24 Cfr 85

24 CFR PART 85
ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND COOPERATIVE AGREEMENTS TO
STATE, LOCAL AND FEDERALLY RECOGNIZED INDIAN TRIBAL GOVERNMENTS
Subpart A—General
§ 85.1 Purpose and scope of this part.
§ 85.2 Scope of subpart.
§ 85.3 Definitions.
§ 85.4 Applicability.
§ 85.5 Effect on other issuances.
§ 85.6 Additions and exceptions.
Subpart B—Pre-Award Requirements
§ 85.10 Forms for applying for grants.
§ 85.11 State plans.
§ 85.12 Special grant or subgrant conditions for “high-risk” grantees.
Subpart C—Post-Award Requirements
Financial Administration
§ 85.20 Standards for financial management systems.
§ 85.21 Payment.
§ 85.22 Allowable costs.
§ 85.23 Period of availability of funds.
§ 85.24 Matching or cost sharing.
§ 85.25 Program income.
§ 85.26 Non-Federal audit.
Changes, Property, and Subawards
§ 85.30 Changes.
§ 85.31 Real property.
§ 85.32 Equipment.
§ 85.33 Supplies.
§ 85.34 Copyrights.
§ 85.35 Subawards to debarred and suspended parties.
§ 85.36 Procurement.
§ 85.37 Subgrants.
Reports, Records, Retention, and Enforcement
§ 85.40 Monitoring and reporting program performance.
§ 85.41 Financial reporting.
§ 85.42 Retention and access requirements for records.
§ 85.43 Enforcement.
§ 85.44 Termination for convenience.
Subpart D—After-the-Grant Requirements
§ 85.50 Closeout.
§ 85.51 Later disallowances and adjustments.
§ 85.52 Collection of amounts due.
Subpart E—Entitlement [Reserved]

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Authority: 42 U.S.C. 3535(d).
Source: 53 FR 8068, 8087, Mar. 11, 1988, unless otherwise noted.
Subpart A—General
§ 85.1 Purpose and scope of this part.
This part establishes uniform administrative rules for Federal grants and cooperative
agreements and subawards to State, local and Indian tribal governments.
§ 85.2 Scope of subpart.
This subpart contains general rules pertaining to this part and procedures for control of
exceptions from this part.
§ 85.3 Definitions.
As used in this part:
Accrued expenditures mean the charges incurred by the grantee during a given period
requiring the provision of funds for: (1) Goods and other tangible property received; (2) services
performed by employees, contractors, subgrantees, subcontractors, and other payees; and (3)
other amounts becoming owed under programs for which no current services or performance is
required, such as annuities, insurance claims, and other benefit payments.
Accrued income means the sum of: (1) Earnings during a given period from services
performed by the grantee and goods and other tangible property delivered to purchasers, and
(2) amounts becoming owed to the grantee for which no current services or performance is
required by the grantee.
Acquisition cost of an item of purchased equipment means the net invoice unit price of the
property including the cost of modifications, attachments, accessories, or auxiliary apparatus
necessary to make the property usable for the purpose for which it was acquired. Other charges
such as the cost of installation, transportation, taxes, duty or protective in-transit insurance, shall
be included or excluded from the unit acquisition cost in accordance with the grantee's regular
accounting practices.
Administrative requirements mean those matters common to grants in general, such as
financial management, kinds and frequency of reports, and retention of records. These are
distinguished from programmatic requirements, which concern matters that can be treated only
on a program-by-program or grant-by-grant basis, such as kinds of activities that can be
supported by grants under a particular program.
Awarding agency means (1) with respect to a grant, the Federal agency, and (2) with respect
to a subgrant, the party that awarded the subgrant.
Cash contributions means the grantee's cash outlay, including the outlay of money contributed
to the grantee or subgrantee by other public agencies and institutions, and private organizations
and individuals. When authorized by Federal legislation, Federal funds received from other
assistance agreements may be considered as grantee or subgrantee cash contributions.
Contract means (except as used in the definitions for grant and subgrant in this section and
except where qualified by Federal) a procurement contract under a grant or subgrant, and
means a procurement subcontract under a contract.

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Cost sharing or matching means the value of the third party in-kind contributions and the
portion of the costs of a federally assisted project or program not borne by the Federal
Government.
Cost-type contract means a contract or subcontract under a grant in which the contractor or
subcontractor is paid on the basis of the costs it incurs, with or without a fee.
Equipment means tangible, nonexpendable, personal property having a useful life of more than
one year and an acquisition cost of $5,000 or more per unit. A grantee may use its own
definition of equipment provided that such definition would at least include all equipment defined
above.
Expenditure report means: (1) For non-construction grants, the SF–269 “Financial Status
Report” (or other equivalent report); (2) for construction grants, the SF–271 “Outlay Report and
Request for Reimbursement” (or other equivalent report).
Federally recognized Indian tribal government means the governing body or a governmental
agency of any Indian tribe, band, nation, or other organized group or community (including any
Native village as defined in section 3 of the Alaska Native Claims Settlement Act, 85 Stat 688)
certified by the Secretary of the Interior as eligible for the special programs and services
provided by him through the Bureau of Indian Affairs.
Government means a State or local government or a federally recognized Indian tribal
government.
Grant means an award of financial assistance, including cooperative agreements, in the form of
money, or property in lieu of money, by the Federal Government to an eligible grantee. The term
does not include technical assistance which provides services instead of money, or other
assistance in the form of revenue sharing, loans, loan guarantees, interest subsidies, insurance,
or direct appropriations. Also, the term does not include assistance, such as a fellowship or
other lump sum award, which the grantee is not required to account for.
Grantee means the government to which a grant is awarded and which is accountable for the
use of the funds provided. The grantee is the entire legal entity even if only a particular
component of the entity is designated in the grant award document.
Local government means a county, municipality, city, town, township, local public authority
(including any public and Indian housing agency under the United States Housing Act of 1937)
school district, special district, intrastate district, council of governments (whether or not
incorporated as a nonprofit corporation under state law), any other regional or interstate
government entity, or any agency or instrumentality of a local government.
Obligations means the amounts of orders placed, contracts and subgrants awarded, goods
and services received, and similar transactions during a given period that will require payment
by the grantee during the same or a future period.
OMB means the United States Office of Management and Budget.
Outlays (expenditures) mean charges made to the project or program. They may be reported
on a cash or accrual basis. For reports prepared on a cash basis, outlays are the sum of actual
cash disbursement for direct charges for goods and services, the amount of indirect expense

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incurred, the value of in-kind contributions applied, and the amount of cash advances and
payments made to contractors and subgrantees. For reports prepared on an accrued
expenditure basis, outlays are the sum of actual cash disbursements, the amount of indirect
expense incurred, the value of in-kind contributions applied, and the new increase (or decrease)
in the amounts owed by the grantee for goods and other property received, for services
performed by employees, contractors, subgrantees, subcontractors, and other payees, and
other amounts becoming owed under programs for which no current services or performance
are required, such as annuities, insurance claims, and other benefit payments.
Percentage of completion method refers to a system under which payments are made for
construction work according to the percentage of completion of the work, rather than to the
grantee's cost incurred.
Prior approval means documentation evidencing consent prior to incurring specific cost.
Real property means land, including land improvements, structures and appurtenances
thereto, excluding movable machinery and equipment.
Share, when referring to the awarding agency's portion of real property, equipment or supplies,
means the same percentage as the awarding agency's portion of the acquiring party's total
costs under the grant to which the acquisition costs under the grant to which the acquisition cost
of the property was charged. Only costs are to be counted—not the value of third-party in-kind
contributions.
State means any of the several States of the United States, the District of Columbia, the
Commonwealth of Puerto Rico, any territory or possession of the United States, or any agency
or instrumentality of a State exclusive of local governments. The term does not include any
public and Indian housing agency under United States Housing Act of 1937.
Subgrant means an award of financial assistance in the form of money, or property in lieu of
money, made under a grant by a grantee to an eligible subgrantee. The term includes financial
assistance when provided by contractual legal agreement, but does not include procurement
purchases, nor does it include any form of assistance which is excluded from the definition of
grant in this part.
Subgrantee means the government or other legal entity to which a subgrant is awarded and
which is accountable to the grantee for the use of the funds provided.
Supplies means all tangible personal property other than equipment as defined in this part.
Suspension means depending on the context, either (1) temporary withdrawal of the authority
to obligate grant funds pending corrective action by the grantee or subgrantee or a decision to
terminate the grant, or (2) an action taken by a suspending official in accordance with agency
regulations implementing E.O. 12549 to immediately exclude a person from participating in
grant transactions for a period, pending completion of an investigation and such legal or
debarment proceedings as may ensue.
Termination means permanent withdrawal of the authority to obligate previously-awarded grant
funds before that authority would otherwise expire. It also means the voluntary relinquishment of
that authority by the grantee or subgrantee. Termination does not include: (1) Withdrawal of
funds awarded on the basis of the grantee's underestimate of the unobligated balance in a prior

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period; (2) Withdrawal of the unobligated balance as of the expiration of a grant; (3) Refusal to
extend a grant or award additional funds, to make a competing or non-competing continuation,
renewal, extension, or supplemental award; or (4) voiding of a grant upon determination that the
award was obtained fraudulently, or was otherwise illegal or invalid from inception.
Terms of a grant or subgrant mean all requirements of the grant or subgrant, whether in
statute, regulations, or the award document.
Third party in-kind contributions mean property or services which benefit a federally assisted
project or program and which are contributed by non-Federal third parties without charge to the
grantee, or a cost-type contractor under the grant agreement.
Unliquidated obligations for reports prepared on a cash basis mean the amount of obligations
incurred by the grantee that has not been paid. For reports prepared on an accrued expenditure
basis, they represent the amount of obligations incurred by the grantee for which an outlay has
not been recorded.
Unobligated balance means the portion of the funds authorized by the Federal agency that has
not been obligated by the grantee and is determined by deducting the cumulative obligations
from the cumulative funds authorized.

§ 85.4 Applicability.
(a) General. Subparts A—D of this part apply to all grants and subgrants to governments,
except where inconsistent with Federal statutes or with regulations authorized in accordance
with the exception provision of §85.6, or:
(1) Grants and subgrants to State and local institutions of higher education or State and local
hospitals.
(2) The block grants authorized by the Omnibus Budget Reconciliation Act of 1981 (Community
Services; Preventive Health and Health Services; Alcohol, Drug Abuse, and Mental Health
Services; Maternal and Child Health Services; Social Services; Low-Income Home Energy
Assistance; States' Program of Community Development Block Grants for Small Cities; and
Elementary and Secondary Education other than programs administered by the Secretary of
Education under title V, subtitle D, chapter 2, section 583—the Secretary's discretionary grant
program) and titles I-III of the Job Training Partnership Act of 1982 and under the Public Health
Services Act (section 1921), Alcohol and Drug Abuse Treatment and Rehabilitation Block Grant
and part C of title V, Mental Health Service for the Homeless Block Grant).
(3) Entitlement grants to carry out the following programs of the Social Security Act:
(i) Aid to Needy Families with Dependent Children (title IV-A of the Act, not including the
Work Incentive Program (WIN) authorized by section 402(a)19(G); HHS grants for WIN
are subject to this part);
(ii) Child Support Enforcement and Establishment of Paternity (title IV-D of the Act);
(iii) Foster Care and Adoption Assistance (title IV-E of the Act);
(iv) Aid to the Aged, Blind, and Disabled (titles I, X, XIV, and XVI-AABD of the Act); and
(v) Medical Assistance (Medicaid) (title XIX of the Act) not including the State Medicaid
Fraud Control program authorized by section 1903(a)(6)(B).
(4) Entitlement grants under the following programs of The National School Lunch Act:
(i) School Lunch (section 4 of the Act),
(ii) Commodity Assistance (section 6 of the Act),
(iii) Special Meal Assistance (section 11 of the Act),
(iv) Summer Food Service for Children (section 13 of the Act), and

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(v) Child Care Food Program (section 17 of the Act).
(5) Entitlement grants under the following programs of The Child Nutrition Act of 1966:
(i) Special Milk (section 3 of the Act), and
(ii) School Breakfast (section 4 of the Act).
(6) Entitlement grants for State Administrative expenses under The Food Stamp Act of 1977
(section 16 of the Act).
(7) A grant for an experimental, pilot, or demonstration project that is also supported by a grant
listed in paragraph (a)(3) of this section;
(8) Grant funds awarded under subsection 412(e) of the Immigration and Nationality Act (8
U.S.C. 1522(e)) and subsection 501(a) of the Refugee Education Assistance Act of 1980 (Pub.
L. 96–422, 94 Stat. 1809), for cash assistance, medical assistance, and supplemental security
income benefits to refugees and entrants and the administrative costs of providing the
assistance and benefits;
(9) Grants to local education agencies under 20 U.S.C. 236 through 241–1(a), and 242 through
244 (portions of the Impact Aid program), except for 20 U.S.C. 238(d)(2)(c) and 240(f)
(Entitlement Increase for Handicapped Children); and
(10) Payments under the Veterans Administration's State Home Per Diem Program (38 U.S.C.
641(a)).
(b) Entitlement programs. Entitlement programs enumerated above in §85.4(a) (3) through (8)
are subject to subpart E.
§ 85.5 Effect on other issuances.
All other grants administration provisions of codified program regulations, program manuals,
handbooks and other non-regulatory materials which are inconsistent with this part are
superseded, except to the extent they are required by statute, or authorized in accordance with
the exception provision in §85.6.
§ 85.6 Additions and exceptions.
(a) For classes of grants and grantees subject to this part, Federal agencies may not impose
additional administrative requirements except in codified regulations published in the Federal
Register.
(b) Exceptions for classes of grants or grantees may be authorized only by OMB.
(c) Exceptions on a case-by-case basis and for subgrantees may be authorized by the affected
Federal agencies.
Subpart B—Pre-Award Requirements
§ 85.10 Forms for applying for grants.
(a) Scope.
(1) This section prescribes forms and instructions to be used by governmental organizations
(except hospitals and institutions of higher education operated by a government) in applying for
grants. This section is not applicable, however, to formula grant programs which do not require
applicants to apply for funds on a project basis.
(2) This section applies only to applications to Federal agencies for grants, and is not required
to be applied by grantees in dealing with applicants for subgrants. However, grantees are
encouraged to avoid more detailed or burdensome application requirements for subgrants.
(b) Authorized forms and instructions for governmental organizations.
(1) In applying for grants, applicants shall only use standard application forms or those
prescribed by the granting agency with the approval of OMB under the Paperwork Reduction
Act of 1980.
(2) Applicants are not required to submit more than the original and two copies of
preapplications or applications.

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(3) Applicants must follow all applicable instructions that bear OMB clearance numbers. Federal
agencies may specify and describe the programs, functions, or activities that will be used to
plan, budget, and evaluate the work under a grant. Other supplementary instructions may be
issued only with the approval of OMB to the extent required under the Paperwork Reduction Act
of 1980. For any standard form, except the SF–424 facesheet, Federal agencies may shade out
or instruct the applicant to disregard any line item that is not needed.
(4) When a grantee applies for additional funding (such as a continuation or supplemental
award) or amends a previously submitted application, only the affected pages need be
submitted. Previously submitted pages with information that is still current need not be
resubmitted.
§ 85.11 State plans.
(a) Scope. The statutes for some programs require States to submit plans before receiving
grants. Under regulations implementing Executive Order 12372, “Intergovernmental Review of
Federal Programs,” States are allowed to simplify, consolidate and substitute plans. This section
contains additional provisions for plans that are subject to regulations implementing the
Executive order.
(b) Requirements. A State need meet only Federal administrative or programmatic
requirements for a plan that are in statutes or codified regulations.
(c) Assurances. In each plan the State will include an assurance that the State shall comply
with all applicable Federal statutes and regulations in effect with respect to the periods for which
it receives grant funding. For this assurance and other assurances required in the plan, the
State may:
(1) Cite by number the statutory or regulatory provisions requiring the assurances and affirm
that it gives the assurances required by those provisions,
(2) Repeat the assurance language in the statutes or regulations, or
(3) Develop its own language to the extent permitted by law.
(d) Amendments. A State will amend a plan whenever necessary to reflect:
(1) New or revised Federal statutes or regulations or;
(2) A material change in any State law, organization, policy, or State agency operation. The
State will obtain approval for the amendment and its effective date but need submit for approval
only the amended portions of the plan.
§ 85.12 Special grant or subgrant conditions for “high-risk” grantees.
(a) A grantee or subgrantee may be considered high risk if an awarding agency determines
that a grantee or subgrantee:
(1) Has a history of unsatisfactory performance, or
(2) Is not financially stable, or
(3) Has a management system which does not meet the management standards set forth in this
part, or
(4) Has not conformed to terms and conditions of previous awards, or
(5) Is otherwise not responsible; and if the awarding agency determines that an award will be
made, special conditions and/or restrictions shall correspond to the high risk condition and shall
be included in the award.
(b) Special conditions or restrictions may include:
(1) Payment on a reimbursement basis;
(2) Withholding authority to proceed to the next phase until receipt of evidence of acceptable
performance within a given funding period;
(3) Requiring additional, more detailed financial reports;
(4) Additional project monitoring;
(5) Requiring the grantee or subgrantee to obtain technical or management assistance; or

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(6) Establishing additional prior approvals.
(c) If an awarding agency decides to impose such conditions, the awarding official will notify the
grantee or subgrantee as early as possible, in writing, of:
(1) The nature of the special conditions/restrictions;
(2) The reason(s) for imposing them;
(3) The corrective actions which must be taken before they will be removed and the time
allowed for completing the corrective actions and
(4) The method of requesting reconsideration of the conditions/restrictions imposed.
Subpart C—Post-Award Requirements
Financial Administration
§ 85.20 Standards for financial management systems.
(a) A State must expand and account for grant funds in accordance with State laws and
procedures for expending and accounting for its own funds. Fiscal control and accounting
procedures of the State, as well as its subgrantees and cost-type contractors, must be sufficient
to—
(1) Permit preparation of reports required by this part and the statutes authorizing the grant, and
(2) Permit the tracing of funds to a level of expenditures adequate to establish that such funds
have not been used in violation of the restrictions and prohibitions of applicable statutes.
(b) The financial management systems of other grantees and subgrantees must meet the
following standards:
(1) Financial reporting. Accurate, current, and complete disclosure of the financial results of
financially assisted activities must be made in accordance with the financial reporting
requirements of the grant or subgrant.
(2) Accounting records. Grantees and subgrantees must maintain records which adequately
identify the source and application of funds provided for financially-assisted activities. These
records must contain information pertaining to grant or subgrant awards and authorizations,
obligations, unobligated balances, assets, liabilities, outlays or expenditures, and income.
(3) Internal control. Effective control and accountability must be maintained for all grant and
subgrant cash, real and personal property, and other assets. Grantees and subgrantees must
adequately safeguard all such property and must assure that it is used solely for authorized
purposes.
(4) Budget control. Actual expenditures or outlays must be compared with budgeted amounts
for each grant or subgrant. Financial information must be related to performance or productivity
data, including the development of unit cost information whenever appropriate or specifically
required in the grant or subgrant agreement. If unit cost data are required, estimates based on
available documentation will be accepted whenever possible.
(5) Allowable cost. Applicable OMB cost principles, agency program regulations, and the terms
of grant and subgrant agreements will be followed in determining the reasonableness,
allowability, and allocability of costs.
(6) Source documentation. Accounting records must be supported by such source
documentation as cancelled checks, paid bills, payrolls, time and attendance records, contract
and subgrant award documents, etc.
(7) Cash management. Procedures for minimizing the time elapsing between the transfer of
funds from the U.S. Treasury and disbursement by grantees and subgrantees must be followed
whenever advance payment procedures are used. Grantees must establish reasonable
procedures to ensure the receipt of reports on subgrantees' cash balances and cash
disbursements in sufficient time to enable them to prepare complete and accurate cash
transactions reports to the awarding agency. When advances are made by letter-of-credit or
electronic transfer of funds methods, the grantee must make drawdowns as close as possible to
the time of making disbursements. Grantees must monitor cash drawdowns by their

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subgrantees to assure that they conform substantially to the same standards of timing and
amount as apply to advances to the grantees.
(c) An awarding agency may review the adequacy of the financial management system of any
applicant for financial assistance as part of a pre-award review or at any time subsequent to
award.
§ 85.21 Payment.
(a) Scope. This section prescribes the basic standard and the methods under which a Federal
agency will make payments to grantees, and grantees will make payments to subgrantees and
contractors.
(b) Basic standard. Methods and procedures for payment shall minimize the time elapsing
between the transfer of funds and disbursement by the grantee or subgrantee, in accordance
with Treasury regulations at 31 CFR part 205.
(c) Advances. Grantees and subgrantees shall be paid in advance, provided they maintain or
demonstrate the willingness and ability to maintain procedures to minimize the time elapsing
between the transfer of the funds and their disbursement by the grantee or subgrantee.
(d) Reimbursement. Reimbursement shall be the preferred method when the requirements in
paragraph (c) of this section are not met. Grantees and subgrantees may also be paid by
reimbursement for any construction grant. Except as otherwise specified in regulation, Federal
agencies shall not use the percentage of completion method to pay construction grants. The
grantee or subgrantee may use that method to pay its construction contractor, and if it does, the
awarding agency's payments to the grantee or subgrantee will be based on the grantee's or
subgrantee's actual rate of disbursement.
(e) Working capital advances. If a grantee cannot meet the criteria for advance payments
described in paragraph (c) of this section, and the Federal agency has determined that
reimbursement is not feasible because the grantee lacks sufficient working capital, the awarding
agency may provide cash or a working capital advance basis. Under this procedure the
awarding agency shall advance cash to the grantee to cover its estimated disbursement needs
for an initial period generally geared to the grantee's disbursing cycle. Thereafter, the awarding
agency shall reimburse the grantee for its actual cash disbursements. The working capital
advance method of payment shall not be used by grantees or subgrantees if the reason for
using such method is the unwillingness or inability of the grantee to provide timely advances to
the subgrantee to meet the subgrantee's actual cash disbursements.
(f) Effect of program income, refunds, and audit recoveries on payment.
(1) Grantees and subgrantees shall disburse repayments to and interest earned on a revolving
fund before requesting additional cash payments for the same activity.
(2) Except as provided in paragraph (f)(1) of this section, grantees and subgrantees shall
disburse program income, rebates, refunds, contract settlements, audit recoveries and interest
earned on such funds before requesting additional cash payments.
(g) Withholding payments.
(1) Unless otherwise required by Federal statute, awarding agencies shall not withhold
payments for proper charges incurred by grantees or subgrantees unless—
(i) The grantee or subgrantee has failed to comply with grant award conditions or
(ii) The grantee or subgrantee is indebted to the United States.
(2) Cash withheld for failure to comply with grant award condition, but without suspension of the
grant, shall be released to the grantee upon subsequent compliance. When a grant is
suspended, payment adjustments will be made in accordance with §85.43(c).
(3) A Federal agency shall not make payment to grantees for amounts that are withheld by
grantees or subgrantees from payment to contractors to assure satisfactory completion of work.
Payments shall be made by the Federal agency when the grantees or subgrantees actually

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disburse the withheld funds to the contractors or to escrow accounts established to assure
satisfactory completion of work.
(h) Cash depositories.
(1) Consistent with the national goal of expanding the opportunities for minority business
enterprises, grantees and subgrantees are encouraged to use minority banks (a bank which is
owned at least 50 percent by minority group members). A list of minority owned banks can be
obtained from the Minority Business Development Agency, Department of Commerce,
Washington, DC 20230.
(2) A grantee or subgrantee shall maintain a separate bank account only when required by
Federal-State agreement.
(i) Interest earned on advances. Except for interest earned on advances of funds
exempt under the Intergovernmental Cooperation Act (31 U.S.C. 6501 et seq.) and the
Indian Self-Determination Act (23 U.S.C. 450), grantees and subgrantees shall promptly,
but at least quarterly, remit interest earned on advances to the Federal agency. The
grantee or subgrantee may keep interest amounts up to $100 per year for administrative
expenses.
§ 85.22 Allowable costs.
(a) Limitation on use of funds. Grant funds may be used only for:
(1) The allowable costs of the grantees, subgrantees and cost-type contractors, including
allowable costs in the form of payments to fixed-price contractors; and
(2) Reasonable fees or profit to cost-type contractors but not any fee or profit (or other
increment above allowable costs) to the grantee or subgrantee.
(b) Applicable cost principles. For each kind of organization, there is a set of Federal
principles for determining allowable costs. Allowable costs will be determined in accordance
with the cost principles applicable to the organization incurring the costs. The following chart
lists the kinds of organizations and the applicable cost principles.
§ 85.23 Period of availability of funds.
(a) General. Where a funding period is specified, a grantee may charge to the award only costs
resulting from obligations of the funding period unless carryover of unobligated balances is
permitted, in which case the carryover balances may be charged for costs resulting from
obligations of the subsequent funding period.
(b) Liquidation of obligations. A grantee must liquidate all obligations incurred under the
award not later than 90 days after the end of the funding period (or as specified in a program
regulation) to coincide with the submission of the annual Financial Status Report (SF–269). The
Federal agency may extend this deadline at the request of the grantee.
§ 85.24 Matching or cost sharing.
(a) Basic rule: Costs and contributions acceptable. With the qualifications and exceptions
listed in paragraph (b) of this section, a matching or cost sharing requirement may be satisfied
by either or both of the following:
(1) Allowable costs incurred by the grantee, subgrantee or a cost-type contractor under the
assistance agreement. This includes allowable costs borne by non-Federal grants or by others
cash donations from non-Federal third parties.
(2) The value of third party in-kind contributions applicable to the period to which the cost
sharing or matching requirements applies.
(b) Qualifications and exceptions—
(1) Costs borne by other Federal grant agreements. Except as provided by Federal statute, a
cost sharing or matching requirement may not be met by costs borne by another Federal grant.

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This prohibition does not apply to income earned by a grantee or subgrantee from a contract
awarded under another Federal grant.
(2) General revenue sharing. For the purpose of this section, general revenue sharing funds
distributed under 31 U.S.C. 6702 are not considered Federal grant funds.
(3) Cost or contributions counted towards other Federal costs-sharing requirements.
Neither costs nor the values of third party in-kind contributions may count towards satisfying a
cost sharing or matching requirement of a grant agreement if they have been or will be counted
towards satisfying a cost sharing or matching requirement of another Federal grant agreement,
a Federal procurement contract, or any other award of Federal funds.
(4) Costs financed by program income. Costs financed by program income, as defined in
§85.25, shall not count towards satisfying a cost sharing or matching requirement unless they
are expressly permitted in the terms of the assistance agreement. (This use of general program
income is described in §85.25(g).)
(5) Services or property financed by income earned by contractors. Contractors under a
grant may earn income from the activities carried out under the contract in addition to the
amounts earned from the party awarding the contract. No costs of services or property
supported by this income may count toward satisfying a cost sharing or matching requirement
unless other provisions of the grant agreement expressly permit this kind of income to be used
to meet the requirement.
(6) Records. Costs and third party in-kind contributions counting towards satisfying a cost
sharing or matching requirement must be verifiable from the records of grantees and
subgrantee or cost-type contractors. These records must show how the value placed on third
party in-kind contributions was derived. To the extent feasible, volunteer services will be
supported by the same methods that the organization uses to support the allocability of regular
personnel costs.
(7) Special standards for third party in-kind contributions.
(i) Third party in-kind contributions count towards satisfying a cost sharing or matching
requirement only where, if the party receiving the contributions were to pay for them, the
payments would be allowable costs.
(ii) Some third party in-kind contributions are goods and services that, if the grantee,
subgrantee, or contractor receiving the contribution had to pay for them, the payments
would have been an indirect costs. Costs sharing or matching credit for such
contributions shall be given only if the grantee, subgrantee, or contractor has
established, along with its regular indirect cost rate, a special rate for allocating to
individual projects or programs the value of the contributions.
(iii) A third party in-kind contribution to a fixed-price contract may count towards
satisfying a cost sharing or matching requirement only if it results in:
(A) An increase in the services or property provided under the contract (without
additional cost to the grantee or subgrantee) or
(B) A cost savings to the grantee or subgrantee.
(iv) The values placed on third party in-kind contributions for cost sharing or matching
purposes will conform to the rules in the succeeding sections of this part. If a third party
in-kind contribution is a type not treated in those sections, the value placed upon it shall
be fair and reasonable.
(c) Valuation of donated services—
(1) Volunteer services. Unpaid services provided to a grantee or subgrantee by individuals will
be valued at rates consistent with those ordinarily paid for similar work in the grantee's or
subgrantee's organization. If the grantee or subgrantee does not have employees performing
similar work, the rates will be consistent with those ordinarily paid by other employers for similar
work in the same labor market. In either case, a reasonable amount for fringe benefits may be
included in the valuation.

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(2) Employees of other organizations. When an employer other than a grantee, subgrantee,
or cost-type contractor furnishes free of charge the services of an employee in the employee's
normal line of work, the services will be valued at the employee's regular rate of pay exclusive of
the employee's fringe benefits and overhead costs. If the services are in a different line of work,
paragraph (c)(1) of this section applies.
(d) Valuation of third party donated supplies and loaned equipment or space.
(1) If a third party donates supplies, the contribution will be valued at the market value of the
supplies at the time of donation.
(2) If a third party donates the use of equipment or space in a building but retains title, the
contribution will be valued at the fair rental rate of the equipment or space.
(e) Valuation of third party donated equipment, buildings, and land. If a third party donates
equipment, buildings, or land, and title passes to a grantee or subgrantee, the treatment of the
donated property will depend upon the purpose of the grant or subgrant, as follows:
(1) Awards for capital expenditures. If the purpose of the grant or subgrant is to assist the
grantee or subgrantee in the acquisition of property, the market value of that property at the time
of donation may be counted as cost sharing or matching,
(2) Other awards. If assisting in the acquisition of property is not the purpose of the grant or
subgrant, paragraphs (e)(2) (i) and (ii) of this section apply:
(i) If approval is obtained from the awarding agency, the market value at the time of
donation of the donated equipment or buildings and the fair rental rate of the donated
land may be counted as cost sharing or matching. In the case of a subgrant, the terms of
the grant agreement may require that the approval be obtained from the Federal agency
as well as the grantee. In all cases, the approval may be given only if a purchase of the
equipment or rental of the land would be approved as an allowable direct cost. If any
part of the donated property was acquired with Federal funds, only the non-federal share
of the property may be counted as cost-sharing or matching.
(ii) If approval is not obtained under paragraph (e)(2)(i) of this section, no amount may
be counted for donated land, and only depreciation or use allowances may be counted
for donated equipment and buildings. The depreciation or use allowances for this
property are not treated as third party in-kind contributions. Instead, they are treated as
costs incurred by the grantee or subgrantee. They are computed and allocated (usually
as indirect costs) in accordance with the cost principles specified in §85.22, in the same
way as depreciation or use allowances for purchased equipment and buildings. The
amount of depreciation or use allowances for donated equipment and buildings is based
on the property's market value at the time it was donated.
(f) Valuation of grantee or subgrantee donated real property for construction/acquisition.
If a grantee or subgrantee donates real property for a construction or facilities acquisition
project, the current market value of that property may be counted as cost sharing or matching. If
any part of the donated property was acquired with Federal funds, only the non-federal share of
the property may be counted as cost sharing or matching.
(g) Appraisal of real property. In some cases under paragraphs (d), (e) and (f) of this section,
it will be necessary to establish the market value of land or a building or the fair rental rate of
land or of space in a building. In these cases, the Federal agency may require the market value
or fair rental value be set by an independent appraiser, and that the value or rate be certified by
the grantee. This requirement will also be imposed by the grantee on subgrantees.
§ 85.25 Program income.
(a) General. Grantees are encouraged to earn income to defray program costs. Program
income includes income from fees for services performed, from the use or rental of real or
personal property acquired with grant funds, from the sale of commodities or items fabricated
under a grant agreement, and from payments of principal and interest on loans made with grant

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funds. Except as otherwise provided in regulations of the Federal agency, program income does
not include interest on grant funds, rebates, credits, discounts, refunds, etc. and interest earned
on any of them.
(b) Definition of program income. Program income means gross income received by the
grantee or subgrantee directly generated by a grant supported activity, or earned only as a
result of the grant agreement during the grant period. During the grant period is the time
between the effective date of the award and the ending date of the award reflected in the final
financial report.
(c) Cost of generating program income. If authorized by Federal regulations or the grant
agreement, costs incident to the generation of program income may be deducted from gross
income to determine program income.
(d) Governmental revenues. Taxes, special assessments, levies, fines, and other such
revenues raised by a grantee or subgrantee are not program income unless the revenues are
specifically identified in the grant agreement or Federal agency regulations as program income.
(e) Royalties. Income from royalties and license fees for copyrighted material, patents, and
inventions developed by a grantee or subgrantee is program income only if the revenues are
specifically identified in the grant agreement or Federal agency regulations as program income.
(See §85.34.)
(f) Property. Proceeds from the sale of real property or equipment will be handled in
accordance with the requirements of §§85.31 and 85.32.
(g) Use of program income. Program income shall be deducted from outlays which may be
both Federal and non-Federal as described below, unless the Federal agency regulations or the
grant agreement specify another alternative (or a combination of the alternatives). In specifying
alternatives, the Federal agency may distinguish between income earned by the grantee and
income earned by subgrantees and between the sources, kinds, or amounts of income. When
Federal agencies authorize the alternatives in paragraphs (g) (2) and (3) of this section,
program income in excess of any limits stipulated shall also be deducted from outlays.
(1) Deduction. Ordinarily program income shall be deducted from total allowable costs to
determine the net allowable costs. Program income shall be used for current costs unless the
Federal agency authorizes otherwise. Program income which the grantee did not anticipate at
the time of the award shall be used to reduce the Federal agency and grantee contributions
rather than to increase the funds committed to the project.
(2) Addition. When authorized, program income may be added to the funds committed to the
grant agreement by the Federal agency and the grantee. The program income shall be used for
the purposes and under the conditions of the grant agreement.
(3) Cost sharing or matching. When authorized, program income may be used to meet the
cost sharing or matching requirement of the grant agreement. The amount of the Federal grant
award remains the same.
(h) Income after the award period. There are no Federal requirements governing the
disposition of program income earned after the end of the award period (i.e., until the ending
date of the final financial report, see paragraph (a) of this section), unless the terms of the
agreement or the Federal agency regulations provide otherwise.
§ 85.26 Non-Federal audit.
(a) Basic rule. Grantees and subgrantees are responsible for obtaining audits in accordance
with the Single Audit Act Amendments of 1996 (31 U.S.C. 7501–7507) and revised OMB
Circular A–133, “Audits of States, Local Governments, and Non-Profit Organizations.” The
audits shall be made by an independent auditor in accordance with generally accepted
government auditing standards covering financial audits.
(b) Subgrantees. State or local governments, as those terms are defined for purposes of the
Single Audit Act Amendments of 1996, that provide Federal awards to a subgrantee which

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expends $300,000 or more (or other amount as specified by OMB) in Federal awards in a fiscal
year, shall:
(1) Determine whether State or local subgrantees have met the audit requirements of the Act
and whether subgrantees covered by OMB Circular A–110, “Uniform Administrative
Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and
Other Non-Profit Organizations,” have met the audit requirements of the Act. Commercial
contractors (private for-profit and private and governmental organizations) providing goods and
services to State and local governments are not required to have a single audit performed. State
and local governments should use their own procedures to ensure that the contractor has
complied with laws and regulations affecting the expenditure of Federal funds;
(2) Determine whether the subgrantee spent Federal assistance funds provided in accordance
with applicable laws and regulations. This may be accomplished by reviewing an audit of the
subgrantee made in accordance with the Act, Circular A–133 (as set forth in 24 CFR part 45), or
through other means (e.g., program reviews) if the subgrantee has not had such an audit;
(3) Ensure that appropriate corrective action is taken within six months after receipt of the audit
report in instance of noncompliance with Federal laws and regulations;
(4) Consider whether subgrantee audits necessitate adjustment of the grantee's own records;
and
(5) Require each subgrantee to permit independent auditors to have access to the records and
financial statements.
(c) Auditor selection. In arranging for audit services, §85.36 shall be followed.
[53 FR 8068, 8087, Mar. 11, 1988, as amended at 57 FR 33255, July 27, 1992; 62 FR 61617,
Nov. 18, 1997]
Changes, Property, and Subawards
§ 85.30 Changes.
(a) General. Grantees and subgrantees are permitted to rebudget within the approved direct
cost budget to meet unanticipated requirements and may make limited program changes to the
approved project. However, unless waived by the awarding agency, certain types of post-award
changes in budgets and projects shall require the prior written approval of the awarding agency.
(b) Relation to cost principles. The applicable cost principles (see §85.22) contain
requirements for prior approval of certain types of costs. Except where waived, those
requirements apply to all grants and subgrants even if paragraphs (c) through (f) of this section
do not.
(c) Budget changes—
(1) Nonconstruction projects. Except as stated in other regulations or an award document,
grantees or subgrantees shall obtain the prior approval of the awarding agency whenever any of
the following changes is anticipated under a nonconstruction award:
(i) Any revision which would result in the need for additional funding.
(ii) Unless waived by the awarding agency, cumulative transfers among direct cost
categories, or, if applicable, among separately budgeted programs, projects, functions,
or activities which exceed or are expected to exceed ten percent of the current total
approved budget, whenever the awarding agency's share exceeds $100,000.
(iii) Transfer of funds allotted for training allowances (i.e., from direct payments to
trainees to other expense categories).
(2) Construction projects. Grantees and subgrantees shall obtain prior written approval for
any budget revision which would result in the need for additional funds.
(3) Combined construction and non-construction projects. When a grant or subgrant
provides funding for both construction and non-construction activities, the grantee or subgrantee
must obtain prior written approval from the awarding agency before making any fund or budget
transfer from non-construction to construction or vice versa.

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(d) Programmatic changes. Grantees or subgrantees must obtain the prior approval of the
awarding agency whenever any of the following actions is anticipated:
(1) Any revision of the scope or objectives of the project (regardless of whether there is an
associated budget revision requiring prior approval).
(2) Need to extend the period of availability of funds.
(3) Changes in key persons in cases where specified in an application or a grant award. In
research projects, a change in the project director or principal investigator shall always require
approval unless waived by the awarding agency.
(4) Under non-construction projects, contracting out, subgranting (if authorized by law) or
otherwise obtaining the services of a third party to perform activities which are central to the
purposes of the award. This approval requirement is in addition to the approval requirements of
§85.36 but does not apply to the procurement of equipment, supplies, and general support
services.
(e) Additional prior approval requirements. The awarding agency may not require prior
approval for any budget revision which is not described in paragraph (c) of this section.
(f) Requesting prior approval.
(1) A request for prior approval of any budget revision will be in the same budget formal the
grantee used in its application and shall be accompanied by a narrative justification for the
proposed revision.
(2) A request for a prior approval under the applicable Federal cost principles (see §85.22) may
be made by letter.
(3) A request by a subgrantee for prior approval will be addressed in writing to the grantee. The
grantee will promptly review such request and shall approve or disapprove the request in
writing. A grantee will not approve any budget or project revision which is inconsistent with the
purpose or terms and conditions of the Federal grant to the grantee. If the revision, requested
by the subgrantee would result in a change to the grantee's approved project which requires
Federal prior approval, the grantee will obtain the Federal agency's approval before approving
the subgrantee's request.
§ 85.31 Real property.
(a) Title. Subject to the obligations and conditions set forth in this section, title to real property
acquired under a grant or subgrant will vest upon acquisition in the grantee or subgrantee
respectively.
(b) Use. Except as otherwise provided by Federal statutes, real property will be used for the
originally authorized purposes as long as needed for that purposes, and the grantee or
subgrantee shall not dispose of or encumber its title or other interests.
(c) Disposition. When real property is no longer needed for the originally authorized purpose,
the grantee or subgrantee will request disposition instructions from the awarding agency. The
instructions will provide for one of the following alternatives:
(1) Retention of title. Retain title after compensating the awarding agency. The amount paid to
the awarding agency will be computed by applying the awarding agency's percentage of
participation in the cost of the original purchase to the fair market value of the property.
However, in those situations where a grantee or subgrantee is disposing of real property
acquired with grant funds and acquiring replacement real property under the same program, the
net proceeds from the disposition may be used as an offset to the cost of the replacement
property.
(2) Sale of property. Sell the property and compensate the awarding agency. The amount due
to the awarding agency will be calculated by applying the awarding agency's percentage of
participation in the cost of the original purchase to the proceeds of the sale after deduction of
any actual and reasonable selling and fixing-up expenses. If the grant is still active, the net
proceeds from sale may be offset against the original cost of the property. When a grantee or

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subgrantee is directed to sell property, sales procedures shall be followed that provide for
competition to the extent practicable and result in the highest possible return.
(3) Transfer of title. Transfer title to the awarding agency or to a third-party
designated/approved by the awarding agency. The grantee or subgrantee shall be paid an
amount calculated by applying the grantee or subgrantee's percentage of participation in the
purchase of the real property to the current fair market value of the property.
§ 85.32 Equipment.
(a) Title. Subject to the obligations and conditions set forth in this section, title to equipment
acquired under a grant or subgrant will vest upon acquisition in the grantee or subgrantee
respectively.
(b) States. A State will use, manage, and dispose of equipment acquired under a grant by the
State in accordance with State laws and procedures. Other grantees and subgrantees will follow
paragraphs (c) through (e) of this section.
(c) Use.
(1) Equipment shall be used by the grantee or subgrantee in the program or project for which it
was acquired as long as needed, whether or not the project or program continues to be
supported by Federal funds. When no longer needed for the original program or project, the
equipment may be used in other activities currently or previously supported by a Federal
agency.
(2) The grantee or subgrantee shall also make equipment available for use on other projects or
programs currently or previously supported by the Federal Government, providing such use will
not interfere with the work on the projects or program for which it was originally acquired. First
preference for other use shall be given to other programs or projects supported by the awarding
agency. User fees should be considered if appropriate.
(3) Notwithstanding the encouragement in §85.25(a) to earn program income, the grantee or
subgrantee must not use equipment acquired with grant funds to provide services for a fee to
compete unfairly with private companies that provide equivalent services, unless specifically
permitted or contemplated by Federal statute.
(4) When acquiring replacement equipment, the grantee or subgrantee may use the equipment
to be replaced as a trade-in or sell the property and use the proceeds to offset the cost of the
replacement property, subject to the approval of the awarding agency.
(d) Management requirements. Procedures for managing equipment (including replacement
equipment), whether acquired in whole or in part with grant funds, until disposition takes place
will, as a minimum, meet the following requirements:
(1) Property records must be maintained that include a description of the property, a serial
number or other identification number, the source of property, who holds title, the acquisition
date, and cost of the property, percentage of Federal participation in the cost of the property, the
location, use and condition of the property, and any ultimate disposition data including the date
of disposal and sale price of the property.
(2) A physical inventory of the property must be taken and the results reconciled with the
property records at least once every two years.
(3) A control system must be developed to ensure adequate safeguards to prevent loss,
damage, or theft of the property. Any loss, damage, or theft shall be investigated.
(4) Adequate maintenance procedures must be developed to keep the property in good
condition.
(5) If the grantee or subgrantee is authorized or required to sell the property, proper sales
procedures must be established to ensure the highest possible return.
(e) Disposition. When original or replacement equipment acquired under a grant or subgrant is
no longer needed for the original project or program or for other activities currently or previously
supported by a Federal agency, disposition of the equipment will be made as follows:

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(1) Items of equipment with a current per-unit fair market value of less than $5,000 may be
retained, sold or otherwise disposed of with no further obligation to the awarding agency.
(2) Items of equipment with a current per unit fair market value in excess of $5,000 may be
retained or sold and the awarding agency shall have a right to an amount calculated by
multiplying the current market value or proceeds from sale by the awarding agency's share of
the equipment.
(3) In cases where a grantee or subgrantee fails to take appropriate disposition actions, the
awarding agency may direct the grantee or subgrantee to take excess and disposition actions.
(f) Federal equipment. In the event a grantee or subgrantee is provided federally-owned
equipment:
(1) Title will remain vested in the Federal Government.
(2) Grantees or subgrantees will manage the equipment in accordance with Federal agency
rules and procedures, and submit an annual inventory listing.
(3) When the equipment is no longer needed, the grantee or subgrantee will request disposition
instructions from the Federal agency.
(g) Right to transfer title. The Federal awarding agency may reserve the right to transfer title to
the Federal Government or a third part named by the awarding agency when such a third party
is otherwise eligible under existing statutes. Such transfers shall be subject to the following
standards:
(1) The property shall be identified in the grant or otherwise made known to the grantee in
writing.
(2) The Federal awarding agency shall issue disposition instruction within 120 calendar days
after the end of the Federal support of the project for which it was acquired. If the Federal
awarding agency fails to issue disposition instructions within the 120 calendar-day period the
grantee shall follow §85.32(e).
(3) When title to equipment is transferred, the grantee shall be paid an amount calculated by
applying the percentage of participation in the purchase to the current fair market value of the
property.
§ 85.33 Supplies.
(a) Title. Title to supplies acquired under a grant or subgrant will vest, upon acquisition, in the
grantee or subgrantee respectively.
(b) Disposition. If there is a residual inventory of unused supplies exceeding $5,000 in total
aggregate fair market value upon termination or completion of the award, and if the supplies are
not needed for any other federally sponsored programs or projects, the grantee or subgrantee
shall compensate the awarding agency for its share.
§ 85.34 Copyrights.
The Federal awarding agency reserves a royalty-free, nonexclusive, and irrevocable license to
reproduce, publish or otherwise use, and to authorize others to use, for Federal Government
purposes:
(a) The copyright in any work developed under a grant, subgrant, or contract under a grant or
subgrant; and
(b) Any rights of copyright to which a grantee, subgrantee or a contractor purchases ownership
with grant support.
§ 85.35 Subawards to debarred and suspended parties.
Grantees and subgrantees must not make any award or permit any award (subgrant or contract)
at any tier to any party which is debarred or suspended or is otherwise excluded from or
ineligible for participation in Federal assistance programs under Executive Order 12549,
“Debarment and Suspension.”

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§ 85.36 Procurement.
(a) States. When procuring property and services under a grant, a State will follow the same
policies and procedures it uses for procurements from its non-Federal funds. The State will
ensure that every purchase order or other contract includes any clauses required by Federal
statutes and executive orders and their implementing regulations. Other grantees and
subgrantees will follow paragraphs (b) through (i) in this section.
(b) Procurement standards.
(1) Grantees and subgrantees will use their own procurement procedures which reflect
applicable State and local laws and regulations, provided that the procurements conform to
applicable Federal law and the standards identified in this section.
(2) Grantees and subgrantees will maintain a contract administration system which ensures that
contractors perform in accordance with the terms, conditions, and specifications of their
contracts or purchase orders.
(3) Grantees and subgrantees will maintain a written code of standards of conduct governing
the performance of their employees engaged in the award and administration of contracts. No
employee, officer or agent of the grantee or subgrantee shall participate in selection, or in the
award or administration of a contract supported by Federal funds if a conflict of interest, real or
apparent, would be involved. Such a conflict would arise when:
(i) The employee, officer or agent,
(ii) Any member of his immediate family,
(iii) His or her partner, or
(iv) An organization which employs, or is about to employ, any of the above, has a
financial or other interest in the firm selected for award. The grantee's or subgrantee's
officers, employees or agents will neither solicit nor accept gratuities, favors or anything
of monetary value from contractors, potential contractors, or parties to sub-agreements.
Grantee and subgrantees may set minimum rules where the financial interest is not
substantial or the gift is an unsolicited item of nominal intrinsic value. To the extent
permitted by State or local law or regulations, such standards or conduct will provide for
penalties, sanctions, or other disciplinary actions for violations of such standards by the
grantee's and subgrantee's officers, employees, or agents, or by contractors or their
agents. The awarding agency may in regulation provide additional prohibitions relative to
real, apparent, or potential conflicts of interest.
(4) Grantee and subgrantee procedures will provide for a review of proposed procurements to
avoid purchase of unnecessary or duplicative items. Consideration should be given to
consolidating or breaking out procurements to obtain a more economical purchase. Where
appropriate, an analysis will be made of lease versus purchase alternatives, and any other
appropriate analysis to determine the most economical approach.
(5) To foster greater economy and efficiency, grantees and subgrantees are encouraged to
enter into State and local intergovernmental agreements for procurement or use of common
goods and services.
(6) Grantees and subgrantees are encouraged to use Federal excess and surplus property in
lieu of purchasing new equipment and property whenever such use is feasible and reduces
project costs.
(7) Grantees and subgrantees are encouraged to use value engineering clauses in contracts for
construction projects of sufficient size to offer reasonable opportunities for cost reductions.
Value engineering is a systematic and creative analysis of each contract item or task to ensure
that its essential function is provided at the overall lower cost.
(8) Grantees and subgrantees will make awards only to responsible contractors possessing the
ability to perform successfully under the terms and conditions of a proposed procurement.

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Consideration will be given to such matters as contractor integrity, compliance with public policy,
record of past performance, and financial and technical resources.
(9) Grantees and subgrantees will maintain records sufficient to detail the significant history of a
procurement. These records will include, but are not necessarily limited to the following:
rationale for the method of procurement, selection of contract type, contractor selection or
rejection, and the basis for the contract price.
(10) Grantees and subgrantees will use time and material type contracts only—
(i) After a determination that no other contract is suitable, and
(ii) If the contract includes a ceiling price that the contractor exceeds at its own risk.
(11) Grantees and subgrantees alone will be responsible, in accordance with good
administrative practice and sound business judgment, for the settlement of all contractual and
administrative issues arising out of procurements. These issues include, but are not limited to
source evaluation, protests, disputes, and claims. These standards do not relieve the grantee or
subgrantee of any contractual responsibilities under its contracts. Federal agencies will not
substitute their judgment for that of the grantee or subgrantee unless the matter is primarily a
Federal concern. Violations of law will be referred to the local, State, or Federal authority having
proper jurisdiction.
(12) Grantees and subgrantees will have protest procedures to handle and resolve disputes
relating to their procurements and shall in all instances disclose information regarding the
protest to the awarding agency. A protestor must exhaust all administrative remedies with the
grantee and subgrantee before pursuing a protest with the Federal agency. Reviews of protests
by the Federal agency will be limited to:
(i) Violations of Federal law or regulations and the standards of this section (violations of
State or local law will be under the jurisdiction of State or local authorities) and
(ii) Violations of the grantee's or subgrantee's protest procedures for failure to review a
complaint or protest. Protests received by the Federal agency other than those specified
above will be referred to the grantee or subgrantee.
(c) Competition.
(1) All procurement transactions will be conducted in a manner providing full and open
competition consistent with the standards of §85.36. Some of the situations considered to be
restrictive of competition include but are not limited to:
(i) Placing unreasonable requirements on firms in order for them to qualify to do
business,
(ii) Requiring unnecessary experience and excessive bonding,
(iii) Noncompetitive pricing practices between firms or between affiliated companies,
(iv) Noncompetitive awards to consultants that are on retainer contracts,
(v) Organizational conflicts of interest,
(vi) Specifying only a brand name product instead of allowing an equal product to be
offered and describing the performance of other relevant requirements of the
procurement, and
(vii) Any arbitrary action in the procurement process.
(2) Grantees and subgrantees will conduct procurements in a manner that prohibits the use of
statutorily or administratively imposed in-State or local geographical preferences in the
evaluation of bids or proposals, except in those cases where applicable Federal statutes
expressly mandate or encourage geographic preference. Nothing in this section preempts State
licensing laws. When contracting for architectural and engineering (A/E) services, geographic
location may be a selection criteria provided its application leaves an appropriate number of
qualified firms, given the nature and size of the project, to compete for the contract.
(3) Grantees will have written selection procedures for procurement transactions. These
procedures will ensure that all solicitations:

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(i) Incorporate a clear and accurate description of the technical requirements for the
material, product, or service to be procured. Such description shall not, in competitive
procurements, contain features which unduly restrict competition. The description may
include a statement of the qualitative nature of the material, product or service to be
procured, and when necessary, shall set forth those minimum essential characteristics
and standards to which it must conform if it is to satisfy its intended use. Detailed
product specifications should be avoided if at all possible. When it is impractical or
uneconomical to make a clear and accurate description of the technical requirements, a
brand name or equal description may be used as a means to define the performance or
other salient requirements of a procurement. The specific features of the named brand
which must be met by offerors shall be clearly stated; and
(ii) Identify all requirements which the offerors must fulfill and all other factors to be used
in evaluating bids or proposals.
(4) Grantees and subgrantees will ensure that all pre-qualified lists of persons, firms, or
products which are used in acquiring goods and services are current and include enough
qualified sources to ensure maximum open and free competition. Also, grantees and
subgrantees will not preclude potential bidders from qualifying during the solicitation period.
(d) Methods of procurement to be followed.
(1) Procurement by small purchase procedures. Small purchase procedures are those
relatively simple and informal procurement methods for securing services, supplies, or other
property that do not cost more than the simplified acquisition threshold fixed at 41 U.S.C.
403(11) (currently set at $100,000). If small purchase procedures are used, price or rate
quotations shall be obtained from an adequate number of qualified sources.
(2) Procurement by sealed bids (formal advertising). Bids are publicly solicited and a firm-fixedprice contract (lump sum or unit price) is awarded to the responsible bidder whose bid,
conforming with all the material terms and conditions of the invitation for bids, is the lowest in
price. The sealed bid method is the preferred method for procuring construction, if the
conditions in §85.36(d)(2)(i) apply.
(i) In order for sealed bidding to be feasible, the following conditions should be present:
(A) A complete, adequate, and realistic specification or purchase description is
available;
(B) Two or more responsible bidders are willing and able to compete effectively
and for the business; and
(C) The procurement lends itself to a firm fixed price contract and the selection of
the successful bidder can be made principally on the basis of price.
(ii) If sealed bids are used, the following requirements apply:
(A) The invitation for bids will be publicly advertised and bids shall be solicited
from an adequate number of known suppliers, providing them sufficient time prior
to the date set for opening the bids;
(B) The invitation for bids, which will include any specifications and pertinent
attachments, shall define the items or services in order for the bidder to properly
respond;
(C) All bids will be publicly opened at the time and place prescribed in the
invitation for bids;
(D) A firm fixed-price contract award will be made in writing to the lowest
responsive and responsible bidder. Where specified in bidding documents,
factors such as discounts, transportation cost, and life cycle costs shall be
considered in determining which bid is lowest. Payment discounts will only be
used to determine the low bid when prior experience indicates that such
discounts are usually taken advantage of; and
(E) Any or all bids may be rejected if there is a sound documented reason.

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(3) Procurement by competitive proposals. The technique of competitive proposals is normally
conducted with more than one source submitting an offer, and either a fixed-price or costreimbursement type contract is awarded. It is generally used when conditions are not
appropriate for the use of sealed bids. If this method is used, the following requirements apply:
(i) Requests for proposals will be publicized and identify all evaluation factors and their
relative importance. Any response to publicized requests for proposals shall be honored
to the maximum extent practical;
(ii) Proposals will be solicited from an adequate number of qualified sources;
(iii) Grantees and subgrantees will have a method for conducting technical evaluations of
the proposals received and for selecting awardees;
(iv) Awards will be made to the responsible firm whose proposal is most advantageous
to the program, with price and other factors considered; and
(v) Grantees and subgrantees may use competitive proposal procedures for
qualifications-based procurement of architectural/engineering (A/E) professional services
whereby competitors' qualifications are evaluated and the most qualified competitor is
selected, subject to negotiation of fair and reasonable compensation. The method,
where price is not used as a selection factor, can only be used in procurement of A/E
professional services. It cannot be used to purchase other types of services though A/E
firms are a potential source to perform the proposed effort.
(4) Procurement by noncompetitive proposals is procurement through solicitation of a
proposal from only one source, or after solicitation of a number of sources, competition is
determined inadequate.
(i) Procurement by noncompetitive proposals may be used only when the award of a
contract is infeasible under small purchase procedures, sealed bids or competitive
proposals and one of the following circumstances applies:
(A) The item is available only from a single source;
(B) The public exigency or emergency for the requirement will not permit a delay
resulting from competitive solicitation;
(C) The awarding agency authorizes noncompetitive proposals; or
(D) After solicitation of a number of sources, competition is determined
inadequate.
(ii) Cost analysis, i.e., verifying the proposed cost data, the projections of the data, and
the evaluation of the specific elements of costs and profits, is required.
(iii) Grantees and subgrantees may be required to submit the proposed procurement to
the awarding agency for pre-award review in accordance with paragraph (g) of this
section.
(e) Contracting with small and minority firms, women's business enterprise and labor
surplus area firms.
(1) The grantee and subgrantee will take all necessary affirmative steps to assure that minority
firms, women's business enterprises, and labor surplus area firms are used when possible.
(2) Affirmative steps shall include:
(i) Placing qualified small and minority businesses and women's business enterprises on
solicitation lists;
(ii) Assuring that small and minority businesses, and women's business enterprises are
solicited whenever they are potential sources;
(iii) Dividing total requirements, when economically feasible, into smaller tasks or
quantities to permit maximum participation by small and minority business, and women's
business enterprises;
(iv) Establishing delivery schedules, where the requirement permits, which encourage
participation by small and minority business, and women's business enterprises;

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(v) Using the services and assistance of the Small Business Administration, and the
Minority Business Development Agency of the Department of Commerce; and
(vi) Requiring the prime contractor, if subcontracts are to be let, to take the affirmative
steps listed in paragraphs (e)(2) (i) through (v) of this section.
(f) Contract cost and price.
(1) Grantees and subgrantees must perform a cost or price analysis in connection with every
procurement action including contract modifications. The method and degree of analysis is
dependent on the facts surrounding the particular procurement situation, but as a starting point,
grantees must make independent estimates before receiving bids or proposals. A cost analysis
must be performed when the offeror is required to submit the elements of his estimated cost,
e.g., under professional, consulting, and architectural engineering services contracts. A cost
analysis will be necessary when adequate price competition is lacking, and for sole source
procurements, including contract modifications or change orders, unless price reasonableness
can be established on the basis of a catalog or market price of a commercial product sold in
substantial quantities to the general public or based on prices set by law or regulation. A price
analysis will be used in all other instances to determine the reasonableness of the proposed
contract price.
(2) Grantees and subgrantees will negotiate profit as a separate element of the price for each
contract in which there is no price competition and in all cases where cost analysis is performed.
To establish a fair and reasonable profit, consideration will be given to the complexity of the
work to be performed, the risk borne by the contractor, the contractor's investment, the amount
of subcontracting, the quality of its record of past performance, and industry profit rates in the
surrounding geographical area for similar work.
(3) Costs or prices based on estimated costs for contracts under grants will be allowable only to
the extent that costs incurred or cost estimates included in negotiated prices are consistent with
Federal cost principles (see §85.22). Grantees may reference their own cost principles that
comply with the applicable Federal cost principles.
(4) The cost plus a percentage of cost and percentage of construction cost methods of
contracting shall not be used.
(g) Awarding agency review.
(1) Grantees and subgrantees must make available, upon request of the awarding agency,
technical specifications on proposed procurements where the awarding agency believes such
review is needed to ensure that the item and/or service specified is the one being proposed for
purchase. This review generally will take place prior to the time the specification is incorporated
into a solicitation document. However, if the grantee or subgrantee desires to have the review
accomplished after a solicitation has been developed, the awarding agency may still review the
specifications, with such review usually limited to the technical aspects of the proposed
purchase.
(2) Grantees and subgrantees must on request make available for awarding agency pre-award
review procurement documents, such as requests for proposals or invitations for bids,
independent cost estimates, etc. when:
(i) A grantee's or subgrantee's procurement procedures or operation fails to comply with
the procurement standards in this section; or
(ii) The procurement is expected to exceed the simplified acquisition threshold and is to
be awarded without competition or only one bid or offer is received in response to a
solicitation; or
(iii) The procurement, which is expected to exceed the simplified acquisition threshold,
specifies a “brand name” product; or
(iv) The proposed award is more than the simplified acquisition threshold and is to be
awarded to other than the apparent low bidder under a sealed bid procurement; or

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(v) A proposed contract modification changes the scope of a contract or increases the
contract amount by more than the simplified acquisition threshold.
(3) A grantee or subgrantee will be exempt from the pre-award review in paragraph (g)(2) of this
section if the awarding agency determines that its procurement systems comply with the
standards of this section.
(i) A grantee or subgrantee may request that its procurement system be reviewed by the
awarding agency to determine whether its system meets these standards in order for its
system to be certified. Generally, these reviews shall occur where there is a continuous
high-dollar funding, and third-party contracts are awarded on a regular basis.
(ii) A grantee or subgrantee may self-certify its procurement system. Such selfcertification shall not limit the awarding agency's right to survey the system. Under a selfcertification procedure, awarding agencies may wish to rely on written assurances from
the grantee or subgrantee that it is complying with these standards. A grantee or
subgrantee will cite specific procedures, regulations, standards, etc., as being in
compliance with these requirements and have its system available for review.
(h) Bonding requirements. For construction or facility improvement contracts or subcontracts
exceeding the simplified acquisition threshold, the awarding agency may accept the bonding
policy and requirements of the grantee or subgrantee provided the awarding agency has made
a determination that the awarding agency's interest is adequately protected. If such a
determination has not been made, the minimum requirements shall be as follows:
(1) A bid guarantee from each bidder equivalent to five percent of the bid price. The “bid
guarantee” shall consist of a firm commitment such as a bid bond, certified check, or other
negotiable instrument accompanying a bid as assurance that the bidder will, upon acceptance
of his bid, execute such contractual documents as may be required within the time specified.
(2) A performance bond on the part of the contractor for 100 percent of the contract
price. A “performance bond” is one executed in connection with a contract to secure fulfillment
of all the contractor's obligations under such contract.
(3) A payment bond on the part of the contractor for 100 percent of the contract price. A
“payment bond” is one executed in connection with a contract to assure payment as required by
law of all persons supplying labor and material in the execution of the work provided for in the
contract.
(i) Contract provisions. A grantee's and subgrantee's contracts must contain provisions
in paragraph (i) of this section. Federal agencies are permitted to require changes,
remedies, changed conditions, access and records retention, suspension of work, and
other clauses approved by the Office of Federal Procurement Policy.
(1) Administrative, contractual, or legal remedies in instances where contractors violate or
breach contract terms, and provide for such sanctions and penalties as may be appropriate.
(Contracts more than the simplified acquisition threshold)
(2) Termination for cause and for convenience by the grantee or subgrantee including the
manner by which it will be effected and the basis for settlement. (All contracts in excess of
$10,000)
(3) Compliance with Executive Order 11246 of September 24, 1965, entitled “Equal
Employment Opportunity,” as amended by Executive Order 11375 of October 13, 1967, and as
supplemented in Department of Labor regulations (41 CFR chapter 60). (All construction
contracts awarded in excess of $10,000 by grantees and their contractors or subgrantees)
(4) Compliance with the Copeland “Anti-Kickback” Act (18 U.S.C. 874) as supplemented in
Department of Labor regulations (29 CFR part 3). (All contracts and subgrants for construction
or repair)
(5) Compliance with the Davis-Bacon Act (40 U.S.C. 276a to 276a–7) as supplemented by
Department of Labor regulations (29 CFR part 5). (Construction contracts in excess of $2000
awarded by grantees and subgrantees when required by Federal grant program legislation)

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(6) Compliance with Sections 103 and 107 of the Contract Work Hours and Safety Standards
Act (40 U.S.C. 327–330) as supplemented by Department of Labor regulations (29 CFR part 5).
(Construction contracts awarded by grantees and subgrantees in excess of $2000, and in
excess of $2500 for other contracts which involve the employment of mechanics or laborers)
(7) Notice of awarding agency requirements and regulations pertaining to reporting.
(8) Notice of awarding agency requirements and regulations pertaining to patent rights with
respect to any discovery or invention which arises or is developed in the course of or under
such contract.
(9) Awarding agency requirements and regulations pertaining to copyrights and rights in data.
(10) Access by the grantee, the subgrantee, the Federal grantor agency, the Comptroller
General of the United States, or any of their duly authorized representatives to any books,
documents, papers, and records of the contractor which are directly pertinent to that specific
contract for the purpose of making audit, examination, excerpts, and transcriptions.
(11) Retention of all required records for three years after grantees or subgrantees make final
payments and all other pending matters are closed.
(12) Compliance with all applicable standards, orders, or requirements issued under section 306
of the Clean Air Act (42 U.S.C. 1857(h)), section 508 of the Clean Water Act (33 U.S.C. 1368),
Executive Order 11738, and Environmental Protection Agency regulations (40 CFR part 15).
(Contracts, subcontracts, and subgrants of amounts in excess of $100,000).
(13) Mandatory standards and policies relating to energy efficiency which are contained in the
state energy conservation plan issued in compliance with the Energy Policy and Conservation
Act (Pub. L. 94–163, 89 Stat. 871). [53 FR 8068, 8087, Mar. 11, 1988, as amended at 60 FR
19639, 19642, Apr. 19, 1995]
§ 85.37 Subgrants.
(a) States. States shall follow state law and procedures when awarding and administering
subgrants (whether on a cost reimbursement or fixed amount basis) of financial assistance to
local and Indian tribal governments. States shall:
(1) Ensure that every subgrant includes any clauses required by Federal statute and executive
orders and their implementing regulations;
(2) Ensure that subgrantees are aware of requirements imposed upon them by Federal statute
and regulation;
(3) Ensure that a provision for compliance with §85.42 is placed in every cost reimbursement
subgrant; and
(4) Conform any advances of grant funds to subgrantees substantially to the same standards of
timing and amount that apply to cash advances by Federal agencies.
(b) All other grantees. All other grantees shall follow the provisions of this part which are
applicable to awarding agencies when awarding and administering subgrants (whether on a
cost reimbursement or fixed amount basis) of financial assistance to local and Indian tribal
governments. Grantees shall:
(1) Ensure that every subgrant includes a provision for compliance with this part;
(2) Ensure that every subgrant includes any clauses required by Federal statute and executive
orders and their implementing regulations; and
(3) Ensure that subgrantees are aware of requirements imposed upon them by Federal statutes
and regulations.
(c) Exceptions. By their own terms, certain provisions of this part do not apply to the award and
administration of subgrants:
(1) Section 85.10;
(2) Section 85.11;
(3) The letter-of-credit procedures specified in Treasury Regulations at 31 CFR part 205, cited in
§85.21; and

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(4) Section 85.50.
Reports, Records, Retention, and Enforcement
§ 85.40 Monitoring and reporting program performance.
(a) Monitoring by grantees. Grantees are responsible for managing the day-to-day operations
of grant and subgrant supported activities. Grantees must monitor grant and subgrant supported
activities to assure compliance with applicable Federal requirements and that performance
goals are being achieved. Grantee monitoring must cover each program, function or activity.
(b) Non-construction performance reports. The Federal agency may, if it decides that
performance information available from subsequent applications contains sufficient information
to meet its programmatic needs, require the grantee to submit a performance report only upon
expiration or termination of grant support. Unless waived by the Federal agency this report will
be due on the same date as the final Financial Status Report.
(1) Grantees shall submit annual performance reports unless the awarding agency requires
quarterly or semi-annual reports. However, performance reports will not be required more
frequently than quarterly. Annual reports shall be due 90 days after the grant year, quarterly or
semi-annual reports shall be due 30 days after the reporting period. The final performance
report will be due 90 days after the expiration or termination of grant support. If a justified
request is submitted by a grantee, the Federal agency may extend the due date for any
performance report. Additionally, requirements for unnecessary performance reports may be
waived by the Federal agency.
(2) Performance reports will contain, for each grant, brief information on the following:
(i) A comparison of actual accomplishments to the objectives established for the period.
Where the output of the project can be quantified, a computation of the cost per unit of
output may be required if that information will be useful.
(ii) The reasons for slippage if established objectives were not met.
(iii) Additional pertinent information including, when appropriate, analysis and
explanation of cost overruns or high unit costs.
(3) Grantees will not be required to submit more than the original and two copies of performance
reports.
(4) Grantees will adhere to the standards in this section in prescribing performance reporting
requirements for subgrantees.
(c) Construction performance reports. For the most part, on-site technical inspections and
certified percentage-of-completion data are relied on heavily by Federal agencies to monitor
progress under construction grants and subgrants. The Federal agency will require additional
formal performance reports only when considered necessary, and never more frequently than
quarterly.
(d) Significant developments. Events may occur between the scheduled performance
reporting dates which have significant impact upon the grant or subgrant supported activity. In
such cases, the grantee must inform the Federal agency as soon as the following types of
conditions become known:
(1) Problems, delays, or adverse conditions which will materially impair the ability to meet the
objective of the award. This disclosure must include a statement of the action taken, or
contemplated, and any assistance needed to resolve the situation.
(2) Favorable developments which enable meeting time schedules and objectives sooner or at
less cost than anticipated or producing more beneficial results than originally planned.
(e) Federal agencies may make site visits as warranted by program needs.
(f) Waivers, extensions.
(1) Federal agencies may waive any performance report required by this part if not needed.

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(2) The grantee may waive any performance report from a subgrantee when not needed. The
grantee may extend the due date for any performance report from a subgrantee if the grantee
will still be able to meet its performance reporting obligations to the Federal agency.
§ 85.41 Financial reporting.
(a) General.
(1) Except as provided in paragraphs (a) (2) and (5) of this section, grantees will use only the
forms specified in paragraphs (a) through (e) of this section, and such supplementary or other
forms as may from time to time be authorized by OMB, for:
(i) Submitting financial reports to Federal agencies, or
(ii) Requesting advances or reimbursements when letters of credit are not used.
(2) Grantees need not apply the forms prescribed in this section in dealing with their
subgrantees. However, grantees shall not impose more burdensome requirements on
subgrantees.
(3) Grantees shall follow all applicable standard and supplemental Federal agency instructions
approved by OMB to the extend required under the Paperwork Reduction Act of 1980 for use in
connection with forms specified in paragraphs (b) through (e) of this section. Federal agencies
may issue substantive supplementary instructions only with the approval of OMB. Federal
agencies may shade out or instruct the grantee to disregard any line item that the Federal
agency finds unnecessary for its decision-making purposes.
(4) Grantees will not be required to submit more than the original and two copies of forms
required under this part.
(5) Federal agencies may provide computer outputs to grantees to expedite or contribute to the
accuracy of reporting. Federal agencies may accept the required information from grantees in
machine usable format or computer printouts instead of prescribed forms.
(6) Federal agencies may waive any report required by this section if not needed.
(7) Federal agencies may extend the due date of any financial report upon receiving a justified
request from a grantee.
(b) Financial Status Report—
(1) Form. Grantees will use Standard Form 269 or 269A, Financial Status Report, to report the
status of funds for all non-construction grants and for construction grants when required in
accordance with §85.41(e)(2)(iii) of this section.
(2) Accounting basis. Each grantee will report program outlays and program income on a cash
or accrual basis as prescribed by the awarding agency. If the Federal agency requires accrual
information and the grantee's accounting records are not normally kept on the accural basis, the
grantee shall not be required to convert its accounting system but shall develop such accrual
information through and analysis of the documentation on hand.
(3) Frequency. The Federal agency may prescribe the frequency of the report for each project
or program. However, the report will not be required more frequently than quarterly. If the
Federal agency does not specify the frequency of the report, it will be submitted annually. A final
report will be required upon expiration or termination of grant support.
(4) Due date. When reports are required on a quarterly or semiannual basis, they will be due 30
days after the reporting period. When required on an annual basis, they will be due 90 days
after the grant year. Final reports will be due 90 days after the expiration or termination of grant
support.
(c) Federal Cash Transactions Report—
(1) Form.
(i) For grants paid by letter or credit, Treasury check advances or electronic transfer of
funds, the grantee will submit the Standard Form 272, Federal Cash Transactions

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Report, and when necessary, its continuation sheet, Standard Form 272a, unless the
terms of the award exempt the grantee from this requirement.
(ii) These reports will be used by the Federal agency to monitor cash advanced to
grantees and to obtain disbursement or outlay information for each grant from grantees.
The format of the report may be adapted as appropriate when reporting is to be
accomplished with the assistance of automatic data processing equipment provided that
the information to be submitted is not changed in substance.
(2) Forecasts of Federal cash requirements. Forecasts of Federal cash requirements may be
required in the “Remarks” section of the report.
(3) Cash in hands of subgrantees. When considered necessary and feasible by the Federal
agency, grantees may be required to report the amount of cash advances in excess of three
days' needs in the hands of their subgrantees or contractors and to provide short narrative
explanations of actions taken by the grantee to reduce the excess balances.
(4) Frequency and due date. Grantees must submit the report no later than 15 working days
following the end of each quarter. However, where an advance either by letter of credit or
electronic transfer of funds is authorized at an annualized rate of one million dollars or more, the
Federal agency may require the report to be submitted within 15 working days following the end
of each month.
(d) Request for advance or reimbursement—
(1) Advance payments. Requests for Treasury check advance payments will be submitted on
Standard Form 270, Request for Advance or Reimbursement. (This form will not be used for
drawdowns under a letter of credit, electronic funds transfer or when Treasury check advance
payments are made to the grantee automatically on a predetermined basis.)
(2) Reimbursements. Requests for reimbursement under non-construction grants will also be
submitted on Standard Form 270. (For reimbursement requests under construction grants, see
paragraph (e)(1) of this section.)
(3) The frequency for submitting payment requests is treated in §85.41(b)(3).
(e) Outlay report and request for reimbursement for construction programs—
(1) Grants that support construction activities paid by reimbursement method.
(i) Requesters for reimbursement under construction grants will be submitted on
Standard Form 271, Outlay Report and Request for Reimbursement for Construction
Programs. Federal agencies may, however, prescribe the Request for Advance or
Reimbursement form, specified in §85.41(d), instead of this form.
(ii) The frequency for submitting reimbursement requests is treated in §85.41(b)(3).
(2) Grants that support construction activities paid by letter of credit, electronic funds
transfer or Treasury check advance.
(i) When a construction grant is paid by letter of credit, electronic funds transfer or
Treasury check advances, the grantee will report its outlays to the Federal agency using
Standard Form 271, Outlay Report and Request for Reimbursement for Construction
Programs. The Federal agency will provide any necessary special instruction. However,
frequency and due date shall be governed by §85.41(b) (3) and (4).
(ii) When a construction grant is paid by Treasury check advances based on periodic
requests from the grantee, the advances will be requested on the form specified in
§85.41(d).
(iii) The Federal agency may substitute the Financial Status Report specified in
§85.41(b) for the Outlay Report and Request for Reimbursement for Construction
Programs.
(3) Accounting basis. The accounting basis for the Outlay Report and Request for
Reimbursement for Construction Programs shall be governed by §85.41(b)(2).
§ 85.42 Retention and access requirements for records.

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(a) Applicability.
(1) This section applies to all financial and programmatic records, supporting documents,
statistical records, and other records of grantees or subgrantees which are:
(i) Required to be maintained by the terms of this part, program regulations or the grant
agreement, or
(ii) Otherwise reasonably considered as pertinent to program regulations or the grant
agreement.
(2) This section does not apply to records maintained by contractors or subcontractors. For a
requirement to place a provision concerning records in certain kinds of contracts, see
§85.36(i)(10).
(b) Length of retention period. (1) Except as otherwise provided, records must be retained for
three years from the starting date specified in paragraph (c) of this section.
(2) If any litigation, claim, negotiation, audit or other action involving the records has been
started before the expiration of the 3-year period, the records must be retained until completion
of the action and resolution of all issues which arise from it, or until the end of the regular 3-year
period, whichever is later.
(3) To avoid duplicate recordkeeping, awarding agencies may make special arrangements with
grantees and subgrantees to retain any records which are continuously needed for joint use.
The awarding agency will request transfer of records to its custody when it determines that the
records possess long-term retention value. When the records are transferred to or maintained
by the Federal agency, the 3-year retention requirement is not applicable to the grantee or
subgrantee.
(c) Starting date of retention period—
(1) General. When grant support is continued or renewed at annual or other intervals, the
retention period for the records of each funding period starts on the day the grantee or
subgrantee submits to the awarding agency its single or last expenditure report for that period.
However, if grant support is continued or renewed quarterly, the retention period for each year's
records starts on the day the grantee submits its expenditure report for the last quarter of the
Federal fiscal year. In all other cases, the retention period starts on the day the grantee submits
its final expenditure report. If an expenditure report has been waived, the retention period starts
on the day the report would have been due.
(2) Real property and equipment records. The retention period for real property and
equipment records starts from the date of the disposition or replacement or transfer at the
direction of the awarding agency.
(3) Records for income transactions after grant or subgrant support. In some cases
grantees must report income after the period of grant support. Where there is such a
requirement, the retention period for the records pertaining to the earning of the income starts
from the end of the grantee's fiscal year in which the income is earned.
(4) Indirect cost rate proposals, cost allocations plans, etc. This paragraph applies to the
following types of documents, and their supporting records: Indirect cost rate computations or
proposals, cost allocation plans, and any similar accounting computations of the rate at which a
particular group of costs is chargeable (such as computer usage chargeback rates or composite
fringe benefit rates).
(i) If submitted for negotiation. If the proposal, plan, or other computation is required to
be submitted to the Federal Government (or to the grantee) to form the basis for
negotiation of the rate, then the 3-year retention period for its supporting records starts
from the date of such submission.
(ii) If not submitted for negotiation. If the proposal, plan, or other computation is not
required to be submitted to the Federal Government (or to the grantee) for negotiation
purposes, then the 3-year retention period for the proposal plan, or computation and its

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supporting records starts from end of the fiscal year (or other accounting period) covered
by the proposal, plan, or other computation.
(d) Substitution of microfilm. Copies made by microfilming, photocopying, or similar methods
may be substituted for the original records.
(e) Access to records—
(1) Records of grantees and subgrantees. The awarding agency and the Comptroller General
of the United States, or any of their authorized representatives, shall have the right of access to
any pertinent books, documents, papers, or other records of grantees and subgrantees which
are pertinent to the grant, in order to make audits, examinations, excerpts, and transcripts.
(2) Expiration of right of access. The rights of access in this section must not be limited to the
required retention period but shall last as long as the records are retained.
(f) Restrictions on public access. The Federal Freedom of Information Act (5 U.S.C. 552)
does not apply to records Unless required by Federal, State, or local law, grantees and
subgrantees are not required to permit public access to their records.
§ 85.43 Enforcement.
(a) Remedies for noncompliance. If a grantee or subgrantee materially fails to comply with
any term of an award, whether stated in a Federal statute or regulation, an assurance, in a State
plan or application, a notice of award, or elsewhere, the awarding agency may take one or more
of the following actions, as appropriate in the circumstances:
(1) Temporarily withhold cash payments pending correction of the deficiency by the grantee or
subgrantee or more severe enforcement action by the awarding agency,
(2) Disallow (that is, deny both use of funds and matching credit for) all or part of the cost of the
activity or action not in compliance,
(3) Wholly or partly suspend or terminate the current award for the grantee's or subgrantee's
program,
(4) Withhold further awards for the program, or
(5) Take other remedies that may be legally available.
(b) Hearings, appeals. In taking an enforcement action, the awarding agency will provide the
grantee or subgrantee an opportunity for such hearing, appeal, or other administrative
proceeding to which the grantee or subgrantee is entitled under any statute or regulation
applicable to the action involved.
(c) Effects of suspension and termination. Costs of grantee or subgrantee resulting from
obligations incurred by the grantee or subgrantee during a suspension or after termination of an
award are not allowable unless the awarding agency expressly authorizes them in the notice of
suspension or termination or subsequently. Other grantee or subgrantee costs during
suspension or after termination which are necessary and not reasonably avoidable are
allowable if:
(1) The costs result from obligations which were properly incurred by the grantee or subgrantee
before the effective date of suspension or termination, are not in anticipation of it, and, in the
case of a termination, are non-cancellable, and,
(2) The costs would be allowable if the award were not suspended or expired normally at the
end of the funding period in which the termination takes effect.
(d) Relationship to debarment and suspension. The enforcement remedies identified in this
section, including suspension and termination, do not preclude grantee or subgrantee from
being subject to “Debarment and Suspension” under E.O. 12549 (see §85.35).
§ 85.44 Termination for convenience.
Except as provided in §85.43 awards may be terminated in whole or in part only as follows:

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(a) By the awarding agency with the consent of the grantee or subgrantee in which case the two
parties shall agree upon the termination conditions, including the effective date and in the case
of partial termination, the portion to be terminated, or
(b) By the grantee or subgrantee upon written notification to the awarding agency, setting forth
the reasons for such termination, the effective date, and in the case of partial termination, the
portion to be terminated. However, if, in the case of a partial termination, the awarding agency
determines that the remaining portion of the award will not accomplish the purposes for which
the award was made, the awarding agency may terminate the award in its entirety under either
§85.43 or paragraph (a) of this section.
Subpart D—After-the-Grant Requirements
§ 85.50 Closeout.
(a) General. The Federal agency will close out the award when it determines that all applicable
administrative actions and all required work of the grant has been completed.
(b) Reports. Within 90 days after the expiration or termination of the grant, the grantee must
submit all financial, performance, and other reports required as a condition of the grant. Upon
request by the grantee, Federal agencies may extend this timeframe. These may include but
are not limited to:
(1) Final performance or progress report.
(2) Financial Status Report (SF 269) or Outlay Report and Request for Reimbursement for
Construction Programs (SF–271) (as applicable).
(3) Final request for payment (SF–270) (if applicable).
(4) Invention disclosure (if applicable).
(5) Federally-owned property report:
In accordance with §85.32(f), a grantee must submit an inventory of all federally owned property
(as distinct from property acquired with grant funds) for which it is accountable and request
disposition instructions from the Federal agency of property no longer needed.
(c) Cost adjustment. The Federal agency will, within 90 days after receipt of reports in
paragraph (b) of this section, make upward or downward adjustments to the allowable costs.
(d) Cash adjustments.
(1) The Federal agency will make prompt payment to the grantee for allowable reimbursable
costs.
(2) The grantee must immediately refund to the Federal agency any balance of unobligated
(unencumbered) cash advanced that is not authorized to be retained for use on other grants.
§ 85.51 Later disallowances and adjustments.
The closeout of a grant does not affect:
(a) The Federal agency's right to disallow costs and recover funds on the basis of a later audit
or other review;
(b) The grantee's obligation to return any funds due as a result of later refunds, corrections, or
other transactions;
(c) Records retention as required in §85.42;
(d) Property management requirements in §§85.31 and 85.32; and
(e) Audit requirements in §85.26.
§ 85.52 Collection of amounts due.
(a) Any funds paid to a grantee in excess of the amount to which the grantee is finally
determined to be entitled under the terms of the award constitute a debt to the Federal
Government. If not paid within a reasonable period after demand, the Federal agency may
reduce the debt by:
(1) Making an administrative offset against other requests for reimbursements,

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(2) Withholding advance payments otherwise due to the grantee, or
(3) Other action permitted by law.
(b) Except where otherwise provided by statutes or regulations, the Federal agency will charge
interest on an overdue debt in accordance with the Federal Claims Collection Standards (4 CFR
Ch. II). The date from which interest is computed is not extended by litigation or the filing of any
form of appeal.
Subpart E—Entitlement [Reserved]

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