysis of the scope of the work to be performed and a detailed esti-
mate by the engineer of his costs for performing  the work.   This
procedure should assure a clear understanding of  exactly what is to
be done, by whom, and should produce a better end product.   Should
the scope of work change during the performance of the project, the
contract would be open for amendment.

        Re_:  40 CFR 35.936, .937, .939
             Appendix C-l, D
             43 FR 248 pp. 60330-60224
    3.  Administrative Requirements

        The administrative requirements to be fulfilled  by the appli-
cant are extensive.   All  necessary forms,  authorizations,  timing
requirements,  and legal  requirements  should be discussed.   The appli-
cation form (5700-32) should be reviewed line by line.   In addition,
                              III-5

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Figure III-l.   Review of A & E Contracts
                    NO
                             I  START REVIEW  j

NO



^
HANC
SMALL r
(35.9
r
ILE AS
URCHASE
36-19)
./'CONTRACTX.
X. > $ 100,000^^
JYES
MORE DETAILED
COST INFORMATION
(35937-6(bl)
& PRIOR EPA
APPROVAL BEFORE
EXECUTION
\
r
COMPLETE REVIEW












NEGOTIATION
ASSURANCE &
COST SUMMARY
REQUIRED
(35.937-5,-6)
i
SOLICI
RECK
(35.937-
i
NO SOLICITATION
< NECESSARY
(ELIMINATE
35.937-2,-3,-4)
|YES
TATION
JIRED
2,-3,-4)

NO ^x^GRANTEE^X
^v SATISFIED^X^
\(K
NO ./SAME A&ES.
                                111-6

-------
recommended formats for submittal  of technical  data should be
reviewed.   Payment procedures and  policy should be fully explained.
Finally, the entire application procedure for Step 1,2, 3, and
Step 2+3 projects should be discussed.   Special emphasis should
be placed  upon the coordination required between the applicant, the
State and  EPA to insure accuracy and timeliness in processing grant
applications.  Specific points to  be covered include:

        a.  prior allowable costs, if any,  must be claimed
            in the initial  application for grant assistance

            Re_:  40 CFR 35.925-18, .940

        b.  project work may be accomplished by force account
            (municipal or public service employees) with prior
            approval of the project officer if the applicant
            can demonstrate that:

            (1) he possesses the necessary competence to
                accomplish the work

            (2) either the work can be accomplished more
                economically by the use of the force account
                method, or emergency circumstances dictate
                its use.

            Re:  40 CFR 35.936-14

        c.  the institutional arrangements and agreements
            between jurisdictions

            Re_:  CFR 35.917-2(a) (3), .917-6

        d.  payment of non-federal share of project costs

            Re:  40 CFR 35.925-5,  PRM 79

        e.  priority lists

            Re:  40 CFR 35.915, .925-3
                 PRM 79-6

        f.  the procurement of professional services and"
            contracts

            Re_:  40 CFR 35.936, .937, .938, .939, 965 and
                 Appendices C & D

        g.  record keeping

            Re:  40 CFR 30.800, .805
                               III-7

-------
 h.   limitations on collection systems
     Re_:   40 CFR 35.925-13,  .905
          PRM 78-9
 i.   user charges and industrial cost recovery
     Re_:   40 CFR 35.925-11,  .928,  .929
 j.   public  participation
     Re_:   40 CFR 35.917-5,  40  CFR  Part  25
 k.   initiation of property  acquisition, where applicable
     Re_:   40 CFR 35.940-3, PRM 	
 1.   compliance with the  requirements of the Civil
     Rights  Act of 1964,  including  applicability to
     sewage  collection systems for  minority areas,
     and  MBE policy.
     Re:   40 CFR 7,  8,  12
          43 FR 248  pp. 60220-60224
          PRM 75-32
m.   small wastewater systems
     Re_:   40 CFR 35.918
          PRM 79-8
n.   coordination of grant funding  with other federal
     agencies (FmHA,  EDA, HUD, CSA)
     Re_:   PRM 79-8
o.   OMB  A-95 review procedures  (clearinghouses)
     Re_:   40 CFR 30.305
p.   allowable  and unallowable costs
     Re_:   40 CFR 35.940
q.  other Federal requirements
    Re:  40  CFR Part  30, Subpart C
                      III-8

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    4.  Technical  Requirements

        All  technical  aspects  of the Step 1,  2,  3,  and  2   +  3 work
should be reviewed with the applicant with special  attention  to the
requirements for a plan of study and the preparation of a  facility
plan.  At a  minimum,  the following  items should  be  discussed:

        a.  the degree of technical  detail  required in  both
            the plan  of study  and the facility plan

            Re_:   40 CFR 35.920-3, .917
                 Guidance for  Preparing  a Facility  Plan (MCD-46)
                 Model  Plan of Study (MCD-24)

        b.  specific  problems  associated with  the project  in
            question  and how they should be addressed in
            item "a".

        c.  cost effectiveness  in its broadest sense and the
            trade-off  between  engineering,  environmental,
            monetary  costs,  and  institutional  arrangements

            Re_:   40 CFR 35.917-l(d),  Appendix  A, Guidance
                 for  Preparing a  Facility Plan (MCD-46)

        d.  infiltration/inflow  analysis,  sewer  system  evaluation
            survey

            Re:  Handbook  for Sewer  System  Evaluation and
                Rehabilitation  (MCD-19)
                40 CFR 35.927
                PRM  78-10

        e.   environmental  information  document integration
            in  the facility  plan  and  possible  environmental
            impact statement proceedings  (including  "piggy-
            backing" option), with emphasis on secondary
            impacts

            Re:  40 CFR  Part 6 (Subpart  E)  35.917-1(d)  (7), .925-8
                Guidance for Preparing  a Facility  Plan (MCD-46)
                Environmental  Assessment of Construction Grants
                Projects  (FRD-5)
                PRM 75-26
                PRM 75-31

        f.   pretreatment and treatment of incompatible pollu-
            tants

            Re:  40 CFR  35.907,  .925-15, 1935-19, 40 CFR Part 403
                              III-9

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g.  BPWTT, including secondary treatment and  waste
    stabilization ponds, land application, waste-
    water reuse.  (AWT or AST projects must undergo
    stringent review, see Chapter IV, 1.3.)

    Re:  Alternative Waste Management Techniques  for
         Best Practicable Waste Treatment, Evaluation
         of Land Application Systems
         40 CFR 35.917-l(d) (4), (5)

h.  innovative and alternative analysis

    Re:  40 CFR 35.908, .917-1(d) (8), Appendix E,
         I&A Technology Assessment Manual (MCD-53)

i.  other Federal requirements, such as historical pre-
    servation, archeological investigations,  flood-
    plain management and wetlands protection, prime
    agricultural land, flood insurance, etc.

    Re_:  40 CFR Part 6 Subpart C, Part 30, Subpart C.
         EO 11988, 11990
         PRM 75-27, PRM 76-5

j.  coordination with WQM agencies

    Re.:  40 CFR 35.917(e),  .917-7
         PRM 75-38

k.  multi-purpose projects

    Re:  PRM 77-4

1.  recreation and open space

    Re:  40 CFR 35.917-l(j)
                       111-10

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               CHAPTER IV



         STEP 1  GRANT PROCESSING








A.  INTRODUCTION



B.  SCHEMATIC FLOW DIAGRAM



C.  APPLICATION CONTENTS



D.  PLAN OF STUDY REVIEW



E.  ADMINISTRATIVE REVIEW



F.  GRANT AWARD PROCEDURES



G.  PREPARATION OF THE FACILITY PLAN



H.  FACILITY PLAN (ADMINISTRATIVE REVIEW)



I.  FACILITY PLAN REVIEW

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A.  INTRODUCTION

    This chapter describes the contents of, and review procedures
for processing a Step 1  project grant application.   It begins with
the receipt of the application package and concludes with the review
and approval of the facility plan.

    Section B. Schematic Flow Diagram, visually places this chapter
in the proper sequence and indicates its relationship to previous
chapters.

    Section C, Application Contents, provides a quick ready listing
of the materials which are contained in an application package.

    Section D, Plan of Study Review, is given individual attention
because it is the major technical  requirement of the application
and includes discussions prepared  by the applicant.   This section
includes a discussion of Water Quality Management (WQM)  plans as
they relate to the plan of study.   Costs incurred before filing
the application are also discussed.

    Section E, Administrative Review, describes the  procedures in-
volved in reviewing clearinghouse  comments, priority list compliance
and certification, application form, and contracts and subagreements.

    Section F, Grant Av/ard Procedures, describes the action re-
quired on the part of EPA in making the grant offer.

    Section G, Facility Plan Preparation, describes  responsibilities
during preparation of the facility  plan.

    Section H, Facility Plan (Administrative Review), describes
the procedures for approaching the  evaluation of the facility plan,
the review of clearinghouse comments and State approval.

    Section I, Facility Plan Review, describes the review of the
facility plan according  to the contents required by  regulation and
in the format recommended by the guidance.

    The technical  and administrative reviews are to  be performed
concurrently whenever possible.  When items are missing  or explana-
tions are necessary, the review is  to proceed as far as  possible
to insure quick action once the deficiencies are corrected.
                               IV-1

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B.  SCHEMATIC FLOW DIAGRAM (Figure IV-1).
    The  flow diagram  below visually places  this  chapter in the
proper sequence and indicates its relationship to other chapters.
The diagram includes  the general functions  of the Step 1 project
process  as performed  by the applicant, State  and EPA.
HAPTER 2


C STATE PLANNING^
PROCESS j



(STATE PRIORITY
SYSTEM
\ 1



| CHAPTER 3
|

/I
' PREAPPLI-
1 CONFERENCE
1
1



CLEARING-
COMMENTS


                                                               STEP 1
                                                            APPLICATION
                                                           PLAN OF STUDY
       STATE REVIEW
APPROVAL
& CERTIFI-
 CATION
                     PREPARATION &
                    SUBMISSION OF
                    FACILITY PLAN
                          STATE REVIEW
                                 IV-2

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C.  APPLICATION CONTENTS

    Below are listed the basic materials to be included  in an
application package.  The items are listed here for quick reference,
while the review procedures for each item are described  later.
Initially, the reviewer is to make a cursory review of the package
to insure that all  items are included, that all applicable portions
of the forms are completed and that the documents are signed by
the appropriate officials.  If items are missing or explanations
are necessary, the  applicant is to be informed through the State
but the review is to proceed as far as possible to insure quick
action once the corrections are made.

    1.  Plan of Study

    2.  Comments of State, local and Federal agencies including
        Clearinghouses (A-95 process)

    3.  State Priority Certifications, EPA Form 5700-28 (furnished
        by State)

    4.  Application, EPA Form 5700-32, including authorizing re-
        solution

    5.  Proposed subagreements (generally A&E contracts) or ex-
        planation of method of awarding proposed subagreements,
        including evidence of compliance with MBE policy

    Re:  40 CFR 35.920-2(b), .920-3(a)
    ~   40 CFR 30.305, .315
                               IV-3

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D.  REVIEW OF THE PLAN OF STUDY  (POS)

    1.  Contents

        Purpose:

        A plan of study  is submitted by the applicant to show his
understanding of the work to be  done in preparing a facility plan.
The plan must include the key  issues to be addressed, a time sche-
dule, and itemized costs for the completion of the specific tasks.

        Discussion:

        The plan of study is the first element of grant request
to be submitted by the applicant.  It concisely describes the scope,
schedule, and costs of the proposed facility plan.  It must be
critically reviewed to insure  that all statutory requirements are
met and that the project begins  on the proper course.

        While the plan of study  should be brief and generally
follow the format suggested in the Guidance for Preparing a Facility
Plan in terms of subject matter  to be included, it should also
address unique features of the project which will require special
attention.  Such unique features might include water-short areas,
recreational areas, historical and archeological sites, and
economically depressed areas.

        The plan of study should also include the design effluent
limitations for the proposed project.  To avoid long replanning or
design delays which might otherwise result from effluent limitations
changes, limitations requiring treatment greater than secondary
should be reviewed in accordance with PRM 79-7.

        The plan of study must be submitted to the appropriate A-95
clearinghouse for review prior to formal submission to the State
and EPA as part of the Step 1  grant application.  The plan of study
must be reviewed by all agencies to insure consistency with pre-
viously approved wastewater management plans, interstate agreements,
and other state, areawide, or  local plans which are applicable.

        The plan of study, once  approved and incorporated into the
grant agreement, is to include a time schedule for the completion
of specific tasks, and itemized  costs for each of these tasks.  This
schedule of tasks and accompanying costs are used to develop a
payment schedule, which  in turn  is used  in preparing projections of
cash disbursements.  Once the  grant payment schedule has been es-
tablished, the grantee may submit requests for payment of work that
has been completed, in accordance with the grant payment schedule.
                               IV-4

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        Review Procedures:

        In reviewing the plan of study, attention must be focused
on those  items which are required by regulations as well as those
which will need to be developed in the facility plan.  The plan
should indicate that the statutory requirements described in later
chapters  of this Handbook will be satisfied and that the applicant
understands them and will be able to proceed in a manner which will
satisfy them.

        Regulations require that the plan of study contain five
items as  follows:

           "(i)  The proposed planning area;

           (ii)  An identification of the entity or entities that
                 will  be conducting the planning;

          (iii)  The nature and scope of the proposed Step 1
                 project and public participation program, in-
                 cluding a schedule for the completion of specific
                 tasks;

           (iv)  An itemized description of the estimated costs
                 for the project;  and

            (v)  Any significant public comments received."

        Additional  items which should be included in the plan of
study are suggested in Guidance for Preparing a Facility Plan and
Model Plan of Study.   These include maps detailing the study area's
political  boundaries,  surface water resources,  and service areas of
existing waste treatment systems;  description of project need due"
to State or Federal enforcement orders, public  health or water
quality problems;  and  previously prepared documents and other data
which will be used  in  developing the facility plan.

        If, based  on this review,  the need for  an Environmental
Impact Statement  (EIS)  is apparent,  the Regional  Office may initiate
the joint EIS/Assessment procedure ("piggybacking") outlined in
PRM 75-31.  The use of this procedure can result in considerable
savings of time.

        EPA must  also  determine the  level  of public participation
to be required (exempt,  basic,  or  full  scale)  for the proposed
project.

        Re:   40 CFR 35.920-3(a), PRM 75-31
             Guidance  for Preparing  a Facility  Plan (MCD-46)
             Model  Plan  of  Study  (MCD-24)
                               IV-5

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    2.  Planning Considerations

        Prior to awarding a grant, EPA must determine that the
proposed POS is consistent with any applicable water quality manage-
ment (WQM) plan approved under section 208 or 303(e) of the CWA and
that the applicant is  the wastewater management agency designated
in an approved WQM plan.  The reviewer must be familiar with the
planning area and be aware of the status of applicable plans.

        Facilities planning must be based on waste load allocations,
delineation of facility planning areas, and total population pro-
jections and disaggregations in approved WQM Plans.  After October 1
1979 no grant assistance may be approved if such information is not
available in an approved WQM plan.  Notable exceptions are:  (1)
where facility related information was not within the WQM scope
of work and (2) where  award of grant is necessary to achieve water
quality goals of the CWA.

        Re:  40 CFR 35.917(3), 925.-2
             Guidance  for Preparing a Facility Plan (MCD-46)
    3.  Prior Costs

        The application  form  requires the applicant to provide a
breakdown of the costs for  preparing a facility plan.  The plan of
study also requires a breakdown of these costs by specific task.
These costs are to be reviewed to insure that they are allowable
costs as defined in Chapter VII.  This section is concerned only
with the timing of when  these costs were incurred.

        If the costs to  prepare the facility plan will be incurred
after the grant award, no special review procedures are required.

        Costs for the preparation of the application, plan of
study and other supporting  documents are not allowable for EPA
grant assistance.

        To ensure, where possible, that costs incurred are allow-
able, the regulations specify that "no grant assistance is authorized
for Step 1 or Step 2 project  work performed before award of a Step 1
or Step 2 grant."  However, in conjunction with the first award of
grant assistance, payment is  authorized for preaward, allowable
costs in the following special cases:

        a.  where Step 1 work was begun after the approval of the
            plan of study by  the Regional Administrator, provided
            that the State  has requested and the Regional Adminis-
            trator has reserved funds for the Step 1 grant, and
                               IV-6

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            provided that the grant is applied for and  awarded
            within the allotment period of the reserved funds.

        b.  where Step 1  or 2 work was begun after October 31 ,
            1974 but before June 30,  1975, in accordance with  an
            approved plan of study or facilities  plan respectively,
            provided that the grant is awarded before April  1,
            1981.

        c.  where Step 1  or 2 work was begun prior to November 1,
            1974, provided that the grant is awarded before
            April 1, 1980.

        In all  cases, the applicant must request  grant  assistance
for prior costs in his first application.

        Where prior costs are incurred, the applicant must submit
a breakdown of  these costs, identifying the dates the costs  were
incurred and the nature of the work which  was performed.

        Re_:  40 CFR 35.920-3(a), .925-18(a) ,(c),  .945(a)
                               IV-7

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E.  ADMINISTRATIVE REVIEW

    1.  Clearinghouse Comments

        Purpose:

        Applicants for construction grants for wastewater treat-
ment facilities are required to comply with the Office of Manage-
ment and Budget (OMB) Project Notification and Review System (Cir-
cular A-95).  This procedure is established to provide for the
early contact between applicants and governmental  agencies, and  to
insure coordination between related projects.

        Discussion:

        Prior to submission of a Step 1 project application, the
applicant is required to submit a plan of study and related Step  1
application material to the State and/or regional  clearinghouses  for
comment in accordance with OMB Circular A-95.  A copy of the
clearinghouse(s) comments is to be included with the application
package.

        The clearinghouse comments will indicate the degree of
interest of other governmental agencies in the project.   If these
comments are adverse, the applicant is to submit a statement ex-
plaining how the comments were considered.  If a clearinghouse
recommends that the application be rejected but EPA approves it,
the clearinghouse must be notified and given an explanation of the
reasons for approval.

        Review Procedures:

        The reviewer must make particular note of any adverse
clearinghouse comments.  These comments may require further explana-
tion from the applicant, State, or clearinghouse.   More serious
adverse comments may dictate that the application be returned to
the applicant through the State agency.

        The reviewer must determine if the comments warrant a
special condition in the grant agreement (see section F below).

        Re:  40 CFR 35.920-3(a)(3)
             40 CFR 30.305
             OMB Circular A-95
                                IV-8

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    2.  Priority List Compliance and Certification

        Purpose:

        The State agency is required to certify each project as
entitled to priority for grant funds in accordance with the State
priority system and the project priority list.

        Discussion:

        Only projects which have been certified by the State as en-
titled to priority for Federal assistance may receive a grant.
Following EPA approval of the State priority system and acceptance
of the project priority list, each project must be certified by
the State as being entitled to priority for a grant over all other
projects below it on the priority list (EPA Form 5700-28, see
Appendix B).  Refer to chapter II for a discussion of the State
priority system and list.

        A State may elect to set aside up to ten percent of its
yearly allotment to fund Step 1 and Step 2 projects not on the cur-
rent priority list.  When such projects are certified, the certifica-
tion must signify that the grant is to be made from that reserve
allotment.

        Review Procedures:

        Review State Priority Certification to determine that:

        a.  the name, project number and description of the project
            agree with the application, form 5700-32, and the
            approved State priority list;

        b.  the form includes the signature of the authorized
            State official;

        c.  the award of grant assistance for the project will
            not exceed the State's allotment, including reallotments;

        d.  the award of grant assistance will not jeopardize the
            funding of any projects of higher priority;

        e.  the State has included a statement to the effect that
            all jurisdictions within the facility planning area have
            been notified of their inclusion .in such planning.

        Re:   40 CFR 35.915, .917-2(b), .920-2(b), .925-3, .925-4
             PRM 75-14, PRM 75-16, PRM 75-24
                              IV-9

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    3.  Application Form

        Purpose:

        EPA Form 5700-32 is the formal application document  and
sets forth the information necessary to qualify for a construction
grant.  Additionally, the application contains "assurances"  from
the applicant which are necessary to satisfy statutory requirements.

        Discussion:

        The designation of a facility planning area is a State
responsibility and should include that area deemed necessary to
prepare an environmental assessment and to assure that the most
cost-effective means of achieving the established water quality
goals can be planned for and implemented.  The applicant for the
designated area may be a joint authority representing the multiple
jurisdictions, one or more of the eligible jurisdictions or  one
lead agency representing all jurisdictions.  In all cases, the
applicant must have the legal authority to plan, design, finance,
construct, operate and maintain any resulting wastewater treatment
facilities.

        The application form is used for an initial grant request,
amendments, or supplemental grants.  The form (see Appendix  B)
contains instructions for completion of each of the five parts.
Part II, Section B requires information on the project site  to be
submitted with the application.  Since a facility plan resulting
from the award of a Step 1 project grant will conclude which is
the most cost effective and environmentally sound project site,
the information contained in this section is not necessary for a
Step 1 project grant award.

        The CWA requires that the applicant comply with related
laws and regulations and give other assurances.  These requirements
are satisfied for a Step 1 project grant when the applicant  signs
the application and thereby assures and certifies that he will
comply with the requirements.

        The applicant must attach to the application a copy  of
the resolution authorizing the signer to act as the official repre-
sentative of the applicant (Part V, item 1).  Any subsequent
changes in the authorized official must also be substantiated.

        Review Procedures:

        Review application form and determine that:
                                IV-10

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        a.  the name, project number and description of the project
            and amount of grant request agree with the State
            Priority Certification, Form 5700-28;

        b.  the form is signed by the authorized representative and
            a copy of the authorizing resolution is attached;

        c.  information regarding project location, entities in-
            volved and cost data corresponds to that in the plan
            of study;

        d.  all items in the application are complete or marked
            not applicable (NA);

        e.  Part V, assurances, is part of application.  If not,
            a properly signed form must be obtained.

        f.  Part III, Section D, Proposed Method of Financing Non- •
            Federal Share, insures that applicant can successfully
            fund his share of the project costs.

        Re:  40 CFR 30.315
             40 CFR 35.917-2, .917-3(a), .920-2, .925-5
             PL 94-488
             31 CFR Part 51, Department of Treasury
    4.  Contracts and Subagreements

        Purpose:

        Contracts or subagreements for personal or professional
services are submitted by the applicant and reviewed by both the
State and EPA to insure that the scope and nature of the proposed
services are sufficient to result in an approvable facility plan
and that the fees and schedules are reasonable.

        Discussion:

        The personal and professional  services covered by the sub-
agreements at the time of Step 1 application submission are
generally the consulting engineering services, although separate
agreements may also  exist for environmental consultants, financial
consultants, etc. The regulations state that the application shall
include proposed subagreements or an explanation of the intended
method of awarding subagreements for performance of any substantial
portion of the project work.
                               IV-11

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        The detailed requirements of, and procedures for,procuring
personal or professional services appear in 40 CFR 35.936, .937
and Appendices C & D.  Certain clauses of these regulations (e.g.
access) are applicable to subagreements and lower tier subagreements
in excess of $10,000.  See Figure III-l, previous, for applicability
of specific clauses.  The goal oriented policies and procedures
regarding MBE set forth  in 43 FR 248 contain the responsibilities
of EPA, Grantees, Consulting firms, Prime Contractors and MBEs.

        Review Procedures:

        Review the agreement(s) and determine that:

        a.  the grantee  has complied with 40 CFR 35.936,  .937,  and
            (if applicable) .939;

        b.  the scope of work is sufficient to prepare an approv-
            able facility plan;

        c.  completion schedules are reasonable and in agreement
            with the plan of study;

        d.  the applicant has complied with EPA's policy  for in-
            creased use  of minority business enterprises  (MBE).

        Re:  40 CFR 35.920-3(a)(2),  .935-7, .936, .937, .939
             Appendix C-l & D
             40 CFR 30.605
             43 FR 248 pp. 60220-60224
                               IV-12

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F.  GRANT AWARD PROCEDURES

    The administrative procedures required in awarding a grant are
summarized below.  A detailed line-by-line explanation of the admin-
istrative steps necessary in preparing EPA forms and notifications
is described in the Grants Administration Manual prepared by the
Grants Administration Division, Office of Planning and Management,
EPA.

    Item 1 below describes the actions for which the Regional Office
may establish procedures.  Item 2 through 5 describe uniform actions
prescribed by Headquarters.

    1.  Regionalized Procedures

        a.  Notification to financial  management branch;

        b.  Preparation of transmittal letters to the appli-
            cant and State agency (include instructions for
            predesign conference, as appropriate);

        c.  Other regional procedures  which have been worked
            out with the States,  interstate agencies, etc.
    2.  Notification of Grant Award Action

        The Notification of Grant Award Action,  EPA Form 5700-18,
(see Appendix B) is completed and transmitted to Grants  Information
Branch, Headquarters, by Communicating Magnetic  Card Selectric Type-
writer on the date of award or no later than the following  working
day.

        The Grant Information Branch immediately forwards a copy of
the 5700-1B to the Office of Legislation which notifies  appropriate
congressional offices.   The applicant is not to  be notified of grant
award until 5 working days after congressional notification.

        EPA Form 5700-1D is used in the case of  a decrease, declina-
tion, or withdrawal of a grant.
                               IV-13

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     3.   Grants Information and Control  System  (GIGS)

         The Grants Information and Control  System  (GICS) is a com-
 puter based management system in which  information concerning the
 construction grants program is stored.   This information is used for
 analyzing the grant program,  manpower requirements, ansv/ering con-
 gressional  inquiries and other purposes.   The  information must be
 current and available for quick retrieval.

         Information concerning the award of each construction grant
 is  entered  into the system using prescribed coding sheets.

         Re:   Grants Information and Control System (GICS), WWT
              Construction Grants Information Data Base,
              Operators'  Manual
    4.  Clearinghouse Notification

        Purpose:

        Notification  of clearinghouse  is made in order that the
clearinghouse may  inform interested agencies or other entities of
the award of a  grant  in accordance with Treasury Department Circular
No. 1082.

        Procedures:

        The notification, Standard Form 424 (see Appendix B),  is
completed by the regional office and copies are mailed to the  State,
regional and local clearinghouse.

        Re:  U.S.  Treasury Department  Circular No. 1082, Revised (1976)
             40 CFR 30.305-4(c)
    5.  Grant Agreement/Amendment

        Purpose:

        The Grant Agreement/Amendment (EPA Form 5700-20)  serves  as a
formal document of agreement between the U.S. Government  and  the
grantee, and constitutes a legally binding contract once  executed.
                               IV-14

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        Procedures:

        EPA Form 5700-20 (see  Appendix  B)  is  completed by  the
Regional  Office based upon the information submitted  in the  appli-
cation package.  The agreement must define the  approved project
scope, budget,  total project costs, and pertinent  schedule dates  in
accordance with the application.   Modifications to grant amounts,
scope of work or other items are  made on the  basis of the  review
process,  and special conditions of the  grant  are included  in Part
III b.  These special conditions  may be based upon clearinghouse
comments, requests from the State agency or conditions unique  to  the
project.

        The applicant is given three weeks to accept  the grant offer,
and to return the signed grant agreement/amendment to EPA.  The
individual signing the grant agreement/amendment on behalf of  the
applicant should be the authorized representative  who signed the
application.  Differences must be explained and a  new authorizing
resolution submitted (see Application Form item E.3 of this  chapter)
if such occur.

        Re_: 40 CFR 30.345
            40 CFR 35.930
                               IV-15

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G.  PREPARATION OF THE  FACILITY PLAN

    Purpose and Discussion:

    Program responsibility for the progress of a project does not end
with the grant offer.   The reviewer must be continually aware of the
status of the project to insure that the facility plan is completed
in accordance with special requirements and the approved schedule
submitted with the plan of study.

    The reviewer should work closely with the grantee in preparation
of the facility plan and should review portions of the plan as they
are developed.  This will insure that all regulatory requirements
are satisfied and that  additional information and necessary changes
are incorporated into the plan in the most expeditious manner.

    The detail of facilities planning will vary depending on the
complexity and scope of the project and "shall be conducted only to
the extent that the Regional Administrator finds necessary in order
to insure that facilities for which grants are awarded will be cost
effective and environmentally sound."  This allows the reviewer to
exercise flexibility in advising the grantee as to plan requirements.

    Procedures:

    Shortly after award of a Step 1 grant, the reviewer
should:

    1.  contact the grantee and his consultant and make known
        the kinds of advice and assistance available from the
        State and EPA during the preparation of the facilities
        plan;

    2.  advise the grantee as to progress reports, which must
        be submitted quarterly for any facilities planning
        project scheduled to take more than 1  year for
        completion;

    3.  advise the grantee (normally on large complex projects)
        that periodic inspections or audits will be made by
        either the State or EPA;

    4.  point out special grant conditions.

    Note:   During preparation of the plan, conduct midcourse meet-
ings and other progress reviews as necessary.

    Re:  40 CFR 35.917-3(b), .917-4(b), .925-13, .935-7
                               IV-16

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H.  ADMINISTRATIVE REVIEW (FACILITY PLAN)

    1.  Clearinghouse Comments

        Purpose:

        The grantee must submit the completed facility plan to the
appropriate clearinghouse to allow for review and conment by
interested agencies in accordance with the procedures of the Project
Notification and Review System (OMB Circular A-95).

        Discussion:

        Before submitting the completed facility plan to the State
agency, the grantee is required to obtain comments from the appropri-
ate State and Regional clearinghouses.  The clearinghouses are to
review the plan, circulate it to interested agencies, and return
their comments to the grantee within 30 days.  If the comments are
adverse, the grantee must submit, with the completed plan, a state-
ment explaining how the comments were considered.

        If, as a result of the facility plan review by the State or
EPA, the proposed project is modified, in accordance with A-95 pro-
cedures, it may be necessary to obtain clearinghouse comments on the
facility plan again.

        Review Procedures:

        The reviewer must consider all adverse clearinghouse comments,
The comments may require further explanation from the applicant,
State or clearinghouse.  If the reviewer finds that any adverse com-
ments are not adequately addressed, the completed facility plan must
be returned to the applicant through the State agency.

        Re:  40 CFR 30.305
             40 CFR 35.917-1(f)
             OMB Circular A-95
             Guidance for Preparing a Facility Plan (MCD-46)
                               IV-17

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    2.  State Review  and Certification

        Purpose:

        The State agency is  responsible for the review and coordina-
tion of each facility plan and must provide certification to EPA
that these responsibilities  have been met.

        Discussion:

        After obtaining clearinghouse comments, the grantee must sub-
mit the completed facility plan and the clearinghouse comments to the
State agency for review.  The State is to insure that the facility
plan is in accordance with the water quality objectives of its pro-
grams.  Problems between the State and grantee should be resolved
prior to review by EPA.  Facility plan approval by EPA cannot be
made without State certification.

        Review Procedures:

        The State is  to certify that the completed facility plan:

        a.  conforms  with the regulatory requirements for
            a facility plan;

        b.  conforms  with any completed basin plan
            (303(e));

        c.  has been  available to any concerned 208
            planning  agency  for comment;

        d.  conforms  with any approved waste treatment
            management plan  (208(b)).

        Re:  40 CFR 35.917-7
             Guidance for Preparing a Facility Plan (MCD-46)
                               IV-18

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I.   FACILITY PLAN REVIEW
    General
    The plan must encompass  the  following:
    1.   a description  of the treatment  works  for  which  plans  and
        specifications will  be prepared including:
        - engineering  data
        - cost estimates
        - schedules  for completion  of design  and  construction;
    2.   a description  of the complete treatment system  of  which
        the  works are  a part;
    3.   infiltration/inflow  documentation;
    4.   a cost-effectiveness analysis of 1, 2, and  alternatives
        including evaluation of:
        a.   the relationship of  capacity to needs and reserve
        b.   flow and waste reduction, including non-structural
            measures
        c.   optimum  performance  of  existing system
        d.   ability  to meet  effluent limitations
        e.   application of best  practicable waste treatment tech-
            nology
        f.   ultimate disposal of effluent and sludge
        g.   the environmental impacts as contained  in an adequate
            environmental information document
        h.   innovative and alternative  technology processes
        i.   primary  energy requirements;
    5.   effluent limitations or  NPDES permit;
                               IV-19

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    6.  clearinghouse comments;

    7.  a final responsiveness summary of public participation;

    8.  a statement that grantee has resources to construct,  operate
        and maintain the treatment works;

    9.  a statement of compliance with Civil Rights Act;

   10.  a description of recreation, open space and water access
        opportunities analyzed in the recommended plan;

   11.  a municipal pretreatment program;

   12.  an estimate of total project costs and charges to customers;

   13.  a statement on the availability and estimated cost of pro-
        posed sites.

    Re_:  40 CFR 35.917-1


    NEPA

    Regulations (40 CFR 6.506) for the National Environmental
Policy Act (NEPA) require that "an adequate environmental information
document must be an integral part of any facilities plan submitted
to EPA or to a State."  In States where the review of facilities
plans has been delegated, State personnel must prepare a preliminary
environmental assessment that will serve as the basis for EPA's
decision to issue a finding of no significant impact (FNSI) or an
EIS.  The environmental information document must cover all poten-
tially significant impacts, related factors and concerns under the
following:

    1.  a description of the existing environment, with emphasis
        on the conditions relevant to the analysis of alternatives;

    2.  a description of the future environment without the project
        (no action);

    3.  a discussion of the purpose and need for wastewater treat-
        ment in the planning area;

    4.  documentation of sources used in the evaluation;

    5.  an evaluation of alternatives, with attention given to
        long term impacts, irreversible impacts and induced impacts;
                               IV-20

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    6.  a discussion of the environmental consequences, including
        direct and indirect effects of the proposed action;

    7.  a description of steps to minimize adverse effects, both
        structural and nonstructural,  considered in the plan or
        identified during review, including any which should be-
        come contingencies to award of further grant assistance.

    To enable grantees to comply with  these often complex environ-
mental review requirements, EPA has prepared a publication entitled
"Environmental Assessment of Construction Grants Projects" (FRD-5).

    Re:  40 CFR 6.506
    Contents

    The facilities planning requirements overlap in many areas and
may not always be understood by the applicant or his consultants.
To assist the grantee in understanding and satisfying these require-
ments, EPA prepared a publication entitled, "Guidance for Preparing
A Facility Plan" (MCD-46).   The guidance, however, is for advisory
information only.  A grantee may select his own method or format
for preparing a facility plan as long as he meets the regulatory
requirements above.

    The "Guidance for Preparing A Facility Plan" (GPFP)  contains
a suggested format or outline for the plan.  The same format is
used in the publication "Model  Facility Plan for a Small  Community."
The review procedures in this handbook are based on a facility plan
prepared in the suggested format.  Some of the suggested chapters
or subparts are self-explanatory and do not require explanations.
Others are more complex and Purpose, Discussion and Review Pro-
cedures are provided.  The  references at the end of each part refer
to the regulations, program requirements memoranda, or guidance
which apply to the matters  covered therein.
    1.   Summary, Conclusions and Recommendations

        (Self-explanatory)
                              IV-21

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    2.  Introduction

      2.1  Study, Purpose and Scope

           (Note:  The proposed project may include only sewage
collection, trunk or  intercepting sewers, treatment plant expansions
or additions, small wastewater systems, or alternative wastewater
treatment systems.  The  review procedure which follows assumes  a
complete treatment system including all of the above.  For projects
of lesser scope, some items will not be applicable and can be
omitted.)

      2.2  Planning Area (Map)

           (Self-explanatory)
    3.  Effluent Limitations
        Purpose

        The limitations upon the effluent from the proposed treat-
ment works establish quantitative parameters which must be
achieved in order to meet water quality standards or environmental
needs.

        Discussions

        The facility plan is prepared and the treatment works  are
constructed to meet the effluent limitations usually for the segment
of receiving waters into which the effluent will  be discharged.
These limitations, as a minimum, require best practicable waste
treatment technology (BPWTT, secondary treatment or more stringent
water quality related requirements for discharge to surface waters),
except for discharges from combined systems.  Combined (storm  and
sanitary) sewer systems present a special case.   The required
levels of pollutant removals, and the evaluation of alternatives
to achieve these levels, are to be determined case-by-case as
required by Agency policy (PRM 75-34).
                                IV-22

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        The facility plan must evaluate alternative solutions  to the
water pollution or public health problem,  and the effluent limitations
may vary from one alternative to the next.   The effluent limitations
for existing discharges are contained in the discharge permit
issued under the National Pollutant Discharge Elimination System
(NPDES).  For completely new systems, the State will  establish the
effluent limitations based on approved water quality standards.

        In cases of treatment and discharge, or land application
systems involving discharge to surface waters, secondary treatment
is required for segments classified as effluent limited.  Higher
levels of treatment may be required in order to achieve water
quality standards.  Segments of receiving waters requiring higher
treatment, for nutrient removal or greater reduction in BOD or
suspended solids, are designated as water quality limited (see
Chapter II).  Where land application or utilization techniques
result in eventual discharge to groundwaters (infiltration, per-
colation, etc.), the minimum acceptable treatment must be able to
meet BPWTT.

        Current EPA policy requires a rigorous review of projects
designed for treatment more stringent than secondary.  The incre-
mental , additional capital costs of a project, which are attributable
to effluent limitations or water quality requirements more stringent
than secondary, must be based on a justification showing significant
receiving water quality  improvement and mitigation of public health
problems where they exist.  Furthermore, projects requiring treat-
ment more stringent than secondary should be evaluated for their
financial impact on the community.  Under this policy, the Regions
have primary responsibility for reviewing such projects, and will
decide how  to  proceed  in accordance with PRM 79-7.  In general,
where  projects have incremental costs beyond secondary of $1 million
or less, the Region retains the decision making authority.  Where
incremental costs exceed $1 million, approval must be given by EPA
Headquarters.  Specific  procedures to be followed in the review of
applicable  projects are  identified im PRM 79-7.

        Although  secondary treatment  is the minimum acceptable for
discharge to navigable waters,  regulations  (40 CFR Part  125)  allow
modification of NPDES  permits  to provide levels of treatment  below
secondary under certain  circumstances.  These  regulations apply to
publicly owned treatment works  (POTW)  having  existing discharges
to marine waters  as of December 27,  1977, where special  applications
for  waivers were  made  in accordance with timing requirements.
                                IV-23

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         In  preparing  the  facility  plan, the grantee is required to
evaluate  the  following  waste  treatment management techniques:

       "(i)   Biological or  physical-chemical treatment and dis-
              charge to  receiving waters;

       (ii)   Systems  employing  the reuse of wastewater and re-
              cycling  of pollutants;

       (iii)   Land  application techniques;

       (iv)   Systems  including  revenue generating applications; and

         (v)   Onsite and nonconventional systems."

        The State  has the responsibility for certifying effluent
limitations.  Where existing  effluent limitations are found to be
inadequate, and State funds for recomputing the allocations are not
available, 201 funds  may  be used to define effluent standards appli-
cable  to  the  project.

        Review Procedures:

        The reviewer  must establish that the correct set of effluent
limitations has been  used,  by comparing the stated limitations with:

        a.  the discharge permit in the case of existing dis-
            charges;

        b.  limitations established in the WQM plan;

        c.  the reuse or  groundwater recharge requirements if land
            application or onsite  and nonconventional  systems have
            been selected.

        Errors or  inconsistencies  are to be corrected by the State
agency.

        Note:  In  accordance  with  EPA policy, special  review pro-
cedures are required  in the event  of projects involving treatment
levels higher than secondary.   In  such cases, it is essential  that
the reviewer  consult  PRM  79-7 for  details.

        Re_:   40 CFR Part  133, Part 125
              40 CFR 35.917, .925-2, .925-6
              GPFP  (MCD-46)
              Evaluation of Land Application Systems
              PRM 79-3,  PRM 79-7, PRM 79-8, PRM 79-11
                               IV-24

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    4.  Current Situation

      4.1  Conditions in the Planning  Area

        Purpose and Discussion:

        The existing conditions  in the project area  are  described
in order to form a basis of comparison among alternatives.   If the
topics listed below are described in detail, they will provide a
clear distinction between the "before" and "after" conditions.
The "after" conditions are described in later chapters.

        Sources of information should  be cited or referenced.

        Review Procedures:

        Suggested topics which describe the existing conditions
may include:

        a.  A description of the planning area—planning area  bound-
            aries, political jurisdictions, and physical character-
            istics (topography,  geology, soils, hydrology,  etc.);

        b.  Organizational context—the role and relationship  between
            all existing organizations involved in planning,
            financing, and operating publicly owned treatment
            works;

        c.  Demographic data—the most current population estimates
            (in accordance with  40 CFR Part 35 Appendix  A)  and
            the latest decennial census; population growth  pat-
            terns and densities; minority areas not presently
            sewered; number and  types  of major industries and
            other employment generating entities; existing  land-
            use patterns and controls  including comprehensive
            planning and zoning  regulations;

        d.  Water quality—identify quality, quantity and uses
            of existing surface and groundwaters;

        e.  Other existing environmental conditions—to  the ex-
            tent appropriate, descriptions of air quality,  noise
            levels, energy production and consumption, wetlands,
            flood plains, coastal zones, wild and scenic rivers,
            prime agricultural lands and other environmentally
            sensitive areas, historic, architectural and archeolo-
            gical sites, plant and animal communities and habitats
            which may be affected, especially those on the
            threatened or endangered species list, and related
            Federal or State projects in the area.
                               IV-25

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         The  reviewer is  to  take  special  note of the items under-
lined  in e. above  and included  in the  discussion since the impact
of the proposed  project on these  items may  require the grantee,
State  or EPA  to  follow special  review  procedures and may result in
special conditions  on subsequent  grants  (see section 10).  Also,
the reviewer  should note  major  industrial contributors to insure
that they provide  pretreatment, as  necessary, in the proposed
project.

         Re:  40 CFR 6.506
              GPFP  (MCD-46)
              PRM  75-32

       4.2  Existing Wastewater Flows  and Treatment Systems

         Purpose and Discussion:

         The  inventory of existing  wastewater treatment facilities,
including onsite disposal systems,  furnishes information as to the
extent of the existing systems, their  interrelationships, and the
base line flow information by which future  flows will  be determined.
The data may  indicate  conditions  which limit the number of feasible
alternatives  and give  an  indication of the  severity of the pollution
problems.   Later sections address the  performance of existing
systems and methods  of achieving  optimum performance.

         Review  Procedures:

         The  inventory should, to the extent appropriate:

         a.   show the  location of all treatment plants,  sludge
             management areas and facilities, pretreatment plants,
             pumping stations and collection systems;

         b.   describe  the facilities identified in  a.,  including
             design  capacity, existing flows and characteristics
             of wastes, overloaded conditions,  if any;

         c.   show the  location of, and describe, major  industrial
             discharges;

         d.   show locations of significantly developed areas
             served  by onsite or nonconventional systems;

         e.   include a discussion  and analysis  of average,  peak,
             dry, and wet-weather  flows (also discussed  in  I/I
             analysis);
                                IV-26

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         f.   show the locations  of all bypasses  and  overflows;

         g.   describe the extent of  any combined  sewer  system;

         h.   describe any flow reduction program  in effect.

         Re:   GPFP (MCD-46)
              PRM 78-9

       4.3  Infiltration and Inflow

         Infiltration/Inflow Analysis

         Purpose:

         The infiltration/inflow analysis is conducted  to identify
the existence, or possible existence, of excessive  infiltration/inflow
within each existing sewer system to be connected to the proposed
treatment facilities when the State  has inadequate  information  upon
which to base a certification of such conditions.

         Discussion:

         As part of the facility plan, a sewer  system evaluation
is begun, consisting of an infiltration/inflow  analysis conducted
in accordance with the "Handbook for Sewer System Evaluation and
Rehabilitation", and/or PRM 78-10.  The purpose of  the  analysis is
to identify infiltration and inflow  which may be  economically re-
moved from the system.  The results  are used in sizing  the proposed
facilities.

         Program experience gained during the initial years  indi-
cates the following procedures can be used to accelerate infiltra-
tion/inflow decisions:

         a.   When the flow meters at the treatment  plants are
             determined to be well maintained and acceptably
             accurate, the quantity  of I/I should be determined
             on the basis of plant flow charts  in conjunction with
             the calculated theoretical base flow.   A subsystem
             approach for determining I/I conditions may be  ad-
             visable in large systems, especially where flow
             records for pump stations are available or where
             specific problem areas  are known or  suspected by the
             grantee.
                                IV-27

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Figure IV-2.   Procedures  for Infiltration/Inflow Review
                                   IGNIFICANT
                              »-
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         b.  When the maximum infiltration rate based on the highest
             weekly (7 days) average within a twelve month period
             is less than 1,500 gallons per day per inch of pipe
             diameter per mile of sewer, including service
             laterals, the infiltration is considered nonexcessive.
             This should normally be based on the total  system
             flow.

         c.  For infiltration rates greater than 1,500 gpd/in/m,
             a cost-effectiveness study is required for determining
             the possible existence of excessive infiltration.

         d.  For separate sanitary sewers, possible existence of
             excessive inflow should be determined by performing
             a cost-effectiveness analysis.

         e.  The results obtained from an economic study in the
             I/I analysis phase are, at best, preliminary and sub-
             ject to further verification, when possible excessive
             I/I exists.  Therefore, the cost-effective analysis
             should be simple and brief, and additional  data
             should not be routinely required.

         f.  A report summarizing the results based on the above
             analysis is required by EPA.   The report should pro-
             vide flow data necessary to substantiate the report's
             conclusions.  When I/I is determined to be possibly
             excessive, the report should include, in addition to
             flow data, a detailed program and estimated costs
             for performing a sewer system evaluation survey
             (SSES).

         g.  Where possibly excessive I/I  is identified, the
             applicant may use the exception clause in the regu-
             lations (see 40 CFR 35.927-5(c)).   This clause allows
             the grantee to complete the facility plan and conduct
             the sewer system evaluation survey concurrently with
             project design.  To accomplish this, the grantee
             needs to estimate the nonexcessive flows or demon-
             strate that the proposed treatment works will  be a
             part of the rehabilitated sewer system.

         The prudent application of these policies may allow the
grantee to conduct the sewer system evaluation survey, if required,
concurrently with the treatment works design.  However,  the
grantee may conduct or EPA may require the sewer system evaluation
survey as an extension of the facility plan.   Such work may be
funded by increasing the Step 1  grant.
                               IV-29

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         The I/I analysis may be submitted by the grantee to the
State agency at any time prior to the submission of a completed
facility plan.

         In lieu of an  I/I analysis, the State agency may certify
that excessive I/I does or does not exist.  In cases where this
procedure has been established and is still in effect, the grantee
need not submit an I/I  analysis.

         Review Procedures:

         If the State agency makes a certification of excessive or
nonexcessive I/I, the following are applicable:

         a.  the State  must continue to have the authorization of
             the Regional Administrator to make such certification;

         b.  the certification form must be signed by the
             authorized State official and contain language speci-
             fied in PRM 75-7.

         If the grantee submits an I/I analysis, determine that:

         a.  the analysis contains a conclusion as to the quantity
             of possibly excessive I/I or that excessive I/I
             does not exist;

         b.  the methods and data analyzed are sufficient to
             support the conclusions;

         c.  the cost estimates and schedules for a sewer system
             evaluation survey have been included as appropriate.

         Re:  40 CFR 35.917-l(c), .925
              PRM 75-7, PRM 78-10
              Handbook  for Sewer System Evaluation and Rehabilita-
              tion, (MCD-19)

         Sewer System Evaluation Survey

         Purpose:

         The sewer system evaluation survey is conducted where
necessary to locate and quantify sources of infiltration/inflow and
to determine those which can be cost-effectively eliminated.
                                IV-30

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         Discussion:

         The evaluation  survey must be  performed  by  the  grantee  in
all  cases where possibly excessive I/I  has  been  identified.   It  may
be performed either under a Step 1  or Step  2  grant.   These options
are discussed in the Infiltration/Inflow Analysis section.

         The survey is  performed to determine "location,  estimated
flow rate, method of rehabilitation and cost  of  rehabilitation
versus cost of transportation and treatment for  each defined
source of infiltration/inflow."  Procedures for  conducting an
evaluation survey are explained in the  guidance  documents and
PRM 78-10.

         Subject to the  eligibility requirements  of  40 CFR 35.927-
3(a), which prohibits the funding of rehabilitation  which should
be a part of the applicant's normal  operation and maintenance
responsibilities, structural repairs and sewer replacement may be
performed under a Step  1 grant when approved  by  the  State and EPA.
However, when such repairs are required for a substantial  portion
of the sewer system, especially in cases where public hearings
are warranted, the grantee should propose that repair work be
performed at later dates and perhaps as part  of  Step 2 or Step 3.

         Review Procedures:

         Review the sewer system evaluation survey report to
determine that:

         a.  the survey  report presents the results  of the survey
             and supports the conclusions concerning sources  of
             I/I;

         b.  a cost-effectiveness analysis  is included for sources
             of infiltration/inflow, based  on a  comparison of
             cost of transportation and treatment versus  cost of
             rehabilitation, or the 1500 gpd/in/m rate is used to
             screen subsystems for excessive  infiltration;

         c.  the report  includes a proposed rehabilitation program,
             with a detailed cost estimate  for completion and
             bidding specifications,

         d.  the net savings to be realized through  rehabilitation
             are identified both in terms of  capacity and total
             cost;
                                IV-31

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         e.  the quantities of allowable infiltration and inflow
             are identified (those which will not be rehabilitated)
             and included  in  the design capacity of the proposed
             treatment  facilities  (coordinate with review of de-
             sign);

         f.  where the  evaluation  survey is extensive, the work
             carried out  is not a  part of the grantee's normal
             operation  and maintenance responsibilities;

         g.  the report contains sufficient documentation to
             support the  results,  including raw data, illustrations,
             inspections  forms, photographs and other information,
             where appropriate.

         Re:  40 CFR 35.927
              PRM 75-7, PRM 78-10
              Handbook  for Sewer System Evaluation and Rehabilita-
              tion (MCD-19)

         Sewer System Maintenance

         Purpose and Discussion:

         Following the  rehabilitation phase, a final analysis on
the I/I conditions should  be  performed by means of plant flow
charts.  When available,  pump stations flow data or single point
flow monitoring at the  treatment plant should be used.  The analysis
should be simple and brief to allow a determination of the total
quantity of non-excessive  I/I remaining in the system.  In addition,
the analysis should be  performed based on flow data obtained
during groundwater conditions comparable to those when the initial
I/I condition was determined.

         Review Procedures:

         A positive and realistic maintenance program which
addresses the following should be  submitted:

         a.  The timely elimination of all excessive inflow
             sources originating from private sources which can
             be cost-effectively removed.  An acceptable timetable
             should specify the elimination of these inflow
             sources before the completion of the treatment works
             construction;

         b.  The establishment of  continuing sewer maintenance
             programs to  ensure that the sewer systems will not be
             subject to excessive  I/I in the future.

         Re:  PRM 78-10

                                IV-32

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       4.4  Performance of Existing Systems

         Purpose:

         Each major component of the existing system is to be
evaluated to determine if it can be used in the new project.
This includes both centralized (conventional) facilities and  de-
centralized systems (i.e. onsite systems).

         Discussion:

         Many existing sewage treatment facilities, including on-
site systems, are not operated at their optimum efficiency.   The
reasons for poor performance are numerous, but it has been found
that generally it is more cost-effective and environmentally
sound to bring existing facilities up to optimum performance
rather than to abandon them.  Even if optimum performance of
existing facilities cannot achieve effluent limitations, additional
facilities necessary to do so should be less costly.  Operating
problems affecting performance should be described in this section.
For decentralized systems, the extent, nature and location of mal-
functions should be described in accordance with agency guidance
(PRM 78-9).

         In reviewing the grantee's evaluation of the existing
system, the reviewer may wish to compare the evaluation with  the
operation and maintenance reports (EPA Form 7500) for the project.

         Review Procedures:

         Items which might be considered in evaluating the per-
formance of existing systems include:

         a.  the adequacy of the treatment plant design for the
             type and amount of flow being treated (compare with
             NPDES permit);

         b.  the adequacy of the operation and maintenance program
             (compare with EPA Form 7500);

         c.  the effects of  infiltration/inflow;

         d.  the effects of  industrial  discharges;

         e.  adequate documentation of problems associated with on-
             site disposal  systems.

         Re:   40 CFR 917-1(d)  (3)
              GPFP (MCD-46)
              PRM 78-9
                                IV-33

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     5.  Future Situation

       5.1  Land Use

         Purpose:

         The ability of  the  land and  its resources to support
various uses is analyzed to  aid in determining future wastewater
flows.

         Discussion:

         The planning  period for wastewater treatment facilities
should be 20 years.  Construction of  the treatment plant may be
phased over this period  with the initial capacity less than the 20
year flows.  Intercepting and truck sewers shall be designed for
20 years, unless the grantee can demonstrate that longer design
periods (not to exceed 40 years) are  consistent with WQM plans
and would reduce overall primary and  secondary impacts.

         The projected land  uses may  be a limiting factor in deter-
mining the size, phasing, and location of the proposed facilities.
Undevelopable lands, such as steep slopes, highway rights-of-way,
power line easements,  flood  plains, environmentally sensitive areas,
parks, wetlands and prime agricultural lands, etc., are not to be
included when estimating future flows based upon the land uses.
The land uses considered by  the grantee in his study must not
contravene State or local land use plans.

         In the absence  of future land use plans, the grantee
should consult with agencies responsible for planning in the area.

         Review Procedures:

         Points which might  be covered under land use include:

         a.  present land uses to determine patterns of development;

         b.  development patterns and zoning ordinances  to see
             that they are in basic agreement;

         c.  future land use plans which have been adopted and
             are being implemented through the use and enforce-
             ment of zoning ordinances;

         d.  use of undevelopable lands in estimating future flows;
                                IV-34

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         e.   consultations with responsible planning  agencies  in
             projecting land use where future land use plans are
             lacking.

         Re:   40 CFR 6.506
              40 CFR 35.917-l(d)(l)  and Appendix A
              GPFP (MCD-46)

       5.2  Demographic and Economic Projections

         Purpose and Discussion:

         Increases in future waste loads and flows result  in part
from population increases and industrial growth.  The determination
as to which  population projections should be used depends  on the
status and applicability of 208 agency projections and approved,
disaggregated State projections  for the facility planning area.
In the absence of either of these, future population  may be fore-
cast by linear extrapolation of trends in the recent  past  (1960
to the present).  Standards for compliance are provided in 40  CFR 35
Appendix A.   Also, if the planning area includes industrial
development  boards or other agencies concerned with economic
development,  these agencies should be consulted for assistance in
estimating future industrial needs.

         Review Procedures:

         Review projections to determine that:

         a.   applicable projections  (40 CFR 35 Appendix A) were
             used;

         b.   any departures from approved projections are  justi-
             fied and documented;

         c.   industrial  growth trends were based on valid  economic
             projections;

         d.   future growth trends  have considered the limitations
             imposed by land use,  air or water quality restrictions,
             water supply, development controls or other constraints.

         Re:   40 CFR 6.506
              GPFP (MCD-46)
              40 CFR 35 Appendix A  8(f)(2)
                               IV-35

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       5.3  Forecasts of  Flow and Waste Load

         Purpose and Discussion:

         The forecasting  of future flows and wasteloads in the
planning area ties in several topics which have been considered
earlier in the facility plan.  The future flows and loads will  be
directly related to the future population to be served, based  on
results of a survey for presently unsewered areas and industrial
activity (i.e., industries likely to use municipal plants), sub-
ject to the limitations of land use, air quality maintenance plans
or other limiting constraints and the quantities of nonexcessive
infiltration/inflow.  The future flows and loads are added to  the
existing wastewater flows (section 4.2).

         Appendix A to the regulations (40 CFR Part 35) provides
standards to be followed  in the estimation of wastewater flows,
based on population and industrial growth, for facilities planning.
Use of average per capita flow rates must be based on these stan-
dards or otherwise justified.

         Review Procedures:

         The reviewer should focus on the methods used in estimating
future wasteloads and flows to insure compliance with the regulations
The following considerations must be incorporated where appropriate:

         a.  approvable projections of eocnomic and population
             growth;

         b.  documentation of need for presently unsewered and/or
             undeveloped  areas;

         c.  estimates of nonexcessive infiltration/inflow;

         d.  analysis of  pollutant content (characteristics) and
             flows in the existing system;

         e.  consideration of combined sewer overflow;

         f.  industrial waste flows and loads, considering possible
             reductions due to imposition of user charges, indus-
             trial cost recovery, or pretreatment;

         g.  projections  of possible reductions in flow resulting
             from measures to reduce water use and waste production
             (installation of water meters or ban on garbage
             grinders, for example);
                                 IV-36

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          h.   limitations upon flows due to land use, air quality
             maintenance plans or other constraints.

          Re:  40 CFR 35.917, .927,  .935-13, Appendix A
              40 CFR Part 403
              GPFP (MCD-46)
              PRM 78-9

        5.4  Future Environment of the Planning Area Without the
            Project

          Purpose and Discussion:

          The statutes require that  "no action" be considered as an
alternative to any proposed project.  In order to evaluate and
compare "no action" with other alternatives, the future environ-
ment without the project must be visualized.  The items used in
this process should be the same as  those used in Section 4.1 to
the extent that they include changes to the environment.

          Re.:  40 CFR 6.506
              GPFP (MCD-46)
     6.  Alternatives

       6.1  Optimum Operation of Existing Facilities

         Purpose:

         The alternative of optimum operation of the existing
facilities is investigated as a first step in the search for a cost-
effective solution to the water quality problem.

         Discussion:

         An investigation of existing facilities, including onsite
disposal systems, may reveal that they can function more efficiently
with the addition of new equipment, operational  changes or the
addition and training of operating personnel, or that the facilities
have already been operating at their optimum efficiency.  Whatever
the results of the investigation, the optimum operation of the
existing facilities will determine what additions, expansions or
replacements must be made, including better design, operation,
and maintenance of private onsite systems, and the extent to
which existing facilities can be converted and/or used in the new
system.  Any improvements expected as a result of future pretreat-
ment by industrial contributors or removal of excessive infiltration/
inflow should be evaluated and discussed.
                                IV-37

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         Review Procedures:

         In considering  the alternative of optimum performance of
the existing facilities, one or more of the following items may
be appropriate:

         a.  the maximum performance levels possible with the
             existing  process design;

         b.  the age and reliability of existing equipment and
             its remaining useful life;

         c.  the qualification and number of additional  operating
             personnel needed;

         d.  the additional operating controls and laboratory
             facilities  needed:

         e.  the process modifications possible (e.g., convert
             conventional activated sludge to contact stabilization;
             add aeration to stabilization ponds);

         f.  the impact of requiring industrial pretreatment;

         g.  the impact  of removing excessive infiltration/inflow;

         h.  the effectiveness and suitability of existing onsite
             disposal  systems, and possible modifications for
             improving efficiency.

         Re:  40 CFR 35.917-1(d)(3)
              GPFP  (MCD-46)
              PRM 78-9, PRM 79-8

       6.2  Regional Solutions

         Purpose and Discussion:

         The possibility of a regional solution to wastewater treat-
ment problems should be  explored early in the planning process.
If the question has been resolved by previous studies (e.g., water
quality management  plans), the result may be incorporated into the
facility plan by reference.  If not, the grantee should  consider
various alternatives,  such as, interconnection of facilities, con-
struction of one or more larger facilities in lieu of a  greater
number of small facilities; combining only selected system elements
such as sludge management, laboratories, advanced treatment pro-
cesses, etc.; joint management; the creation of septic district
                                IV-38

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authorities, etc.  Note:  regionalization should be given careful
consideration.  A regional alternative, involving extensive inter-
ceptor construction in otherwise undeveloped or undisturbed areas
may not be justifiable when compared against the potential adverse
impacts from induced growth.  This  should resolve the question as
to the feasibility of regionalization as a viable alternative.

         Projects involving more than one political jurisdiction
require the completion of service agreements prior to the award
of the Step 2 grant.  Such agreements must cover financial arrange-
ments, enforcement, user charge and industrial  cost recovery
requirements, sewer system rehabilitation, sewer use ordinances,
etc.  Since the agreements often entail long periods of negotiation,
action on them should begin as early as possible during the
development of the Facility Plan.

         Re:  40 CFR 35.917-l(h), .920-3(b)(6)
              GPFP (MCD-46)
              PRM 79-8

       6.3  Waste Treatment Systems

         Purpose:

         For each service area identified under the regional  solution
analysis, the "no action" alternative and other waste treatment
management techniques must be investigated to determine which sys-
tems are most feasible and which may be eliminated from further
consideration.

         Discussion:

         The combinations of alternative waste  treatment systems
could be astronomical and, therefore, a process must be developed
which eliminates those which are not feasible and identifies  those
which should be investigated further.  The statutes require that
certain systems be investigated for every project, including
innovative and alternative technologies (40 CFR 35.908).   Beyond
these, the application of basic engineering, environmental, and
economic principles to the preliminary screening process  will  be
sufficient to reduce the alternatives to a reasonable number.

         The grantee is to present  his reasons  for eliminating
each alternative investigated.  Where the reasons for elimination
are apparent, they should be briefly stated (e.g. "waste  treatment
                                IV-39

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flows cannot be reduced by I/I rehabilitation or other water
saving controls", "sludge incineration cannot be utilized as it
would contravene existing air quality plans", "no action is not
feasible as the present discharge does not meet effluent limita-
tions and State has  issued a cease and desist order").  However,
alternatives must be given adequate consideration prior to elimina-
tion in all cases.   When the reason for eliminating an alternative
is not readily apparent, the grantee is to present evidence or
discussion in sufficient detail to support his conclusion.  In
particular, rejection of land application must be adequately
justified in all cases  (PRM 79-3).

     This analysis will identify the most feasible alternatives
which will then be evaluated in greater detail.

         Review Procedures:

         Review the  facility plan and determine that the following
topics have been adequately addressed.

         a.  No Action

             Generally, the "no action" alternative can be
eliminated from consideration because of the need for the project
as presented in the  preceding chapters.  However, where the "no
action" alternative  may be feasible, the facility plan should
address this concept.  The need for new facilities must be ade-
quately addressed by the plan.

             Re:  40 CFR 6.506
                  GPFP  (MCD-46)

         b.  Flow and Waste Reduction

             For communities with populations over 10,000 the
plan will  include a  flow and waste reduction program and take the
reduced flows into account in the proposed capacity of the treat-
ment works.  Possible elements of a flow and waste reduction program
include:

             -  a public education program;

             -  sewer system rehabilitation  to reduce or eliminate
                excessive  infiltration/inflow;
                                IV-40

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              -   implementation of  household  plumbing  fixtures and
                 water-saving devices;

              -   State  laws or local ordinances  to reduce water use
                 and  nutrient discharges  (e.g. phosphate detergent
                 ban);

              -   adoption of water  pricing policies;

              -   installation of water meters  (proven  to reduce
                 water  consumption);

              -   initiating industrial pretreatment requirements,
                 reuse  or recycling.

              Re_:  40 CFR 35.917-1  (d)(2)
                  GPFP  (MCD-46)

         c.   Configuration of Sewers and Interceptors

              When service areas have been established, the con-
figuration of the collection sewers is pretty well prescribed with
regard to routings and size (minimum size in most States is 8
inches).  Attention should be directed toward trunk and inter-
cepting sewer alternatives to insure that they conform to existing
and future land  use plans.  Unless necessary to eliminate existing
point source  discharges, interceptors allowable for grant funding
shall not be  extended  into environmentally sensitive areas, prime
agricultural  lands or other undeveloped areas.  Similarly, at
least two thirds of the expected flow from a proposed collection
system will be for wastewaters originating from habitations in
existence on October 18, 1972.   The system should not provide
any capacity  for new habitations located on environmentally sensi-
tive lands.  Preliminary pipe sizes and costs may have to be esti-
mated to reduce  the alternatives to a manageable number.

             Re.:  40 CFR 35.925-13, Appendix A
                  GPFP (MCD-46)
                  PRM 78-9

         d.  Sludge Disposal

             The plan should  adequately address  alternatives for
sludge treatment and ultimate disposal  of solids under the following
methods:
                                IV-41

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             -  land utilization (agricultural, soil  conditioner,
                etc.);

             -  composting;

             -  sanitary landfill;

                incineration, pyrolysis or coincineration with
                solid waste;

             -  ocean disposal  (only under very special circum-
                stances).

             EPA has published  guidance documents for use by
grantees and their consultants  in the evaluation of sludge dis-
posal alternatives, and will continue to publish guidance as the
"state-of-the-art" develops in  this area.

             In evaluating disposal alternatives, the plan should
adequately consider public health issues, regulatory constraints,
technological aspects, and social, economic and institutional fac-
tors.  The environmental effects of alternative disposal  methods
should be addressed in the environmental information portions of
the facilities plan.

             (Note:  Criteria for determining eligibility of land
for use in sludge disposal is discussed in Chapter VII).

             Re:  40 CFR 35.917-1(d)(6)
                  GPFP (MCD-46)
                  Sludge Treatment and Disposal (EPA-625/4-78-012)
                  Municipal Sludge Management:  Environmental Factors
                   (MCD-28)
                  Municipal Sludge Management:  EPA Construction
                   Grants Program, An Overview of the Sludge Manage-
                   Situation (MCD-30)
                  Application of Sewage Sludge to Cropland:
                   Appraisal of Potential Hazards of the Heavy
                   Metals to Plants and Animals (MCD-33)

         e.  Best Practicable Waste Treatment Technology (BPWTT)

             The regulations require that each project evaluate,
as a minimum, the following five waste treatment management tech-
niques:
                                IV-42

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             -   biological or physical-chemical treatment and dis-
                charge to receiving waters;

             -   treatment and reuse;

             -   land application techniques;

             -   systems including revenue generating applications;
                and

             -   onsite and non-conventional systems.

             Note:  Rejection of land treatment alternatives shall
 be  supported by a complete justification.  Factors to be evaluated
 are:

             -   alternative site characteristics
             -   loading rates and land area
             -   estimated costs
             -   level of preapplication treatment
             -   environmental effects

 See PRM 79-3.

            As  the "state-of-the-art" develops for each of these
 techniques, EPA will publish additional technical bulletins des-
 cribing the application and evaluation of each.  In selecting which
 of these alternate waste treatment management techniques is most
 cost-effective  for the proposed project, the grantee must consider
 the application of the best practicable waste treatment technology
 (BPWTT).

            EPA has established that the BPWTT for "treatment and
 discharge to receiving waters," generally requires a minimum of
 secondary treatment (see Section 3) or such advanced waste treat-
ment methods as is necessary and justifiable (PRM 79-7)  to achieve
 the effluent limitations required to meet applicable water quality
 standards.  Since "reused"  wastewater and runoff  of "land appli-
 cation" techniques eventually enter receiving waters,  the same
 level of treatment is  required  for these techniques.   In addition,
where discharges to groundwaters from "land application" may occur,
 the level  of treatment must comply with EPA BPWTT criteria pro-
 tecting existing or potential  uses of such groundwaters.
                               IV-43

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            Where  service is  proposed  for  existing unsewered areas,
these areas must meet  the requirements of  40 CFR 35.925-13.
Furthermore,  thorough  consideration of onsite and non-conventional
systems must  be given  for these  unsewered  areas in comparison to
conventional  collection  and treatment.  Specific instructions are
included in PRM 78-9 and PRM  79-8.

            As each of these  techniques is  evaluated, the grantee
must also consider how well the  system lends itself to the appli-
cation of future technology for  reclaiming  or recycling the effluent.

            Re:  40 CFR  35.917-1(d)(5), .925-13
                 PRM 78-9, PRM 79-3, PRM 79-7, PRM 79-8
                 Alternative  Waste Management Techniques for Best
                   Practicable Waste Treatment

        f.  Combined Sewer Overflows and Stormwater Discharges

            Projects involving treatment and control of combined
sewer overflows may be considered only after the planning process
has clearly established  their cost-effectiveness.  Such projects must
be considered on a case-by-case  basis after a careful review of all
alternative control techniques has shown that, even after industrial
effluent limitations and a minimum of secondary treatment for dry
weather municipal  flows  are achieved, the  selected alternative is
needed to protect  the  beneficial use of the receiving waters.

            Alternative  levels of treatment and options for achieving
each must be  evaluated to insure selection  of the most cost-effective
approach.  Where a multiple-purpose approach is proposed, its grant
eligibility cannot exceed the cost of the most cost-effective
single-purpose option.

            Re.:  40 CFR  35.925-21
                 PRM 75-34, 77-4

        g.  Industrial Service

            The joint  treatment of industrial and domestic wastes
should be considered and,where appropriate,encouraged.  In con-
sidering industrial discharges, the grantee should evaluate to the
extent necessary:  (1) interceptor or collector sewers proposed for
construction  exclusively to serve industrial users (non-allowable
grant cost);  (2) the compatability of industrial wastes with domestic
wastes; (3) the requirements  for pretreatment (see Section 9.5 of
this Chapter); (4) the volume, strength and method of discharge
(batch or uniform); (5)  the cost of industrial  pretreatment and
                               IV-44

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joint treatment versus separate industrial  treatment; (6) the
method of implementing and enforcing limitations on industrial
discharges.

            Re:  40 CFR 35.925-15, .907
                 40 CFR, Part 403
                 GPFP (MCD-46)

        h.  Innovative and Alternative (I&A) Technology

            The CWA requires I&A technology assessment by Grantees
in their facility planning, and provides incentives to insure that
the technology will be seriously considered.  Alternative technology
entails proven processes and techniques of  wastewater treatment which
provide for the reclaiming and reuse of water, for productively
recycling waste water constituents or otherwise eliminating the
discharge of pollutants, or for recovering  energy.  Innovative
technology involves developed methods which have not been proven
fully in the circumstances of their contemplated use.  They may be
either alternative technology or conventional  concepts of treat-
ment, which have an acceptable level of risk and a corresponding
opportunity for significant advancement of  the state-of-the-art
to meet certain national goals.

            Facilities planning grants (Step 1) made after September
30, 1978 must address I&A technology.  The  incentives provided
by CWA include:  85 percent Federal grants  (Step 2, Step 3, and
Steps 2+3) for approved I&A projects, 100 percent grants if the
projects fail within two years after final  inspection; set aside
(reserve) of State's allocations to be used for funding the
increased grants from 75 percent to 85 percent; and a cost
preference of 115 percent for approved I&A  projects.

            Alternative systems to solve the water pollution prob-
lem are initially classified as alternative technology or conven-
tional systems.  For those which are not fully proven, the risk
of success (or failure) must be evaluated against the potential
for advancement in the state-of-the-art.  For  alternatives passing
the fully proven test or where the risk appears reasonable, the
alternatives are evaluated against six criteria.  (See 40 CFR
Part 35 Appendix E.)  An alternative technology project may be
classified as innovative if it meets any one of the six criteria.
Conventional systems may be classified as innovative by meeting
either the 15 percent life cycle cost reduction or 20 percent net
primary energy reduction.
                               IV-45

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            All feasible alternatives for which cost effectiveness
analysis will be done  are analyzed to identify the non-innovative
system which is the  lowest cost,and the non-innovative system
which is the lowest  energy consumer.  I&A technology alternatives
are then compared with these non-innovative systems and the 115
percent cost preference is applied, i.e., the I&A alternatives
may be as much as  15  percent higher cost than the lowest costing
alternative and still  be considered equal.  The 115 percent cost
preference is applied  to the present worth cost (capital plus
O&M minus salvage, etc.) replaced components or system.

            If the I&A project is cost effective, environmentally
sound, implementable and been subjected to public review (public
participation program) the Step 2, Step 3, or Steps 2+3
federal grant may be increased to 85 percent.

            Small wastewater systems for communities of 3,500
population or less or  sparsely populated areas (3,500 or less) of
larger communities may also be considered as alternative techno-
logy projects provided they meet certain criteria.  These criteria
include:  on-site disposal methods, cluster disposal systems,
collection systems using 6 inch or smaller gravity sewers,
pressure or vacuum sewers, etc.  The small wastewater alternative
technology system is compared with a conventional system, and if
after application of the 115 percent cost preference the alterna-
tive technology system is cost effective, the treatment works
including the collection system may be eligible for 85 percent
grants.  These systems may be publicly or privately owned but a
public body must apply for the grant and be responsible for the
implementation, construction, operation and maintenance of the
system.

            It is important that the reviewer consult "Innovative
and Alternative Technology Assessment Manual" (MCD-53) for a more
complete discussion of I&A requirements, policy, methodology
for evaluating, and for guidelines in assisting both the grantee,
consultant and reviewer.

            Review Procedures:

            (1) If Step 1 grant was made after September 30, 1978,
                insure facility plan address I&A technology.
                               IV-46

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(2)  Insure that  land  application of  effluent  has been
    considered and  at a  minimum one  slow  rate (irri-
    gation)  and  one rapid  rate  infiltration alterna-
    tive have  been  included.  If land  application of
    effluent has not  been  selected,  insure facility
    plan clearly justifies the  reason  for rejection.

(3)  The I&A  alternative  must  either  be fully  proven
    or a risk  assessment must be addressed.

(4)  Where either alternative  technology or conventional
    systems  are  evaluated  for innovative  classification,
    insure that  the facility  plan  addresses which
    criteria the alternative  has met (conventional must
    meet either  15  percent LCC  reduction  or 20 per-
    cent net primary  energy reduction).

(5)  The facility plans must clearly  identify  the
    lowest cost  and least  energy non-innovative
    system for comparison  with  the I&A alternatives.

(6)  Insure that  the cost effectiveness analysis has
    been correctly  computed taking into account:

    (a) cost comparisons are  for either present
        worth  or equivalent annual cost;

    (b) O&M, salvage  value, staged construction, etc.
        have been taken  into  account over the 20 year
        planning period;

    (c) land has been inflated  at  3  percent per year
        and natural gas  at 4  percent per  year (must
        compute  present  worth of salvage  value of  land);

    (d) other  costs do not include inflation;

    (e) alternatives  are compared  on equal  basis of
        area sewered, population served,  equivalent
        levels of treatment,  etc.

(7)  The 115 percent cost preference has been  properly
    applied:

    (a) For treatment plants  where I&A components  are
        50 percent  or greater of  the eligible treat-
        ment works  costs (excluding collection and
                   IV-47

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         intercepting sewers) the 115 percent cost
         preference is applied to the entire treatment
         plant.

     (b) For treatment plants where the I&A components
         are less than 50 percent of the eligible
         treatment works costs (excluding collection
         and intercepting sewers) the 115 percent cost
         preference is applied only to the replaced
         components.

     (c) For small wastewater treatment systems the
         115 percent cost preference is applied only to
         the publicly owned facilities including alter-
         native collecting system (not privately owned).

 (8) If land application of sludge has been selected,
     insure the sludge has been used productively (com-
     posting, agriculture, reclaiming of disturbed land,
     codisposal with refuse) to qualify as I or A
     technology.

 (9) If an alternative has been designated as innovative
     under the 20 percent net primary energy reduction
     criteria, insure energy boundary conditions have
     been properly drawn.

(10) If codisposal of sludge and refuse is analyzed,
     insure that costs have been proportioned properly.

(11) For projects proposing anaerobic digestion with
     90 percent methane recovery, insure that the
     methane is productively used (either on or off
     site) and the revenue, if any, has been considered
     in the cost effectiveness analysis.

(12) The federal grant participation has been computed
     properly to present accurate costs to the public.

 Re_:  40 CFR Part 35, Preamble
      40 CFR 35.905, .908, 915(a) (1) (i i i), (2-), .915-l(b),
      (e), .917-1, .918-1, -2, -3, .930-1 (b), -5,
      .935-20, .936-13(a)(2), (b), .940-3(a), (b), (c),
      Appendix A, Appendix C-l(2)(d)
      Appendix E,Innovative and Alternative Technology
      Assessment Manual (MCD-53)
      PRM's 77-4, 78-9, 79-3, 79-8
      POM 79-3
                    IV-48

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        i.   Energy Requirements

            For facilities  planning begun after September 30,  1978,
an analysis of the operational  energy inputs  for each  alternative
considered  must be included,  with the objective of reducing  energy
consumption, or increasing  recovery, among alternatives.

            Re_:  40 CFR 35.917-1 (d) (9),  Appendix E

      6.4  Evaluation (Monetary,  Environmental,Implementation)

        Purpose:

        An  evaluation of the  most feasible alternatives  is per-
formed in order to select the most cost-effective and  environmentally
sound project.

        Discussion:

        The preceding sections of this chapter provided  a systematic
guide for reducing the possible alternatives  to a manageable
number.  The alternatives to  be evaluated in  this section are  the
most feasible and will be subjected to a more detailed evaluation
under the broad categories  of monetary,  environmental  and imple-
mentation considerations.

        The results of the  evaluation will be a comparison of  the
final alternatives in preparation for public  review and  the
eventual  selection of the most cost-effective and environmentally
sound project.  During this evaluation some of the alternatives
may be eliminated from further consideration  based upon  adverse
environmental impacts, high costs, legal complications or other
reasons.   The reasons for elimination must be stated.   The data
used in the evaluations must  be supported in  other sections  of
the facility plan.  Each alternative should be evaluated in  suf-
ficient detail and in a similar format to facilitate comparison.

        Detailed assistance and instructions  for preparing monetary
evaluations is given in the Guidance and in Appendix A,  40 CFR
Part 35.   The environmental impact evaluation must consider  both
primary and secondary impacts.  The secondary impacts  (indirect
or induced  by the project)  must be presented  and carefully
evaluated as they could form  the basis for the preparation of  an
environmental impact statement (see Section 10).  The  review pro-
cedures below highlight the key factors  to be considered in  the
evaluation.
                              IV-49

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         Review Procedures:

         Each alternative should be analyzed and evaluated  with  re-
 gard to its relationship or impact upon the subjects below:

         a.   monetary cost comparison based upon:

             -  present worth or equivalent annual  cost over
                planning period;

             -  15% cost-effectiveness preference  for I&A tech-
                nologies;

             -  interest rate for present worth  calculations as
                published by U.S. Water Resources  Council at the
                time of initiation of the facility  plan;

             -  all  capital  and operation and  maintenance costs
                are included in present worth  calculations;

             -  existing facilities considered as sunk  costs;

             -  differential  inflation allowance only for land
                and natural  gas;

             -  interest on  capital  equipment  during  construction
                uniform unless  period is longer  than  4 years;

             -  useful  life  - land—permanent
                              structures 30-50 years
                              process equipment  15-20 years
                              auxiliary equipment 10-15 years;

             -  salvage value included in present worth calculations.

        Mote:   The  regulations  (40  CFR 35.917-1(1))  and guidance
 (PRM 76-3)  require  that monetary costs are  shown in  total,  and in
 terms of their  full  impact  on  the average citizen served by the
 facilities  and  on  industry.   Itemized costs should show the capital
 cost of the  local 'share,  interest on borrowed capital, sinking fund
 costs, O&M  costs,  connection charges,  etc.  Criteria for identifying
 "high-cost"  alternatives  or  projects  are outlined in PRMs 79-7
 and 79-8.  The  reviewer must insure  that the  proposed facilities
will be affordable  by  the user.

        Re.:   40 CFR  Part  35.917-1 (d),  (1),  (in)
              PRM 76-3,  PRM  79-4, PRM  79-7, 79-8
              GPFP  (MCD-46)
                                IV-50

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b.  environmental impacts (see Section 10);

    - both primary and secondary;

    - beneficial and adverse;

    - irreversible and irretrievable commitments of re-
      sources;

    - long-term and short-term;

    - mitigating measures.

    Re: 40 CFR Part 6
        PRM 75-26, PRM 76-4, PRM 78-1
        GPFP (MCD-46)
        Environmental Assessment of Construction Grants
         Projects (FRD-5)

c.  institutional arrangements;

    - identify responsible organization for each alternative;

    - estimated costs allocated to each jurisdiction;

    - resolutions or agreements of implementing  agencies
      accepting the plan.

    Re:  40 CFR 35.917-6
         GPFP (MCD-46)

d.  significant industrial  service;

    - costs of separate treatment;

    - costs of pretreatment followed by municipal  treatment;

    - future industrial flow allowance.

    Re:  40 CFR 35.925-15,  Part 403
         GPFP (MCD-46)

e.  flow and waste reduction measures;

    Re:  40 CFR 35.917-1 (d)(2), Appendix A
         GPFP (MCD-46)
                       IV-51

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f.  recycling of nutrients, reuse of wastewater.
    Fte: 40 CFR Part 35 Appendix A
g.  sewer system arrangements;
    - consideration of onsite and nonconventional  alter-
      natives;
    - pipe sizes and useful life (20 year limitations);
    - limitations on grant funding of collection  systems;
    - excess or reserve capacity;
    - extension into environmentally sensitive areas  or
      other undeveloped lands;
    - alternate routings;
    - CSO alternatives;
    - ocean outfalls.
    Re_:  40 CFR 35.917-1 (d)(l), .925-13, Appendix A
         40 CFR Part 233
         GPFP (MCD-46)
         PRM 78-9, PRM 79-8
h.  method of sludge disposal;
    - alternative technologies;
    - codisposal options.
    Re_:  40 CFR 35.917-1 (d) (6)
         GPFP (MCD-46)
         Sludge Treatment and Disposal  (EPA-625/4-78-012)
i.  location of facilities;
    - odors and aesthetics;
    - cultural or environmentally sensitive resources
      (see Section 10);
                       IV-52

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    - relationship to flood plains and wetlands.

    Re:  40 CFR Part 6
         CPFP (MCD-46)
         PRM 76-4, PRM

j.  revision of waste load allocations;

    Re_:  40 CFR 35 Appendix A
         GPFP (MCD-46)

k.  construction staging;

    - excess or reserve capacity,

    - modular designs.

    Re_:  40 CFR Part 35 Appendix A
         GPFP (MCD-46)

1.  project segmenting;

    Re_:  PRM 75-14

m.  flexibility;

    - future land requirements for treatment plant ex-
      pansion or upgrading;

    - capability for future wastewater reuse;

    - easements and rights-of-way for sewers.

    Re:  GPFP (MCD-46)

n.  reliability;

    - capability of maintaining operation during equip-
      ment failure or maintenance;

    - treatment processes;

    - equipment and personnel

    Re:  GPFP (MCD-46)
                       IV-53

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        o.  analysis of  primary energy requirements of alternatives;
            Re:  40 CFR  35.917-1(d)(9), Appendix E
        p.  recreation,  open space and access to bodies of water
            afforded by  alternatives;
            Re:  40 CFR  35.917-l(j)
        q.  multi-purpose  alternatives.
            Re:  PRM 77-4
    7.  Plan Selection
      7.1  Evaluation and Comparison of Proposals
        Purpose and Discussion:
        Evaluation of alternatives, comparison and plan selection
involve making choices based on costs, environmental  impacts and
feasibility of implementation.  The grantee may select any number
of methods to display costs, primary energy requirements and
effects of the alternative proposals.  Regardless of the display
method, the effects should be described, wherever practical, in
quantitative terms based on the supporting analyses elsewhere in
the plan.  Where quantification is not possible, the comparison
should be made by brief narrative descriptions.
        The end result of the evaluation is a comparative display
of alternatives for public presentation and discussion along with
an identification of the grantee's preferred plan.
        Re:  GPFP (MCD-46)
      7.2  Views of Public and Concerned Interests on Alternatives
        Purpose:
        Public participation is required to aid the grantee in
selecting a plan which will be cost-effective and have the widest
possible public acceptance.
                                IV-54

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        Discussion:

        Issues surrounding water quality problems and the large
amounts of money needed to solve them often come under attack from
varied interests.  Although the primary responsibility for water
pollution control and abatement rests in governmental agencies,
public involvement in the decisions and implementation is necessary
and desirable.  The intent of public participation is to foster
a spirit of openness and a sense of mutual  trust between the public
and governmental agencies and to give the public a role in
decision making efforts to restore and maintain the integrity
of the Nation's waters.

        All facility planning initiated after February 16, 1979,
must include either a basic or full-scale public participation
program unless a program exemption is granted by the Regional
Administrator.  The basic public participation program will  be
used for most projects and includes the tasks as listed in 40 CFR
35.917-5(b).  A full-scale public participation program is required'
for projects including preparation of an Environmental Impact
Statement, where advanced wastewater treatment levels are required,
or where particularly significant effects on matters of citizen
concern are possible (as defined in 40 CFR 35.917-5(c)(iii)).  A
full-scale public participation program requires hiring a public
participation coordinator, establishing an advisory group and
holding an additional public meeting plus all of the tasks in-
cluded in the basic program.  Upon written request of the grantee,
the Regional Administrator may exempt projects in which only minor
upgrading of treatment works or minor sewer rehabilitation is
anticipated.  Before granting a public participation program
exemption, a notice of intent to waive program requirements must
be issued 30 days in advance, and consideration given to comments
received.  Projects granted a program exemption must still hold
one public hearing and publicly disclose project costs during
facility planning.  A final responsiveness summary is included
in the facility plan to discuss public participation efforts
during planning.

        Review Procedures:

        Insure that a public participation program appropriate
to the project has been adequately followed during preparation of
the facilities plan.
                               IV-55

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        The following are minimum requirements applicable to both
the basic and full scale programs, except where noted:

        a.  a public information program was maintained throughout
            the facilities planning process;

        b.  the public was notified and consulted during the
            development of the plan of study;

        c.  an outline of the public participation program was
            submitted with the Step 1 grant application;

        d.  a public participation work plan was submitted 45
            days after grant acceptance;

        e.  at least two public meetings were held, with proper
            advance notification, one early in the planning pro-
            cess, and a second prior to plan selection;

        f.  responsiveness summaries were prepared and distributed
            following each public meeting; adverse or significant
            views were addressed and incorporated into the
            facility plan, including the addressing of servicing
            of areas where minority groups live but where there
            has not been service by sewers;

        g.  a public hearing, with proper advance notice, was held
            prior to final adoption of the facilities plan;

        h.  a final responsiveness summary is included in the
            facilities plan;

        i.  for a full scale program, a public participation co-
            ordinator was designated, and an advisory group
            established, at the time of grant acceptance.

       Re:  40 CFR 35.917-1(g), .917-5
            40 CFR Part 25
            44 FR 34, pp. 10300-10304
            GPFP (MCD-46), Municipal Wastewater Management -
            Public Involvement Activities Guide (FRD-7)
            PRM 75-32
                                   IV-56

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      7.3  Selected Plan (major feature summary) and Reasons for
           Selection

        Purpose and Discussion:

        Following the public meeting or hearing, the alternatives
are reevaluated recognizing any new information gained during pub-
lic review and noting those most acceptable to a broad range of
public  interests.  The plan is then selected based on reevaluation
of tradeoffs.

        The selected plan, its major features, and reasons for
selection are presented in summary form for clarity and the con-
venience of reviewers.

        Review Procedures:

        Review the summary for inclusion of:

        a.  major features;

        b.  clear explanation and justification for plan selection.

        Re:  40 CFR 35.917-1  (a), (b), 40 CFR 6.506
             GPFP (MCD-46)

      7.4  Environmental Impacts of Selected Plan

        Purpose:

        The primary and secondary environmental impacts of the
selected plan are presented in summary form and specific issues
are addressed as required by  the National  Environmental Policy Act
(NEPA) and other environmental and cultural resource laws.

        Discussion:

        The same issues and review procedures covered in Section 6,
alternatives, are addressed in the selected plan.   However, in
review of the selected plan,  they are  analyzed in greater detail.
Special  note should be made by the reviewer of impacts upon cultural
or environmentally sensitive  resources as  these require special
procedures and considerations  (see Section 10).
                               IV-57

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        The discussion of environmental impacts of the proposed
project must be sufficient to constitute an environmental  information
document for utilization by the State, or EPA in preparing an en-
vironmental assessment.  This must be adequate to serve as a basis
for EPA's decision to issue a finding of no significant impact
(FNSI) or an EIS for the proposed action.

        The grantee should discuss in this or other sections the
mitigating measures which will be employed in the design and con-
struction phases of the project to minimize adverse effects.  If
the adverse impacts are unacceptable, the reviewer should contact
the grantee (through the State agency) and discuss mitigating
measures which will make the selected plan acceptable.

        Review Procedures:

        The summary should include adequate discussion of:

        a.  any unavoidable adverse impacts resulting from the
            proposed project (special note of cultural or environ-
            mentally sensitive resources);

        b.  the relationship between local short-term uses of
            the environment and the maintenance and enhancement of
            long-term productivity including:

            - tradeoffs between short-term environmental gains at
              the expense of long-term gains, and vice versa;

            - the possibility of proposed action foreclosing future
              options;

            - the effects which narrow the range of future uses
              of land and water resources or pose long-term
              risks to health or safety;

        c.  irreversible and irretrievable commitments of resources,
            including an evaluation of the extent to which the
            proposed project requires commitment of construction
            materials, man-hours, and other resources, and cur-
            tails the range of future uses of land and water re-
            sources;
                                IV-58

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        d.  steps to minimize adverse effects (e.g. erosion control
            measures).

        Re_:  40 CFR 6.506
             GPFP (MCD-46)
             PRM 75-26; PRM 78-1

      7.5  Energy Considerations

        Aspects of the selected plan which conserve energy, re-
cover  energy, or reduce energy consumption, as long as they are
cost-effective, should be described.  For those systems which
claim to use innovative processes or techniques on the basis of
energy reduction criterion, the plan should contain a detailed
energy analysis.

        Re:  40 CFR 35.917-1(d)(9)
             40 CFR 35 Appendix E

      7.6  Recreational Opportunities

        For facilities  planning begun after September 30, 1978,
the opportunities for recreation, open space and access to bodies
of water potentially available under the selected plan should be
described.  Any coordination measures with Federal, State and
local recreational programs and with the recreational elements of
approved areawide WQM plans should also be described.

        Re_:  40 CFR 35.917-1 (j)
    8.  Cost Estimates, Preliminary Designs

      8.1  Description of Design

        Purpose and Discussion:

        The preliminary design of the selected plan is  presented to
demonstrate that sound engineering principles have been employed,
that all major components of the system have been included and
that an adequate basis has been  developed for the cost  estimate,
and the facilities are capable of performing as planned.   The de-
tail for the preliminary design  may vary from project to  project
depending on the complexity of the project.  For example, standard
package plants will not require  the same degree of detail as a
pure oxygen system with phosphate removal and sludge incineration.
                               IV-59

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        Review Procedures:

        Items in a preliminary design might include:

        a.  a schematic flow diagram;

        b.  unit processes and sizes;

        c.  plant site plans, and site availability;

        d.  interceptor and trunk sewer routings;

        e.  design criteria, including:

            - detention times;

            - overflow rates;

            - other.

        Re:  40 CFR 35.917-l(a), (b), (m)
             GPFP (MCD-46), PRM

      8.2  Summary of Cost Estimates

        Purpose:

        Cost estimates, including the impact on the  average user,
for final design, preparation of plans and specification,  and
construction of the treatment facilities are included  to  insure
that Step 2 and Step 3 grant requests are based upon  inclusion
of major components of the selected plan.

        Discussion:

        As a part of its program responsibility, EPA  is required
to forecast future funding requirements for the design and con-
struction of wastewater treatment facilities.  The cost estimates
and schedules of completion provided in this section  help  fulfill
those responsibilities.  The reviewer should be aware  of  these
requirements and of the procedures for recording the  estimated
costs into the GICS process.  The grantee is required  to  submit
these estimates in an appropriate format entitled  "Summary of
Costs of Planned Treatment Works Scheduled by Project  and  Category"
(refer to Appendix B).
                               IV-60

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         Review  Procedures:

         Review  cost estimates to determine  that:

         a.  costs for the construction of the facilities are
            reasonable  (PRM 79-8) and include both capital and
            operation and maintenance cost  (including cost of
            proposed sites);

         b.  costs are presented in the required format;

         c.  schedules for the completion of related work have
            been included.

         Re:  40 CFR 35.917-1(1), (m)
             GPFP (MCD-46)
             PRM-76-3, PRM 79-8
    9.  Arrangements for Implementation

      9.1  Institutional Responsibilities

        Purpose:

        The responsibilities for plan implementation are identified
to demonstrate recognition by the involved jurisdictions of the
steps necessary for initiation and completion of the project.

        Discussion:

        The responsibility for the implementation of the selected
plan may rest with one or more agencies.   In the case of a single
agency, it must have the authority under State law (or the ability
to obtain such authority) to finance,  design, construct, operate
and maintain the proposed facilities.   For regional  solutions,
several agencies may share the responsibility for plan imlementation
and each must have the authority and ability to carry out its
functions.  An example of this is where one agency constructs the
treatment plant to serve the entire planning area, and the smaller
jurisdictions construct interceptor, trunk and lateral  sewers.
                               IV-61

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        In the regional solutions, one or more jurisdictions in
the planning area may either oppose or fail to approve the plan.
The grantee should discuss the appropriate measures required to
reach agreement among the jurisdictions.  While final  agreement
is desirable prior to the submission of the facility plan for re-
view, the State and EPA may approve it even in the absence of
such agreement, provided that assurance is made that the plan will
be properly implemented.

        Review Procedures:

        For implementation, the plan should:

        a.  identify each agency or jurisdiction and its responsi-
            bility;

        b.  show that each agency has ability and authority (or
            reasonable expectation to obtain such authority)
            under State law to finance, design, construct, operate
            and maintain the proposed facilities;

        c.  identify any referendums or public elections necessary
            for plan implementation;

        d.  include adopted resolutions of plan acceptance and
            agreements among jurisdictions;

        e.  include financial arrangements which obligate each
            jurisdiction to enforce the requirements for user
            charges, industrial cost recovery, sewer system re-
            habilitation and sewer use ordinances;

        f.  identify jurisdictions which oppose or have failed to
            a-pprove the plan and describe steps necessary to reach
            agreement.

        Re_:  40 CFR 35.917-6

      9.2   Implementation Steps

        Note:  To demonstrate recognition of the proposed project
and an  orderly program for  implementing it, the grantee is to pre-
sent a  step by step schedule of each specific action.  The time
schedule  should correspond with schedules  in the NPDES permit.
Differences must be resolved.

        Re:  40 CFR 35.917-l(a)
                                IV-62

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      9.3  Operation and Maintenance

        Purpose and Discussion:

        The facility plan should include the minimum information
needed to perform cost-effectiveness computations, e.g.  discussions
of staffing, management, training, sampling, laboratory facilities,
etc.  As a part of the Step 3 grant application, a detailed Plan
of Operation must be submitted.

        Re_:  GPFP (MCD-46), PRM 77-3

      9.4  Financial Requirements

        Purpose:

        A financial  program is described to identify the sources
of funds for implementing the proposed project.

        Discussion:

        The proposed project funding will  generally consist of
three parts, namely the Federal grant, the State grant and the
local share.  When a State grant is shown as a source of funding,
the reviewer should confirm that the State grant program remains
in effect.  Generally, the local funding will  be derived from the
sale of bonds or industrial contributions.  Funds must be made
available to retire these bonds over a period of years and to
provide for operation and maintenance of the facility.  The cus-
tomary method of obtaining these funds is  to proportion charges
to the various classes of users (40 CFR 35.929) and to recover
capital costs from industrial users (40 CFR 35.928).

        Where small  communities are involved in the facilities
plan, the reviewer is to insure that the economic impacts evaluation
identified in PRM 79-8 has been made, and  that the community has
made the determination that it will be able to afford the local
share.

        Total project costs, as well as the financial  impacts of
the project on a typical residential customer, must be publicly
displayed and presented at a public meeting.  Such financial  impacts
must include total  monthly or annual costs per customer including
pre-project debt retirement, project debt  retirement, O&M costs
(user charges), connection charges, or other costs imposed on
users (PRM 76-3).
                               IV-63

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        As a requirement for a Step 2 grant, the grantee must fur-
nish evidence of compliance with the user charge and industrial
cost recovery (UC/ICR) provisions of the regulations.   Satisfactory
evidence of compliance for a Step 2 grant are letters  from the
grantee and major industrial users expressing intent to comply with
these provisions.  A detailed UC/ICR program must be submitted and
approved by EPA as a part of the Step 3 grant application.

        Review Procedures:

        Review the financial program to determine that:

        a.  all project costs, including engineering,  construction,
            lands and rights-of-way, legal and fixed costs have
            been estimated;

        b.  sources of funds are identified, acceptable and
            sufficient;

        c.  State grants programs are applicable;

        d.  the grantee has reasonable expectation of obtaining
            letters of intent to comply with industrial cost
            recovery programs as required for a Step 2 grant.

        Re:  40 CFR 35.925-11,  .928,  .929, Appendix B
             PRM 79-8

      9.5  Pretreatment Program

        Pretreatment programs are intended to control  toxics from
non-domestic sources and to provide for the reclamation and reuse
of wastes wherever practicable.  Therefore, the particular objec-
tives at present are:  preventing the introduction of pollutants
into POTWs which will  interfer with treatment works operation
and/or disposal or use of municipal sludge; preventing the intro-
duction of pollutants  into  POTWs which will pass through treat-
ment works into receiving waters, the atmosphere or which will be
otherwise harmful; and employing opportunities to recycle and to
reclaim the wastewater and  the  sludge produced by wastewater
treatment.

        Development of a pretreatment program is required where
the municipal  facilities serve  or will serve industries subject to
                                IV-64

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pretreatment standards under CWA.   Implementation  of pretreatment
programs is divided into two phases because of the ongoing  activi-
ties of implementing standards  as  they are promulgated.   Phase  I
of the program, therefore,  is the  basic skeletal structure  and
Phase II is the insertion as promulgated of the specific  standard.

        Section C.I of Chapter  III lists important dates  applicable
to pretreatment requirements contingent on the award of Step 2  and
Step 3 grants.   For existing steps 1,  2 or 3 grants funding may be
through grant amendment.

        A complete and approvable  pretreatment program will
include the following:

        a.   Phase I

            - An industrial  survey identifying system users by
              type and location  of industry and the character and
              volume of pollutants discharged;

            - An evaluation  of  the legal  authority for control  and
              enforcement,  including adequacy of enabling legis-
              lation and selection of  mechanisms to be used
              (ordinances etc.);

            - An evaluation  of  revenue sources and financial
              programs to insure adequate funding  to  carry  out  the
              pretreatment  program;

            - A determination of technical  information needed to
              support development  of an industrial  waste enforce-
              ment mechanism to  insure the compliance with  NPDES
              permit conditions;

            - Design of an enforcement monitoring  program;

            - Determination  of pollutant  removals  in  existing
              treatment facilities;

            - A preliminary  determination  of  monitoring equip-
             ment required  at the treatment  facilities;

            - Determination  of tolerance  of  the treatment facili-
              ties to toxic  pollutants; and
                              IV-65

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            - A preliminary determination of the municipal  facili-
              ties needed for monitoring or analysis of industrial
              wastes.

        b.  Phase II

            Incorporating standards for industrial  categories  into
the pretreatment program to ensure implementation and to improve
effectiveness.

        Re:  40 CFR 35.907, .917-l(k)
             40 CFR Part 403
   10.  Summary of Environmental Considerations

        Purpose:

        The summary of environmental considerations serves two
objectives:  (1) satisfaction of NEPA requirements, and (2) en-
surance that environmental information is considered in the
selection of a proposed plan.  The summary is primarily intended
for those reviewers concerned with environmental impacts, and
should reference other parts of the facilities plan wherein de-
tailed environmental impact analyses are included.

        Discussion:

        The facility plan must evaluate environmental as well as
engineering, monetary and institutional impacts.  Adverse impacts
in any of these categories may be reason for plan revision, the
selection of another alternative, or the incorporation into the
design and construction phases of measures which will minimize the
adverse impacts or problems.

        Throughout the entire facility plan preparation, the re-
viewer should work with the grantee in satisfying all the regula-
tory requirements and selecting the most acceptable plan.  The
facility plan may be reviewed informally or in sections by the
reviewer as an aid to the grantee, and suggested changes may be
incorporated with minimum delay and formality.
                               IV-66

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        After all discussions and revisions are completed, the
reviewer conducts a formal "environmental review".  Based upon a
review of the environmental information presented in the facility
plan, or the environmental assessment submitted by the State, EPA
must make one of two decisions:

        - issue a finding of no significant impact (FNSI) for the
          project, supported by an appropriate environmental
          assessment document;

        - issue a Notice of Intent to prepare an environmental
          impact statement (EIS) for the project.

        In order to arrive at one of the decisions described  above,
many reviewers within EPA and outside of EPA must evaluate the
proposed project and make their recommendations.  The facility
plan must include pertinent environmental information to assist
in that decision.

        As described in the Guidance for Preparing a Facility Plan,
the summary of environmental  considerations should cover the  fol-
lowing topics, with appropriate reference to portions of the  plan
wherein more detailed information is provided:

     10.1   Existing Environmental  Conditions

     10.2  Future Environment Without the Project

     10.3  Evaluation of Alternatives

     10.4  Environmental Effects of the Selected Plan

        Section 1C.5 below includes procedures to be followed
during review of the environmental  information document, as inte-
grated within the facilities  plan,  and interagency coordination
requirements.

     10.5  Interacting Environmental  Considerations

        a.   Criteria for Determining when to Prepare an EIS

            The responsible official  at EPA must assure that  an
EIS will  be issued where proposed  facilities will  result in any
of the following conditions:
                               IV-67

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            (1) significant, induced changes in land use  concen-
trations or distributions, including (but not limited to)  such
factors as:  increased developmental pressure on vacant land;
accelerated changes in population growth or density; or deleterious
changes in demand or availability of energy.

            (2) significant, adverse effects, either direct or
indirect, on wetlands.

            (3) significant effects, direct or indirect,  on the
habitat of State or Federally listed threatened or endangered
species.

            (4) direct or indirect changes which significantly
displace population, deface existing residential areas, adversely
affect floodplains, or adversely affect significant amounts of
prime or unique agricultural land or farm operations.

            (5) adverse effects on parklands or other areas of  re-
cognized scenic, recreational, archeological or historic value.

            (6) direct or indirect, adverse effects on local air
quality, surface or groundwater quality or quantity, or the
habitats of fish and wildlife.

            (7) treated effluent will be discharged into a water
body where the present classification is considered too low to
protect current or recent uses, and effluent quality may be con-
sidered insufficient to meet the requirements of these uses.

            (8) the environmental impact is likely to be highly
controversial.

            Also, where a full-scale public participation program
is required,  the responsible official should consider preparing
an EIS.

            Re_:  40 CFR 6.505, PRM  75-26

        b.  Required Coordination and Consultation

            During the environmental review process, the responsible
official must  insure  that the various laws and  executive orders,
independent of NEPA,  are  followed throug1. appropriate coordination.
                                IV-68

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             (1) Historical and Archeological Sites

                EPA has the responsibility under the procedures of
the Advisory Council on Historic Preservation to insure that
archeological  and cultural resources are identified in the primary
impact areas of the project.  The investigation to identify re-
sources is carried out by the grantee.  The exact procedures may
vary from State to State, and the reviewer should be familiar with
the requirements of his particular State.

                Generally, however, the grantee should contact the
State Historic Preservation Officer (SHPO) as soon as the project
scope and general location is known.  The SHPO may be able to
identify cultural or historic sites in the area which may aid in
selecting the  best alternative.  The SHPO may also indicate that
the area is quite sensitive and that a professionally qualified
archeologist should be employed to identify the resources.  In the
event that the project is limited to previously disturbed areas,
the SHPO may advise that the project will not affect any cultural
resources and  that no further investigations are required.

                In many cases the SHPO or grantee may be able to
review the National Register of Historic Places and identify re-
sources in the project area.  A professional in this field may
need to be employed to identify resources which are eligible for
inclusion in the National  Register.  The grantee and his professional
representative must prepare a report in consultation with the SHPO
stating whether the project will  have any effect upon the cultural
resources identified.

                Upon receiving this report, and in the case of a
resource eligible for listing in  the National  Register, EPA
should immediately contact the Department of the Interior to
determine if the resource is, in  fact, eligible for inclusion.

                For all  cultural  resources identified,  the
grantee,  his professional  representative, and  the SHPO  must pre-
pare a report for review and decision by EPA concerning the
effect the project may have on that resource.   Specifically, the
following procedures should be followed, as applicable:

                (a)  project has no  effect on identified resources--
                    applicant to  include views  of SHPO  showing
                    concurrence;  exchange of correspondence to be
                    appended to report;
                               IV-69

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FIGURE IV-3.   Procedures for  Review of  Cultural  Resources.
                             YES
CONSULTATION
 PROCESS
1 CASE REPORT
2  SITE INSPECTION
3. PUBLIC MEETING
YE
ACRE!
Of P>
s „
•MENT
VRTIES
MEMO-
RANDUM
OF
AGREEMENT


PROCEED
>

0 *
ADVISORY COUNCIL
MFFTINIfl
AND COMMENTS


PROCEED
(WITH REPORT TO
ADVISORY COUNCIL;
                                    IV-70

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                (b) project has effect on identified resources--
                    apply Advisory Council Criteria of adverse effect;

                (c) if the application of adverse effect criteria
                    results in the conclusion by the grantee's
                    professional expert, and is agreed to by the
                    SHPO, that the effect is not adverse, the
                    documentation supporting that conclusion must
                    be forwarded to the Advisory Council for con-
                    currence.  If Advisory Council concurrence
                    is received, the project may proceed as pro-
                    posed with the application of any mitigating
                    criteria which may have been recommended;

                (d) if the application of the adverse effect
                    criteria results in the conclusion that the
                    project will have an adverse effect, the com-
                    ments of the Advisory Council  must be ob-
                    tained and a consultation process is set up;

                (e) the consultation process involves:

                    - onsite inspections

                    - public information meetings

                    - considerations of alternatives

                    - avoidance of adverse effects

                    - mitigation of adverse  effects;

                (f) generally, the above procedures  will  be suf-
                    ficient to resolve adverse  effects;  specific
                    conditions of resolution are contained  in a
                    Memorandum of Agreement  between  EPA,  the
                    Advisory Council,  and the SHPO.

                It is the responsibility of  the  construction grants
reviewer to insure that the above procedures are,  or have been,
carried out.   Letters, reports, or other documents  in support of
                               IV-71

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the above procedures are  to  be appended to the facility plan.  The
final decision as to the  effect of a project on historic and
archeological resources rests with EPA under the Advisory Council
Procedures.

                Re_:  36 CFR  Part  63, Part 64, Part 66, Part 800
                     40 CFR  6.301
                     40 CFR  30.405-7, -8
                     EO 11593, PRM 75-27, PRM

             (2) Environmentally Sensitive Areas

                Whenever  a proposed project will affect any of
these environmentally  sensitive resources, the consultations below
must be carried out.   The impact  of the project upon these resources
should be discussed by the grantee in his environmental information
document.  EPA has the responsibility for carrying out these pro-
cedures, but the grantee  may be encouraged to do so in preparing
the facility plan.  Whether  the project will have a harmful
effect on these resources requires prudent judgment on the part
of the reviewer.

                The consultations below, as applicable, must be
carried out  before the facility plan may be approved.

                (a) Wetlands

                    Consult  with:

                    -  Department  of the Interior

                    -  Department  of Commerce

                    -  U.S. Army Corps of Engineers

                    Document consultation and obtain written
                    comments from each of these agencies where
                    appropriate.  Where wetlands may be affected,
                    adverse  impacts must be avoided to the extent
                    practicable and the responsible official must
                    prepare  a floodplains/wetlands assessment
                    as part  of the environmental assessment or
                    EIS.

                    Re:   40  CFR 6.302(a)
                          EO  11990, PRM  76-4
                          EPA's Statement of Procedures on  Floodplain
                           Management  and Wetlands Protection (6/5/79)
                               IV-72

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 PAGE NOT
AVAILABLE
DIGITALLY

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(b) Flood Plains

    Refer to Flood Hazard Boundary Maps or Flood
    Insurance Rate Maps prepared by DHUD and
    determine if grantee is or must be participating
    in the flood insurance program; determine if
    proposed project satisfies applicable flood
    plain statutes and regulations and EPA guidance
    with regard to location, elevation or pro-
    tection of structures.   Where floodplains
    may be affected, adverse impacts associated
    with direct and indirect development should
    be avoided to the extent possible and a flood-
    plains/wetlands assessment must be included
    in the environmental  assessment or EIS.

    Re:  40 CFR 6.302(b)
         EO 11988, PRM 76-5
         EPA's Statement  of Procedures on Flood-
          plain Management  and Wetlands Protection
          (6/5/79)

(c) Agricultural  Lands

    Determine whether there are significant
    agricultural  lands in the  area and the direct
    and indirect  effects  of the selected plan on
    these lands.   Identify  means  to avoid or miti-
    gate adverse  impacts.

    Re:   40 CFR 6.302(c)
         EPA's Policy to  Protect  Environmentally
          Significant Agricultural  Lands
          (9/8/78)

(d) Coastal Zones

    Consult with:

    - Appropriate State Office

    - Department of Commerce
              IV-73

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    Document  consultation  and  obtain written
    comments  from each  of  these  agencies where
    appropriate.   If action  significantly  af-
    fects  coastal  zone  area, and State  has an
    approved  coastal zone  management program, a
    consistency determination  must  be sought in
    accordance with procedures promulgated by
    the Office of Coastal  Zone Management.

    Re:  15 CFR Part 930
         40 CFR 6.302(d)

(e)  Wild and  Scenic Rivers

    Consult with:

    - Appropriate State Office and

    - Department of the Interior, or

    - Department of Agriculture  where National
      forest lands are involved.

    Document consultation and  obtain written  com-
    ments from each of these agencies whenever
    appropriate.  Where the proposed  action may
    have a direct and adverse  impact,  the  impact
    must be avoided; if the impact cannot  be
    avoided, no action may be  taken without
    notification of the Secretary of  Interior and
    Congress 60 days in advance  of taking  the
    action.

    Re:  40 CFR 6.302(3)

(f)  Fish and Wildlife

    If  the project will result  in the control  or
    structural modification of  any stream or  body
    of  water,  consult with:

    - U.S. Fish and Wildlife Service,  Department
      of the  Interior

    - Appropriate State agency
               IV-74

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                    Document consultation and obtain written
                    comments from each of these agencies where
                    appropriate.

                    Re:  40 CFR 6.302(f)

                (g) Threatened or Endangered Species

                    Consult with:

                    - U.S. Fish and Wildlife Service

                    - National Marine Fisheries Service

                    - Appropriate State agency

                    Where the proposed action will  have an ad-
                    verse impact on listed species  or habitat,
                    mitigation measures must be undertaken.

                    Re:  40 CFR 6.302(g)
                         50 CFR Part 402

            (3) Air Quality

                The Clean Air Act requires all  Federally assisted
activities to conform to any applicable State Air Quality Imple-
mentation Plan (SIP).  The responsible official  must assess  the
extent of direct or indirect increases in emissions and resultant
change in air quality for any proposed action which may signifi-
cantly affect air quality.  Where applicable:

                (a) consult with State or local  agencies having
                    responsibility for SIP development and imple-
                    mentation, to ascertain the  conformity of
                    the action to the SIP, including compliance
                    with applicable emission limitations or
                    standards.

                (b) submit the conformity determination to the
                    designated lead State or local  agency for  con-
                    currence.   Lack of response  by  the lead
                    agency during the 30 day FNSI and 45 day
                    draft EIS review periods will be interpreted
                    as concurrence.
                              IV-75

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                (c) EPA must provide in the FNSI or EIS a res-
                    ponse to non-concurrence, including the basis
                    on which conformity to the SIP will be
                    assured.  If EPA finds that non-concurrence
                    is unjustified, then an explanation must be
                    included in the FNSI or EIS.

                Re_:  40 CFR 6.303

        c.  Environmental Review

            The environmental review by EPA is performed for
application of the criteria to determine whether an EIS is
warranted.  Where deficiencies are found, they shall be identified
in writing by EPA, and must be corrected before approval or deter-
mination of EIS preparation.  The review by the responsible
official of EPA, is based on:

            (1) a complete facilities plan and environmental in-
formation document, where review of the facilities plan has not
been delegated to the State.

            (2) the grantee's environmental information document
and State's preliminary environmental assessment, where the State
has been delegated authority for facilities plan review.

            (3) other documentation considered necessary by the
responsible official, or submitted by the State where delegated,
adequate to allow an EIS determination by EPA.

            Re_:  40 CFR 6.506(d)

        d.  Finding of No Significant Impact  (FNSI)

            Where, after completion of the environmental review,
a determination is made that no EIS is warranted, the responsible
official must prepare and publicly issue a FNSI.  The decision
not to prepare an EIS must be substantiated by an environmental
assessment, which shall be incorporated into, or attached to, the
FNSI.  The assessment provides support for the determination
that the proposed action will not have a significant adverse im-
pact on the environment.  It is prepared by EPA, either based on
the review of the grantee's environmental information document
and other data as appropriate, or based on the State's environ-
mental assessment or other supporting documentation, where dele-
gated.
                               IV-76

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            When a FNSI and environmental assessment have been
prepared for the facilities plan, additional grant awards may
proceed without further FNSI preparation, unless a determination
is made that significant changes have occurred from the project
as described in the facilities plan.

            Once a decision is made, and a FNSI issued for the
proposed action, the following procedures are required with respect
to the facilities plan:

            (1) notify the grantee and State in writing of
                approval of the facilities plan;

            (2) identify any special conditions, resulting from
                the environmental review, which will be contin-
                gent on any subsequent grant awards;

            (3) advise the grantee that approval of the faci-
                lities plan does not obligate the U.S. Govern-
                ment to award related grants, and that the
                grantee will not receive funding for Step 2 de-
                sign until he has applied for and received a
                Step 2 grant;

            (4) update project information and cost data in the
                Grants Information and Control System (GICS,
                see Appendix B).

            Re:  40 CFR 6.506(e), (f)

        e.   Notice of Intent

            If upon completion of the environmental  review, it is
determined  that significant adverse impacts will be associated
with the proposed project, and cannot be satisfactorily mitigated,
the responsible official will determine that an EIS is warranted.
A notice of intent to prepare an EIS shall  then be published in
the Federal Register and otherwise released for public notifica-
tion.  In this case, the reviewer should contact the grantee and
State to advise them of this decision and the implications for the
project.

            Re:  40 CFR 6.506(g)
                              IV-77

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        f.  EIS Preparation

            Not later than 30 days after publication of the notice
of intent, the responsible official of EPA will determine the
scope of the EIS in consultation with the State and local parties
affected, at a "scoping" meeting.

            EPA will prepare the EIS either by direct use of
agency staff, by contract with a qualifieid consultant, or by
utilizing the joint EIS process ("piggybacking") in which the
grantee enters into a contract with a qualified consultant.

            The regulations (40 CFR Part 6) outline detailed pro-
cedures and criteria to be followed in the process of EIS pre-
paration.  However, with respect to the facilities plan, a Step 2
grant may not be awarded until a final EIS has been prepared and
all regulatory requirements have been met.  After waiver approval
has been obtained, action may continue on discrete segments of
the project.  The resulting modified project will have to be re-
reviewed at the appropriate stage of the facility planning process,
In addition, the EIS or FNSI may dictate requirements that can
only be fulfilled by placing certain conditions on the Step 2
grant award.

            Re:  40 CFR 6.506(h),  (i), 35.925-8(b)
                 PRM 75-31
                               IV-78

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     Figure IV-4.   Procedures  for NEPA Review.
ADDITIONAL PROCEDURES:
      HISTORIC
      ARCHEOIOGIC
      WETLANDS
      OTHER
NO
  FINDING OF NO
 SIGNIFICANT IMPACT
AND ENVIRONMENTAL
   ASSESSMENT
                            SIGNIFICANT
                      *
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                CHAPTER V



         STEP 2 GRANT PROCESSING








A.  INTRODUCTION



B.  SCHEMATIC FLOW DIAGRAM



C.  APPLICATION CONTENTS



D.  FACILITY PLAN APPROVAL



E.  ADMINISTRATIVE REVIEW



F.  COMBINATION STEP 2+3 GRANTS



G.  GRANT AWARD PROCEDURES



H.  PREPARATION OF PLANS AND SPECIFICATIONS



I.  PREDESIGN CONFERENCE



J.  REVIEW OF PLANS AND SPECIFICATIONS



K.  0 & M FACILITY/TRAINING GRANTS

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A.  INTRODUCTION

    This chapter describes the contents of and review proce-
dures for processing of a Step 2 grant application.   It be-
gins with the receipt of the application package and concludes
with the review and approval of the plans and specifications.

    Section B, Schematic Flow Diagram, visually places this
chapter in the proper sequence and indicates the major acti-
vities of the Step 2 application and review.

    Section C. Application Contents, provides a ready listing
of the materials which are contained in an application package.

    Section D, Facility Plan Approval, restates the  require-
ments for an approved facility plan as a part of the Step 2
application.

    Section E, Administrative Review, describes the  procedures
involved in reviewing priority list compliance and certification,
application form, contracts and subagreements and assurances.

    Section F, Combination Step 2 + 3 Grants, concerns the
special case grants for combined Step 2+3 projects.

    Section G, Grant Award Procedures, describes the action re-
quired on the part of EPA in making the grant offer.

    Section H, Predesign Activities, discusses the need to work
with the grantee before and during the preparation of Plans and
Specifications.

    Section I, Predesign Conference, describes the administrative
and technical considerations to be discussed with the grantee
at the conference prior to the preparation of plans  and
specifications.

    Section J, Review of Plans and Specifications, describes
the specific information to be reviewed in the plans and
specifications.  Technical considerations are included to
enable the reviewer to adequately evaluate the Step  2 treat-
ment works design.
                                  V-l

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    Section K, 0 & M Facility/Training Grants,  concerns  special
grants for training facilities and programs.

    The technical and administrative reviews are to be per-
formed simultaneously wherever possible.  When items are
missing or explanations are necessary, the review is to pro-
ceed as far as possible to insure quick action once the items
are corrected.
                              V-2

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B.  SCHEMATIC  FLOW  DIAGRAM

    The flow diagram below visually places  this  chapter in the
proper sequence  and indicates its relationship to other chapters.
The diagram includes the general functions  of the Step 2 grant
process as performed by the applicant, State  and EPA.
I
1
1


CHAPTER 2
(


STATE PRIORITY
SYSTEM
I


)



1
1
1
1



/ STEP 2 /
^J APPLICATION /
YWITH APPROVED/
/ FACILITY PLAN"/
                                                               PREPARATION
                                                              & SUBMISSION
                                                              OF PLANS AND
  •REVIEW AND APPROVAL OF FACILITY PLAN COVERED IN CHAPTER 4
                                  V-3

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C.  APPLICATION CONTENTS

    Below are listed the basic items to be included in an
application package.  The items are listed here for quick
reference, while the review procedures for each item are des-
cribed later.  The reviewer is to make a cursory review to
insure that all items are included, that all applicable por-
tions of the forms are completed, and that the documents are
signed by the appropriate officials.  If items are missing or
explanations are necessary, the applicant is to be contacted
through the State but the review is to proceed as far as
possible to insure quick action when the required material or
information is received.

    1.  Facility Plan (complete and approved) with required
        agencies comments and approvals (OMB A-95);

    2.  State Priority Certification, EPA Form 5700-28;

    3.  Application, EPA Form 5700-32, including authorizing
        resolution and statement regarding availability of
        the proposed site;

    4.  Proposed subagreements (generally A&E contracts) or
        explanation of method of awarding proposal subagree-
        ments, including compliance with MBE policy;

    5.  A Value Engineering (VE) proposal where the Step 3
        total construction costs are expected to be $5 mil-
        lion or more;

    6.  Proposed or executed intermunicipal agreements where
        two or more jurisdictions are involved;

    7.  Project progress and payment schedule;

    8.  Evidence of compliance where applicable with:
        user charge and industrial cost recovery requirements,
        Federal facilities restrictions, sewer use ordinance
        requirements, relocation requirements, and other
        Federal regulations, including civil rights compliance
        forms 4700-1 and 4700-4.
                                V-4

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 9.   Submissions  for  compliance with pretreatment require-
     ments,  where applicable;

10.   A public  participation work  plan, where applicable;

 Re:   40 CFR 35.907,  .917-6,  ,920-2(b),  .920-3(b),  .925-3,
      .925-8,  .925-9,  .925-11,  .926,  .927-4, .935-9.
      40 CFR 30.305,  .315,  .405-2,  Suboart C.
      PRM
                             V-5

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D.  FACILITY PLAN APPROVAL

    The technical review of a facility plan is described in
Chapter IV of this Handbook.  The grantee was notified in
writing of his facility plan approval and need not resubmit
it.  The reviewer must confirm  in the project files that the
facility plan was approved by EPA.  Also, he must review the
comments of Federal, State and  local agencies under the OMB
A-95 review process to identify specific contingencies recom-
mended for inclusion during Step 2 work.  These may include
such aspects as  the need to perform an archeological survey
at proposed construction sites  prior to completion of design.
If the Step 2 project has changed substantially from that pro-
posed in the facilities plan, the Regional Administrator may
require that the facilities plan be amended and resubmitted
by the applicant for appropriate re-review.

    Re:  40 CFR  35 35.917-8, -9, .920-3 (b) (1), (4), .925-1.
                                   V-6

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E.  ADMINISTRATIVE REVIEW

    1.   Priority List Compliance and Certification

        Purpose:

        The State agency is required to certify each  project as
entitled to priority for grant funds in accordance  with  the  State
priority system and the project priority list.

        Discussion:

        Chapter II discusses the State priority system and  list.
Once the system and annual  list have been approved  by EPA,  each
project is certified by the State as being entitled to priority  for
a grant over all other projects below it on the priority list (EPA
Form 5700-28, see Appendix  B).

        A State may elect to set aside up to ten percent of its
yearly allotment to fund Step 1 and Step 2 projects not  on  the
current priority list.  When such projects are  certified,  the cer-
tification must signify that the grant is to be made  from that
reserve allotment.

        "Grant applications are considered received by EPA  only  when
complete and upon official  receipt of the State priority certifica-
tion document."

        Review Procedures:

        Review State Priority Certification to  determine that:

        a.  the name, project number and description  of  the
            project agree with the application, form  5700-32,
            and the approved State priority list;

        b.  the form includes the signature of  the  authorized
            State official;

        c.  the award of grant assistance for the project will
            not exceed the  State's allotment, including  reallot-
            ments;

        d.  the award of grant assistance will  not  jeopardize
            the funding of  any projects of higher priority;
                                  V-7

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        e.  the State  has  included a statement to the effect that
            all jurisdictions within the facility planning area
            have been  notified of State and EPA approval of the
            facility plan;

        f.  reserve funds  are identified where used.

        Re:  40 CFR 35.915,  .915-1,  .920-2, .925-3, .925-4
             PRM 75-16
    2.  Application  Form

        Purpose:

        EPA Form 5700-32  is the formal application document and sets
forth the information  necessary to obtain a construction grant.
Additionally, the application contains "assurances" from the appli-
cant which satisfy several statutory requirements.

        Discussion:

        The application for a Step 2 grant is submitted by the
authorized representative of the jurisdictions included in the
approved facility plan.   In all cases, the applicant must have the
legal authority to design, finance, construct, operate, and main-
tain any resulting wastewater treatment facilities.

        The application form is used to request an initial grant,
make amendments, and to request supplemental grants.  The form
(see Appendix B) contains instructions for completion of each of
the five parts.  Part  II, Section B, requires information concern-
ing the project site.  For a Step 2 application, a statement regard-
ing availability of  the proposed site must be included.  If the
availability of easements has not been determined, the applicant is
to be informed of the  need to accomplish preliminary easement work
concurrent with other  Step 2 activities.  (Sites and easements may
be acquired if they  are not potentially eligible costs under Step
3.)  Other site information (plot plan, soil survey, etc.) may be
included where necessary.

        The statutes require that the applicant comply with related
laws and regulations and  give other assurances.  Many of these
requirements are satisfied for a Step 2 grant when the applicant
signs the application  and thereby assures and certifies that he
will comply with the requirements.  However, additional evidence
                                  V-8

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of compliance with some of these assurances is required  from the
applicant (see Section E.7).  A copy of authorizing resolution
designating the signer as the official  representative of the appli-
cant (Part V, item 1  of application Form 5700-32)  must be included
with the application.   Any subsequent changes in the authorized
official must also be  documented by a copy of the  resolution auth-
orizing the change.

        Review Procedures:

        Review application form to determine that:

        a.  the name,  the project number,  and the  description
            of project and amount of grant request agree with
            the State  Priority Certification, Form 5700-28,
            and the approved State priority list;

        b.  the form  is signed by the authorized representative
            and a copy of the authorizing  resolution is  attached;

        c.  a statement regarding availability of  the proposed
            site is attached;

        d.  information regarding project  location,  entities
            involved and cost data corresponds to  that in the
            facility plan and Summary of Costs of  Planned
            Treatment  Works Scheduled by Project and Category;

        e.  all  items  in the application are  complete or
            marked not applicable (NA);

        f.  Part III,  Section D,  Proposed  Method of  Financing
            Non-Federal  Share,  assures  that  the  applicant can
            successfully fund his share  of the project costs.

        g.  Part V. Assurances,  is included with the applica-
            tion:   if  not the application  must be  returned to
            the  applicant for inclusion  of a  signed  copy of
            the  Assurances.

        Re:   40  CFR 30.315
             40  CFR 35.920-2(b),  .920-3(b)  (2),  .925-5
             PL  94-488
             31  CFR Part 51,  Department  of Treasury
             PRM 77-6
                                 V-9

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    3.  Contracts and  Subagreements

        Purpose:

        Contracts or subagreements for personal or professional
services are submitted by the applicant and reviewed by both the
State and EPA to insure that the scope and nature of the proposed
services are sufficient to result in approvable plans and specifi-
cations and that the fees and schedules are reasonable.

        Discussion:

        The personal and professional services covered by the sub-
agreements at the time of Step 2 application submission are generally
the consulting engineering services.  The regulations state that the
application shall include proposed subagreements or an explanation
of the intended method of awarding subagreements for performance of
any substantial portion of the project work.

        The detailed requirements of and procedures for procuring
personal or professional services are contained in the regulations,
40 CFR 35.936 & .937 and Appendices C & D.  Certain clauses of these
regulations (e.g. access) are applicable to subagreements and lower
tier subagreements in  excess of $10,000.  See Figure III-l  (p.III-6)
for applicability of specific clauses.  The goal oriented policies
and procedures regarding MBE set forth in 43 FR 248 contain the  respon-
sibilities of EPA, Grantees, Consulting firms, Prime contractors, and
MBEs.  Subagreements in which the fee is a percentage of construction
costs are not acceptable, nor are cost multiplier contracts where
profit is included in  the multiplier.

        Review Procedures:

        Review the agreements) to determine that:

        a.  the applicant has complied with 40 CFR 35.936
            .937; and  (if applicable) .939;

        b.  the scope  of the work is sufficient to prepare
            approvable plans and specifications; and cost
            and fee are appropriate to the scope of work;

        c.  completion schedules are reasonable and in
            agreement  with the facility plan;

        d.  the applicant has complied with EPA's policy for
            increased  use of minority business enterprises
            (MBE).
                                 V-10

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        Re:  40 CFR 35.920-3(b)(3), .935-7, .936, .937,  .939,
               .965 and Appendices C & D; 40 CFR 30.605
             43 FR 248 pp. 60220-60224
    4.  Intermunicipal Agreements

        Purpose:

        Where two or more jurisdictions are involved in facilities
development under Federal grants, intermunicipal  agreements insure
that all jurisdictions will be obligated to comply with financial
arrangements and procedural requirements under the grants.

        Discussion:

        The Regional Administrator will determine on a project
basis whether intermunicipal agreements required in the Step 2
grant application must be proposed or executed.  Such agreements
should correspond to the institutional arrangements included
within the approved facilities plan for the project.

        Review Procedures:

        a.  insure that intermunicipal agreements are included
            in application package where more than one juris-
            diction is involved in the proposed project;

        b.  determine whether proposed agreements are accept-
            able, and ensure that agreements are properly
            executed if required by the Regional  Administrator;

        c.  insure that proposed or executed agreements are
            in accordance with the institutional  arrangements
            submitted with  the approved facilities plan.

        Re:   40 CFR 35.920-3(b)(6), .917-6
    5.  Value Engineering Proposal

        Purpose:

        A value engineering (VE)  proposal  insures that the appli-
cant will include a VE analysis in  a  Step  2 grant project where the
Step 3 total  estimated construction costs  are expected to be
$5 million or greater.
                                V-ll

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        Discussion:

        Value engineering is a systematic, specialized  and  creative
technique for controlling project costs.  After October 1,  1979,
all applicable projects must include a proposal for a VE analysis
as part of the Step 2 application.

        Review Procedures:

        Where applicable to the project, a VE analysis  proposal
submitted with the application should comply with the following
criteria:

        a.  The scope of the analysis should include all
            components and systems, unless a limited scope
            is adequately justified by the applicant.

        b.  Members of the VE team, including the team
            coordinator, should be identified with brief
            information about their qualifications and
            experience.

        c.  The level of VE effort should be commensurate
            with the complexity and size of the Step 2
            project.

        d.  A detailed fee schedule should be included  for
            conducting the VE analysis, identifying work
            hour requirements, level of effort, direct  and
            indirect costs; these should be reasonable  in
            comparison to the work involved.

        e.  The VE work schedule should be properly related
            to the design schedule so that work may proceed
            concurrently and avoid delays.

        Re:  40 CFR 35.920-3(b)(5), .926(a)
             PRM 	
             Value Engineering Work Book for Construction
               Grant Projects (EPA-430/9-76-008)
    6.  Project  Progress Schedule

        Purpose  and  Discussion:

        As a condition  of  the  grant, the applicant will be required
to expediously initiate and  complete the Step 2 work.  A progress
schedule, which  identifies dates projected for initiation, comple-
                                 V-12

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tion and any significant milestones, is required in all  Step 2
grant applications.  This schedule, amended where necessary, will
be incorporated into the grant agreement.  It is important to
note that no dates included in the progress schedule will  modify
any compliance dates established in the NPDES permit.  A payment
schedule must accompany the progress schedule.

        Review Procedures:

        a.  insure that the schedule included with the
            grant application is reasonable and includes
            all significant dates of progress, particu-
            larly initiation and completion of the
            project.  (See items under "Predesign
            Conference.")

        b.  where applicable, determine whether the
            progress schedule will  conflict with compli-
            ance dates established in the NPDES Permit;
            insure that the applicant is aware of its
            responsibility to request modification of
            permit terms or other enforcement require-
            ments if necessary.

        Re:   40 CFR 35.920-3(b)(7), .935-9,  .945(b)
    7.  Evidence of Compliance

        The regulations require that the  applicant furnish  evidence
of meeting program requisites  and assurances  made  in  the Step  1
and 2 grant applications,  as well  as requirements  of  other  Federal
statutes.   Evidence of compliance with  the following  is of  partic-
ular importance:

        a.  user charges - the applicant  must submit  an
            approvable plan and schedule  for  the implemen-
            tation of a user charge  system in accordance
            with the regulations and guidance.

            Re:   40 CFR 35.920-3(b)(8)(i),  .925-11, .929,
                    .935-13, Appendix B.

        b.  industrial  cost recovery -  where  applicable, the
            applicant must agree to  require each significant
            industrial  user to pay that portion of the grant
            amount allocable to the  treatment of its  wastes;
                                V-13

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the applicant must also furnish letters from all
significant industrial users (10% or more of
design waste flow or strength) indicating their
agreement to pay their share of the grant amount,
and stating their intended period of use of the
treatment facility.

Re_:  40 CFR 35.920-3(b)(8)(ii), .925-11, .928,
     .935-15
     PRM 78-6

Federal facilities - the allowable project costs
cannot include the proportional costs allocable
to the treatment of wastes from major activities
of the Federal government (either 250,000 gpd or
more, or 5% or more of the total design flow,
whichever is less).

Re_:  40 CFR 35.920-3(b)(8)(iii), .925-16
     PRM  75-35

sewer use ordinance - the applicant must assure
that an approvable sewer use ordinance or other
legally binding requirement will be enacted and
enforced in each jurisdiction  to be served by
the facilities prior to completion of construc-
tion.

Re_:  40 CFR 35.920-3(b)(8)(iv), .927-4

relocation requirements - if the project will
result in the acquisition of private property
(including easements) or displacement of persons,
the applicant must give assurance of compliance
with the provisions of the Uniform Relocation
Assistance and Real Property Acquisition Policies
Act.

Re:  40 CFR 35.920-3(b)(8)(v), .935-3(b)
     40 CFR 30.405-2, 40 CFR Part 4
                     V-14

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            civil  rights provisions - the applicant must have
            completed two forms:   Assurance of Compliance,
            EPA Form 4700-1,  and  Compliance Report, EPA
            Form 4700-4 for evidence of compliance with the
            Civil  Rights Act.

            Re:   40 CFR 35.920-3(b)(8)(vi), .925-9
                 40 CFR 30.405-3,  40 CFR Part 7
                 PRM 75-32

            other  Federal  requirements  - the applicant  must
            give general  assurance of compliance  with the
            applicable  requirements of  other Federal statutes
            and  regulations as  listed in 40 CFR Part 30 sub-
            part C.

            Re:  40  CFR 35.920-3(b)(8)(vi),  .025-14

            section  404/section 10 permits  -  when permits
            from the U.S.  Army Corps  of Engineers for the
            discharge of dredged or fill  material  are
            required for the facility,  a  section  404/section
            10 permit must be issued  or a determination must
            be made  by  the RA that the  Corps  is prepared to
            issue  a  permit.

            Re:  PRM 76-4
   8.  Pretreatment Requirements

       Purpose and Discussion:

       Pretreatment programs are intended to control toxics from
non-domestic sources, and to provide for the reclamation and reuse
of water wherever practicable.  More particularly, the program is
designed to:  prevent the introduction of pollutants into POTWs
which will interfere with treatment works operation and/or dis-
posal or use of municipal sludge or which will  pass through treat-
ment works into receiving waters, the atmosphere or which will  be
otherwise harmful; and employ opportunities to  recycle and to
reclaim wastewater and sludge produced by wastewater treatment.
                                V-15

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       Pretreatment programs are mandatory.  For existing  Step 2
grants, funding may be through grant amendment.  Where a Step 2
award is to be made after June 3, 1980, the applicant must submit
information for compliance with the pretreatment regulations.

       Review Procedures:

       The application package must include the following:

       a.  An industrial survey identifying system users  by
           type and location of industry and the character
           and volume of pollutants discharged;

       b.  An evaluation of the legal authority for control
           and enforcement including adequacy of enabling
           legislation and selection of mechanisms to be
           used (ordinances etc.);

       c.  An evaluation of revenue sources and financial
           programs to insure adequate funding to carry out
           the pretreatment program;

       d.  A determination of technical information needed
           to support development of an industrial waste
           enforcement mechanism to insure the compliance
           with NPDES permit conditions;

       e.  A design of an enforcement monitoring program;

       f.  A determination of pollutant removals in existing
           treatment  facilities;

       g.  A preliminary determination of  monitoring equip-
           ment required at the  treatment  facilities;

       h.  A determination of the  tolerance of the treatment
           facilities  to toxic  pollutants; and

       i.  A preliminary determination of  the municipal
           facilities  needed  for monitoring or analysis of
           industrial wastes.

       Where appropriate,  the pretreatment program must be updated
 to  insure  its  proper  implementation  and  to improve its effectiveness,

       Re_:  40  CFR 35.907,  .920-3(b)(9), 40 CFR  Part 403
                                 V-16

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   9.  Public Participation Work Plan

       If the applicant determines, upon consultation with the
public, that additional public participation activities are
necessary, a public participation work plan shall  be included in
the application package.

       Re_:  40 CFR 35.920-3(b)(10), .917-5


  10.  Other Requirements and Limitations

       Purpose and Discussion:

       The Step 2 grant application and estimated  costs must meet
several additional criteria for approval.  Most of these are
elements required for approval of the facilities plan;  however,
all should be checked.

       Review Procedures:

       a.   the project must be consistent with  any applicable
           water quality management (WQM) plan  approved under
           section 208 or 303(e) of the Clean Water Act,  and
           the applicant must be the wastewater management
           agency designated in any approved, final  WQM plan.

           Re:  40 CFR 35.925-2, PRM 75-38

       b.   the applicant must have,  or have applied for the
           appropriate NPDES permits(s) with respect to
           existing discharges affected by the  proposed
           project.

           Re:  40 CFR 35.925-6

       c.   the treatment works design must be based  on  a
           proper cost-effectiveness analysis and  must  meet
           the requirements for BPWTT,  sewer system evalua-
           tion and rehabilitation and VE analysis.

           Re_:   40 CFR  35.925-7

       d.   pertinent changes  in the  proposed project must  have
           been made,  as appropriate,  in accordance  with  the
           findings of  the  environmental  review or EIS.

           Re:   40 CFR  35.925-8
                               V-17

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any sewage collection system work proposed in the
project is in accordance with the limitations of
the regulations and guidance.

Re_:  40 CFR 35.925-13, PRM 78-9

the limitations imposed by the regulations on
treatment of industrial wastes are met.

Re:  40 CFR 35.925-15, PRM 77-1

no allowable costs are included for treatment
works to control pollutant discharges from a
separate storm sewer system.

Re:  40 CFR 35.925-21, PRM 75-34
                     V-18

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F.  COMBINATION STEP 2+3 GRANTS

    Purpose:

    For projects involving relatively small  communities,  combination
Step 2+3 grants may be awarded with the intent of accelerating
the grant process as practical.

    Discussion:

    A single  grant may be awarded for the combined  Federal  share  of
the costs of  Step 2 and Step 3 for communities  of 25,000  or less
if the total  cost estimated for Step 3 construction is  $2 million
or less ($3 million or less in States with unusually high construc-
tion costs as determined by EPA Headquarters).  However, the project
must consist  of all associated Step 2 and Step  3 work,  and no  seg-
menting is permitted.  Furthermore, the fundable range  of the
approved State priority list must include the Step  2+3  work.

    Review Procedures:

    A single  application package is to be submitted for a combined
Step 2+3 grant.  The review must insure that  the  following
criteria and  information are met or included:

    a.  the applicant community meets the qualification
        limitations of population and Step 3 cost as
        discussed above, and that the combined  work is
        within the fundable range of the approved project
        priority list;

    b.  all of the items required for a Step 2  grant appli-
        cation (under Section E, previous)  have been
        included and are acceptable;

    c.  a schedule for timely submission of plans and
        specifications, operation and maintenance manual,
        user  charge and industrial  cost recovery systems,
        sewer use ordinance,  and preliminary plan of
        operation is included and acceptable.

    Re:   40 CFR 35.909, .920-3(d),  PRM 78-7
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G.  GRANT AWARD PROCEDURES

    The award procedures for the Step 2 grant are identical  to
those described for the Step 1 grant in Section F.  of Chapter
IV.

    Note:  Special grant conditions may need to be  inserted  in
the Grant Agreement/Amendment based on clearinghouse comments,
requests from the State agency, or conditions unique to the
project.  Such unique conditions may include mitigative measures
identified during review of the facilities plan, EIS or FNSI,
sewer system evaluation/rehabilitation requirements or other
considerations.

    Re:  40 CFR 35.930
                                V-20

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H.  PREDESIGN ACTIVITIES

    Purpose and Discussion

    Program responsibility for the progress  of a  project does  not
end with the grant offer.   Rather, the reviewer must know the
status of the project to insure that it is completed in  accord-
ance with the approved project progress and  payment schedule.
Also, he must insure that  the applicant is aware  of the  adminis-
trative and technical considerations to be included in the plans
and specifications.   Further aspects of interim progress review
are described in Section J.

    Procedures:

    Shortly after acceptance of a  Step 2 grant, the reviewer should:

    a.  contact the  grantee  and his  consultant to make known
        the kinds of advice  and assistance available from the
        State and EPA during the preparation of the plans
        and specifications;

    b.  forward  to the grantee and his consultant the admin-
        istrative and technical  considerations to be incor-
        porated  into the plans and specifications,  including
        40 CFR 35.936,  .938,  .939  and  Appendix C-2;

    c.  arrange  for  a predesign conference,  if appropriate.
                               V-21

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I.   PREDESIGN CONFERENCE

    Purpose and Discussion:

    The State agency, in conjunction with EPA, should assume  respon-
sibility for insuring that the plans and specifications are prepared
in accordance with work funded under the scope of the Step 2  pro-
ject and other regulatory requirements.  Because of the complexity
of these requirements, a predesign conference between the grantee,
his consultant, the State and EPA is strongly urged, whenever
practicable.

    The predesign conference, which may be held with one or more
grantees, promotes careful planning and coordination and insures
the timely completion of the various phases of a project.  In many
cases, the review of plans and specifications may be delegated to
a State.  In such cases, the State is responsible for the predesign
conference arrangements.   For the other cases, the regions are
encouraged to develop formats for the predesign conferences.   The
formats should be tailored to the individual staffing resources
of the States and the needs of the applicants.

    Procedures:

    Shortly after acceptance of a Step 2 grant, but prior to
the preparation of plans and specifications, the reviewer should
arrange a predesign conference with the grantee, grantee's
consultant and appropriate regulatory personnel.  Suggested sub-
jects to be discussed include:

    a.  the legal requirement for inclusion of and provisions
        for carrying out the bidding procedures described in
        40 CFR 35.936,  .938,  .939, Appendix C-2, and EPA's
        MBE policy and  Regional guidance.

    b.  the technical requirements of the design to insure
        that the  project will meet effluent or BPWTT limita-
        tions  per NPDES permit, and will be designed in
        accordance with sound engineering practice, including
        cost effectiveness and VE provisions.

        Re:  40  CFR  35.925-7, PRM 79-7
                                 V-22

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 c.  additional  requirements, as applicable, for detailed
    design reports beyond that submitted with the facility
    plan.  Possible examples are:

    -  loading rates and sizes of various components
       of the plant;
    -  design computations for sewers, including slopes
       and capacities;
    -  system head curves for pumping stations, indi-
       cating number and capacity of pumps;
    -  other detailed design reports which the particu-
       lar project may require;

 d.  pretreatment design requirements and scheduling, as
    applicable, for industrial discharges;

    Re:  40 CFR 35.907, .925-12, 40 CFR Part 403

 e.  design considerations or investigations resulting
    from the environmental  assessment or environmental
    impact statement.  Possible examples are:

    - a soil  erosion and sediment control  plan;
    - a traffic control plan;
    - archaeological  investigations;

    Re_:  40 CFR 35.925-8, PRM 75-27, PRM 78-1

 f.  design requirements arising from executed  agree-
    ments among jurisdictions;

    Re:  40 CFR 35.917-6

g.  force account requirements,  as  applicable;

    Re:  40 CFR 35.936-14

h.  phasing of contracts;

    Re:  PRM  75-14

i.  flood protection  insurance  requirements, as  applicable;

    Re_:   40 CFR  30.405-10,  PRM  76-5
                           V-23

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j.  records to be maintained during design and  construc-
    tion, separating eligible and ineligible items;

    Re_:  40 CFR 30.805, 35.940

k.  site certification requirements including easement
    acquisition if not previously satisfied (Note:   if
    land to be acquired is grant eligible, approval  by
    the Regional Administrator is needed prior to acqui-
    sition so that grant funds are not lost);

    Re:  40 CFR 35.920-3(b)(2),  .935-3, PRM 77-6, PRM	

1.  future requirements for;

    - user charge and industrial cost recovery systems;
    - a sewer use ordinance;
    - an evaluation/rehabilitation program, as applicable;
    - a plan of operation, including, O&M manual, staffing,
      training, and  startup services;

    Re:  40 CFR 35.935-12, -13,  -15, -16
         PRM 77-3

m.  requirements for submission of quarterly project status
    reports; and, requirements for periodic inspections
    and audits, as necessary, for large or complex projects
    (generally at 30% and 60% completion);

    Re:  40 CFR 30.635, .820

n.  requirement of value engineering in the design
    phases of the project;

    Re:  40 CFR 35.920-3(b)(5),  .926, PRM 75-30,
         PRM 	

o.  possible benefits from the use of construction
    management 4

p.  the use of incentive clauses in construction contracts;

    Re:  PRM 79-5
                             V-24

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    q.  qualification of major items of equipment;

        Re:  PRM 79-10

    r.  sole source procurement, experience clause, and
        buy American provisions;

        Re:  40 CFR 35.936-13

    s.  eligible and ineligible cost separation in the
        bid proposal;

    t.  initiation of plans for financing local share of
        Step 3 project.

        Re_:  PRM	

    The reviewer -should provide the grantee with guidelines,  instruc-
tions, booklets, or other publications which describe specific
requirements in detail.
                                 V-25

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J.  REVIEW OF PLANS AND SPECIFICATIONS

    Purpose:

    To insure that the project to be built will satisfy BPWTT and
statutory requirements.

    Discussion:

    Periodic reviews and inspections of progress should be made
during the preparation of plans and specifications.  As a general
rule, the reviewer should contact the grantee and design consul-
tant at 30% and 60% completion, as a minimum, to insure that the
work is being performed properly.  Progress reports should also be
required of the grantee, and submitted at least quarterly, in any
project of one year or longer duration.  Review of progress should
insure that work  is on schedule, complies with regulations, and
that grant conditions, including contingencies on design imposed
by the environmental review, are followed.  Interim payments are
made generally in accordance with the project progress and payment
schedule so that  outlay management projections can be maintained.
Interim audits may also be performed, as appropriate, based on
payment requests  and actual work performed.  Refer to Chapter VII
for other financial considerations.

    The set of plans and specifications submitted for final review
must reflect all  changes and be suitable for bidding purposes.
The review procedures are both administrative and technical.  The
technical review  procedures are broad in scope and each State or
Region is encouraged to pattern its own review procedures to
account for State or local design practices and requirements.

     Through an interagency agreement, the Corps of Engineers may
conduct "biddability" and "construct!" bility" reviews of project
plans and specifications.  While these reviews do not involve an
evaluation of the adequacy of the design to achieve the requisite
treatment level,  they do insure that the plans and specifications
are suitable for  bidding and that the project can be constructed as
designed without  unforeseen and lengthy delays.  The "Biddability"
review basically  entails the assurance that the bid documents are
clear and concise and that nothing has been omitted.  In addition,
the Corps will ensure that: (1) the project is properly segmented
into "biddable" packages, (2) specific bid items are such that bids
received may be realistically evaluated, (3) the plans and specifi-
cations are detailed enough to allow reasonable bidding.  The
"Constructibility" review deals with the build-ability of the
project as designed.  In addition, this aspect involves a consid-
eration of: (1) any potential construction constraints imposed
                             V-26

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 by the site,  (2)  adequate  resolution  of  actual  or  possible  con-
 flicts inherent  in  the  plans  and  specifications,  (3)  the
 relationships  of  the  specifications to the  plans,  (4)  the
 compatibility  of  the  plans  and  specifications with  available
 construction procedures/equipment, and (5)  any  other  potential
 difficulties.

     The review period is limited  to 30 days and the reports are
 submitted  to the  EPA  project  officer  (or State  if appropriate)
 for review and action.  Generally, findings can be  classified
 within the following  categories:   (1) major significance -  comments
 of this nature should be included  in  the plans  and  specifications
 unless extenuating  circumstances are  present; (2) important -
 incorporation  in  the  plans  and  specifications is advisable; (3) minor
 the problem is of little importance (e.g., misspellings); (4)
 differences between the plans and specifications (e.g., inconsistent
 identification of equipment, materials,  etc.).  The project officer
 shall  determine what response is necessary from the grantee in regard
 to Corps comments.

     Review Procedures:

     1.  Administrative Review

         The following six  items must be included in the bidding
 documents:

         - a statement of work, including drawings and speci-
           fications,  and the required completion schedule;
         - the terms and conditions of the contract (40 CFR
           35.938-8 and Appendix C-2)
         - an explanation of the method of bidding; the
           method of evaluating the bid prices,  and the
           basis  for the award of the  contract;
         - the  criteria  for evaluating bidders;
         - the  standard  statement (40  CFR 35.938-4(c)(5))
           concerning  the funding of  the  project by EPA;
         - a  copy of 40  CFR 35.936,  35.938,  35.939,  and
           43  FR  248 pp.  60220-60224.

         In addition to  the above  six  items,  the reviewer  is to
insure  that the specifications include the  following provisions:
                             V-27

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a.  Supplemental General Provisions

    Appendix C-2 of 40 CFR Part 35 which includes
    requirements for:

    - changes, suspension or termination
    - labor standards
    - utilization of minority business enterprises (MBE)
    - audit:  access to records
    - price reduction for defective cost or
      pricing data
    - covenant against contingent fees
    - gratuties
    - patents
    - copyrights and rights in data
    - clean air and water clause
    - buy American provisions (PRM 78-3)

b.  Equal Employment Opportunity (EEO) and MBE Utilization

    The EEO and MBE provisions must be followed where
    contracts are $10,000 or greater.  In all such
    cases,  the contractors must comply with Executive
    Order 11246 and engage in affirmative action
    directed at promoting and ensuring EEO in the
    work force under the contract pursuant to
    requirements of the Department of Labor.

    Where the cost of construction work is estimated
    to be more than $1 million, or where specified by
    the grant agreement, the grantee must consult the
    Regional Administrator about EEO requirements before
    issuance of invitations to bid.  In such cases, a
    preaward compliance review will be justified.

    In addition, the plans and specifications should
    include a statement of MBE goals for utilization
    of minority business enterprises and a statement
    of how  MBE policy is to be implemented.  The
    reviewer should  contact the Civil Rights and
    Urban Affairs Office within the EPA region for
    specific instructions as appropriate.

    Re:  40 CFR 35.936-6, -7,  .937-12(b),  .938-9(b)(2);
         Appendices  C-l(14) & C-2(9)
         40 CFR Part 8
         43 FR  248  pp.  60220-60224
                          V-28

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c.  Davis-Bacon Act

    The provisions of the Davis-Bacon Act must be
    included in contracts exceeding $2,000.   These
    provisions require the payment of prevailing
    v/ages for the various trades  as determined
    by the Secretary of Labor.

    Prevailing area-wide rates  are published weekly
    in the Federal Register.   For individual projects
    not included in areas with  area-wide wage rate
    determinations, the Regional  Office will obtain
    a wage rate for inclusion in  the specifications.

    Modifications to area-wide  wage rate determina-
    tions are to be included  in the bidding  docu-
    ments provided they have  been published  10 days
    prior to the bid opening  date.  Modifications to
    individual project determinations are to be
    included provided they are  received in the
    Regional Office 10 days prior to bid opening.

    The reviewer is to insure that the current wage
    rate determination is included in the bidding
    documents or that provisions  for inclusion have
    been made.

    Re_:  40 CFR 30.415-1, 35.935-5

d.  Flood Insurance

    For projects requiring flood  insurance (see Chapter
    VI e.4.a. of this Handbook) make certain that the
    contractor is required to obtain the necessary flood
    insurance during construction.

    Re:  40 CFR 30.405-10, PRM 76-5
                         V-29

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        e.  Bonding  and  Insurance

            For contracts  in excess of $100,000, the following
            minimum  bonding and  insurance requirement must be
            met:

            - 5% bid bond; grantees may not require bid guarantees
              greater than 5% or that a specific form of bid
              guarantee  be used  unless required by State/local
              law.
            - 100% performance and payment bond;
            - fire and extended  coverage workmen's compensation,
              public liability and property damage, and "all
              risk",  as  required by local or State law;
            - flood  insurance, as applicable, during construction.

            For contracts  less than $100,000, bonding and insur-
            ance requirements shall be in accordance with local
            or State practices.

            Re_:  40  CFR  35.936-22

        f.  Construction Incentive Program

            A construction incentive clause may be included as
            a part of the  construction bid package for projects
            having a Step  3 eligible cost of more than $10 miTlion,
            when approved  in accordance with PRM 79-5.


    2.  Technical Review:

        The technical  review of  the plans and specifications must
insure that the design is  based  upon:  the cost-effectiveness provi-
sions of the regulations (40 CFR Part 35 Appendix A), the achievement
of applicable effluent limitations or BPWTT, the sewer system evalua-
tion and rehabilitation  requirements, and valve engineering provisions
(40 CFR 35.925-7).   Structural,  electrical and mechanical details of
the design are not critically reviewed because they are the responsi-
bility of the engineer whose seal appears on the drawings.  However,
obvious irregularities should be noted.

        The following are  examples of items which should be reviewed.

        a.  Environmental  Considerations

            Plans and  specifications must be compared with mitiga-
            tive measures  required by the FNSI or EIS.  Examples
                                  V-30

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    might be soil erosion control, hours of operation,
    backfilling and seeding, structural design for
    buildings in a flood plain, etc.  Refer also to
    the approved facilities plan for energy conserva-
    tion and open space measures.

 b.  Safety

    The requirements of the Occupation Safety and Health
    Act (OSHA) are addressed.  The design of chlorine
    facilities must specifically comply with agency
    policy (PRM 79-1).  Explosion proof motors should be
    used wherever appropriate.

 c.  Bypassing

    Construction is to be carried out so as to avoid
    bypassing of flows during construction, except where
    specific prior approval  has been obtained from EPA.

 d.  Project Sign

    The contractor is required to provide an appropriate
    project sign.

e.  Reliability and Flexibility

    The proposed facilities  must be reliable and  provide
    for flexibility in operation.   This  may be accomplished,
    for example,  by requiring  standby power,  by providing
    for bypass  of  individual  plant  units,  by providing
    pumping capacity sufficient to  operate the plant with
    the largest pump out of  service,  etc.
f.   Operation and  Maintenance

    All  equipment,  piping,  switches,  instruments,  etc.
    are  to be clearly marked or  color-coded  for ease
    of identification and  location  for operation and
    maintenance.
                      V-31

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g.  Public Water Supply

    All public water supplies are to be protected by adequate
    backflow preventers (for example, double check valves.
    air gap).

h.  Chemical Storage

    All chemicals are to be properly stored and curbed to
    hold the entire volume in the event of an accidental
    spill.  Also, adequate safety protection gear is to be
    provided, with proper storage, for plant personnel.
    Chlorine storage and safety requirements must be
    followed.

    Re:  Technical Bulletin No. D-71-1, PRM 79-1

i.  Ventilation

    Adequate ventilation is to be provided in all areas
    where necessary (for example wet well, dry well,
    chlorine room, chemical storage area, etc.).

j.  Laboratory Facilities

    The laboratory facilities must be adequate to con-
    duct the type of sampling and testing required by
    the NPDES permit or by the State agency.

k.  Emergency Alarms

    Adequate alarms are to be provided to warn of
    failures or dangers.

1.  Hazardous Materials
    Mercury is not to be used for trickling filter
    seals.  Other uses of mercury require special
    review and approval.  Other toxic compounds,  such
    as toxic sewer grouts (PRM 78-11), are not to  be
    used in hazardous applications.

    Re_:  Technical Bulletin No. D071-2
         PRM 78-11
                          V-32

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m.  Sewers

    Acceptable levels of infiltration, and tests  therefore,
    are included; sewers should maintain minimum  scouring
    velocities and have adequate capacity, including
    peaking factors.

n.  Equipment

    Specifications for equipment must conform with the
    regulations (40 CFR 35.936-13), including nonrestric-
    tive specifications requirements, sole source
    restrictions, experience clause restritions,  and
    buy American provisions.

    Re:  40 CFR 35.936-13
         PRM 75-5, PRM 78-3

o.  Shellfish Waters

    Where discharges will come into contact with  shell-
    fish waters, appropriate measures must be included
    to protect the shellfish.

    Re_:  Technical Bulletin, Protection of Shellfish
         Waters, EPA 430/9-74-010

p.  Pretreatment

    Where applicable, the design must be in accordance
    with the requirements for pretreatment of incom-
    patible industrial wastes.

    Re:  40 CFR 35.906, .925-15, Part 403

q.  I & A Technology Confirmation

    Where a project, or portion of a project, has been
    designated innovative on the basis of the facili-
    ties plan, the plans and specifications must  meet
    the appropriate criteria in 40 CFR 35 Appendix E.6,
    or they may lose I & A designation.

    Re:  40 CFR 35.908(b)(2)
                         V-33

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3.  Plans and Specifications Approval

    a.  General

        Upon determination that the plans and specifica-
        tions are approvable, the grantee is to be so
        notified.  The notification will generally be in the
        form of a letter and should contain any special
        conditions resulting from the review which would be
        imposed on the applicant upon application for a
        Step 3 grant.  This notification should specifi-
        cally remind the applicant not to advertise for
        bids until after applying for and receiving a
        Step 3 grant.  He should also be reminded that
        the EPA is not obligated to award a Step 3 grant
        for the project.

    b.  Step 2+3 Grants

        If a grantee was awarded a combination Step 2 and 3
        grant, he must receive written authorization from
        the Regional Administrator before advertising for
        bids on the construction portion of the project.
        Before receiving this authorization, he must obtain
        approval of his additional submissions for user
        charge, industrial cost recovery, preliminary plan
        of operation, and pretreatment compliance.

        Re:  40 CFR 35.935-4
                          V-34

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K.  O&M FACILITY/TRAINING GRANTS

    Purpose:

    Federal assistance is available in the form of grants for the
purpose of operation and maintenance training.

    Discussion:

    A grant may be awarded for construction and support of a training
facility, facilities or training programs for operation and mainten-
ance.  A training grant for 100 percent of the cost of construction
of treatment works may be exempted by the Administrator from the State
priority list requirements; however, the Federal funds awarded to any
State for all training facilities or programs may not exceed $500,000.
A special application is required.

    Review Procedures:

    An application for a training grant must be reviewed for inclu-.
si on of:

    a.  a statement discussing the suitability of the treatment
        facility, facilities or programs for training personnel
        in operation and maintenance of treatment works through-
        out one  or more States;

    b.  a written commitment from the State to  carry out an
        approved training program at the facilities;

    c.  an engineering report (where a facility is to be
        constructed) including design and cost  data for
        design and construction;

    d.  a detailed outline of the training programs,
        including:

        - an assessment of need for training
        - how need was determined
        - who will  be trained
        - the curriculum and materials to be used
        - the training delivery system to be used
        - the resources available for the program
        - a budget breakdown for the program
        - the relationship of the facility or program to
          other  programs •

    Re:   40 CFR  35.915(a),  .920-3(e),  .930-l(b)
                                 V-35

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             CHAPTER VI



       STEP 3 GRANT PROCESSING








A.  INTRODUCTION



B.  SCHEMATIC FLOW DIAGRAM



C.  APPLICATION CONTENTS



D.  PLANS AND SPECIFICATIONS APPROVAL



E.  ADMINISTRATIVE REVIEW



F.  GRANT AWARD PROCEDURES



G.  PROCUREMENT OF CONSTRUCTION CONTRACTS



H.  PRECONSTRUCTION CONFERENCE



I.  MONITORING OF CONSTRUCTION ACTIVITIES

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A.  INTRODUCTION

    This chapter describes the contents of and review procedures for
processing of a Step 3 grant application.   It begins  with  the
receipt of the application and concludes with the start-up of the
completed facilities.

    Section B, Schematic Flow Diagram,  visually places this chapter in
the proper sequence and indicates the major activities of  the Step 3
application and review.

    Section C, Application Contents, provides a ready listing of the
materials which are contained in an application package for a Step 3
grant.

    Section D, Plans and Specifications Approval, restates the
requirement for approved plans and specifications as  a part of the
Step 3 application.

    Section E, Administrative Review, describes the procedures
involved in reviewing priority list compliance and certification,
application form, contracts and subagreements, intermunicipal agree-
ments, and other evidence of compliance.

    Section F, Grant Award Procedures,  describes the  action required
on the part of EPA in making the grant offer.

    Section G. Procurement of Construction Contracts, describes the
procedures involved in the authorization to advertise for  bids,
review of bids, grant increase/decrease, protests, and authorization
to award contracts.

    Section H, Preconstruction Conference, describes  the administra-
tive and technical considerations to be discussed with the grantee
relative to construction activities.

    Section I, Monitoring of Construction Activities, describes the
the procedures involved in the execution of change orders  and onsite
inspections, and the review of operation and maintenance programs.
                                 VI-1

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    B.  SCHEMATIC  FLOW DIAGRAM
        The flow diagram below visually places this  chapter in  the
    proper sequence and indicates its  relationship to other chapters.
    The diagram includes the general  functions of the Step 3 grant process
    as performed by the applicant, State and EPA.
| CHAPTER 2

I
(STATE PRIORITY^
   SYSTEM    J
                                                     NO
                   STEP 3     /
                APPLICATION If
               W/APPROVABLE /   V
              'PLANS & SPECS/
          AUTHORIZATION
          TO ADVERTISE
            FOR BIOS
                          ADVERTISE,
                        RECEIVE AND
                       EVALUATE BIDS
  B
        AWARD
       CONTRACTS
                                           INSPECTION &
                                          CHANGE ORDERS
                                           CONSTRUCTION
O&M MANUAL,
 SEWER USE
 ORDINANCE
                                   NO
             STATE/EPA
              REVIEW
                                                 FINAL INSPECTION 1
                                         VI-2

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C.  APPLICATION CONTENTS

    Below are listed the basic items  to be included  in  an  application
package.   The items are listed here for quick reference, while  the
review procedures for each item are described later.  The  reviewer
is to make a cursory review to insure that all  items  are included,
that all  applicable portions of the forms are completed and  that  the
documents are signed by the appropriate officials.   If  items are  miss-
ing or explanations are necessary,  the State  is to be contacted but
the reviewer is to proceed as far as  possible to insure quick action
once the corrections are made.

    1.  Approvable Plans and Specifications.

    2.  State Priority Certification, EPA Form 5700-28.

    3.  Application, EPA Form 5700-32, including authorizing
        resolution and site certificates.

    4.  Proposed subagreements or explanation of method of
        awarding proposed subagreements, including information
        necessary for development of outlay schedules and
        MBE participation.

    5.  Executed intermunicipal agreements, where applicable.

    6.  Schedule for compliance with  Plan of  Operation  requirements.

    7.  Submissions for compliance with pretreatment  requirements,
        where applicable.

    8.  User charge system, ordinance and resolution  by jurisdictions.

    9.  Industrial cost recovery system, where applicable.

   10.  Evidence of compliance with the Flood Disaster  Protection
        Act and the sewer use ordinance requirements.

   11.  Sewer system rehabilitation scheduling, where applicable.

   12.  A public participation work plan, where applicable.

    Re:   40 CFR 35.920-3(c), .925-3,  -10, .927-3, -4.
         40 CFR 30.315, .405-10.
                                  VI-3

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D.  PLANS AND SPECIFICATIONS APPROVAL

    The review of plans and specifications is described in Chapter V
of this Handbook.  The applicant has been notified that the plans
and specifications are approvable, and should have been informed of
any missing forms or documents which must be included in the final
bidding documents.  The reviewer should confirm this by examining
the project file.  The applicant is responsible for submitting  copies
of the plans and specifications, including all required documents,  as
a part of the Step 3 application.  In particular the applicant  should
be informed of the requirement for inclusion of the latest wage rate
determination in accordance with the Davis-Bacon Act.

    Re:  40 CFR 35.920-3(c)(2)
                                   VI-4

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E.  ADMINISTRATIVE REVIEW

    1.  Priority List Compliance and Certification

        Purpose:

        The State agency is required to certify each project as
entitled to priority for a grant in accordance with the State
priority system and resulting project priority list.

        Discussion:

        Chapter II discusses the State priority system and list.
Once the system and annual list have been approved by EPA, each
project is certified by the State as being entitled to priortiy
for a grant over all other projects below it on the priority list
(EPA Form 5700-28, see Appendix B).

        Only projects which have been certified by the State as
entitled to priority for Federal assistance may receive grants.

        Review Procedures:

        Review State Priority Certification and determine that:

        a.   the name, project number and  description of
            project agree with the application,  form 5700-32,
            and the approved State priority list;

        b.   the form includes the signature of the authorized
            State official;

        c.   the award of grant assistance for the  project
            will  not exceed the State's allotment,  including
            reallotments;

        d.   the award of grant assistance will  not jeopardize
            the funding  of any projects of higher  priority;

        e.   reserve funds  are  identified  where  used.

        Re:  40 CFR 35.915,  .917-2,  .920-2,  .925-3,  .925-4.
            PRM  75-14
            PRM  75-24
                                VI-5

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    2.  Application Form

        Purpose:

        EPA Form 5700-32 serves as the formal application document
and sets forth the information necessary to qualify for a construction
grant.  Additionally, the application contains "assurances" from the
applicant which are necessary to satisfy statutory requirements.

        Discussion:

        The application for a Step 3 grant is submitted by the author-
ized representative of the jurisdictions included in the approved
facility plan.  The applicant must demonstrate the capability and
legal authority to finance, construct, operate and maintain the pro-
posed wastewater treatment facilites.

        The application form is used to request initial grants, amend-
ments, and supplemental grants.  The form (see Appendix B) contains
instructions  for completion of each of the five parts.  Part II,
Section B must be  completed for a Step 3 grant.  No Step 3 grant may
be awarded until the  grantee has submitted assurances that all
required property  rights, as defined in 40 CFR 35.935-3(b), have
been obtained or bonafide options taken or formal condemnation pro-
ceedings initiated  (exceptions are discussed  in PRM     ).

        Part  III,  Section D, concerns the applicant's proposed
method of financing  the non-federal share of  the project.  In
accordance with PL 94-488, revenue sharing funds can be used to meet
the applicant's share of  the cost of the project.  In certain cases
involving sewage collection systems (not treatment plant nor inter-
cepting sewers), the  applicant may use Community Development Block
Grant Funds as  the  community's local share.   In these cases the
reviewer should contact the regional DHUD office for specific limi-
tations.

        The grant  request may  not  include costs for treatment of
wastes originating from  Federal  installations (excluded from
allowable costs).

        The statutes require  that  the applicant comply with related
laws  and regulations and  give  other assurances.  Many of these
requirements  are satisfied  for a  Step 3  grant when the applicant
signs the application and thereby  assures and certifies that he will
                                   VI-6

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comply v/ith the requirements.   However,  additional  evidence  of com-
pliance with some of these assurances  is required  from the appli-
cant (see Section E.9).   A copy of the authorizing resolution
designating the signer to act  as the representative of the applicant
(Part V, item 1 of the application form) must be included with the
application.  Any subsequent changes in  the  authorized offical  must
also be documented by a  copy of the resolution authorizing the change.

        Review Procedures:

        Review the application form and  determine  that:

        a.   the name, project  number,  and description  of the
            project and  the amount of  the grant request agree
            with the State Priority Certification  Form 5700-28
            and the approved State Priority  List;

        b.   the form is  signed by the  authorized representa-
            tive and a copy of the authorizing resolution
            is attached;

        c.   the certification  of project site interest (Part II,
            Section B) is completed; and appropriate documentation
            assuring all  required property rights  is included;

        d.   the applicant can  fully fund its share of  the project
            costs and can obtain funds within 90 days  of the
            grant award;

        e.   all items in  the application are complete  or marked
            not applicable (NA);

        f.   Part V, Assurances is included with the application.
            If not, properly signed form must be obtained.

        g.   force account work must be properly identified.

        Re:   40 CFR 30.315
             40 CFR 35.920-2,  .920-3(c),  .925-5, .925-16,
                .935-3(b)(3)
             PL 94-488
             31 CFR Part  51, Department  of the Treasury
             PRM
                                VI-7

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    3.  Contracts and Subagreements

        Purpose:

        Contracts or subagreements for personal or professional  ser-
vices are submitted by the applicant and reviewed by both the State
and EPA to insure that the scope and nature of the proposed services
are sufficient to result in approvable facilities and that the fees
and schedules are reasonable.

        Discussion:

        The personal and professional services covered by the sub-
agreements at the time of Step 3 application submission are generally
the consulting engineering services.  The regulations state that the
application shall include proposed subagreements, or detailed descrip-
tion of the method of awarding subagreements, for performance of any
substantial portion of the project.

        The detailed requirements of and procedures for procuring
personal or professional services appear in 40 CFR 35.936, .937 and
Appendices C & D.  Certain clauses of the regulations (e.g. access)
are applicable to subagreements and lower tier subagreements in excess
of $10,000.  See Figure III-l, previous, for applicability of specific
clauses.  The goal oriented policies and procedures regarding MBE set
forth in 43 FR 248 contain the responsibilities of EPA, Grantees,
Consulting firms, Prime contractors, and MBEs.  Subagreements in
which the fee is a percentage of construction costs are not accept-
able nor are cost multipler contracts where profit is included in
the multipler.

        Information must be sufficient for the preparation of outlay
schedules in accordance with PRM 79-9.

        Review Procedures:

        Review the agreement(s) and determine that:

        a.  the grantee has complied with 40 CFR 35.936 and
            .937; and (if applicable) .939;

        b.  the scope of work is sufficient to construct
            approvable facilities; and cost and fee are
            appropriate to the scope of work;
                                   VI-8

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        c.  completion schedules are reasonable and in agreement
            with the plans and specifications.

        d.  the applicant has complied with EPA's policies and
            goals as they apply to minority business enterprises
            (MBE).

        Re:  40 CFR 35.920-3(c), .935-7,  .936, .937, .939,
                .965, Appendices C and D
             40 CFR 30.605
             PRM 79-9
             43 FR 248 pp. 60220-60224
    4.  Intermunicipal Agreement

        Purpose and Discussion

        Where two or more jurisdictions will be served by the
proposed facilities, intermunicipal agreements insure that all juris-
dictions will be obligated to comply with financial arrangements and
procedural requirements under the grants.  At the time of Step 3
grant application, the final, executed intermunicipal agreements must
be furnished.

        Review Procedures:

        a.  insure that final intermunicipal agreements are
            included in the application package where more
            than one jurisdiction is involved in the project;

        b.  insure that the agreements are properly executed
            by the responsible officials of all  jurisdictions
            involved in the project, and are binding.

        Re_:  40 CFR 35.920-3(c)(l)


    5.  Plan of Operation

        Purpose and Discussion:

        A preliminary plan of operation is required prior to award
of the Step 3 grant to insure that the applicant is committed to
implementation of operation and  maintenance, staffing,  training and
start up requirements.
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        The preliminary  plan  consists of a schedule for implementa-
tion of the activities necessary  to assure efficient and reliable
start-up and continued operation  of the facilities.  The schedule
may be defined  in  terms  of an estimated percent completion of con-
struction or in terms of numbers  of days prior to an operational
start date.

        Review  Procedures:

        Ensure  that  the  schedule  includes estimated milestones for
actions in accordance with PRM 77-3.  These may include the follow-
ing:

        a.  points of hiring  plant personnel, training milestones;

        b.  timing of O&M manual  preparation;

        c.  development  of safety and emergency operation
            programs;

        d.  development  of records, filing and laboratory
            procedures;

        e.  timing of start up procedures.

        Re_:  40 CFR  35.920-3(c)(3), .925-10, .935-12
             PRM 77-3.
    6.  Pretreatment  Requirements

        Purpose and Discussion:

        Pretreatment  programs are  intended to control toxics from
non-domestic sources,  and  to provide for the reclamation and reuse
of water wherever  practicable.  More particularly, the program is
designed to:  prevent the  introduction of pollutants into POTWs
which will  interfere  with  treatment works operation and/or disposal
or use of municipal sludge or which will pass through treatment
works into  receiving  waters, the atmosphere or which will be other-
wise harmful; and  employ opportunities to recycle and to reclaim
wastewater'and sludge produced by  wastewater treatment.

        Pretreatment  programs are  mandatory.  No Step 3 grant award
can be made after  December 31, 1980 unless applicant compliance with
the pretreatment regulations can be proven.  On Step 3 projects in
existence prior to January 1, 1981, pretreatment programs can be
funded with grant  increases.
                                  VI-10

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        Review Procedures:

        The application  package must  include  the  following:

        a.   An industrial  survey  identifying  system  users by
            type and  location  of  industry  and the character
            and volume of  pollutants  discharged;

        b.   An evaluation  of the  legal  authority  for control
            and enforcement including adequacy of enabling
            legislation  and selection of mechanisms  to  be used
            (ordinances  etc.);

        c.   An evaluation  of revenue  sources  and  financial
            programs  to  insure adequate funding to carry out
            the pretreatment program;

        d.   A determination of technical information needed
            to support development  of an industrial  waste
            enforcement  mechanism to  insure the compliance
            with NPDES permit  conditions;

        e.   A design  of  an enforcement monitoring program;

        f.   A determination of pollutant removals in existing
            treatment facilities;

        g.   A preliminary  determination of monitoring equip-
            ment required  at the  treatment facilities;

        h.   A determination of the  tolerance  of the  treatment
            facilities to  toxic pollutants; and

        i.   A preliminary  determination of the municipal
            facilities needed  for monitoring  or analysis of
            industrial wastes.

        Where appropriate,  the pretreatment program  must be updated
to insure its proper  implementation and to improve its  effectiveness.

        Re:  40 CFR 35.907, .920-3(c)(4),  40  CFR  Part 403
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    7.  User Charge System

        Purpose:

        The user charge  system requires that users of a treatment
works will pay  their  share of operation and maintenance (including
replacement) costs.

        Discussion:

        In the  Step 2 application, the applicant must have developed
an approvable plan and schedule for the implementation of a user charge
system.  After  June 30,  1979, a Step 3 grant may not be awarded until
the applicant's user  charge system is approved.

        A system, based  on actual use or ad valorem taxes as appro-
priate, must fulfill  the objective of distributing the costs of
O&M among all users or user classes in proportion to their waste load
contributions.  Factors  to be included in the calculation of charges
are the volume, flow  rate and strength of the wastes of all users
or classes.  Each user,  or class of users, must be charged on an
equitable basis to fairly apportion the O&M costs.  An effective user
charge system will bring about operational self-sufficiency.

        Where more than  one political jurisdiction is included in
the project service area, each jurisdiction in the service area must
develop and enact an  acceptable user charge system.  In the first
year of operation, the user charges may be based upon past experience
or reasonable estimates. However, thereafter the applicant is to
review the user charges  biennially at a minimum and initiate revi-
sions, as necessary,  to  reflect actual operation and maintenance
costs of the treatment works and actual waste load contributions from
each user or class of users.

        Review  Procedures:

        The user charge  system submission must be reviewed to insure
compliance with 40 CFR 35.929.  The following criteria are applicable:

        a.  the system fairly apportions the O&M costs among
            all users or user classes according to waste load
            or  flow characteristics.  A system based upon" ad
            valorem taxes (dependent upon taxable property
            ownership) may be acceptable if in accordance with
            40  CFR 35.929-1(b).  Appendix 2 of 40 CFR Part 35
            includes  acceptable user charge system models;
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        b.   the  implementation of the program will provide
             sufficient revenues to offset all actual O&M
             costs;

        c.   a system will be implemented and enforced by
             all  political jurisdictions within the service
             area of the treatment works.  Resolutions,
             local ordinances, written statements or other
             agreements may be accepted as evidence of
             compliance by the political jurisdiction
             involved (confer with "Intermunicipal Agree-
             ments," Section 4).

        Re:  40  CFR 35.925-11, .929, .935-13, Appendix B
             PRM 75-37
    8.  Industrial Cost Recovery System

        Purpose:

        The industrial cost recovery system provides a means whereby
industrial users of a publicly-owned treatment works repay the pro-
portionate Federal share of the construction costs of the treatment
works allocated to their use.

        Discussion:

        The industrial cost recovery (ICR) system provides a system
by which all industrial  users of the treatment works will repay, over
a defined period, their portion of the Federal share of planning,
design and construction costs of the works.  These costs are to be
recovered by the grantee over the useful life of the treatment works
but not to exceed 30 years.  The grantee is obligated to collect
these payments no less often than annually and to refund 50% of the
total amount (plus any interest accrued) annually to the U.S.
Treasury.   Of the remaining half of the recovered funds, a portion
may be used to pay the incremental  cost of administering the ICR
system.  A minimum of 80% of the amount remaining after payment of
the incremental  cost is  to be used  by the applicant, subject to the
Regional  Administrator's approval,  for the eligible costs of expan-
sion or reconstruction of wastewater treatment facilities.  The
remainder can be used for any purpose except construction of indus-
trial pretreatment facilities or rebates to contributing industries.
                                 VI-13

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        The system is applicable only to the Federal share of con-
struction costs.  No Federal requirement exists for recovery of
the State or local share of costs for treatment of industrial
wastes (although State or local laws may be so enacted).  The
Federal share of the cost of construction includes the Steps 1, 2
and 3 grants except the costs associated with I/I analysis and the
cost associated with sewer rehabilitation and nonexcessive I/I if
they are not attributable to industrial users.

        ICR assessments are in proportion to the industrial user's
wastewater characteristics.  The wastewater characteristics may
include strength, volume, delivery flow rate, and shall be monitored
according to the schedule included in the approved ICR system.  In
determining the amount of an industrial user's discharge, the
grantee may exclude domestic wastewater originating from the industry.
After applying this exclusion, if the discharge exceeds 25,000 gpd
(or the weight of BOD or suspended solids equivalent to that found
in 25,000 gpd of domestic wastewater), the industry is subject to
ICR charges.  The grantee reviews the ICR system annually and
adjusts ICR payments based on the monitored characteristics.  If
an industrial user discontinues use of the treatment works, its ICR
payment will cease.

        Note:  A moratorium on the collection of ICR charges from
industrial users is in effect for the period of January 1, 1978 to
June 30, 1980.

        Review Procedures:

        The ICR system must comply with the regulations (40 CFR
35.928) and guidance (MCD-45).  The following criteria are applicable:

        a.  the system will collect costs appropriately from
            all "industrial users" defined in 40 CFR 35.905.

        b.  the system will be implemented and enforced by
            all political jurisdictions to be served by the
            proposed facilities.  Resolutions, local ordi-
            nances or written statements may be accepted as
            evidence of compliance.   These may be incorporated
            into the required intermunicipal agreements
            (Section 4).

        Re:  40 CFR 35.905, .925-11,  .929, .935-15
             Industrial Cost Recovery Systems (MCD-45)
             PRM 78-6
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    9.  Evidence of Compliance

        The regulations require that the applicant furnish evidence
of meeting program requirements and assurances made in the Step 3
grant application, and compliance with other Federal  statutes.   In
addition to evidence required previously for the Step 2 application
and approval of plans and specifications, the following are required:

        a.  Flood Disaster Protection Act

            To determine if a community is required to participate in
the flood insurance program, consult the regional  DHUD office.   If
the community is eligible for participation and if the project  con-
tains insurable structures, each of $10,000 or more in value,  the
applicant is to furnish evidence that it is participating  in the pro-
gram and a letter of intent that it will provide for  the required
insurance both during construction and for the useful  life of the
project.

            Structures that must be insured are new or reconstructed-
surface structures which are walled and roofed (control  building or
pumping station for example).  Items which are not eligible for insur-
ance are sewers or other facilities not likely to  be  damaged in the
event of flooding.

            Projects outside the flood hazard areas or in  areas not
yet delineated by DHUD need not obtain flood insurance.  Communi-
ties have until one year after notification of identification as a
flood-prone area to meet the flood insurance requirement.

            Re:  40 CFR 30.405-10
                 PRM 76-5

        b.  Sewer Use Ordinance

            The applicant must submit a current sewer  use  ordinance
or a letter of intent that such ordinance will  be  enacted  in each
jurisdiction before completion of construction.  The  sewer use  ordi-
nance must prohibit new sources of inflow (illegal  connections  from
sump pumps, foundation drains,  roof leaders,  etc.)  from  being
connected to the sewer system and require proper design  and construc-
tion techniques for new connections.

            Re:   40 CFR 35.927-4,  .935-16
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        c.  Sewer System Rehabilitation Schedule

            Where the scope of the Step 3 grant includes sewer system
rehabilitation, the applicant must submit a schedule for completing
the rehabilitation program.  Because the applicant is required to
comply with the schedule for sewer system rehabilitation in order to
receive full grant payment, the schedule must be reasonable for the
work involved.  It is desirable that the rehabilitation program be
completed prior to completion of the plant.  However, the rehabilita-
tion program may continue  beyond the scheduled start-up provided that
the unfinished rehabilitation work will not have an adverse effect on
the operation of the plant.

            Re:  40 CFR 35.927-3,  .927-5(c),  .935-16


   10.  Public Participation Work  Plan

        If  the applicant determines, upon consultation with the public,
that additional public  participation activities are necessary, a
public participation work  plan shall be included in the application
package.

        Re_:  40 CFR 35.920-3(c) (5),  .917-5
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 F.   GRANT  AWARD  PROCEDURES

     Procedures to  be  followed  in awarding a Step  3  grant are  identi-
 cal  to  those  used  in  making a  Step  1 award.   (See Chapter  IV,
 Section F.)

     In  addition, special conditions of the grant  are  included  in
 Part III b of the  Grant Agreement/Amendment.  These conditions may
 be based upon clearinghouse comments, requests from the State
 agency  or  conditions  unique to the  project.

     The grantee must  complete  certain regulatory  requirements  before
 full  grant payment may be made.  To reinforce the importance of these
 requirements, and  to  avoid oversight on the part  of the applicant,
 they may be included  in the grant agreement as "special conditions."
 These are:

     a.  O&M Manual -  No more than 50% of the grant may be paid
        until the  draft manual has been submitted or evidence
        of compliance has been received, and no more than 90%
        may be paid until a satisfactory O&M manual has been
        furnished.

     b.  Sewer Use  Ordinance - No more than 80% of the Step 3
        grant may  be  paid until the sewer use ordinance(s) is
        approved,  unless excepted.

     c.  Rehabilitation Program - No more than 80% of the
        grant may  be  paid until compliance with the rehabili-
        tation program (if required) is achieved, unless
        excepted.

     d.  Pretreatment  Program - No more than 90% of the grant
        may be paid until  the municipal  pretreatment program
        is approved (unless an extension is granted by the
        Regional  Administrator in accordance with 40 CFR
        35.935-19).

     Re:   40 CFR 35.935-12(c),  -16(b),  -19

     Note:   It is  imperative that the preconstruction phase of Step
3 projects  be carefully managed to minimize the lag time between
award of the Step 3 grant and  initiation  of construction.   The
status of this phase is reported by periodic  Regional  updating of
the preconstruction information in the  Grants  Information  and Control
System.
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    It should be borne in mind that 40 CFR 35.935-9 requires
that the Regional Administrator terminate a grant if construction
is not initiated within one year after award of the Step  3  grant.
The termination date may be extended for a maximum period of  six
months if the Regional Administrator determines that such an  exten-
sion is justified.  Further extension is possible only upon formal
deviation from the appropriate provisions of 35.935-9.

    Re:  40 CFR 30 Subpart I
         40 CFR 35.935-9
         PRM 78-12
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G.  PROCUREMENT OF CONSTRUCTION CONTRACTS

    1.  Authorization and Formal Advertising for Bids

        Discussion:

        Once the grantee has accepted the grant offer, or concur-
rent with transmittal of the grant offer and conditioned upon
acceptance, EPA may authorize advertising for bids (complete
approvable bidding documents, including plans and specifications,
were a part of the Step 3 grant application).  While the approved
bidding documents contain the necessary requirements for formal
advertising (35.938-4), the letter authorizing the grantee to
advertise for bids should reemphasize and briefly remind the grantee
of these requirements and the procedures to be followed after
receipt of bids.

        Procedures:

        A letter to the grantee should:

        a.  authorize him to advertise for bids in accordance
            with regulations;

        b.  indicate the documents to be submitted and pro-
            cedures to be followed after receipt of bids
            (see item 2 following for list of documents);

        c.  warn him not to award contracts until
            authorization to do so is received from EPA.

        d.  remind grantee that while rejection of all bids
            is possible, such action may be taken only with
            prior EPA concurrence and only for good cause.

        Re_:   40 CFR 35.938-4
             PRM 78-8
    2.  Review of Bids

        Purpose and Discussion:

        A review of the bids,  bidding procedures, and accompanying
documents is made to insure compliance with applicable Federal
laws and regulations and to insure that contracts will be awarded
to the lowest responsive,  responsible bidder.
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        Review Procedures:

        The following documents are to be submitted and reviewed
prior to authorizing award of construction contracts.

        a.  a certified  tabulation of all bids received;

        b.  two copies of the proposal form and bonds from
            the successful bidder;

        c.  a statement  from the authorized official giving
            the names of the bidders to whom the grantee
            wishes  to award contracts and the amount of each
            contract;

        d.  proof of advertising indicating the circulation
            dates and time for  receipt of bids;

        e.  a copy  of each addendum issued during the bidding
            period  and acknowledgment of its receipt by the
            successful bidder;

        f.  signed  copies of the certification by the contrac-
            tors regarding compliance with EEO and  MBE  require-
            ments;

        g.  if  award  is  to be made  to other than the low bidder,
            a justification  from the  applicant indicating why
            the  low bidder is  not  responsive or responsible;

        h.  a revised  cost estimate,  as  necessary  (see  suggested
            cost breakdown format,  Appendix B);

        i.  other  documents  showing conformance with applicable
            State  and  local  laws and  ordinances.

        Re:   40 CFR 35.935-6,  .938


     3.  Grant Increases/Decreases

        Discussion:

        The  grant  amount is  adjusted,  as appropriate,  after receipt
 of bids to more accurately reflect project costs.
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        Procedures:

        a.  Grant increases

            If the bids exceed the estimated construction costs and
the excess costs cannot be covered by the contingency allowance,
and if the grantee wishes to award the contracts on the basis of
these increased costs, he must request a grant increase through the
State agency.  The State must submit a statement to LPA authorizing
the grant increase.  A contingency allowance (generally between 3
and 5 percent of construction costs) is to be included in the
revised project costs to allow for change orders, overruns,  etc.
Grant increases require a revised grant agreement/amendment, the
updating of the GICS, and Congressional liaison notification if the
increase exceeds $10,000.  Refer to Chapter VII, Increases and
Decreases, for specific procedural instructions.

        b.  Grant decreases

            If the bids are less than the estimated construction
costs contained in the Step 3 application, the grant is to be reduced
accordingly but should continue to include a contingency allowance
(generally between 3 and 5 percent of construction costs).  Grant
decreases require a revised grant agreement/amendment and the updat-
ing of the GICS.  Refer to Chapter VII, Increases and Decreases, for
specific procedural  instructions.

        c.  Contingency adjustment

            Regardless of whether a grant increase or decrease is
appropriate,  the contingency allowance noted in the Step 3 grant
application should be adjusted after bids have been received.
Common practice has been to allow a ten percent contingency  allow-
ance for a Step 3 grant request but to adjust the allowance  to
between 3 and 5 percent of the construction costs after receipt of
bids.   Should the contingency adjustment result in a need for a
grant increase or decrease,  follow the procedures in a.  or b.  above.

        Re:   40 CFR 35.915-l(c),  .935-11,  .955
             40 CFR 30.900-1
             PRM 75-21
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    4.  Protests

        Discussion:

        In the award of contracts, many individuals and firms  have
a vested interest  in the decision as to who will receive the construc-
tion contract.  If the proposed award is not in favor of their
particular interests, they may choose to protest the award.   In such
instances, the protester must take his grievance to the grantee for
initial resolution.  In turn, the grantee must advise EPA of the
protest, the basis therefore, and his proposed method of resolution
before awarding contracts.  If the protester is dissatisfied with
the decision of the grantee and feels that Federal law will  be
violated by the proposed award, he may make a written request for
the Regional Administrator to review the grantee's decision.

        The award  of contracts is subject to an immense body of laws
and regulations and often involves sensitive legal issues.  There-
fore, the construction grants reviewer must be familiar with the
procurement and protest regulations, and should consult the
Regional Counsel when he learns of a protest or of an action which
may lead to a protest in order to obtain advice as to any steps he
should take relative to the protest.  Early consultation with
Regional Counsel is particularly  important when a porposal is made
for award of the contract to other than the low bidder or when
an attempt is made to withdraw a  low bid.

        Review Procedures:

        The construction grants reviewer must exercise caution in
handling protests, especially with regard to commenting on the
nature of the protest or recommending courses of action.  Accordingly,
the reviewer should:

        a.  Refer  the potential protester to 40 CFR 35.939(b)
            regarding timing requirements of a protest.  Any
            other  comments to the grantee or potential pro-
            tester should be limited to procedural require-
            ments.

        b.  Should a protester indicate dissatisfaction with
            the grantee's decision on the protest and express
            such disatisfaction to the reviewer, refer the
            protester to 40 CFR 35.939(b)(2).
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        The reviewer may wish to consult with the Regional  Counsel
who will make the preliminary decision as to whether the protest is
valid or without merit and who will  so advise the Regional  Admin-
istrator.  If the Regional Administrator adopts or concurs  with the
position that the protest is without merit,  the protest will  be
dismissed without further EPA proceedings.   If the protest  appears
to have some merit, Regional Counsel is responsible for coordinating
actions as prescribed in 40 CFR 35.939 to resolve the matter.
According to 40 CFR 35.939(d)(2) & (3), the  Regional Counsel  shall
make his report and recommendations  promptly, and the Regional
Administrator should transmit his determination within one  week
after receiving such report.  The reviewer should assist in
gathering data necessary to a final  decision and in assuring
timely resolution of the protest.

        Re:  40 CFR 35.939
    5.  Rejection of All  Bids

        Discussion:

        Regulations  (40 CFR 35.938-4(h)(2))  permit the grantee to
reject all bids and  resolicit for new offers.   However, the exer-
cise of that right is contingent upon the grantee's demonstration of
good cause for that  proposed action.  Any good cause demonstration
must reflect that the public interest will be  best served by such
action in consideration of EPA requirements.

        Review Procedures:

        A good cause proposal for rejection  of all bids by a
grantee must be consistent with one or more  of the following crite-
ria, as defined in PRM 78-8:

        a.  specifications are ambiguous or  otherwise deficient
            and an addendum to the invitation  is not possible;

        b.  the grantee's needs have changed and such change
            could not be imposed upon bidders  within the
            procurement requirements;

        c.  the specification requirement is determined
            unnecessary;

        d.  bids received indicate the grantee's quality
            requirements  were overstated;
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        e.  although bids are acceptable, the grantee is
            unable to fund its share of costs associated
            with the lowest acceptable bid;

        f.  the amounts of all otherwise acceptable bids
            are unreasonable;

        g.  the bids failed to provide sufficient competition
            to insure fair prices;

        h.  bids were not independently arrived at in fair
            competition, were collusive, or were submitted in
            bad faith;

        i.  applicable Federal laws or policies require delay
            for further study;

        j.  good cause rejection may not be based on:  litiga-
            tion over contract award, relaxation of specifica-
            tion requirements not materially affecting competi-
            tion, omissions or ambiguities not adversely affecting
            competition or the needs of the grantee, or the lack
            of a local or in-State firm as low bidder.

        Re.:  40 CFR 35.938-4(h) (2)
             PRM 78-8
    6.  Authorization  to Award Contracts

        Discussion:

        After reviewing the bids and determining that all  regulatory
requirements have been satisfied, the grantee is give authorization
to award contracts.  This authorization is in the form of a letter
and should contain  instructions for arranging a preconstruction
conference with the grantee, his resident inspector, the State
agency, the successful contractor and a representative of EPA.
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H.  PRECONSTRUCTION CONFERENCE

    Purpose:

    The preconstruction conference is held to identify and clarify
the responsibilities of the grantee (and his consultant,  where
appropriate), the contractor, the State and EPA.

    Discussion:

    Preconstruction conferences are not mandatory but are to be
encouraged wherever possible.  The conference may be called at the
request of the State, the grantee, the contractor or EPA.  Separate
preconstruction conferences may also be held to discuss the equal
employment opportunity and minority business enterprise responsi-
bilities of each party (specifically where construction costs will
exceed $1 million).  The procedures below list several areas which
might be discussed at the conference.  Separate discussions may be
held with the grantee, his consultants and contractors as appro-
priate, depending on the nature of topics covered.

    Procedures:

    Suggested subjects to be discussed at preconstruction conferences
include:

    a.  the responsibilities and authority of the grantee,
        the contractor, the resident inspector, the State
        and EPA;

    b.  Contractor performance in accordance with progress
        and payment schedules.  (NOTE:  It is important to
        stress that payments will be made in accordance with
        the schedule and that these schedules, cumulatively,
        form the basis of EPA's outlay management program.
        Ultimately, they serve as input to the Treasury
        Department in planning the timing and amounts of
        borrowings to finance the operations of the Federal
        government.  Therefore, if progress is not consis-
        tent with the schedule, slippage must be corrected
        or outlay management coordination will be adversely
        affected);

        Re:  40 CFR 35.935-9
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c.  compliance with Davis-Bacon and related laws con-
    cerning the posting and payment of minimum wage
    rates, and other State and local laws;
    Re:  40 CFR 35.935-5, 30.415
d.  equal employment opportunity and minority business
    enterprise requirements;
    Re:  40 CFR 35.935-6; 40 CFR part 8
e.  access to the work site and records;
    Re:  40 CFR 35.935-7
f.  requirements for adequate engineering supervision
    and inspection during construction;
    Re:  40 CFR 35.935-8
g.  payment documents, requests and procedures for
    filing, in accordance with construction schedule;
    Re:  40 CFR 35.938-6, -945
h.  project changes, including time of completion,
    change orders, change in project scope or grant
    amount;
    Re:  40 CFR 35.935-9, .935-11,  .938-5, .955
i.  interim and final inspections by the State and/or
    EPA;
    Re:  40 CFR 35.935-14
j.  records (including an accounting system which
    separates allowable and unallowable costs) to be
    maintained by the grantee, the inspector, and
    the contractor, and the auditing procedures;
    Re:  40 CFR 30.805, .820
                            VI-26

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k.  requirements for timely submission of

    - a sewer use ordinance
    - a sewer rehabilitation program
    - a plan of operation
    - an O&M Manual

    Re_:  40 CFR 35.935-12, .935-16

1.  archeological or historical resources requirements,
    as applicable;

    Re:  40 CFR 6.301
         PRM 75-27

m.  mitigative measures to be employed during construc-
    tion, as recommended in the environmental assess-
    ment and contract documents.

    Re.:  40 CFR 6.508, .509

n.  the use of force account labor where prior approval
    is obtained from the Regional Administrator, and
    where in accordance with regulatory limitations.

    Re:  40 CFR 35.936-14
                              VI-27

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 I.  MONITORING  OF  CONSTRUCTION ACTIVITIES

    1.   Change  Orders

         Purpose:

         A  change order is the customary  method of modifying a
 construction  contract  after work has  begun  and may result in price
 increases/decreases, revised time of  completion, or other project
 changes.   It  is a  written order from  the Grantee to the contractor
 authorizing an  addition,  deletion or  revision to the work within
 the general scope  of the  construction contract.

         Discussion:

         The following  outline .of change  order review procedures
 is supplemented by Appendix B,  Procedures for Review of Change
 Orders under  EPA Construction Grants, of this Handbook.

         During  the course of construction,  it may be necessary to
 make changes  in the project which require a modification of the
 construction  contract.  Project changes  which may result from minor
 errors in  the plans and specifications or consist of emergency
 changes  required to protect life or property do not require prior
 approval by EPA.

         Project changes which will substantially alter the design
 and scope  of  the project; the type of treatment; the location,
 size, capacity  or  quantity of any major  item of equipment or which
 will require  additional Federal  funds to complete the project must
 receive  the prior  approval  of the State  and EPA before being
 executed.

        Approved change orders  resulting in construction cost
 increases  are ordinarily  paid for from the contingency portion
 of the total  project cost.   However,  where  the change order or
 combination of  change  orders  exceeds  the contingency allowance,
 the grantee must request  an  increase  in  the grant amount, and the
 procedures in item G.3  of this  Chapter are to be followed.

        The Grantee has the  responsibility to originate and nego-
 tiate all  change orders.   Proposed change orders should 6e
 reviewed as early  and expediously as  possible in the project, to
 insure proper negotiation and execution.  Pending change orders
should be discussed at  interim  inspections.
                                 VI-28

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        Review Procedures:

        To process  a  change  order,  the  reviewer should  determine
that:

        a.  the basic change is  needed  because  of

            - differing  site conditions
            - errors/omissions  in  plans and  specifications
            - changes instituted by regulatory  agencies
            - minor design errors
            - overruns/underruns in quantities
            - factors affecting  time of completion

        b.  the request  has  been screened  to determine  that

            - identification of  the request  document  is complete
            - it includes a  justification  statement from the
              grantee
            - state agency approval  has been given
            - prior EPA  and  State  approval has  been obtained,
              where necessary
            - the availability of  needed additional local funds
              has been properly  certified
            - a financial statement showing  grant amount and the
              cumulative effects of prior  change  orders on project
              costs is included
            - items requiring Federal participation are identified
            - evidence of negotiations  is  included
            - it agrees  with the unit price  or  unit price adjust-
              ments as specified in  the contract  documents (where
              changes  in quantity of units exceed 15% of original
              bid,  and total  dollar  change is significant, nego-
              tiation  of a new unit  price may be  appropriate)
            - proposed costs are supported by a separate engineering
              estimate
            - cost  and pricing data  in  accordance with  40 CFR
              35.938-5(d) is  provided for change  orders  exceeding
              $100,000

       c.   the  method of accomplishing  the  change is reasonable,
            based on consideration of

            -  alternatives
            -  secondary effects  of the change
            -  impact on  time of  completion
                                VI-29

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d.  the request is for eligible work which is directly
    related to

    - construction of a publicly owned treatment works
    - approved plans, specifications and cost estimates
    - not including work previously determined to be
      ineligible
    - maintaining effluent limitations and schedules
      of compliance
    - assurance of the availability of the non-federal
      share
    - size and capacity related to needs
    - no proprietary, exclusionary or discriminatory
      requirements other than those based on performance
    - not requiring a commitment of Federal funds in
      excess of current State allotments

e.  the costs are allowable in accordance with

    - the Regional Administrator's delegated authority
      to determine allowable costs on eligible work
    - appropriate laws, rules and regulations
    - not including work previously determined to be
      unallowable
    - satisfactory evidence of negotiations assuring a
      fair and reasonable price for the work
    - provisions of the specifications
    - guidance in Chapter VII, Section B pertaining
      to allowable and unallowable costs
    - determinations made in policy statements issued
      by EPA

f.  the reviewer will maintain a file with the following
    documents concerning the contract changes

    - contract change order (signed and dated copy)
    - attachments
    - notifications of approval or denial
    - requests for additional information, and responses
    - memoranda of meetings and telephone conversations
    - updated project cost summary, including allowable
      and total costs

g.  upon review of the change order, the grantee shall be
    expeditiously notified in writing of the action taken,

Re_: 40 CFR 35.935-11, .938-5, .955
    40 CFR 30.900-1
    PRM 75-4
                         VI-30

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    2.  On-Site Inspections

        Purpose:

        On-site project inspections  are made to insure  that the
project is being managed properly,  is  on schedule,  and  is
being constructed in accordance with approved plans,  specifications
and change orders.

        Discussion:

        On-site project inspections  are made during construction
(interim) and at the completion of construction.  The frequency
of interim inspections announced or unannounced will  depend upon
the size and complexity of the project; however, to the extent
possible inspections will be made on all projects at least quarterly.
Interim inspections  may be made by the State or EPA.   If made  by
the State, they should be coordinated with the Regional  Office,  and
copies of the inspection reports should be furnished to the project
officer.  EPA may also utilize Inter-Agency Agreement Inspectors.
Full time, on-site presence by EPA or the State may be  required
where appropriate.

        Final inspections should be made within 60 days after
being notified by the grantee that the project is complete and
operating, that the  necessary operational staff has been hired,  and
that the project has been accepted by the grantee.   EPA has the
responsibility for conducting final  inspections but usually the
Federal inspector will be accompanied by an official  of the State
agency.

        Regional offices are encouraged to develop and use their
own inspection report forms.  Appendix B includes a sample inspec-
tion report for reference.

        Procedures:

        a.  Interim inspections - the EPA or State inspector
            shall determine that:

            - the grantee is providing competent and adequate
              supervision and inspection and is maintaining
              appropriate inspector's logs;

            - approved plans, specifications and change orders
              are available at the project site;
                                 VI-31

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construction conforms to the approved plans,
specifications and change orders and is on
schedule;

the latest engineer's estimate of work-in-
place agrees reasonably with the actual
observed construction;

reasonable tests of materials and equipment
are being conducted and noted in logs or
reports (slump tests of concrete for example);

equipment delivered to the site is being
properly protected and stored;

a project sign is appropriately displayed
and identifies appropriate agencies;

the wage rate decision is prominently dis-
played and agrees with the contract documents;

project accounting records are maintained and
they distinguish between allowable and non-
allowable costs supported by receipts or
certified contractor invoices;

any special construction techniques or prac-
tices are being employed in accordance with
the grant agreement, including erosion and
sediment control measures;

the grantee has hired the operational staff
and is providing training, as appropriate
(see O&M requirements below);

the grantee is preparing an operation and
maintenance manual;

the grantee is making satisfactory progress
on the pretreatment program as applicable;

the grantee is making satisfactory progress
toward implementation of UC/ICR systems;
                   VI-32

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            - the  grantee  is  making  satisfactory  progress
              toward the completion  of sewer  use  ordinances
              and  the rehabilitation program  as applicable;

            - the  grantee  is  providing wastewater treatment
              capability during  construction;

            - procedure exists  to  call  deficiencies  to  the
              attention of the  authorized  representative.

        b.   Final  inspections -  the  items  under interim inspec-
tions should be considered, as  appropriate, as well  as  the follow-
ing:

            - the  facilities  are complete, operating and,
              in the case  of  a  treatment plant, will  meet
              the  effluent limitations required by the
              NPDES  permit, or  BPWTT;

            - the  facilities  conform to the approved plans,
              specifications  and change orders;

            - all  equipment is  operational and performing
              satisfactorily;

            - appropriate  operation  and maintenance  staff
              has  been hired  and instructed in the startup
              and  operational procedures;

            - laboratory facilities  are complete  and suffi-
              cient  to conduct  appropriate tests;

            - the  operation and  maintenance manual,  with
              schedule for routine maintenance and testing,
              is readily available and procedures  are
              being  carried out  in accordance with the
              manual;

            - accounting records are adequate and  will  be
              made available  for audits;

            - if not previously  approved,  the grantee is
              completing the  sewer use ordinance  and rehabil-
              itation program;

            - UC/ICR  systems  are implemented;
                                VI-33

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            -  industrial dischargers are pretreating wastes
               as  required by  the pretreatment program.

            Re:   40  CFR  35.935-8, -11, -14.
    3.  Payment Conditions

        Discussion:

        Grant payments are discussed more completely in Chapter VII
of this Handbook.   Generally, however, Step 3 grant payments are
made in accordance  with  the outlay schedule.  The grantee is respon-
sible for submitting  a payment  request (EPA Form 2550-16) and
supporting documentation.  When  it is received, EPA will review it
against the construction  schedule and authorize payment as appro-
priate.

        The grantee is also responsible for meeting particular con-
ditions before he may receive full payment.  These have been men-
tioned in earlier parts  of the  Handbook but are summarized below
for the reviewer's  convenient reference.

        a.  Operation and Maintenance Manual - No more than
            50% of  the Federal  share may be paid until a draft
            O&M manual,  or evidence of timely development, is
            submitted, and no more than 90% may be paid until
            the manual is approved by the Regional Administrator.

            Re:  40 CFR  35.935-12

        b.  Sewer Use Ordinance  - No more than 80% of the
            Federal share may be paid until the sewer use
            ordinance(s)  has been submitted by the grantee
            and approved  by the  Regional Administrator.

            Re_:  40 CFR  35.935-16

        c.  Rehabilitation Program - No more than 80% of the
            Federal share may be paid until the grantee has
            given evidence of complying with a sewer system
            rehabilitation schedule, where appropriate, as
            incorporated  in the  grant agreement.

            Re:  40 CFR  35.935-16
                                 VI-34

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        d.  Pretreatment Program - No more than 90% of the
            grant may be paid until  the municipal  pretreat-
            ment program is approved (unless an extension
            is granted by the Regional Administrator in
            accordance with 40 CFR 35.935-19).

            Re:  40 CFR 35.907

        e.  Final Inspection - Final payment may not be made
            until the final inspection has been completed
            and the Regional Administrator has  determined
            that the treatment works have been  satisfactorily
            constructed in accordance with the  grant agree-
            ment and approved plans and specifications.

            Re:  40 CFR 35.935-14
    4.  Plan of Operation

        Purpose:

        Federally funded treatment works are to be designed,
operated and maintained to achieve the effluent limitations
required in the NPDES permit or BPWTT.  A well  planned operation
and maintenance program is an essential step in achieving that
objective.

        Discussion:

        Surveys conducted in 1973, 1974, and 1975, which are
included in the Clean Water Report to Congress  for each of those
years, indicate that approximately one-third of the Federally-funded
treatment plants  surveyed were not achieving the level of efficiency
for which they were  designed.  In most cases, these problems resulted
from inadequate operation and maintenance.  To  prevent the future
occurrence of these  unacceptable conditions, strict attention is to
be focused on operational considerations during facility design and
the development of an effective operation and maintenance program
for the completed treatment facilities.

        During the Step 3 activity, the grantee is to implement a
program for efficient staffing, training of staff, and operation
and maintenance of all treatment works facilities.  The program
must insure that  the facilities are maintained  at the designed
level of efficiency  to meet the effluent standards as established
                                 VI-35

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in the NPDES permit, and to comply with all other applicable  State
and Federal requirements for process control, monitoring and
reporting.  The grantee must provide an adequate budget and a
trained staff of personnel to insure the success of the program.
The elements of the O&M program should be those included in a
Plan of Operation which also identifies required actions and  related
implementation dates needed to assure proper start-up and continued
operation.

        A preliminary Plan of Operation should be reviewed concur-
rent with the review of project plans and specifications and
should be included as a part of the Step 3 grant application
package.  The preliminary plan should be as complete ^s possible
in identifying needed actions and implementation time frames, but
specific dates may, of necessity, be omitted until a construction
start date is known.

        A critical responsibility of the applicant is the prepara-
tion of an operation and maintenance manual for each treatment
facility, including pumping stations.  No more than 50% of the
Federal share of the Step 3 grant may be paid until the draft
operation and maintenance manual or evidence of timely development
is submitted and no more than 90% of the grant may be paid unless
the grantee has furnished a satisfactory final operation and  main-
tenance manual.

        Review Procedures:

        The review of the operation and maintenance program sub-
missions included in the Plan of Operation shall assure compliance
with the following requirements:

        a.  Staffing and training

            - that a staffing plan, to include staffing and
              salary schedules, staff structure and organ-
              ization, and certification requirements is
              developed;*

            - that the chief operator is hired before con-
              struction is 50% complete;


        * To be submitted to both State and EPA
                                 VI-36

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    - that a preoperation training schedule is
      developed within 30 days after hiring chief
      operator;

    - that a discussion of hiring problems encountered
      and actions to solve the problems, if appropriate,
      is held 60 days prior to start-up;

    - that a list of positions filled and qualifica-
      tions of personnel  hired is prepared 30 days
      prior to start-up* and assurance is given that
      vacancies will be filled, if appropriate;

    - that a continuous training plan and schedule*
      is developed 30 days prior to start up;

* To be submitted to both State and EPA.

b.  Administrative functions

    - that program and laboratory facilities are
      adequate to perform appropriate monitoring
      and analysis necessary to assure adequate
      process control  and compliance with the
      NPDES permit and State requirements;

    - that arrangements for submission of appro-
      priate operational  reports to the State have
      been made;

    - adequate consideration has been given to
      operational  procedures during the start-up
      period;

    - provision is made for employee safety programs
      and training is  conducted in advance  of plant
      start-up;

    - provision is made for developing and  implementing
      a  maintenance management system;
                        VI-37

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c.  Budget

    - provisions is made for adequate annual  budget
      to insure efficient operation and maintenance,
      including administration, supplies, utility
      charges, and ancillary equipment;

    - provision is made for salaries to attract
      qualified personnel and to train and upgrade
      employees.

d.  Emergency Operating Plan - in developing the plan
    the following items and provisions should be taken
    into account:

    - effects of emergencies on operation;
    - vulnerability analysis of system;
    - protective measures;
    - emergency response program;
    - periodic revision of plan as necessary.

e.  Operation and Maintenance Manual - the O&M manual
    is the primary document required in the operation
    and maintenance program, and should incorporate
    items a-d above into a comprehensive package of
    instructions and  information.  Specifically, the
    manual should include:

    - design  information describing the components
      and equipment of  the treatment plant, including
      simplified schematic diagrams of the facilities,
      pipelines and control systems and detailed dia-
      grams of more complicated areas;

    - process information discussing the control of
      various processes  to achieve maximum efficiency,
      including a clear  explanation of process func-
      tions of  the various components in simplified
      language with references to appropriate equip-
      ment manuals for  detailed technical information;

    - maintenance requirements, including schedules
      for routine adjustment and lubrication of
      equipment, referencing appropriate manufacturer's
      manuals for details;
                          VI-38

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    - laboratory procedures, specifying various
      analyses and monitoring schedules required for
      process control and by the NPDES permit and
      other regulations, describing laboratory equip-
      ment and general  maintenance, and referencing
      appropriate literature for standard test
      procedures;

    - safety aspects of the various process units
      and related equipment and procedures for
      complying with the OSHA requirements;

    - administrative procedures describing the
      various records required and reports to be sub-
      mitted as a function of the State monitoring
      program;

    - troubleshooting procedures and a description
      of the emergency  response plan, including pro-
      cedures for notification of proper authorities,
      emergency equipment repair, and references to
      the appropriate equipment manuals for specifi-
      cations and limitations of components.

Re:   40 CFR 35.925-10,  .935-12
     Federal Guidelines, Operation and Maintenance of
       Wastewater Treatment Facilities, August 1974
     Considerations for Preparation of Operation and
       Maintenance Manuals, (GPO No. EP 2.8:   PO 2)
     Emergency Planning for Municipal Wastewater Treat-
       ment Facilities  (GPO No. EP 2.8:  W 28/6)
     Estimating Laboratory Needs for Municipal  Waste-
       water Treatment  Facilities (GPO No. EP 2.2:
       W 28/3)
     Start-up of Municipal Wastewater Treatment Facili-
       ties (GPO No. EP 2.8:   W 28/5)
     Maintenance Management Systems for Municipal
       Wastewater Facilities (GPO No. EP 2.8:   W 28/4)
     Estimating Staffing for Municipal  Wastewater
       Treatment Facilities (GPO No. EP 2.8:   W 28/3)
     A Planned Maintenance Management System  for
       Municipal  Wastewater Treatment Plants  (GPO No.
       EP 1.23/2:   600/2-73-004)
     PRM 77-3.
                         VI-39

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            CHAPTER VII



     FINANCIAL CONSIDERATIONS








A.  INTRODUCTION



B.  ALLOWABLE AND UNALLOWABLE COSTS



C.  FORCE ACCOUNT



D.  PAYMENTS



E.  INCREASES AND DECREASES



F.  AUDITS

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A.  INTRODUCTION

    This chapter discusses various financial considerations that
are common to all three step grants.


    Section B, Allowable and Unallowable Costs, covers problems
faced by the reviewer in dealing with these costs and presents major
categories of cost statements.


    Section C, Force Account, discusses when this method can be
used, prior approvals needed by EPA and other considerations to
serve as guidelines for the reviewer.


    Section D. Payments, covers prior costs, Step 1, 2, 3,  and 2 + 3
grant payment schedules and payments.


    Section E, Increases and Decreases, discusses when increases
occur, contingency funds covering these, and what the reviewer needs
for EPA approval.


    Section F. Audits, provides the reviewer with pertinent infor-
mation to help in answering the questions of grantees and in
working with the auditors.
                                VII-1

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B.  ALLOWABLE AND UNALLOWABLE COSTS

    1.  General
        In the process of reviewing grant payment requests,  the re-
viewer is confronted with having to make decisions on the eligibility
of certain project costs for which there is no absolute guidance.
Such costs, termed "allowable and unallowable" costs, have been
assembled in Section B3 of this Chapter to provide uniformity in
interpreting their eligibility.   In general, for miscellaneous
costs to be eligible for grant participation, they must:
            Be necessary
            of municipal
             and reasonable and
             administration.
   not  a  normal expense
        c.
Be authorized (or not prohibited) and be consistent
with Federal, State and local laws or regulations.

Be consistent with policies and regulations which  are
applicable to both Federally assisted and other
activities of the unit of government of which the
grantee is a part.
        d.
Not be included in the costs
Federally financed program.
allocable to  any  other
        In summary,  specific  allowable costs are not defined by
statute as eligible  for grant assistance, but must be interpreted
as eligible based  upon EPA  policy, appropriate Federal cost prin-
ciples, and reasonableness.

        Re_:  40 CFR  35.940
             40 CFR  30.705
    2.  Allowability  Determinations

        The cost  items  listed  are  applicable to PL 84-660, 92-500 and
95-217 projects.   In  making  eligibility  determinations, consideration
should be given to commitments previously made to grantees in the
absence of prior  National  policy,  pertinent statutes or regulations.
Cost  items not listed below  should be  considered on an individual
basis.  As needed, the  reviewer may  seek advice from the Municipal
Construction  Division,  Office  of Water Program Operations in EPA
Headquarters.
                                 VII-2

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         Final  determinations by the Regional Administrator concerning
 the  allowability of costs are conclusive unless appealed within
 thirty  days  in accordance with the "disputes" provisions of 40 CFR
 Part 30,  Subpart J.
         Re_:  ^O CFR 35-940
             40 CFR 30 Subpart J
     3.  Allowability of Miscellaneous Costs

        The reviewer should become familiar with 40 CFR 35.940 re-
 garding allowable and unallowable costs.

        The following statements of allowability relating to certain
 construction grants project costs are included for the reviewers
 ready reference:
            Indirect Costs:

            Indirect costs are those incurred for a common or joint
purpose, benefiting more than one project or cost objective and not
specifically identifiable to the particular project or cost objective
benefited.  Indirect costs consist of items of a general  overhead
nature such as office space, utilities, telephone, etc.  The costs
are allowable if determined on the basis of a negotiated  indirect
cost agreement and incorporated in the grant agreement.

            fte:   40 CFR 30.715-2, 35.940-4
            Travel  Costs:

            Grantee travel  costs - allowable travel  costs  include
travel considered necessary and directly related to  the accomplish-
ment of project objectives.   Travel  not directly related to  con-
struction and/or "start up"  of the facility, including trips to
professional  meetings,  symposia, lectures,  etc., is  not allowable
as a direct charge  to the  project.  Travel  not  directly related  to
                               VII-3

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a specific project may, however, be recovered under an Indirect
Cost agreement.  (Federal Management Circular (FMC) 74-4, 7-18-74.)

            Architect/Engineer travel costs - allowable travel  costs
include travel considered necessary and project related, including
onsite travel costs.  Costs of relocation of employees and their
families may be considered allowable when such travel  is justified
and approved by the grantee.  The cost of transportation between
living quarters and the construction site is normally unallowable.
In unusual circumstances, where job sites are located in isolated
areas and living quarters are not available within 30 miles, travel
costs between living quarters and the job site are considered
allowable.

            Re:  41 CFR 1-15.2 and 41 CFR 1-15.4
            Bond Costs:

            All costs  associated with the approval, preparation,
issuance and sale of bonds  (including bond counsel and underwriters
fees) are unallowable  for grant participation.  Interest on bonds
or any other form of indebtedness  is unallowable.  (FMC 74-4,
7-18-74.)

            Re:  40 CFR  35.940-2(f)
             Liquidated  Damages:

             Monies  received  by grantees  in the form of liquidated
damages  shall  have  np_ effect on  the  determination of allowable
costs of grant projects.   However, any additional costs—construction,
engineering, legal, or  administrative-generated because of a con-
tractor's  lack of performance should be  covered by the liquidated
damages  received.   Thus,  any such  increase in cost as a result of
lack of  performance is  unallowable for participation even in the
event that the grantee  elects not  to exercise his right to recover
liquidated damages.
                                VII -4

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            Bid Bond Forfeiture:

            All bid bond forfeitures should be treated as a reduction
to project construction costs.
            Rate Studies:

            Such studies are allowable if required for the establish-
ment of user charge or industrial cost recovery system in order to
comply with 40 CFR 35.925-11.  Such studies require prior approval
either in the grant agreement or an amendment thereto.  Allowable
costs may include legal, C.P.A., and engineering fees related to
the studies.  (In order to avoid double payment, care must be exer-
cjsed to assure that such v/ork is not incident to a general  con-
tractual obligation.)

            Re:   CFR 35.940-3(e)
            Financial Reports and Studies:

            To the extent that such reports constitute "Rate Studies"
(see above) for user charges and/or industrial  cost recovery pro-
cedures, the costs are allowable; provided that such studies are
approved in advance by the Regional Office and  that the results of
such studies are acceptable to EPA.  Financial  reports which con-
stitute studies of, for example, the tax base,  structure,  etc., to
determine the financial capabilities of the applicant or the finan-
cial feasibility of the proposed undertaking are similarly allow-
able.  The cost of all other financial  reports  and studies should
generally be considered unallowable in  that they constitute a normal
function of government.

            In this regard the Regional Office  should adhere to a
strict interpretation of the term "studies". Generally, "studies"
refers to preliminary reviews, overviews, examinations, analyses, etc.
The interpretation must not be extended to include preparing pro-
cedures, designing implementation schemes, drafting statutes or regu-
lations, delineating boundaries relating to finances, issuance of
bonds, adjustment of tax rates, establishment of assessment districts,
etc. or other activities which are a normal  function of government
and as such are unallowable.
                                VII-5

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            Establishment of Special Assessment Districts:

            The "mechanics" of establishing special  assessment dis-
tricts developed, for example, on the basis of rate studies  (see
above), are a normal function of government and as such the  costs
associated therewith are unallowable.  Indluded in this restriction
are legal, administrative and engineering costs associated with
activities such as:  (1) drafting, review and passage of statutes/
ordinances (e.g. sewer use ordinances), (2) preparation of regu-
lations,  (3) delineation of district boundaries, (4) elections, etc.

            This policy extends equally to the establishment of any
"special districts" such as election, service, rate, etc. districts
(including Regional Authorities) related to the grant project.
            Public Liaison Services:

            Such services are generally unallowable since they con-
stitute a type of public  information service and as such are not
directly related to or  necessary for the construction of the treat-
ment works.  This does  not pertain to public participation; see
next item.
            Assistance with State and Federal Regulations:

            The cost of  assistance associated with addressing State
and Federal Regulations  and procedures which are basic to the
functions of general government, such as preparation of applications
and related documents, obtaining state construction permits, dis-
charge permits, etc. are unallowable.  Costs growing out of meeting
specific Federal  statutory requirements such as public participation,
and other activities related  to  the user charge study, facilities
planning, NEPA procedures, Uniform Relocation Assistance and Real
Property Acquisition Policies Act, procurement requirements, MBE liai-
son services, etc.  are allowable.

            If such costs entail assistance which is readily avail-
able through Federal or  State offices, such as interpretation of
regulations, explanations of  grant procedures, etc. they should be
disallowed.
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             (In  order  to  avoid double  payment, care must  be  exercised
 to assure  that such work  is  not  incident  to a general contractual
 obligation.)

             Re:   40 CFR 35.940-l(h),  (s)
             Public  Participation On-Site Visits:

             Reasonable costs of public participation-related on-site
 visits  (field  trips) to observe the operation of waste treatment
 facilities which employ uncommon processes or features may be in-
 cluded  as allowable project costs.  Regional Offices must be certain
 that:   (1) a visit will serve-to address genuine public concerns,
 (2)  only reasonable costs are included for grant participation and
 attendance is  limited to interested or affected parties whose views
 can  be  expected to  influence public or official opinion, and (3)
 travel  is to the nearest appropriate location.  Regional Offices
 are  cautioned  that grant participation in these costs is not a
 routine matter and should be approved only when they will make an
 important contribution to the planning or acceptance of a project.
 Unless written approval for the specific visits and estimated
 associated costs are received from the Regional Office prior to
 their taking place such costs will not be eligible for grant par-
 ticipation.
            Cost of Grantee Training Workshops:

            Reasonable costs associated with grantee attendance at
training workshops/seminars designed to provide instruction in
administrative, fiscal and contracting requirements/procedures in-
cident to the EPA grant process may be considered allowable for
grant participation.  Regional  Offices must assure themselves that
such training is, in fact, a necessity.  For example, a larger city,
with a number of ongoing grants, probably already possesses more
grant related expertise than could be imparted during such a work-
shop.  Such training must be strictly limited to appropriate grantee
employees and receive prior approval  from the Regional  Office.  Poten-
tial grantees (if on the current priority list) may also attend and
be reimbursed after grant award providing written evidence of ad-
vance Regional Office approval  for the particular training is sub-
mitted with the reimbursement request.
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            Redesign/Replanning Costs Resulting from Changes in
            Federal Requirements:

            In those cases in which an applicant's completed or
partially completed planning and/or designs are rendered invalid or
unacceptable by changes  in Federal requirements, both the original
cost plus the redesign or replanning costs are allowable.  The
Regional Office must assure itself that the planning and/or design
thus invalidated was undertaken in good faith by the applicant
and was not the result of a disregard for existing Federal direc-
tives by either the applicant or his agent.
            Cost of  Implementing the Uniform Relocation Assistance
            and Real  Property Acquisition Policies Act of 1970
            (PL 91-646):

            Basically there are four categories of costs associated
with this Act which  may  be considered allowable:

            (1) Moving and related expenses

            (2) Replacement housing

            (3) Relocation assistance advisory services (entailing
                direct services of the grantee in assisting the dis-
                placed person(s))

            (4) Acquisition of real property.

            Documented allowable costs from these categories incurred
on or after July 1,  1972, will be treated as other allowable project
costs and reimbursed at  the same percentage rate.  In the case of
costs resulting from acquisition or displacement occurring before
July 1,  1972, EPA  shall  pay the full amount of the first $25,000 of
such costs for each  displaced person.  Allowable costs should be
determined in accordance with 40 CFR Part 4 and guidelines issued
pursuant thereto.

            Re:  40  CFR  35.940-1(g)
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             Field  Surveys  to  Identify Cultural Resources:

             Reasonable costs  incident to field surveys  to  identify
 historical,  architectural, archeological and cultural resources  in
 the  primary  impact area of grant projects are allowable.   Allowable
 costs must be determined on a case-by-case basis and may include
 the  cost of  onsite inspections, review of pertinent documents,
 photographic reconnaissance,  services of archeologists  or  historians,
 etc.

             Such costs should receive prior approval and delineation
 by the  EPA Regional Office.   Survey costs associated solely with
 the  examination of the National Register of Historic Places are
 unallowable.  EPA  may participate in the cost of intensive surveys
 (e.g. "digging") only when a  sufficient amount of information
 exists  to indicate that there is a reasonably high probability of
 discovering  important cultural resources.

            Re:  PRM 75-27
            Industrial Planning:

            Allowable project costs do not include either the costs
of interceptor or collector lines constructed exclusively or almost
exclusively to serve industrial users or the costs allocable to the
treatment for control or removal of pollutants in wastewater intro-
duced by industrial users.

            Re:  40 CFR 35.925-15
            Facilities Serving Communities and Federal  Facilities:

            Whenever a planned treatment works will  jointly serve a
municipality and a Federal  facility, that portion of the construction
cost allocable to the Federal  facility will  not be allowable for
75 percent construction grant  funding, subject to the following
exceptions:
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            (1) Facility planning costs.

            (2) Cost of Step 2 work if a Step 2 grant has been
                certified by the State for funding to EPA prior
                to the issuance of PRM 75-35 (12/29/75).

            (3) Design and construction costs allocable to Federal
                facilities producing less than 250,000 gpd or 5
                percent of the total design flow of waste treatment
                works, whichever is less.

            That portion of the construction costs allocable to the
Federal facility shall be based on all factors which significantly
influence the cost of the treatment works.  Factors such  as
strength, volume, and delivery flow rate characteristics  will be
considered and included to insure a proportional allocation of  costs
to the Federal facility.

            As a minimum, the portion of construction cost alloc-
cable to the Federal facility should be based on the ration of  its
flow to the total design flow of the treatment works.  The portion
(percentage) allocable to the Federal facility must be agreed upon
by the municipality and Federal agency, and approved by EPA prior
to award of a Step 2 or Step 3 grant, whichever is applicable,  for
the works or any portion thereof.

            Re:  40 CFR 35.925-16, PRM 75-35
            Site Acquisition vs. Site Preparation Costs:

            Site acquisition,  including land used for sewage treat-
ment plant site, appurtenant piping and structures, sewer rights-of-
way, and pumping stations, whether by purchase, rental, lease or
easement, are unallowable.  Similarly, all legal, realty, engineering
and grantee costs associated with ineligible acquisition are un-
allowable.  Notable  exceptions which are allowable if approved are
land acquired after  10/17/72 which is an integral part of the
treatment process or will be used for ultimate disposal; land ac-
quired after 12/26/77 which will be used for storage before land
application or composting and  temporary storage.  Approval  must be
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 in accordance with pertinent regulations and PRM's,  and made prior
 to land acquisition.  Legal, administrative, and engineering costs
 associated with eligible acquisition are also allowable.

             Costs associated with the preparation of the treatment
 works site (including appurtenant features)  before,  during,  and  to
 the extent agreed upon in the grant agreement or amendment thereto,
 after construction are generally allowable.   These costs include
 such items as:  grade and construction staking surveys, survey for
 alignment and slope, preparation of working  drawings and plans
 dealing with site preparation,  locations,  grades, slopes,  distances,
 depth,  alignments, etc.   Also eligible are costs  such  as finegrading,
 seeding, and protective  trees and shrubs.

             Costs related to reasonable site screening  for aesthetic
 purposes are also allowable.   Criteria for participating in  aes-
 thetics related  work include:   support expressed  in  NEPA related
 studies, approved facility  plans,  necessary  screening of adjacent
 properties,  whether  the  facility  is  in constant public  view  or
 remote  therefrom,  etc.

             Re:   PRM 75-25,  75-39,  77-5, 78-4
            Certificate as to Title to Project Site:

            Legal costs associated with certifying as to the adequacy
of the grantee's interest in the project site should be considered a
normal function of government incident to the project and as such
are unallowable.  (Except in the case of grant eligible land as
listed above.)
            Acquisition of Privately or Publicly Constructed Waste
            Treatment Facilities:

            Costs incurred by a grantee or applicant associated
with the purchase, lease or acquisition of privately or publicly  con-
structed and owned waste treatment facilities  are not allowable,
except when shown to be in compliance with Agency requirements as
provided for in PRM 	  and approved by the  Regional  Administrator.

            Re:  40 CFR 35.940-3(d)
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            Demolition of Existing Structures:

            Demolition of existing structures constitutes  an allow-
able cost provided that the structures are on the facility site
(including rights-of-way for the eligible sewer lines)  and that
construction cannot be undertaken without such demolition.  Off
site demolition is unallowable.  Aesthetics related demolition is
allowable only if it conforms to the criteria relating  to  the
allowability of site preparation outlined above.

            If demolition of existing structures is required on  a
site not previously owned by the grantee, the grantee must address
such demolition in the cost effective analysis and demonstrate to
the satisfaction of the Regional Office that  in choosing the site
appropriate consideration was given to the cost of demolition.
            Utilities:

            Costs  associated  with  the  removal , relocation and/or
replacement of  utilities  (water, electricity, etc.) are allowable
when  such  activity,  resulting from a conscious governmental de-
cision,  is necessary for  and  incident  to  acquisition of real prop-
erty  and  the  construction of  the eligible facility.  Where such
removal,  relocation, and/or replacement does  not  involve loss of a
property  right  by  the utility, such costs are not allowable.

             In  addition,  payment for that portion of cost of equip-
ment  substantially different  than  the  pre-existing utility equipment
or  the cost of  utility equipment having greater capacity than that
originally in place will  be allowable  if  mandated by local, State
or  Federal law.

             Re:  40 CFR 35.940-1  (k)

             In instances  where new utility equipment for service to
the new facility or increased utility capacity  to the  new  facility
requires the  installation of new utility  equipment servicing that
new facility, and where the grantee would by custom or law  not  re-
ceive such installation free of charge,  such utility equipment
costs are allowable.
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            Restoration of Streets and Rights-of-Way:

            The cost of restoring streets and/or rights-of-way to
their original condition is an allowable cost.  The need for such
restoration must result directly from the construction of the eligible
project.  Allowable restoration may include, for example:  refilling
and patching of street and roadway surfaces (generally limited to
the width of the trench), fine grading and reseeding of off-street
rights-of-way, reasonable tree plantings, restoration of sidewalks,
etc.
            Mobile Equipment*:

            Generally, such equipment is allowable if identified by
the grantee and approved in advance of purchase by the Regional
Office and is directly necessary for the operation and/or main-
tenance of the overall wastewater treatment facility.   Such equip-
ment must be necessary for the transmission of wastewater or sludge
or for the maintenance of plant grounds and/or equipment.  Allowable
items include but are not limited to:

        a.  Portable stand-by generators.

        b.  Large portable emergency pumps  to provide  "pump-
            around"  capability in the event of pump station
            failure  or pipeline breaks.

        c.  Sludge tanks,  trailers,  and other vehicles  having
            as their sole  purpose  the transportation  of  liquid  or
            dewatered wastes  from the collector point  to  the treat-
            ment  facility  or  disposal  site.

        d.   Grounds  and  building  maintenance apparatus.   Such
            apparatus may  include,  for example:  mowers and snow
            removal  equipment  (in certain geographic areas).
            Regional  Offices may  use such criteria  as  cost  effective-
            ness,  potential for abuse,  frequency of use,  etc. in
            considering  allowability.   Requests  for participation
            based  upon less than  100 percent use   should  be agreed
            to only  in special  situations and  prorated accordingly.

            *NOTE:   The  grantee is required  to maintain property
             accountability on  all such  equipment  in accordance
             with  A-102  and 40  CFR 30.810.
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            Cars and trucks are unallowable, except for specialized
            sludge handling/transport equipment as noted in  "c"
            above.

            Re:  PRM 79-8
            Office Equipment and Furnishings*:

            Such items as  identified by the grantee and approved in
advance by the Regional Office, when installed or located at
the treatment works and necessary to the administrative and/or
technical (including  training and meetings) functioning of the
works, may be allowable.   In larger facilities allowability may be
extended to reasonable special purpose rooms and equipment related
to the function of the facility.  There may well be instances in
which the Regional Office  will need to exercise judgment as in the
case of "luxurious furnishings", televisions, etc.
            Shop  Furnishings*:

            Reasonable  furnishings  for  shop  areas such as shelves
bins, work benches,  etc.  are  allowable  costs.
             Laboratory Equipment  and  Supplies*:

             Generally, laboratory items  identified by the grantee
and approved prior to procurement by  the Regional Office as neces-
sary  to  conduct tests as may be required for plant operation are
allowable.   In  addition, the cost of  a  reasonable inventory of
chemicals  and supplies necessary  to start operation of  the plant
is allowable.  Large stocks of expendable materials are, however
not allowable.   An EPA publication "Estimating  Laboratory Needs
for Municipal Wastewater Treatment Facilities"  discusses equipment
needed  for various size plants.

             Re.:  40 CFR 35.940-1 (m)

             *NOTE_:  The grantee is required to  maintain property
              accountability on all such equipment  in  accordance
              with A-10Z and 40 CFR 30.810.
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             Safety  Equipment:

             Based upon  the  specific  needs of  individual  facilities,
 necessary  and  reasonable  safety  equipment is  an allowable cost.
 Generally  such equipment  should  be delineated in the operation and
 maintenance  manual  and  the  approval  of  that document may constitute
 the basis  for  participation.

             NOTE:   Such equipment should meet applicable Federal,
             State,  local  and industry safety  regulations and stand-
             ards.   The grantee is required to maintain property
             accountability  on all such  equipment in accordance with
             A-102 and 40  CFR 30.810.
            Tools*:

            Allowable tools are only those which are specified as
special purpose tools necessary for the repair and adjustment of
specific process components by the equipment supplier(s)/
manufacturer(s) or approved by the Regional Office.  Also allowable-
based upon the size, complexity and nature of the treatment works--
are those basic tools/machines, generally mechanically powered
and usually fixed in place, which, in the opinion of the State and
Regional Office, are necessary to assure the uninterrupted func-
tioning of that facility.  All other tools are unallowable.

            *NOTE:  The grantee is required to maintain property
             accountability on all such equipment in accordance
             with A-102 and 40 CFR 30.810.
            Replacement Parts:

            Replacement parts identified and approved in advance by
the Regional Office as necessary to assure uninterrupted operation
of the facility may be included as allowable costs.   Allowable
replacement items are only those which constitute critical  parts or
major systems components and which are:   (1) not immediately avail-
able and/or whose procurement involves an extended "lead-time",
(2) identified as critical by the equipment supplier(s), or (3) are
critical  but not included in the inventory provided  by the  equipment
supplier(s).  In those instances where adequate "back-up" components
                               VII-15

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are built into the system a reduction in replacement parts should
be made.

            Items of routine "programmed" maintenance such as
ordinary piping, air filters, couplings, hose, bolts, etc. are un-
allowable.  See EPA Technical Bulletin:  "Design Criteria for
Mechanical, Electric and Fluid System and Component Reliability"
for additional discussion.
            Collection  System Maintenance Equipment:

            EPA  participation in  the cost of such equipment pur-
chased in connection with  a  construction grant shall be based upon
a proration of the  participated portion of  the collection system to
the total system.   Thus if EPA participates in 65 percent of the
grantee's total  collection system,  the allowable costs shall con-
stitute  65 percent  of  the  cost of such equipment purchased pursuant
to the grant  agreement. Generally, the proration should be based
upon the relative  lengths  of the  new to the total system rather
than cost or  size.   Such equipment  must be  reasonable and be
approved by the  Regional Office.

             In addition allowability will be based  upon:  (1) a
demonstrable  frequency of  need, and (2) the equipment must be
necessary  to  preclude  the  discharge or  by-passing of raw sewage,
and/or  (3)  the equipment is  necessary  to  provide for the health,
safety  and  welfare of  the  citizens.
             Project Inspection:

             Costs associated with technical  inspections  of  the
 eligible project before and during construction (including  change
 order approved time extensions) are allowable.   Such  costs  must be
 clearly documented and, to avoid double payment, the  work must not
 be incident to a general contractual obligation.
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            Groundwater Monitoring Facilities:

            Costs associated with the construction of groundwater
monitoring equipment and facilities may be considered allowable
only  in  those cases in which, as a direct result of project con-
struction, the possibility of groundwater deterioration, depletion
or modification exists.  Allowability may not be extended to the
operation, surveillance and/or analyses associated with these
facilities.  Such facilities require the prior approval of the
Regional Office.
            Biological "Seeding":

            Under certain conditions (climatic, geographic, nature
of wastes, etc.) reasonable costs associated with the purchase and/
or transportation of biological seeding materials required for
initiating (or expediting the initiation of) the treatment process
operation are allowable.
            Service Charges**:

            Service charges are defined as:   any supplemental  charges
added to other direct cost (non-salary) which are claimed on an
actual cost basis.

            Regardless of contract terms,  the actual  cost of service
charges must be supported by accounting records.   If  the service
charges are not supported or if the actual  cost is less than the
amount claimed, the total difference is unallowable for Federal
participation.   This is in accordance with  the ASCE manual  which
states that the service charge is  for expenses to be  reimbursed
by the client.
            **
              'NOTE:   These requirements  have  been EPA National
              policy under PL  84-660,  PL 92-500  and  PL 95-217  as
              requireo under 40 CFR 30.800 and  .805.
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            Fringe Benefits**:

            Regardless of contract terms, the actual  cost of fringe
benefits must be supported by accounting records when they are
claimed as a direct charge.  If the charges are not supported or
if the actual cost is less than the amount claimed, the total or
the difference is unallowable for Federal participation.   Where the
fringe benefits are claimed as a direct charge and also included
in the multiplier the duplicate direct charge is unallowable for
Federal participation.
            Labor Charges and Related Costs**:

            Regardless of contract terms, where charges have been
made to the grant and there was no cost incurred, the charges should
be questioned.  Labor charges and related costs for straight time
or overtime hours which are billed but for which cost has not been
incurred will be unallowable for Federal participation.  (Compen-
satory time will be considered in determining actual labor costs
incurred.  However, compensatory time is allowable only if it is
incurred in accordance with established company policy, if it is
properly controlled and accounted for, and if it is used within an
annual accounting period.)


            **NOTE:  These requirements have been EPA National
              poTTcy under PL 84-660, PL 92-500 and PL 95-217 as
              required under 40 CFR 30.800 and  .805.
             Start-up  Services:

             Grant  eligible  start-up  services will average 90 man-days
 for most  treatment plants.   For  large  or  complex plants, however,
 grant  eligible  start-up services  may range  up to 300 man-days.  Start-
 up services  shall  be  completed within  a period of twelve months.  To
 be grant  eligible, the services must be rendered by the design
 engineer  or  others identified by  the design engineer.
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            Start-up services  include:

            (1) Pre and post start-up personnel training—i .e.,
                onsite training given plant operation and mainte-
                nance personnel on the operation and control of
                the specific treatment processes of the facility.

            (2) Fine tuning to optimize process control--!'.e.,
                expert operational assistance for adjustment of the
                treatment process and related equipment functions
                to optimize performance safety and reliability under
                actual operating conditions.

            (3) Laboratory procedures--!'.e., onsite training and
                instruction to assure that the sampling and
                laboratory testing program needed for satisfactory
                process control and regulatory monitoring and re-
                porting are fully understood.

            (4) Maintenance management system--i.e., start-up
                services to assure effective implementation of the
                maintenance management system outlined in the
                facility's O&M manual.

            (5) Records management systems--!.e., services to pro-
                vide the training needed to implement a records
                management system as outlined in the O&M manual.

            (6) Revise O&M manual--!'.e., revising the O&M manual
                based upon actual operating experience obtained
                during the start-up period.

            Note that costs normally associated with the operation
and maintenance of a municipal  wastewater treatment  facility, such
as salaries for operation  and maintenance personnel, chemicals
(except for the basic inventory required for start-up), power, etc.,
are not eligible.   Also ineligible are the costs of  all offsite
formal training/orientation programs.   Finally, wet  and dry  equip-
ment and facility  testing  is the responsibility of the contractor
under the supervision of the Engineer.

            Re:  40 CFR 35.940-1(p)
                 PRM 77-2
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            Pretreatment Program:

            Costs associated with the development of a municipal  pre-
treatment program in  accordance with 40 CFR Part 403 are allowable.
Also allowable are  costs for the purchase of a limited amount of
monitoring equipment,  construction of facilities to be used by the
municipal treatment works  in the pretreatment program, and limited
sampling of industrial  discharges to municipal works.  Not allow-
able are costs for  construction of privately-owned pretreatment
facilities unless authorized, or costs for monitoring equipment used
by industry for  sampling discharges to municipal works.

            Re:  40 CFR 35.940-1(r)
                  .950-2(1),  (m),  .940-3(f)
             Individual  Systems:

             The  costs  for the  treatment  and  treatment residue dis-
posal  portions of  toilets with composting  tanks, oil-flush mechanisms
or  similar  in-house devices are allowable.

             Costs  for  acquisition of  land  on which  individual systems
are located are  not allowable, nor are costs for the waste generating
fixtures  and associated plumbing to the  treatment unit  (where pipes
are situated on  private property).  Modifications to homes or other
buildings for installation of  special  devices are excluded from
grant  eligibility.  However, reasonable  costs of construction site
restoration to  original conditions are allowable.

             Re_:   40 CFR 35.918-2
                  PRM 79-8
             Royalties and Patents:

             Royalties for the use of, or for rights  in,  patents may
 be allowable costs within the limitations of principles  contained
 in PRM 79-2.  Prior to selecting a patented process  or product upon
 which a royalty must be paid, the grantee must consider  the  need and
 reasonableness of the royalty, cost-effectiveness of the royalty,
 and means to avoid use of patented products.  Where  a grantee will
                                 VII-20

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be required to pay a royalty on a process or product necessary for
performance of the grant agreement,  procedures outlined in PRM 79-2
must be followed in determining the  allowability of the cost.

            Re:  PRM 79-2
            Crossover Sewers:

            Crossover sewers (lateral  or collection sewers)  may be
grant eligible when it is demonstrated that they are more cost
effective than the installation of an  eligible parallel  sewer.   A
crossover sewer or crossover service connection is  defined as  "the
sewer to connect one or more properties on one side of  a major
street, road or highway to the collector sewer on the opposite side."
A deviation from the regulations (see  40 CFR 35.905-13)  must be
obtained when the crossover sewer system serves only one property
(service line) but is more cost effective than an eligible alterna-
tive sewer line.
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 C.   FORCE  ACCOUNT

     1.   General
         In most  instances  a grantee contracts with  engineering or
 construction  firms  to  perform  project related work.  The program,
 however,  permits  use of  the "force account" method  wherein the
 grantees  use  their  own employees, material, and equipment to per-
 form  all  or part  of the  project work.

        The use of  force account is permitted for any Step 1, 2 or
 3  grant work  provided  that prior written approval is obtained from
 the Regional  Administrator.  Such approval is based on the grantee's
 demonstrating that  he  possesses the necessary competence required
 to accomplish such  work, and that:

        a.  the work can be accomplished  more economically by use
            of such method;

        b.  emergency circumstances dictate its use.

        In order  to avoid problems with the force account method and
 to assist grantees who will be using force account, the reviewer
 must  be familiar  with those items needing prior approval.  The re-
 viewer must determine in advance that adequate procedures, records
 and controls will be used by the grantee.  In particular, payroll
 records should adequately show the distributions of hours worked
 and identify work performed.

        Re:   40 CFR 35.936-15(b)
    2.  EPA Prior Approvals

        A grantee must obtain prior written approval  from the
Regional Administrator to use force account labor in  lieu of sub-
agreements for any Step 1 or Step 2 work in excess of $10,000,  any
sewer rehabilitation work in excess of $25,000 performed  during
Step 1, or any Step 3 work in excess of $25,000 unless the grant
agreement stipulates the force account method.   "Use  of the force
account method for Step 3 construction shall  generally be limited
to minor portions of a project."
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        Before approving a force account, the reviewer should con-
sider the following items:

        a.  all anticipated project administrative costs, including
            salaries of administrative employees, travel  expenses,
            etc., in order to determine the extent of their
            allowability.

        b.  proposed methods of timekeeping and timechecking,
            methods for establishment of wage scales for Taborers
            and mechanics and methods for establishment of salaries
            of supervisory employees (sample time sheets, proposed
            wage rates and an explanation of the methods for deter-
            mining those rates and other information necessary to
            comply with this item should be submitted as soon as
            possible);

        c.  an indirect cost figure that is going to be used as
            part of the costs billed to the project (this must be
            a formal written agreement with EPA);

        d.  allowances for use, repair and overhaul of grantee
            owned equipment and rental rates for rental equipment,
            including when rental rates begin, apply and end, and
            the extent of allowability of repairs and overhaul
            (precise usage records for such equipment must be
            maintained);

        e.  the writeoff or depreciation of small tools and other
            expendable  items or equipment;

        f.  any disposal and adjustment of costs in connection
            with unused material and tools left over on completion
            of work.

        Re:  40 CFR 35.936-14(a),(c)
    3.  Other Considerations

        The  following  considerations  provide additional guidelines
for the reviewer  in  the  force  account area:
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a.  adequate cost accounting  records  must  be maintained,

b.  satisfactory controls must be established  and  used  to
    assure that all  material, supplies,  equipment,  labor
    cost, etc.  charged to the project are  actually  used in
    connection  with  the project;

c.  the Copeland Antikickback Regulations  apply  (see
    Appendix C-2 of  40 CFR Part 35);

d.  adequate insurance must be maintained.  This  insurance
    is the same as that discussed in  40  CFR 35.936-22
    covering such construction insurance as is customary and
    appropriate, including fire and extended coverage,  work-
    men's compensation, public liability and property
    damage and  "all  risk" as  required by local or  State
    law.

Re:  40 CFR 30.645,  .810
     40 CFR 35.936-14, 936-22(b)
     PRM 75-15
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D.  PAYMENTS

    1.  General
         It  is  the  policy  of  EPA  to  process  payment requests and to
make periodic  progress  payments  as  expeditiously as possible.  Pay-
ments are to be made  in accordance  with the project outlay schedule,
which is developed by the EPA  at the  time of contract award.  The
outlay schedule is revised annually and whenever actual project per-
formance strays significantly  from  the schedule.

        NOTE:  It  is  imperative  that  grantee payment requests be
processed as quickly  as possible.   On "routine" requests, procedures
assuring a  48  hour "turn  around"  are  to be  established.  All payment
requests are to be considered  "routine" except for the first and
final payments on  Step  1, 2  and  3 awards; the 50%, 80% and 90% pay-
ments on Step  3 awards; and  specific  interim payment points estab-
lished,  in  writing, for a particular  project.

        Re.:  40 CFR 35.937-10,  .938-6, .945
             PRM 75-22, PRM  79-9
    2.  Prior Costs

        After June 30,  1975, no Step 1 project work may be initiated
without a grant award unless the State (based on the review and
approval of a plan of study) has requested the Regional Administrator
to reserve grant  funds.  After June 30, 1975, Step 2 work initiated
without first having received a grant from EPA is not eligible for
grant participation.

        Occasionally grant applications will be received for projects
in which prior costs have been incurred.  These must be handled on
a project by project basis and be in accordance with the regulatory
date limitations  as described in 40 CFR 35.925-18.

        In considering  the eligibility of prior costs, the reviewer
should bear in mind that:

            they  must be claimed prior to the grant award or no
            payment may be made for those costs;
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            they should be supported by documents identifying dates
            and the nature of the work performed;

            they should be examined in light of the allowable/
            unallowable cost statements in "Section B"  of this
            chapter.

        Re:  40 CFR 35.925-18, .945(a)
    3.  Schedules

        Schedules for the completion of any of the three grants steps
are contained in the grant agreement/amendment.   The work schedule
and accompanying payment schedule are generally discussed with the
applicant prior to the grant application and should reflect realistic
targets.  The reviewer has the responsibility for final  approval  of
the schedule.  On the basis of the payment schedule, the EPA Region
prepares an outlay schedule for management of Federal grant funds
associated with the project.  Payments made in accordance with the
payment schedule ensure that the outlay management will  be main-
tained properly.  When actual  project performance strays significantly
from the schedule, adjustments must be made to properly  control
outlay management.

        Any time that a progress schedule is revised, the Municipal
Permits Office of EPA should be notified.

        a.  Step 1 and Step 2 - Periodic progress payments for
            Step 1 and 2 work are to be made on the basis of
            completion of the step or completion of specific tasks
            within the step grant as contained in the grant agree-
            ment.  Every effort should be made to divide the sche-
            duling into tasks, but where this is not possible or
            practical, the grantee should submit a certified state-
            ment as to percentage of completion of the work on a
            periodic basis.

        b.  Step 3 - Step 3 payment schedules should realistically
            reflect the likely construction progress. For example,
            early equipment purchases and seasonal weather con-
            ditions may require large grant payments for certain
                                VII-31

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            months.   If  the monthly  requests exceed those on the
            outlay  schedule,  the  schedule must be revised.  Pay-
            ment schedules should be structured so as to preclude
            any need  for frequent changes.

        Re:  PRM 79-9
    4.  Interim Payments

        Problems with  both  payment  requests and payments can be
minimized if, at the time of  the grant award, the payment request
procedure is discussed with the grantee.  Each region has specific
internal procedures for handling requests and processing payments so
the reviewer must be familiar with  these.  Payments, generally, are
handled as follows:

            the grantee submits EPA Forms SF-271 (Outlay Report
            and Request for Reimbursement for Construction Programs)
            directly to the Regional Financial Management Office or,
            as directed, to the individual responsible for work
            performed;

            the grantee provides necessary documentation to support
            the request;

            all support documents and a copy of the SF-271 form
            are forwarded to  the project officer,

            "routine"  requests are  processed immediately; "non-
            routine" requests are sent to the project officer who
            must complete his action within ten days.

            grantees are to submit  requests for Step 3 payments
            monthly.

        NOTE:  The Federal  share shall be based upon those costs
which, at the time of  the payment request, the grantee is currently
obligated to pay.  For example, if  the grantee has retained a cer-
tain percentage from a construction pay estimate, EPA shall base its
payment upon the amount of  the estimate less the retained amount.
In addition, when retainage is used, the grantee must compensate the
contractor by use of an interest-bearing escrow account.

        Re:  PRM 75-22
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        a.  Payment Requests Review'

            It is the responsibility of the construction grants
reviewer to monitor the progress of the project.   One means of doing
this is by periodically reviewing payment requests and supporting
documents.  At any time before the final  payment, the reviewer may
cause any request(s) for payment to be reviewed or audited, however,
the frequency of the periodic reviews should depend on the size
and complexity of the particular project.  In instances where a
monthly payment schedule has been established, the reviewer should
not perform a detailed check of the request and supporting documents
each month.  If a problem is discovered later when checking the
supporting documents, it can be resolved  on a subsequent payment.
Judgment will be required to avoid unnecessary delays.

            Re:  40 CFR 35.945(c)

        b.  Documentation

            The following are some examples of task documentation
for Step 1 and 2 projects:

                a grantee certified percentage of work complete--
                preferably divided into tasks (e.g. Step 2:  35%
                completion of design criteria; 60% completion of
                preliminary draft plans and specs; 90% completion
                of final draft plans);

                working drafts completed  for specific tasks and
                which have been received  in the Regional  Office
                or are held by the grantee;

            The following are some examples of documentation for
Step 3 projects:

                the engineer's latest monthly estimate of work in
                place;

                invoices accompanying claims for  work completed,

                equipment invoices accompanying claims for pur-
                chases.
                              VII-33

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        c.  Grant Conditions

            The reviewer is reminded to check the grant agreement/
amendment and any subsequent amendments for any special grant con-
ditions prior to approving payment request.  An example of this  would
be the limit on the percentage of the Federal share that may be
paid prior to the submission of O&M manual, sewer use ordinance, etc.
(Chapter VI, F).
    5.  Final Payments

        The request for final payment is submitted by the grantee
when the final inspection is completed and the treatment works have
been determined satisfactorily constructed in accordance with the
grant agreement.  By acceptance of the final payment, the grantee
agrees to assign to the United States the Federal share of refunds,
rebates, credits or other amounts (including any interest thereon)
properly allocable to costs for which the grantee has been paid
by the Government under the grant.  The grantee thereby also releases
and discharges the United States, its officers, agents, and
employees from all liabilities, obligations, and claims arising
out of the project work or under the grant, subject only to such
exceptions which may be specified in writing between the Regional
Administrator and the grantee.

        Funds recovered after final payment which are subject to
reallotment shall be added to the amounts last allotted to the sub-
ject State, and shall be handled in the same manner as the latest
allotment.

        Re:  40 CFR 35.945(e), (f), PRM 77-9
    6.  Refunds, Rebates. Credits, etc.

        The Federal  share of any  refunds,  rebates, credits, or other
amounts (including any  interest on them)  that has accrued to or been
received by the grantee in  relation  to  the project, to the extent
that  they are  properly  allocable  to  costs  for which the grantee
has been paid  under  a grant, must be credited to the current State
                                VII-34

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allotment or paid to the United States.   If the  Regional  Administrator
approves, the grantee may be allowed   reasonable expenses incurred
in securing these refunds, rebates, credits or other  amounts  under
the grant.

        Re:  40 CFR 35.945(d)
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E.  INCREASES AND DECREASES

    1.   Increases

        Grant increases most commonly occur because of cost overruns
occurring after the receipt of bids, cost of major change orders,  or
cost of a sewer system survey.  As soon as the grantee sees that
costs are going to be substantially more than those upon which the
grant is based, the grantee must notify the State and EPA and give
an estimate of the amounts involved.  EPA will not increase a grant
until the State has approved an increase from its available allot-
ment and reallotments.

        In order to make a determination on the increase, the re-
viewer must:

            have a written justification for the increase from the
            grantee;

            have an approval letter from the State;

            determine that the increase in cost is eligible for
            grant participation;

            determine that funds for the increased grant are avail-
            able in the State's allotment.

        Re_:  40 CFR 35.935-11,  .955
             40 CFR 30.900-1
     2.   Increase  Notification  Procedure

         Upon  approval  of an increase  in  the grant, the following
 procedures  must be carried out:   (Detailed explanations of each
 step can be found in Chapter IV,  F.)

            a grant amendment  must be prepared  (EPA  Form 5700-20);
             (if the increase in  the grant amount  is  over $10,000,
            the grant amendment  is not sent to  the grantee until
            five  working days  after signing by  the Regional Ad-
            ministrator to allow for  Congressional notification);
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            the grant amendment information must be entered into
            GICS;

            Standard Form 240 must be prepared for clearinghouse
            notification;

            Notification of Grant Award Action, EPA Form 5700-1B,
            must be prepared and transmitted to Headquarters.
    3.  Decreases

        Grant decreases most commonly occur when the bids  received
are less than the estimated construction costs contained in the
Step 3 grant application.   In most instances, a request for a  de-
crease is not made by the  grantee, but action is initiated by  the
State or EPA after the review of the bid material.   The grant  is
reduced as necessary but the new project cost contains a contingency
allowance (generally between three and five percent of construction
costs).
    4.  Decrease Notification Procedure

        For a grant decrease, the following procedures must  be
followed:

            if EPA has  initiated  the decrease,  the  SMte  is  to  be
            notified of the  decrease and  the State  allotment is to
            be adjusted accordingly;

            a revised grant  agreement/amendment must  be prepared
            (EPA Form 5700-20);

            a revised grant  amount must be  entered  into GICS:

            Standard Form 240 must be prepared  for  clearinghouse
            notification;

            Noficiation of Grant  Decrease Action, EPA Form 5700-1D,
            must be completed and  transmitted to Headquarters.
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F.  AUDITS
    1.  General
        By signing the grant agreement/amendment for a Step 1,  2 or
3 project, the grantee agrees that its books, documents, records,
and papers, and those of  its contractors, are accessible to the EPA
Regional Administrator, the Comptroller General of the United  States,
the State agency, or any  authorized representatives.  The EPA  Office
of Audit is responsible for audits of all Step 1, 2 and 3 grants.
For Step 3 grants, however, it is the general rule that only those
projects having grants over $250,000 will be audited unless there
is some indication of irregularities.

        Re:  40 CFR 35.935-7
             40 CFR 30.605, 30.805
    2.  Objective

        The objective of audits of construction grants projects  is:

        a.  to determine whether the management controls  exercised
            by the grantee through its management system, accounting
            system, procurement system, and property control  system
            are adequate to assure that costs claimed/incurred are
            reasonable, allowable, and allocable to the project
            under the grant terms and conditions, Federal Manage-
            ment Circulars, and applicable EPA regulations;

        b.  to identify any non-compliance with applicable grant
            provisions or EPA rules and regulations and to provide
            recommendations for improvement.
    3.   Types of Audits

        There are two types of audits, interim and  final.

        a.  Interim audits are performed during the earlier  part of
            a project to review internal accounting controls,  pro-
            curement systems, design and construction  controls,
            and costs incurred.
                               VII-38

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            Final audits are performed after completion of the
            project to review the grantee's records to assure
            that costs claimed are reasonble, allocable, and
            allowable and that the grantee has met the grant ob-
            jectives.
    4.  Criteria for Choosing Projects

        Not all Step 1, 2 or 3 projects are audited.   For Step 3
projects, it is the general  rule that only those with grants over
$250,000 will be audited unless there is some indication  of irregu-
larities.  Also, the intensity of the audit will  vary from project
to project depending on its  complexity and the problems  encountered.

        The EPA Office of Audit utilizes relevant reports, con-
struction grant file information, the results of sampling tests and
the following criteria to select projects for audit:

            size of the grants/projects

            existence of unit-price contracts

            type of contracts and subcontracts

            the number and significance of change orders

            experience with  prior grantee's project  audits

            identification of deficiencies

        The EPA grant reviewer will  be called upon to supply the
auditors with the following  information to assist in  determining
the scope, schedule, resource plans  and estimates of  audit efforts:

            grant number

            grantee name, address and phone

            eligible project cost

            grant amount

            number and dollar value  of change orders
                               VII-39

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            number, amount and type of construction and engineering
            agreements

            extent of force account work

            cut off date

            whether construction is located in a flood hazard area
            requiring the grantee to purchase flood insurance

            NPDES Permit.
    5.  Major Activity Areas for Audit Focus

        The major activity areas that are addressed during the
audits include the grantee's accounting, procurement and project
management practices.  Both interim and final audits will include
the audit of costs associated with these activities.

        a.  Accounting Practices - the grantee's accounting system
            should include the following:

            (1) accounting records

            (2) supporting documents

            (3) traceability

            (4) segregation of costs (allowable/unallowable;
                direct/indirect)

            (5) internal control

            (6) accounting reports.

        b.  Procurement  Practices - the grantee is responsible
            for demonstrating that engineering and construction
            contracts were awarded in compliance with the
            regulations.

        c.  Project Management Practices - the project management
            approach applied by the grantee  is significant to his
            ultimate ability to control cost and schedules.
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    6.  Final Report

        The final audit report issued by the Office of Audit is an
advisory report only and any action such as recovery of funds is
the responsibility of the Regional Administrator.

        Once the audit review is completed, the process of issuing
a final report is flexible, depending on the complexity or serious-
ness of any deficiencies noted in relation to the project.  In
general, the following procedures will be followed:

        a.  the rough draft report will be presented to the
            grantee.  The grantee and its subcontractors have two
            weeks to answer any questions raised in the draft;

        b.  the Office of Audit will incorporate the grantee's
            answers into the report and present this report to the
            Regional Construction Grants Branch Chief.  The Branch
            Chief and Project Officer will meet with the auditor to
            resolve any issues raised in the report in order to
            reach concurrence;

        c.  an exit interview will be held by the auditors with
            the grantee to discuss the findings in the final  report;

        d.  the final  report will be presented to the Regional
            Construction Grants Branch Chief who will  recommend
            necessary action to the Regional  Administrator.

        The key to this entire process is flexibility because at any
one point the auditor may want to meet with the Project Office to dis-
cuss findings and resolve issues.  The reviewer will generally be
involved in the discussions to resolve issues after the grantee
has responded to the rough draft.  It is the Project Officer's  res-
ponsibility to determine whether exceptions and claims in the report
are justified.

        The final report will  contain a statement of concurrence
between the Regional Administrator and the Office of Audit.  A final
report may be issued,  however, even if both parties do not concur.
There may be circumstances where the Regional  Administrator chooses
to withhold comment pending further investigation.   This is usually
done to protect the Agency in  cases where future litigation may be
involved.   Final  resolution rests with the Regional  Administrator.

        Re:  Audit Guide for Construction Grant Program
             EPA Order 2750.2, Attachment A,  6/8/79
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