Definitions; Cost Standards and Procedures; Purchasing and Property Management, 37327-37345 [2017-16764]

Download as PDF mstockstill on DSK30JT082PROD with RULES Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4). For the same reason, this action also does not significantly or uniquely affect the communities of Tribal governments, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). In any case, Executive Order 13175 does not apply to this rule since there are no Federally recognized tribes in Delaware. 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List of Subjects in 40 CFR Part 271 Environmental protection, Administrative practice and procedure, Confidential business information, Hazardous materials transportation, Hazardous waste, Indian lands, Intergovernmental relations, Penalties, Reporting and recordkeeping requirements, Water pollution control, Water supply. Authority: This action is issued under the authority of sections 2002(a), 3006 and 7004(b) of the Solid Waste Disposal Act, as amended, 42 U.S.C. 6912(a), 6926, and 6974(b). PO 00000 Frm 00033 Fmt 4700 Sfmt 4700 37327 Dated: July 27, 2017. Cecil Rodrigues, Acting Regional Administrator, U.S. EPA Region III. [FR Doc. 2017–16903 Filed 8–9–17; 8:45 am] BILLING CODE 6560–50–P LEGAL SERVICES CORPORATION 45 CFR Parts 1600, 1630, and 1631 Definitions; Cost Standards and Procedures; Purchasing and Property Management Legal Services Corporation. Final rule. AGENCY: ACTION: This final rule revises the Legal Services Corporation (LSC or Corporation) regulation on Definitions and Cost Standards and Procedures and creates a new part from LSC’s Property Acquisition and Management Manual (PAMM). SUMMARY: This final rule is effective on December 31, 2017. FOR FURTHER INFORMATION CONTACT: Stefanie K. Davis, Assistant General Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 20007; (202) 295–1563 (phone), (202) 337–6519 (fax), or sdavis@lsc.gov. SUPPLEMENTARY INFORMATION: DATES: I. Background The purpose of 45 CFR part 1630 is ‘‘to provide uniform standards for allowability of costs and to provide a comprehensive, fair, timely, and flexible process for the resolution of questioned costs.’’ 45 CFR 1630.1. LSC last revised part 1630 in 1997, when it published a final rule intended to ‘‘bring the Corporation’s cost standards and procedures into conformance with applicable provisions of the Inspector General Act, the Corporation’s appropriations [acts], and relevant Office of Management and Budget (OMB) circulars.’’ 62 FR 68219, Dec. 31, 1997. Although the OMB Circulars are not binding on LSC because LSC is not a federal agency, LSC adopted relevant provisions from the OMB Circulars pertaining to non-profit grants, audits, and cost principles into the final rule for part 1630. Id. at 68219–20 (citing OMB Circulars A–50, A–110, A–122, and A– 133). LSC published the PAMM in 2001 ‘‘to provide recipients with a single complete and consolidated set of policies and procedures related to property acquisition, use and disposal.’’ 66 FR 47688, Sept. 13, 2001. Prior to the PAMM’s issuance, such policies and E:\FR\FM\10AUR1.SGM 10AUR1 37328 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations mstockstill on DSK30JT082PROD with RULES procedures were ‘‘incomplete, outdated and dispersed among several different LSC documents.’’ Id. The PAMM contains policies and procedures that govern both real and non-expendable personal property, but, except for contract services for capital improvements, the PAMM does not apply to contracts for services. Id. at 47695. The PAMM’s policies and procedures were developed with guidance from the Federal Acquisition Regulation at 48 CFR parts 1–52, federal property management regulations, and OMB Circular A–110. Id. at 47688. The PAMM also incorporates several references to provisions of part 1630 pertaining to costs that require LSC’s prior approval and the proper allocation of derivative income. Id. at 47696–98 (containing references to 45 CFR 1630.5(b)(2)–(4), 1630.5(c), and 1630.12, respectively). Part 1630 and the PAMM have not been revised since 1997 and 2001, respectively. Since then, procurement practices and cost allocation principles applicable to awards of federal funds have changed significantly. For instance, in 2013, OMB revised and consolidated several Circulars, including the Circulars LSC relied upon to develop part 1630, into a single Uniform Guidance. 78 FR 78589, Dec. 26, 2013; 2 CFR part 200. OMB consolidated and simplified its guidance to ‘‘reduce administrative burden for non-Federal entities receiving Federal awards while reducing the risk of waste, fraud and abuse.’’ 78 FR 78590. LSC determined that it should undertake regulatory action at this time for three reasons. The first reason is to account for changes in Federal grants policy where appropriate for LSC. The second reason is to address the difficulties that LSC and its grantees experience in applying ambiguous provisions of part 1630 and the PAMM. Finally, LSC believes rulemaking is appropriate now to address the limitations that certain provisions of both documents place on LSC’s ability to ensure clarity, efficiency, and accountability in its grant-making and grants oversight practices. II. Procedural History of This Rulemaking In July 2014, the Operations and Regulations Committee (Committee) of LSC’s Board of Directors (Board) approved Management’s proposed 2014–2015 rulemaking agenda, which included revising part 1630 and the PAMM as a priority item. On July 7, 2015, Management presented the Committee with a Justification VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 Memorandum recommending publication of an Advance Notice of Proposed Rulemaking (ANPRM) to seek public comment on possible revisions to part 1630 and the PAMM. Management stated that collecting input from the regulated community through an ANPRM would significantly aid LSC in determining the scope of this rulemaking and in developing a more accurate understanding of the potential costs and benefits that certain revisions may entail. On July 18, 2015, the Board authorized rulemaking and approved the preparation of an ANPRM to revise part 1630 and the PAMM. In October 2015, LSC published in the Federal Register an ANPRM, seeking public comment on potential revisions to part 1630 and the Property Acquisition and Management Manual (PAMM). 80 FR 61142, Oct. 9, 2015. After receiving comments on the ANPRM, LSC conducted workshops to obtain additional input on the potential changes. LSC drafted proposed changes to part 1630 and the PAMM based on the feedback it received from the ANPRM and the workshops. On October 28, 2016, LSC published in the Federal Register a Notice of Proposed Rulemaking (NPRM) regarding 45 CFR parts 1600, 1630, and new 1631. 81 FR 75006, Oct. 28, 2016. LSC sought public comment on LSC’s revisions to its definitions and cost standards and procedures and the creation of a new part from the PAMM. In response to a request from the National Legal Aid and Defender Association (NLADA), LSC extended the original 60-day comment period for an additional 30 days. 81 FR 93653, Dec. 21, 2016. The new deadline for comments was January 26, 2017. On July 21, 2017, the Committee recommended publication of this final rule to the Board. On July 22, 2017, the Board voted to publish this final rule. Materials regarding this rulemaking are available in the open rulemaking section of LSC’s Web site at http:// www.lsc.gov/about-lsc/laws-regulationsguidance/rulemaking. After the effective date of the rule, those materials will appear in the closed rulemaking section at http://www.lsc.gov/about-lsc/lawsregulations-guidance/rulemaking/ closed-rulemaking. Commenters expressed support for several elements of the proposed regulations. NLADA supported the proposal to eliminate 45 CFR 1630.3(a)(8), which requires recipients to obtain written consent from federal agencies before they may use LSC funds to match the federal agencies’ grants. NLADA, NJP, and MAP supported increasing the prior approval threshold in § 1630.6(b)(1) from $10,000 to $25,000. MAP supported the proposal to exclude employee benefit contracts from the prior approval requirements in § 1630.6(b)(1)(ii). MAP also supported adopting proposed § 1631.8, which requires recipients to have written procurement policies and procedures that meet particular standards because it involves LSC oversight at a policy level, and not individual transactional level. MAP supported the proposal to make the PAMM a regulation. NLADA and MAP supported proposed § 1631.13, which would permit programs to dispose of personal property that has little or no value as the program sees fit. III. Discussion of Comments and Regulatory Provisions During the public comment period, LSC received comments from six organizations: Indiana Legal Services (ILS), Colorado Legal Services (CLS), Michigan Advocacy Program (MAP), Northwest Justice Project (NJP), NLADA, and Legal Action of Wisconsin (Legal Action). Organizational note: As described in the discussion for § 1630.10 (Recipient policies, procedures, and recordkeeping), the final rule will insert this section and renumber the sections that follow. This preamble reflects the updated numbering except where noted. LSC proposed to reorganize part 1630 into four subparts addressing (1) generally applicable provisions; (2) PO 00000 Frm 00034 Fmt 4700 Sfmt 4700 IV. Section-by-Section Discussion A. Part 1600—Definitions Section 1600.1 Definitions. LSC proposed including definitions of three new terms: Corporation funds, LSC funds, and non-LSC funds. Comment: NJP supported adding these definitions. NJP, NLADA, and CLS, however, expressed concern that the proposed definition of Corporation funds or LSC funds, which reads ‘‘any funds appropriated by Congress to carry out the purposes of the Legal Services Corporation Act of 1974, 42 U.S.C. 2996 et seq., as amended[,]’’ could be interpreted to include funds appropriated by Congress to other departments or agencies that can be granted to LSC recipients for the purpose of providing legal assistance. Instead, NJP recommended adding ‘‘to LSC’’ to the definition, which would then read ‘‘any funds appropriated by Congress to LSC. . . .’’ Response: LSC will revise the final rule to add the phrase ‘‘to LSC’’ to the definition in § 1600.1. B. Part 1630—Cost Standards and Procedures E:\FR\FM\10AUR1.SGM 10AUR1 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations allocability and allowability of costs charged to LSC grants; (3) questioned cost proceedings; and (4) closeout proceedings. mstockstill on DSK30JT082PROD with RULES Subpart A—General Provisions Section 1630.1 Purpose. LSC proposed no changes to this section and received no comments. Section 1630.2 Definitions. Proposed § 1630.2(d) defined final written decision as either (1) a decision issued by the Vice President for Grants Management, or (2) ‘‘the notice of questioned costs if a recipient does not respond to the notice within 30 days of receipt.’’ Additionally, proposed § 1630.3 (current § 1630.13(b)) recognized that LSC may, on a recipient’s written request for good cause, grant an extension of time. Comment: NJP expressed concern, with which CLS agreed, that the extension of time is not referenced in the § 1630.2(d) definition, nor is it identified in proposed § 1630.10(d)(2) (governing questioned cost proceedings). Proposed § 1630.10(d)(2) established that ‘‘[i]f the recipient does not respond to LSC’s written notice [of questioned costs] within 30 days, the written notice shall become LSC’s final written decision.’’ NJP expressed concern that, if a recipient does not respond to the written notice within 30 days, the recipient loses the right to further appeal because ‘‘cutting off any right to appeal after 30 days does not take into account vagaries of notice or possible intervening events.’’ Response: As NJP noted, the timeframes of part 1630 are subject to extensions for good cause. Accordingly, where a recipient receives a notice of questioned costs, it may request an extension based on the ‘‘vagaries of notice or possible intervening events’’ with which NJP is concerned. LSC believes proposed § 1630.3(b), which described permitted extensions, provided appropriate flexibility to respond to issues that may impede a recipient’s ability to fully respond to the notice within 30 days. Nevertheless, to clarify both that the extensions of time described in proposed § 1630.3 apply during questioned cost proceedings and that a final written decision is subject to the extension, LSC will amend proposed § 1630.10(d)(2), renumbered as § 1630.11(d)(2), to read, ‘‘If the recipient does not respond to LSC’s written notice within 30 days; the recipient does not request an extension of time pursuant to § 1630.3(b) within 30 days; or LSC does not grant an extension of time pursuant to § 1630.3(b) within 30 days the written VerDate Sep<11>2014 16:48 Aug 09, 2017 Jkt 241001 notice shall become LSC’s final written decision.’’ Section 1630.3 Time. Section 1630.3(a). Current § 1630.13(a) states that time limits in part 1630 are computed according to the Federal Rules of Civil Procedure, Rules 6(a) and (e). LSC proposed to relocate this language to § 1630.3(a) without change. Comment: NJP noted that the current version of Rule 6 has no paragraph (e) and proposed that LSC eliminate the reference. NJP also noted that, rather than citing to the Federal Rules of Civil Procedure to explain the time limits, it may be less confusing for LSC to include in the rule a standard for calculating time. CLS supported this comment. Response: In response to NJP’s comment, LSC will replace paragraph (a) regarding time computation with language adopted from 24 CFR 26.31. The adopted language provides that the first day of the time period is the day after the event. In other words, if a recipient has 30 days to respond to a notice of questioned costs, the 30 days begins running the day after the recipient receives the notice. For time periods of seven days or less, the time period is seven business days; intermediate Saturdays, Sundays, and legal holidays are excluded from the computation. Section 1630.3(b). Current § 1630.13(b) states that LSC may, ‘‘on a recipient’s written request for good cause, grant an extension of time and shall so notify the recipient in writing.’’ LSC did not propose to change this provision in the NPRM. Comment: NJP noted that proposed § 1630.3(b) did not state whether the request for extension of time must be received by LSC before the expiration of the deadline at issue. NJP asserted that if LSC intends that the request be received within the timeframe, the regulation should so state. NJP also requested that the regulation state that ‘‘good cause’’ shall be liberally construed. CLS stated it ‘‘believes that the timeline for appealing questioned costs should be clarified, relaxed and allow for extensions of time and exceptions.’’ Regarding extensions of time and proposed § 1630.10(d)(2) (review of questioned costs) specifically, NJP also requested that the regulation allow a recipient the opportunity to demonstrate good cause for failing to respond to the notice of proposed costs within 30 days after the allotted 30 days’ response time has passed but before LSC pursues recovery of the disallowed cost. NJP noted that PO 00000 Frm 00035 Fmt 4700 Sfmt 4700 37329 recipients face technology and mail delivery problems, staff illness, vacation or other extended leave, or other exigent circumstances, including ‘‘excusable neglect,’’ that cause recipients to fail to seek an extension within the 30 days allowed by proposed § 1630.10(d)(2). Response: LSC emphasizes that proposed § 1630.10(d)(2), final rule § 1630.11(d)(2), authorizes a full 30 calendar days for a recipient to seek an extension of time. For effective and efficient management, LSC believes it is reasonable to expect some form of correspondence from a recipient— whether the actual response or a request for an extension—within the timeframe provided by the relevant section of the rule. The circumstances that NJP suggests would merit requests for extensions of time that are filed after the timeframe expired, e.g., staff on vacation or excusable neglect, do not seem to be reasonable justification for a grantee to be unable to request an extension before a deadline expires. Therefore, LSC will adopt NJP’s suggestion to clarify that § 1630.3(b) requires the request for an extension to be submitted within the allotted timeframe. In addition, LSC will add language requiring LSC to respond to a request for extension within seven calendar days of receipt of the request. LSC believes this regulation, as revised, provides an appropriate timeline for questioned costs proceedings, including appropriate extensions of time and exceptions. Section 1630.4 Burden of proof. LSC proposed no changes to this section and received no comments. Subpart B—Cost Standards and Prior Approval Section 1630.5 Standards governing allowability of costs under LSC grants or contracts. In proposed § 1630.5(i), LSC referenced regulations and circulars of the Office of Management and Budget (OMB) as documents providing guidance for all allowable costs arising under part 1630 where relevant policies or criteria are not inconsistent with the provisions and regulations of LSC. Comment: NJP suggested that using OMB guidance ‘‘for all allowable cost questions arising under this part when relevant policies or criteria therein are not inconsistent’’ with LSC laws and regulations ‘‘put[s] into play’’ OMB guidance where LSC does not have other published policies or guidance. NJP and Legal Action expressed concern that OMB guidance does not permit fundraising as an allowable cost, which conflicts with LSC’s longstanding practice of allowing LSC funds to be used for fundraising efforts. See Advisory Opinion EX–1999–12, E:\FR\FM\10AUR1.SGM 10AUR1 mstockstill on DSK30JT082PROD with RULES 37330 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations http://www.lsc.gov/sites/default/files/ LSC/laws/pdfs/olaeo/EX-1999-12.pdf. CLS supported this comment. NJP and NLADA also suggested removing the words ‘‘and circulars’’ from proposed § 1630.5(i) because relevant OMB circulars have been replaced by the Uniform Guidance published by the Office of Management and Budget, 2 CFR part 200. CLS supported these suggestions. Response: LSC agrees with these comments and will make two changes to the final rule. LSC will add a new paragraph (i) to this section to reflect LSC’s longstanding policy that recipients may use LSC funds to engage in fundraising for the purposes of expanding the resources available to carry out the LSC grant. LSC will also remove the words ‘‘and circulars’’ from proposed § 1630.5(i), final rule § 1630.5(j). Section 1630.6 Prior approval. Under current § 1630.5(b)(2), LSC requires recipients to seek prior approval for any purchases and leases of equipment, furniture, or other personal, nonexpendable property, if the purchase price of any individual item of property exceeds $10,000. 45 CFR 1630.5(b)(2). LSC also requires recipients to seek prior approval of purchases of real property, capital expenditures costing more than $10,000, and pre- and postaward costs. Id. § 1630.5(b)(1), (3), and (4). In the NPRM, LSC proposed three changes to the prior approval requirement. First, LSC proposed to increase the prior approval threshold amount to $25,000 to account for inflation. Second, because LSC believes effective financial oversight requires recipients to seek prior approval for more transactions than only those listed in the current rule, the proposed regulation required prior approval for ‘‘any . . . transaction’’ of purchases or leases of personal property, contracts for services, purchases of real estate, and capital improvements when the cost of the transaction exceeds $25,000. In the preamble to the NPRM, LSC explained that recipients must seek prior approval for ‘‘any single purchase whose costs exceed $25,000 in LSC funds, regardless of whether that purchase is of a single item of personal property, or a combination of personal property and services.’’ 81 FR 75006, 75013, Oct. 28, 2016. Finally, LSC proposed to remove pre-award and post-award costs from the list of costs eligible for prior approval because prior approval is not the appropriate process for considering requests to use LSC funds to pay for preor post-award costs. VerDate Sep<11>2014 16:48 Aug 09, 2017 Jkt 241001 General comments: Every commenter opposed at least some part of the proposed prior approval requirement. In general, the commenters objected to LSC’s review of purchases because the recipient knows the local market better than LSC. Commenters observed that seeking prior approval may unduly delay routine and necessary purchases and undermine negotiations for favorable deals with vendors. Commenters were particularly concerned with how the proposed regulation would affect their office supply purchases. NLADA noted that programs may make bulk purchases of expendable property as the most efficient and economical means of acquiring supplies. NLADA noted that the proposed change reverses prior policy which provided ‘‘clear’’ and ‘‘objective’’ standards to determine when prior approval would be necessary. Legal Action encouraged LSC not to require prior approval for personal property purchases because LSC would find itself reviewing routine purchases of office supplies. NJP opined that requiring prior approval for aggregate purchases would ‘‘encourage recipients to parse out their purchases to avoid the need to obtain prior approval with the consequences of more paper work, staff time to process this paperwork and payments, and the potential of less favorable pricing.’’ Commenters also described challenges anticipating costs for particular services. For example, Legal Action noted how difficult it is to project whether translation services costs and records storage costs would exceed $25,000 in a year. ILS noted that where anticipated costs are difficult to determine, even where it has no intention of exceeding $25,000 in a year, it may nevertheless ‘‘play it safe’’ by seeking approval at the outset for these arrangements to avoid later violations. Other commenters noted that recipients may have difficulty determining when to seek prior approval for services contracts because of the various types of contracts recipients have, e.g., a consultancy contract in which a recipient pays a flat fee each month and, potentially, a fee-per-service or hourly fee for additional tasks as needed. NJP suggested imposing the proposed prior approval requirement only where necessary to address past abuse, conflict of interest, fraud, or ‘‘other malfeasance[.]’’ MAP suggested adding a separate section in the grant application asking grantees to explain proposed purchases over $25,000 in LSC funds, which would allow recipients and LSC to engage in discussion about purchases PO 00000 Frm 00036 Fmt 4700 Sfmt 4700 without the bureaucracy of the proposed regulations. General Response: LSC responds to specific concerns under section headers below. Generally, LSC intended this rule to capture single purchases (i.e., purchases at one point in time through one order) of single items or services or aggregate items whose total cost exceeds the threshold, not multiple purchases of multiple items or services at different points in time. LSC is making several changes to the rule to clarify its intention. Section 1630.6(b). Proposed § 1630.6(b)(1) required a recipient to ‘‘obtain LSC’s prior approval before charging costs attributable to any of the transactions below to its LSC grant when the cost of the transaction exceeds $25,000 of LSC funds[.]’’ In the preamble to the NPRM, LSC explained that a recipient must seek prior approval for ‘‘any single purchase whose cost exceeds $25,000 in LSC funds, regardless of whether that purchase is of a single item of personal property, several unrelated items of personal property, or a combination of personal property and services.’’ Comment: Commenters expressed confusion regarding the circumstances under which prior approval is required. NJP observed that the term ‘‘transactions’’ is undefined in the regulation. All commenters expressed confusion about what types of purchases were aggregated or what constituted a single purchase. NJP and NLADA also expressed confusion about when purchases are ‘‘aggregated’’ for purposes of applying the prior approval threshold. MAP recommended that LSC clarify ‘‘single purchase’’ as ‘‘a single order of goods or a single contract for services from a single vendor the cost of which exceeds $25,000 in LSC funds.’’ Response: LSC used the term ‘‘transactions’’ as a global term to describe the various types of costs subject to the prior approval requirement. LSC did not intend to introduce a separate category of undefined transactions into the rule. To avoid continued confusion, LSC will change the language in § 1630.6(b)(1) to largely follow the current § 1630.5(b) language. The redrafted subparagraph will read, ‘‘Without LSC’s prior written approval, a recipient may not expend $25,000 or more of LSC funds on any of the following[.]’’ Additionally, LSC will clarify that prior approval applies to a ‘‘single purchase,’’ ‘‘single lease,’’ or ‘‘single contract’’ and define these terms in the new rule. LSC will define the terms at § 1630.2(h): ‘‘Single purchase, single lease, and single contract mean a single E:\FR\FM\10AUR1.SGM 10AUR1 mstockstill on DSK30JT082PROD with RULES Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations order or lease of goods or a single contract for services from a single vendor.’’ Accordingly, the prior approval requirement applies to— (i) A single purchase or single lease of personal property; (ii) A single contract for services; (iii) A single purchase of real estate; (iv) Capital improvements; and (v) A single purchase or single lease of personal property combined with a single contract for services. This clarification resolves the questions commenters raised. For example, ILS has a discount arrangement with an office supplier. Although ILS does not make $25,000 worth of purchases from this vendor at one time, over the course of a year ILS may purchase more than $25,000 in LSC funds worth of supplies from the vendor. Under LSC’s proposed rule, this scenario does not trigger the prior approval requirement. The requirement is triggered only when a single order of one or multiple items from this vendor exceeds $25,000. As another example, Legal Action purchases supplies online from a small number of vendors. Over the course of a year, Legal Action explained, the aggregate purchases from an individual vendor, such as Amazon, may exceed $25,000. Again, a purchase requires prior approval when it is a single order from a single vendor of a good or multiple goods whose cost exceeds $25,000 in LSC funds. Finally, MAP posed the example of buying office supplies for seven offices from a single vendor over the course of a year that could add up to $25,000. Again, the proposed rule does not aggregate purchases over time. If a single order of consumable supplies exceeds $25,000, there is no reason not to examine that purchase with the same diligence as the purchase of a nonconsumable good that costs over $25,000. Moreover, LSC’s proposed approach of increasing oversight over purchases, including supplies, aligns with the Uniform Guidance’s inclusion of purchases of supplies as types of purchases subject to increasingly stringent levels of competition. See 2 CFR 200.320. Section 1630.6(b)(1)(ii). Proposed § 1630.6(b)(1)(ii) extended the scope of both the PAMM and the prior approval requirements to contracts for services. Comment 1: All commenters objected to LSC’s proposed § 1630.6(b)(1)(ii). Commenters noted that recipients’ various structures of contractual arrangements for services make determining when prior approval is required difficult. For example, Legal Action explained that it retains VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 technology consultant services for a fixed monthly fee with discrete projects that arise billed on a fee-per-service or hourly basis. Similarly, CLS contracts quarterly for its IT services, with quarterly projected expenditures based on an estimated assessment of needed services. CLS noted, however, that its program may have unexpected IT needs late in the year that bring the total cost over $25,000, even though at the outset, no quarterly agreement met or was likely to meet the threshold. NJP maintains ‘‘rate arrangements’’ with hotels with no individual stay exceeding the threshold amount, but over a year, stays at a particular hotel may exceed $25,000. Other recipients arrange to receive services for a period of time at a fixed rate, for example, paying $25 per hour for translation services as needed over two years. In these scenarios, commenters stated that calculating whether the recipient needs to seek prior approval may be difficult. NLADA asked if a recipient would need to obtain prior approval if services would not exceed $25,000 in one year, but would exceed $25,000 over two years. Legal Action also questioned whether payments to various temporary workers, none of whose payments exceeds $25,000, but when taken together exceed $25,000, require prior approval. Response: LSC believes that the language of the proposed rule accommodates the concerns described by commenters. First, for all services contracts, because LSC prior approval extends for one year, LSC believes the appropriate period of time to calculate the accrual of costs is one year. Second, regarding situations where a contract does not have a fixed price at the outset, LSC believes the appropriate approach is to require prior approval once a recipient expects the contract will exceed $25,000 in LSC funds. This requires a business judgment decision by the recipient to determine when it appears the cost of a contract will exceed $25,000. Applying this approach, a contract based on a monthly rate with an additional fee-for-service cost that arises throughout a year would trigger the prior approval requirement either (1) at the beginning of the contract if the initial cost exceeds or is expected to exceed $25,000, or (2) once it appears the additional fee-for-service costs (or any other costs that arise) will cause the total cost of the contract to exceed $25,000. Where services are provided throughout a year based on separate arrangements made throughout the year, each arrangement is considered a separate contract and triggers the prior approval requirement PO 00000 Frm 00037 Fmt 4700 Sfmt 4700 37331 only if one arrangement exceeds $25,000. LSC notes that LSC may question the costs associated with contracts if the timing and amounts of contracts with an individual vendor appear calculated to avoid the prior approval requirement, rather than being based on reasonable business judgment. Finally, for temporary employees, as discussed below, contracts for temporary employees will be exempt from the prior approval process. Comment 2: In response to the proposed prior approval requirement for services contracts, NLADA noted that obtaining prior approval may be problematic for programs seeking auditors for annual audits that are required to comply with standards established by LSC’s Office of Inspector General (OIG). NLADA stated that at least ten programs spend over $25,000 on required annual audits, and some of these programs are in areas with few choices for appropriate and eligible auditors. These auditors are in demand, and time is of the essence in retaining an accounting firm to conduct the LSCcompliant audit. NLADA expressed concern that a delay to seek prior approval would impede a program’s ability to retain competent auditors and potentially compromise the program’s ability to meet deadlines. Response: After reviewing NLADA’s comment, LSC concluded that recipients’ hiring of auditors to conduct audits that must comply with OIG standards and be submitted to OIG should not be subject to LSC prior approval process. Accordingly, LSC will revise § 1631.2(g), defining services, to exclude such audits from the requirement. Comment 3: Regarding the proposed prior approval requirement for services contracts, Legal Action noted challenges allocating costs of services such as legal research through Westlaw and record storage services like Iron Mountain, each of which could exceed $25,000 in a year. For each service, Legal Action noted that, in the past, the overall cost has exceeded $25,000, but the cost apportioned to LSC funds may or may not exceed $25,000. Response: For a services contract (or any other contract) funded by LSC and another source, the contract triggers LSC’s prior approval requirement once the amount apportioned to LSC funds exceeds $25,000. LSC will revise the rule to clarify this apportionment calculation. Section 1630.6(b)(1)(iii). Proposed § 1630.6(b)(1)(iii) required prior approval for ‘‘purchases of real estate’’ that exceed $25,000. Proposed § 1631.2(f) defined real estate as ‘‘land, E:\FR\FM\10AUR1.SGM 10AUR1 mstockstill on DSK30JT082PROD with RULES 37332 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations buildings (including capital improvements), and property interests in land and buildings (e.g., tenancies, life estates, remainders, reversions, easements), excluding movable personal property.’’ Comment: Commenters noted that proposed § 1631.2(f) included tenancies in the definition of real estate. According to NJP, this would be a ‘‘significant departure from prior practice.’’ NLADA, NJP, MAP, ILS, and CLS requested clarification that leases of real property do not require prior approval. Response: LSC did not intend to subject leases of real property to prior approval requirements. LSC will revise the definition of real estate in § 1631.2(f) to include land and buildings but not personal property. This definition reflects the definition provided in the PAMM. Because the term real estate is also used in part 1630, LSC will also revise the definition of real estate in § 1630.2(g) to mirror the updated definition found in § 1631.2(f). Section 1630.6(b)(1)(iv). Proposed § 1630.6(b)(1)(iv) required a recipient to obtain prior approval for capital improvements costing $25,000 or more of LSC funds. Comment: NJP, MAP, and NLADA expressed concern that requiring prior approval for capital improvements may impair a recipient’s ability to negotiate capital improvements as part of lease negotiations. NJP expressed concern about leases that include provisions for pass-through building operating charges. NJP observed that reconciliation for pass-through costs occurs after the improvements are made, and a recipient may not be able to obtain prior approval or even control the landlord’s selection of the vendor. MAP suggested that capital improvements that are part of a lease negotiation be explicitly exempt from the prior approval requirement. Response: Existing section 1630.5(b)(4) and section 4(f) of the PAMM currently require recipients to seek prior approval of capital expenditures when the cost of the expenditures exceeds $10,000. This requirement is not new to the proposed rule. It does not currently apply to capital improvements negotiated as part of a recipient’s lease arrangements. LSC considered the value of reviewing capital improvements in this context compared to the burden imposed. LSC concluded that the cost of the review outweighs benefits and therefore will not extend the prior approval requirement for capital improvements negotiated as part of a recipient’s lease arrangement. Proposed § 1630.6(b)(1)(iv) VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 applied only to those capital expenditures that a recipient seeks to make to leased property after it enters the lease. Sections 1630.7, 1630.8, and 1630.9 Membership fees or dues; Contributions; Tax-sheltered annuities, retirement accounts, and penalties. LSC proposed to redesignate §§ 1630.14 (Membership fees or dues), 1630.15 (Contributions), and 1630.16 (Tax-sheltered annuities, retirement accounts, and penalties) as §§ 1630.7–1630.9, respectively, with no changes. LSC received no comments on these sections. Section 1630.10 Recipient policies, procedures, and recordkeeping. Effective April 1, 2017, LSC relocated the sections of part 1627 governing the use of recipient funds to pay membership fees or dues, make contributions to other organizations, or contribute to tax-sheltered annuities, retirement accounts, and penalties to part 1630. LSC unintentionally failed to relocate § 1627.7 requiring recipient policies, procedures, and recordkeeping in part 1630 at the same time. Consequently, this section is a necessary carryover from part 1627 to ensure that recipients retain or develop written policies and procedures to ensure that their staff know about and comply with §§ 1630.7–1630.9, and the final rule will include these requirements. The final rule will also renumber the sections that follow. Subpart C—Questioned Cost Proceedings Subpart C governs LSC’s decisions to question costs and the appeals procedure by which a recipient challenges questioned costs. Section 1630.11 Review of questioned costs. In the proposed regulation, LSC eliminated the five-year lookback period to recover questioned costs from a recipient because, based on its oversight experience, limiting LSC’s ability to recover misspent costs is inconsistent with its duty to responsibly administer appropriated funds. On several occasions, LSC has found that misuse of funds was not discovered during the five-year period, despite LSC’s conscientious review of available reports and documentation. General Comments: NLADA, NJP, CLS, and MAP opposed the removal of the five-year timeframe. They noted that LSC accounting and record retention guidance recommends retaining records for varying times ranging from two years to permanent retention and argued that eliminating the five-year timeframe conflicts with this LSC record retention guidance. NLADA recommended that LSC retain the five-year lookback period PO 00000 Frm 00038 Fmt 4700 Sfmt 4700 to provide programs certainty as to when they may close their books. NLADA also recommended that, if LSC nevertheless eliminates the lookback timeframe, it apply the change only prospectively to account for programs that have legitimately destroyed records pursuant to LSC’s guidance. Alternatively, NLADA suggested LSC limit its ability to recover costs beyond the five-year limit only to egregious circumstances such as criminal behavior or intentional violations of LSC regulations. NLADA further questioned whether the cost of a recipient retaining documents—which may exceed $25,000 per year for a program—and the cost of LSC’s investigation are worthwhile. General Response: LSC believes its ability to disallow funds for laterdiscovered malfeasance should not be limited, notwithstanding an organization’s records retention policy. LSC recognizes that proper destruction of records on schedule when there are no open questions is an appropriate defense to not being able to produce records, but time-limited records retention policies are not an appropriate reason to limit LSC’s ability to recover misspent costs. Accordingly, LSC will retain the proposal to eliminate the fiveyear lookback period in the final rule. Section 1630.11(d)(2). Under the current questioned costs procedure, a recipient has 30 days from the date it receives a notice of questioned costs from LSC to respond with evidence and an argument for why LSC should not disallow the costs. If the recipient does not respond within 30 days, LSC management must issue a second decision. LSC believes this second step is redundant because it places an unnecessary burden to confirm its own action in the absence of a recipient challenge. LSC proposed to replace this step with proposed § 1630.10(d)(2), which stated that if the recipient does not respond to the notice of questioned cost within 30 days, the notice automatically converts to LSC’s final written decision. Comment 1: NLADA commented that the timeframes are inequitable because, while LSC has ‘‘an unlimited time period to investigate a questioned cost, prepare its written determination, and then another 60 days to respond to the recipient[,]’’ a recipient has 30 days to respond to a questioned cost. NLADA asserted that ‘‘[i]n fairness,’’ respondents should have at least 60 days to prepare their response to LSC and recipients should have the opportunity to extend the time to respond for at least 30 days for good cause. E:\FR\FM\10AUR1.SGM 10AUR1 mstockstill on DSK30JT082PROD with RULES Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations Response: The 30-day timeframe in the proposed rule was adopted without change from current § 1630.7(c). That paragraph provides that the recipient may respond to a written notice of questioned costs, and, if the recipient does not respond, LSC will make a decision based on the information available. The proposed rule effectively reflected the same procedure. LSC has determined that fixing a timeframe by which recipients must respond, either in substance or by seeking an extension pursuant to § 1630.3(b), ensures LSC can proceed with its questioned costs review in an expeditious manner. As described above, a recipient may seek an extension for good cause, pursuant to proposed § 1630.3(b). LSC’s assessment of whether the recipient has shown ‘‘good cause’’ inherently takes into consideration the length of extension a recipient would need. Therefore, LSC will retain language from the proposed rule. Comment 2: As described in the § 1630.2 discussion, NJP and CLS expressed concern that the extension of time is not referenced in either the proposed § 1630.2(d) definition or proposed § 1630.10(d)(2) (final rule § 1630.11(d)(2)). Response 2: For the reasons stated earlier in this preamble, LSC will amend proposed § 1630.10(d)(2), renumbered as § 1630.11(d)(2), to clarify that a recipient must respond, either with a substantive response or a request for extension, within 30 days of receiving the questioned costs notice. Section 1630.12 Appeals to the President. LSC proposed to move existing § 1630.7(e)–(g) to § 1630.11 with one substantive change. LSC proposed to introduce a requirement that prohibits a recipient from appealing a written decision to the LSC President when the recipient did not seek review of the initial notice of questioned costs. LSC believes that a senior manager with direct oversight over the office that issues a notice of questioned costs should have the first opportunity to review the evidence relating to the decision to question costs because the review is better conducted at an earlier stage than during review by the President. Appeals to the President can address any relevant actions by LSC including substantive decisions such as the amount questioned and procedural decisions such as whether to extend a submission deadline. Comment: NLADA commented that, where a recipient does not respond to LSC’s written notice of questioned costs, the decision becomes final and, thus, an LSC denial of a request for extension of time may not be appealed to the VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 president. NLADA noted that recipients ‘‘should have a full and fair opportunity to respond to LSC, including the ability to appeal to the president if LSC management denies a recipient an extension of time to respond to a questioned cost finding.’’ Response: A recipient may fully respond to LSC’s notice at the management level. A ‘‘full and fair opportunity to respond’’ does not require providing recipients the ability to skip management-level review and appeal directly to the President. LSC will therefore retain the procedural change proposed in the NPRM, now renumbered as § 1630.12. Section 1630.13 Recovery of disallowed costs and other corrective action. In the NPRM, LSC proposed to redesignate existing § 1630.8 to § 1630.12 with only minor technical changes to reflect the removal of the term final action from the rule. LSC received no comments on this section. The final rule renumbers this section as § 1630.13. Section 1630.14 Other remedies; effect on other parts. LSC proposed to redesignate existing § 1630.9 as § 1630.13 with only minor technical edits. LSC received no comments on this section. The final rule renumbers this section as § 1630.14. Sections 1630.15; 1630.16; 1630.17 Applicability to subgrants; Applicability to non-LSC funds; Applicability to derivative income. LSC proposed to redesignate existing §§ 1630.10 (Applicability to subgrants); 1630.11 (Applicability to non-LSC funds); and 1630.12 (Applicability to derivative income) as §§ 1630.14–1630.16, respectively, without change. LSC received no comments on these sections. The final rule renumbers these sections as §§ 1630.15–1630.17, respectively. Subpart D—Closeout Procedures Section 1630.18 Applicability. Proposed § 1630.17, regarding closeout procedures, applies when a recipient changes its current identity or status as a legal entity. Comment: MAP suggested defining the term ‘‘change in current identity or status as a legal entity’’ to ensure that a relatively minor change (such as a corporate name change) or a structural change does not trigger this section. MAP proposed a limited definition such as ‘‘a change in legal status under state corporate law with the effect that a different legal entity becomes the LSC recipient.’’ Response: LSC intended to include those mergers where the recipient ceased to exist. LSC did not intend PO 00000 Frm 00039 Fmt 4700 Sfmt 4700 37333 proposed § 1630.17 to apply to name or logo changes. LSC will revise proposed § 1630.17(a), renumbered as § 1630.18(a), to state that the rule applies to mergers or consolidations with one LSC recipient that result in another LSC recipient ceasing to exist as a legal entity. In those situations, only the LSC recipient that is surrendering its legal status must comply with the closeout procedures in Subpart D. Additionally, LSC will replace the proposed language of § 1630.17, renumbered as § 1630.18, with ‘‘Ceases to exist as a legal entity[.]’’ Section 1630.19 Closeout plan; timing. In the NPRM, LSC proposed to require recipients who stop receiving LSC funding to provide LSC with a plan for the orderly closeout of the grant. LSC received no comments on this section. LSC will renumber the proposed section as § 1630.19. Section 1630.20 Closeout costs. In the NPRM, LSC proposed to formalize its policies for approving the use of LSC funds to complete closeout activities, including requiring recipients to submit a detailed budget and timeline and allowing LSC to withhold unreleased funds until the recipient has satisfactorily completed its closeout procedures. LSC received no comments on this section. The final rule will renumber proposed § 1630.19 as § 1630.20. Section 1630.21 Returning funds to LSC. In proposed § 1630.20, LSC proposed to formalize procedures for recipients to return to LSC excess fund balances and derivative income received after the end of the LSC grant period. LSC received no comments on this section. LSC will renumber proposed § 1630.20 as § 1630.21. C. Part 1631—Purchasing and Property Management Organizational note: As described in the discussion for § 1631.4, the final rule will eliminate § 1631.4 and renumber sections that follow. This preamble reflects the updated numbering except where noted. Subpart A—General Provisions Section 1631.1 Purpose. In the NPRM, LSC proposed to describe the purpose of part 1631 as setting standards for policies governing certain purchases and establishing requirements governing the use and disposition of property purchased with LSC funds. LSC received no comments on this section. Section 1631.2 Definitions. In the NPRM, LSC adopted several definitions from the PAMM into part 1631 and added new definitions. E:\FR\FM\10AUR1.SGM 10AUR1 mstockstill on DSK30JT082PROD with RULES 37334 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations Section 1631.2(f). LSC proposed to change the PAMM term real property to real estate and to simplify the rule’s language. LSC also proposed to revise the term’s definition for clarity. LSC does not intend the change from ‘‘land, buildings, and appurtenances, including capital improvements thereto, but not including moveable personal property’’ in the existing PAMM to limit, narrow, or expand the scope of property captured in the revised definition. Comment: As discussed in the commentary regarding § 1630.6(b)(1)(iii), commenters noted that proposed § 1631.2(f) included tenancies in the definition of real estate and requested that leases of real estate not require prior approval. Response: As previously explained, LSC did not intend to subject leases of real estate to prior approval requirements and will revise the definition. Section 1631.2(g). In the NPRM, LSC proposed to define services as services rendered by members of a profession or people who have a special skill and are not employed by a recipient. The proposed definition explicitly included services such as accounting, banking, cleaning, consultation, training, expert services, equipment maintenance, and transportation. It excluded other categories such as services provided by recipients to employees in addition to regular salaries and wages, such as employee insurance, pensions, and unemployment benefit plans. The preamble to proposed part 1631 explained that employee benefits are not the type of services over which LSC intended to increase its oversight. Accordingly, the NPRM preamble explained that contracts for employee benefits are not subject to the definition of services. Comment 1: NJP expressed concern that this definition was ‘‘extremely broad’’ and included many basic office services such as banking and cleaning. In addition, NJP expressed concern that the definition included expert services, transportation, and costs associated with litigation (such as expert witness fees and discovery fees). Finally, NJP and ILS noted the exception for ‘‘employee insurance’’ was potentially confusing. They asked, for example, whether the exclusion of ‘‘employee insurance’’ included malpractice insurance that programs must provide staff attorneys or other types of insurances such as employment practices liability, commercial liability, and Directors and Officers liability insurance. Response: In response to this comment, LSC will explicitly exclude VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 litigation costs (e.g., expert witness and discovery fees), insurance services, and professional services intended to resolve sensitive personnel issues (e.g., labor counsel or mediation services) from the final rule because LSC did not intend to include these services within the proposed rule. Comment 2: As described previously in the discussion of § 1630.6, NLADA noted that obtaining prior approval may be problematic for programs seeking auditors to conduct required annual audits that comply with the standards established by OIG. Response: LSC will revise § 1631.2(g) to exclude such audits from the requirement. Section 1631.3 Prior approval process. Proposed § 1631.3 relocated the provisions governing the timetable and basis for granting prior approval from existing § 1630.6 to new § 1631.3. Section 1631.3(b). The proposed rule stated that, for purchases or leases of personal property, contracts for services, and capital improvements, LSC will decide on the request within 30 days of receiving the request. For purchases of real estate, LSC will decide within 60 days. If LSC cannot decide within the allotted time, proposed § 1631.3(b)(3) stated that LSC will provide the requester a date by which it expects to decide. Comment: NLADA and MAP expressed concern that § 1631.3(b)(3) gives LSC an unlimited amount of time in which to respond to a request if it cannot decide within the time allotted. MAP suggested adding that ‘‘if LSC neither makes a decision on a request for prior approval nor informs the requester of a date to make a decision within 60 days of the date of the request, the request is deemed approved.’’ MAP also suggested adding that ‘‘if LSC elects to provide a requester with a date for a decision on a request for prior approval that is longer than 60 days, the date must be within 120 days of the date of the original request; if LSC fails to make a decision by the date it announces, the request is deemed approved.’’ NLADA recommended that the approval time for making capital improvements not exceed 30 days because making capital improvements may be a complex process to coordinate and, after completing negotiations and calculating costs, prior approval delays may jeopardize the project. NLADA additionally questioned whether LSC has sufficient resources to timely process these approvals. Response: As discussed at length during the rulemaking on 45 CFR part 1627, LSC believes sound grants management requires review and an PO 00000 Frm 00040 Fmt 4700 Sfmt 4700 affirmative decision on each request to use a significant amount of LSC funds. Consistent with the views expressed in that rulemaking, LSC rejects the ‘‘deemed approved’’ approach to authorizing prior approvals. LSC also will not establish a rigid timeframe within which it must respond to a request for prior approval if it cannot decide within 60 days. In LSC’s experience, recipients may not initially submit all documentation LSC needs to make its decision. LSC must have time to review the materials a recipient submits and request additional documentation as needed. Accordingly, LSC will revise § 1631.3(b) to state that (1) if the requester does not provide all required materials in its initial prior approval request, LSC will contact the requester within 20 days of the request with a preliminary assessment of materials LSC requires to make its decision, if necessary, and (2) LSC will approve or deny a request for prior approval within 30 days of receiving all required materials from the requester (60 days for purchases of real estate). This means that if a recipient submits all information that LSC deems sufficient with the initial request, LSC will approve or deny the request for prior approval within 30 days of the initial request (or 60 days for purchases of real estate). Additionally, because the prior approval process requires LSC to determine whether a recipient complied with its own procurement policy, LSC must have a copy of the recipient’s procurement policy. LSC therefore will add a new paragraph (b)(2) to final rule § 1631.8 (requests for prior approval) requiring a request for prior approval to also include a copy of the recipient’s procurement policy. Section 1631.3(d). Proposed § 1631.3(d) stated that a recipient may use over $25,000 of LSC funds to purchase personal property or award a contract for services without prior approval in exigent circumstances. LSC described two exigent circumstances qualifying for the exception: when immediate action is necessary either to avoid imminent harm to the recipient’s personnel, physical facilities, or systems; or to remediate or mitigate damage to the recipient’s personnel, physical facilities, or systems. Comment: Commenters remarked that exigent circumstances are limited and subject to discretionary interpretation. NLADA listed the need to retain counsel promptly, staff taking unexpected leave and needing to hire a replacement, and programs receiving non-LSC funds and needing to retain additional services to fulfill a grant requirement as additional situations to consider. Legal Action E:\FR\FM\10AUR1.SGM 10AUR1 mstockstill on DSK30JT082PROD with RULES Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations suggested adding ‘‘to avoid disruption to the recipient’s client services delivery system’’ to the list of exigent circumstances. NJP suggested additional scenarios that may constitute exigent circumstances, including natural disasters that require a recipient to contract for timely services, a lawsuit or dispute that requires immediate outside professional resources, a time-sensitive case that requires expertise, audit RFP, audit renewal engagement, and other additional audit work. NLADA and NJP suggested including a provision that provides for ‘‘other exigent circumstances.’’ Moreover, NLADA noted the proposed rule does not explain what happens if LSC determines a recipient’s circumstances did not meet ‘‘exigent circumstances’’ requirements. NLADA asked whether LSC would treat the situation as a questioned cost proceeding: ‘‘Would LSC seek to recover costs solely on the basis that the recipient did not seek prior approval, even if the purchase or contract met § 1630.5 reasonable and necessary criteria?’’ Response: In addition to the exigent circumstances identified in the proposed rule, LSC agrees that a recipient should be able to act without prior approval if necessary to avoid disruption to the recipient’s client services delivery system. Examples of such a disruption would be a power surge that causes a recipient’s telecommunications system to stop working, or the occurrence of a natural disaster. LSC will include these two additional situations as exigent circumstances and provide specific examples of each. Additionally, LSC does not believe that hiring of employees falls within the types of services that LSC intended to regulate in part 1631. Therefore, a recipient would not have to seek prior approval before hiring an attorney, temporary or permanent, to fill the position of an attorney who takes an unexpected prolonged leave. The same rule will apply if the recipient chooses instead to enter a contract with an attorney to fill in for the recipient’s attorney on a temporary basis or with a placement firm to place an attorney with the recipient for that period. Prudent grants management and the basic principle of federal appropriations law that appropriated funds must be spent only on the purposes for which they were awarded do not permit recipients needing to supplement services to fulfill a non-LSC grant requirement to use LSC funds. Accordingly, LSC rejects the proposal to VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 allow use of LSC funds as an exigent circumstance in this situation. Finally, based on our recommendation that the term services explicitly exclude litigation services and audits, these services do not need to be considered as subject to prior approval in any circumstances, including exigent circumstances. Section 1631.4 Effective Dates. The proposed language for § 1631.4 made part 1631 effective 90 days after the effective date of the rule, and it made subparts A, C, and E effective 90 days after the effective date of the rule for personal and real property purchased with LSC funds prior to the effective date of this part. This language was adopted from the PAMM. To provide time for LSC to provide appropriate training and recipients to prepare required policies, LSC decided that the final rule will take effect on December 31, 2017. This effective date is well over the 90 days provided in proposed § 1631.4. Therefore, in the final rule, this section will be eliminated and subsequent sections will be renumbered. Sections 1631.4, and 1631.5 Use of funds; Recipient policies, procedures, and recordkeeping. In these sections of the NPRM, LSC proposed to consolidate sections 6 and 7 of the PAMM with minor changes and require recipients to adopt written policies to implement part 1631. LSC received no comments on these sections. The final rule renumbers these sections. Subpart B—Procurement Policies and Procedures Section 1631.6 Characteristics of procurements. In the NPRM, LSC proposed to adopt a list of characteristics to help recipients determine whether an arrangement is a contract (and therefore subject to parts 1630 and 1631) or a subgrant (and therefore subject to part 1627). LSC received no comments on this section. The final rule renumbers this section. Section 1631.7 Procurement policies and procedures. In the NPRM, LSC identified elements recipients must have in their procurement policies. LSC received one comment on this section from NLADA indicating support. The final rule renumbers this section. Section 1631.8 Requests for prior approval. Proposed § 1631.9 required a recipient seeking prior approval for a purchase of personal property or services to state how the purchase will further the delivery of legal services to eligible clients. The preamble explained that, ‘‘[r]egarding contracts for labor counsel, mediators, or other services needed to address sensitive personnel issues, . . . recipients do not need to PO 00000 Frm 00041 Fmt 4700 Sfmt 4700 37335 disclose in the prior approval request the nature of the problems they are attempting to address.’’ Comment: CLS expressed concern with how this provision affects prior approval requests seeking retention of labor counsel. CLS questioned how LSC would be able to determine whether an expense is appropriate or reasonable if a recipient did not disclose the nature of the problem it is trying to address. CLS also noted that prior approval requirements for labor counsel may inappropriately and unnecessarily insert LSC into a recipient’s labor-management situations and that seeking prior approval may delay negotiations. CLS recommended that labor and employment services contracts never require prior approval. MAP noted that in services contracts where contracts ‘‘directly impact private and confidential matters[,]’’ local management should retain discretion. MAP was also ‘‘especially troubled’’ by LSC’s comments in the preamble stating that, in circumstances where the recipient does not disclose the nature of the problems it is attempting to address but rather only how the services will further their legal services delivery, ‘‘a statement that the service is necessary to ensure the efficient functioning of the office may satisfy that requirement’’ (emphasis added). MAP requested that if LSC intends to approve requests that do not disclose the nature of the problem, the regulation should explicitly so state. Response: In response to these comments, LSC will exclude contracts for labor counsel and other services necessary to address internal personnel issues from the definition of services in the final rule version of § 1631.2. Additionally, to avoid verbosity, LSC will change final rule § 1631.8(b) to require a ‘‘statement of need’’ rather than a statement explaining how the purchase will further the delivery of legal services. Section 1631.9 Applicability of part 1630. In this section, LSC proposed to restate the applicability of part 1630 to all leases, purchases, and contracts made using LSC funds. LSC received no comments on this section. The final rule renumbers the proposed section to § 1631.9. Subpart C—Personal Property Management Section 1631.10 Use of property in compliance with LSC’s statutes and regulations. LSC proposed to adopt § 5(a), (d), and (e) of the PAMM in proposed § 1631.11 with only minor technical changes. LSC received no E:\FR\FM\10AUR1.SGM 10AUR1 mstockstill on DSK30JT082PROD with RULES 37336 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations comments on this section. The final rule renumbers this section. Section 1631.11 Intellectual property. The proposed rule adopted § 5(g) of the PAMM without change. LSC received no comments on this section during the public comment period. During the May 23, 2017 meeting of the Operations and Regulations Committee, the Chair of the Committee expressed concern that LSC’s proposal to adopt language that identified only copyright as a type of intellectual property protection available to recipients would have two effects. One was that the rule unnecessarily limited the kind of protection recipients could seek for products or works developed using LSC funds. The other was that the existing language could create an incentive for recipients to use other types of intellectual property protections, where available, to avoid falling within the scope of proposed § 1631.12. See Transcript, Telephonic Meeting of the Operations and Regulations Committee, Legal Services Corporation Board of Directors, May 23, 2017, at 20–21. The Chair recommended that LSC replace this language with the language in LSC’s Technology Initiative Grants’ (TIG) Grant Assurances, which have been revised more currently than the language in § 5 of the PAMM and speak more generally in terms of recipients’ ownership rights in works they develop or improve using LSC funds. There were no public comments in opposition to the Chair’s proposal at the meeting. Consequently, in the final rule, LSC will adopt the recommendation and revise proposed § 1631.12 to track the language of the TIG Grant Assurances. This section will be renumbered as § 1631.11. Section 1631.12 Disposing of personal property purchased with LSC funds. Proposed § 1631.13(a) described how a recipient may dispose of personal property purchased with LSC funds. The proposed rule allowed recipients to sell or otherwise dispose of the personal property with no further obligation to LSC where the fair market value of the property is negligible. The proposed rule also permitted recipients to sell the property at a reasonable negotiated price, without advertising for quotes when the value of the property is $15,000 or less. The proposed rule adopted three options for disposing of personal property—selling the property after advertising and receiving quotes when the property’s value exceeds $15,000; transferring the property to another LSC funding recipient; and transferring the personal property to another organization serving the poor in the same area—from § 6 of the PAMM. VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 Comment: NLADA noted that it appreciated the provision allowing recipients to dispose of personal property with little or no value. NLADA also noted that a recipient may advertise property worth over $15,000, yet receive no quotes. NLADA recommended adding language stating that ‘‘if a program does not receive any quotes, the program may negotiate a reasonable price for disposal of the property.’’ Response: LSC agrees with NLADA’s comment. LSC will change paragraph (4) to this section in the final rule to allow a recipient to negotiate a reasonable price for disposal of the property if, after advertising the personal property for 14 consecutive days, the recipient receives no reasonable quotes. This section will be renumbered as § 1631.12 in the final rule. Section 1631.13 Use of derivative income from sale of personal property purchased with LSC funds. LSC proposed to adopt § 6(e) of the PAMM without change and add a paragraph requiring recipients to account for income earned from the sale, rent, or lease of personal property purchased with LSC funds. LSC received no comments on this section. Subpart D—Real Estate Acquisition and Capital Improvements Section 1631.14 Purchasing real property with LSC funds. In the NPRM, LSC proposed to adopt in significant part the requirements of § 4 of the PAMM with several revisions, including two to allow recipients additional flexibility when purchasing real property. Comment: NJP commented that, although it had no concerns regarding real estate purchase approval requirements generally, to the extent that LSC intended the term real estate to include tenancies, NJP objected to the prior approval requirement. Response: As noted above in the § 1630.6(b)(1)(iii) discussion, LSC did not intend to include tenancies in the definition of real estate. LSC therefore will revise the definition of real estate in both § 1630.2(g) and § 1631.2(f). LSC believes these revisions will resolve NJP’s objection. Comment: In advance of the Committee’s May 23, 2017 meeting, LSC received a comment from a Board member recommending that LSC revise proposed § 1631.15(b)(8) to reflect contemporary language regarding compliance with disability laws. Response: LSC agrees and will revise proposed § 1631.15(b)(8) accordingly and renumber the section as § 1631.14(b)(8). PO 00000 Frm 00042 Fmt 4700 Sfmt 4700 Section 1631.15 Capital improvements. LSC proposed to adopt § 4(f) of the PAMM in substantial part and to replace existing § 4(1)(ii) of the PAMM with a requirement that recipients provide documentation showing they complied with their own procurement process developed under (final rule) § 1631.8. Comment: NJP again commented that, to the extent this section applies to leases and tenant improvements negotiated as part of the lease and rental price, NJP objects to imposing prior approval requirements. Response: As noted above in the § 1630.6(b)(1)(iii) and § 1631.14 discussions, LSC did not intend to include tenancies or leases in the definition of real estate and will revise the definition in the final rule. LSC currently does not require prior approval for leases of real estate and, after considering the costs and benefits of requiring prior approval for such leases, opted to continue its current policy. LSC did not intend proposed § 1631.16 (final rule § 1631.15) to cover capital improvements negotiated as part of the lease and rental price for real estate leased by recipients. Subpart E—Real Estate Management Section 1631.16 Using real estate purchased with LSC funds. Section 5(a) of the PAMM currently states that recipients ‘‘may use LSC funds to acquire and use personal and real property for the primary purpose of delivering legal services to eligible clients’’ in accordance with applicable laws, regulations, and guidance. The preamble to the NPRM explained that LSC proposed to adopt this section of the PAMM as proposed § 1631.17 ‘‘with only minor technical changes.’’ Accordingly, the text of proposed § 1631.17 stated, ‘‘A recipient must use real estate purchased or leased, in whole or in part with LSC funds primarily to deliver legal services to eligible clients consistent with the requirements of the LSC Act, applicable appropriations acts, and LSC regulations.’’ 81 FR 75006, 75023, Oct. 28, 2017 (emphasis added). Comment: NLADA and NJP commented that using the word must in the proposed regulation instead of may as in the PAMM is a major change because it appears to prevent a program from subleasing a building or space to a party that does not deliver legal services in accordance with LSC regulations. They noted that recipients may face financial difficulties if not allowed to sublet all or part of buildings purchased or leased using LSC funds. For example, NLADA observed that some programs have smaller regional E:\FR\FM\10AUR1.SGM 10AUR1 mstockstill on DSK30JT082PROD with RULES Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations offices that programs have had to close due to funding cuts. NLADA commented that, under the proposed regulation, the program would need to leave the property vacant rather than sublease the property. NLADA suggested retaining the permissive may rather than changing the language to must. NJP suggested that the regulation allow for use of real estate to ‘‘support the delivery of legal services.’’ Response: NLADA and NJP are correct that LSC changed the wording of Section 5(a) of the PAMM in the proposed rule. LSC made this change to reflect its position that if recipients use LSC funds to purchase real estate, the real estate must be used primarily for purposes of carrying out the LSC grant. That said, LSC’s intent is not to bar recipients from putting real estate originally purchased or leased to provide legal services to other uses where circumstances, such as funding, change. Precluding such alternative uses into perpetuity would cause closed offices and invested funds to sit idle, clearly not a prudent or productive use of real estate or invested funds. Current practice under section 5 of the PAMM permits a recipient to lease or sublease vacant space that the recipient is unable to use to another organization or business. In changing the term ‘‘may’’ in the PAMM to ‘‘must’’ in the proposed rule, LSC did not intend to change this practice in the proposed rule. The final rule will clarify that a recipient must use real estate purchased with LSC funds for purposes consistent with applicable law and regulations. The rule will clarify that a recipient that does not need some or all the real estate to carry out its legal services activities may use the space for other activities described in paragraphs (b) and (c). The other activities cannot interfere with the recipient’s performance of the LSC grant, and the recipient cannot provide the space to an organization that engages in restricted activities without charging the organization an amount of rent equivalent to the amount other nonprofits charge to rent the same amount of space in similar circumstances. Section 1631.17 Maintenance. LSC proposed to include a new section requiring recipients to maintain real estate purchased with LSC funds in efficient operating condition and in compliance with state and local standards and codes. LSC received no comments on this section. The final rule will renumber this section. Section 1631.18 Insurance. LSC proposed to introduce minimum standards for the insurance of LSCfunded property. LSC received no VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 comments on this section. The final rule will renumber this section. Section 1631.19 Accounting and reporting to LSC. Proposed § 1631.20 required a recipient to maintain an accounting of the amount of LSC funds relating to the purchase or maintenance of real estate purchased with LSC funds and provide the accounting for each year to LSC. The final rule will renumber this section. Comment: NLADA noted that, for some programs, the use of LSC funds to purchase or maintain real property occurred over ten years ago, in which case the recipient may have destroyed the records. As a result, a recipient would not be able to account for such purchases or maintenance. In these situations, NLADA suggested applying this provision prospectively. Response: LSC does not, as a general rule, issue regulations with a retroactive effect. This means that the requirement would apply from the effective date of the proposed revisions to part 1631 forward. In the Accounting Guide for LSC Recipients, LSC recommends retention times for various categories of documents, including property documents. Accounting Guide for LSC Recipients, Appx. II, pp. 69–71 (2010 Ed.). According to the Accounting Guide, recipients should maintain annual financial statements, documentation related to land and buildings, depreciation schedules, general journals, and general ledgers permanently. Id. pp. 70–71. For other documentation related to the purchase and maintenance of real estate, such as the cash disbursements ledger, canceled checks, billings for services, and expense bills, LSC recommends a retention period of seven years or the period required by state law, whichever is longer. Id. To the extent that a recipient that owns real estate on the effective date of the revised rule has properly destroyed records related to the purchase or maintenance of such real estate according to its records retention schedule, LSC would not consider that recipient out of compliance with the revised rule. Recipients will need to maintain the accounting documents described in proposed § 1631.20, renumbered in the final rule as § 1631.19, from the effective date of the rule onward. Section 1631.20 Disposing of real estate purchased with LSC funds. In the NPRM, LSC proposed to adopt § 7 of the PAMM in substantial part. In a change from the PAMM, LSC proposed to require that all anticipated dispositions of real estate purchased using LSC funds be subject to LSC’s prior approval, consistent with the federal government’s PO 00000 Frm 00043 Fmt 4700 Sfmt 4700 37337 policy regarding grantee disposal of property purchased with federal funds. 2 CFR 200.311(c). LSC received no comments on this section. Section 1631.21 Retaining income from sale of real property purchased with LSC funds. In the NPRM, LSC proposed to consolidate §§ 6(e) and 8(c) of the PAMM into proposed § 1631.22 and make technical edits. LSC received no comments on this section. The final rule will renumber this section. List of Subjects 45 CFR Part 1600 Legal services. 45 CFR Part 1630 Accounting, Government contracts, Grant programs—law, Hearing and appeal procedures, Legal services, Questioned costs. 45 CFR Part 1631 Government contracts, Grant programs—law, Legal services, Real property acquisition. For the reasons stated in the preamble, the Legal Services Corporation amends 45 CFR Chapter XVI as follows: PART 1600—DEFINITIONS 1. The authority citation for part 1600 is revised to read as follows: ■ Authority: 42 U.S.C. 2996g(e). 2. Amend § 1600.1 by adding in alphabetical order the definitions of ‘‘Corporation funds’’ and ‘‘Non-LSC funds’’ to read as follows: ■ § 1600.1 Definitions. * * * * * Corporation funds or LSC funds means any funds appropriated to LSC by Congress to carry out the purposes of the Legal Services Corporation Act of 1974, 42 U.S.C. 2996 et seq., as amended. * * * * * Non-LSC funds means any funds that are not Corporation funds or LSC funds. * * * * * ■ 3. Revise part 1630 to read as follows: PART 1630—COST STANDARDS AND PROCEDURES Subpart A—General Provisions Sec. 1630.1 Purpose. 1630.2 Definitions. 1630.3 Time. 1630.4 Burden of proof. Subpart B—Cost Standards and Prior Approval 1630.5 Standards governing allowability of costs under LSC grants or contracts. E:\FR\FM\10AUR1.SGM 10AUR1 37338 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations 1630.6 Prior approval. 1630.7 Membership fees or dues. 1630.8 Contributions. 1630.9 Tax-sheltered annuities, retirement accounts, and penalties. 1630.10 Recipient policies, procedures, and recordkeeping. Subpart C—Questioned Cost Proceedings 1630.11 Review of questioned costs. 1630.12 Appeals to the president. 1630.13 Recovery of disallowed costs and other corrective action. 1630.14 Other remedies; effect on other parts. 1630.15 Applicability to subgrants. 1630.16 Applicability to non-LSC funds. 1630.17 Applicability to derivative income. Subpart D—Closeout Procedures 1630.18 Applicability. 1630.19 Closeout plan; timing. 1630.20 Closeout costs. 1630.21 Returning funds to LSC. Authority: 42 U.S.C. 2996g(e). Subpart A—General Provisions § 1630.1 Purpose. This part is intended to provide uniform standards for allowability of costs and to provide a comprehensive, fair, timely, and flexible process for the resolution of questioned costs. mstockstill on DSK30JT082PROD with RULES § 1630.2 Definitions. As used in this part: (a) Corrective action means action taken by a recipient that: (1) Corrects identified deficiencies; (2) Produces recommended improvements; or (3) Demonstrates that audit or other findings are either invalid or do not warrant recipient action. (b) Derivative income means income earned by a recipient from LSCsupported activities during the term of an LSC grant or contract, and includes, but is not limited to, income from fees for services (including attorney fee awards and reimbursed costs), sales and rentals of real or personal property, and interest earned on LSC grant or contract advances. (c) Disallowed cost means those charges to an LSC award that LSC determines to be unallowable, in accordance with the applicable statutes, regulations, or terms and conditions of the grant award. (d) Final written decision means either: (1) The decision issued by the Vice President for Grants Management after reviewing all information provided by a recipient in response to a notice of questioned costs; or (2) The notice of questioned costs if a recipient does not respond to the notice within 30 days of receipt. VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 (e) Membership fees or dues means payments to an organization on behalf of a program or individual to be a member thereof, or to acquire voting or participatory rights therein. Membership fees or dues include, but are not limited to, fees or dues paid to a state supreme court or to a bar organization acting as an administrative arm of the court or in some other governmental capacity if such fees or dues are required for an attorney to practice law in that jurisdiction. (f) Questioned cost means a cost that LSC has questioned because of an audit or other finding that: (1) There may have been a violation of a provision of a law, regulation, contract, grant, or other agreement or document governing the use of LSC funds; (2) The cost is not supported by adequate documentation; or (3) The cost incurred appears unnecessary or unreasonable and does not reflect the actions a prudent person would take in the circumstances. (g) Real estate means land and buildings (including capital improvements), excluding moveable personal property. (h) Single purchase, single lease, and single contract mean a single order or lease of goods or a single contract for services from a single vendor. § 1630.3 Time. (a) Computation. In computing any period of time under this part, the time period begins the day following the event and includes the last day of the period, unless the last day is a Saturday, Sunday, or legal holiday observed by the Federal government. In those cases, the time period includes the next business day. When the prescribed time period is seven days or less, intermediate Saturdays, Sundays, and legal holidays shall be excluded from the computation. (b) Extensions. A recipient may, within the applicable timeframe for a particular response under this part, submit a written request for an extension of time for good cause to LSC. LSC will respond to the request for extension within seven calendar days from the date of receiving the request. LSC may grant the request for extension and shall notify the recipient of its decision in writing. § 1630.4 Burden of proof. The recipient shall have the burden of proof under this part. PO 00000 Frm 00044 Fmt 4700 Sfmt 4700 Subpart B—Cost Standards and Prior Approval § 1630.5 Standards governing allowability of costs under LSC grants or contracts. (a) General criteria. Expenditures are allowable under an LSC grant or contract only if the recipient can demonstrate that the cost was: (1) Actually incurred in the performance of the grant or contract and the recipient was liable for payment; (2) Reasonable and necessary for the performance of the grant or contract as approved by LSC; (3) Allocable to the grant or contract; (4) In compliance with the Act, applicable appropriations law, LSC rules, regulations, guidelines, and instructions, the Accounting Guide for LSC Recipients, the terms and conditions of the grant or contract, and other applicable law; (5) Consistent with accounting policies and procedures that apply uniformly to both LSC-funded and nonLSC-funded activities; (6) Accorded consistent treatment over time; (7) Determined in accordance with generally accepted accounting principles; and (8) Adequately and contemporaneously documented in business records accessible during normal business hours to LSC management, the Office of Inspector General, the General Accounting Office, and independent auditors or other audit organizations authorized to conduct audits of recipients. (b) Reasonable costs. A cost is reasonable if, in its nature or amount, it does not exceed that which would be incurred by a prudent person under the same or similar circumstances prevailing at the time the decision was made to incur the cost. In determining the reasonableness of a given cost, consideration shall be given to: (1) Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the recipient or the performance of the grant or contract; (2) The restraints or requirements imposed by such factors as generally accepted sound business practices, arms-length bargaining, Federal and State laws and regulations, and the terms and conditions of the grant or contract; (3) Whether the recipient acted with prudence under the circumstances, considering its responsibilities to its clients and employees, the public at large, the Corporation, and the Federal government; and (4) Significant deviations from the recipient’s established practices, which E:\FR\FM\10AUR1.SGM 10AUR1 mstockstill on DSK30JT082PROD with RULES Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations may unjustifiably increase the grant or contract costs. (c) Allocable costs. (1) A cost is allocable to a particular cost objective, such as a grant, project, service, or other activity, in accordance with the relative benefits received. Costs may be allocated to LSC funds either as direct or indirect costs according to the provisions of this section. (2) A cost is allocable to an LSC grant or contract if it is treated consistently with other costs incurred for the same purpose in like circumstances and if it: (i) Is incurred specifically for the grant or contract; (ii) Benefits both the grant or contract and other work and can be distributed in reasonable proportion to the benefits received; or (iii) Is necessary to the recipient’s overall operation, although a direct relationship to any particular cost objective cannot be shown. (3) Recipients must maintain accounting systems sufficient to demonstrate the proper allocation of costs to each of their funding sources. (d) Direct costs. Direct costs are those that can be identified specifically with a particular grant award, project, service, or other direct activity of an organization. Costs identified specifically with grant awards are direct costs of the awards and are to be assigned directly thereto. Direct costs include, but are not limited to, the salaries and wages of recipient staff who are working on cases or matters that are identified with specific grants or contracts. Salary and wages charged directly to LSC grants and contracts must be supported by personnel activity reports. (e) Indirect costs. Indirect costs are those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective. A recipient may treat any direct cost of a minor amount as an indirect cost for reasons of practicality where the accounting treatment for such cost is consistently applied to all final cost objectives. Indirect costs include, but are not limited to, the costs of operating and maintaining facilities, and the costs of general program administration, such as the salaries and wages of program staff whose time is not directly attributable to a particular grant or contract. Such staff may include, but are not limited to, executive officers and personnel, accounting, secretarial and clerical staff. (f) Allocation of indirect costs. Where a recipient has only one major function, i.e., the delivery of legal services to lowincome clients, allocation of indirect costs may be by a simplified allocation VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 method, whereby total allowable indirect costs (net of applicable credits) are divided by an equitable distribution base and distributed to individual grant awards accordingly. The distribution base may be total direct costs, direct salaries and wages, attorney hours, numbers of cases, numbers of employees, or another base which results in an equitable distribution of indirect costs among funding sources. (g) Exception for certain indirect costs. Some funding sources may refuse to allow the allocation of certain indirect costs to an award. In such instances, a recipient may allocate a proportional share of another funding source’s share of an indirect cost to LSC funds, provided that the activity associated with the indirect cost is permissible under the LSC Act, LSC appropriations statutes, and regulations. (h) Applicable credits. Applicable credits are those receipts or reductions of expenditures which operate to offset or reduce expense items that are allocable to grant awards as direct or indirect costs. Applicable credits include, but are not limited to, purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds, and adjustments of overpayments or erroneous charges. To the extent that such credits relate to allowable costs, they shall be credited as a cost reduction or cash refund in the same fund to which the related costs are charged. (i) Fundraising. Costs associated with fundraising for the purpose of increasing recipient funds available to carry out the purposes of the LSC grant are allowable and allocable to the LSC grant if they meet the requirements of this section. (j) Guidance. The regulations of the Office of Management and Budget shall provide guidance for all allowable cost questions arising under this part when relevant policies or criteria therein are not inconsistent with the provisions of the Act, applicable appropriations law, this part, the Accounting Guide for LSC Recipients, LSC rules, regulations, guidelines, instructions, and other applicable law. § 1630.6 Prior approval. (a) Advance understandings. Under any given grant award, the reasonableness and allocability of certain cost items may be difficult to determine. To avoid subsequent disallowance or dispute based on unreasonableness or nonallocability, a recipient may seek a written understanding from LSC in advance of incurring special or unusual costs. If a recipient elects not to seek an advance PO 00000 Frm 00045 Fmt 4700 Sfmt 4700 37339 understanding from LSC, the absence of an advance understanding on any element of a cost will not affect the reasonableness or allocability of the cost. (b) Costs requiring prior approval. (1) Without LSC’s prior written approval, a recipient may not expend $25,000 or more of LSC funds on any of the following: (i) A single purchase or single lease of personal property; (ii) A single contract for services; (iii) A single combined purchase or lease of personal property and contract for services; (iv) A single purchase of real estate; and (v) Capital improvements. (2) For costs apportioned between LSC funds and one or more other funding sources, this requirement applies when the cost allocable to LSC funds is $25,000 or greater. (3) The process and substantive requirements for requests for prior approval are in 45 CFR part 1631— Purchasing and Property Management. (c) Duration. LSC’s advance understanding or approval shall be valid for one year, or for a greater period of time which LSC may specify in its approval or advance understanding. § 1630.7 Membership fees or dues. (a) LSC funds may not be used to pay membership fees or dues to any private or nonprofit organization, whether on behalf of the recipient or an individual. (b) Paragraph (a) of this section does not apply to the payment of membership fees or dues mandated by a governmental organization to engage in a profession, or to the payment of membership fees or dues from non-LSC funds. § 1630.8 Contributions. Any contributions or gifts of LSC funds to another organization or to an individual are prohibited. § 1630.9 Tax-sheltered annuities, retirement accounts, and penalties. No provision contained in this part shall be construed to affect any payment by a recipient on behalf of its employees for the purpose of contributing to or funding a tax-sheltered annuity, retirement account, or pension fund. § 1630.10 Recipient policies, procedures, and recordkeeping. Each recipient must adopt written policies and procedures to guide its staff in complying with this subpart and must maintain records sufficient to document the recipient’s compliance with this subpart. E:\FR\FM\10AUR1.SGM 10AUR1 37340 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations § 1630.12 Subpart C—Questioned Cost Proceedings mstockstill on DSK30JT082PROD with RULES § 1630.11 Review of questioned costs. (a) LSC may identify questioned costs: (1) When the Office of Inspector General, the General Accounting Office, or an independent auditor or other audit organization authorized to conduct an audit of a recipient has identified and referred a questioned cost to LSC; (2) In the course of its oversight of recipients; or (3) As a result of complaints filed with LSC. (b) If LSC determines that there is a basis for disallowing a questioned cost, LSC must provide the recipient with written notice of its intent to disallow the cost. The notice of questioned costs must state the amount of the cost and the factual and legal basis for disallowing it. (c) If a questioned cost is disallowed solely because it is excessive, only the amount that is larger than reasonable shall be disallowed. (d)(1) Within 30 days of receiving the notice of questioned costs, the recipient may respond with written evidence and argument to show that the cost was allowable, or that LSC, for equitable, practical, or other reasons, should not recover all or part of the amount, or that the recovery should be made in installments. (2) The written notice shall become LSC’s final written decision unless: (i) The recipient responds to LSC’s written notice within 30 days; (ii) The recipient requests an extension of time pursuant to § 1630.3(b) within 30 days; or (iii) LSC grants an extension of time pursuant to § 1630.3(b) within 30 days. (e) Within 60 days of receiving the recipient’s written response to the notice of questioned costs, LSC management must issue a final written decision stating whether the cost has been disallowed and the reasons for the decision. (f) If LSC has determined that the questioned cost should be disallowed, the final written decision must: (1) State that the recipient may appeal the decision as provided in § 1630.12 and describe the process for seeking an appeal; (2) Describe how it expects the recipient to repay the cost, including the method and schedule for collection of the amount of the cost; (3) State whether LSC is requiring the recipient to make financial adjustments or take other corrective action to prevent a recurrence of the circumstances giving rise to the disallowed cost. VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 Appeals to the president. (a)(1) If the amount of a disallowed cost exceeds $2,500, the recipient may appeal in writing to LSC’s President within 30 days of receiving LSC’s final written decision to disallow the cost. The recipient should state in detail the reasons why LSC should not disallow part or all of the questioned cost. (2) If the recipient did not respond to LSC’s notice of questioned costs and the notice became LSC’s final written decision pursuant to § 1630.11(d)(2), the recipient may not appeal the final written decision. (b) If the President has had prior involvement in the consideration of the disallowed cost, the President shall designate another senior LSC employee who has not had prior involvement to review the recipient’s appeal. In circumstances where the President has not had prior involvement in the disallowed cost proceeding, the President has discretion to designate another senior LSC employee who also has not had prior involvement in the proceeding to review the appeal. (c) Within 30 days of receiving the recipient’s written appeal, the President or designee will adopt, modify, or reverse LSC’s final written decision. (d) The decision of the President or designee shall be final and shall be based on the written record, consisting of LSC’s notice of questioned costs, the recipient’s response, LSC’s final written decision, the recipient’s written appeal, any additional response or analysis provided to the President or designee by LSC staff, and the relevant findings, if any, of the Office of Inspector General, General Accounting Office, or other authorized auditor or audit organization. Upon request, LSC shall provide the recipient with a copy of the written record. § 1630.13 Recovery of disallowed costs and other corrective action. (a) LSC will recover any disallowed costs from the recipient within the time limits and conditions set forth in either LSC’s final written decision or the President’s decision on an appeal. Recovery of the disallowed costs may be in the form of a reduction in the amount of future grant checks or in the form of direct payment from you to LSC. (b) LSC shall ensure that a recipient who has incurred a disallowed cost takes any additional necessary corrective action within the time limits and conditions set forth in LSC’s final written decision or the President’s decision. PO 00000 Frm 00046 Fmt 4700 Sfmt 4700 § 1630.14 parts. Other remedies; effect on other (a) In cases of serious financial mismanagement, fraud, or defalcation of funds, LSC shall refer the matter to the Office of Inspector General and may take appropriate action pursuant to parts 1606, 1623, and 1640 of this chapter. (b) The recovery of a disallowed cost according to the procedures of this part does not constitute a permanent reduction in a recipient’s annualized funding level, nor does it constitute a limited reduction of funding or termination of financial assistance under part 1606, or a suspension of funding under part 1623 of this chapter. § 1630.15 Applicability to subgrants. When disallowed costs arise from expenditures incurred under a subgrant of LSC funds, the recipient and the subrecipient will be jointly and severally responsible for the actions of the subrecipient, as provided by 45 CFR part 1627, and will be subject to all remedies available under this part. Both the recipient and the subrecipient shall have access to the review and appeal procedures of this part. § 1630.16 Applicability to non-LSC funds. (a) No costs attributable to a purpose prohibited by the LSC Act, as defined by 45 CFR 1610.2(a), may be charged to private funds, except for tribal funds used for the specific purposes for which they were provided. (b) No cost attributable to an activity prohibited by or inconsistent with Pub. L. 103–134, title V, sec. 504, as defined by 45 CFR 1610.2(b), may be charged to non-LSC funds, except for tribal funds used for the specific purposes for which they were provided. (c) LSC may recover from a recipient’s LSC funds an amount not to exceed the amount improperly charged to non-LSC funds. A decision to recover under this paragraph is subject to the review and appeal procedures of §§ 1630.11 and 1630.12. § 1630.17 income. Applicability to derivative (a) Derivative income resulting from an activity supported in whole or in part with LSC funds shall be allocated to the fund in which the recipient’s LSC grant is recorded in the same proportion that the amount of LSC funds expended bears to the total amount expended by the recipient to support the activity. (b) Derivative income allocated to the LSC fund in accordance with paragraph (a) of this section is subject to the requirements of this part. E:\FR\FM\10AUR1.SGM 10AUR1 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations Subpart D—Closeout Procedures § 1630.18 Applicability. This subpart applies when a recipient of LSC funds: (a) Ceases to exist as a legal entity, including merging or consolidating functions with another LSC recipient when the other recipient becomes the LSC recipient for the service area; or (b) Otherwise ceases to receive funds directly from LSC. This may include voluntary termination by the recipient or involuntary termination by LSC of the recipient’s LSC grant, and may occur at the end of a grant term or during the grant term. § 1630.19 Closeout plan; timing. (a) A recipient must provide LSC with a plan for the orderly conclusion of the recipient’s role and responsibilities. LSC will maintain a list of the required elements for the closeout plan on its Web site. LSC will provide recipients with a link to the list in the grant award documents. (b)(1) A recipient must notify LSC no less than 60 days prior to any of the above events, except for an involuntary termination of its LSC grant by LSC. The recipient must submit the closeout plan described in paragraph (a) of this section at the same time. (2) If LSC terminates a recipient’s grant, the recipient must submit the closeout plan described in paragraph (a) of this section within 15 days of being notified by LSC that it is terminating the recipient’s grant. mstockstill on DSK30JT082PROD with RULES § 1630.20 Closeout costs. (a) The recipient must submit to LSC a detailed budget and timeline for all closeout procedures described in the closeout plan. LSC must approve the budget, either as presented or after negotiations with the recipient, before the recipient may proceed with implementing the budget, timeline, and plan. (b) LSC will withhold funds for all closeout expenditures, including costs for the closing audit, all staff and consultant services needed to perform closeout activities, and file storage and retention. (c) LSC will release any funding installments that the recipient has not received as of the date it notified LSC of a merger, change in status, or voluntary termination or that LSC notified the recipient of an involuntary termination of funding only upon the recipient’s satisfactory completion of all closeout obligations. § 1630.21 Returning funds to LSC. (a) Excess fund balance. If the recipient has an LSC fund balance after VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 the termination of funding and closeout, the recipient must return the full amount of the fund balance to LSC at the time it submits the closing audit to LSC. (b) Derivative income. Any attorneys’ fees claimed or collected and retained by the recipient after funding ceases that result from LSC-funded work performed during the grant term are derivative income attributable to the LSC grant. Such derivative income must be returned to LSC within 15 days of the date on which the recipient receives the income. ■ 4. Add part 1631 to read as follows: PART 1631—PURCHASING AND PROPERTY MANAGEMENT Subpart A—General Provisions Sec. 1631.1 Purpose. 1631.2 Definitions. 1631.3 Prior approval process. 1631.4 Use of funds. 1631.5 Recipient policies, procedures, and recordkeeping. Subpart B—Procurement Policies and Procedures 1631.6 Characteristics of procurements. 1631.7 Procurement policies and procedures. 1631.8 Requests for prior approval. 1631.9 Applicability of part 1630 of this chapter. Subpart C—Personal Property Management 1631.10 Use of property in compliance with LSC’s statutes and regulations. 1631.11 Intellectual property. 1631.12 Disposing of personal property purchased with LSC funds. 1631.13 Use of derivative income from sale of personal property purchased with LSC funds. Subpart D—Real Estate Acquisition and Capital Improvements 1631.14 Purchasing real estate with LSC funds. 1631.15 Capital improvements. Subpart E—Real Estate Management 1631.16 Using real estate purchased with LSC funds. 1631.17 Maintenance. 1631.18 Insurance. 1631.19 Accounting and reporting to LSC. 1631.20 Disposing of real estate purchased with LSC funds. 1631.21 Retaining income from sale of real estate purchased with LSC funds. Authority: 42 U.S.C. 2996g(e). Subpart A—General Provisions § 1631.1 Purpose. The purpose of this part is to set standards for purchasing, leasing, using, and disposing of LSC-funded personal PO 00000 Frm 00047 Fmt 4700 Sfmt 4700 37341 property and real estate and using LSC funds to contract for services. § 1631.2 Definitions. As used in this part: (a) Capital improvement means spending more than $25,000 of LSC funds to improve real estate through construction or the addition of fixtures that become an integral part of real estate. (b) LSC property interest agreement means a formal written agreement between the recipient and LSC establishing the terms of LSC’s legal interest in real estate purchased with LSC funds. (c) Personal property means property other than real estate. (d) Purchase means buying personal property or real estate or contracting for services with LSC funds. (e) Quote means a quotation or bid from a potential source interested in selling or leasing property or providing services to a recipient. (f) Real estate means land and buildings (including capital improvements), excluding moveable personal property. (g)(1) Services means professional and consultant services rendered by persons who are members of a particular profession or possess a special skill and who are not officers or employees of an LSC recipient. Services includes, but is not limited to intangible products such as accounting, banking, cleaning, consultants, training, expert services, maintenance of equipment, and transportation. (2) Services does not include: (i) Services provided by recipients to their employees as compensation in addition to regular salaries and wages, including but not limited to employee insurance, pensions, and unemployment benefit plans; (ii) Insurance, including malpractice insurance provided to staff attorneys and organizational insurance (e.g., directors and officers liability insurance, employment practices liability insurance, and commercial liability insurance); (iii) Annual audits required by section 509(a) of Public Law 104–134; (iv) Services necessary to conduct litigation on behalf of clients (e.g., expert witnesses, discovery); (v) Contracts for services necessary to address a recipient’s internal personnel issues, such as labor counsel, investigators, and mediators; and (vi) Contracts for employees, whether with the employee directly or with a placement agency. (h) Source means a seller, supplier, vendor, or contractor who has agreed: E:\FR\FM\10AUR1.SGM 10AUR1 37342 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations circumstances and the information described in paragraph (b) of this section within 30 days after the circumstances necessitating the purchase or contract have ended. § 1631.3 mstockstill on DSK30JT082PROD with RULES (1) To sell or lease property to the recipient through a purchase or lease agreement; or (2) To provide services to the recipient through a contract. § 1631.4 Prior approval process. (a) LSC shall grant prior approval of a cost listed in § 1630.6(b) of this chapter if the recipient has provided sufficient written information to demonstrate that the cost would be consistent with the standards and policies of this part. LSC may request additional information if necessary to make a decision on the recipient’s request. (b)(1) For purchases or leases of personal property, contracts for services, and capital improvements, LSC will make a decision to approve or deny a request for prior approval within 30 days of receiving materials LSC deems sufficient to decide. LSC will inform a recipient within 20 days of receiving the initial prior approval request whether LSC needs additional information to make a decision. (2) For purchases of real estate, LSC will make a decision within 60 days of receiving materials LSC deems sufficient to decide. LSC will inform a recipient within 20 days of receiving the initial prior approval request whether LSC needs additional information to make a decision. (3) If LSC cannot make a decision whether to approve the request within the allotted time, it will provide the requester with a date by which it expects to make a decision. (c) If LSC denies a request for prior approval, LSC shall provide the recipient with a written explanation of the grounds for denying the request. (d) Exigent circumstances. (1) A recipient may use more than $25,000 of LSC funds to purchase personal property or award a contract for services without seeking LSC’s prior approval if the purchase or contract is necessary; (i) To avoid imminent harm to the recipient’s personnel, physical facilities, or systems; (ii) To remediate or mitigate damage to the recipient’s personnel, physical facilities or systems; (iii) To avoid disruption to the recipient’s client-service delivery system (e.g., an event that causes a recipient’s telecommunications system to cease functioning); or (iv) To respond to a natural disaster (e.g., a flood washes out roads leading to the recipient’s offices such that the recipient must contract for services that will enable it to contact its clients). (2) The recipient must provide LSC with a description of the exigent VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 Use of funds. When LSC receives funds from a disposition of property under this section, LSC will use those funds to make emergency and other special grants to recipients. LSC generally will make such grants to the same service area as the returned funds originally supported. § 1631.5 Recipient policies, procedures, and recordkeeping. Each recipient shall adopt written policies and procedures to guide its staff in complying with this part and shall maintain records sufficient to document the recipient’s compliance with this part. Subpart B—Procurement Policies and Procedures § 1631.6 Characteristics of procurements. (a) Characteristics indicative of a procurement relationship between a recipient and another entity are when the other entity: (1) Provides the goods and services within its normal business operations; (2) Provides similar goods or services to many different purchasers; (3) Normally operates in a competitive environment; (4) Provides goods or services that are ancillary to the operation of the LSC grant; and (5) Is not subject to LSC’s compliance requirements as a result of the agreement, though similar requirements may apply for other reasons. (b) In determining whether an agreement between a recipient and another entity constitutes a contract under this part or a subgrant under part 1627 of this chapter, the substance of the relationship is more important than the form of the agreement. All the characteristics above may not be present in all cases, and a recipient must use judgment in classifying each agreement as a subgrant or a contract. § 1631.7 Procurement policies and procedures. Recipients must have written procurement policies and procedures. These policies must: (a) Identify competition thresholds that establish the basis (for example, price, risk level, or type of purchase) for the level of competition required at each threshold (for example, certification that a purchase reflects the best value to the recipient; a price comparison for PO 00000 Frm 00048 Fmt 4700 Sfmt 4700 alternatives that the recipient considered; or requests for information, quotes, or proposals); (b) Establish the grounds for noncompetitive purchases; (c) Establish the level of documentation necessary to justify procurements. The level of documentation needed may be proportional to the nature of the purchase or tied to competition thresholds; (d) Establish internal controls that, at a minimum, provide for segregation of duties in the procurement process, identify which employees, officers, or directors who have authority to make purchases for the recipient, and identify procedures for approving purchases; (e) Establish procedures to ensure quality and cost control in purchasing, including procedures for selecting sources, fair and objective criteria for selecting sources; and (f) Establish procedures for identifying and preventing conflicts of interest in the purchasing process. § 1631.8 Requests for prior approval. (a) As required by 45 CFR 1630.6 and 1631.3, a recipient using more than $25,000 of LSC funds to purchase or lease personal property or contract for services must request and receive LSC’s prior approval. (b) A request for prior approval must include: (1) A statement of need; (2) A copy of the recipient’s procurement policy; and (3) Documentation showing that the recipient followed its procurement policies and procedures in soliciting, reviewing, and approving the purchase, lease, or contract for services. § 1631.9 Applicability of part 1630 of this chapter. All purchases and leases of personal property and contracts for services made with LSC funds must comply with the provisions of 45 CFR part 1630 (Cost Standards and Procedures). Subpart C—Personal Property Management § 1631.10 Use of property in compliance with LSC’s statutes and regulations. (a) A recipient may use personal property purchased or leased, in whole or in part, with LSC funds primarily to deliver legal services to eligible clients under the requirements of the LSC Act, applicable appropriations acts, and LSC regulations. (b) A recipient may use personal property purchased or leased, in whole or in part, with LSC funds for the performance of an LSC grant or contract E:\FR\FM\10AUR1.SGM 10AUR1 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations for other activities, if such other activities do not interfere with the performance of the LSC grant or contract. (c) If a recipient uses personal property purchased or leased, in whole or in part, with LSC funds to provide services to an organization that engages in activity restricted by the LSC Act, LSC regulations, or other applicable law, the recipient must charge the organization a fee no less than that which private nonprofit organizations in the same area charge for the same services under similar conditions. § 1631.11 Intellectual property. (a) A recipient owns all products, technologies, and software developed or improved using LSC funds, subject to any agreement the recipient may have with a third-party vendor. LSC retains a royalty-free, nonexclusive, and irrevocable license to use, reproduce, distribute, publish, and prepare derivative works of any LSC-funded products, technologies, and software, including making them available to other LSC grantees or the broader access to justice community and partners. (b) A recipient must have a written contract with vendors who develop or improve LSC-funded products, technologies, and software. The contract must include a provision disclosing LSC’s royalty-free, nonexclusive, and irrevocable license and prohibiting third-party vendors from denying its existence, challenging its legality, or interfering with LSC’s full exercise of it. mstockstill on DSK30JT082PROD with RULES § 1631.12 Disposing of personal property purchased with LSC funds. (a) Disposal by LSC recipients. During the term of an LSC grant or contract, a recipient may dispose of personal property purchased with LSC funds by: (1) Trading in the personal property when it acquires replacement property; (2) Selling or otherwise disposing of the personal property with no further obligation to LSC when the fair market value of the personal property is negligible; (3) Where the current fair market value of the personal property is $15,000 or less, selling the property at a reasonable negotiated price, without advertising; (4) Where the current fair market value of the personal property exceeds $15,000, advertising the property for 14 days and selling the property after receiving reasonable offers. If the recipient receives no reasonable offers after advertising the property for 14 days, it may sell the property at a reasonable negotiated price; (5) Transferring the property to another recipient of LSC funds; or VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 (6) With the approval of LSC, transferring the personal property to another nonprofit organization serving the poor in the same service area. (b) Disposal when no longer a recipient. When a recipient stops receiving LSC funds, it must obtain LSC’s approval to dispose of personal property purchased with LSC funds in one of the following ways: (1) Transferring the property to another recipient of LSC funds, in which case the former recipient will be entitled to compensation in the amount of the percentage of the property’s current fair market value that is equal to the percentage of the property’s purchase cost borne by non-LSC funds; (2) Transferring the property to another nonprofit organization serving the poor in the same service area, in which case LSC will be entitled to compensation from the recipient for the percentage of the property’s current fair market value that is equal to the percentage of the property’s purchase cost borne by LSC funds; (3) Selling the property and retaining the proceeds from the sale after compensating LSC for the percentage of the property’s current fair market value that is equal to the percentage of the property’s purchase cost borne by LSC funds; or (4) Retaining the property, in which case LSC will be entitled to compensation from the recipient for the percentage of the property’s current fair market value that is equal to that percentage of the property’s purchase cost borne by LSC funds. (c) Disposal upon merger with or succession by another LSC recipient. When a recipient stops receiving LSC funds because it merged with or is succeeded by another grantee, the recipient may transfer the property to the new recipient, if the two entities execute an LSC-approved successor in interest agreement that requires the new recipient to use the property primarily to provide legal services to eligible clients under the requirements of the LSC Act, applicable appropriations acts, and LSC regulations. (d) Prohibition. A recipient may not dispose of personal property by sale, donation, or other transfer of the property to its board members or employees. § 1631.13 Use of derivative income from sale of personal property purchased with LSC funds. (a) During the term of an LSC grant or contract, a recipient may retain and use income from any sale of personal property purchased with LSC funds according to 45 CFR 1630.17 (Cost PO 00000 Frm 00049 Fmt 4700 Sfmt 4700 37343 Standards and Procedures: Applicability to derivative income) and 45 CFR 1628.3 (Recipient Fund Balances: Policy). (b) The recipient must account for income earned from the sale, rent, or lease of personal property purchased with LSC funds according to the requirements of 45 CFR 1630.17. Subpart D—Real Estate Acquisition and Capital Improvements § 1631.14 funds. Purchasing real estate with LSC (a) Pre-purchase planning requirements. (1) Before purchasing real estate with LSC funds, a recipient must conduct an informal market survey and evaluate at least three potential equivalent properties. (2) When a recipient evaluates potential properties, it must consider: (i) The average annual cost of the purchase, including the costs of a down payment, interest and principal payments on a mortgage financing the purchase; closing costs; renovation costs; and the costs of utilities, maintenance, and taxes, if any; (ii) The estimated total costs of buying and using the property throughout the mortgage term compared to the estimated total costs of leasing and using a similar property over the same period of time; (iii) The property’s quality; and (iv) Whether the property is conducive to delivering legal services (e.g. property is accessible to the client population (ADA compliant) and near public transportation, courts, and other government or social services agencies). (3) If a recipient cannot evaluate three potential properties, it must be able to explain why such evaluation was not possible. (b) Prior approval. Before a recipient may purchase real estate with LSC funds, LSC must approve the purchase as required by 45 CFR 1630.6 and 1631.3. The request for approval must be in writing and include: (1) A statement of need, including: (i) The information obtained and considered in paragraph (a) of this section; (ii) Trends in funding and program staffing levels in relation to space needs; (iii) Why the recipient needs to purchase real estate; and (iv) Why purchasing real estate is reasonable and necessary to performing the LSC grant. (2) A brief analysis comparing: (i) The estimated average annual cost of the purchase including the costs of a down payment, interest and principal payments on a mortgage financing the E:\FR\FM\10AUR1.SGM 10AUR1 37344 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations mstockstill on DSK30JT082PROD with RULES purchase; closing costs; renovation costs; and the costs of utilities, maintenance, and taxes, if any; and (ii) The estimated average annual cost of leasing or purchasing similar property over the same period of time; (3) Anticipated financing of the purchase, including: (i) The estimated total acquisition costs, including capital improvements, taxes, recordation fees, maintenance costs, insurance costs, and closing costs; (ii) The anticipated breakdown of LSC funds and non-LSC funds to be applied toward the total costs of the purchase; (iii) The monthly amount of principal and interest payments on debt secured to finance the purchase, if any; (4) A current, independent appraisal sufficient to secure a mortgage; (5) A comparison of available loan terms considered by the recipient before selecting the chosen financing method; (6) Board approval of the purchase in either a board resolution or board minutes, including Board approvals that are contingent on LSC’s approval; (7) Whether the property will replace or supplement existing program offices; (8) A statement that the property (i) Currently complies with the Americans with Disabilities Act (ADA) or applicable state law, whichever is stricter, and 45 CFR 1624.5; or (ii) Will comply with the ADA, any applicable state law, and 45 CFR 1624.5 upon completion of any necessary capital improvements. Such improvements must be completed within 60 days of the date of purchase; and (9) A copy of a purchase agreement, contract, or other document containing a description of the property and the terms of the purchase. (c) Property interest agreement. Once LSC approves the purchase, the recipient must enter a written property interest agreement with LSC. The agreement must include: (1) The recipient’s agreement to use the property consistent with § 1631.15; (2) The recipient’s agreement to record, under appropriate state law, LSC’s interest in the property; (3) The recipient’s agreement not to encumber the property without prior LSC approval; and (4) The recipient’s agreement not to dispose of the property without prior LSC approval. § 1631.15 Capital improvements. (a) As required by 45 CFR 1630.6 and 1631.3, a recipient must obtain LSC’s prior written approval before using more than $25,000 LSC funds to make capital improvements to real estate. (b) The written request must include: VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 (1) A statement of need; (2) A brief description of the nature of the work to be done, the name of the sources performing the work, and the total expected cost of the improvement; and (3) Documentation showing that the recipient followed its procurement policies and procedures in competing, selecting, and awarding contracts to perform the work. (c) A recipient must maintain supporting documentation to accurately identify and account for any use of LSC funds to make capital improvements to real estate owned by the recipient. Subpart E—Real Estate Management § 1631.16 Using real estate purchased with LSC funds. (a) Recipients must use real estate purchased or leased in whole or in part with LSC funds to deliver legal assistance to eligible clients consistent with the requirements of the LSC Act, applicable appropriations acts, other applicable Federal law, and LSC’s regulations. If a recipient does not need to use some or all such real estate to deliver legal assistance to eligible clients, it may use the space for other activities as described in paragraphs (b) and (c) of this section. (b) A recipient may use real estate purchased or leased, in whole or part, with LSC funds for the performance of an LSC grant or contract for other activities, if they do not interfere with the performance of the LSC grant or contract. (c) If a recipient uses real estate purchased or leased, in whole or part, with LSC funds to provide space to an organization that engages in activity restricted by the LSC Act, applicable appropriations acts, LSC regulations, or other applicable law, the recipient must charge the organization rent no less than that which private nonprofit organizations in the same area charge for the same amount of space under similar conditions. § 1631.17 Maintenance. A recipient must maintain real estate acquired with LSC funds: (a) In an efficient operating condition; and (b) In compliance with state and local government property standards and building codes. § 1631.18 Insurance. At the time of purchase, a recipient must obtain insurance coverage for real estate purchased with LSC funds which is not lower in value than coverage it has obtained for other real estate it owns PO 00000 Frm 00050 Fmt 4700 Sfmt 4700 and which provides at least the following coverage: (a) Title insurance that: (1) Insures the fee interest in the property for an amount not less than the full appraised value as approved by LSC, or the amount of the purchase price, whichever is greater; and (2) Contains an endorsement identifying LSC as a loss payee to be reimbursed if the title fails. (3) If no endorsement naming LSC as loss payee is made, the recipient must pay LSC the title insurance proceeds it receives in the event of a failure. (b) A physical destruction insurance policy, including flood insurance where appropriate, which insures the full replacement value of the facility from risk of partial and total physical destructions. The recipient must maintain this policy for the period of time that the recipient owns the real estate. § 1631.19 LSC. Accounting and reporting to A recipient must maintain an accounting of the amount of LSC funds relating to the purchase or maintenance of real estate purchased with LSC funds. The accounting must include the amount of LSC funds used to pay for acquisition costs, financing, and capital improvements. The recipient must provide the accounting for each year to LSC no later than April 30 of the following year or in its annual audited financial statements submitted to LSC. § 1631.20 Disposing of real estate purchased with LSC funds. (a) Disposal by LSC recipients. During the term of an LSC grant or contract, a recipient must seek LSC’s prior written approval to dispose of real estate purchased with LSC funds by: (1) Selling the property after having advertised for and received offers; or (2) Transferring the property to another recipient of LSC funds, in which case the recipient may be compensated by the recipient receiving the property for the percentage of the property’s current fair market value that is equal to the percentage of the costs of the original acquisition and costs of any capital improvements borne by non-LSC funds. (b) Disposal after a recipient no longer receives LSC funding. When a recipient who owns real estate purchased with LSC funds stops receiving LSC funds, it must seek LSC’s prior written approval to dispose of the property in one of the following ways: (1) Transfer the property title to another grantee of LSC funds, in which case the recipient may be compensated E:\FR\FM\10AUR1.SGM 10AUR1 Federal Register / Vol. 82, No. 153 / Thursday, August 10, 2017 / Rules and Regulations mstockstill on DSK30JT082PROD with RULES the percentage of the property’s current fair market value that is equal to the percentage of the costs of the original acquisition and costs of any capital improvements by non-LSC funds; (2) Buyout LSC’s interest in the property (i.e., pay LSC the percentage of the property’s current fair market value proportional to its percent interest in the property); or (3) Sell the property to a third party and pay LSC a share of the sale proceeds proportional to its interest in the property, after deducting actual and reasonable closing costs, if any. (4) When a recipient stops receiving LSC funds because it merged with or is succeeded by another recipient, it may transfer the property to the new recipient. The two entities must execute an LSC-approved successor in interest agreement that requires the transferee to use the property primarily to provide legal services to eligible clients under the requirements of the LSC Act, applicable appropriations acts, and LSC regulations. (c) Prior approval process. No later than 60 days before a recipient or former recipient proposes to dispose of real estate purchased with LSC funds, the recipient or former recipients must submit a written request for prior approval to dispose of the property to LSC. The request must include: (1) The proposed method of disposition and an explanation of why the proposed method is in the best interests of LSC and the recipient; (2) Documentation showing the fair market value of the property at the time of transfer or sale, including, but not limited to, an independent appraisal of the property and competing bona fide offers to purchase the property; (3) A description of the recipient’s process for advertising the property for sale and receiving offers; (4) An accounting of all LSC funds used in the acquisition and any capital improvements of the property. The accounting must include the amount of LSC funds used to pay for acquisition costs, financing, and capital improvements; and (5) Information on the proposed transferee or buyer of the property and a document evidencing the terms of transfer or sale. § 1631.21 Retaining income from sale of real estate purchased with LSC funds. (a) During the term of an LSC grant or contract, a recipient may retain and use income from any sale of real estate purchased with LSC funds according to 45 CFR 1630.17 (Cost Standards and Procedures: Applicability to derivative VerDate Sep<11>2014 16:09 Aug 09, 2017 Jkt 241001 income.) and 45 CFR 1628.3 (Recipient Fund Balances: Policy.). (b) The recipient must account for income earned from the sale, rent, or lease of real or personal property purchased with LSC funds according to the requirements of 45 CFR 1630.17. Dated: August 3, 2017. Mark Freedman, Senior Associate General Counsel. [FR Doc. 2017–16764 Filed 8–9–17; 8:45 am] BILLING CODE 7050–01–P FEDERAL COMMUNICATIONS COMMISSION 47 CFR Part 79 [MB Docket No. 11–43; FCC 17–88] Video Description: Implementation of the Twenty-First Century Communications and Video Accessibility Act of 2010 Federal Communications Commission. ACTION: Final rule. AGENCY: In this document, the Commission adopts rules pursuant to Section 202 of the Twenty-First Century Communications and Video Accessibility Act of 2010 (CVAA) to expand the availability of video described programming on top-rated broadcast and nonbroadcast networks. Specifically, the document adopts the proposal to increase the amount of described programming on each ‘‘included network’’ carried by a covered broadcast station or multichannel video programming distributor (MVPD), from 50 hours per calendar quarter to 87.5 hours per quarter. Covered broadcast stations and MVPDs must start providing the additional hours of video described programming on ‘‘included networks’’ in the calendar quarter beginning on July 1, 2018. The document also provides more flexibility than exists under the Commission’s current rules regarding when the additional hours of described programming may be aired. This update to the Commission’s video description rules will help ensure that Americans who are blind or visually impaired can be connected, informed, and entertained by television. DATES: Effective September 11, 2017. FOR FURTHER INFORMATION CONTACT: Maria Mullarkey, Maria.Mullarkey@ fcc.gov, or Lyle Elder, Lyle.Elder@ fcc.gov, of the Media Bureau, Policy Division, (202) 418–2120. For additional information concerning the Paperwork Reduction Act information collection SUMMARY: PO 00000 Frm 00051 Fmt 4700 Sfmt 4700 37345 requirements contained in this document, contact Cathy Williams at (202) 418–2918 or send an email to PRA@fcc.gov. This is a summary of the Commission’s Report and Order, FCC 17–88, adopted on July 11, 2017, and released on July 12, 2017. The full text of this document is available electronically via the FCC’s Electronic Document Management System (EDOCS) Web site at http:// fjallfoss.fcc.gov/edocs_public/ or via the FCC’s Electronic Comment Filing System (ECFS) Web site at http:// fjallfoss.fcc.gov/ecfs2/. Documents will be available electronically in ASCII, Microsoft Word, and/or Adobe Acrobat. This document is also available for public inspection and copying during regular business hours in the FCC Reference Information Center, Federal Communications Commission, 445 12th Street SW., CY–A257, Washington, DC 20554. Alternative formats are available for people with disabilities (Braille, large print, electronic files, audio format), by sending an email to fcc504@ fcc.gov or calling the Commission’s Consumer and Governmental Affairs Bureau at (202) 418–0530 (voice), (202) 418–0432 (TTY). SUPPLEMENTARY INFORMATION: I. Introduction 1. In this Report and Order, we expand the availability of video described programming on top-rated broadcast and nonbroadcast networks. Specifically, we adopt the proposal to increase the amount of described programming on each ‘‘included network’’ 1 carried by a covered broadcast station or multichannel video programming distributor (MVPD), from 50 hours per calendar quarter to 87.5 hours per quarter. Covered broadcast stations and MVPDs must start providing the additional hours of video described programming on ‘‘included networks’’ in the calendar quarter beginning on July 1, 2018. We also provide more flexibility than exists under our current rules regarding when the additional hours of described programming may be aired. This update to our rules will help ensure that Americans who are blind or visually impaired can be connected, informed, and entertained by television. 1 An ‘‘included network’’ is a network carried on a programming stream or channel on which a broadcaster or MVPD is required to provide video description. Video Description: Implementation of the Twenty-First Century Communications and Video Accessibility Act of 2010, Notice of Proposed Rulemaking, 81 FR 33642, May 27, 2016, 31 FCC Rcd 2463, 2464, n.4 (2016) (NPRM). E:\FR\FM\10AUR1.SGM 10AUR1

Agencies

[Federal Register Volume 82, Number 153 (Thursday, August 10, 2017)]
[Rules and Regulations]
[Pages 37327-37345]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16764]


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LEGAL SERVICES CORPORATION

45 CFR Parts 1600, 1630, and 1631


Definitions; Cost Standards and Procedures; Purchasing and 
Property Management

AGENCY: Legal Services Corporation.

ACTION: Final rule.

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SUMMARY: This final rule revises the Legal Services Corporation (LSC or 
Corporation) regulation on Definitions and Cost Standards and 
Procedures and creates a new part from LSC's Property Acquisition and 
Management Manual (PAMM).

DATES: This final rule is effective on December 31, 2017.

FOR FURTHER INFORMATION CONTACT: Stefanie K. Davis, Assistant General 
Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 
20007; (202) 295-1563 (phone), (202) 337-6519 (fax), or sdavis@lsc.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    The purpose of 45 CFR part 1630 is ``to provide uniform standards 
for allowability of costs and to provide a comprehensive, fair, timely, 
and flexible process for the resolution of questioned costs.'' 45 CFR 
1630.1. LSC last revised part 1630 in 1997, when it published a final 
rule intended to ``bring the Corporation's cost standards and 
procedures into conformance with applicable provisions of the Inspector 
General Act, the Corporation's appropriations [acts], and relevant 
Office of Management and Budget (OMB) circulars.'' 62 FR 68219, Dec. 
31, 1997. Although the OMB Circulars are not binding on LSC because LSC 
is not a federal agency, LSC adopted relevant provisions from the OMB 
Circulars pertaining to non-profit grants, audits, and cost principles 
into the final rule for part 1630. Id. at 68219-20 (citing OMB 
Circulars A-50, A-110, A-122, and A-133).
    LSC published the PAMM in 2001 ``to provide recipients with a 
single complete and consolidated set of policies and procedures related 
to property acquisition, use and disposal.'' 66 FR 47688, Sept. 13, 
2001. Prior to the PAMM's issuance, such policies and

[[Page 37328]]

procedures were ``incomplete, outdated and dispersed among several 
different LSC documents.'' Id. The PAMM contains policies and 
procedures that govern both real and non-expendable personal property, 
but, except for contract services for capital improvements, the PAMM 
does not apply to contracts for services. Id. at 47695. The PAMM's 
policies and procedures were developed with guidance from the Federal 
Acquisition Regulation at 48 CFR parts 1-52, federal property 
management regulations, and OMB Circular A-110. Id. at 47688. The PAMM 
also incorporates several references to provisions of part 1630 
pertaining to costs that require LSC's prior approval and the proper 
allocation of derivative income. Id. at 47696-98 (containing references 
to 45 CFR 1630.5(b)(2)-(4), 1630.5(c), and 1630.12, respectively).
    Part 1630 and the PAMM have not been revised since 1997 and 2001, 
respectively. Since then, procurement practices and cost allocation 
principles applicable to awards of federal funds have changed 
significantly. For instance, in 2013, OMB revised and consolidated 
several Circulars, including the Circulars LSC relied upon to develop 
part 1630, into a single Uniform Guidance. 78 FR 78589, Dec. 26, 2013; 
2 CFR part 200. OMB consolidated and simplified its guidance to 
``reduce administrative burden for non-Federal entities receiving 
Federal awards while reducing the risk of waste, fraud and abuse.'' 78 
FR 78590.
    LSC determined that it should undertake regulatory action at this 
time for three reasons. The first reason is to account for changes in 
Federal grants policy where appropriate for LSC. The second reason is 
to address the difficulties that LSC and its grantees experience in 
applying ambiguous provisions of part 1630 and the PAMM. Finally, LSC 
believes rulemaking is appropriate now to address the limitations that 
certain provisions of both documents place on LSC's ability to ensure 
clarity, efficiency, and accountability in its grant-making and grants 
oversight practices.

II. Procedural History of This Rulemaking

    In July 2014, the Operations and Regulations Committee (Committee) 
of LSC's Board of Directors (Board) approved Management's proposed 
2014-2015 rulemaking agenda, which included revising part 1630 and the 
PAMM as a priority item. On July 7, 2015, Management presented the 
Committee with a Justification Memorandum recommending publication of 
an Advance Notice of Proposed Rulemaking (ANPRM) to seek public comment 
on possible revisions to part 1630 and the PAMM. Management stated that 
collecting input from the regulated community through an ANPRM would 
significantly aid LSC in determining the scope of this rulemaking and 
in developing a more accurate understanding of the potential costs and 
benefits that certain revisions may entail. On July 18, 2015, the Board 
authorized rulemaking and approved the preparation of an ANPRM to 
revise part 1630 and the PAMM.
    In October 2015, LSC published in the Federal Register an ANPRM, 
seeking public comment on potential revisions to part 1630 and the 
Property Acquisition and Management Manual (PAMM). 80 FR 61142, Oct. 9, 
2015. After receiving comments on the ANPRM, LSC conducted workshops to 
obtain additional input on the potential changes. LSC drafted proposed 
changes to part 1630 and the PAMM based on the feedback it received 
from the ANPRM and the workshops.
    On October 28, 2016, LSC published in the Federal Register a Notice 
of Proposed Rulemaking (NPRM) regarding 45 CFR parts 1600, 1630, and 
new 1631. 81 FR 75006, Oct. 28, 2016. LSC sought public comment on 
LSC's revisions to its definitions and cost standards and procedures 
and the creation of a new part from the PAMM. In response to a request 
from the National Legal Aid and Defender Association (NLADA), LSC 
extended the original 60-day comment period for an additional 30 days. 
81 FR 93653, Dec. 21, 2016. The new deadline for comments was January 
26, 2017. On July 21, 2017, the Committee recommended publication of 
this final rule to the Board. On July 22, 2017, the Board voted to 
publish this final rule.
    Materials regarding this rulemaking are available in the open 
rulemaking section of LSC's Web site at http://www.lsc.gov/about-lsc/laws-regulations-guidance/rulemaking. After the effective date of the 
rule, those materials will appear in the closed rulemaking section at 
http://www.lsc.gov/about-lsc/laws-regulations-guidance/rulemaking/closed-rulemaking.

III. Discussion of Comments and Regulatory Provisions

    During the public comment period, LSC received comments from six 
organizations: Indiana Legal Services (ILS), Colorado Legal Services 
(CLS), Michigan Advocacy Program (MAP), Northwest Justice Project 
(NJP), NLADA, and Legal Action of Wisconsin (Legal Action).
    Commenters expressed support for several elements of the proposed 
regulations. NLADA supported the proposal to eliminate 45 CFR 
1630.3(a)(8), which requires recipients to obtain written consent from 
federal agencies before they may use LSC funds to match the federal 
agencies' grants. NLADA, NJP, and MAP supported increasing the prior 
approval threshold in Sec.  1630.6(b)(1) from $10,000 to $25,000. MAP 
supported the proposal to exclude employee benefit contracts from the 
prior approval requirements in Sec.  1630.6(b)(1)(ii). MAP also 
supported adopting proposed Sec.  1631.8, which requires recipients to 
have written procurement policies and procedures that meet particular 
standards because it involves LSC oversight at a policy level, and not 
individual transactional level. MAP supported the proposal to make the 
PAMM a regulation. NLADA and MAP supported proposed Sec.  1631.13, 
which would permit programs to dispose of personal property that has 
little or no value as the program sees fit.

IV. Section-by-Section Discussion

A. Part 1600--Definitions

    Section 1600.1 Definitions. LSC proposed including definitions of 
three new terms: Corporation funds, LSC funds, and non-LSC funds.
    Comment: NJP supported adding these definitions. NJP, NLADA, and 
CLS, however, expressed concern that the proposed definition of 
Corporation funds or LSC funds, which reads ``any funds appropriated by 
Congress to carry out the purposes of the Legal Services Corporation 
Act of 1974, 42 U.S.C. 2996 et seq., as amended[,]'' could be 
interpreted to include funds appropriated by Congress to other 
departments or agencies that can be granted to LSC recipients for the 
purpose of providing legal assistance. Instead, NJP recommended adding 
``to LSC'' to the definition, which would then read ``any funds 
appropriated by Congress to LSC. . . .''
    Response: LSC will revise the final rule to add the phrase ``to 
LSC'' to the definition in Sec.  1600.1.

B. Part 1630--Cost Standards and Procedures

    Organizational note: As described in the discussion for Sec.  
1630.10 (Recipient policies, procedures, and recordkeeping), the final 
rule will insert this section and renumber the sections that follow. 
This preamble reflects the updated numbering except where noted.
    LSC proposed to reorganize part 1630 into four subparts addressing 
(1) generally applicable provisions; (2)

[[Page 37329]]

allocability and allowability of costs charged to LSC grants; (3) 
questioned cost proceedings; and (4) closeout proceedings.
Subpart A--General Provisions
    Section 1630.1 Purpose. LSC proposed no changes to this section and 
received no comments.
    Section 1630.2 Definitions. Proposed Sec.  1630.2(d) defined final 
written decision as either (1) a decision issued by the Vice President 
for Grants Management, or (2) ``the notice of questioned costs if a 
recipient does not respond to the notice within 30 days of receipt.'' 
Additionally, proposed Sec.  1630.3 (current Sec.  1630.13(b)) 
recognized that LSC may, on a recipient's written request for good 
cause, grant an extension of time.
    Comment: NJP expressed concern, with which CLS agreed, that the 
extension of time is not referenced in the Sec.  1630.2(d) definition, 
nor is it identified in proposed Sec.  1630.10(d)(2) (governing 
questioned cost proceedings). Proposed Sec.  1630.10(d)(2) established 
that ``[i]f the recipient does not respond to LSC's written notice [of 
questioned costs] within 30 days, the written notice shall become LSC's 
final written decision.'' NJP expressed concern that, if a recipient 
does not respond to the written notice within 30 days, the recipient 
loses the right to further appeal because ``cutting off any right to 
appeal after 30 days does not take into account vagaries of notice or 
possible intervening events.''
    Response: As NJP noted, the timeframes of part 1630 are subject to 
extensions for good cause. Accordingly, where a recipient receives a 
notice of questioned costs, it may request an extension based on the 
``vagaries of notice or possible intervening events'' with which NJP is 
concerned. LSC believes proposed Sec.  1630.3(b), which described 
permitted extensions, provided appropriate flexibility to respond to 
issues that may impede a recipient's ability to fully respond to the 
notice within 30 days.
    Nevertheless, to clarify both that the extensions of time described 
in proposed Sec.  1630.3 apply during questioned cost proceedings and 
that a final written decision is subject to the extension, LSC will 
amend proposed Sec.  1630.10(d)(2), renumbered as Sec.  1630.11(d)(2), 
to read, ``If the recipient does not respond to LSC's written notice 
within 30 days; the recipient does not request an extension of time 
pursuant to Sec.  1630.3(b) within 30 days; or LSC does not grant an 
extension of time pursuant to Sec.  1630.3(b) within 30 days the 
written notice shall become LSC's final written decision.''
    Section 1630.3 Time.
    Section 1630.3(a). Current Sec.  1630.13(a) states that time limits 
in part 1630 are computed according to the Federal Rules of Civil 
Procedure, Rules 6(a) and (e). LSC proposed to relocate this language 
to Sec.  1630.3(a) without change.
    Comment: NJP noted that the current version of Rule 6 has no 
paragraph (e) and proposed that LSC eliminate the reference. NJP also 
noted that, rather than citing to the Federal Rules of Civil Procedure 
to explain the time limits, it may be less confusing for LSC to include 
in the rule a standard for calculating time. CLS supported this 
comment.
    Response: In response to NJP's comment, LSC will replace paragraph 
(a) regarding time computation with language adopted from 24 CFR 26.31. 
The adopted language provides that the first day of the time period is 
the day after the event. In other words, if a recipient has 30 days to 
respond to a notice of questioned costs, the 30 days begins running the 
day after the recipient receives the notice. For time periods of seven 
days or less, the time period is seven business days; intermediate 
Saturdays, Sundays, and legal holidays are excluded from the 
computation.
    Section 1630.3(b). Current Sec.  1630.13(b) states that LSC may, 
``on a recipient's written request for good cause, grant an extension 
of time and shall so notify the recipient in writing.'' LSC did not 
propose to change this provision in the NPRM.
    Comment: NJP noted that proposed Sec.  1630.3(b) did not state 
whether the request for extension of time must be received by LSC 
before the expiration of the deadline at issue. NJP asserted that if 
LSC intends that the request be received within the timeframe, the 
regulation should so state. NJP also requested that the regulation 
state that ``good cause'' shall be liberally construed. CLS stated it 
``believes that the timeline for appealing questioned costs should be 
clarified, relaxed and allow for extensions of time and exceptions.''
    Regarding extensions of time and proposed Sec.  1630.10(d)(2) 
(review of questioned costs) specifically, NJP also requested that the 
regulation allow a recipient the opportunity to demonstrate good cause 
for failing to respond to the notice of proposed costs within 30 days 
after the allotted 30 days' response time has passed but before LSC 
pursues recovery of the disallowed cost. NJP noted that recipients face 
technology and mail delivery problems, staff illness, vacation or other 
extended leave, or other exigent circumstances, including ``excusable 
neglect,'' that cause recipients to fail to seek an extension within 
the 30 days allowed by proposed Sec.  1630.10(d)(2).
    Response: LSC emphasizes that proposed Sec.  1630.10(d)(2), final 
rule Sec.  1630.11(d)(2), authorizes a full 30 calendar days for a 
recipient to seek an extension of time. For effective and efficient 
management, LSC believes it is reasonable to expect some form of 
correspondence from a recipient--whether the actual response or a 
request for an extension--within the timeframe provided by the relevant 
section of the rule. The circumstances that NJP suggests would merit 
requests for extensions of time that are filed after the timeframe 
expired, e.g., staff on vacation or excusable neglect, do not seem to 
be reasonable justification for a grantee to be unable to request an 
extension before a deadline expires. Therefore, LSC will adopt NJP's 
suggestion to clarify that Sec.  1630.3(b) requires the request for an 
extension to be submitted within the allotted timeframe. In addition, 
LSC will add language requiring LSC to respond to a request for 
extension within seven calendar days of receipt of the request. LSC 
believes this regulation, as revised, provides an appropriate timeline 
for questioned costs proceedings, including appropriate extensions of 
time and exceptions.
    Section 1630.4 Burden of proof. LSC proposed no changes to this 
section and received no comments.
Subpart B--Cost Standards and Prior Approval
    Section 1630.5 Standards governing allowability of costs under LSC 
grants or contracts. In proposed Sec.  1630.5(i), LSC referenced 
regulations and circulars of the Office of Management and Budget (OMB) 
as documents providing guidance for all allowable costs arising under 
part 1630 where relevant policies or criteria are not inconsistent with 
the provisions and regulations of LSC.
    Comment: NJP suggested that using OMB guidance ``for all allowable 
cost questions arising under this part when relevant policies or 
criteria therein are not inconsistent'' with LSC laws and regulations 
``put[s] into play'' OMB guidance where LSC does not have other 
published policies or guidance. NJP and Legal Action expressed concern 
that OMB guidance does not permit fundraising as an allowable cost, 
which conflicts with LSC's longstanding practice of allowing LSC funds 
to be used for fundraising efforts. See Advisory Opinion EX-1999-12,

[[Page 37330]]

http://www.lsc.gov/sites/default/files/LSC/laws/pdfs/olaeo/EX-1999-12.pdf. CLS supported this comment. NJP and NLADA also suggested 
removing the words ``and circulars'' from proposed Sec.  1630.5(i) 
because relevant OMB circulars have been replaced by the Uniform 
Guidance published by the Office of Management and Budget, 2 CFR part 
200. CLS supported these suggestions.
    Response: LSC agrees with these comments and will make two changes 
to the final rule. LSC will add a new paragraph (i) to this section to 
reflect LSC's longstanding policy that recipients may use LSC funds to 
engage in fundraising for the purposes of expanding the resources 
available to carry out the LSC grant. LSC will also remove the words 
``and circulars'' from proposed Sec.  1630.5(i), final rule Sec.  
1630.5(j).
    Section 1630.6 Prior approval. Under current Sec.  1630.5(b)(2), 
LSC requires recipients to seek prior approval for any purchases and 
leases of equipment, furniture, or other personal, non-expendable 
property, if the purchase price of any individual item of property 
exceeds $10,000. 45 CFR 1630.5(b)(2). LSC also requires recipients to 
seek prior approval of purchases of real property, capital expenditures 
costing more than $10,000, and pre- and post-award costs. Id. Sec.  
1630.5(b)(1), (3), and (4).
    In the NPRM, LSC proposed three changes to the prior approval 
requirement. First, LSC proposed to increase the prior approval 
threshold amount to $25,000 to account for inflation. Second, because 
LSC believes effective financial oversight requires recipients to seek 
prior approval for more transactions than only those listed in the 
current rule, the proposed regulation required prior approval for ``any 
. . . transaction'' of purchases or leases of personal property, 
contracts for services, purchases of real estate, and capital 
improvements when the cost of the transaction exceeds $25,000. In the 
preamble to the NPRM, LSC explained that recipients must seek prior 
approval for ``any single purchase whose costs exceed $25,000 in LSC 
funds, regardless of whether that purchase is of a single item of 
personal property, or a combination of personal property and 
services.'' 81 FR 75006, 75013, Oct. 28, 2016. Finally, LSC proposed to 
remove pre-award and post-award costs from the list of costs eligible 
for prior approval because prior approval is not the appropriate 
process for considering requests to use LSC funds to pay for pre- or 
post-award costs.
    General comments: Every commenter opposed at least some part of the 
proposed prior approval requirement. In general, the commenters 
objected to LSC's review of purchases because the recipient knows the 
local market better than LSC. Commenters observed that seeking prior 
approval may unduly delay routine and necessary purchases and undermine 
negotiations for favorable deals with vendors. Commenters were 
particularly concerned with how the proposed regulation would affect 
their office supply purchases. NLADA noted that programs may make bulk 
purchases of expendable property as the most efficient and economical 
means of acquiring supplies. NLADA noted that the proposed change 
reverses prior policy which provided ``clear'' and ``objective'' 
standards to determine when prior approval would be necessary. Legal 
Action encouraged LSC not to require prior approval for personal 
property purchases because LSC would find itself reviewing routine 
purchases of office supplies. NJP opined that requiring prior approval 
for aggregate purchases would ``encourage recipients to parse out their 
purchases to avoid the need to obtain prior approval with the 
consequences of more paper work, staff time to process this paperwork 
and payments, and the potential of less favorable pricing.''
    Commenters also described challenges anticipating costs for 
particular services. For example, Legal Action noted how difficult it 
is to project whether translation services costs and records storage 
costs would exceed $25,000 in a year. ILS noted that where anticipated 
costs are difficult to determine, even where it has no intention of 
exceeding $25,000 in a year, it may nevertheless ``play it safe'' by 
seeking approval at the outset for these arrangements to avoid later 
violations. Other commenters noted that recipients may have difficulty 
determining when to seek prior approval for services contracts because 
of the various types of contracts recipients have, e.g., a consultancy 
contract in which a recipient pays a flat fee each month and, 
potentially, a fee-per-service or hourly fee for additional tasks as 
needed.
    NJP suggested imposing the proposed prior approval requirement only 
where necessary to address past abuse, conflict of interest, fraud, or 
``other malfeasance[.]'' MAP suggested adding a separate section in the 
grant application asking grantees to explain proposed purchases over 
$25,000 in LSC funds, which would allow recipients and LSC to engage in 
discussion about purchases without the bureaucracy of the proposed 
regulations.
    General Response: LSC responds to specific concerns under section 
headers below. Generally, LSC intended this rule to capture single 
purchases (i.e., purchases at one point in time through one order) of 
single items or services or aggregate items whose total cost exceeds 
the threshold, not multiple purchases of multiple items or services at 
different points in time. LSC is making several changes to the rule to 
clarify its intention.
    Section 1630.6(b). Proposed Sec.  1630.6(b)(1) required a recipient 
to ``obtain LSC's prior approval before charging costs attributable to 
any of the transactions below to its LSC grant when the cost of the 
transaction exceeds $25,000 of LSC funds[.]'' In the preamble to the 
NPRM, LSC explained that a recipient must seek prior approval for ``any 
single purchase whose cost exceeds $25,000 in LSC funds, regardless of 
whether that purchase is of a single item of personal property, several 
unrelated items of personal property, or a combination of personal 
property and services.''
    Comment: Commenters expressed confusion regarding the circumstances 
under which prior approval is required. NJP observed that the term 
``transactions'' is undefined in the regulation. All commenters 
expressed confusion about what types of purchases were aggregated or 
what constituted a single purchase. NJP and NLADA also expressed 
confusion about when purchases are ``aggregated'' for purposes of 
applying the prior approval threshold. MAP recommended that LSC clarify 
``single purchase'' as ``a single order of goods or a single contract 
for services from a single vendor the cost of which exceeds $25,000 in 
LSC funds.''
    Response: LSC used the term ``transactions'' as a global term to 
describe the various types of costs subject to the prior approval 
requirement. LSC did not intend to introduce a separate category of 
undefined transactions into the rule. To avoid continued confusion, LSC 
will change the language in Sec.  1630.6(b)(1) to largely follow the 
current Sec.  1630.5(b) language. The redrafted subparagraph will read, 
``Without LSC's prior written approval, a recipient may not expend 
$25,000 or more of LSC funds on any of the following[.]''
    Additionally, LSC will clarify that prior approval applies to a 
``single purchase,'' ``single lease,'' or ``single contract'' and 
define these terms in the new rule. LSC will define the terms at Sec.  
1630.2(h): ``Single purchase, single lease, and single contract mean a 
single

[[Page 37331]]

order or lease of goods or a single contract for services from a single 
vendor.''
    Accordingly, the prior approval requirement applies to--
    (i) A single purchase or single lease of personal property;
    (ii) A single contract for services;
    (iii) A single purchase of real estate;
    (iv) Capital improvements; and
    (v) A single purchase or single lease of personal property combined 
with a single contract for services.
    This clarification resolves the questions commenters raised. For 
example, ILS has a discount arrangement with an office supplier. 
Although ILS does not make $25,000 worth of purchases from this vendor 
at one time, over the course of a year ILS may purchase more than 
$25,000 in LSC funds worth of supplies from the vendor. Under LSC's 
proposed rule, this scenario does not trigger the prior approval 
requirement. The requirement is triggered only when a single order of 
one or multiple items from this vendor exceeds $25,000. As another 
example, Legal Action purchases supplies online from a small number of 
vendors. Over the course of a year, Legal Action explained, the 
aggregate purchases from an individual vendor, such as Amazon, may 
exceed $25,000. Again, a purchase requires prior approval when it is a 
single order from a single vendor of a good or multiple goods whose 
cost exceeds $25,000 in LSC funds.
    Finally, MAP posed the example of buying office supplies for seven 
offices from a single vendor over the course of a year that could add 
up to $25,000. Again, the proposed rule does not aggregate purchases 
over time. If a single order of consumable supplies exceeds $25,000, 
there is no reason not to examine that purchase with the same diligence 
as the purchase of a non-consumable good that costs over $25,000. 
Moreover, LSC's proposed approach of increasing oversight over 
purchases, including supplies, aligns with the Uniform Guidance's 
inclusion of purchases of supplies as types of purchases subject to 
increasingly stringent levels of competition. See 2 CFR 200.320.
    Section 1630.6(b)(1)(ii). Proposed Sec.  1630.6(b)(1)(ii) extended 
the scope of both the PAMM and the prior approval requirements to 
contracts for services.
    Comment 1: All commenters objected to LSC's proposed Sec.  
1630.6(b)(1)(ii). Commenters noted that recipients' various structures 
of contractual arrangements for services make determining when prior 
approval is required difficult. For example, Legal Action explained 
that it retains technology consultant services for a fixed monthly fee 
with discrete projects that arise billed on a fee-per-service or hourly 
basis. Similarly, CLS contracts quarterly for its IT services, with 
quarterly projected expenditures based on an estimated assessment of 
needed services. CLS noted, however, that its program may have 
unexpected IT needs late in the year that bring the total cost over 
$25,000, even though at the outset, no quarterly agreement met or was 
likely to meet the threshold. NJP maintains ``rate arrangements'' with 
hotels with no individual stay exceeding the threshold amount, but over 
a year, stays at a particular hotel may exceed $25,000.
    Other recipients arrange to receive services for a period of time 
at a fixed rate, for example, paying $25 per hour for translation 
services as needed over two years. In these scenarios, commenters 
stated that calculating whether the recipient needs to seek prior 
approval may be difficult. NLADA asked if a recipient would need to 
obtain prior approval if services would not exceed $25,000 in one year, 
but would exceed $25,000 over two years. Legal Action also questioned 
whether payments to various temporary workers, none of whose payments 
exceeds $25,000, but when taken together exceed $25,000, require prior 
approval.
    Response: LSC believes that the language of the proposed rule 
accommodates the concerns described by commenters. First, for all 
services contracts, because LSC prior approval extends for one year, 
LSC believes the appropriate period of time to calculate the accrual of 
costs is one year. Second, regarding situations where a contract does 
not have a fixed price at the outset, LSC believes the appropriate 
approach is to require prior approval once a recipient expects the 
contract will exceed $25,000 in LSC funds. This requires a business 
judgment decision by the recipient to determine when it appears the 
cost of a contract will exceed $25,000. Applying this approach, a 
contract based on a monthly rate with an additional fee-for-service 
cost that arises throughout a year would trigger the prior approval 
requirement either (1) at the beginning of the contract if the initial 
cost exceeds or is expected to exceed $25,000, or (2) once it appears 
the additional fee-for-service costs (or any other costs that arise) 
will cause the total cost of the contract to exceed $25,000. Where 
services are provided throughout a year based on separate arrangements 
made throughout the year, each arrangement is considered a separate 
contract and triggers the prior approval requirement only if one 
arrangement exceeds $25,000. LSC notes that LSC may question the costs 
associated with contracts if the timing and amounts of contracts with 
an individual vendor appear calculated to avoid the prior approval 
requirement, rather than being based on reasonable business judgment.
    Finally, for temporary employees, as discussed below, contracts for 
temporary employees will be exempt from the prior approval process.
    Comment 2: In response to the proposed prior approval requirement 
for services contracts, NLADA noted that obtaining prior approval may 
be problematic for programs seeking auditors for annual audits that are 
required to comply with standards established by LSC's Office of 
Inspector General (OIG). NLADA stated that at least ten programs spend 
over $25,000 on required annual audits, and some of these programs are 
in areas with few choices for appropriate and eligible auditors. These 
auditors are in demand, and time is of the essence in retaining an 
accounting firm to conduct the LSC-compliant audit. NLADA expressed 
concern that a delay to seek prior approval would impede a program's 
ability to retain competent auditors and potentially compromise the 
program's ability to meet deadlines.
    Response: After reviewing NLADA's comment, LSC concluded that 
recipients' hiring of auditors to conduct audits that must comply with 
OIG standards and be submitted to OIG should not be subject to LSC 
prior approval process. Accordingly, LSC will revise Sec.  1631.2(g), 
defining services, to exclude such audits from the requirement.
    Comment 3: Regarding the proposed prior approval requirement for 
services contracts, Legal Action noted challenges allocating costs of 
services such as legal research through Westlaw and record storage 
services like Iron Mountain, each of which could exceed $25,000 in a 
year. For each service, Legal Action noted that, in the past, the 
overall cost has exceeded $25,000, but the cost apportioned to LSC 
funds may or may not exceed $25,000.
    Response: For a services contract (or any other contract) funded by 
LSC and another source, the contract triggers LSC's prior approval 
requirement once the amount apportioned to LSC funds exceeds $25,000. 
LSC will revise the rule to clarify this apportionment calculation.
    Section 1630.6(b)(1)(iii). Proposed Sec.  1630.6(b)(1)(iii) 
required prior approval for ``purchases of real estate'' that exceed 
$25,000. Proposed Sec.  1631.2(f) defined real estate as ``land,

[[Page 37332]]

buildings (including capital improvements), and property interests in 
land and buildings (e.g., tenancies, life estates, remainders, 
reversions, easements), excluding movable personal property.''
    Comment: Commenters noted that proposed Sec.  1631.2(f) included 
tenancies in the definition of real estate. According to NJP, this 
would be a ``significant departure from prior practice.'' NLADA, NJP, 
MAP, ILS, and CLS requested clarification that leases of real property 
do not require prior approval.
    Response: LSC did not intend to subject leases of real property to 
prior approval requirements. LSC will revise the definition of real 
estate in Sec.  1631.2(f) to include land and buildings but not 
personal property. This definition reflects the definition provided in 
the PAMM. Because the term real estate is also used in part 1630, LSC 
will also revise the definition of real estate in Sec.  1630.2(g) to 
mirror the updated definition found in Sec.  1631.2(f).
    Section 1630.6(b)(1)(iv). Proposed Sec.  1630.6(b)(1)(iv) required 
a recipient to obtain prior approval for capital improvements costing 
$25,000 or more of LSC funds.
    Comment: NJP, MAP, and NLADA expressed concern that requiring prior 
approval for capital improvements may impair a recipient's ability to 
negotiate capital improvements as part of lease negotiations. NJP 
expressed concern about leases that include provisions for pass-through 
building operating charges. NJP observed that reconciliation for pass-
through costs occurs after the improvements are made, and a recipient 
may not be able to obtain prior approval or even control the landlord's 
selection of the vendor. MAP suggested that capital improvements that 
are part of a lease negotiation be explicitly exempt from the prior 
approval requirement.
    Response: Existing section 1630.5(b)(4) and section 4(f) of the 
PAMM currently require recipients to seek prior approval of capital 
expenditures when the cost of the expenditures exceeds $10,000. This 
requirement is not new to the proposed rule. It does not currently 
apply to capital improvements negotiated as part of a recipient's lease 
arrangements. LSC considered the value of reviewing capital 
improvements in this context compared to the burden imposed. LSC 
concluded that the cost of the review outweighs benefits and therefore 
will not extend the prior approval requirement for capital improvements 
negotiated as part of a recipient's lease arrangement. Proposed Sec.  
1630.6(b)(1)(iv) applied only to those capital expenditures that a 
recipient seeks to make to leased property after it enters the lease.
    Sections 1630.7, 1630.8, and 1630.9 Membership fees or dues; 
Contributions; Tax-sheltered annuities, retirement accounts, and 
penalties. LSC proposed to redesignate Sec. Sec.  1630.14 (Membership 
fees or dues), 1630.15 (Contributions), and 1630.16 (Tax-sheltered 
annuities, retirement accounts, and penalties) as Sec. Sec.  1630.7-
1630.9, respectively, with no changes. LSC received no comments on 
these sections.
    Section 1630.10 Recipient policies, procedures, and recordkeeping. 
Effective April 1, 2017, LSC relocated the sections of part 1627 
governing the use of recipient funds to pay membership fees or dues, 
make contributions to other organizations, or contribute to tax-
sheltered annuities, retirement accounts, and penalties to part 1630. 
LSC unintentionally failed to relocate Sec.  1627.7 requiring recipient 
policies, procedures, and recordkeeping in part 1630 at the same time. 
Consequently, this section is a necessary carryover from part 1627 to 
ensure that recipients retain or develop written policies and 
procedures to ensure that their staff know about and comply with 
Sec. Sec.  1630.7-1630.9, and the final rule will include these 
requirements. The final rule will also renumber the sections that 
follow.
Subpart C--Questioned Cost Proceedings
    Subpart C governs LSC's decisions to question costs and the appeals 
procedure by which a recipient challenges questioned costs.
    Section 1630.11 Review of questioned costs. In the proposed 
regulation, LSC eliminated the five-year lookback period to recover 
questioned costs from a recipient because, based on its oversight 
experience, limiting LSC's ability to recover misspent costs is 
inconsistent with its duty to responsibly administer appropriated 
funds. On several occasions, LSC has found that misuse of funds was not 
discovered during the five-year period, despite LSC's conscientious 
review of available reports and documentation.
    General Comments: NLADA, NJP, CLS, and MAP opposed the removal of 
the five-year timeframe. They noted that LSC accounting and record 
retention guidance recommends retaining records for varying times 
ranging from two years to permanent retention and argued that 
eliminating the five-year timeframe conflicts with this LSC record 
retention guidance. NLADA recommended that LSC retain the five-year 
lookback period to provide programs certainty as to when they may close 
their books. NLADA also recommended that, if LSC nevertheless 
eliminates the lookback timeframe, it apply the change only 
prospectively to account for programs that have legitimately destroyed 
records pursuant to LSC's guidance. Alternatively, NLADA suggested LSC 
limit its ability to recover costs beyond the five-year limit only to 
egregious circumstances such as criminal behavior or intentional 
violations of LSC regulations. NLADA further questioned whether the 
cost of a recipient retaining documents--which may exceed $25,000 per 
year for a program--and the cost of LSC's investigation are worthwhile.
    General Response: LSC believes its ability to disallow funds for 
later-discovered malfeasance should not be limited, notwithstanding an 
organization's records retention policy. LSC recognizes that proper 
destruction of records on schedule when there are no open questions is 
an appropriate defense to not being able to produce records, but time-
limited records retention policies are not an appropriate reason to 
limit LSC's ability to recover misspent costs. Accordingly, LSC will 
retain the proposal to eliminate the five-year lookback period in the 
final rule.
    Section 1630.11(d)(2). Under the current questioned costs 
procedure, a recipient has 30 days from the date it receives a notice 
of questioned costs from LSC to respond with evidence and an argument 
for why LSC should not disallow the costs. If the recipient does not 
respond within 30 days, LSC management must issue a second decision. 
LSC believes this second step is redundant because it places an 
unnecessary burden to confirm its own action in the absence of a 
recipient challenge. LSC proposed to replace this step with proposed 
Sec.  1630.10(d)(2), which stated that if the recipient does not 
respond to the notice of questioned cost within 30 days, the notice 
automatically converts to LSC's final written decision.
    Comment 1: NLADA commented that the timeframes are inequitable 
because, while LSC has ``an unlimited time period to investigate a 
questioned cost, prepare its written determination, and then another 60 
days to respond to the recipient[,]'' a recipient has 30 days to 
respond to a questioned cost. NLADA asserted that ``[i]n fairness,'' 
respondents should have at least 60 days to prepare their response to 
LSC and recipients should have the opportunity to extend the time to 
respond for at least 30 days for good cause.

[[Page 37333]]

    Response: The 30-day timeframe in the proposed rule was adopted 
without change from current Sec.  1630.7(c). That paragraph provides 
that the recipient may respond to a written notice of questioned costs, 
and, if the recipient does not respond, LSC will make a decision based 
on the information available. The proposed rule effectively reflected 
the same procedure. LSC has determined that fixing a timeframe by which 
recipients must respond, either in substance or by seeking an extension 
pursuant to Sec.  1630.3(b), ensures LSC can proceed with its 
questioned costs review in an expeditious manner.
    As described above, a recipient may seek an extension for good 
cause, pursuant to proposed Sec.  1630.3(b). LSC's assessment of 
whether the recipient has shown ``good cause'' inherently takes into 
consideration the length of extension a recipient would need. 
Therefore, LSC will retain language from the proposed rule.
    Comment 2: As described in the Sec.  1630.2 discussion, NJP and CLS 
expressed concern that the extension of time is not referenced in 
either the proposed Sec.  1630.2(d) definition or proposed Sec.  
1630.10(d)(2) (final rule Sec.  1630.11(d)(2)).
    Response 2: For the reasons stated earlier in this preamble, LSC 
will amend proposed Sec.  1630.10(d)(2), renumbered as Sec.  
1630.11(d)(2), to clarify that a recipient must respond, either with a 
substantive response or a request for extension, within 30 days of 
receiving the questioned costs notice.
    Section 1630.12 Appeals to the President. LSC proposed to move 
existing Sec.  1630.7(e)-(g) to Sec.  1630.11 with one substantive 
change. LSC proposed to introduce a requirement that prohibits a 
recipient from appealing a written decision to the LSC President when 
the recipient did not seek review of the initial notice of questioned 
costs. LSC believes that a senior manager with direct oversight over 
the office that issues a notice of questioned costs should have the 
first opportunity to review the evidence relating to the decision to 
question costs because the review is better conducted at an earlier 
stage than during review by the President. Appeals to the President can 
address any relevant actions by LSC including substantive decisions 
such as the amount questioned and procedural decisions such as whether 
to extend a submission deadline.
    Comment: NLADA commented that, where a recipient does not respond 
to LSC's written notice of questioned costs, the decision becomes final 
and, thus, an LSC denial of a request for extension of time may not be 
appealed to the president. NLADA noted that recipients ``should have a 
full and fair opportunity to respond to LSC, including the ability to 
appeal to the president if LSC management denies a recipient an 
extension of time to respond to a questioned cost finding.''
    Response: A recipient may fully respond to LSC's notice at the 
management level. A ``full and fair opportunity to respond'' does not 
require providing recipients the ability to skip management-level 
review and appeal directly to the President. LSC will therefore retain 
the procedural change proposed in the NPRM, now renumbered as Sec.  
1630.12.
    Section 1630.13 Recovery of disallowed costs and other corrective 
action. In the NPRM, LSC proposed to redesignate existing Sec.  1630.8 
to Sec.  1630.12 with only minor technical changes to reflect the 
removal of the term final action from the rule. LSC received no 
comments on this section. The final rule renumbers this section as 
Sec.  1630.13.
    Section 1630.14 Other remedies; effect on other parts. LSC proposed 
to redesignate existing Sec.  1630.9 as Sec.  1630.13 with only minor 
technical edits. LSC received no comments on this section. The final 
rule renumbers this section as Sec.  1630.14.
    Sections 1630.15; 1630.16; 1630.17 Applicability to subgrants; 
Applicability to non-LSC funds; Applicability to derivative income. LSC 
proposed to redesignate existing Sec. Sec.  1630.10 (Applicability to 
subgrants); 1630.11 (Applicability to non-LSC funds); and 1630.12 
(Applicability to derivative income) as Sec. Sec.  1630.14-1630.16, 
respectively, without change. LSC received no comments on these 
sections. The final rule renumbers these sections as Sec. Sec.  
1630.15-1630.17, respectively.
Subpart D--Closeout Procedures
    Section 1630.18 Applicability. Proposed Sec.  1630.17, regarding 
closeout procedures, applies when a recipient changes its current 
identity or status as a legal entity.
    Comment: MAP suggested defining the term ``change in current 
identity or status as a legal entity'' to ensure that a relatively 
minor change (such as a corporate name change) or a structural change 
does not trigger this section. MAP proposed a limited definition such 
as ``a change in legal status under state corporate law with the effect 
that a different legal entity becomes the LSC recipient.''
    Response: LSC intended to include those mergers where the recipient 
ceased to exist. LSC did not intend proposed Sec.  1630.17 to apply to 
name or logo changes. LSC will revise proposed Sec.  1630.17(a), 
renumbered as Sec.  1630.18(a), to state that the rule applies to 
mergers or consolidations with one LSC recipient that result in another 
LSC recipient ceasing to exist as a legal entity. In those situations, 
only the LSC recipient that is surrendering its legal status must 
comply with the closeout procedures in Subpart D. Additionally, LSC 
will replace the proposed language of Sec.  1630.17, renumbered as 
Sec.  1630.18, with ``Ceases to exist as a legal entity[.]''
    Section 1630.19 Closeout plan; timing. In the NPRM, LSC proposed to 
require recipients who stop receiving LSC funding to provide LSC with a 
plan for the orderly closeout of the grant. LSC received no comments on 
this section. LSC will renumber the proposed section as Sec.  1630.19.
    Section 1630.20 Closeout costs. In the NPRM, LSC proposed to 
formalize its policies for approving the use of LSC funds to complete 
closeout activities, including requiring recipients to submit a 
detailed budget and timeline and allowing LSC to withhold unreleased 
funds until the recipient has satisfactorily completed its closeout 
procedures. LSC received no comments on this section. The final rule 
will renumber proposed Sec.  1630.19 as Sec.  1630.20.
    Section 1630.21 Returning funds to LSC. In proposed Sec.  1630.20, 
LSC proposed to formalize procedures for recipients to return to LSC 
excess fund balances and derivative income received after the end of 
the LSC grant period. LSC received no comments on this section. LSC 
will renumber proposed Sec.  1630.20 as Sec.  1630.21.

C. Part 1631--Purchasing and Property Management

    Organizational note: As described in the discussion for Sec.  
1631.4, the final rule will eliminate Sec.  1631.4 and renumber 
sections that follow. This preamble reflects the updated numbering 
except where noted.
Subpart A--General Provisions
    Section 1631.1 Purpose. In the NPRM, LSC proposed to describe the 
purpose of part 1631 as setting standards for policies governing 
certain purchases and establishing requirements governing the use and 
disposition of property purchased with LSC funds. LSC received no 
comments on this section.
    Section 1631.2 Definitions. In the NPRM, LSC adopted several 
definitions from the PAMM into part 1631 and added new definitions.

[[Page 37334]]

    Section 1631.2(f). LSC proposed to change the PAMM term real 
property to real estate and to simplify the rule's language. LSC also 
proposed to revise the term's definition for clarity. LSC does not 
intend the change from ``land, buildings, and appurtenances, including 
capital improvements thereto, but not including moveable personal 
property'' in the existing PAMM to limit, narrow, or expand the scope 
of property captured in the revised definition.
    Comment: As discussed in the commentary regarding Sec.  
1630.6(b)(1)(iii), commenters noted that proposed Sec.  1631.2(f) 
included tenancies in the definition of real estate and requested that 
leases of real estate not require prior approval.
    Response: As previously explained, LSC did not intend to subject 
leases of real estate to prior approval requirements and will revise 
the definition.
    Section 1631.2(g). In the NPRM, LSC proposed to define services as 
services rendered by members of a profession or people who have a 
special skill and are not employed by a recipient. The proposed 
definition explicitly included services such as accounting, banking, 
cleaning, consultation, training, expert services, equipment 
maintenance, and transportation. It excluded other categories such as 
services provided by recipients to employees in addition to regular 
salaries and wages, such as employee insurance, pensions, and 
unemployment benefit plans. The preamble to proposed part 1631 
explained that employee benefits are not the type of services over 
which LSC intended to increase its oversight. Accordingly, the NPRM 
preamble explained that contracts for employee benefits are not subject 
to the definition of services.
    Comment 1: NJP expressed concern that this definition was 
``extremely broad'' and included many basic office services such as 
banking and cleaning. In addition, NJP expressed concern that the 
definition included expert services, transportation, and costs 
associated with litigation (such as expert witness fees and discovery 
fees). Finally, NJP and ILS noted the exception for ``employee 
insurance'' was potentially confusing. They asked, for example, whether 
the exclusion of ``employee insurance'' included malpractice insurance 
that programs must provide staff attorneys or other types of insurances 
such as employment practices liability, commercial liability, and 
Directors and Officers liability insurance.
    Response: In response to this comment, LSC will explicitly exclude 
litigation costs (e.g., expert witness and discovery fees), insurance 
services, and professional services intended to resolve sensitive 
personnel issues (e.g., labor counsel or mediation services) from the 
final rule because LSC did not intend to include these services within 
the proposed rule.
    Comment 2: As described previously in the discussion of Sec.  
1630.6, NLADA noted that obtaining prior approval may be problematic 
for programs seeking auditors to conduct required annual audits that 
comply with the standards established by OIG.
    Response: LSC will revise Sec.  1631.2(g) to exclude such audits 
from the requirement.
    Section 1631.3 Prior approval process. Proposed Sec.  1631.3 
relocated the provisions governing the timetable and basis for granting 
prior approval from existing Sec.  1630.6 to new Sec.  1631.3.
    Section 1631.3(b). The proposed rule stated that, for purchases or 
leases of personal property, contracts for services, and capital 
improvements, LSC will decide on the request within 30 days of 
receiving the request. For purchases of real estate, LSC will decide 
within 60 days. If LSC cannot decide within the allotted time, proposed 
Sec.  1631.3(b)(3) stated that LSC will provide the requester a date by 
which it expects to decide.
    Comment: NLADA and MAP expressed concern that Sec.  1631.3(b)(3) 
gives LSC an unlimited amount of time in which to respond to a request 
if it cannot decide within the time allotted. MAP suggested adding that 
``if LSC neither makes a decision on a request for prior approval nor 
informs the requester of a date to make a decision within 60 days of 
the date of the request, the request is deemed approved.'' MAP also 
suggested adding that ``if LSC elects to provide a requester with a 
date for a decision on a request for prior approval that is longer than 
60 days, the date must be within 120 days of the date of the original 
request; if LSC fails to make a decision by the date it announces, the 
request is deemed approved.'' NLADA recommended that the approval time 
for making capital improvements not exceed 30 days because making 
capital improvements may be a complex process to coordinate and, after 
completing negotiations and calculating costs, prior approval delays 
may jeopardize the project. NLADA additionally questioned whether LSC 
has sufficient resources to timely process these approvals.
    Response: As discussed at length during the rulemaking on 45 CFR 
part 1627, LSC believes sound grants management requires review and an 
affirmative decision on each request to use a significant amount of LSC 
funds. Consistent with the views expressed in that rulemaking, LSC 
rejects the ``deemed approved'' approach to authorizing prior 
approvals.
    LSC also will not establish a rigid timeframe within which it must 
respond to a request for prior approval if it cannot decide within 60 
days. In LSC's experience, recipients may not initially submit all 
documentation LSC needs to make its decision. LSC must have time to 
review the materials a recipient submits and request additional 
documentation as needed. Accordingly, LSC will revise Sec.  1631.3(b) 
to state that (1) if the requester does not provide all required 
materials in its initial prior approval request, LSC will contact the 
requester within 20 days of the request with a preliminary assessment 
of materials LSC requires to make its decision, if necessary, and (2) 
LSC will approve or deny a request for prior approval within 30 days of 
receiving all required materials from the requester (60 days for 
purchases of real estate). This means that if a recipient submits all 
information that LSC deems sufficient with the initial request, LSC 
will approve or deny the request for prior approval within 30 days of 
the initial request (or 60 days for purchases of real estate). 
Additionally, because the prior approval process requires LSC to 
determine whether a recipient complied with its own procurement policy, 
LSC must have a copy of the recipient's procurement policy. LSC 
therefore will add a new paragraph (b)(2) to final rule Sec.  1631.8 
(requests for prior approval) requiring a request for prior approval to 
also include a copy of the recipient's procurement policy.
    Section 1631.3(d). Proposed Sec.  1631.3(d) stated that a recipient 
may use over $25,000 of LSC funds to purchase personal property or 
award a contract for services without prior approval in exigent 
circumstances. LSC described two exigent circumstances qualifying for 
the exception: when immediate action is necessary either to avoid 
imminent harm to the recipient's personnel, physical facilities, or 
systems; or to remediate or mitigate damage to the recipient's 
personnel, physical facilities, or systems.
    Comment: Commenters remarked that exigent circumstances are limited 
and subject to discretionary interpretation. NLADA listed the need to 
retain counsel promptly, staff taking unexpected leave and needing to 
hire a replacement, and programs receiving non-LSC funds and needing to 
retain additional services to fulfill a grant requirement as additional 
situations to consider. Legal Action

[[Page 37335]]

suggested adding ``to avoid disruption to the recipient's client 
services delivery system'' to the list of exigent circumstances. NJP 
suggested additional scenarios that may constitute exigent 
circumstances, including natural disasters that require a recipient to 
contract for timely services, a lawsuit or dispute that requires 
immediate outside professional resources, a time-sensitive case that 
requires expertise, audit RFP, audit renewal engagement, and other 
additional audit work. NLADA and NJP suggested including a provision 
that provides for ``other exigent circumstances.''
    Moreover, NLADA noted the proposed rule does not explain what 
happens if LSC determines a recipient's circumstances did not meet 
``exigent circumstances'' requirements. NLADA asked whether LSC would 
treat the situation as a questioned cost proceeding: ``Would LSC seek 
to recover costs solely on the basis that the recipient did not seek 
prior approval, even if the purchase or contract met Sec.  1630.5 
reasonable and necessary criteria?''
    Response: In addition to the exigent circumstances identified in 
the proposed rule, LSC agrees that a recipient should be able to act 
without prior approval if necessary to avoid disruption to the 
recipient's client services delivery system. Examples of such a 
disruption would be a power surge that causes a recipient's 
telecommunications system to stop working, or the occurrence of a 
natural disaster. LSC will include these two additional situations as 
exigent circumstances and provide specific examples of each.
    Additionally, LSC does not believe that hiring of employees falls 
within the types of services that LSC intended to regulate in part 
1631. Therefore, a recipient would not have to seek prior approval 
before hiring an attorney, temporary or permanent, to fill the position 
of an attorney who takes an unexpected prolonged leave. The same rule 
will apply if the recipient chooses instead to enter a contract with an 
attorney to fill in for the recipient's attorney on a temporary basis 
or with a placement firm to place an attorney with the recipient for 
that period.
    Prudent grants management and the basic principle of federal 
appropriations law that appropriated funds must be spent only on the 
purposes for which they were awarded do not permit recipients needing 
to supplement services to fulfill a non-LSC grant requirement to use 
LSC funds. Accordingly, LSC rejects the proposal to allow use of LSC 
funds as an exigent circumstance in this situation.
    Finally, based on our recommendation that the term services 
explicitly exclude litigation services and audits, these services do 
not need to be considered as subject to prior approval in any 
circumstances, including exigent circumstances.
    Section 1631.4 Effective Dates. The proposed language for Sec.  
1631.4 made part 1631 effective 90 days after the effective date of the 
rule, and it made subparts A, C, and E effective 90 days after the 
effective date of the rule for personal and real property purchased 
with LSC funds prior to the effective date of this part. This language 
was adopted from the PAMM. To provide time for LSC to provide 
appropriate training and recipients to prepare required policies, LSC 
decided that the final rule will take effect on December 31, 2017. This 
effective date is well over the 90 days provided in proposed Sec.  
1631.4. Therefore, in the final rule, this section will be eliminated 
and subsequent sections will be renumbered.
    Sections 1631.4, and 1631.5 Use of funds; Recipient policies, 
procedures, and recordkeeping. In these sections of the NPRM, LSC 
proposed to consolidate sections 6 and 7 of the PAMM with minor changes 
and require recipients to adopt written policies to implement part 
1631. LSC received no comments on these sections. The final rule 
renumbers these sections.
    Subpart B--Procurement Policies and Procedures
    Section 1631.6 Characteristics of procurements. In the NPRM, LSC 
proposed to adopt a list of characteristics to help recipients 
determine whether an arrangement is a contract (and therefore subject 
to parts 1630 and 1631) or a subgrant (and therefore subject to part 
1627). LSC received no comments on this section. The final rule 
renumbers this section.
    Section 1631.7 Procurement policies and procedures. In the NPRM, 
LSC identified elements recipients must have in their procurement 
policies. LSC received one comment on this section from NLADA 
indicating support. The final rule renumbers this section.
    Section 1631.8 Requests for prior approval. Proposed Sec.  1631.9 
required a recipient seeking prior approval for a purchase of personal 
property or services to state how the purchase will further the 
delivery of legal services to eligible clients. The preamble explained 
that, ``[r]egarding contracts for labor counsel, mediators, or other 
services needed to address sensitive personnel issues, . . . recipients 
do not need to disclose in the prior approval request the nature of the 
problems they are attempting to address.''
    Comment: CLS expressed concern with how this provision affects 
prior approval requests seeking retention of labor counsel. CLS 
questioned how LSC would be able to determine whether an expense is 
appropriate or reasonable if a recipient did not disclose the nature of 
the problem it is trying to address. CLS also noted that prior approval 
requirements for labor counsel may inappropriately and unnecessarily 
insert LSC into a recipient's labor-management situations and that 
seeking prior approval may delay negotiations. CLS recommended that 
labor and employment services contracts never require prior approval. 
MAP noted that in services contracts where contracts ``directly impact 
private and confidential matters[,]'' local management should retain 
discretion.
    MAP was also ``especially troubled'' by LSC's comments in the 
preamble stating that, in circumstances where the recipient does not 
disclose the nature of the problems it is attempting to address but 
rather only how the services will further their legal services 
delivery, ``a statement that the service is necessary to ensure the 
efficient functioning of the office may satisfy that requirement'' 
(emphasis added). MAP requested that if LSC intends to approve requests 
that do not disclose the nature of the problem, the regulation should 
explicitly so state.
    Response: In response to these comments, LSC will exclude contracts 
for labor counsel and other services necessary to address internal 
personnel issues from the definition of services in the final rule 
version of Sec.  1631.2. Additionally, to avoid verbosity, LSC will 
change final rule Sec.  1631.8(b) to require a ``statement of need'' 
rather than a statement explaining how the purchase will further the 
delivery of legal services.
    Section 1631.9 Applicability of part 1630. In this section, LSC 
proposed to restate the applicability of part 1630 to all leases, 
purchases, and contracts made using LSC funds. LSC received no comments 
on this section. The final rule renumbers the proposed section to Sec.  
1631.9.
Subpart C--Personal Property Management
    Section 1631.10 Use of property in compliance with LSC's statutes 
and regulations. LSC proposed to adopt Sec.  5(a), (d), and (e) of the 
PAMM in proposed Sec.  1631.11 with only minor technical changes. LSC 
received no

[[Page 37336]]

comments on this section. The final rule renumbers this section.
    Section 1631.11 Intellectual property. The proposed rule adopted 
Sec.  5(g) of the PAMM without change. LSC received no comments on this 
section during the public comment period. During the May 23, 2017 
meeting of the Operations and Regulations Committee, the Chair of the 
Committee expressed concern that LSC's proposal to adopt language that 
identified only copyright as a type of intellectual property protection 
available to recipients would have two effects. One was that the rule 
unnecessarily limited the kind of protection recipients could seek for 
products or works developed using LSC funds. The other was that the 
existing language could create an incentive for recipients to use other 
types of intellectual property protections, where available, to avoid 
falling within the scope of proposed Sec.  1631.12. See Transcript, 
Telephonic Meeting of the Operations and Regulations Committee, Legal 
Services Corporation Board of Directors, May 23, 2017, at 20-21. The 
Chair recommended that LSC replace this language with the language in 
LSC's Technology Initiative Grants' (TIG) Grant Assurances, which have 
been revised more currently than the language in Sec.  5 of the PAMM 
and speak more generally in terms of recipients' ownership rights in 
works they develop or improve using LSC funds. There were no public 
comments in opposition to the Chair's proposal at the meeting. 
Consequently, in the final rule, LSC will adopt the recommendation and 
revise proposed Sec.  1631.12 to track the language of the TIG Grant 
Assurances. This section will be renumbered as Sec.  1631.11.
    Section 1631.12 Disposing of personal property purchased with LSC 
funds. Proposed Sec.  1631.13(a) described how a recipient may dispose 
of personal property purchased with LSC funds. The proposed rule 
allowed recipients to sell or otherwise dispose of the personal 
property with no further obligation to LSC where the fair market value 
of the property is negligible. The proposed rule also permitted 
recipients to sell the property at a reasonable negotiated price, 
without advertising for quotes when the value of the property is 
$15,000 or less. The proposed rule adopted three options for disposing 
of personal property--selling the property after advertising and 
receiving quotes when the property's value exceeds $15,000; 
transferring the property to another LSC funding recipient; and 
transferring the personal property to another organization serving the 
poor in the same area--from Sec.  6 of the PAMM.
    Comment: NLADA noted that it appreciated the provision allowing 
recipients to dispose of personal property with little or no value. 
NLADA also noted that a recipient may advertise property worth over 
$15,000, yet receive no quotes. NLADA recommended adding language 
stating that ``if a program does not receive any quotes, the program 
may negotiate a reasonable price for disposal of the property.''
    Response: LSC agrees with NLADA's comment. LSC will change 
paragraph (4) to this section in the final rule to allow a recipient to 
negotiate a reasonable price for disposal of the property if, after 
advertising the personal property for 14 consecutive days, the 
recipient receives no reasonable quotes. This section will be 
renumbered as Sec.  1631.12 in the final rule.
    Section 1631.13 Use of derivative income from sale of personal 
property purchased with LSC funds. LSC proposed to adopt Sec.  6(e) of 
the PAMM without change and add a paragraph requiring recipients to 
account for income earned from the sale, rent, or lease of personal 
property purchased with LSC funds. LSC received no comments on this 
section.
Subpart D--Real Estate Acquisition and Capital Improvements
    Section 1631.14 Purchasing real property with LSC funds. In the 
NPRM, LSC proposed to adopt in significant part the requirements of 
Sec.  4 of the PAMM with several revisions, including two to allow 
recipients additional flexibility when purchasing real property.
    Comment: NJP commented that, although it had no concerns regarding 
real estate purchase approval requirements generally, to the extent 
that LSC intended the term real estate to include tenancies, NJP 
objected to the prior approval requirement.
    Response: As noted above in the Sec.  1630.6(b)(1)(iii) discussion, 
LSC did not intend to include tenancies in the definition of real 
estate. LSC therefore will revise the definition of real estate in both 
Sec.  1630.2(g) and Sec.  1631.2(f). LSC believes these revisions will 
resolve NJP's objection.
    Comment: In advance of the Committee's May 23, 2017 meeting, LSC 
received a comment from a Board member recommending that LSC revise 
proposed Sec.  1631.15(b)(8) to reflect contemporary language regarding 
compliance with disability laws.
    Response: LSC agrees and will revise proposed Sec.  1631.15(b)(8) 
accordingly and renumber the section as Sec.  1631.14(b)(8).
    Section 1631.15 Capital improvements. LSC proposed to adopt Sec.  
4(f) of the PAMM in substantial part and to replace existing Sec.  
4(1)(ii) of the PAMM with a requirement that recipients provide 
documentation showing they complied with their own procurement process 
developed under (final rule) Sec.  1631.8.
    Comment: NJP again commented that, to the extent this section 
applies to leases and tenant improvements negotiated as part of the 
lease and rental price, NJP objects to imposing prior approval 
requirements.
    Response: As noted above in the Sec.  1630.6(b)(1)(iii) and Sec.  
1631.14 discussions, LSC did not intend to include tenancies or leases 
in the definition of real estate and will revise the definition in the 
final rule. LSC currently does not require prior approval for leases of 
real estate and, after considering the costs and benefits of requiring 
prior approval for such leases, opted to continue its current policy. 
LSC did not intend proposed Sec.  1631.16 (final rule Sec.  1631.15) to 
cover capital improvements negotiated as part of the lease and rental 
price for real estate leased by recipients.
Subpart E--Real Estate Management
    Section 1631.16 Using real estate purchased with LSC funds. Section 
5(a) of the PAMM currently states that recipients ``may use LSC funds 
to acquire and use personal and real property for the primary purpose 
of delivering legal services to eligible clients'' in accordance with 
applicable laws, regulations, and guidance. The preamble to the NPRM 
explained that LSC proposed to adopt this section of the PAMM as 
proposed Sec.  1631.17 ``with only minor technical changes.'' 
Accordingly, the text of proposed Sec.  1631.17 stated, ``A recipient 
must use real estate purchased or leased, in whole or in part with LSC 
funds primarily to deliver legal services to eligible clients 
consistent with the requirements of the LSC Act, applicable 
appropriations acts, and LSC regulations.'' 81 FR 75006, 75023, Oct. 
28, 2017 (emphasis added).
    Comment: NLADA and NJP commented that using the word must in the 
proposed regulation instead of may as in the PAMM is a major change 
because it appears to prevent a program from subleasing a building or 
space to a party that does not deliver legal services in accordance 
with LSC regulations. They noted that recipients may face financial 
difficulties if not allowed to sublet all or part of buildings 
purchased or leased using LSC funds. For example, NLADA observed that 
some programs have smaller regional

[[Page 37337]]

offices that programs have had to close due to funding cuts. NLADA 
commented that, under the proposed regulation, the program would need 
to leave the property vacant rather than sublease the property. NLADA 
suggested retaining the permissive may rather than changing the 
language to must. NJP suggested that the regulation allow for use of 
real estate to ``support the delivery of legal services.''
    Response: NLADA and NJP are correct that LSC changed the wording of 
Section 5(a) of the PAMM in the proposed rule. LSC made this change to 
reflect its position that if recipients use LSC funds to purchase real 
estate, the real estate must be used primarily for purposes of carrying 
out the LSC grant. That said, LSC's intent is not to bar recipients 
from putting real estate originally purchased or leased to provide 
legal services to other uses where circumstances, such as funding, 
change. Precluding such alternative uses into perpetuity would cause 
closed offices and invested funds to sit idle, clearly not a prudent or 
productive use of real estate or invested funds.
    Current practice under section 5 of the PAMM permits a recipient to 
lease or sublease vacant space that the recipient is unable to use to 
another organization or business. In changing the term ``may'' in the 
PAMM to ``must'' in the proposed rule, LSC did not intend to change 
this practice in the proposed rule. The final rule will clarify that a 
recipient must use real estate purchased with LSC funds for purposes 
consistent with applicable law and regulations. The rule will clarify 
that a recipient that does not need some or all the real estate to 
carry out its legal services activities may use the space for other 
activities described in paragraphs (b) and (c). The other activities 
cannot interfere with the recipient's performance of the LSC grant, and 
the recipient cannot provide the space to an organization that engages 
in restricted activities without charging the organization an amount of 
rent equivalent to the amount other non-profits charge to rent the same 
amount of space in similar circumstances.
    Section 1631.17 Maintenance. LSC proposed to include a new section 
requiring recipients to maintain real estate purchased with LSC funds 
in efficient operating condition and in compliance with state and local 
standards and codes. LSC received no comments on this section. The 
final rule will renumber this section.
    Section 1631.18 Insurance. LSC proposed to introduce minimum 
standards for the insurance of LSC-funded property. LSC received no 
comments on this section. The final rule will renumber this section.
    Section 1631.19 Accounting and reporting to LSC. Proposed Sec.  
1631.20 required a recipient to maintain an accounting of the amount of 
LSC funds relating to the purchase or maintenance of real estate 
purchased with LSC funds and provide the accounting for each year to 
LSC. The final rule will renumber this section.
    Comment: NLADA noted that, for some programs, the use of LSC funds 
to purchase or maintain real property occurred over ten years ago, in 
which case the recipient may have destroyed the records. As a result, a 
recipient would not be able to account for such purchases or 
maintenance. In these situations, NLADA suggested applying this 
provision prospectively.
    Response: LSC does not, as a general rule, issue regulations with a 
retroactive effect. This means that the requirement would apply from 
the effective date of the proposed revisions to part 1631 forward. In 
the Accounting Guide for LSC Recipients, LSC recommends retention times 
for various categories of documents, including property documents. 
Accounting Guide for LSC Recipients, Appx. II, pp. 69-71 (2010 Ed.). 
According to the Accounting Guide, recipients should maintain annual 
financial statements, documentation related to land and buildings, 
depreciation schedules, general journals, and general ledgers 
permanently. Id. pp. 70-71. For other documentation related to the 
purchase and maintenance of real estate, such as the cash disbursements 
ledger, canceled checks, billings for services, and expense bills, LSC 
recommends a retention period of seven years or the period required by 
state law, whichever is longer. Id. To the extent that a recipient that 
owns real estate on the effective date of the revised rule has properly 
destroyed records related to the purchase or maintenance of such real 
estate according to its records retention schedule, LSC would not 
consider that recipient out of compliance with the revised rule. 
Recipients will need to maintain the accounting documents described in 
proposed Sec.  1631.20, renumbered in the final rule as Sec.  1631.19, 
from the effective date of the rule onward.
    Section 1631.20 Disposing of real estate purchased with LSC funds. 
In the NPRM, LSC proposed to adopt Sec.  7 of the PAMM in substantial 
part. In a change from the PAMM, LSC proposed to require that all 
anticipated dispositions of real estate purchased using LSC funds be 
subject to LSC's prior approval, consistent with the federal 
government's policy regarding grantee disposal of property purchased 
with federal funds. 2 CFR 200.311(c). LSC received no comments on this 
section.
    Section 1631.21 Retaining income from sale of real property 
purchased with LSC funds. In the NPRM, LSC proposed to consolidate 
Sec. Sec.  6(e) and 8(c) of the PAMM into proposed Sec.  1631.22 and 
make technical edits. LSC received no comments on this section. The 
final rule will renumber this section.

List of Subjects

45 CFR Part 1600

    Legal services.

45 CFR Part 1630

    Accounting, Government contracts, Grant programs--law, Hearing and 
appeal procedures, Legal services, Questioned costs.

45 CFR Part 1631

    Government contracts, Grant programs--law, Legal services, Real 
property acquisition.

    For the reasons stated in the preamble, the Legal Services 
Corporation amends 45 CFR Chapter XVI as follows:

PART 1600--DEFINITIONS

0
1. The authority citation for part 1600 is revised to read as follows:

    Authority:  42 U.S.C. 2996g(e).


0
2. Amend Sec.  1600.1 by adding in alphabetical order the definitions 
of ``Corporation funds'' and ``Non-LSC funds'' to read as follows:


Sec.  1600.1  Definitions.

* * * * *
    Corporation funds or LSC funds means any funds appropriated to LSC 
by Congress to carry out the purposes of the Legal Services Corporation 
Act of 1974, 42 U.S.C. 2996 et seq., as amended.
* * * * *
    Non-LSC funds means any funds that are not Corporation funds or LSC 
funds.
* * * * *

0
3. Revise part 1630 to read as follows:

PART 1630--COST STANDARDS AND PROCEDURES

Subpart A--General Provisions
Sec.
1630.1 Purpose.
1630.2 Definitions.
1630.3 Time.
1630.4 Burden of proof.
Subpart B--Cost Standards and Prior Approval
1630.5 Standards governing allowability of costs under LSC grants or 
contracts.

[[Page 37338]]

1630.6 Prior approval.
1630.7 Membership fees or dues.
1630.8 Contributions.
1630.9 Tax-sheltered annuities, retirement accounts, and penalties.
1630.10 Recipient policies, procedures, and recordkeeping.
Subpart C--Questioned Cost Proceedings
1630.11 Review of questioned costs.
1630.12 Appeals to the president.
1630.13 Recovery of disallowed costs and other corrective action.
1630.14 Other remedies; effect on other parts.
1630.15 Applicability to subgrants.
1630.16 Applicability to non-LSC funds.
1630.17 Applicability to derivative income.
Subpart D--Closeout Procedures
1630.18 Applicability.
1630.19 Closeout plan; timing.
1630.20 Closeout costs.
1630.21 Returning funds to LSC.

    Authority:  42 U.S.C. 2996g(e).

Subpart A--General Provisions


Sec.  1630.1  Purpose.

    This part is intended to provide uniform standards for allowability 
of costs and to provide a comprehensive, fair, timely, and flexible 
process for the resolution of questioned costs.


Sec.  1630.2  Definitions.

    As used in this part:
    (a) Corrective action means action taken by a recipient that:
    (1) Corrects identified deficiencies;
    (2) Produces recommended improvements; or
    (3) Demonstrates that audit or other findings are either invalid or 
do not warrant recipient action.
    (b) Derivative income means income earned by a recipient from LSC-
supported activities during the term of an LSC grant or contract, and 
includes, but is not limited to, income from fees for services 
(including attorney fee awards and reimbursed costs), sales and rentals 
of real or personal property, and interest earned on LSC grant or 
contract advances.
    (c) Disallowed cost means those charges to an LSC award that LSC 
determines to be unallowable, in accordance with the applicable 
statutes, regulations, or terms and conditions of the grant award.
    (d) Final written decision means either:
    (1) The decision issued by the Vice President for Grants Management 
after reviewing all information provided by a recipient in response to 
a notice of questioned costs; or
    (2) The notice of questioned costs if a recipient does not respond 
to the notice within 30 days of receipt.
    (e) Membership fees or dues means payments to an organization on 
behalf of a program or individual to be a member thereof, or to acquire 
voting or participatory rights therein. Membership fees or dues 
include, but are not limited to, fees or dues paid to a state supreme 
court or to a bar organization acting as an administrative arm of the 
court or in some other governmental capacity if such fees or dues are 
required for an attorney to practice law in that jurisdiction.
    (f) Questioned cost means a cost that LSC has questioned because of 
an audit or other finding that:
    (1) There may have been a violation of a provision of a law, 
regulation, contract, grant, or other agreement or document governing 
the use of LSC funds;
    (2) The cost is not supported by adequate documentation; or
    (3) The cost incurred appears unnecessary or unreasonable and does 
not reflect the actions a prudent person would take in the 
circumstances.
    (g) Real estate means land and buildings (including capital 
improvements), excluding moveable personal property.
    (h) Single purchase, single lease, and single contract mean a 
single order or lease of goods or a single contract for services from a 
single vendor.


Sec.  1630.3  Time.

    (a) Computation. In computing any period of time under this part, 
the time period begins the day following the event and includes the 
last day of the period, unless the last day is a Saturday, Sunday, or 
legal holiday observed by the Federal government. In those cases, the 
time period includes the next business day. When the prescribed time 
period is seven days or less, intermediate Saturdays, Sundays, and 
legal holidays shall be excluded from the computation.
    (b) Extensions. A recipient may, within the applicable timeframe 
for a particular response under this part, submit a written request for 
an extension of time for good cause to LSC. LSC will respond to the 
request for extension within seven calendar days from the date of 
receiving the request. LSC may grant the request for extension and 
shall notify the recipient of its decision in writing.


Sec.  1630.4  Burden of proof.

    The recipient shall have the burden of proof under this part.

Subpart B--Cost Standards and Prior Approval


Sec.  1630.5  Standards governing allowability of costs under LSC 
grants or contracts.

    (a) General criteria. Expenditures are allowable under an LSC grant 
or contract only if the recipient can demonstrate that the cost was:
    (1) Actually incurred in the performance of the grant or contract 
and the recipient was liable for payment;
    (2) Reasonable and necessary for the performance of the grant or 
contract as approved by LSC;
    (3) Allocable to the grant or contract;
    (4) In compliance with the Act, applicable appropriations law, LSC 
rules, regulations, guidelines, and instructions, the Accounting Guide 
for LSC Recipients, the terms and conditions of the grant or contract, 
and other applicable law;
    (5) Consistent with accounting policies and procedures that apply 
uniformly to both LSC-funded and non-LSC-funded activities;
    (6) Accorded consistent treatment over time;
    (7) Determined in accordance with generally accepted accounting 
principles; and
    (8) Adequately and contemporaneously documented in business records 
accessible during normal business hours to LSC management, the Office 
of Inspector General, the General Accounting Office, and independent 
auditors or other audit organizations authorized to conduct audits of 
recipients.
    (b) Reasonable costs. A cost is reasonable if, in its nature or 
amount, it does not exceed that which would be incurred by a prudent 
person under the same or similar circumstances prevailing at the time 
the decision was made to incur the cost. In determining the 
reasonableness of a given cost, consideration shall be given to:
    (1) Whether the cost is of a type generally recognized as ordinary 
and necessary for the operation of the recipient or the performance of 
the grant or contract;
    (2) The restraints or requirements imposed by such factors as 
generally accepted sound business practices, arms-length bargaining, 
Federal and State laws and regulations, and the terms and conditions of 
the grant or contract;
    (3) Whether the recipient acted with prudence under the 
circumstances, considering its responsibilities to its clients and 
employees, the public at large, the Corporation, and the Federal 
government; and
    (4) Significant deviations from the recipient's established 
practices, which

[[Page 37339]]

may unjustifiably increase the grant or contract costs.
    (c) Allocable costs. (1) A cost is allocable to a particular cost 
objective, such as a grant, project, service, or other activity, in 
accordance with the relative benefits received. Costs may be allocated 
to LSC funds either as direct or indirect costs according to the 
provisions of this section.
    (2) A cost is allocable to an LSC grant or contract if it is 
treated consistently with other costs incurred for the same purpose in 
like circumstances and if it:
    (i) Is incurred specifically for the grant or contract;
    (ii) Benefits both the grant or contract and other work and can be 
distributed in reasonable proportion to the benefits received; or
    (iii) Is necessary to the recipient's overall operation, although a 
direct relationship to any particular cost objective cannot be shown.
    (3) Recipients must maintain accounting systems sufficient to 
demonstrate the proper allocation of costs to each of their funding 
sources.
    (d) Direct costs. Direct costs are those that can be identified 
specifically with a particular grant award, project, service, or other 
direct activity of an organization. Costs identified specifically with 
grant awards are direct costs of the awards and are to be assigned 
directly thereto. Direct costs include, but are not limited to, the 
salaries and wages of recipient staff who are working on cases or 
matters that are identified with specific grants or contracts. Salary 
and wages charged directly to LSC grants and contracts must be 
supported by personnel activity reports.
    (e) Indirect costs. Indirect costs are those that have been 
incurred for common or joint objectives and cannot be readily 
identified with a particular final cost objective. A recipient may 
treat any direct cost of a minor amount as an indirect cost for reasons 
of practicality where the accounting treatment for such cost is 
consistently applied to all final cost objectives. Indirect costs 
include, but are not limited to, the costs of operating and maintaining 
facilities, and the costs of general program administration, such as 
the salaries and wages of program staff whose time is not directly 
attributable to a particular grant or contract. Such staff may include, 
but are not limited to, executive officers and personnel, accounting, 
secretarial and clerical staff.
    (f) Allocation of indirect costs. Where a recipient has only one 
major function, i.e., the delivery of legal services to low-income 
clients, allocation of indirect costs may be by a simplified allocation 
method, whereby total allowable indirect costs (net of applicable 
credits) are divided by an equitable distribution base and distributed 
to individual grant awards accordingly. The distribution base may be 
total direct costs, direct salaries and wages, attorney hours, numbers 
of cases, numbers of employees, or another base which results in an 
equitable distribution of indirect costs among funding sources.
    (g) Exception for certain indirect costs. Some funding sources may 
refuse to allow the allocation of certain indirect costs to an award. 
In such instances, a recipient may allocate a proportional share of 
another funding source's share of an indirect cost to LSC funds, 
provided that the activity associated with the indirect cost is 
permissible under the LSC Act, LSC appropriations statutes, and 
regulations.
    (h) Applicable credits. Applicable credits are those receipts or 
reductions of expenditures which operate to offset or reduce expense 
items that are allocable to grant awards as direct or indirect costs. 
Applicable credits include, but are not limited to, purchase discounts, 
rebates or allowances, recoveries or indemnities on losses, insurance 
refunds, and adjustments of overpayments or erroneous charges. To the 
extent that such credits relate to allowable costs, they shall be 
credited as a cost reduction or cash refund in the same fund to which 
the related costs are charged.
    (i) Fundraising. Costs associated with fundraising for the purpose 
of increasing recipient funds available to carry out the purposes of 
the LSC grant are allowable and allocable to the LSC grant if they meet 
the requirements of this section.
    (j) Guidance. The regulations of the Office of Management and 
Budget shall provide guidance for all allowable cost questions arising 
under this part when relevant policies or criteria therein are not 
inconsistent with the provisions of the Act, applicable appropriations 
law, this part, the Accounting Guide for LSC Recipients, LSC rules, 
regulations, guidelines, instructions, and other applicable law.


Sec.  1630.6  Prior approval.

    (a) Advance understandings. Under any given grant award, the 
reasonableness and allocability of certain cost items may be difficult 
to determine. To avoid subsequent disallowance or dispute based on 
unreasonableness or nonallocability, a recipient may seek a written 
understanding from LSC in advance of incurring special or unusual 
costs. If a recipient elects not to seek an advance understanding from 
LSC, the absence of an advance understanding on any element of a cost 
will not affect the reasonableness or allocability of the cost.
    (b) Costs requiring prior approval. (1) Without LSC's prior written 
approval, a recipient may not expend $25,000 or more of LSC funds on 
any of the following:
    (i) A single purchase or single lease of personal property;
    (ii) A single contract for services;
    (iii) A single combined purchase or lease of personal property and 
contract for services;
    (iv) A single purchase of real estate; and
    (v) Capital improvements.
    (2) For costs apportioned between LSC funds and one or more other 
funding sources, this requirement applies when the cost allocable to 
LSC funds is $25,000 or greater.
    (3) The process and substantive requirements for requests for prior 
approval are in 45 CFR part 1631--Purchasing and Property Management.
    (c) Duration. LSC's advance understanding or approval shall be 
valid for one year, or for a greater period of time which LSC may 
specify in its approval or advance understanding.


Sec.  1630.7  Membership fees or dues.

    (a) LSC funds may not be used to pay membership fees or dues to any 
private or nonprofit organization, whether on behalf of the recipient 
or an individual.
    (b) Paragraph (a) of this section does not apply to the payment of 
membership fees or dues mandated by a governmental organization to 
engage in a profession, or to the payment of membership fees or dues 
from non-LSC funds.


Sec.  1630.8  Contributions.

    Any contributions or gifts of LSC funds to another organization or 
to an individual are prohibited.


Sec.  1630.9  Tax-sheltered annuities, retirement accounts, and 
penalties.

    No provision contained in this part shall be construed to affect 
any payment by a recipient on behalf of its employees for the purpose 
of contributing to or funding a tax-sheltered annuity, retirement 
account, or pension fund.


Sec.  1630.10  Recipient policies, procedures, and recordkeeping.

    Each recipient must adopt written policies and procedures to guide 
its staff in complying with this subpart and must maintain records 
sufficient to document the recipient's compliance with this subpart.

[[Page 37340]]

Subpart C--Questioned Cost Proceedings


Sec.  1630.11  Review of questioned costs.

    (a) LSC may identify questioned costs:
    (1) When the Office of Inspector General, the General Accounting 
Office, or an independent auditor or other audit organization 
authorized to conduct an audit of a recipient has identified and 
referred a questioned cost to LSC;
    (2) In the course of its oversight of recipients; or
    (3) As a result of complaints filed with LSC.
    (b) If LSC determines that there is a basis for disallowing a 
questioned cost, LSC must provide the recipient with written notice of 
its intent to disallow the cost. The notice of questioned costs must 
state the amount of the cost and the factual and legal basis for 
disallowing it.
    (c) If a questioned cost is disallowed solely because it is 
excessive, only the amount that is larger than reasonable shall be 
disallowed.
    (d)(1) Within 30 days of receiving the notice of questioned costs, 
the recipient may respond with written evidence and argument to show 
that the cost was allowable, or that LSC, for equitable, practical, or 
other reasons, should not recover all or part of the amount, or that 
the recovery should be made in installments.
    (2) The written notice shall become LSC's final written decision 
unless:
    (i) The recipient responds to LSC's written notice within 30 days;
    (ii) The recipient requests an extension of time pursuant to Sec.  
1630.3(b) within 30 days; or
    (iii) LSC grants an extension of time pursuant to Sec.  1630.3(b) 
within 30 days.
    (e) Within 60 days of receiving the recipient's written response to 
the notice of questioned costs, LSC management must issue a final 
written decision stating whether the cost has been disallowed and the 
reasons for the decision.
    (f) If LSC has determined that the questioned cost should be 
disallowed, the final written decision must:
    (1) State that the recipient may appeal the decision as provided in 
Sec.  1630.12 and describe the process for seeking an appeal;
    (2) Describe how it expects the recipient to repay the cost, 
including the method and schedule for collection of the amount of the 
cost;
    (3) State whether LSC is requiring the recipient to make financial 
adjustments or take other corrective action to prevent a recurrence of 
the circumstances giving rise to the disallowed cost.


Sec.  1630.12  Appeals to the president.

    (a)(1) If the amount of a disallowed cost exceeds $2,500, the 
recipient may appeal in writing to LSC's President within 30 days of 
receiving LSC's final written decision to disallow the cost. The 
recipient should state in detail the reasons why LSC should not 
disallow part or all of the questioned cost.
    (2) If the recipient did not respond to LSC's notice of questioned 
costs and the notice became LSC's final written decision pursuant to 
Sec.  1630.11(d)(2), the recipient may not appeal the final written 
decision.
    (b) If the President has had prior involvement in the consideration 
of the disallowed cost, the President shall designate another senior 
LSC employee who has not had prior involvement to review the 
recipient's appeal. In circumstances where the President has not had 
prior involvement in the disallowed cost proceeding, the President has 
discretion to designate another senior LSC employee who also has not 
had prior involvement in the proceeding to review the appeal.
    (c) Within 30 days of receiving the recipient's written appeal, the 
President or designee will adopt, modify, or reverse LSC's final 
written decision.
    (d) The decision of the President or designee shall be final and 
shall be based on the written record, consisting of LSC's notice of 
questioned costs, the recipient's response, LSC's final written 
decision, the recipient's written appeal, any additional response or 
analysis provided to the President or designee by LSC staff, and the 
relevant findings, if any, of the Office of Inspector General, General 
Accounting Office, or other authorized auditor or audit organization. 
Upon request, LSC shall provide the recipient with a copy of the 
written record.


Sec.  1630.13  Recovery of disallowed costs and other corrective 
action.

    (a) LSC will recover any disallowed costs from the recipient within 
the time limits and conditions set forth in either LSC's final written 
decision or the President's decision on an appeal. Recovery of the 
disallowed costs may be in the form of a reduction in the amount of 
future grant checks or in the form of direct payment from you to LSC.
    (b) LSC shall ensure that a recipient who has incurred a disallowed 
cost takes any additional necessary corrective action within the time 
limits and conditions set forth in LSC's final written decision or the 
President's decision.


Sec.  1630.14  Other remedies; effect on other parts.

    (a) In cases of serious financial mismanagement, fraud, or 
defalcation of funds, LSC shall refer the matter to the Office of 
Inspector General and may take appropriate action pursuant to parts 
1606, 1623, and 1640 of this chapter.
    (b) The recovery of a disallowed cost according to the procedures 
of this part does not constitute a permanent reduction in a recipient's 
annualized funding level, nor does it constitute a limited reduction of 
funding or termination of financial assistance under part 1606, or a 
suspension of funding under part 1623 of this chapter.


Sec.  1630.15  Applicability to subgrants.

    When disallowed costs arise from expenditures incurred under a 
subgrant of LSC funds, the recipient and the subrecipient will be 
jointly and severally responsible for the actions of the subrecipient, 
as provided by 45 CFR part 1627, and will be subject to all remedies 
available under this part. Both the recipient and the subrecipient 
shall have access to the review and appeal procedures of this part.


Sec.  1630.16  Applicability to non-LSC funds.

    (a) No costs attributable to a purpose prohibited by the LSC Act, 
as defined by 45 CFR 1610.2(a), may be charged to private funds, except 
for tribal funds used for the specific purposes for which they were 
provided.
    (b) No cost attributable to an activity prohibited by or 
inconsistent with Pub. L. 103-134, title V, sec. 504, as defined by 45 
CFR 1610.2(b), may be charged to non-LSC funds, except for tribal funds 
used for the specific purposes for which they were provided.
    (c) LSC may recover from a recipient's LSC funds an amount not to 
exceed the amount improperly charged to non-LSC funds. A decision to 
recover under this paragraph is subject to the review and appeal 
procedures of Sec. Sec.  1630.11 and 1630.12.


Sec.  1630.17  Applicability to derivative income.

    (a) Derivative income resulting from an activity supported in whole 
or in part with LSC funds shall be allocated to the fund in which the 
recipient's LSC grant is recorded in the same proportion that the 
amount of LSC funds expended bears to the total amount expended by the 
recipient to support the activity.
    (b) Derivative income allocated to the LSC fund in accordance with 
paragraph (a) of this section is subject to the requirements of this 
part.

[[Page 37341]]

Subpart D--Closeout Procedures


Sec.  1630.18  Applicability.

    This subpart applies when a recipient of LSC funds:
    (a) Ceases to exist as a legal entity, including merging or 
consolidating functions with another LSC recipient when the other 
recipient becomes the LSC recipient for the service area; or
    (b) Otherwise ceases to receive funds directly from LSC. This may 
include voluntary termination by the recipient or involuntary 
termination by LSC of the recipient's LSC grant, and may occur at the 
end of a grant term or during the grant term.


Sec.  1630.19  Closeout plan; timing.

    (a) A recipient must provide LSC with a plan for the orderly 
conclusion of the recipient's role and responsibilities. LSC will 
maintain a list of the required elements for the closeout plan on its 
Web site. LSC will provide recipients with a link to the list in the 
grant award documents.
    (b)(1) A recipient must notify LSC no less than 60 days prior to 
any of the above events, except for an involuntary termination of its 
LSC grant by LSC. The recipient must submit the closeout plan described 
in paragraph (a) of this section at the same time.
    (2) If LSC terminates a recipient's grant, the recipient must 
submit the closeout plan described in paragraph (a) of this section 
within 15 days of being notified by LSC that it is terminating the 
recipient's grant.


Sec.  1630.20  Closeout costs.

    (a) The recipient must submit to LSC a detailed budget and timeline 
for all closeout procedures described in the closeout plan. LSC must 
approve the budget, either as presented or after negotiations with the 
recipient, before the recipient may proceed with implementing the 
budget, timeline, and plan.
    (b) LSC will withhold funds for all closeout expenditures, 
including costs for the closing audit, all staff and consultant 
services needed to perform closeout activities, and file storage and 
retention.
    (c) LSC will release any funding installments that the recipient 
has not received as of the date it notified LSC of a merger, change in 
status, or voluntary termination or that LSC notified the recipient of 
an involuntary termination of funding only upon the recipient's 
satisfactory completion of all closeout obligations.


Sec.  1630.21  Returning funds to LSC.

    (a) Excess fund balance. If the recipient has an LSC fund balance 
after the termination of funding and closeout, the recipient must 
return the full amount of the fund balance to LSC at the time it 
submits the closing audit to LSC.
    (b) Derivative income. Any attorneys' fees claimed or collected and 
retained by the recipient after funding ceases that result from LSC-
funded work performed during the grant term are derivative income 
attributable to the LSC grant. Such derivative income must be returned 
to LSC within 15 days of the date on which the recipient receives the 
income.

0
4. Add part 1631 to read as follows:

PART 1631--PURCHASING AND PROPERTY MANAGEMENT

Subpart A--General Provisions

Sec.
1631.1 Purpose.
1631.2 Definitions.
1631.3 Prior approval process.
1631.4 Use of funds.
1631.5 Recipient policies, procedures, and recordkeeping.
Subpart B--Procurement Policies and Procedures
1631.6 Characteristics of procurements.
1631.7 Procurement policies and procedures.
1631.8 Requests for prior approval.
1631.9 Applicability of part 1630 of this chapter.
Subpart C--Personal Property Management
1631.10 Use of property in compliance with LSC's statutes and 
regulations.
1631.11 Intellectual property.
1631.12 Disposing of personal property purchased with LSC funds.
1631.13 Use of derivative income from sale of personal property 
purchased with LSC funds.
Subpart D--Real Estate Acquisition and Capital Improvements
1631.14 Purchasing real estate with LSC funds.
1631.15 Capital improvements.
Subpart E--Real Estate Management
1631.16 Using real estate purchased with LSC funds.
1631.17 Maintenance.
1631.18 Insurance.
1631.19 Accounting and reporting to LSC.
1631.20 Disposing of real estate purchased with LSC funds.
1631.21 Retaining income from sale of real estate purchased with LSC 
funds.

    Authority:  42 U.S.C. 2996g(e).

Subpart A--General Provisions


Sec.  1631.1  Purpose.

    The purpose of this part is to set standards for purchasing, 
leasing, using, and disposing of LSC-funded personal property and real 
estate and using LSC funds to contract for services.


Sec.  1631.2  Definitions.

    As used in this part:
    (a) Capital improvement means spending more than $25,000 of LSC 
funds to improve real estate through construction or the addition of 
fixtures that become an integral part of real estate.
    (b) LSC property interest agreement means a formal written 
agreement between the recipient and LSC establishing the terms of LSC's 
legal interest in real estate purchased with LSC funds.
    (c) Personal property means property other than real estate.
    (d) Purchase means buying personal property or real estate or 
contracting for services with LSC funds.
    (e) Quote means a quotation or bid from a potential source 
interested in selling or leasing property or providing services to a 
recipient.
    (f) Real estate means land and buildings (including capital 
improvements), excluding moveable personal property.
    (g)(1) Services means professional and consultant services rendered 
by persons who are members of a particular profession or possess a 
special skill and who are not officers or employees of an LSC 
recipient. Services includes, but is not limited to intangible products 
such as accounting, banking, cleaning, consultants, training, expert 
services, maintenance of equipment, and transportation.
    (2) Services does not include:
    (i) Services provided by recipients to their employees as 
compensation in addition to regular salaries and wages, including but 
not limited to employee insurance, pensions, and unemployment benefit 
plans;
    (ii) Insurance, including malpractice insurance provided to staff 
attorneys and organizational insurance (e.g., directors and officers 
liability insurance, employment practices liability insurance, and 
commercial liability insurance);
    (iii) Annual audits required by section 509(a) of Public Law 104-
134;
    (iv) Services necessary to conduct litigation on behalf of clients 
(e.g., expert witnesses, discovery);
    (v) Contracts for services necessary to address a recipient's 
internal personnel issues, such as labor counsel, investigators, and 
mediators; and
    (vi) Contracts for employees, whether with the employee directly or 
with a placement agency.
    (h) Source means a seller, supplier, vendor, or contractor who has 
agreed:

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    (1) To sell or lease property to the recipient through a purchase 
or lease agreement; or
    (2) To provide services to the recipient through a contract.


Sec.  1631.3  Prior approval process.

    (a) LSC shall grant prior approval of a cost listed in Sec.  
1630.6(b) of this chapter if the recipient has provided sufficient 
written information to demonstrate that the cost would be consistent 
with the standards and policies of this part. LSC may request 
additional information if necessary to make a decision on the 
recipient's request.
    (b)(1) For purchases or leases of personal property, contracts for 
services, and capital improvements, LSC will make a decision to approve 
or deny a request for prior approval within 30 days of receiving 
materials LSC deems sufficient to decide. LSC will inform a recipient 
within 20 days of receiving the initial prior approval request whether 
LSC needs additional information to make a decision.
    (2) For purchases of real estate, LSC will make a decision within 
60 days of receiving materials LSC deems sufficient to decide. LSC will 
inform a recipient within 20 days of receiving the initial prior 
approval request whether LSC needs additional information to make a 
decision.
    (3) If LSC cannot make a decision whether to approve the request 
within the allotted time, it will provide the requester with a date by 
which it expects to make a decision.
    (c) If LSC denies a request for prior approval, LSC shall provide 
the recipient with a written explanation of the grounds for denying the 
request.
    (d) Exigent circumstances. (1) A recipient may use more than 
$25,000 of LSC funds to purchase personal property or award a contract 
for services without seeking LSC's prior approval if the purchase or 
contract is necessary;
    (i) To avoid imminent harm to the recipient's personnel, physical 
facilities, or systems;
    (ii) To remediate or mitigate damage to the recipient's personnel, 
physical facilities or systems;
    (iii) To avoid disruption to the recipient's client-service 
delivery system (e.g., an event that causes a recipient's 
telecommunications system to cease functioning); or
    (iv) To respond to a natural disaster (e.g., a flood washes out 
roads leading to the recipient's offices such that the recipient must 
contract for services that will enable it to contact its clients).
    (2) The recipient must provide LSC with a description of the 
exigent circumstances and the information described in paragraph (b) of 
this section within 30 days after the circumstances necessitating the 
purchase or contract have ended.


Sec.  1631.4  Use of funds.

    When LSC receives funds from a disposition of property under this 
section, LSC will use those funds to make emergency and other special 
grants to recipients. LSC generally will make such grants to the same 
service area as the returned funds originally supported.


Sec.  1631.5  Recipient policies, procedures, and recordkeeping.

    Each recipient shall adopt written policies and procedures to guide 
its staff in complying with this part and shall maintain records 
sufficient to document the recipient's compliance with this part.

Subpart B--Procurement Policies and Procedures


Sec.  1631.6  Characteristics of procurements.

    (a) Characteristics indicative of a procurement relationship 
between a recipient and another entity are when the other entity:
    (1) Provides the goods and services within its normal business 
operations;
    (2) Provides similar goods or services to many different 
purchasers;
    (3) Normally operates in a competitive environment;
    (4) Provides goods or services that are ancillary to the operation 
of the LSC grant; and
    (5) Is not subject to LSC's compliance requirements as a result of 
the agreement, though similar requirements may apply for other reasons.
    (b) In determining whether an agreement between a recipient and 
another entity constitutes a contract under this part or a subgrant 
under part 1627 of this chapter, the substance of the relationship is 
more important than the form of the agreement. All the characteristics 
above may not be present in all cases, and a recipient must use 
judgment in classifying each agreement as a subgrant or a contract.


Sec.  1631.7  Procurement policies and procedures.

    Recipients must have written procurement policies and procedures. 
These policies must:
    (a) Identify competition thresholds that establish the basis (for 
example, price, risk level, or type of purchase) for the level of 
competition required at each threshold (for example, certification that 
a purchase reflects the best value to the recipient; a price comparison 
for alternatives that the recipient considered; or requests for 
information, quotes, or proposals);
    (b) Establish the grounds for non-competitive purchases;
    (c) Establish the level of documentation necessary to justify 
procurements. The level of documentation needed may be proportional to 
the nature of the purchase or tied to competition thresholds;
    (d) Establish internal controls that, at a minimum, provide for 
segregation of duties in the procurement process, identify which 
employees, officers, or directors who have authority to make purchases 
for the recipient, and identify procedures for approving purchases;
    (e) Establish procedures to ensure quality and cost control in 
purchasing, including procedures for selecting sources, fair and 
objective criteria for selecting sources; and
    (f) Establish procedures for identifying and preventing conflicts 
of interest in the purchasing process.


Sec.  1631.8  Requests for prior approval.

    (a) As required by 45 CFR 1630.6 and 1631.3, a recipient using more 
than $25,000 of LSC funds to purchase or lease personal property or 
contract for services must request and receive LSC's prior approval.
    (b) A request for prior approval must include:
    (1) A statement of need;
    (2) A copy of the recipient's procurement policy; and
    (3) Documentation showing that the recipient followed its 
procurement policies and procedures in soliciting, reviewing, and 
approving the purchase, lease, or contract for services.


Sec.  1631.9  Applicability of part 1630 of this chapter.

    All purchases and leases of personal property and contracts for 
services made with LSC funds must comply with the provisions of 45 CFR 
part 1630 (Cost Standards and Procedures).

Subpart C--Personal Property Management


Sec.  1631.10  Use of property in compliance with LSC's statutes and 
regulations.

    (a) A recipient may use personal property purchased or leased, in 
whole or in part, with LSC funds primarily to deliver legal services to 
eligible clients under the requirements of the LSC Act, applicable 
appropriations acts, and LSC regulations.
    (b) A recipient may use personal property purchased or leased, in 
whole or in part, with LSC funds for the performance of an LSC grant or 
contract

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for other activities, if such other activities do not interfere with 
the performance of the LSC grant or contract.
    (c) If a recipient uses personal property purchased or leased, in 
whole or in part, with LSC funds to provide services to an organization 
that engages in activity restricted by the LSC Act, LSC regulations, or 
other applicable law, the recipient must charge the organization a fee 
no less than that which private nonprofit organizations in the same 
area charge for the same services under similar conditions.


Sec.  1631.11  Intellectual property.

    (a) A recipient owns all products, technologies, and software 
developed or improved using LSC funds, subject to any agreement the 
recipient may have with a third-party vendor. LSC retains a royalty-
free, nonexclusive, and irrevocable license to use, reproduce, 
distribute, publish, and prepare derivative works of any LSC-funded 
products, technologies, and software, including making them available 
to other LSC grantees or the broader access to justice community and 
partners.
    (b) A recipient must have a written contract with vendors who 
develop or improve LSC-funded products, technologies, and software. The 
contract must include a provision disclosing LSC's royalty-free, 
nonexclusive, and irrevocable license and prohibiting third-party 
vendors from denying its existence, challenging its legality, or 
interfering with LSC's full exercise of it.


Sec.  1631.12  Disposing of personal property purchased with LSC funds.

    (a) Disposal by LSC recipients. During the term of an LSC grant or 
contract, a recipient may dispose of personal property purchased with 
LSC funds by:
    (1) Trading in the personal property when it acquires replacement 
property;
    (2) Selling or otherwise disposing of the personal property with no 
further obligation to LSC when the fair market value of the personal 
property is negligible;
    (3) Where the current fair market value of the personal property is 
$15,000 or less, selling the property at a reasonable negotiated price, 
without advertising;
    (4) Where the current fair market value of the personal property 
exceeds $15,000, advertising the property for 14 days and selling the 
property after receiving reasonable offers. If the recipient receives 
no reasonable offers after advertising the property for 14 days, it may 
sell the property at a reasonable negotiated price;
    (5) Transferring the property to another recipient of LSC funds; or
    (6) With the approval of LSC, transferring the personal property to 
another nonprofit organization serving the poor in the same service 
area.
    (b) Disposal when no longer a recipient. When a recipient stops 
receiving LSC funds, it must obtain LSC's approval to dispose of 
personal property purchased with LSC funds in one of the following 
ways:
    (1) Transferring the property to another recipient of LSC funds, in 
which case the former recipient will be entitled to compensation in the 
amount of the percentage of the property's current fair market value 
that is equal to the percentage of the property's purchase cost borne 
by non-LSC funds;
    (2) Transferring the property to another nonprofit organization 
serving the poor in the same service area, in which case LSC will be 
entitled to compensation from the recipient for the percentage of the 
property's current fair market value that is equal to the percentage of 
the property's purchase cost borne by LSC funds;
    (3) Selling the property and retaining the proceeds from the sale 
after compensating LSC for the percentage of the property's current 
fair market value that is equal to the percentage of the property's 
purchase cost borne by LSC funds; or
    (4) Retaining the property, in which case LSC will be entitled to 
compensation from the recipient for the percentage of the property's 
current fair market value that is equal to that percentage of the 
property's purchase cost borne by LSC funds.
    (c) Disposal upon merger with or succession by another LSC 
recipient. When a recipient stops receiving LSC funds because it merged 
with or is succeeded by another grantee, the recipient may transfer the 
property to the new recipient, if the two entities execute an LSC-
approved successor in interest agreement that requires the new 
recipient to use the property primarily to provide legal services to 
eligible clients under the requirements of the LSC Act, applicable 
appropriations acts, and LSC regulations.
    (d) Prohibition. A recipient may not dispose of personal property 
by sale, donation, or other transfer of the property to its board 
members or employees.


Sec.  1631.13  Use of derivative income from sale of personal property 
purchased with LSC funds.

    (a) During the term of an LSC grant or contract, a recipient may 
retain and use income from any sale of personal property purchased with 
LSC funds according to 45 CFR 1630.17 (Cost Standards and Procedures: 
Applicability to derivative income) and 45 CFR 1628.3 (Recipient Fund 
Balances: Policy).
    (b) The recipient must account for income earned from the sale, 
rent, or lease of personal property purchased with LSC funds according 
to the requirements of 45 CFR 1630.17.

Subpart D--Real Estate Acquisition and Capital Improvements


Sec.  1631.14  Purchasing real estate with LSC funds.

    (a) Pre-purchase planning requirements. (1) Before purchasing real 
estate with LSC funds, a recipient must conduct an informal market 
survey and evaluate at least three potential equivalent properties.
    (2) When a recipient evaluates potential properties, it must 
consider:
    (i) The average annual cost of the purchase, including the costs of 
a down payment, interest and principal payments on a mortgage financing 
the purchase; closing costs; renovation costs; and the costs of 
utilities, maintenance, and taxes, if any;
    (ii) The estimated total costs of buying and using the property 
throughout the mortgage term compared to the estimated total costs of 
leasing and using a similar property over the same period of time;
    (iii) The property's quality; and
    (iv) Whether the property is conducive to delivering legal services 
(e.g. property is accessible to the client population (ADA compliant) 
and near public transportation, courts, and other government or social 
services agencies).
    (3) If a recipient cannot evaluate three potential properties, it 
must be able to explain why such evaluation was not possible.
    (b) Prior approval. Before a recipient may purchase real estate 
with LSC funds, LSC must approve the purchase as required by 45 CFR 
1630.6 and 1631.3. The request for approval must be in writing and 
include:
    (1) A statement of need, including:
    (i) The information obtained and considered in paragraph (a) of 
this section;
    (ii) Trends in funding and program staffing levels in relation to 
space needs;
    (iii) Why the recipient needs to purchase real estate; and
    (iv) Why purchasing real estate is reasonable and necessary to 
performing the LSC grant.
    (2) A brief analysis comparing:
    (i) The estimated average annual cost of the purchase including the 
costs of a down payment, interest and principal payments on a mortgage 
financing the

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purchase; closing costs; renovation costs; and the costs of utilities, 
maintenance, and taxes, if any; and
    (ii) The estimated average annual cost of leasing or purchasing 
similar property over the same period of time;
    (3) Anticipated financing of the purchase, including:
    (i) The estimated total acquisition costs, including capital 
improvements, taxes, recordation fees, maintenance costs, insurance 
costs, and closing costs;
    (ii) The anticipated breakdown of LSC funds and non-LSC funds to be 
applied toward the total costs of the purchase;
    (iii) The monthly amount of principal and interest payments on debt 
secured to finance the purchase, if any;
    (4) A current, independent appraisal sufficient to secure a 
mortgage;
    (5) A comparison of available loan terms considered by the 
recipient before selecting the chosen financing method;
    (6) Board approval of the purchase in either a board resolution or 
board minutes, including Board approvals that are contingent on LSC's 
approval;
    (7) Whether the property will replace or supplement existing 
program offices;
    (8) A statement that the property
    (i) Currently complies with the Americans with Disabilities Act 
(ADA) or applicable state law, whichever is stricter, and 45 CFR 
1624.5; or
    (ii) Will comply with the ADA, any applicable state law, and 45 CFR 
1624.5 upon completion of any necessary capital improvements. Such 
improvements must be completed within 60 days of the date of purchase; 
and
    (9) A copy of a purchase agreement, contract, or other document 
containing a description of the property and the terms of the purchase.
    (c) Property interest agreement. Once LSC approves the purchase, 
the recipient must enter a written property interest agreement with 
LSC. The agreement must include:
    (1) The recipient's agreement to use the property consistent with 
Sec.  1631.15;
    (2) The recipient's agreement to record, under appropriate state 
law, LSC's interest in the property;
    (3) The recipient's agreement not to encumber the property without 
prior LSC approval; and
    (4) The recipient's agreement not to dispose of the property 
without prior LSC approval.


Sec.  1631.15  Capital improvements.

    (a) As required by 45 CFR 1630.6 and 1631.3, a recipient must 
obtain LSC's prior written approval before using more than $25,000 LSC 
funds to make capital improvements to real estate.
    (b) The written request must include:
    (1) A statement of need;
    (2) A brief description of the nature of the work to be done, the 
name of the sources performing the work, and the total expected cost of 
the improvement; and
    (3) Documentation showing that the recipient followed its 
procurement policies and procedures in competing, selecting, and 
awarding contracts to perform the work.
    (c) A recipient must maintain supporting documentation to 
accurately identify and account for any use of LSC funds to make 
capital improvements to real estate owned by the recipient.

Subpart E--Real Estate Management


Sec.  1631.16  Using real estate purchased with LSC funds.

    (a) Recipients must use real estate purchased or leased in whole or 
in part with LSC funds to deliver legal assistance to eligible clients 
consistent with the requirements of the LSC Act, applicable 
appropriations acts, other applicable Federal law, and LSC's 
regulations. If a recipient does not need to use some or all such real 
estate to deliver legal assistance to eligible clients, it may use the 
space for other activities as described in paragraphs (b) and (c) of 
this section.
    (b) A recipient may use real estate purchased or leased, in whole 
or part, with LSC funds for the performance of an LSC grant or contract 
for other activities, if they do not interfere with the performance of 
the LSC grant or contract.
    (c) If a recipient uses real estate purchased or leased, in whole 
or part, with LSC funds to provide space to an organization that 
engages in activity restricted by the LSC Act, applicable 
appropriations acts, LSC regulations, or other applicable law, the 
recipient must charge the organization rent no less than that which 
private nonprofit organizations in the same area charge for the same 
amount of space under similar conditions.


Sec.  1631.17  Maintenance.

    A recipient must maintain real estate acquired with LSC funds:
    (a) In an efficient operating condition; and
    (b) In compliance with state and local government property 
standards and building codes.


Sec.  1631.18  Insurance.

    At the time of purchase, a recipient must obtain insurance coverage 
for real estate purchased with LSC funds which is not lower in value 
than coverage it has obtained for other real estate it owns and which 
provides at least the following coverage:
    (a) Title insurance that:
    (1) Insures the fee interest in the property for an amount not less 
than the full appraised value as approved by LSC, or the amount of the 
purchase price, whichever is greater; and
    (2) Contains an endorsement identifying LSC as a loss payee to be 
reimbursed if the title fails.
    (3) If no endorsement naming LSC as loss payee is made, the 
recipient must pay LSC the title insurance proceeds it receives in the 
event of a failure.
    (b) A physical destruction insurance policy, including flood 
insurance where appropriate, which insures the full replacement value 
of the facility from risk of partial and total physical destructions. 
The recipient must maintain this policy for the period of time that the 
recipient owns the real estate.


Sec.  1631.19  Accounting and reporting to LSC.

    A recipient must maintain an accounting of the amount of LSC funds 
relating to the purchase or maintenance of real estate purchased with 
LSC funds. The accounting must include the amount of LSC funds used to 
pay for acquisition costs, financing, and capital improvements. The 
recipient must provide the accounting for each year to LSC no later 
than April 30 of the following year or in its annual audited financial 
statements submitted to LSC.


Sec.  1631.20  Disposing of real estate purchased with LSC funds.

    (a) Disposal by LSC recipients. During the term of an LSC grant or 
contract, a recipient must seek LSC's prior written approval to dispose 
of real estate purchased with LSC funds by:
    (1) Selling the property after having advertised for and received 
offers; or
    (2) Transferring the property to another recipient of LSC funds, in 
which case the recipient may be compensated by the recipient receiving 
the property for the percentage of the property's current fair market 
value that is equal to the percentage of the costs of the original 
acquisition and costs of any capital improvements borne by non-LSC 
funds.
    (b) Disposal after a recipient no longer receives LSC funding. When 
a recipient who owns real estate purchased with LSC funds stops 
receiving LSC funds, it must seek LSC's prior written approval to 
dispose of the property in one of the following ways:
    (1) Transfer the property title to another grantee of LSC funds, in 
which case the recipient may be compensated

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the percentage of the property's current fair market value that is 
equal to the percentage of the costs of the original acquisition and 
costs of any capital improvements by non-LSC funds;
    (2) Buyout LSC's interest in the property (i.e., pay LSC the 
percentage of the property's current fair market value proportional to 
its percent interest in the property); or
    (3) Sell the property to a third party and pay LSC a share of the 
sale proceeds proportional to its interest in the property, after 
deducting actual and reasonable closing costs, if any.
    (4) When a recipient stops receiving LSC funds because it merged 
with or is succeeded by another recipient, it may transfer the property 
to the new recipient. The two entities must execute an LSC-approved 
successor in interest agreement that requires the transferee to use the 
property primarily to provide legal services to eligible clients under 
the requirements of the LSC Act, applicable appropriations acts, and 
LSC regulations.
    (c) Prior approval process. No later than 60 days before a 
recipient or former recipient proposes to dispose of real estate 
purchased with LSC funds, the recipient or former recipients must 
submit a written request for prior approval to dispose of the property 
to LSC. The request must include:
    (1) The proposed method of disposition and an explanation of why 
the proposed method is in the best interests of LSC and the recipient;
    (2) Documentation showing the fair market value of the property at 
the time of transfer or sale, including, but not limited to, an 
independent appraisal of the property and competing bona fide offers to 
purchase the property;
    (3) A description of the recipient's process for advertising the 
property for sale and receiving offers;
    (4) An accounting of all LSC funds used in the acquisition and any 
capital improvements of the property. The accounting must include the 
amount of LSC funds used to pay for acquisition costs, financing, and 
capital improvements; and
    (5) Information on the proposed transferee or buyer of the property 
and a document evidencing the terms of transfer or sale.


Sec.  1631.21  Retaining income from sale of real estate purchased with 
LSC funds.

    (a) During the term of an LSC grant or contract, a recipient may 
retain and use income from any sale of real estate purchased with LSC 
funds according to 45 CFR 1630.17 (Cost Standards and Procedures: 
Applicability to derivative income.) and 45 CFR 1628.3 (Recipient Fund 
Balances: Policy.).
    (b) The recipient must account for income earned from the sale, 
rent, or lease of real or personal property purchased with LSC funds 
according to the requirements of 45 CFR 1630.17.

    Dated: August 3, 2017.
Mark Freedman,
Senior Associate General Counsel.
[FR Doc. 2017-16764 Filed 8-9-17; 8:45 am]
 BILLING CODE 7050-01-P