Procurement of Commodities and Services Financed by USAID Federal Program Funds., 1396-1405 [2011-33240]

Agencies

• Agency for International Development

[Federal Register Volume 77, Number 6 (Tuesday, January 10, 2012)]
[Rules and Regulations]
[Pages 1396-1405]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-33240]


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AGENCY FOR INTERNATIONAL DEVELOPMENT

22 CFR Part 228

RIN 0412-AA70


Procurement of Commodities and Services Financed by USAID Federal 
Program Funds.

AGENCY: Agency for International Development (USAID).

ACTION: Final rule.

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SUMMARY: This Final Rule revises USAID regulations to simplify 
implementation of the statutory requirement that Federal assistance, or 
program, funds made available by the United States Congress (Congress) 
to USAID under the authority of the Foreign Assistance Act of 1961, as 
amended (FAA), be used for procurement in the United States (U.S.), the 
recipient country, or developing countries. It does so by revising 
USAID's current source, origin and nationality (S/O/N) regulation to 
track more closely the statutory procurement authority provided under 
the FAA and referenced above by establishing a new code for 
procurements from the U.S., recipient country and developing countries 
as well as reflecting existing, special procurement authorities 
established by Congress; deleting the concept of ``origin,'' and 
simplifying the concepts of ``source'' and ``nationality'' to reflect 
better Congress's directive to procure from the U.S., recipient or 
developing countries; and simplifying application of the statutory 
waiver authority in the FAA.

DATES: Effective: February 6th, 2012.

FOR FURTHER INFORMATION CONTACT: John Niemeyer (or designee), Attorney 
Advisor, Office of the General Counsel, USAID, Rm. 6.07-105, 1300 
Pennsylvania Ave. NW., Washington, DC 20523; telephone: (202) 712-5053 
(this is not a toll-free number); jniemeyer@usaid.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

 Part I. Background
 Part II. The Final Rule
    [cir] Purpose of the Rule
    [cir] USAID Regulations Amended by This Rule
    [cir] Summary of Changes to the Existing Rule
 Part III. Responses to Comments Received on the Proposed 
Rule
 Part IV. Regulatory Planning and Review: Findings and 
Certifications of Impact Assessment

    On August 19, 2011, USAID published in the Federal Register (76 FR 
51916) a Proposed Rule which substantially modified the current S/O/N 
regulation by establishing a single primary geographic (source) code, 
deleting the concept of ``origin'' from the rule, requiring recipients 
and contractors to document ``availability for purchase'' of 
commodities and services, and streamlining existing waiver procedures. 
The Agency provided a forty five day public comment period on the 
Proposed Rule, which ended Monday, October 3rd, 2011. The Agency also 
offered the public the opportunity to submit comments by surface mail, 
email or fax.
    The publication of the Proposed Rule was the second step in a three 
step, public ``notice and comment'' rulemaking procedure. Previously on 
February 16, 2011, USAID published an ``Advanced Notice of Proposed 
Rulemaking'' (ANPRM) in the Federal Register (76 FR 8961), proposing 
changes to the current regulation, soliciting suggestions and comments 
for such changes, and providing a forty five day comment period, which 
ended April 4, 2011. Comments received in response to the ANPRM were 
discussed and reflected in the publication of the Proposed Rule. 
USAID's discussion of the comments received in response to the Proposed 
Rule, below at part III, and reflection of those comments in this 
``Final Rule,'' completes the public notice and comment rulemaking 
process. USAID also consulted with the relevant Congressional 
committees concerning revisions to the regulation.
    USAID received sixteen public comments in response to the Proposed 
Rule, all strongly in favor of substantial simplification of the 
regulation to keep pace with the globalization of the economy. Comments 
also urged revision of the proposed requirement for documentation of 
multiple, yearly sales as part of the definition of ``available for 
purchase;'' revisions to the ``nationality'' proposed requirements to 
allow eligibility of foreign-owned (non-governmental) development 
organizations employing a majority of U.S. or developing country staff 
; and clarification of the waiver requirements. Comments received in 
response to the Proposed Rule are discussed and addressed in greater 
detail, below in part III, Responses to Comments Received on the 
Proposed Rule.

I. Background

    Historically, the initial version of Section 604(a) provided that 
federal program funds made available under the FAA could be used for 
procurement outside the United States only if the President made a 
determination that such procurement would not have adverse effects upon 
the economy of the U.S., or that any such harm was outweighed by the 
benefits of ``less costly government procurement outside the United 
States.'' USAID implemented this directive by adapting the concepts of 
``source, origin and nationality'' developed under USAID's commodity 
import program (CIP),\1\ to all program funded procurements under the 
FAA. USAID also adapted the ``principal geographic codes'' \2\ 
developed under the CIP to apply to all USAID financed, Federal program 
funded procurements, in part in order to address Congress's

[[Page 1397]]

concern that U.S. taxpayer funded foreign assistance not provide any 
direct benefits to the governments of communist countries during the 
Cold War. The practical result of these decisions was that all program 
funded procurement transactions financed by USAID were restricted to 
the source, origin and nationality geographic code specified for the 
implementing agreement.
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    \1\ A CIP is a program in which USAID provides foreign exchange 
to a host country that, by the terms of the applicable agreement 
between USAID and the host country, is used to finance particular 
commodity import transactions of the host country.
    \2\ Geographic codes were established to note, for every 
implementing agreement, the source, origin and nationality 
authorized for every good and service procurement transaction under 
that implementing agreement.
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    In 1993, Congress amended the FAA procurement authorities in 
Section 604(a) to provide that federal program funds made available to 
USAID may be used for procurement from the U.S., the recipient 
country,\3\ or developing countries (but not advanced developing 
countries).\4\ However, USAID did not change its procurement 
regulations to reflect the change in statutory procurement authorities, 
but instead self-imposed a policy to continue to follow the same limits 
on procurement in the recipient and developing countries as if the 1993 
statutory amendments had not occurred. The concepts of source, origin 
and nationality were maintained in USAID's procurement regulations at 
22 CFR part 228, as were the principal geographic codes, none of which 
captured in any single code Congress's clear 1993 directive to procure 
from the U.S., recipient country, or developing countries.
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    \3\ Recipient countries are also called ``cooperating 
countries'' to distinguish them from recipients of grants.
    \4\ Prior to Public Law 102-391, FAA 604(a) stated, ``Funds made 
available under this chapter may be used for procurement outside the 
United States only if the President determines that such procurement 
will not result in adverse effects upon the economy of the United 
States or the industrial mobilization base, with special reference 
to any areas of labor surplus or to the net position of the United 
States in its balance of payments with the rest of the world, which 
outweigh the economic or other advantages to the United States of 
less costly procurement outside the United States, and only if the 
price of any commodity procured in bulk is lower than the market 
price prevailing in the United States at the time of procurement, 
adjusted for differences in the cost of transportation to 
destination, quality, and terms of payment.''
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    Because of the end of the Cold War and the subsequent globalization 
of the economy, this approach has become increasingly difficult to 
administer and, in some respects, obsolete. The costs of compliance 
with the complex regulation, and of the self-imposed and unnecessary 
restrictions on procurement in recipient and developing countries means 
that the foreign assistance dollar does not go as far as it would with 
a more straightforward regulation that reflects the statutory authority 
to procure in the recipient country and other developing countries, in 
addition to the U.S.
    The overwhelming majority of comments received in response to the 
Proposed Rule (as well as suggestions in response to the ANPRM) endorse 
this revised approach of allowing procurements in the recipient and 
developing countries as well as the U.S., as a ``very positive'' and 
``very responsive'' approach which is ``long overdue'' and will 
``eliminate many longstanding and problematic issues'' with a current 
regulation that is ``overly complex and difficult to implement.'' Most 
commenters anticipated that the ``streamlining of the procurement 
process'' will allow resources to go further and achieve greater 
results ``at a time when aid and development communities are challenged 
to do more with fewer resources.'' The overall tenor of all comments 
received was favorable, even highly so, to the proposed revisions. Some 
commenters commented that the revisions did not go as far as possible 
in terms of eliminating requirements and imposing internal deadlines on 
the time for processing waivers. All comments are discussed below at 
part III.

II. The Final Rule

A. Purpose of Rule

    The purpose of this rule is to bring USAID regulations into full 
alignment with Section 604(a) of the Foreign Assistance Act of 1961, as 
amended, which directs that federal program funds made available under 
the FAA may be used for procurement ``in the United States, the 
recipient country, or developing countries.'' The Final Rule also 
includes principal geographic codes that reflect existing, special 
procurement authorities for the Development Fund for Africa, 22 U.S.C. 
2293 et seq. (DFA) and New Independent States (NIS) 22 U.S.C. 2295b, 
established by Congress.

B. USAID Regulations Amended by This Rule

    The Final Rule amends in its entirety 22 CFR part 228, Rules on 
Source, Origin and Nationality for Commodities and Services Financed by 
USAID. The Final Rule applies to all commodities and services procured 
under implementing instruments financed by USAID with program 
(sometimes called assistance) funds under the authority of the FAA.

C. Summary of Changes to the Existing Rule

    The Final Rule revises the existing regulation to track more 
closely the statutory procurement authority provided under the FAA by 
establishing a new principal geographic code for procurements from the 
U.S., recipient country, and developing countries, as well as including 
in the Final Rule special principal geographic codes under the DFA and 
NIS authorities, above. The Final Rule also deletes the concept of 
``origin,'' which is increasingly obsolete and difficult to apply in 
today's globalized economy, and in place of the concept of ``origin,'' 
simplifies and strengthens the concepts of ``source'' and 
``nationality'' in order to reflect better Congress's directive to 
procure from the U.S., recipient countries, or developing countries. 
Based on comments received, the Final Rule additionally deletes from 
the Proposed Rule a requirement for documentation of ``multiple sales'' 
under the definition of the statutory term ``available for purchase,'' 
and substitutes a prohibition that recipients and contractors do not 
engage vendors to circumvent the ``source'' provisions by ordering 
commodities otherwise ``not available'' in countries in the designated 
principal geographic code at the time of sale. This change achieves the 
same objective as that notified in the Proposed Rule but will impose 
fewer burdens on implementers with requirements that would have no 
practical effect on compliance. The Final Rule clarifies that waivers 
to permit procurements beyond the U.S., the recipient country, or 
developing countries will be to Code 935-- any area or country but 
excluding ``prohibited sources'' (formerly referred to as ``foreign 
policy restricted countries''), reflecting USAID's agreement with 
comments that explicit reference be made to Code 935 as the code to 
which waivers will authorize procurement. USAID will maintain a list of 
prohibited sources which will be available in USAID's Automated 
Directives System, ADS 310; as in the current rule, there is no waiver 
of the statutory prohibited sources prohibition. The Final Rule also 
raises the amount, from $5 million to $10 million, for which foreign-
owned (non-governmental) local firms will be eligible for construction 
procurement because that amount has not been raised in over fifteen 
years, and confirms the current requirement that USAID determine that 
no capable U.S. construction company is operating in the cooperating/
recipient country or, if there is such a company, that it is not 
interested in bidding for the proposed contract. Finally, the Final 
Rule also clarifies that case by case waivers can be approved by 
commodity or service type or category (for example, a category of 
medical equipment like diagnostic

[[Page 1398]]

machinery, or of services like translation services), to obviate the 
need for repeat or serial waivers for the same type or category of 
commodity or service. This clarification more explicitly reflects past 
and current Agency practice.

III. Responses to Comments Received on the Proposed Rule

    On August 19, 2011 USAID published in the Federal Register (76 FR 
51916) a Proposed Rule for Procurement of Commodities and Services 
Financed by USAID. By October 3, 2011, the closing date for comments, 
USAID received sixteen (16) external comments, including comments from 
USAID partners that have received USAID funding, trade associations 
that represent them, and other interested parties. All of the comments 
were considered, and all relevant or substantial comments are discussed 
below. The following is a summary of comments by issue, and the 
Agency's responses to those comments.

A. General Comments

    All of the comments received were in favor of revision of USAID's 
procurement regulations; the variation of opinion among commenters 
concerning how to revise the regulations is discussed below. Specific 
areas identified as significant improvement are improved procurement 
authorities in cooperating and developing countries, removal of the 
increasingly troublesome concept of ``origin,'' improved waiver 
procedures and overall clarification and simplification of the rule.
    Comment: Comments from some for-profit and non-profit USAID program 
implementing grantees and contractors urged USAID to revise procurement 
practices even more broadly, by requesting Congress to amend the 
procurement authorities in the FAA to untie aid completely.
    Response: While USAID consulted with the pertinent authorizing and 
appropriations Congressional committee staff concerning the revisions 
reflected in the Proposed Rule, amendments to the FAA are beyond the 
scope of this rulemaking process, and USAID has no plans to request 
statutory amendments to FAA procurement provisions at this time.
    Comment: Several comments lauded USAID for engaging in a public 
rulemaking process but urged USAID to avoid reliance on internal agency 
policies and eliminate or limit references to such policies, including 
USAID's Automated Directive System (ADS). Those commenters indicated 
references should be to the USAID Web site so as to not give 
unwarranted regulatory credence to the ADS.
    Response: USAID shares the concern that reliance on additional 
sources of guidance concerning application of the source and 
nationality requirements may result in inconsistent application of the 
Final Rule. USAID has limited ADS references in the Final Rule to the 
minimum necessary to ensure the rule is in compliance with sometimes 
changing Congressional mandates, including those concerning prohibited 
sources and restricted commodities. Because the list of prohibited 
sources and restricted commodities is, at least in part, determined by 
foreign policy and consultations with Congress on annual 
appropriations, including non-binding committee reports and statements 
of managers, a minimal amount of flexibility in defining prohibited 
sources and restricted commodities is necessary for effective and 
efficient implementation of the Final Rule.
    Comment: While all comments supported the removal of the concept of 
``origin'' from the rule, some comments expressed concern that the 
requirement that recipients and contractors document that commodities 
be ``available for purchase'' in a country reflected in the principal 
geographic code added back complication into USAID's clarification and 
simplification of the rule. Others opined that the concept of a single 
``principal geographic code'' did not reflect other statutory 
procurement authorities, such as those benefitting the Development Fund 
for Africa and New Independent States.
    Response: These concerns are addressed below in the comments on 
Sec.  228.01, Definitions, and Sec.  228.03, Identification of the 
Principal Geographic Codes.
    Comment: Several commenters advised USAID to revise the procurement 
provisions ``reserved'' at 22 CFR part 226, Administration of 
Assistance Awards to Non-governmental Organizations.
    Response: USAID appreciates these comments, but they are outside 
the scope of this rule. Nonetheless, USAID recognizes the need to 
ensure consistency between this rule and related regulations and is in 
the process of reviewing and determining appropriate revisions to 22 
CFR part 226; ADS chapters 303, 310, 311, 312, and 221; and 48 CFR 
chapter 7 (the USAID Acquisition Regulation). Such changes will be made 
to conform to the Final Rule and are, therefore, logical outgrowths of 
the Final Rule.
    Comment: There is confusion as to what extent the prohibition on 
assistance to countries to which assistance is prohibited by law 
(simplified to ``prohibited sources'' in the Final Rule) extends to 
citizens of those countries as consultants/independent contractors.
    Response: The Final Rule clarifies in Sec.  228.15 that citizens or 
permanent residents of countries which are prohibited sources are not 
eligible to provide commodities or services as an employee, individual 
contractor, or consultant under this rule.
    Comment: The term ``goods'' should be used in place of the term 
``commodities'' in the Final Rule, because the term ``commodities'' may 
create confusion due to its use in USAID's food programs.
    Response: In order to align USAID's rules for procurement 
completely with the Congressional mandate for ``Procurement'' at 
Section 604(a) of the FAA, the Final Rule contains the same terminology 
as Section 604(a), including the statutory terms ``recipient country'' 
and ``commodities.'' The Final Rule includes alternative, more familiar 
terms such as ``cooperating country'' along with recipient country, and 
``goods'' along with commodities where suggested and appropriate, in 
order to clarify any confusion about terminology and application.

B. Comments on Specific Provisions

1. Sec.  228.01 Definitions
    Comment: One commenter suggested lettering the definitions for easy 
reference.
    Response: USAID followed the alphabetical listing used in other 
parts of the Code of Federal Regulations, such as the Federal 
Acquisition Regulation at 48 CFR part 1, in formatting this Final Rule. 
Listing each definition in alphabetical order without lettering them 
will simplify any future additions or deletions to this section.
    Comment: Regarding the definition in the Proposed Rule of 
``available for purchase,'' many commenters expressed concern that the 
requirement for recipients and contractors to document multiple sales 
of a commodity or service by the supplier of the commodity or service 
in an authorized country during the past calendar year would create a 
compliance burden. In addition, commenters recommended increasing the 
de minimis exception to documentation requirements, in order to reduce 
the compliance burden.
    Response: The definition was intended to prevent ``fly by night'' 
vendors, either individual or

[[Page 1399]]

enterprises, and especially those subsidized by foreign governments, 
from establishing themselves as sources in countries within the 
principal geographic code designated in the implementing instrument, to 
take advantage of procurements funded by USAID. The definition was also 
intended to discourage recipients and contractors from engaging local 
suppliers to import commodities on their behalf for purposes of 
circumventing the source rules.
    USAID has responded to concerns about regulatory burden by removing 
the documentation of multiple sales requirement from the definition of 
``available for purchase'' in the Final Rule (consequently, the de 
minimis exception has not been amended, but deleted as well). Instead, 
USAID addresses the circumvention issue directly: Section 228.11, 
Source of commodities, now contains an express prohibition from 
engaging suppliers of commodities in an authorized country to import 
commodities from a country outside of the principal geographic codes 
for the purposes of circumventing the requirements of this rule, 
enforceable through disallowance by USAID of the cost of procurement of 
the subject commodity. USAID as a matter of course retains the usual 
right, at its discretion, to request additional information if it has 
questions about an allowable cost. USAID has also determined that the 
``fly by night vendor'' issue can also be addressed under the 
nationality requirements of Sec.  228.12 and restrictions on 
eligibility of foreign government- owned enterprises in Sec.  228.13, 
see discussion below.
    In response to comments received, the definition of ``available for 
purchase'' has also been amended to reflect the addition in the Final 
Rule of existing Code 935 (any area or country but excluding prohibited 
sources) in Sec.  228.03, ``Identification of the Principal Geographic 
Codes,'' by exempting Code 935 procurements from the definition of 
``available for purchase.'' Code 935 is being retained to reflect the 
authorities for DFA and NIS, as well as to designate the source and 
nationality to which waivers under Subpart D will be made. Code 935 
procurements are exempted from the definition of ``available for 
purchase'' because, as commenters noted, the source rules will not 
apply and no circumvention issues will arise when ``any country or 
region'' is the authorized principle geographic code under Code 935.
    Comment: One commenter pointed out that the Proposed Rule, Sec.  
228.15, Miscellaneous Service Transactions, contained a definition of 
``commission'' more appropriately included in the definitions section, 
Sec.  228.01.
    Response: The definition of ``commission'' has been moved to Sec.  
228.01, as have the definitions of ``long term lease'' and ``motor 
vehicles'' previously included in the requirements, rather than 
definitions, section of the current regulation and the Proposed Rule.
    Comment: Commenters suggested non-substantive, slight 
clarifications/grammatical improvements to the definitions of 
``developing countries,'' ``implementing document,'' and ``source'' in 
the Proposed Rule.
    Response: The suggestions have been accepted, and the changes made 
in the Final Rule. Please note the term ``implementing document'' has 
been slightly changed to ``implementation instrument'' in the Final 
Rule to correspond with Agency terminology in the ADS Glossary.
    Comment: Regarding the definition of ``nationality'' in the 
Proposed Rule, one commenter suggested that not all countries' 
immigration laws have the immigration status of ``lawful permanent 
resident'' as included in the definition of ``nationality'' in the 
Proposed Rule.
    Response: The concept of lawful permanent residency as part of the 
``nationality'' requirement has been amended to add ``or equivalent 
immigration status to live and work on a continuing basis,'' to address 
immigration law/status variances from country to country, while at the 
same time confirming that some form of continuing or permanent 
residency is necessary to satisfy the nationality requirement.
    Comment: Several commenters inquired whether sub recipients and 
subcontractors came within the scope of this regulation and the 
definition of ``recipients and contractors.''
    Response: The definition of ``recipients and contractors'' has been 
amended to include sub recipients and subcontractors, which confirms 
that this rule applies to both. Please note that partner country 
governments are not subjects of this Final Rule, although USAID host 
country government contracting requirements do contain procurement 
provisions which are still applicable unless revised.
    Comment: Several commenters requested additional definitions.
    Response: USAID has added to Sec.  228.01 Definitions, a definition 
of ``Pharmaceuticals'' and also of ``Free Port or Bonded Warehouse'' in 
response to requests for the same.
    Additional change: The Final Rule also simplifies the term in the 
Proposed Rule, ``countries to which assistance is prohibited by law'' 
by replacing it with the concept of ``prohibited sources'' adapted from 
the Federal Acquisition Regulation, 48 CFR part 1, and providing a 
USAID-specific definition at Sec.  228.01. Please note the definition 
includes countries which are subject to applicable sanctions 
administered by the U.S. Treasury Department's Office of Foreign Assets 
Control, and other applicable executive branch restrictions. As in the 
Proposed Rule, USAID will provide a list of Prohibited Sources in ADS 
310.
2. Sec.  228.02 Scope and Application
    Comment: Several commenters suggested that this section confirm 
that procurements with program income and under Title II Food Aid 
programs are not required to comply with 22 CFR part 228 in its 
entirety.
    Response: The Final Rule includes specific exceptions from coverage 
of this regulation for procurements with program income and 
procurements funded by Title II food aid funds, as well as an 
additional sentence reaffirming the non-applicability of this 
regulation to the six exempted categories of procurements at Sec.  
228.02. The intent is to clarify that according to its terms, the 
statutory requirement of FAA 604(a) apply only to ``[f]unds made 
available for assistance (emphasis added) under this Act'' (the FAA).
    The Final Rule also includes two slight, non-substantive 
grammatical refinements to Sec.  228.02.
3. Sec.  228.03 Identification of the Principal Geographic Codes
    Comment: Several implementing grantee and contractor commenters 
suggested that the establishment of one geographic code was an 
oversimplification of USAID's procurement authorities.
    Response: The Proposed Rule attempted to mirror the specific 
language of USAID's statutory procurement authority to procure in ``the 
United States, the recipient country, or developing countries,'' FAA 
604(a), by establishing one principal geographic code to replace the 
many others developed over the years. The ``additional authorities and 
conditions'' language in Sec.  228.02, above, was intended to preserve 
statutory procurement authority that augments FAA 604(a), such as 
Support for Economic and Democratic Development of the Independent 
States of the Former Soviet Union, 22 U.S.C. Section 2295b (reflected 
in the current regulation as Code 110), and Development Fund for 
Africa, 22 U.S.C. 2293 et seq. (reflected

[[Page 1400]]

in the current regulation as Code 935) However, due to the possibility 
of confusion, the Final Rule adds back Principal Geographic Codes 110 
and 935, as specified below in Sec.  228.03.
4. Sec.  228.11 Source of Commodities
    Comments and response: as noted above in III.B., Sec.  228.11 now 
contains a restriction on recipients and contractors engaging vendors 
to import commodities in circumvention of source and nationality 
requirements, in lieu of requirements in the Proposed Rule for 
documentation of multiple sales in past year, now deleted from the 
definition of ``available for purchase'' in Sec.  228.01 of the Final 
Rule.
5. Sec.  228.12 Nationality of Suppliers of Commodities and Services
    Comments: One commenter expressed opinions that by requiring both 
principal place of business in a country in the primary geographic code 
and requiring majority direct or beneficial ownership of for profit 
organizations by individuals who are citizens or lawful permanent 
residents of a country in the designated code, the regulation would 
result in the non-eligibility and exclusion of ``a whole class of 
foreign-owned development organizations even though such organizations 
have a substantial involvement in the United States, or developing 
country, economies.''
    Response: The nationality provision (along with the restrictions on 
eligibility of foreign government controlled enterprises, below) was 
intended to address the specter of ``fly by night '' vendors from 
otherwise ineligible (not recipient or developing) third countries 
descending on a recipient or developing country, taking advantage of 
less rigorous citizenship or business establishment requirements, and 
undercutting U.S. or local vendors. In order to address commenter 
concerns about exclusion of legitimate foreign (but not foreign 
government) owned or controlled international development 
organizations, the nationality requirements for organizations have been 
simplified to require, as uniformly recommended by commenters (1) 
organization under the laws of a country in the principal geographic 
code designated in a implementing instrument; (2) conducting business 
as a ``going concern'' (functioning business entity for the foreseeable 
future) in such country; and either (3) management by a governing body, 
the majority of whom are citizens or residents of such country or (4) 
employment of citizens or residents of such country in more than half 
of its permanent full time positions and half of its principal 
management positions. The criticized ``majority direct ownership or 
beneficial ownership'' requirement of the Proposed Rule has been 
deleted in its entirety; USAID anticipates that the majority management 
and employment requirements will discourage fly by night vendors while 
at the same time preserving the eligibility of foreign-owned but U.S. 
or recipient/developing country benefitting, foreign assistance 
organizations.
6. Sec.  228.13 Foreign Government-Owned Organizations
    Comment: One commenter expressed concern that the Proposed Rule did 
not adequately distinguish between foreign-owned commercial 
enterprises, which are not eligible for financing, and foreign 
entities, such as government ministries, but also educational, health 
care, and other public sector actors, which are appropriate and 
necessary partners for USAID.
    Response: The exclusions at Sec.  228.13 have been broadened in the 
Final Rule to preserve the eligibility of government education 
institutions, health care providers, and technical entities not formed 
primarily for a business or commercial purpose from the restrictions of 
this provision (similar to recent Millennium Challenge Corporation 
provisions on foreign government-owned enterprises). In addition, a 
statement is added to the second sentence of Sec.  228.13 to emphasize 
that regional and local governments, along with national government 
ministries and agencies, are eligible partners for USAID financing.
7. Sec.  228.15 Nationality of Individuals Under Contracts or 
Subcontracts for Services
    Comment: Several commenters praised the revisions but inquired 
whether or not individual contractors were covered by Sec.  228.15.
    Response: The Final Rule has been amended to clarify that 
individual contractors as well as consultants of recipients and 
contactors are eligible, and not subject to the eligibility 
requirements. However, as above, citizens or permanent residents of 
countries which are prohibited sources are not eligible for USAID 
financing under the Final Rule.
8. Sec.  228.17 Special Procurement Rules for Construction and 
Engineering Services
    Comment: Several commenters questioned how reasonable it is for 
recipients and contractors to determine which advanced developing 
countries have attained a competitive capacity in international markets 
for construction and engineering services.
    Response: Sec.  228.17 has been amended to clarify in the Final 
Rule that USAID makes such determinations, and will make those 
determinations available through ADS 310.
9. Sec.  228.18 Long-Term Leases
    Comment: One commenter inquired whether or not a lease of 18 
vehicles for 10 days each at the same time would trigger the long term 
lease provisions.
    Response: Sec.  228.18 has been amended in the Final Rule to move 
the definition of long term lease into the definitions section, Sec.  
228.01, and also to clarify that the source and nationality 
requirements of Subpart B are only triggered for repeat leases of 
single vehicles totaling 180 days or more.
10. Sec.  228.19 Special Rules Requiring United States Manufacture or 
Procurement
    Comment: Several commenters suggested grammatical edits to clarify 
the title of this section, advocated for revisions of USAID's ADS 312 
on Eligibility of Commodities and Commodity Eligibility Listing, and 
also requested inclusion of a definition of ``pharmaceuticals'' in the 
Final Rule.
    Response: Recommendations for grammatical edits were accepted and 
made, and definitions of ``commodities'' and ``pharmaceuticals'' have 
been added to Sec.  228.01, Definitions, in the Final Rule. Sec.  
228.19(a), regarding Agriculture Commodities, has been revised to state 
that USAID provides a list of restricted agricultural commodities in 
ADS 312. Section 228.19(b) clarifies that financing transportation or 
driver services from an individual or commercial entity and not 
directly financing the purchase or lease of a vehicle, is subject to 
the nationality of suppliers requirements of Sec.  228.12, not the 
restrictions on motor vehicle procurements. The provision on 
pharmaceuticals in Sec.  228.19(c) has been revised to comply with 
``plain language'' guidance for federal regulations.
11. Subpart C--Conditions Governing the Eligibility of Commodity-
Related Services for USAID Financing
    Comment: Four commenters suggested revision or elimination of 
provisions related to the Cargo Preference Act, 46 U.S.C. 55305 (Sec.  
228.21) and eight commenters suggested revision or elimination of 
provisions related to the Fly America Act, 49 U.S.C. App. 1517 (Sec.  
228.22) in the Final Rule.

[[Page 1401]]

    Response: USAID is participating in a separate interagency working 
group considering updates to Cargo Preference Act implementing guidance 
and regulations. Further action to update these implementing 
regulations, if any, will be subject to notice and comment, and will be 
published in the Federal Register by the Department of Transportation's 
Maritime Administration.
    Currently, USAID does not plan to engage Congress concerning 
amendments to the Fly America Act, although the provisions of Sec.  
228.22 have been slightly revised to reflect that it applies only to 
transport of commodities under the Final Rule.
12. Subpart D--Waivers
    Comments: The waiver provision of the proposed rule received a 
substantial number of comments from implementing grantee and contractor 
commenters as well as their advocacy groups. USAID received the 
following relevant and significant suggestions: (1) Deletion of the 
term ``produced in'' as part of the larger phrase, ``not produced in 
and available for purchase in'' as grounds for a waiver under Sec.  
228.30(a)(1), due to concern the words ``produced in'' were 
reintroducing the concept of ``origin'' otherwise deleted from the 
Proposed Rule; (2) clarification whether or not cost savings for 
procurement of a commodity could be grounds for a waiver to ``promote 
efficiency in the use of United States foreign assistance resources''; 
(3) assigning authority to approve waivers to USAID senior field staff, 
as is done with waivers for USAID branding and marking requirements, 22 
CFR 226.91, and (4) imposing an internal time limit for USAID's 
processing waivers, perhaps as short as 15 days.
    Responses: (1) While the term ``produced in and available for 
purchase in'' is retained in the Final Rule because it tracks the 
statutory language at Section 604(a) of the FAA, a clarification has 
been added that the term as used in Sec.  228.30(a)(1) will have the 
same meaning as the definition of ``available for purchase'' in Sec.  
228.1, and thus not reintroduce inquiries into where a commodity has 
been ``produced'' or the concept of ``origin'' through the backdoor of 
the waiver provision; (2) While a favorable price differential of 50% 
or greater may be grounds for approval of a waiver in order to promote 
efficiency in the use of foreign assistance resources, it would be 
subject to the discretion of the approving authority for the waiver; 
(3) Similarly to waiver approval authority for USAID branding and 
marking requirements, under USAID's internal delegations of authority, 
waiver authority for source, nationality requirements currently is 
assigned to USAID's most senior officials in field missions, as 
suggested; and (4) While USAID declines to impose time limitations on 
internal processing of waivers, USAID will be providing training on the 
Final Rule to USAID staff, and anticipates that the additional guidance 
on waivers provided in the Final Rule will result in expedited 
processing of waivers. USAID also expects that revisions to source and 
nationality requirements reflected in the Final Rule will obviate the 
need for many previously needed waivers.
    USAID has declined a suggestion to incorporate approved waivers 
into the Final Rule in order to preserve the distinction between the 
requirements of the rule and the special circumstances reflected in an 
approved waiver determination.

C. Subpart E, Effective Date

    Comment: USAID received suggestions advocating for a delayed 
effective date due to the necessity to absorb changes made by the Final 
Rule, and one suggestion for a retroactive effective date due to the 
importance and benefit of changes made by the rule.
    Response: USAID has established an effective date of February 6th, 
2012 in order to allow for training of USAID staff on the Final Rule, 
and also to prepare implementation guidance and ensure related agency 
policy which reflects the revisions to USAID procurement requirements 
established in the Final Rule. USAID has no plan to make the 
implementation date retroactive, a step that requires meeting stringent 
legal tests to overcome a presumption that new laws be applied 
prospectively.
    Because the effective date is specified in the section following 
the preamble Summary in publication of the Final Rule, Subpart E has 
been removed. If need be, USAID awards in effect at the time the Final 
Rule becomes effective that contain any non-Code 935 geographic codes 
shall be modified to reflect the principal geographic codes established 
at Sec.  228.03. All new awards after February 6, 2012 are subject to 
the Final Rule.

IV. Regulatory Planning and Review: Findings and Certifications of 
Impact Assessment

A. Executive Orders 12866 and 13563

    Executive Orders 13563 and 12866 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule has been designated a ``significant regulatory 
action'' although not economically significant, under section 3(f) of 
Executive Order 12866. Accordingly, the rule has been reviewed by the 
Office of Management and Budget.

B. Congressional Review Act

    This rule is not a major rule under 5 U.S.C. 804. However, in order 
to ensure compliance with Executive Branch rulemaking policy and 
priorities, this rule has been reviewed by the Office of Information 
and Regulatory Affairs of the Office of Management and Budget.

C. Regulatory Flexibility Act

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601 et seq.), USAID has considered the economic 
impact of the Final Rule and has certified that its provisions would 
not have a significant economic impact on a substantial number of small 
entities.

D. Paperwork Reduction Act

    There is no reporting or documentation or other information 
collection requirements under the Final Rule that require analysis 
under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.

List of Subjects in 22 CFR Part 228

    Foreign aid, Procurement, USAID contractors, Grantees, and Non-
governmental recipients.

    For the reasons set forth above and based on the comments received 
in response to the ANPRM and Proposed Rule, USAID revises 22 CFR part 
228 to read as follows:

PART 228--RULES FOR PROCUREMENT OF COMMODITIES AND SERVICES 
FINANCED BY USAID

Sec.
Subpart A--Definitions and Scope of This Part
228.01 Definitions.
228.02 Scope and application.
228.03 Identification of the authorized principal geographic 
procurement codes.

[[Page 1402]]

Subpart B--Conditions Governing Source and Nationality of Commodity and 
Service Procurement Transactions for USAID Financing
228.10 Purpose.
228.11 Source of commodities.
228.12 Nationality of suppliers of commodities and services.
228.13 Foreign government-controlled organizations.
228.14 Construction procurement with foreign-owned local firms.
228.15 Nationality of employees and individuals under contracts or 
subcontracts for services.
228.16 Miscellaneous service transactions.
228.17 Special procurement rules for construction and engineering 
services.
228.18 Long-term leases.
228.19 Special source rules requiring United States manufacture or 
procurement.
Subpart C--Conditions Governing the Eligibility of Commodity-Related 
Services for USAID Financing
228.20 Purpose.
228.21 Ocean transportation.
228.22 Air transportation.
228.23 Other delivery services.
228.24 Incidental services.
Subpart D--Waivers
228.30 General.
228.31 Authority to approve waivers.

    Authority: Sec. 621, Pub. L. 87-195, 75 Stat. 445 (22 U.S.C. 
2381), as amended, E.O. 12163, Sept. 29, 1979, 44 FR 56673: 3 CFR 
1979 Comp., p. 435.

Subpart A--Definitions and Scope of This Part


Sec.  228.01  Definitions.

    As used in this part, the following terms shall have the following 
meanings:
    Advanced developing countries mean those countries that are 
categorized by the World Bank as upper middle income countries 
according to their gross national income per capita, except for those 
countries in which USAID provides assistance. USAID will maintain a 
list of advanced developing countries primarily based on the most 
recent World Bank determinations, and will make the list available in 
USAID's Automated Directives System, ADS 310. This list will include 
determinations made under Sec.  228.17 of this part.
    Available for purchase means for commodities, that the commodity is 
offered for sale in a country in the authorized principal geographic 
code at the time of purchase from the supplier, irrespective of the 
place of manufacture or production, unless it is a prohibited source 
country. If applicable, the commodity must also be able to be serviced, 
and, if warrantied, have a valid warranty. For services, available for 
purchase means the service is offered from a vendor which has complied 
with nationality and foreign government-owned organization requirements 
of this regulation, and is otherwise organized in a country in the 
authorized principal geographic code designated in an implementing 
instrument. This definition does not apply to procurements under the 
geographic Code 935, see Sec.  228.03 of this part, because that 
geographic code is for any country or area except for prohibited source 
countries.
    Commission means any payment or allowance by a supplier to any 
person for the contribution which that person has made to secure the 
sale or contract for the supplier or which that person makes to 
securing on a continuing basis similar sales or contracts for the 
supplier.
    Commodities or goods means any material, article, supply, good, or 
equipment.
    Commodity-related services means delivery services and/or 
incidental services.
    Cooperating country or recipient country means the country 
receiving the USAID assistance subject to this part 228, and includes 
all the countries receiving assistance under a regional program or 
project.
    Delivery means the transfer to, or for the account of, an importer 
of the right to possession of a commodity, or, with respect to a 
commodity-related service, the rendering to, or for the account of, an 
importer of any such service.
    Delivery service means any service customarily performed in a 
commercial export or import transaction which is necessary to affect a 
physical transfer of commodities to the cooperating/recipient country. 
Examples of such services are the following: export packing, local 
drayage in the source country (including waiting time at the dock), 
ocean and other freight, loading, heavy lift, wharfage, tollage, 
switching, dumping and trimming, lighterage, insurance, commodity 
inspection services, and services of a freight forwarder. ``Delivery 
service'' may also include work and materials necessary to meet USAID 
marking requirements.
    Developing countries means those countries that are categorized by 
the World Bank as low or lower middle income economies according to 
their gross national income per capita, and also includes all countries 
to which USAID provides assistance. USAID will maintain a list of 
developing countries primarily based on the most recent World Bank 
determinations, and will make the list available in USAID's Automated 
Directives System, ADS 310.
    Free Port or Bonded Warehouse is a special customs area with 
favorable customs regulations (or no customs duties and controls for 
transshipment).
    Implementing instrument means a binding relationship established 
between USAID and an outside party or parties to carry out USAID 
programs, by authorizing the use of USAID funds and/or nonfinancial 
resources for the procurement of services or commodities and/or 
commodity related services. Implementing instruments include specific 
conditions that apply to each such procurement. Examples of such 
instruments include contracts, grants, cooperating agreements, and 
interagency agreements.
    Incidental services means services such as installation, erection, 
maintenance, or upgrading of USAID-financed equipment, or the training 
of personnel in the maintenance, operation and use of such equipment, 
or similar services provided for the authorized disposition of such 
commodities.
    Long term lease means, for purposes of subpart B, a single lease of 
more than 180 calendar days; or repetitive or intermittent leases under 
a single award within a one-year period, which cumulatively total more 
than 180 calendar days. A single lease may consist of lease of one or 
more of the same type of commodity within the same lease term.
    Motor vehicles means self-propelled vehicles with passenger 
carriage capacity, such as highway trucks, passenger cars and buses, 
motorcycles, scooters, motorized bicycles, ATVs, and utility vehicles. 
Excluded from this definition are ambulances, snowmobiles, industrial 
vehicles for materials handling and earthmoving, such as lift trucks, 
tractors, graders, scrapers, off-the-highway trucks (such as off-road 
dump trucks), boats, and other vehicles that are not designed for 
travel at normal road speeds (40 kilometers per hour and above).
    Mission means the USAID Mission, office or representative in a 
cooperating/recipient country.
    Nationality refers to the place of legal organization, ownership, 
citizenship, or lawful permanent residence (or equivalent immigration 
status to live and work on a continuing basis) of suppliers of 
commodities and services.
    Pharmaceutical means any substance intended for use in the 
diagnosis, cure, mitigation, treatment, or prevention of diseases in 
humans or animals; any substances (other than food) intended to affect 
the structure or any function of the body of humans or animals; and, 
any substance intended for use as a component in the above. The term

[[Page 1403]]

includes drugs, vitamins, oral rehydration salts, biologicals, and some 
in-vitro diagnostic reagents/test kits; but does not include devices or 
their components, parts, or accessories. Contraceptives, including 
condoms, are not included in this definition.
    Prohibited sources means countries to which assistance is 
prohibited by the annual appropriations acts of Congress or other 
statutes, or those subject to other executive branch restrictions, such 
as applicable sanctions administered by the U.S. Treasury Department's 
Office of Foreign Assets Control. USAID maintains a list of prohibited 
sources, available in USAID's Automated Directives System, ADS 310.
    Recipients and contractors. Recipient has the same meaning as 
defined in 22 CFR 226.02, except that it shall include non-U.S. 
individuals, entities and organizations, as well as subrecipients. 
Contractors mean those entities which enter into a contract, as the 
term is defined in 48 CFR part 2, with the U.S. Government, and 
includes subcontractors.
    Services means the performance of identifiable tasks, rather than 
the delivery of an end item of supply.
    Source means the country from which a commodity is shipped to the 
cooperating/recipient country or the cooperating/recipient country 
itself if the commodity is located therein at the time of the purchase, 
irrespective of the place of manufacture or production, unless it is a 
prohibited source country. Where, however, a commodity is shipped from 
a free port or bonded warehouse in the form in which received therein, 
``source'' means the country from which the commodity was shipped to 
the free port or bonded warehouse.
    Supplier means any person or organization, governmental or 
otherwise, who furnishes services, commodities, and/or commodity 
related services, including delivery or incidental services, financed 
by USAID.
    United States means the United States of America, any State(s) of 
the United States, the District of Columbia, and areas of U.S. 
associated sovereignty, including commonwealths, territories and 
possessions.
    USAID means the United States Agency for International Development 
or any successor agency, including when applicable, each USAID Mission 
or office abroad.
    USAID Principal Geographic Code means a USAID code which designates 
a country, a group of countries, or an otherwise defined area. The 
USAID principal geographic codes for purposes of procurement are 
described in Sec.  228.03 of this part.


Sec.  228.02  Scope and application.

    This part is applicable to commodities and services procured under 
implementing instruments using Federal program funds made available for 
assistance under the Foreign Assistance Act of 1961, as amended, 22 
U.S.C. 2151 et seq. (FAA). The authorities and conditions applicable to 
the procurement of commodities or services shall be those in effect on 
the effective date of an implementing instrument for procurement of 
commodities or services. They include any directives, prohibitions, 
restrictions or other statutory and related requirements by the United 
States Congress that govern the Federal program funds appropriated to 
fund the specific procurement, including those on types of assistance 
and recipients of assistance. If additional authorities and conditions 
are otherwise provided by statute, regulation, or related 
administrative authorities, those authorities and conditions shall be 
incorporated in the implementing instrument and shall prevail in the 
event of any conflict with this part 228. This part is not applicable 
to
    (a) Procurements of commodities and services under General Services 
Administration (GSA) supply schedules;
    (b) Procurements with donated funds received under USAID's gift 
authority, FAA section 635(d);
    (c) Procurements funded by cost share or program income as defined 
in 22 CFR 226.24;
    (d) USAID Title II food programs, including monetization proceeds 
thereunder.
    (e) Procurements funded from any congressional appropriation 
authorized by any statute other than the FAA;
    (f) Procurements with non-program funds (such as operational 
expense account funds) made available under the FAA for any purpose 
other than assistance.


Sec.  228.03  Identification of the authorized principal geographic 
procurement codes.

    (a) USAID has established principal geographic codes which are used 
by USAID in implementing instruments. This regulation establishes a 
presumptive authorized principal geographic code, Code 937, for 
procurement of commodities and services unless otherwise specified in 
the implementing instrument. Code 937 is defined as the United States, 
the cooperating/recipient country, and developing countries other than 
advanced developing countries, and excluding prohibited sources. USAID 
maintains a list of developing countries, advanced developing 
countries, and prohibited sources, which will be available in USAID's 
Automated Directives System, ADS 310.
    (b) For purposes of procurements under the authority of the 
Development Fund for Africa, 22 U.S.C. 2293 et seq.; for any waivers 
authorized under Subpart D of this regulation; and if otherwise 
designated in an implementing instrument, the authorized principal 
geographic code shall be Code 935, any area or country but excluding 
prohibited sources.
    (c) For purposes of procurements under the Support for Economic and 
Democratic Development of the Independent States of the Former Soviet 
Union, 22 U.S.C. 2295b, the authorized principal geographic codes are 
Code 937 and Code 110 (New Independent States).
    (d) Additional principal geographic codes may be added to this 
section if authorized by Congress.

Subpart B--Conditions Governing Source and Nationality of Commodity 
and Service Procurement Transactions for USAID Financing


Sec.  228.10  Purpose.

    Sections 228.11 through 228.19 set forth the rules governing the 
eligible source of commodities and nationality of commodity and service 
suppliers for USAID Federal share financing under prime and subawards. 
These rules may be waived in accordance with the provisions in subpart 
D of this part.


Sec.  228.11  Source of commodities.

    The source of all commodities financed with Federal program funds 
appropriated under the Foreign Assistance Act of 1961, as amended, 
shall be Code 937 (unless Code 935 or 110 are designated in the 
implementing instrument). Procurements of agricultural commodities, 
motor vehicles and pharmaceuticals must also comply with the special 
procurement rules in Sec.  228.19 of this part. Recipients and 
contractors are prohibited from engaging suppliers of commodities in an 
authorized country to import commodities from a country outside of the 
authorized principal geographic codes for the purposes of circumventing 
the requirements of this rule. Any violation of this prohibition will 
result in the disallowance by USAID of the cost of the procurement of 
the subject commodity.

[[Page 1404]]

Sec.  228.12  Nationality of suppliers of commodities and services.

    The suppliers of all commodities and services financed with federal 
program funds appropriated under the Foreign Assistance Act of 1961, as 
amended, shall:
    (a) If an individual, except as provided in Sec.  228.15, be a 
citizen or lawful permanent resident (or equivalent immigration status 
to live and work on a continuing basis) of a country in Code 937 (or 
other principal geographic procurement code designated in an 
implementing instrument),
    (b) If an organization,
    (1) Be incorporated or legally organized under the laws of a 
country in Code 937 (or other principal geographic procurement code 
designated in an implementing instrument);
    (2) Must be operating as a going concern in a country in Code 937 
(or other principal geographic procurement code designated in an 
implementing instrument), and either
    (3) Be managed by a governing body, the majority of whom are 
citizens or lawful permanent residents (or equivalent immigration 
status to live and work on a continuing basis) of countries in Code 937 
(or other principal geographic procurement code designated in an 
implementing instrument), or
    (4) Employ citizens or lawful permanent residents (or equivalent 
immigration status to live and work on a continuing basis) of a country 
in Code 937 (or other principal geographic procurement code designated 
in an implementing instrument), in more than half its permanent full-
time positions and more than half of its principal management 
positions.


Sec.  228.13  Foreign government-controlled organizations.

    Firms operated as commercial companies or other organizations or 
enterprises (including nonprofit organizations) in which foreign 
governments or their agents or agencies have a controlling interest are 
not eligible as suppliers of commodities and services, except if their 
eligibility has been established by a waiver approved by USAID in 
accordance with the provisions set forth in subpart D of this part. 
Government ministries or agencies of the cooperating/recipient country, 
including those at the regional and local levels, and government 
educational institutions, health care providers, and other technical 
entities of the cooperating/recipient country not formed primarily for 
commercial or business purposes, are eligible as suppliers of 
commodities and services.


Sec.  228.14  Construction procurement with foreign-owned local firms.

    (a) When the estimated cost of a contract for construction is $10 
million or less and only local firms will be solicited, a local 
corporation or partnership which is a foreign-owned (owned or 
controlling interest by individuals not citizens or permanent 
residents, or equivalent immigration status, of the United States or 
the cooperating/recipient country) local firm will be eligible if it is 
determined by USAID to be an integral part of the local economy, see 
paragraph (b) of this section. However, such a determination is 
contingent on first ascertaining that no United States construction 
company with the required capability is currently operating in the 
cooperating/recipient country or, if there is such a company, that it 
is not interested in bidding for the proposed contract.
    (b) A foreign-owned local firm is an integral part of the local 
economy provided:
    (1) It has done business in the cooperating/recipient country on a 
continuing basis for at least three years prior to the issuance date of 
invitations for bids or requests for proposals to be financed by USAID;
    (2) It has a demonstrated capability to undertake the proposed 
activity;
    (3) All, or substantially all, of its directors of local 
operations, senior staff and operating personnel are lawfully resident 
(or equivalent immigration status to live and work on a continuing 
basis) in the cooperating/recipient country; and
    (4) Most of its operating equipment and physical plant are in the 
cooperating/recipient country.


Sec.  228.15  Nationality of employees and individuals under contracts 
or subcontracts for services.

    The rules set forth in Sec. Sec.  228.10 through 228.13 of this 
part do not apply to the employees of contractors, or individuals 
providing technical or professional services to recipients or 
contractors. However, such individuals must not be citizens or lawful 
permanent residents (or equivalent immigration status) of countries 
which are prohibited sources.


Sec.  228.16  Miscellaneous service transactions.

    This section governs certain miscellaneous services.
    (a) Commissions. The nationality rules of this part do not apply to 
the payment of commissions by suppliers.
    (b) Bonds and guarantees. The nationality rules of this part do not 
apply to sureties, insurance companies or banks who issue bonds or 
guarantees under USAID-financed contracts.
    (c) Liability insurance under construction contracts. The 
nationality rules of this part do not apply to firms providing 
liability insurance under construction contracts.


Sec.  228.17  Special procurement rules for construction and 
engineering services.

    Advanced developing countries, as defined in Sec.  228.01, which 
USAID has determined to have attained a competitive capability in 
international markets for construction services or engineering services 
are not eligible to furnish USAID-financed construction and engineering 
services unless approved to do so under a waiver to Code 935 under 
subpart D of this part.


Sec.  228.18  Long-term leases.

    Any commodity obtained under a long-term lease agreement as defined 
in Sec.  228.01, including motor vehicles, is subject to the source and 
nationality requirements of this subpart B of this part, including the 
special procurement rules as set forth in Sec.  228.19.


Sec.  228.19  Special rules requiring United States manufacture or 
procurement.

    (a) Certain agricultural commodities and products thereof must be 
procured in the United States if the domestic price is less than 
parity, unless the commodity cannot reasonably be procured in the 
United States in fulfillment of the objectives of a particular 
assistance program under which such commodity procurement is to be 
financed. (22 U.S.C. 2354). USAID maintains a list of restricted 
agricultural commodities and related policies, which is available in 
USAID's Automated Directives System, ADS 312.
    (b) Motor vehicles must be manufactured in the United States to be 
eligible for USAID financing (22 U.S.C. 2396). Any vehicle to be 
financed by USAID under a long-term lease or where the sale is to be 
guaranteed by USAID must be manufactured in the United States. However, 
financing of transportation or driver services from an individual or 
commercial entity and not directly financing the purchase or lease of a 
vehicle, is subject to the requirements at Sec.  228.12. Financing 
transportation or driver services means:
    (1) The vehicle is independently owned or leased by the hired 
driver or company;
    (2) The vehicle will be maintained by the individual or commercial 
entity and driven only by the hired driver(s); and

[[Page 1405]]

    (3) The vehicle is not directly leased, either as a separate line 
item in the contract separate from the cost of the driver's services, 
or under a separate contract.
    (c) Under section 606(c) of the FAA, USAID cannot finance any 
pharmaceutical product that is manufactured outside of the United 
States if the pharmaceutical is covered by a valid U.S. patent, unless 
the U.S. patent holder expressly authorizes the manufacture of the 
pharmaceutical. Without such express authorization, the pharmaceutical 
must be purchased from the U.S. patent holder. In addition, USAID shall 
not finance non-contraceptive pharmaceuticals without prior written 
approval as provided in USAID's Automated Directives System Chapter 
312. Contraceptives may be financed in accordance with the procedures 
in ADS 312.

Subpart C--Conditions Governing the Eligibility of Commodity-
Related Services for USAID Financing


Sec.  228.20  Purpose.

    Secti