McGovern Dole International Food for Education and Child Nutrition Program and Food for Progress Program, 63387-63406 [E8-25186]

Agencies

• DEPARTMENT OF AGRICULTURE
• Commodity Credit Corporation
• Foreign Agricultural Service

[Federal Register Volume 73, Number 207 (Friday, October 24, 2008)]
[Proposed Rules]
[Pages 63387-63406]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-25186]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / 
Proposed Rules

[[Page 63387]]



DEPARTMENT OF AGRICULTURE

48 CFR Part 470

Commodity Credit Corporation

7 CFR Parts 1496 and 1499

Foreign Agricultural Service

7 CFR Part 1599

RIN 0551-AA78


McGovern Dole International Food for Education and Child 
Nutrition Program and Food for Progress Program

AGENCY: Foreign Agricultural Service and Commodity Credit Corporation, 
USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would amend the regulations to administer 
the Food for Progress (FFPr) Program and the McGovern-Dole 
International Food for Education and Child Nutrition Program (McGovern-
Dole Program) by making revisions to provide greater clarity with 
respect to all aspects of the program with specific emphasis on the 
eligibility requirements that a participant must meet, and the actions 
that must be undertaken by a participant in order to receive assistance 
under these programs, including the reports that are filed by program 
participants with the Foreign Agricultural Service (FAS). This proposed 
rule would also amend the Agriculture Acquisition Regulation (AGAR), to 
specify the criteria that is used in determining whether a commodity 
that is procured under these programs and under domestic feeding 
programs administered by USDA is considered to be a commodity that is a 
product of the United States. The purpose of these amendments is to 
improve efficiency of the programs and make it more clear to 
participants what they must do to meet eligibility requirements.

DATES: We will consider comments that we receive by December 8, 2008.

ADDRESSES: We invite you to submit comments on this proposed rule. In 
your comment, include the volume, date, and page number of this issue 
of the Federal Register. You may submit comments by any of the 
following methods:
     E-Mail: PPDED@fas.usda.gov and/or 
Babette.Gainor@fas.usda.gov.
     Fax: (202) 690-0251.
     Mail to: Babette Gainor, Deputy Director, Food Assistance 
Division, Foreign Agricultural Service, U.S. Department of Agriculture, 
Stop 1034, 1400 Independence Avenue, SW., Washington, DC 20250-1034.
     Hand Delivery or Courier: 1250 Maryland Avenue, SW., Suite 
400, Washington, DC 20024.
     Federal eRulemaking Portal: Go to https://
www.regulations.gov. Follow the online instructions for submitting 
comments.
    Comments may be inspected in Suite 400 of the Portals Building, 
1250 Maryland Avenue, SW., Washington, DC, between 8 a.m. and 4:30 
p.m., Monday through Friday, except holidays. A copy of this proposed 
rule is available through the FAS home page at https://www.fas.usda.gov/
foodaid.

FOR FURTHER INFORMATION CONTACT: Babette Gainor at (202) 720-4221, or 
e-mail: Babette.Gainor@fas.usda.gov.

SUPPLEMENTARY INFORMATION: 

7 CFR Part 1496--Procurement of Commodities for Foreign Donation

    This proposed rule amends the current regulations governing the 
procurement of commodities for use in international food assistance and 
developmental programs, and to move those regulations to a different 
section of the CFR.
    Personnel of the Farm Service Agency (FSA) acquire commodities for 
use by the Foreign Agricultural Service (FAS) for use in international 
food assistance and developmental programs. These commodities are 
procured in conformity with the Federal Acquisition Regulation (FAR), 
as supplemented by the AGAR found in 48 CFR Chapter 4. In addition, 
regulations at 7 CFR part 1496 set forth provisions applicable to the 
acquisition of commodities to carry out activities under the McGovern-
Dole Program, FFPr Program, and Title II of the Food For Peace Act, 
(Pub. L. 83-480, or referred to as Pub. L. 480). Title II procurements 
are done on behalf of the U. S. Agency for International Development 
(USAID) by FSA. The regulations at 7 CFR part 1496 were amended at 72 
FR 6450, on February 12, 2007, in order to adopt new procedures 
regarding the evaluation of bids submitted in the procurement of 
commodities. This proposed rule would move the current regulations at 7 
CFR part 1496 to a new part in the AGAR, 48 CFR Chapter 4, part 470, 
and delete and revise obsolete provisions in 7 CFR part 1496. This rule 
also proposes minor ``housekeeping'' changes to clarify those 
regulations.
    The substantive changes to this section of the regulations proposed 
in this rule are intended to make the procurement process more 
efficient and responsive. The U. S. Government Accountability Office 
(GAO) issued a report in April 2007, entitled FOREIGN ASSISTANCE--
Various Challenges Impede the Efficiency and Effectiveness of U.S. Food 
Aid. Among the findings in this report is that current contracting 
provisions produce a ``bunching of contracts'' that result in increased 
program costs (GAO Report, pg. 23). USDA shares the overall concerns 
set forth in the GAO report about the need to improve efficiency in 
contracting to improve program delivery and is engaged in a continuing 
process to revise its contracting procedures to have the benefit of 
increased flexibility afforded under the FAR. Accordingly, this 
proposed rule would amend these regulations to ensure that USDA may 
fully utilize all types of acquisition contracts that are authorized by 
the FAR. And, as noted below, under this proposed rule USDA would have 
the option of procuring freight directly from carriers as opposed to 
doing so indirectly through program participants. Such procurements 
would be done in accordance with the FAR, including the AGAR.

Changes to 7 CFR Parts 1499 and 1599--Foreign Donation Programs and 
McGovern-Dole International Food for Education and Child Nutrition 
Program

    The regulations in 7 CFR part 1499, Foreign Donation Programs, are 
used by FAS, on behalf of the Commodity Credit Corporation (CCC), in 
the administration of the FFPr Program. The regulations in 7 CFR part 
1599, McGovern-Dole International Food for Education and Child 
Nutrition Program,

[[Page 63388]]

are used by FAS in the administration of the McGovern-Dole Program. 
Many of the provisions of these regulations have not been reviewed or 
updated since their issuance in 1996 and 2001, respectively. The 
changes proposed in this rule are largely technical in nature to 
improve the efficiency and effectiveness of the programs. The following 
is a discussion of the major proposed amendments.
    In 2006, FAS initiated an agency-wide reorganization. Following the 
completion of this reorganization in 2007, FAS began to evaluate how 
programs are implemented in light of the organizational changes. 
Concurrent with this process, the GAO Report was issued. As a result of 
this review, taking into account the findings in the GAO Report, USDA 
proposed changes to these regulations that are designed to improve the 
delivery of assistance under these programs by removing obsolete 
provisions; consolidating reporting requirements applicable to 
participants; and providing greater flexibility in the settlement of 
claims that arise under the program. For example, the proposed rule 
would set forth with greater clarity the responsibilities of a 
participant in the event unanticipated actions occur that involve the 
protection of commodities provided to the participant by FAS or CCC and 
would provide greater latitude with respect to the actions of the 
participant in such a situation.
    One of the criticisms in the GAO report is related to the ``lengthy 
claims process'' that exists under current regulations (GAO Report, pg. 
27). While the report focused on transportation claims, USDA is also 
concerned about the timely resolution of all claims that arise under 
the program. Under current regulations, generally, for cargo claims: 
(1) If the claim is less than $100 no action is necessary; (2) if the 
claim is between $100 and $300, no action is necessary if the 
participant determines that costs of collection would exceed the likely 
recovery costs; (3) if the recovery on a claim is less than $200, the 
participant may retain the recovery; and (4) if the recovery on a claim 
is more than $200, the participant may retain either $200 plus 10 
percent of the difference between $200 and the total amount of the 
claim up to $500, or the actual amount of collection costs (excluding 
attorney fees and collection agency fees). Other provisions of the 
current regulations generally require that a participant assign all 
rights to a claim to FAS or CCC, as appropriate. In most instances, all 
recoveries are retained by one of these agencies except in cases where 
the participant may have expended its own funds for ocean 
transportation, in which case the recovery is shared with such 
participant.
    This process reflects neither the actual costs of collection of 
claims nor the logistical issues attendant to claims that occur outside 
of the United States. This process was instituted on the premise that 
carriers and other entities would be more likely to make payments to 
the United States if a claim had been assigned to it as opposed to 
requiring a participant pursue collection. Also, when this process was 
originally established, the vast majority of food aid shipments were in 
the form of bulk commodities. Now, however, a significant quantity of 
commodities is shipped in containers and there is a significant 
reduction in the dollar amount of individual losses as such losses are 
generally limited to one container, or a small number of containers, as 
opposed to losses in large bulk grain shipments. The following charts 
set forth cargo claim collection activity for the FFPr Program and the 
McGovern-Dole Program over the past four fiscal years (note the amount 
of recovery in a fiscal year represents amounts recovered in that year 
for claims established in that year and preceding years):

                        Food For Progress Program
------------------------------------------------------------------------
                                                             Claims
               Fiscal year                    Claims       established
                                            collected       (number)
------------------------------------------------------------------------
2004.....................................     $313,686     $468,747 (67)
2005.....................................       64,766       20,414 (47)
2006.....................................      257,832      369,215 (55)
2007.....................................       65,638       126,098 (5)
                                          ------------------------------
    4-Year Totals........................      701,922     984,474 (174)
------------------------------------------------------------------------


      McGovern-Dole Food for Education and Child Nutrition Program
------------------------------------------------------------------------
                                                             Claims
               Fiscal year                    Claims       established
                                            collected       (number)
------------------------------------------------------------------------
2004.....................................      $15,075      $19,792 (12)
2005.....................................       50,397       56,824 (32)
2006.....................................       96,760      106,925 (44)
2007.....................................       18,977        20,989 (8)
                                          ------------------------------
    4-year Totals........................      181,209      204,530 (96)
------------------------------------------------------------------------

    Taking into account the small number of claims and the extremely 
small average amount of claims that were established (FFPr Program--
$5,657 and McGovern-Dole Program--$2,230) and the costs attributable 
for salaries and expenses of USDA employees, this current system is not 
cost-effective. Further, with respect to non-cargo claims, if such 
claims arise in a foreign country after the liability of the carrier 
ends, any litigation which may be required to effectuate collection 
must be brought in the country where the claim arose. In such a 
situation, assignment of the claim to FAS or CCC for collection is 
simply not feasible.
    This process is predicated upon the current manner in which freight 
contracts are entered into for the delivery of commodities made 
available under FFPr Program and the McGovern-Dole Program. Generally, 
the current regulations envision that the program participant will be 
reimbursed for the cost of obtaining freight and that the

[[Page 63389]]

freight contract is between the program participant and the carrier. In 
reality, as the programs have evolved over many years, the program 
participant obtains potential bids from prospective carriers and these 
bids are provided to FSA who, as set forth in 7 CFR part 1496, utilizes 
a sophisticated computer program to analyze the freight bids in 
conjunction with the various bids obtained in the procurement of 
commodities to ascertain which combination of carrier bids and 
commodity bids produces the lowest landed cost of delivery of the 
commodity to a foreign destination. Thus, the selection of the carrier 
bid ultimately rests with USDA. Once the carrier is determined, the 
program participant executes, in most instances, a contract with the 
carrier. As the contract is between the carrier and the program 
participant, any claim that the participant has against the carrier is 
the participant's cause of action and not that of CCC or FAS. The 
current regulations provide that the program participant must assign 
this private cause of action to CCC or FAS as a condition of program 
participation. Questions have been raised concerning whether the 
freight acquisition process is compliant with the FAR and whether CCC 
and FAS should be accepting private causes of action for collection 
purposes. Accordingly, this proposed rule would provide that in 
obtaining freight contracts, FAS or CCC, as applicable, would obtain 
the freight contracts in accordance with the FAR. This would eliminate 
the need for any program participant to assign a claim to FAS or CCC. 
The regulations, as amended, would also provide for the option for FSA 
or CCC to allow a program participant to obtain freight but assignment 
of these claims would, as a general rule, be eliminated. The program 
participant would be responsible for claim collections and would be 
allowed to retain any recovery of the claim, except the expenditure of 
the recovered funds would be limited to carrying out an activity 
authorized by the program under which the commodities had been provided 
to the participant.
    The current regulations for these programs require all participants 
to submit various reports to FAS on a semi-annual basis and to file 
other reports upon the occurrence of certain events. These reports are 
required to be filed in four different offices within FAS and with two 
different offices within FSA, and in some cases must also be filed with 
the Agricultural Attach[eacute] or Agricultural Counselor of FAS with 
responsibility for the country where the agreement is implemented. In 
other cases, a report is required only to be filed with the 
Agricultural Attach[eacute] or Agricultural Counselor. Several of these 
offices referred to in the regulations have been either renamed or 
eliminated, so the current regulations are obsolete. Accordingly, this 
rule proposes to revise these regulations to remove all references to 
specific offices and a generic reference to either FAS or CCC would be 
used. The identification of the location where a report would be 
required to be filed would be specified in the agreement. FAS expects 
that in all, or substantially all, instances these reports will be 
filed with one office in FAS. To the extent other USDA officials need 
the information contained in the reports, FAS would be responsible for 
dissemination of the material to appropriate officials.
    Further, in addition to streamlining the location for reports 
submission, FAS intends to incorporate a greater emphasis on 
performance based reporting which will allow FAS to highlight the 
accomplishments achieved by participants under food aid programs, which 
will, in turn, allow FAS to provide funding to those projects that 
achieve greater results.
    It has been the practice of FAS, acting on behalf of CCC, to 
administer section 1110(h) of the Food For Progress Act which addresses 
the prohibitions against the resale and transshipment of donated 
commodities to apply only to the party with whom CCC directly enters 
into an agreement. This means that the participant is required to ship, 
distribute and/or monetize (sell) the donated commodities in the 
targeted country. Once the initial distribution and/or monetization 
transaction has taken place by the participant, FAS considers the 
program participant to be in compliance with section 1110(h). In 
accordance with section 1110(j) of this Act, it has also been the 
practice of FAS to permit multi-country agreements under the programs 
whereby CCC delivers donated commodities to one country and activities 
to fulfill the agreement objectives are carried out in another. This 
rule proposes to amend the regulations at 7 CFR part 1499 to address 
these types of situations.
    Previously, 7 CFR part 1499 had been used to regulate and 
administer activities authorized by Section 416(b) of the Agricultural 
Act of 1949 (Section 416(b) program) in addition to the FFPr Program. 
Reference to the Section 416(b) Program has been removed from this part 
due to the fact that in order for activities to be conducted under this 
program the Secretary of Agriculture must determine that commodities 
will be made available under Section 416(b). Accordingly, FAS has 
determined that it is more appropriate to announce any future 
availability of commodities under Section 416(b) through a Federal 
Register notice. Upon the announcement of commodity availability for 
Section 416(b) activities, FAS may decide to use this part to 
administer such availability; this decision also would be announced in 
the Federal Register notice at that time.

Proposed New 48 CFR Part 470

    The acquisition by USDA of agricultural commodities and ocean 
freight, along with other services, is governed by procurement statutes 
generally applicable to all activities of USDA. The regulations used to 
implement these statutes are set forth in the FAR. But, there are 
several statutes that contain provisions that are specifically 
applicable to the international food assistance and development 
programs and domestic food assistance programs.
    With respect to the international programs, section 402 of Pub. L. 
480 sets forth the definition of an ``agricultural commodity'' for use 
under that Act and the FFPr Act and section 3107(a) of the Farm 
Security and Rural Investment Act of 2002 sets forth a similar 
definition of an ``agricultural commodity.'' Generally, these two 
provisions require the use of commodities produced in the United 
States. A similar approach has historically been used in the 
acquisition of commodities for use in domestic feeding programs. In 
some instances, additives such as vitamins and spices are not available 
from U.S sources and in some instances the commodity which is being 
procured is normally stored in a commingled manner without any way to 
ascertain the country of origin. Accordingly, this rule proposes that 
the AGAR would be revised to set forth in 48 CFR part 470 the 
definition of an agricultural commodity and would reflect the current 
practices of USDA in this regard.
    Commodities provided under the FFPr Program and the McGovern-Dole 
Program are delivered to foreign destinations through the acquisition 
of freight which is ultimately paid for from funds from these programs. 
The regulations at 7 CFR part 1496 require that the government will 
determine which combination of commodity bids and bids for ocean 
freight rates results in the lowest-landed cost of delivery of the 
commodity to the foreign destination. The government generally will 
award the contact for the purchase of the commodity that results in the

[[Page 63390]]

lowest-landed cost and would be transported in compliance with cargo 
preference requirements under regulations prescribed by the Maritime 
Administration. ``Lowest landed cost'' refers to the requirement that, 
in the delivery of U.S. agricultural commodities under international 
food assistance and developmental programs, the United States shall 
generally use the combination of ocean freight contracts and commodity 
acquisition contracts that results in the lowest cost of delivery of 
the product to the desired destination. This requirement is based upon 
provisions in section 901(b) of the Merchant Marine Act, 1936. 
Accordingly, this specific provision of law is used in the procurement 
of freight and agricultural commodities and, to the extent the 
provisions of this section conflict with the more general provisions of 
the Competition in Contracting Act, the provisions of section 901(b) of 
the Merchant Marine Act, 1936 prevail.
    The application of section 901(b) of the Merchant Marine Act, 1936, 
when considered with other provisions of that Act, results in a complex 
review of numerous offers for freight and commodities. In a very simple 
example, in the shipment of commodities, several U.S. port locations 
may provide viable services and the ocean freight contract cost from 
one port may be less costly than the cost of using two other U.S. 
ports. However, the cost of delivery of U.S. agricultural product to 
the U.S. port with the lowest attendant freight cost may be 
considerably greater than the costs of delivery of the commodities to 
other U.S. ports. Thus, in order to ensure that the lowest total cost 
is obtained, USDA reviews a myriad of potential freight and commodity 
contract costs for each delivery of commodities to a foreign 
destination. In order to have all USDA acquisition related regulations 
in one location, 48 CFR Chapter 4, this proposed rule would move the 
current regulations at 7 CFR part 1496 to 48 CFR part 470 but the 
regulations would not be amended regarding the current process used to 
ascertain the lowest landed cost for these contracts. Only the removal 
of obsolete references and editorial changes would be made.

Executive Order 12866

    This proposed rule has been determined to be not significant under 
E.O. 12866, as amended by E.O. 13422, and was therefore not reviewed by 
the Office of Management and Budget (OMB).

Regulatory Flexibility Act

    The Regulatory Flexibility Act does not apply to this rule because 
FAS is not required by 5 U.S.C. 553 or any other law to publish a 
notice of proposed rulemaking with respect to the subject of this.

Environmental Assessment

    FAS has determined that this proposed rule does not constitute a 
major State or Federal action that would significantly affect the human 
or natural environment consistent with the National Environmental 
Policy Act (NEPA) 40 CFR part 1502.4, Major Federal actions requiring 
the preparation of Environmental Impact Statements; and Compliance with 
NEPA implementing the regulations of the Council on Environmental 
Quality, 40 CFR parts 1500-1508. Therefore no environmental assessment 
or environmental impact statement will be prepared.

Executive Order 12988

    This rule has been reviewed under E.O. 12988. This rule is not 
retroactive and it does not preempt State or local laws, regulations, 
or policies unless they present an irreconcilable conflict with this 
rule. This rule would not be retroactive.

Executive Order 12372

    This program is not subject to E. O. 12372, which requires 
intergovernmental consultation with State and local officials. See the 
notice related to 7 CFR part 3015, subpart V, published at 48 FR 29115 
(June 24, 1983).

Executive Order 13132

    The policies contained in this rule do not have any substantial 
direct effect on states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on state and local 
governments. Therefore, consultation with the states is not required.

Unfunded Mandates

    Although we are publishing this as a proposed rule, Title II of the 
Unfunded Mandates Reform Act of 1995 (UMRA) does not apply to this rule 
because FSA and FAS are not required by 5 U.S.C. 553 or any other law 
to publish a notice of proposed rulemaking for the subject of this 
rule. Further, this rule contains no unfunded mandates as defined in 
sections 202 and 205 of UMRA.

Paperwork Reduction Act of 1995

    In accordance with the Paperwork Reduction Act of 1995, FAS has 
previously received approval from the Office of Management and Budget 
(OMB) with respect to the information collection required to support 
these programs. The Information Collection is described below:
    Title: Food Donation Programs (Food for Progress, Section 416(b), 
and McGovern-Dole International Food for Education and Child 
Nutrition).
    OMB Control Number: 0551-0035.

E-Government Act Compliance

    FAS is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes. The forms, regulations, and other 
information collection activities required to be utilized by a person 
subject to this rule are available at https://www.fas.usda.gov.

List of Subjects

7 CFR Part 1496

    Agricultural commodities, Food assistance programs, Foreign aid, 
Government procurement.

7 CFR Part 1499

    Agricultural commodities, Food assistance programs, Foreign aid.

7 CFR Part 1599

    Agricultural commodities, Exports, Foreign aid.

48 CFR Part 470

    Government procurement, Reporting and recordkeeping requirements.
    For the reasons set out in the preamble, under the authority of 5 
U.S.C. 553; 15 U.S.C. 714b and 714c, 7 CFR parts 1496, 1499, 1599 and 
48 CFR part 470 are proposed to be amended as follows:

PART 1496--[REMOVED]

    1. 7 CFR part 1496 is removed.
    2. Revise part 1499 to read as follows:

PART 1499--FOOD FOR PROGRESS PROGRAM

Sec.
1499.1 General statement.
1499.2 Definitions.
1499.3 Eligibility determination.
1499.4 Application process.
1499.5 Agreements.
1499.6 Payments.
1499.7 Transportation of goods.
1499.8 Entry and handling of commodities.

[[Page 63391]]

1499.9 Damage to and loss of commodities.
1499.10 Claims for damage to or loss of commodities.
1499.11 Use of commodities and sales proceeds.
1499.12 Subrecipients.
1499.13 Recordkeeping and reporting requirements.
1499.14 Noncompliance with an agreement.
1499.15 Suspension, termination, and closeout of agreements.
1499.16 Appeals.
1499.17 Paperwork Reduction Act.

    Authority: 7 U.S.C. 1736o; and 15 U.S.C. 714b and 714c.


Sec.  1499.1  General Statement.

    (a) This part sets forth the general terms and conditions governing 
the donation of commodities by the Commodity Credit Corporation (CCC) 
to participants in the Food for Progress Program (FFPr). Under FFPr, 
participants use the donated commodities or proceeds from the sale of 
such commodities to implement activities in a foreign country pursuant 
to an agreement with CCC. The Foreign Agricultural Service (FAS) of the 
Department of Agriculture (USDA) administers FFPr on behalf of CCC.
    (b) In addition to the provisions of this part, other regulations 
of general application issued by USDA, including the regulations set 
forth in Chapter 30 of this title, are applicable to the FFPr. All 
provisions of the CCC Charter Act (15 U.S.C. 714 et seq.) and any other 
statutory provisions that are generally applicable to CCC are 
applicable to FFPr and the regulations set forth in this part.
    (c) This part shall not apply to a donation by CCC to a foreign 
government or an intergovernmental agency or organization (such as the 
United Nations' World Food Program) under FFPr.


Sec.  1499.2  Definitions.

    The following definitions are applicable to this part:
    Activity mean a project to be carried out by a participant, 
directly or through a subrecipient, to fulfill the objectives of an 
agreement.
    Agreement mean a legally binding agreement entered into between CCC 
and a participant to implement activities under FFPr.
    CCC mean the Commodity Credit Corporation and includes any official 
of the United States delegated the responsibility to act on behalf of 
CCC.
    Commodities mean U.S. agricultural commodities or products of U.S. 
agricultural commodities.
    CCC-provided funds means U.S. dollars provided under an agreement 
to a participant for expenses for the internal transportation, storage 
and handling of the donated commodities, expenses involved in the 
administration and monitoring of the activities under the agreement, 
and technical assistance related to the monetization of donated 
commodities.
    Donated commodities means the commodities donated by CCC to a 
participant under an agreement. The term may include donated 
commodities that are used to produce a further processed product for 
use under the agreement.
    FAS means the Foreign Agricultural Service acting on behalf of CCC.
    FFPr means the Food for Progress Program.
    Force majeure is a common clause in contracts, exempting the 
parties for non-fulfillment of their obligations as a result of 
conditions beyond their control, such as earthquakes, floods or war.
    Income means interest earned on sale proceeds and other resources 
received by a participant, other than sale proceeds, as a result of 
carrying out an agreement. The term may include resources from VAT 
refunds, activity fees, interest on loans, and others.
    Participant means an entity with which CCC has entered into an 
agreement.
    Subrecipient means a legal entity that receives donated 
commodities, income, sale proceeds or other resources from a 
participant for the purpose of implementing in the targeted country 
activities described in a FFPr agreement and that is accountable to 
such participant for the use of such commodities, funds, or resources. 
The term may include foreign or international organizations (such as 
agencies of the United Nations) at the discretion of FAS.
    Sale proceeds mean funds received by a participant from the sale of 
donated commodities.
    Targeted country means the country in which activities are 
implemented under an agreement.


Sec.  1499.3  Eligibility determination.

    (a) An entity will be eligible to become a participant only after 
FAS determines that the entity has:
    (1) Organizational experience in implementing and managing grants, 
and the capability and personnel to develop, implement, monitor, report 
on, and provide accountability for activities in accordance with this 
part;
    (2) Experience working in the proposed targeted country;
    (3) Adequate financial framework to implement the activities the 
entity proposes to carry out under FFPr. In order to determine whether 
the entity is financially responsible, FAS may require it to submit 
corporate policies and financial materials that have been audited or 
otherwise reviewed by a third party;
    (4) A person or agent located in the United States with respect to 
which service of judicial process may be obtained by FAS on behalf of 
the entity; and
    (5) An operating financial account in the proposed targeted 
country, or a satisfactory explanation for not having such an account 
and a description of how a FFPr agreement would be administered without 
such an account.
    (b) In determining whether an entity will be eligible to be a 
participant, FAS may consider the entity's previous compliance or 
noncompliance with the provisions of this part and part 1599 of this 
title. FAS may consider matters such as whether the entity corrected 
deficiencies in the implementation of an agreement in a timely manner 
and whether the entity has timely and accurately filed reports and 
other submissions that are required to be filed with FAS and other 
agencies of the United States.


Sec.  1499.4  Application process.

    (a) An entity seeking to enter into an agreement with CCC shall 
submit an application, in accordance with this section, that sets forth 
its proposal to carry out activities under FFPr in the proposed target 
country. An application shall contain the items specified in paragraph 
(b) of this section and shall be submitted electronically to FAS at the 
address set forth at https://www.fas.usda.gov. An entity that has not 
yet met the eligibility requirements in Sec.  1499.3 may submit an 
application, but FAS will not enter into an agreement with an entity 
until FAS had made a determination of eligibility under Sec.  1499.3.
    (b) An applicant shall include the following items in its 
application:
    (1) A completed Form SF-424, which is a standard application for 
Federal assistance;
    (2) An introduction that contains the elements specified in 
paragraph (c) of this section; and
    (3) A plan of operation that contains the elements specified in 
paragraph (d) of this section.
    (c) The introduction shall include:
    (1) An explanation of the need for the food aid in the targeted 
country and how the applicant's proposed activities would address that 
need;
    (2) Information regarding the applicant's ability to become 
registered and operate in the targeted country;

[[Page 63392]]

    (3) Information about the applicant's past food aid projects; and
    (4) A budget that details the amount of any sale proceeds, income, 
and CCC-provided funds that the applicant proposes to use to fund:
    (i) Administrative costs;
    (ii) Inland transportation, storage and handling costs; and
    (iii) Activity costs.
    (d) A plan of operation shall include:
    (1) The name of the targeted country where the proposed activities 
would be implemented;
    (2) The kind, quantity, and proposed use of the commodities 
requested, and any commodities that would be acceptable substitutions 
therefore, and the proposed delivery schedule;
    (3) If monetization or barter is proposed:
    (i) The quantity of the requested commodities that would be sold or 
bartered;
    (ii) The amount of sale proceeds anticipated;
    (iii) The amount of income expected to be generated;
    (iv) The anticipated monetization completion date;
    (v) The goods or services to be generated from the barter of the 
requested commodities; and
    (vi) The value of the goods or services anticipated to be generated 
from the barter of the requested commodities.
    (4) A list of each of the activities that would be implemented, 
with a brief statement of the objectives to be accomplished under each 
activity;
    (5) For each proposed activity, the targeted geographic area, 
anticipated beneficiaries, and methods that the applicant would use to 
choose such beneficiaries, including obtaining and considering 
statistics on poverty levels, food deficits, and any other required 
items set forth on the FAS Web site at https://www.fas.usda.gov.
    (6) For each proposed activity:
    (i) An explanation of whether the activity would be carried out 
through the distribution of the requested commodities or funded by sale 
proceeds, income, or a combination thereof; and
    (ii) The amount of commodities, sale proceeds, or income requested 
to carry out such activity; and
    (iii) A detailed description of the activity, including the steps 
involved in its implementation and the anticipated completion date;
    (7) Any cash or non-cash contributions that the applicant expects 
to receive from non-CCC sources that:
    (i) Are critical to the implementation of the proposed activities; 
or
    (ii) Enhance the implementation of the activities;
    (8) Any subrecipient that would be involved and a description of 
each subrecipient's responsibilities and its capability to perform 
responsibilities;
    (9) Any governmental or nongovernmental entities that would be 
involved and the extent to which FFPr will strengthen or increase the 
capabilities of such entities to further economic development in the 
targeted country;
    (10) The method by which the applicant intends to inform 
beneficiaries of an activity about the source of the requested 
commodities or funding for the activity and, where the beneficiaries 
will be receiving the commodities directly, how to prepare and use them 
properly;
    (11) Established baselines, a timeline, and proposed outcomes that 
would enable FAS to measure the applicant's progress towards achieving 
the objectives of proposed activities;
    (12) If the proposed activities would involve the use of sale 
proceeds or income:
    (i) The process that the applicant would use to sell the requested 
commodities, including steps the applicant would take to use, to the 
extent possible, the private sector in the monetization process; and
    (ii) The procedures that the applicant would use to assure that 
sale proceeds and income are received and deposited into a separate, 
interest-bearing account and disbursed from such account for use only 
in accordance with the agreement;
    (13) A description of how the requested commodities would be 
transported from the receiving port to the point at which distribution 
is made to the beneficiaries and a description of any port, 
transportation, storage, and warehouse facilities that would be used 
with sufficient detail to demonstrate that they would be adequate to 
handle the requested commodities without undue spoilage or waste;
    (14) Any reprocessing or repackaging of the requested commodities 
that would take place prior to the distribution, sale or barter by the 
participant;
    (15) The action the applicant would take to ensure that any 
commodities to be distributed to beneficiaries, rather than sold, would 
be imported and distributed free from all customs, duties, tolls, and 
taxes;
    (16) A plan that shows how the requested commodities could be 
imported and distributed without a disruptive impact upon production, 
prices and marketing of the same or like products in the country where 
they will be delivered, and the extent to which any sale or barter of 
the requested commodities would displace or interfere with any sales 
that may otherwise be made by the applicant or any other entity in the 
country where they will be delivered; and
    (17) Any additional required items set forth on the FAS Web site at 
https://www.fas.usda.gov.


Sec.  1499.5  Agreements.

    (a) After FAS approves an applicant's proposal, FAS will develop an 
agreement in consultation with the applicant. The agreement will set 
forth the obligations of CCC and the participant. A participant must 
comply with the terms of the agreement to receive assistance.
    (b) A participant shall not use donated commodities, sale proceeds, 
income or CCC-provided funds for any activity or any expenses incurred 
by the participant prior to the date of the agreement or after the 
agreement is suspended or terminated.
    (c) The agreement will include a budget that sets forth the maximum 
amounts of sale proceeds and CCC-provided funds that may be expended 
for various purposes under the agreement. A participant may make 
adjustments to this budget without prior approval from FAS only as 
specified in the agreement.
    (d) Prior to providing any donated commodities or CCC-provided 
funds to a participant under an agreement, FAS may require the 
participant to complete a training program administered by FAS that is 
designed to ensure that the participant is aware of, and has the 
capacity to complete all required reporting and audit functions set 
forth in this part.
    (e) A participant will be prohibited from using CCC-provided funds 
to acquire goods and services either directly or indirectly through 
another party from certain countries that will be specified in the 
agreement. Any violation of this provision of the agreement will be a 
basis for immediate termination by CCC of the agreement in addition to 
the imposition of any other applicable civil and criminal penalties.
    (f) The agreement will prohibit the sale or transshipment of the 
donated commodities to a country not specified in the agreement for so 
long as such donated commodities are controlled by the participant.
    (g) CCC may enter into a multicountry agreement in which donated 
commodities are delivered to one country and activities are carried out 
in another.
    (h) CCC may provide donated commodities and CCC-provided funds 
under a multiyear agreement contingent

[[Page 63393]]

upon the availability of commodities and funds.


Sec.  1499.6  Payments.

    (a) If the participant arranges for transportation in accordance 
with Sec.  1499.7(b)(2), and the participant seeks payment directly, 
the participant shall submit the following documents to FAS in the 
manner set forth in the agreement:
    (1) A signed copy of the completed Form CCC-512;
    (2) The original on-board bills of lading indicating the freight 
rate and signed by the originating carrier;
    (3) For all non-containerized cargoes:
    (i) A signed copy of the Federal Grain Inspection Service (FGIS) 
Official Stowage Examination Certificate (Vessel Hold Certificate);
    (ii) A signed copy of the National Cargo Bureau Certificate of 
Readiness (Vessel Hold Inspection Certificate; and
    (iii) A signed copy of the National Cargo Bureau Certificate of 
Loading;
    (4) For all containerized cargoes a copy of the FGIS Container 
Condition Inspection Certificate;
    (5) A signed copy of liner booking note or charter party covering 
ocean transportation of cargo;
    (6) In the case of charter shipments, a signed notice of arrival at 
first discharge port, unless FAS has determined that circumstances of 
force majeure have prevented the vessel's arrival at the first port of 
discharge;
    (7) A request by the participant for reimbursement of freight, 
survey costs, and other expenses approved by CCC indicating the amount 
due and accompanied by a certification from the carrier or other 
parties that payments have been received from the participant; and
    (8) A document on letterhead and signed by an officer or agent of 
the participant specifying the name of the entity to receive payment; 
the bank ABA number to which payment is to be made; the account number 
for the deposit at the bank; the participant's taxpayer identification 
number; and the type of the account into which the payment will be 
deposited.
    (b) If the participant arranges for transportation in accordance 
with Sec.  1499.7(b)(2), and the participant has used a freight 
forwarder, the participant shall cause the freight forwarder to submit 
the documents specified in Sec.  1499.6(a) in order to receive payment 
from CCC.
    (c) In no case will CCC reimburse a participant for demurrage costs 
or pay demurrage to any other entity.
    (d) If FAS has agreed to pay the costs of transporting, storing, 
and distributing the donated commodities from the designated port or 
point of entry, the participant will be reimbursed in the manner as set 
forth in the agreement.
    (e) If the agreement authorizes the payment of CCC-provided funds, 
CCC will pay this to the participant on a reimbursement for expenses 
basis, except as provided in paragraph (f)(1) of this section. The 
participant shall request the payment of CCC-provided funds to 
reimburse it for authorized expenses in the manner set forth in the 
agreement.
    (f)(1) A participant may request an advance of the amount of funds 
specified in the agreement. FAS will not approve any request for an 
advance:
    (i) Received earlier than 60 days after the date of a previous 
advance made in connection with the same agreement, and
    (ii) If any required reports, as specified in Sec.  1499.13 and in 
the agreement, are more than six months in arrears.
    (2) Except as may otherwise be provided in the agreement, the 
participant shall deposit and maintain in a bank account located in the 
United States all funds advanced by CCC. The account shall be interest-
bearing, unless the exceptions in Sec.  3019.22(k) of this title apply, 
or FAS determines that this requirement would constitute an undue 
burden. The participant shall remit semi-annually to CCC any interest 
earned on the advanced funds. The participant shall, no later than 10 
days after the end of each calendar quarter, submit a financial 
statement to FAS accounting for all funds advanced and all interest 
earned.
    (3) The participant shall return to CCC any funds that are advanced 
by CCC if such funds have not been obligated as of the 180th day after 
the advance was made. Such funds and interest shall be transferred to 
FAS within 30 days of such date.
    (g) If a participant is required to pay funds to CCC in connection 
with an agreement, the participant shall make such payment in U.S. 
dollars, unless otherwise approved in advance by FAS.
    (h) Suppliers of commodities shall seek payment for goods according 
to the purchase contract with CCC.


Sec.  1499.7  Transportation of goods.

    (a) Shipments of donated commodities are subject to the 
requirements of 46 U.S.C. 55305 and 55314, regarding carriage on U.S.-
flag vessels.
    (b) Transportation of donated commodities and other goods such as 
bags that may be provided by CCC under FFPr will be acquired under a 
specific agreement in the manner determined by FAS. Such transportation 
will be acquired by:
    (1) CCC in accordance with the Federal Acquisition Regulations 
(FAR), USDA's procurement regulations set forth in chapter 4 of title 
48 of the Code of Federal Regulations (the AGAR) and directives issued 
by the Director, Office of Procurement and Property Management, USDA; 
or
    (2) The participant, with reimbursement by CCC, in the manner 
specified in the agreement.
    (c) Participants that acquire transportation in accordance with 
paragraph (b)(2) of this section, may use the services of a licensed 
freight forwarder that:
    (1) Demonstrates at least three years experience in freight 
forwarding and booking services;
    (2) Is accredited or authorized to act as a licensed freight 
forwarder;
    (3) Has the capability to work with the participant to plan, 
implement, and monitor the logistics involved in transporting the 
donated commodities;
    (4) Provides three years of audited financial statements to the 
participant that demonstrates sound financial standing; and
    (5) Would not have a conflict of interest in carrying out the 
freight forwarder duties. To assist FAS in determining whether there is 
a potential conflict of interest, the participant must submit to FAS a 
certification indicating that the freight forwarder:
    (i) Is not engaged in, and will not engage in, supplying 
commodities or furnishing ocean transportation or ocean transportation-
related services for commodities provided under the participant's Food 
for Progress program; and
    (ii) Is not affiliated with and not made arrangements to give or 
receive any payment, kickback, or illegal benefit in connection with 
its selection as an agent of the participant.
    (d) Participants responsible for transportation under Sec.  
1499.7(b)(2) shall declare in the transportation contract the point at 
which the ocean carrier to take custody of commodity to be transported.


Sec.  1499.8  Entry and handling of commodities.

    (a) The participant shall make all necessary arrangements for 
receiving the donated commodities in the targeted country, including 
obtaining appropriate approvals for entry and transit. The participant 
shall store and maintain the donated commodities in good condition from 
the time of delivery at the port of entry or the point of

[[Page 63394]]

receipt from the originating carrier until their distribution, sale or 
barter.
    (b) The participant shall, as provided in the agreement, arrange 
for transporting, storing, and distributing the donated commodities 
from the designated point and time where title to the commodity passes 
to the participant by contracting directly with suppliers of services, 
as set forth in the agreement.
    (c)(1) If a participant arranges for the packaging or repackaging 
of donated commodities that are to be distributed, the participant 
shall ensure that the packaging:
    (i) Is plainly labeled in the language of the targeted country;
    (ii) Contains the name of the donated commodities;
    (iii) Includes a statement indicating that the donated commodities 
are furnished by the people of the United States of America; and
    (iv) Includes a statement indicating that the donated commodities 
shall not be sold, exchanged or bartered.
    (2) If a participant arranges for the reprocessing and repackaging 
of donated commodities that are to be distributed, the participant 
shall ensure that the packaging:
    (i) Is plainly labeled in the language of the targeted country;
    (ii) Contains the name of the reprocessed product;
    (iii) Includes a statement indicating that the reprocessed product 
was made with commodities furnished by the people of the United States 
of America; and,
    (iv) Includes a statement indicating that the reprocessed product 
shall not be sold, exchanged or bartered;
    (3) If a participant distributes donated commodities that are not 
packaged, the participant shall, to the extent practicable, display:
    (i) Banners, posters or other media informing the public of the 
name and source of the donated commodities; and
    (ii) A statement that the donated commodities may not be sold, 
exchanged, or bartered.
    (d) A participant shall arrange with the government of the targeted 
country that all donated commodities to be distributed will be imported 
and distributed free from all customs, duties, tolls, and taxes. A 
participant is encouraged to make similar arrangements, where possible, 
with the government of the country where donated commodities to be sold 
or bartered are delivered.


Sec.  1499.9  Damage to or loss of commodities.

    (a) FAS will be responsible for the donated commodities prior to 
the transfer of title to the commodities to the participant. The 
participant will be responsible for the donated commodities following 
the transfer of title to the commodities to the participant. The title 
will transfer at the time and place specified in the agreement.
    (b) A participant shall immediately inform FAS, in the manner set 
forth in the agreement, of any damage to or loss of the donated 
commodities that occurs following the transfer of title to the 
commodities to the participant. The participant shall take all steps 
necessary to protect its interests and the interests of CCC with 
respect to any damage to or loss of the donated commodities that occurs 
after title has been transferred to the participant.
    (c) If the donated commodities are damaged or lost during the time 
that they are in the care of the carrier:
    (1) And either FAS or the participant engages the services of an 
independent cargo surveyor, the surveyor will provide to FAS and the 
participant any report, narrative chronology or other commentary that 
it prepares;
    (2) FAS and the participant will provide to each other the names 
and addresses of any individuals known to be present at the time of 
discharge or during the survey who can verify the quantity of damaged 
or lost commodities;
    (3) And the participant engages the services of the surveyor, CCC 
will reimburse the participant for the reasonable costs, as determined 
by FAS, of the survey, unless:
    (i) The participant was required by the agreement to pay for the 
survey;
    (ii) The survey was a delivery survey and the surveyor did not also 
prepare a discharge survey; or
    (iii) The survey was not conducted contemporaneously with the 
discharge of the vessel, unless FAS determines that such action was 
justified under the circumstances;
    (4) Any survey obtained by the participant shall, to the extent 
practicable, be conducted jointly by the surveyor, the participant, the 
carrier, and the survey report shall be signed by all parties;
    (5) And the damage or loss occurred with respect to a bulk grain 
shipment, if the agreement provides that the participant is responsible 
for survey and outturn reports, the participant shall obtain the 
services of an independent cargo surveyor to:
    (i) Observe the discharge of the cargo;
    (ii) Report on discharging methods, including scale type, 
calibrations and any other factor that may affect the accuracy of scale 
weights, and, if scales are not used, state the reason therefore and 
describe the actual method used to determine weight;
    (iii) Estimate the quantity of cargo, if any, lost during discharge 
through carrier negligence;
    (iv) Advise on the quality of sweepings;
    (v) Obtain copies of port or vessel records, if possible, showing 
the quantity discharged; and
    (vi) Notify the participant immediately if the surveyor has reason 
to believe that the correct quantity was not discharged or if 
additional services are necessary to protect the cargo; and, (6) And 
the damage or loss occurred with respect to a container shipment, if 
the agreement provides that the participant is responsible for survey 
and outturn reports, the participant shall obtain the services of an 
independent cargo surveyor to list the container numbers and seal 
numbers shown on the containers, indicate whether the seals were intact 
at the time the containers were opened, and note whether the containers 
were in any way damaged.
    (d) If the value of any damaged donated commodities is in excess of 
$1,000, the participant shall immediately arrange for an inspection by 
a public health official or other competent authority approved by FAS 
and provide to FAS a certification by such public health official or 
other competent authority regarding the exact quantity and condition of 
the damaged commodities. The participant shall inform FAS of the 
results of the inspection and indicate whether the damaged commodities 
are:
    (1) Fit for the use authorized in the agreement and, if so, whether 
there has been a diminution in quality; or
    (2) Unfit for the use authorized in the agreement.
    (e)(1) If the participant has title to the donated commodities, the 
participant shall arrange for the recovery of that portion of the 
donated commodities designated as suitable for the use authorized in 
the agreement. The participant shall dispose of donated commodities 
that are unfit for such use in the following order of priority:
    (i) Sale for the most appropriate use, i.e., animal feed, 
fertilizer, industrial use, or another use approved by FAS, at the 
highest obtainable price;
    (ii) Donation to a governmental or charitable organization for use 
as animal feed or for other non-food use; or
    (iii) Destruction of the commodities if they are unfit for any use, 
in such manner as to prevent their use for any purpose.

[[Page 63395]]

    (2) The participant shall arrange for all U.S. Government markings 
to be obliterated or removed before the donated commodities are 
transferred by sale or donation.
    (f) A participant may retain any proceeds generated by the disposal 
of the donated commodities in accordance with paragraph (e)(1) of this 
section, and shall use the proceeds for expenses related to the 
disposal of the donated commodities and for activities specified in the 
agreement.
    (g) The participant shall notify FAS immediately and provide 
detailed information about the actions taken in accordance with 
paragraph (e)(1) of this section, including the quantities, values and 
dispositions used to handle commodities determined to be unfit.


Sec.  1499.10  Claims for damage to or loss of commodities.

    (a) FAS will be responsible for claims arising out of damage to or 
loss of a quantity of the donated commodities prior to the transfer of 
title to the commodities to the participant.
    (b) If the value of the damaged or lost donated commodities is 
estimated to be $20,000 or more and the title to the commodities has 
transferred to the participant, the participant will be responsible 
for:
    (1) Initiating a claim arising out of such damage or loss, 
including actions relating to collections pursuant to commercial 
insurance contracts; and
    (2) Notifying FAS immediately and providing detailed information 
about the circumstances surrounding such damage or loss, the quantity 
of damaged or lost donated commodities, and the value of the damage or 
loss.
    (c) If the value of the damaged or lost donated commodities is 
estimated to be less than $20,000, the participant will be responsible 
for providing detailed information about the damage or loss in the next 
report required to be filed under Sec.  1499.13(c) and shall not be 
required to initiate a claim collection action.
    (d)(1) The value of a claim for lost donated commodities shall be 
determined on the basis of the commodity acquisition, transportation, 
and related costs incurred by CCC with respect to such commodities.
    (2) The value of a claim for damaged donated commodities shall be 
determined on the basis of the commodity acquisition, transportation, 
and related costs incurred by CCC with respect to such commodities, 
less any funds generated if such commodities are sold in accordance 
with Sec.  1499.9(e)(1).
    (e) If FAS determines that a participant is not exercising due 
diligence in the pursuit of a claim, FAS may require the participant to 
assign its rights to pursue the claim to FAS.
    (f)(1) The participant may retain any funds obtained as a result of 
a claims collection action initiated by it in accordance with this 
section, or recovered pursuant to any insurance policy or other similar 
form of indemnification, but such funds shall only be expended for 
purposes approved in advance by FAS.
    (2) FAS will retain any funds obtained as a result of a claims 
collection action initiated by it under this section; provided, 
however, that if the participant paid for the freight or a portion 
thereof, FAS will use a portion of such funds to reimburse the 
participant for such expense on a prorated basis.


Sec.  1499.11  Use of commodities and sale proceeds.

    (a) A participant must use the donated commodities in accordance 
with the agreement.
    (b) A participant shall not permit the distribution, handling, or 
allocation of donated commodities on the basis of political 
affiliation, geographic location, or the ethnic, tribal or religious 
identity of affiliation of the potential consumers or beneficiaries.
    (c) A participant shall not permit the distribution, handling, or 
allocation of donated commodities by the military forces or any 
government or insurgent group without the specific authorization of 
FAS.
    (d) A participant may sell or barter donated commodities only if 
such sale or barter is provided for in the agreement or the participant 
is disposing of damaged commodities as specified in Sec.  1499.9. The 
participant shall sell the donated commodities at a reasonable market 
price in the economy where the sale occurs. The participant shall use 
any sale proceeds, income, or goods or services derived from the sale 
or barter of the donated commodities only as provided in the agreement.
    (e) The participant shall retain copies of and make available to 
FAS all barter receipts, contracts or other documents related to the 
barter of the donated commodities and the services or goods derived 
from such barter, for a minimum of 24 months after the agreement has 
been terminated or closed out.
    (f) The participant shall deposit all sale proceeds and income into 
a separate, interest-bearing account unless the exceptions in Sec.  
3019.22(k) of this title apply, the account is in a country where the 
laws or customs prohibit the payment of interest, or FAS determines 
that this requirement would constitute an undue burden.
    (g) A participant may use sale proceeds or income to purchase real 
or personal property only if local law permits the participant to 
retain title to such property. However, the participant shall not use 
sale proceeds or income to pay for the acquisition, development, 
construction, alteration or upgrade of real property that is:
    (1) Owned or managed by a church or other organization engaged 
exclusively in religious pursuits; or
    (2) Used in whole or in part for sectarian purposes, except that a 
participant may use sale proceeds or income to pay for repairs to or 
rehabilitation of a structure located on such real property to the 
extent necessary to avoid spoilage or loss of donated commodities, but 
only if such structure is not used in whole or in part for any 
religious or sectarian purposes while the donated commodities are 
stored in it. If such use is not specifically provided for in the 
agreement, such use may only occur after receipt of written approval 
from FAS.
    (h) A participant shall endeavor to comply with Sec. Sec.  3019.41 
through 3019.43 of this title when procuring goods and services and 
when engaging in construction work to implement the agreement. The 
participant shall also establish procedures to prevent fraud. The 
participant shall enter into a written contract with each provider of 
goods, services or construction work that requires the provider to 
maintain adequate records to account for all donated commodities or 
funds or both provided to the provider by the participant and to submit 
periodic reports to the participant. The participant shall submit a 
copy of the signed contracts to FAS.


Sec.  1499.12  Subrecipients.

    (a) If provided for in the agreement, a participant may utilize the 
services of a subrecipient to implement activities under this 
agreement. The participant shall enter into a written subagreement with 
the subrecipient, and provide a copy of such subagreement to FAS, in 
the manner set forth in the agreement, prior to the transfer of any 
donated commodities, sale proceeds, income or CCC-provided funds to the 
subrecipient. Such written subagreement shall require the subrecipient 
to pay to the participant the value of any donated commodities, sale 
proceeds, income, or CCC-provided cash funds that is not used in 
accordance with the subagreement, or are lost, damaged, or

[[Page 63396]]

misused as a result of the subrecipient's failure to exercise 
reasonable care.
    (b) If a participant demonstrates to FAS that it is not feasible to 
enter into a subagreement with a subrecipient, FAS may grant approval 
to proceed without a subagreement; provided, however, that the 
participant must obtain such approval from FAS prior to transferring 
any donated commodities, sale proceeds, income, or CCC-provided funds 
to the subrecipient.
    (c) The participant shall monitor the actions of a subrecipient as 
necessary to ensure that donated commodities or funds provided to the 
subrecipient are used for authorized purposes in compliance with 
applicable laws and regulations and the agreement and that performance 
goals are achieved. The participant shall provide in the subagreement 
that the subrecipient must comply with applicable provisions of the 
regulations set forth in Chapter 30 of this title.


Sec.  1499.13  Recordkeeping and reporting requirements.

    (a) A program participant shall retain records and perm