McGovern Dole International Food for Education and Child Nutrition Program and Food for Progress Program, 13062-13082 [E9-6487]

Agencies

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

[Federal Register Volume 74, Number 57 (Thursday, March 26, 2009)]
[Rules and Regulations]
[Pages 13062-13082]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-6487]



[[Page 13062]]

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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: Final rule.

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SUMMARY: This final rule amends 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 final rule also amends 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 U.S. 
Department of Agriculture (USDA) is considered to be a product of the 
United States. The purpose of these amendments is to improve the 
efficiency of the programs and make it clearer to participants what 
they must do to meet eligibility requirements.

DATES: Effective Date: May 26, 2009.

FOR FURTHER INFORMATION CONTACT: 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; telephone: (202) 720-4221; Fax: (202) 690-0251; E-Mail: 
PPDED@fas.usda.gov and/or Babette.Gainor@fas.usda.gov.
    The USDA prohibits discrimination in its programs on the basis of 
race, color, national origin, sex, religion, age, disability, political 
beliefs, and marital or familial status. Persons with disabilities who 
require alternative means for communication of program information 
(Braille, large print, audiotape, etc.) should contact the USDA Office 
of Communications at (202) 720-5881 (voice) or (202) 720-7808 (TDD).

SUPPLEMENTARY INFORMATION:

Background

    On October 24, 2008, FAS published a proposed rule (73 FR 63387) to 
remove 7 CFR part 1496; revise 7 CFR parts 1499 and 1599, which contain 
the general regulations governing the FFPr and the McGovern-Dole 
Program; and add 48 CFR part 470, which governs the commodity 
acquisition procedures of USDA. The proposed rule was intended to 
accomplish the following objectives:
     Improve the efficiency of the programs by providing 
greater clarity to program participants on eligibility, reporting and 
performance requirements;
     Better define the criteria used to determine a product of 
the United States;
     Allow for the full utilization of all types of acquisition 
contracts that are authorized under the Federal Acquisition Regulations 
(FAR); and,
     Restructure and rewrite the regulations, including new 
subparts and sections, to make them easier to read and understand.

Analysis of Comments Received

    Seventeen comments on the proposed rule were received from private 
entities that are affected by these regulations, including: three 
private voluntary organizations (PVOs), two PVO associations, seven 
commodity organizations, four shipping and freight industry 
representatives, and one Office of Inspector General (OIG). One comment 
was received by an organization comprised of over 250 non-governmental 
organizations that stated, ``Overall we believe FAS has done an 
excellent job in revising part 1499 and that the changes will improve 
the quality of the food aid programs and increase the ability of PVOs 
to assist those in need.'' The comments are discussed below, except for 
those dealing with issues outside of the scope of the proposed rule, 
making editorial suggestions, or simply expressing support for the 
proposed rule.

A. Eligibility Determination: 7 CFR Parts 1499.3(a)(1) and 1599.3(a)(1)

    Comment: One commenter suggested that USDA should change ``grants'' 
to ``awards'' to be more inclusive since ``awards'' includes grants and 
cooperative agreements.
    Response: USDA accepts this suggestion and has made the changes 
accordingly.

B. Agreements: 7 CFR Parts 1499.5(c) and 1599.5(c)

    Comment: One commenter suggested that USDA allow a participant to 
make 100 percent line item adjustments to the budget unless the 
agreement specifies otherwise. The commenter further stated that this 
is the norm for most Government regulations.
    Response: The current language affords USDA the ability to provide 
greater flexibility to participants' budgets other than just line item 
adjustments. Additionally, due to various sources from which USDA 
receives funds for grants governed under parts 1499 and 1599, USDA 
cannot provide 100 percent flexibility between all budget line items as 
it has the potential of inadvertently creating an Antideficiency Act 
violation within the program. For example, FFPr operates under 
statutory authority that limits the amount of funds that may be spent 
each year for freight costs and administrative expenses. USDA only can 
allow flexibility within a budget that would not allow for the 
possibility of these limits being exceeded. This limitation is also 
covered in 7 CFR 3019.25(f).

C. Payments: 7 CFR Parts 1499.6 and 1599.6

    Comments: One commenter questioned whether survey costs noted in 
sections 1499.6(a)(7) and 1599.6(a)(7) included load, discharge, and 
delivery surveys. A comment was received that questioned the necessity 
of an ``original'' bill of lading for payment, particularly given that 
an original is required to take title of commodities. Additionally, a 
commenter requested that all references to 7 CFR part 3019 be quoted 
directly in the relevant sections of 7 CFR parts 1499 and 1599 rather 
than referring the reader back to 7 CFR part 3019.
    Response: Load survey costs are not included in sections 
1499.6(a)(7) and 1599.6(a)(7). The determination whether a discharge 
survey, a delivery survey, or both have been completed is dependent 
upon multiple factors, including but not limited to destination country 
and contract terms. To provide greater clarity in these sections, USDA 
has replaced ``survey costs'' with ``survey costs other than those at 
load port.'' In response to the comment about providing an original 
bill of lading, USDA agrees that an original or ``true copy'' of the 
bill of lading, such as a pdf version of the original bill of lading,

[[Page 13063]]

would be acceptable for payment purposes; this change has been made to 
these sections. USDA cannot accede to the request to directly quote 
applicable sections of 7 CFR part 3019 into the relevant sections of 
the regulations. The provisions of 7 CFR part 3019 are applicable to 
all USDA grant programs and refer to pertinent circulars released by 
the Office of Management and Budget (OMB). This regulation is likely to 
change more often than the FAS and the Commodity Credit Corporation 
(CCC) grant program regulations. Quoting the applicable sections of 7 
CFR part 3019 directly into parts 1499 and 1599 would multiply the 
regulations requiring updates and notifications to the public that 
otherwise could be limited to only 7 CFR part 3019.

D. Transportation of Goods: 7 CFR Parts 1499.7(b) and 1599.7(b)

    Comments: Two comments were received on this section. The first 
commenter encouraged USDA to implement direct ocean freight procurement 
for its food aid programs. The other commenter objected to USDA 
directly contracting for freight in accordance with the FAR on the 
bases that the current process is not unlawful and has been upheld in a 
previous court ruling, the change would preclude freight forwarders 
from participating in the program, the proposed system would return to 
a process that was ruled inefficient by the Grace Commission, and, 
finally, USDA failed to provide sufficient factual detail and rationale 
for the rule to permit interested parties to comment meaningfully on 
this change.
    Response: USDA is committed to providing an efficient and effective 
acquisition process under its food donation programs. USDA is further 
committed to ensuring transparency and fairness in this process. 
Therefore, once the Final Rule is published, USDA will use the Food Aid 
Consultative Group (FACG) to outline acquisition processes that USDA is 
considering implementing under these regulations. The FACG is the 
official consultative group that allows all organizations with an 
interest in food aid programs to provide input to the U.S. Government.
    With respect to the proposal to use the FAR to acquire freight, 
this provision is primarily included to reflect the fact that under 
this rule USDA would be directly contracting for freight in many 
circumstances and program recipients would not have the burden of 
obtaining such services. Further, under current practices, in most 
instances the program recipient is not solely responsible for procuring 
freight services; but rather, while such entities do a significant 
portion of the work related to obtaining freight, decisions regarding 
the acceptance of freight contracts also involve decisions of employees 
of USDA. In order to alleviate any questions that exist concerning the 
propriety of this activity, the determination has been made to follow 
provisions of the FAR. To the extent that a program participant is 
solely responsible for these activities without regard to any 
involvement of employees of USDA, then the FAR provisions would not be 
applicable.
    With respect to the use of freight forwarders, the use of the FAR 
to acquire freight does not preclude the use, by USDA, of the services 
of a licensed freight forwarder, similar to the process currently used 
in Title II of the Food for Peace Act, (Pub. L. 83-480, or referred to 
as Pub. L. 480 Title II). In such a case, a licensed freight forwarder 
would act as directed by USDA.

E. Transportation of Goods: 7 CFR Parts 1499.7(c) and 1599.7(c)

    Comments: Four comments were received concerning the use of a 
licensed freight forwarder rather than a shipping agent. Three 
commenter's objected to the use of a licensed freight forwarder rather 
than a shipping agent to facilitate the acquisition of transportation. 
One commenter stated that sections 1499.7(c)(1)-(3) and 1599.7(c)(1)-
(3) go beyond USDA's authority and conflict with that of the Federal 
Maritime Commission's (FMC) application requirements. Another comment 
was received asking to clarify the intention of sections 1499.7(c) and 
1599.7(c) as to preclude the use of entities other than licensed 
freight forwarders or to govern only licensed freight forwarders within 
these sections.
    Response: USDA agrees with the comments concerning sections 
1499.7(c)(1)-(3) and 1599.7(c)(1)-(3) being in conflict with the FMC's 
application process and has removed these provisions. USDA further 
agrees with the comments concerning sections 1499.7(c)(4) and 
1599.7(c)(4) and has removed this requirement since proof of financial 
responsibility is required in the FMC application process. As to the 
comments requesting the continued use of shipping agents, USDA does not 
agree with this comment and will adopt the proposed change set forth in 
the proposed rule. Currently, there is no definition of ``shipping 
agent'' and there are no services of a shipping agent identified that a 
licensed freight forwarder could not provide. In fact, an unlicensed 
freight forwarder may not book or arrange vessel space for others, 
process shipping documentation or collect freight forwarder 
compensation from the ocean carriers. Further information regarding 
this issue is found at the Web site maintained by FMC at https://www.fmc.gov/home/faq/index.asp. In addition, FMC has a regulated 
process for licensing freight forwarders that will remove this 
duplicative process from USDA. Lastly, USDA has provided further 
clarification on the intention of sections 1499.7(c) and 1599.7(c) to 
allow only licensed freight forwarders to be used by participants in 
arranging transportation.

F. Damage to and Loss of Commodities: 7 CFR Parts 1499.9 and 1599.9

    Comment: One commenter expressed concern regarding the number of 
times a notification of loss or damage to commodities may be required 
during the commodity voyage.
    Response: USDA agrees with the concern expressed by the commenter 
but also notes that timely notification of damages to and losses of 
commodities are necessary to protect the assets of the program. USDA 
has removed the word ``immediately'' from this section and inserted the 
provision for a timeframe of notification to be outlined in the program 
agreement.

G. Claims for Damage to or Loss of Commodities: 7 CFR Parts 1499.10 and 
1599.10

    Comments: Three comments were received on this section. One 
commenter asked if funds arising from a claim could cover the cost of 
services from a third party sub-contract who settled the claims 
process, and if so, would this arrangement have to be stipulated in the 
program agreement or could ``advance approval'' for such a use of these 
funds be obtained in another manner. The second commenter recommended 
USDA to require program participants to purchase marine cargo insurance 
as this requirement would lend itself to the goal of timely resolution 
of cargo claims. This commenter also suggested that USDA adopt a 
percentage threshold for establishing claim value levels. The third 
commenter suggested that USDA allow the participant to determine 
whether or not to file a claim for losses under $10,000 rather than 
$20,000. This commenter also asked for clarification on who would 
provide funds for marine cargo insurance if such insurance were 
required.
    Response: USDA agrees that, if such a situation were to arise, it 
should be handled outside the program agreement. The current regulation 
allows for advance approval and does not stipulate

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that such approval must be stipulated in the program agreement; 
therefore, no changes are made to the regulations. However, USDA will 
include procedures on this subject matter in applicable program 
documents and in the guidance provided to participants, which will be 
developed once the final rule is in effect. Regarding the required 
purchase of marine cargo insurance, USDA will consider this provision 
on an agreement basis as USDA assesses the risk involved in moving the 
commodities. If USDA determines that it is in the best interest of the 
programs, USDA will require and provide funding for marine cargo 
insurance. As to the value for requiring a claim to be filed, USDA does 
not agree with either suggestion and therefore has not made any changes 
to these sections. The current language allows participants to file a 
claim at any level. In setting the $20,000 value level, USDA determined 
that a benefit to the program could be reached while factoring in the 
amount of resources necessary to administer the claims process.

H. Subrecipients: 7 CFR Parts 1499.12 and 1599.12

    Comment: One commenter questioned the need for USDA to receive 
copies of subrecipient contracts. The commenter suggested that the 
participant retain copies of the subrecipient contracts and make them 
available upon request by USDA.
    Response: USDA understands the concern expressed by the commenter; 
however, USDA has had recent experiences with subrecipient contracts 
either not being in place or not providing adequate assurances to 
protect the integrity of the donation programs. Further, OIG also 
recommends that these contracts receive oversight by FAS and CCC. 
Therefore, USDA is retaining the current language in this section.

I. Recordkeeping and Reporting Requirements: 7 CFR Parts 1499.13 and 
1599.13

    Comment: One commenter recommended the following: require USDA to 
make the annual Single Audit Act and OMB Circular A-133 mandatory, 
regardless of funding availability; provide specific timeframes for 
participants to submit reports and evaluations; and clarify how the new 
evaluation requirement will complement FAS's current system of close-
out reviews.
    Response: USDA agrees that participants must conduct an annual 
audit in accordance with the Single Audit Act (31 U.S.C. 7501-7507) and 
revised OMB Circular A-133. In support of this, 7 CFR 3019.26(a), that 
is referenced in sections 1499.13(d) and 1599.13(d), contains the 
reference to the Single Audit Act and OMB Circular A-133. Regarding the 
timeframe for report submissions, USDA intends to provide a specific 
timeframe for participants to submit reports and evaluations within the 
agreements. At this time, USDA does not foresee a change in reporting 
timeframes but has moved this provision into the agreements to afford 
flexibility in managing the programs. Evaluating activities conducted 
under USDA food aid programs will provide insight to USDA in developing 
more effective programs as well as enable USDA to highlight program 
outcomes rather than program outputs that are currently captured in 
semi-annual reports. These evaluations will complement FAS's current 
system of close-out reviews by using a third party neutral evaluator 
and, in the case of mid-period evaluations, afford more transparency on 
program short-comings prior to the actual closure process so that USDA 
can determine the best course of action to remedy the short-comings.

J. Definitions: 48 CFR Part 470.101

    Comments: Three comments were received that outlined the ability 
for some commodities to be maintained in a non-commingled manner, and, 
therefore, requested that USDA consider either excluding some 
commodities from this definition, removing the definition, and thereby 
the allowance for commingling in its entirety, or modifying it to 
conform more closely to the domestic commodity donation programs.
    Response: USDA recognizes that commodities are maintained and 
stored in various manners. USDA further agrees with protecting the U.S. 
origin integrity of commodities when this is the normal commercial 
practice. Accordingly, 48 CFR 470.101 has been revised to provide that 
in those instances in which it has been determined by USDA that a 
commodity that is stored in a commingled manner but which is one that 
can be reasonably stored on an identity preserved basis with respect to 
its origin, USDA will require such commodity that is being procured to 
originate from the United States.

K. United States Origin of Agricultural Products: 48 CFR Part 
470.103(b)

    Comments: USDA received three comments concerning USDA's attempt to 
harmonize the use of additives in international programs with those 
used in domestic programs. The commenter's suggest replacing ``or'' 
with ``and'' at the end of section 470(b)(1).
    Response: Section 402(2) of Public Law 480 provides, in relevant 
part, that with respect to the administration of Title II of that Act, 
``* * * a product of an agricultural commodity shall not be considered 
to be produced in the United States if it contains any ingredient that 
is not produced in the United States, if that ingredient is produced 
and is commercially available at fair and reasonable prices. This 
provision is also made applicable to the FFPr Program by section 
1110(e)(4) of the FFPr Act. With respect to the McGovern-Dole Program, 
section 3107(a) of the Farm Security and Rural Investment Act of 2002 
defines an agricultural commodity to be ``an agricultural commodity, or 
a product of an agricultural commodity, that is produced in the United 
States.''
    Based upon the review of the issues raised by this comment, since 
procurements of commodities for use in Public Law 480 and the FFPr 
Program must follow the requirements of section 402(2) of Public Law 
480, the definition of ``additive'' has been modified to refer to 
``ingredient'' and the cited statutory provision has been incorporated 
into the definition of ``ingredient''. With respect to the McGovern-
Dole Program, in order to ensure consistency with these other two 
programs and in recognition of the fact that often procurements of 
commodities are done simultaneously for two or more of these programs, 
USDA will use the same definition of ``ingredient.''
    USDA concurs with the comment since it is desirable to harmonize 
the manner in which ingredients are treated for this purpose. USDA has 
revised 48 CFR 470.103(b) to reflect the statutory provision regarding 
ingredients as found in Public Law 480 with regard to procurements made 
for FAS and the U.S. Agency for International Development (USAID) 
programs. Accordingly, for these international programs, the 
procurement of commodities with ingredients will be handled in the same 
manner as procurements relating to programs administered by the Food 
and Nutrition Service except as may otherwise be required by statute.

L. United States Origin of Agricultural Products: 48 CFR Part 
470.103(c)

    Comments: USDA received four comments concerning the use of 
commingled products as a product of the United States. Two of the 
comments expressed concern that non-U.S. origin products may be 
provided under USDA food assistance programs, while two

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other comments suggested modifications related to the timing of the 
commodity procurement to bring the language into commercial norms.
    Response: USDA agrees that this section does not adequately take 
into consideration the situation in which a vendor has procured U.S. 
agricultural products prior to the issuance of a solicitation. 
Accordingly, this provision has been revised to provide that a 
commingled product shall be considered to be a product of the United 
States, if the offeror can establish that the offeror has in inventory 
at the time the contract for the commodity or product is awarded to the 
offeror, or obtains during the contract performance period specified in 
the solicitation, or a combination thereof, a sufficient quantity of 
the commodity or product that was produced in the United States to 
fulfill the contract being awarded, and all unfulfilled contracts that 
the offeror entered into to provide such commingled product to the U.S. 
Government.
    In addition, this section has been revised with respect to the 
domestic origin requirements for products of animals. Upon further 
consideration, USDA has determined that rather than to attempt to set 
forth in this section a generic provision regarding domestic origin, 
that the specific requirements applicable to the country in which the 
animal from which the product was obtained was bred, raised, 
slaughtered and processed should be set forth in individual 
solicitations. Under this process, USDA can take into account the 
differences that exist with respect to various animals, e.g., poultry, 
pork or beef, and the various types of products that are obtained, 
e.g., full cuts of meat or poultry and processed products.

M. Issuance of Invitations: 7 CFR Part 1496.4

    Comment: One commenter pointed out that the removal of the 
provision requiring a one day turnaround of supplier bids would impose 
immense new market risks for suppliers.
    Response: Regarding the turnaround time for the acceptance of 
offers (referred to as ``bids''), the process would follow the 
practices prescribed by the FAR, 48 CFR Chapter 4. These are standard 
solicitation methods prescribed government-wide. Offerors would be 
given the opportunity to propose prices for a specific period of time, 
for example, 24, 36 or 48 hours. This would be the offer acceptance 
period. After that time, offers would expire and would no longer be 
valid, thereby preventing the imposition of new market risks for 
suppliers.

N. Miscellaneous Points of Clarification

    Comments: One comment was received recommending that FAS continue 
to monitor agreements entered into under Section 416(b) of the 
Agricultural Act of 1949 (Section 416(b)) in the same manner and 
subject to the same regulations as the McGovern-Dole Program and FFPr. 
Another comment was received that recommended USDA create and attach 
reporting forms to the agreements. A commenter asked a question about 
the relevant application of OMB A-122 Circular to 7 CFR parts 1499 and 
1599.
    Response: In response to the comment on monitoring Section 416(b), 
USDA intends to monitor Section 416(b) in a manner consistent with 7 
CFR parts 1499 and 1599 as relevant to the purpose and scope of Section 
416(b). Under Section 416(b), CCC makes available commodities that it 
has acquired in its normal operations for use in international 
programs. No commodities are procured for use under this provision. By 
using the Federal Register to announce and administer Section 416(b), 
USDA will have the flexibility to apply the relevant sections of 1499 
and 1599 to this donation program while taking into account any unique 
requirements for this program. In response to the comment on reporting 
forms, USDA may reference the reporting form number and revision date 
within the agreement but attaching the reporting forms will only add to 
the volume of the agreement. With regard to OMB A-122 Circular, this 
circular, as well as others, has been incorporated into 7 CFR 3019, 
entitled ``Uniform Administrative Requirements for Grants and 
Agreements with Institutions of Higher Education, Hospitals, and Other 
Non-Profit Organizations''.
    In reviewing the language in 48 CFR part 470, we have determined 
that while changes to the actual provisions of 48 CFR 470.202(e)(3) are 
not needed, USDA does wish to make clear that with respect to the 
lowest landed cost determination, as the programs have evolved over 
many years, the program participant obtains potential bids from 
prospective carriers and these bids are provided to the Farm Service 
Agency (FSA) which 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 foreign destinations. Prior to the computer system 
running a lowest landed cost analysis, the grantees and/or USAID 
determine if each offeror's service and rates are responsive to their 
needs. Once the grantee and/or USAID provides their acceptance of the 
offers of service, USDA then runs an analysis to determine lowest 
landed cost. USAID and grantee organizations will have full discretion 
over carrier responsiveness determinations in accordance with the 
procedures identified in 22 CFR 211.
    Changes to the AGAR have been reviewed and approved by the Acting 
Deputy Assistant Secretary for Departmental Administration as 
authorized in 48 CFR Chapter 4, subpart 401.601(a)(1).

Executive Order 12866

    The final rule has been determined to be non-significant under E.O. 
12866 and has not been reviewed by the Office of Management and Budget.

Regulatory Flexibility Act

    This rule is not subject to the Regulatory Flexibility Act because 
FAS is not required by 5 U.S.C. 553 or any other law to publish a 
notice of proposed rulemaking and as such under Section 601(2) of the 
Act it is exempt.

Environmental Assessment

    FAS has determined that this 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).

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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

    This rule contains no unfunded mandates as defined in sections 202 
and 205 of the Unfunded Mandates Reform Act of 1995 (UMRA).

Paperwork Reduction Act of 1995

    In accordance with the Paperwork Reduction Act of 1995, FAS has 
previously received approval from 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, Food assistance programs, 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 amended as follows:

Title 7--Agriculture

PART 1496--[REMOVED]

0
1. 7 CFR part 1496 is removed.

0
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.
1499.9 Damage to or 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 means a project to be carried out by a participant, 
directly or through a subrecipient, to fulfill the objectives of an 
agreement.
    Agreement means a legally binding agreement entered into between 
CCC and a participant to implement activities under FFPr.
    CCC means the Commodity Credit Corporation and includes any 
official of the United States delegated the responsibility to act on 
behalf of CCC.
    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.
    Commodities mean U.S. agricultural commodities or products of U.S. 
agricultural 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 other sources.
    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.

[[Page 13067]]

    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 awards, 
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) An 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 
targeted 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;
    (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 
therefor, 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 or barter of the requested commodities or 
funded by sale proceeds, income, or a combination thereof; and
    (ii) The amount of commodities requested and of any sale proceeds 
and income expected to be generated 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 the 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 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, and, in cases where the 
applicant proposes to distribute some or all of the requested

[[Page 13068]]

commodities, a description of how they would be transported from the 
receiving port to the point at which distribution would be made to the 
beneficiaries;
    (14) Any reprocessing or repackaging of the requested commodities 
that would take place prior to the distribution, sale or barter by the 
applicant;
    (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, except as approved by FAS.
    (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 as 
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 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, as specified in the agreement, either submit to 
FAS, or maintain on file and make available to FAS, the following 
documents:
    (1) A signed copy of the completed Form CCC-512;
    (2) The original, or a true copy of, each on-board bill 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 the liner booking note or charter party 
covering ocean transportation of the cargo;
    (6) In the case of charter shipments, a signed notice of arrival at 
the 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 other than at load port, 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 set 
forth in the agreement.
    (e) If the agreement authorizes the payment of CCC-provided funds, 
CCC will pay these funds 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 if:
    (i) It is received earlier than 60 days after the date of a 
previous advance made in connection with the same agreement; or
    (ii) 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

[[Page 13069]]

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 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) A participant that acquires transportation in accordance with 
paragraph (b)(2) of this section may only use the services of a freight 
forwarder that is licensed by the FMC and that 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:
    (1) Is not engaged in, and will not engage in, supplying 
commodities or furnishing ocean transportation or ocean transportation-
related services for commodities provided under any FFPr agreement to 
which the participant is a party; and
    (2) Is not affiliated with the participant and has 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) A participant that is responsible for transportation under 
paragraph (b)(2) of this section shall declare in the transportation 
contract the point at which the ocean carrier will take custody of 
commodities 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 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 commodities 
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 as specified in the agreement.
    (b) A participant shall inform FAS, in the manner and within the 
time period 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. The agreement will 
specify whether the participant is responsible for obtaining a survey 
in the event that the donated commodities are damaged or lost following 
the transfer of title to the commodities 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;

[[Page 13070]]

    (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, and 
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 engage 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 therefor 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 engage 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 participant has title to the donated commodities, and 
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 value of 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. 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.
    (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 of 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 participant has title to the donated commodities, and 
the value of the damaged or lost donated commodities is estimated to be 
$20,000 or greater, 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 participant has title to the donated commodities, and 
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)(1) or (2) 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 or affiliation of the potential consumers or beneficiaries.
    (c) A participant shall not permit the distribution, handling, or 
allocation of

[[Page 13071]]

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 th