[Excerpt from Federal Register / Vol. 59, No. 170 / Friday, September 2, 1994
/ 45815 (amendments to JTPA regulations)]
Subpart D--Administrative Standards
Grant Agreement and Funding. Section 627.405 establishes a new
annual grant agreement process to facilitate the obligation,
accounting, and closeout of JTPA funds by year of appropriation. No
specific comments were received on this section and comments generally
related to this section and other sections are responded to in other
sections of this Preamble. No changes are made to this section.
Reallotment and Reallocation. Section 627.410 implements the new
section 109 of the Act, which requires the Governor to reallocate,
among SDA's in the State, unobligated funds in excess of 15 percent of
any SDA's program year title II allocation.
A number of commenters responded on the provisions of this section.
Almost all of them recommended basing reallocations on obligations
rather than expenditures and questioned whether a State could adopt a
more restrictive reallocation policy based on expenditures. Most of the
other comments were requests that the regulations further clarify the
reallotment and reallocation provisions of the Act including an
interpretation of section 109(a)(3) of the Act concerning SDA's that
have the highest rates of unemployment for an extended period of time
and the highest poverty rates. One commenter pointed out a potential
conflict between the provisions of section 109 of the Act, which bases
reallocation on obligations, and section 161(b)(1) of the Act, which
ties reallocation to expenditures. Another commenter raised the issue
of whether Title II-B (summer) funds could be reallocated.
Given the legislative history of the statutory provision,
particularly the 1991 House Committee Report (H.R. Rep. No. 102-240, 63
and 64 (1991)), the Department believes that the intent of Congress was
to ensure effective, timely use of the funds. The Department previously
suggested that another interpretation, based upon the provisions of
section 161(b) of the Act, might permit a more rigorous standard, such
as expenditure. However, upon further review, the Department believes
that the language in the statute is clear in providing that the basis
for reallocation is to be the "obligation" of funds and the
Department now believes that an interpretation that is more restrictive
would be inconsistent with the Act. A new paragraph (a)(2) is added
that prohibits the Governor from imposing reallocation requirements
that are based on other than obligations. While it may be true, as some
commenters suggested, that basing reallocation solely on obligations
may lead to last minute obligations of funds which have little program
purpose simply to avoid reallocation, the Department is constrained by
the statutory language and cannot use that possibility as a basis for
varying from a clear statutory requirement.
In regard to further interpretation of section 109(a)(3) of the Act
concerning SDA's that have the highest rates of unemployment for an
extended period of time and the highest poverty rates, the Department
is not expanding on this criterion and is leaving the interpretation of
this section to each Governor, as provided in the Conference Committee
Report on the Amendments.
Insurance
A few commenters responded to the provisions of Sec. 627.415. A few
other commenters on Sec. 627.435, Allowable costs and cost principles,
suggested that Sec. 627.435 should include provisions for allowing the
costs of contributions to reserves for self-insurance to be
specifically allowed in that section.
After considering these comments, paragraph (c) of Sec. 627.415 of
the interim final rule is removed and the substance of the second
sentence concerning contributions to a reserve for a self-insurance
program is moved to Sec. 627.435(h). The first sentence of this
paragraph (c) basically repeated the provisions of Sec. 627.315(b),
Benefits and working conditions, and is, therefore, unnecessary in this
provision.
A few commenters were concerned about the scope of insurance
coverage required by the rule. Some asked whether the rule required
them to provide insurance coverage for work-related activities or for
all training. One thought that the regulation required "no fault"
coverage that could be satisfied through an ordinary comprehensive
liability policy. Section 627.415 does not address the scope of
insurance coverage. Section 627.315(b) requires worker's compensation
or similar insurance coverage for work-related training activities.
States and SDA's/SSG's should provide such coverage as they deem
prudent and as are in accordance with their normal insurance
procedures, both in terms of the types of risks covered and the method
of coverage (self-insurance or purchase of insurance policies).
Procurement. Section 627.420 sets forth the procurement
requirements for titles I, II, and III of JTPA.
Some commenters thought that the procurement portion of the interim
final regulations is an example of overregulation, while others
believed that the regulations did not go far enough. In response to the
comments concerning overregulation, the Department notes that section
164(a)(3) of the Act requires the Secretary to take into consideration
the OMB circulars and that these regulations actually represent a
pared-down version of the OMB Circulars. As such, they represent less
federal regulation than is applied to other Federal grant programs. In
response to the comments concerning underregulation, the Department
does not agree. The requirements that are established should help
maximize competition, ensure fiscal accountability, and prevent fraud
and abuse in JTPA programs. The Department believes that the final
regulation represents a reasonable balance between providing guidance
on the issues on which the Secretary is required to set minimum
requirements under section 164(a)(3) of the Act and recognizing the
prerogatives of the Governors to develop their own procurement rules,
which also is recognized in that provision.
Although at the Federal level there are rules for when to use
contracts, grants and cooperative agreements, these rules are not
applicable to the JTPA. As a result, what one State calls a contract,
another State might call a grant. In order to avoid confusion in these
regulations, the following terms are being used: "Award" or
"agreement" means a contract, grant, subcontract, subgrant or other
type of legal instrument; "awardee" means any one of the entities
receiving the award (e.g., contractors, grantees). There was concern
expressed over whether buying certain supplies, like floppy disks, at
office supply stores and other similar businesses constitutes an award.
Through these regulations, an upper limit for small purchases (which
can be lowered, but not raised, by the Governor's procurement
standards) is established. No further breakdowns are delineated in the
regulations. The Governor can, through the State procurement standards,
establish other thresholds for the purchasing of consumable materials
with credit cards and such, and not require a formalized award process
(e.g., competition or cost/price analysis) or document. As an example,
the current Federal ceiling is $2,500 per consumable item.
Section 627.420(a) reiterates the requirement established through
the Amendments that the Governor establish procurement standards to
ensure fiscal accountability and prevent fraud and abuse in JTPA
programs. This section further requires the State and local levels to
follow procurement policies and procedures used for non-Federal funds,
with some caveats, and reiterates the non-duplication requirement
contained in section 107(b) of the Act. A small number of commenters
were concerned that the requirement that the State and local levels
follow their own procurement policies and procedures used for non-
Federal funds would result in awards always being made to the lowest
bidder without other considerations, such as performance. State and
local rules are to be followed as long as they comply with the minimum
requirements of the procurement section. One of the requirements for
the selection of vendors and subrecipients (discussed below) is that
the awarding agency make a determination of demonstrated performance
prior to award. If, as a result of this determination, it is apparent
that the lowest bidder cannot perform the work at an acceptable level
of quality, SDA's should not make an award to that bidder.
A few commenters were concerned that the nonduplication requirement
of Sec. 627.420(a)(5) would make it difficult for SDA's to select
service providers. This requirement reflects the provisions of section
107(b) of the Act and is necessary to maximize the use of JTPA funds.
One of the initial steps in any JTPA procurement should be a
determination concerning whether or not procuring such services
(whether competitively or through sole source) would be a duplication.
The determination of non-duplication need not be exhaustive; it may
take into account such things as the cost of the existing services,
waiting lists, the effectiveness of the services to be provided, and
the likelihood of achieving performance goals. Although there may be
entities in the geographic area which provide the required services,
these entities may not provide the necessary customized training or may
not be able to provide these services in a timely manner.
A few commenters felt that the vendor/subrecipient distinction (see
the definitions sections of the preamble and the regulations) found in
other parts of the regulations was not clear in this section. This
section is intended to apply to all awards and, for the purposes of
this section, the same rules apply to the procurement of awards to both
vendors and subrecipients. Thus, the vendor/subrecipient distinction is
not treated in this section as it is in other provisions of the
regulations.
Section 107(e) of the Act requires that selection of service
providers include documentation of compliance with procurement
standards established by the Governor. Section 627.420(a) is expanded
by adding a definition of procurement to mean the process which leads
to any award of JTPA funds. Some commenters wondered if the
requirements for a determination of demonstrated performance, contained
in Sec. 627.422, Selection of Service Providers, applied to vendors.
Based on the definition of service providers, this requirement does
apply to vendors. On its surface it may appear that the requirement for
a determination of demonstrated performance goes against the
requirements for full and open competition. Since the overall goal of
JTPA is to provide high quality services to eligible participants, the
requirement of the determination of demonstrated performance leads to
the meeting of this goal by requiring the selection of entities that
can do the work effectively. This requirement further supports the
fiscal accountability and prevention of fraud requirements of the Act,
since demonstrated performance includes such things as a satisfactory
record of integrity.
Section 627.420(b) further delineates the Act's requirement of full
and open competition. A few commenters asked for definitions of certain
terms, such as "arbitrary action" and "overly restrictive
specification." Since each procurement action and system must be
looked at on a case-by-case basis, the Department thinks that it would
be inappropriate to define these terms. If further definition is
required at the State level, the Governor may do so in the guidelines
that he/she establishes. A few commenters were concerned that stricter
State procurement codes could take precedence over Federal regulations.
These commenters are correct; the Governor has the discretion to make
the procurement rules more strict. However, the Governor does not have
the authority, unless indicated in the law or regulations, to make a
legislative and/or regulatory requirement less strict. One commenter
felt that paragraph (b)(2)(i) should require an identification of
quantities to be purchased. This change is made.
Section 627.420(c) establishes conflict of interest requirements.
Although there is a separate subsection that addresses PIC conflict of
interest, PIC's were also included in the subsections that address
recipient and subrecipient conflict of interest. A few commenters
correctly pointed out that by inclusion in the latter, it would make it
impossible for companies for which PIC members work to be awarded JTPA
funds. This section is amended to remove the reference to PIC members
in paragraph (c)(2) and is reorganized to increase clarity. Paragraph
(c)(4), which deals with PIC conflict of interest is redesignated as
paragraph (c)(3) but remains unchanged. Because of the separate
treatment of PIC's and recipients/subrecipients, the portions of
paragraph (c)(2), which provide information on when a conflict of
interest would arise for either PIC's or recipients/subrecipients, are
moved into a separate paragraph (c)(4). It should be noted that the
phrase "is about to employ" in paragraph (c)(4)(iv) also applies to
cases of negotiation for employment. The language is not changed in
order to maintain consistency with the OMB Circulars. The original
paragraph (c)(5) is combined with paragraph (c)(1), since both deal
with standards of conduct.
Several commenters submitted comments on Sec. 627.420(d). This
section is based on OMB Circular A-102, and describes the four
procurement methods that are available to JTPA entities. Language is
added to Sec. 627.420(d)(1)(i), prohibiting awards from being broken
down into several purchases merely to be able to use small purchase
procedures. The Department does not intend that small purchase
procedures be used improperly to avoid the more formal competitive
processes.
The majority of these comments concerned paragraph (d)(4) of the
interim final rule (redesignated in the final rule as (d)(1)(iv)),
which provides a listing of the circumstances under which recipients
and subrecipients may use the sole-source method of procurement. One of
the circumstances calls for awarding agency approval of noncompetitive
proposals. The final regulations are changed to state that for SDA's,
SSG's and subrecipients, the awarding agency provides authorization;
for States, the noncompetitive proposal is approved through the State's
normal sole source approval process. Without this change, States would
have had to submit their proposed sole source awards that do not meet
one of the circumstances to the Department of Labor, the awarding
agency.
The amendments require that all sole source awards be justified and
documented in writing. When a State or other subrecipient identifies
specific entities that may be sole-source awardees (e.g., the
Employment Service for assessment services) by their subrecipients, the
State or other subrecipient that identifies the specific entity is
responsible for the justification and documentation that serves as the
basis for that specific sole source selection.
In regard to both the OJT and classroom training (CRT) sole source
exceptions, there was some confusion concerning the requirement that
not only does the procurement have to meet one of the criteria, but
also has to be infeasible under small purchase procedures, sealed bids
or competitive proposals. Clearly, OJT and individual CRT placements
are unique in the procurement world. Neither is usually procured
through a competitive Request for Proposal (RFP) process. Although both
should be procurable under small purchase procedures, some State rules
may not allow this. As a result, the regulations are revised to allow
the sole source procurement of OJT (except awards to brokering
contractors) and individual CRT without having to demonstrate that the
three other methods of procurement are infeasible. This provision of
the regulation may be used in the written justification for such sole
source authority.
In regard to the sole source exception for procurement of
"Enrollment of individual participants in classroom training," some
commenters expressed a concern that this would be used to justify sole
source awards for the referral of a number of individuals to the same
classroom training. This exception may be used to justify a sole source
award to place an individual participant in classroom training. If a
recipient or subrecipient, over the course of a year, makes sufficient
individual referrals to the point that the small purchase maximum is
exceeded (either the level established through these regulations or the
State established level, whichever is lower), they will be expected to
compete the requirement the following year. If it is necessary to
procure a class for JTPA participants only, it is not appropriate to
use this sole source exception. It may, though, be appropriate to use
small purchase procedures or to justify the sole source procurement of
the class through other exceptions.
Several commenters thought that setting up Labor Management
Committees should be listed as one of the allowable sole source
criteria. The expenses incurred in the formation of these committees
promoted by the State's Dislocated Worker Units would be a rapid
response expense (section 314(b)(1)(B)), subject to the financial
management and procurement procedures of the States. In most cases, it
is expected that the costs of setting up a Labor Management Committee
would not be great and that small purchase procedures may apply.
Therefore, the regulations are not changed. If a committee were to
apply to be a service provider, procurement rules would apply. If a
committee, as a service provider, were to use JTPA monies to procure
services for participants, procurement rules also apply.
Section 627.420(d) is reorganized by redesignating the subordinate
paragraphs and including a new paragraph (d)(2), which authorizes units
of State or local government or SDA and SSG administrative entities to
pass through monies to like organizations, e.g., a public housing
authority, and not have the procurement requirements apply. When monies
are passed through, the receiving organization must either pass the
monies through to a similar organization, or procure services in
accordance with the procurement rules. The passing through of funds is
a method of transferring monies to the actual entity doing the
procuring which is practiced at the Federal, State, and local levels.
The new language reflects this acceptable practice. The Department
cautions that organizations which may receive pass throughs may also
receive funds as service providers, in which case procurement rules
will apply to awards to these entities.
A number of commenters submitted comments on Sec. 627.420(e).
Section 164(a)(3)(C) of the Act established the requirement that
"procurements shall include an appropriate analysis of the
reasonableness of costs and prices." Several of the commenters
disagreed with the use of the phrase "cost or price analysis" (as
compared to "cost and price analysis"). The Department interprets the
requirement of "an appropriate analysis" to mean that recipients and
subrecipients are required to do whatever analysis (price or both cost/
price) is appropriate to their situation. This is supported by OMB
Circular A-102, which requires a price analysis alone under very
limited circumstances, and requires a price analysis whenever a cost
analysis is undertaken. Additionally, the commercial reality is that in
many cases you either cannot do both a cost and price analysis (when
there are no market prices or historical contract prices available) or
it would be superfluous to do both (when what is being bought is
available at catalogue prices).
Concern was also expressed over the requirement that recipients and
subrecipients perform a cost or price analysis in connection with every
procurement, including modifications. Some commenters believed that the
paragraph (e)(1) requirement for a cost or price analysis for all
modifications should be changed to exclude non-monetary modifications.
After consideration of this concern, paragraph (e)(2) is amended to
reflect this exclusion. Care should be taken, though, in determining
which modifications do not have monetary implications. For example, a
modification to reduce the number of participants may, on its face,
appear to be non-monetary. This is not the case. A modification to
reduce the number of participants, without a corresponding reduction in
funding, results in an increase in the cost per participant. Therefore,
this type of modification is one which has monetary impact.
Section 627.420(e)(2) describes cost or price analysis
requirements. This paragraph is revised in order to make it easier to
read, but the requirements are not changed. This paragraph requires
recipients and subrecipients to make independent estimates before
receiving bids or proposals. This requirement, which also comes from
OMB Circular A-102, appears to have caused confusion. A number of
commenters felt that SDA's would not be able to develop such estimates,
due to the fact that they do not know which specific activities will be
offered by a service provider until offers are received in response to
RFP's. In those cases where it is not known what specific services will
be provided, it will be appropriate for recipients and subrecipients to
develop "rough yardsticks," such as cost per placement or cost per
enrollee, for specific types of training. These independent estimates
are used, in part, as a tool to determine whether or not the proposals
are correctly responding to the technical requirements of the RFP. The
estimates are also used to determine the reasonableness of costs/prices
which are offered. An offer which is priced too low may be indicative
of, among other things, an offeror who does not understand the
requirements of the RFP. An offer which is priced too high may contain
more expensive interventions than are required. Only through the
comparison of the costs and prices contained in each offer with the
estimate can these potential problems be identified. It should be
stressed, however, that the independent estimates are not absolute
barriers to accepting higher or lower cost proposals; the estimates are
merely meant for internal guidance. An awarding agency may select for
award a proposal that is more or less costly than the estimates, if it
determines that the costs and price(s) are reasonable and that the
services offered meet program requirements. The level of detail that
recipients and subrecipients need in developing these estimates may be
specified by the Governor in the State standards. Several commenters
indicated that awarding agencies should include the independent
estimates in the RFP. Under no circumstances is this to be done. Since
the purpose of developing the estimates is for internal control,
publicizing them would defeat the purpose for which they are developed
and might also skew the bidding.
One of the Sec. 627.420(e)(2) requirements for cost analysis comes
into play when the offeror is required to submit the elements of the
estimated cost. This is clarified by indicating that this requirement
applies in the case of subrecipient relationships. Subrecipients are
required to allocate costs to the various JTPA cost categories;
therefore, they are to submit the separate elements of their costs.
Section 627.420(e)(3) reiterates the requirement of section
164(a)(3)(D) of the Act that "procurements shall not provide excess
program income * * * or excess profit." The Act lists some of the
factors that shall be taken into consideration in determining whether
program income or profit is excessive. Through the regulations,
additional factors from OMB Circular A-102 have been added. Further,
based on this Circular, the instances when profit or program income is
negotiated are defined.
A few commenters on this section, as well as Sec. 627.440,
Classification of Costs, raised questions concerning fixed unit price,
performance-based contracts (FUPC's), including whether FUPC's could
continue to be used and, if so, whether costs could be allocated to the
JTPA cost categories based on budgeted amounts or whether they must be
charged based on actual costs incurred. Concern also was expressed both
over the requirement that offerors certify their costs and the
prohibition of excess program income or profit, in relation to fixed-
price agreements.
The Department continues to believe that the use of performance
based awards may be of significant benefit in serving JTPA customers.
In addition, the use of a total fixed price or ceiling price in making
awards may also be an effective mechanism. The regulation does not
prohibit reasonable profits in the context of a fixed-price agreement.
Fixed-price agreements are instruments that place more risk on the
awardee than do cost reimbursement agreements. The reason for this is
that the awardee, under a fixed-price agreement must perform the work,
regardless of the costs to the awardee. In the case of an awardee under
a cost reimbursement type of agreement, the awarding agency will
reimburse the awardee for its allowable costs. If the awardee under a
fixed-price agreement is able to do the work at a lower cost, due to
efficiencies in operations, and this increases the level of profit, the
awardee is due that additional profit. If successful awardees who have
increased profit due to efficient performance are required to reduce
their earned profits to the budgeted levels, this would result in a
disincentive for organizations to perform their work more efficiently,
quickly, etc. If the additional profit results from cost data that was
not accurate, complete or current, as certified, then the awarding
agency may be able to recoup that excess from the awardee. Thus, the
requirement that costs be certified provides a needed protection to
awarding agencies. There has been skepticism that fixed price
contracts, as utilized in JTPA, did not contain risks for the awardee
or operate as performance/outcome based agreements. The system can
expect continued high levels of scrutiny by the OIG in the case of
fixed price agreements.
In the case of awards to subrecipients, when: (1) The awarding
agency has done a cost and price analysis; (2) this analysis has been
documented; (3) the conclusions arrived at are reasonable; and (4) the
offeror has certified in writing that to the best of its knowledge and
belief, the cost and pricing data submitted are accurate, complete and
current at the time of agreement on price, the awarding agency may find
it appropriate to use a fixed-price type of agreement. The costs of
such an agreement may be allocated among the benefitting cost
categories based upon the ratios established in the cost analysis.
One commenter did not believe that it was the Department's intent
to require SDA's/SSG's to track profit earned by commercial
organizations. In point of fact, section 165(g)(1) of the Act requires
each State, SDA, and SSG to maintain records with respect to
subrecipients, including commercial organizations, that identify any
program income or profit earned.
Section 627.420(e)(4) is amended to correct a miscitation from
Sec. 627.435(e) to Sec. 627.435(i).
Section 627.420(e)(5) prohibits the use of the cost-plus percentage
of cost method. This prohibition comes from both OMB Circular A-102 and
the FAR. A few commenters indicated that this was an advantageous
procurement method. This Federal-wide prohibition is being maintained
in the final regulations due to the fact that these types of agreements
provide a disincentive to vendors/subrecipients to reduce costs, since
the higher the overall cost of the agreement, the higher the profit. It
is recommended that JTPA entities negotiate specific dollar levels of
profit, or investigate the possible use of other types of agreements,
such as cost-plus award fee. Further, there appears to be some
misunderstanding concerning the allowability of using fixed-price
agreements. Fixed-price agreements are the preferred type of agreement
when using the sealed bid (Invitation for Bids) process. Fixed-price
agreements may be performance-based and may be chargeable to a
benefiting cost category based upon a documented cost analysis, as
discussed above, the services provided, and whether the agreement is
for tuition or for a commercially available training package, as
discussed in connection with Sec. 627.440.
Section 627.420(g) which reiterates the requirement found in
section 164(a)(3)(I) of the Act that procurement transactions between
units of State or local government or entities organized principally as
the administrative entity for SDA's or SSG's, shall be on a cost-
reimbursable basis. The final rule now clarifies that cost-plus types
of agreements are not allowable (e.g., cost-plus fixed-fee). Based on
one comment, language is added concerning the payment of tuition and/or
entrance fees to schools that are part of a governmental entity. The
specific instances under which tuition and entrance fees may be paid,
without breaking them down to their specific cost elements, are listed.
Several commenters addressed Sec. 627.420(h), which establishes the
requirement that recipient and subrecipient procurements clearly
specify deliverables and the basis for payment, and include specified
clauses. A few comments were received questioning the example that was
given in the preamble to the interim final regulations of withholding
final payment to an OJT contractor until the participant has been
retained on the job for a specified period of time after the completion
of training. The commenters wondered if the Department has
predetermined deliverables for OJT. The discussion was intended merely
as an example and does not set a hard and fast rule for OJT contracts,
although the Department sees that such a contract provision might
facilitate retention upon completion of OJT.
In the final regulations, paragraph (h)(2) on required clauses is
revised, to break it into three paragraphs: clauses required for
subrecipient awards; vendor awards; and vendor and subrecipient awards.
In response to concerns expressed, the applicability of clauses such as
copyright and rights in data is narrowed. Several commenters correctly
pointed out that the regulations did not specify what the patent,
copyright and rights and data clauses should be. The final rule is
amended to remove the requirement for patent rights (since it is not
expected that many patentable items will be developed using JTPA funds)
and to include additional information on copyright and rights in data
clauses. In the case of the copyrights clause requirement, the
application of this clause is limited to those awards which involve the
use or development of copyrighted materials. Also, the breach of award
and termination clauses are expanded to cover all awards. In the newly
designated paragraph (h)(4)(i), which relates to breach of agreements,
this clause is now required to be included in all agreements, rather
than be limited to those which exceed the small purchase limit. The
rationale for this change is that a breach in a small purchase
situation can be as damaging to the JTPA program as those in large
dollar awards.
Section 627.420(i) establishes the requirement that recipients and
subrecipients have written protest procedures. A few comments were
submitted on this section. One wondered how paragraph (i)(2), the
referral of violations of law, related to TEGL 6-84 and the incident
reporting system. This section of the regulations is amended to
reference Sec. 627.500(b) of the regulations, which establishes the
referral requirements.
Selection of Service Providers
Section 627.422 establishes the requirements for the selection of
service providers. One commenter felt that the selection of service
providers should be essentially a blind process, in which the specific
sector of the provider is secondary to the provider's demonstrated
ability. This is an accurate statement of the general intent of the
Amendments and of the Department in developing this section of the
regulations. Given the large amount of funds that are budgeted for JTPA
titles II and III, it is important to ensure that procurements are done
in a manner that will not only promote the integrity of the process and
the efficient expenditure of the monies but will also allow
organizations an opportunity to fairly compete to provide these
services. Although it may be administratively easier to sole source the
bulk of the JTPA monies, this not only is unfair to the other potential
service providers in a specific geographic area, but it also could
result in a diminution of the number of organizations that are able to
provide services to the JTPA system as well as in an increase of costs
due to the lack of competition.
One commenter correctly pointed out that the first sentence of
Sec. 627.422(b) was missing a reference to recipients and
subrecipients. The final rule is amended accordingly. A small number of
commenters wondered why the regulations call for the Governor to
establish guidelines on the selection of service providers, when the
Act calls for the Secretary to establish guidelines. The Secretary has
established minimum guidelines through these regulations. The Governor
is given the authority to expand on these guidelines.
Section 627.422(c) establishes the requirement that when a State,
SDA, SSG, or administrative entity determines that it will provide
services, it must first make a determination, in writing, under the
standards of Sec. 627.422(d), of the demonstrated performance of its
staff. A number of commenters expressed concern that this section went
beyond the intent of the Congress.
A number of commenters argued that the "self-determination"
requirement is inappropriate because it infringes on the rights of
PIC's or SDA's to make their own decisions on the mix of services
according to local considerations. The self-determination requirement
implements the requirements of sections 107 (a) and (e) and
164(a)(3)(A) of the Act for competitive selection of service providers.
These requirements do reduce local discretion to the extent that they
prevent any SDA/SSG from selecting its service providers without
adherence to the rules of a competitive selection process. An SDA/SSG
may not select an "independent" service provider without adhering to
the competitive procurement rules which is as much an intrusion on its
discretion as is the requirement that it justify its selection of an
in-house service provider.
The purpose of the Act's new emphasis on competition in the
procurement process is to ensure that the JTPA program provides the
best available services at the most advantageous price. This rationale
is equally applicable no matter what the identity of the service
provider. Obtaining services through a competitive selection process
enables decisionmakers to periodically review the quality of, necessity
for, and cost of the services that are being used. It would defeat the
purpose of the competitive selection process if one kind of service or
one kind of service provider were exempted from this periodic review.
Thus, it is critical to the integrity of the competitive selection
process that the selection of all service providers, including in-house
providers, be subject to periodic review and to regular redetermination
of the quality and cost effectiveness of the services provided as well
as their responsiveness to the needs of the participants. For this
reason, the Department has decided to retain the self-determination
requirement in the final rule.
Other commenters thought that this requirement was not needed since
the sanctions that occur for failure to meet performance standards
provide all the protection needed against arbitrary decisions to
perform services in-house. It is true that these available sanctions
will help lead to a better program, but the earliest that they will
lead to the increased full and open competition required by the
Amendments is after two or three years when performance standards are
not met and the sanctions are imposed. Since it is the Department's
intent to increase competition immediately, it is appropriate to impose
the self-determination requirement.
The comments revealed some confusion over the types of services
that would be covered by the requirement of paragraph (c). Several
commenters indicated that intake and assessment should not be included
as services that should be competitively procured. Covered services, in
the final regulations, are defined to exclude intake and eligibility
determination, which are services that are the basic responsibility of
SDA's/SSG's.
Another concern expressed was that a vote by a PIC to provide an
activity in-house will require the PIC to vote on a matter that will
directly benefit the JTPA agency. Since the enactment of JTPA and the
formation of PIC's, PIC's have had to make decisions and vote on the
provision of services internally. This may well be an apparent conflict
of interest, but the conflict is inherent in the role of the PIC, and
it is a conflict whether or not the SDA is required to justify the
decision.
Further, if the requirement for self-determination had not been
established in the regulations, States, SDA's, SSG's, and
administrative entities for SDA's and SSG's would be required to
compete all of the services. It is not the Department's intent to
require recipients and subrecipients to go through a full fledged
competitive process or to impose onerous procedural requirements, but
merely to assure that they periodically consider whether the methods by
which the services are provided meet the Act's standards for cost and
quality. For States, SDA's and SSG's that have already been running
programs in-house, the determination to keep services in-house will be
relatively easy. The determination will be more involved for SDA's and
SSG's that propose to conduct services and activities which have
traditionally been contracted out and should have a rationale for so
doing.
Some commenters provided reasons why they provided services in-
house. These reasons included avoiding brokerage fees for OJT
development and providing backup capacity if contractors fail. Both
these reasons for performing these services in-house are legitimate
ones, which should suffice as part of the justification required by
this requirement.
Some commenters wondered where the self-determination of
demonstrated performance should be documented. Since it is not expected
that the documentation be voluminous, the Department believes that it
would be appropriate for recipient and subrecipient administrators to
address the criteria listed in paragraph (d) in writing, in the JTP,
GCSSP or EDWAA plan. In the case of the requirement of paragraph (d)(2)
that the service provider possess, "[t]he ability to meet the program
design specifications at a reasonable cost," recipients and
subrecipients need not undertake extensive cost comparisons.
Section 627.422(d) implements the requirement in section 107(a) of
the Act that the Secretary develop guidelines on determining
demonstrated performance. Concern was also expressed that use of CBO's
might be restricted by the requirement in paragraph (d)(1) that service
providers have adequate financial resources or the ability to obtain
them. Comments indicated that many CBO's only support is JTPA programs
and their financial stability rests with their ability to win JTPA
contracts. Where the reimbursement method is used, the entity must
either have the financial resources to cover expenses until reimbursed,
or must be able to obtain the financial resources through loans, etc.
In the case of CBO's, many will be placed on an advance method of
payment. As a result, the financial resources test is considerably less
stringent. Awarding agencies should, however, check the financial
stability of all organizations in order to determine that they possess
the financial wherewithal to adequately undertake a JTPA program and
whether they are on the verge of bankruptcy.
Section 627.422 (e) and (f) reiterate the language of section 107
(a) and (c) of the Act concerning CBO's and educational institutions.
These provisions must be interpreted in conjunction with the goal of
the regulations to establish an "even playing field." CBO's and
educational institutions are to be provided copies of any RFP's, etc.
Any proposals that are received from CBO's and educational institutions
are to be reviewed and rated in the same manner as proposals from any
other organizations. It must be noted that the 90/10 arrangements
authorized for use with CBO's or non-profits are not to be taken into
consideration in the rating criteria. Based on the special mention in
the Act of CBO's, it would be appropriate in instances where competing
proposals are rated the same, to use as a tie-breaker the status of the
organization submitting the proposal (i.e., CBO). In the case of
educational institutions that are providing education services, the
language in the Act is more prescriptive. Therefore, in the case of a
tie, the award must go to the educational institution, unless the
organization does not pass the demonstrated performance test. Further,
paragraph (e) is clarified in the final rule so that it is easier to
read.
Some questions were raised concerning instances where Statewide
procurement policies call for awarding extra points to proposals
received from such organizations as minority-business enterprises and
women-owned businesses. If this is a State, SDA or SSG-wide policy,
applicable to not only JTPA funds but other funds, the State, SDA or
SSG may continue applying these policies to JTPA funds. If these
policies apply only to JTPA funds, States, SDA's or SSG's may not
continue applying these policies to JTPA funds. This is discussed in a
new paragraph (l).
Section 627.422(h) is redesignated as Sec. 627.422(k) and
reiterates the Act's requirement that awards include appropriate
amounts necessary for administration and supportive services (section
108(b)(5)). Several commenters felt that SDA's/SSG's should be allowed
to continue making awards that do not include administrative funds. It
is because of this practice that new language was included in the
Amendments. In the past SDA's have indicated that, given the 15 percent
limitation on administrative costs, they do not receive sufficient
administrative funds to operate JTPA programs. It is equally difficult
for other service providers to provide these same services when they
are provided either an even lower level of or no administrative funds.
Some commenters thought that the regulations, as written, will give
service deliverers the right to claim whatever administrative costs
they want. This is not the intent of the regulation. While the
regulation does prevent an SDA from arbitrarily refusing to fund a
service provider's administrative costs or from arbitrarily
underfunding them, it creates no right in the service provider to
demand any particular level or amount of administrative funding. The
level of administrative funding to be covered by the agreement should
be determined through negotiations. If either party is dissatisfied
with the results of the negotiations, they should not sign the
agreement. Such disagreements may be handled under State and local
grievance procedures. Some commenters were concerned that awardees that
fail to perform would argue that insufficient administrative funds were
provided and, thus, were the cause of the failure. Because the
agreement should be mutual, it should be difficult for an awardee to
use this argument to excuse lack of performance. The Department does
wish to note that it is inappropriate for the SDA to pre-determine that
it will not provide administrative costs for awardees except in the
payment of tuition or off-the-shelf prices. Others requested that
guidance be given on how to determine appropriate amounts of
administrative funds. The Department thinks this type of clarification
is more appropriately provided at the State level.
No comments were received on paragraphs 627.422 (i) and (k). These
two paragraphs are redesignated as (h) and (j), respectively.
The redesignated Sec. 627.422(j) (now Sec. 627.422(i)), which
references back to section 204(d)(2)(B) of the Act, deals with the
selection of subrecipients for the provision of services to older
workers. One commenter thought that this section provides the
justification for sole-sourcing older worker programs at the State
level. This is not the Department's intent. These programs are to be
competed just like any other program. Others thought that only the
Governor has the responsibility for selecting service providers. With
the addition of the pass-through provision (at Sec. 627.420(d)(2)),
this does not have to be the case since the Governor can delegate his/
her authority for selection through the pass-through process.
Funding Restrictions for "High-Risk" Recipients and Subrecipients
A number of comments were submitted on Sec. 627.423. Several of the
commenters thought that this section was in conflict with
Sec. 627.422(d), which requires a determination of demonstrated
performance. The intent of this section is not to give preferential
status to high-risk recipients and subrecipients, but to provide JTPA
entities with the authority to impose funding restrictions should it be
necessary to contract with such an entity. There may be instances when
awarding agencies have to make subrecipient awards to high-risk
organizations because they are the only entity providing the required
service. By including this section, awarding entities may do so, but
are authorized to include restrictions on the award in order to protect
the Federal funds.
Other commenters thought that the regulations, as written, would
give high-risk grantees an argument that they have a right to be
considered and selected. This is not the case. This section does not
confer a right of selection to high-risk organizations. Given the
choice of comparable proposals from an offeror who has demonstrated
performance and a high-risk recipient/subrecipient, the award should be
made to the former, unless other factors indicate otherwise. Additional
language is added to Sec. 627.422(d) to clarify these points. Finally,
editorial changes are made to clarify that this section applies to all
awards, not just grants or subgrants.
Prohibition of Subawards to Debarred and Suspended Parties
Section 627.424 applies the Federal government-wide requirements on
awards to debarred or suspended parties contained in Executive Orders
12549 and 12689 and implemented for all Department of Labor grant
programs in regulations codified at 29 CFR part 98. These requirements
were previously issued to JTPA Liaisons in a Grant Officer Notice dated
April 30, 1992. As provided in 29 CFR part 98, certifications are not
required for the State legislatively required "pass-through" of JTPA
funds to SDA's/SSG's since these are considered "mandatory awards"
and are, therefore, exempt from the 29 CFR part 98 requirements.
However, any other subaward over $25,000, such as an SDA award with a
service provider, must meet the "lower-tier" certification. These
"lower-tier" certifications are to remain with the respective
awarding agency.
One commenter requested that language be added to this section that
tells States and subtier grantees that they may elect to subscribe to
the List of Parties Excluded from Procurement or Non-Procurement
Programs. This has not been done, since nothing in these regulations
prohibits JTPA entities from subscribing to this publication, and using
it as a resource.
Financial Management Systems and Generally Accepted Accounting
Principles (GAAP)
Section 627.425(b) of the interim final rule requires financial
systems and procedures of recipients and subrecipients to be in
accordance with GAAP and Sec. 627.435(a) requires costs charged to the
JTPA program to also be in accordance with GAAP.
Several commenters raised questions or issues about GAAP, including
requesting that the Department be more specific about how GAAP must be
applied by States and SDAs, requesting specification of which GAAP to
use, and, if GAAP is to be determined by the Governor, if the Governor
can waive GAAP provisions. A few commenters requested that the
statutory language of section 164(a)(1) of the Act pertaining to GAAP
applicable in each State be included in Sec. 627.425(b).
Language is added to Sec. 627.425(b) to provide for the
applicability of GAAP in each State. The Department recognizes that
GAAP vary by type of organization or entity and that, while there is
great similarity among them, multiple versions of GAAP exist for each
type of entity. It is the Department's intent, by adding this language,
in addition to the language in paragraph (a) of Sec. 627.435, to allow
the Governor to determine which specific versions of GAAP are to be
used in each State and by which types of entities, should this be at
issue in any State. It is not intended to give the Governor authority
to waive GAAP provisions since the Act requires the use of GAAP.
The word "liabilities" is added to the list of financial
information that financial systems must include at
Sec. 627.425(b)(1)(i). The inclusion of this term is to make the listed
items parallel.
A few commenters indicated that revised financial reporting
requirements need to be issued by the Department, consistent with
Sec. 627.455, so that changes to accounting and other financial systems
could be made that also meet the reporting requirements. Revised
financial reporting requirements for JTPA title II programs were issued
by the Department in Training and Employment Information Notice (TEIN)
No. 6-93 dated July 30, 1993 (OMB No. 1205-0323). Revised financial
reporting requirements for title III programs were issued by the
Department in TEIN's Nos. 14-93 and 12-93, dated August 30, 1993, and
September 8, 1993, respectively (OMB Nos. 1205-0326 and 1205-0318).
In regard to participant data systems, a few commenters sought
clarification regarding eligible applicants for whom information must
be maintained under Sec. 627.425(c). As used in the regulation, a
"formal" determination of eligibility refers to a situation in which
sufficient information has been obtained by the program for a staff
person to make a determination of eligibility. The Department expects
that such a determination will be made within a reasonable time after
the information is obtained.
Grant Payments
Section 627.430 establishes standards by which the Department will
make payments to States as well as standards for States, SDA's, SSG's,
and other subrecipients for making payments to lower tier
subrecipients. Included within this section are standards for when
advances to subrecipients are appropriate, when the reimbursement
method is appropriate, and provision is made for using the working
capital advance payment method.
A number of commenters addressed the provisions of this section. A
few commenters raised concerns related to the Cash Management
Improvement Act (CMIA) and primarily suggested that the Department
should delay CMIA requirements since SDA's/SSG's are waiting on the
Department to publish CMIA standards. One commenter pointed out that at
the current time, the Treasury Department regulations at 31 CFR part
205 do not go beyond the State level.
CMIA applies only to States and does not carry through to
subrecipients that are not a part of the State government. The Treasury
Department published final regulations to implement CMIA at 31 CFR Part
205 on September 24, 1992. The Department does not plan to publish any
additional CMIA standards applicable to grant funds.
The Department recognizes that the September 24, 1992, Treasury
Department regulations dropped the requirements that previously existed
pertaining to subrecipients of States as well as non-State recipients.
Therefore, the basic cash management standard of paragraph (b) of this
section is revised to incorporate the standard that is generally
applicable to other Federal grant programs. That standard is also
generally consistent with the standard applicable to the JTPA program
prior to the publication of the interim final rule. In addition, the
requirement to maintain procedures as a part of the standard is deleted
so that the standard is based only on the demonstration of effective
cash management results.
A few commenters raised questions of whether subrecipients other
than CBO's and non-profit entities could receive advances or working
capital advances. A few commenters wanted clarification on the specific
requirements for payments to contractors. It is the intent of this
section to provide for advances to any subrecipient as long as the
subrecipient is in compliance with the basic cash management
requirement that cash on hand shall be limited to actual immediate
disbursement needs for program purposes. A subrecipient that does not
meet that standard may be paid by either of the other two payment
methods outlined in this section. The Department recognizes that, given
the definitions in Sec. 626.5 for subrecipient and contractor and the
procurement requirements of the Act and these regulations, there is no
need to establish separate payment requirements applicable to
contractors. Therefore, paragraph (b)(2) of the interim final rule is
removed from the final rule and corresponding language adjustments are
made throughout the remainder of this section.
A few commenters requested clarification of the requirement, in
paragraph (f) of this section, which requires disbursement of cash
received as a result of program income, rebates, refunds, contract
settlements, audit recoveries, and interest earned on such funds before
requesting additional cash payments in light of the time frame for the
use of program income at Sec. 627.450, Program income. The requirement
in Sec. 627.430(f) is a cash management requirement to ensure that cash
attributable to JTPA does not remain in a bank account while at the
same time the entity is drawing additional cash from the Treasury
Department to meet immediate JTPA disbursement needs. Any cash
attributable to JTPA should be immediately disbursed for whatever JTPA
disbursement need exists. That need does not have to be the same as the
entity's planned use of program income earnings nor does it relieve the
entity of its liability to provide, within the funding period, an
amount of program services equivalent to the amount of program income
earned. At the time cash is needed for disbursement for the purposes
for which the program income was planned to be used, it can be accessed
through normal JTPA grant payment processes. Language is added to
paragraph (f) of Sec. 627.430 to more clearly apply this requirement to
cash proceeds.
Cost Principles and Selected Items of Cost
Section 627.435 provides generic cost principles applicable to the
JTPA program in paragraphs (a) through (d) and provides specific
treatment for selected items of cost in paragraphs (e) through (h). A
few commenters stated that the Department should adopt the Circulars
for cost principles, thereby replacing this section.
Section 164(a)(2) of the Act requires the Secretary to prescribe
regulations establishing uniform cost principles substantially
equivalent to those generally applicable to recipients of Federal grant
funds. The generic cost principles in this section are intended to be
substantially the same as the provisions of Attachment A of the OMB
Circulars that contain cost principles and should generally be
interpreted the same as the Circulars. The Department has chosen not to
simply adopt the Circulars because they contain some restrictive
requirements in areas where the Department thinks that recipients and
subrecipients should retain operational flexibility.
A number of commenters recommended that the prohibition on the
shifting of funds in Sec. 627.435(c) should be changed to clarify that
it does not cover accounting errors. The Department agrees with this
comment and language is added to limit this prohibition to costs
"allocable" to another Federal grant, program, or category.
Adjustments should be made for costs inappropriately charged because of
accounting errors or misclassification so that the costs ultimately
charged to a cost objective are those properly allocable to that
objective.
A few commenters requested revision of the prohibition on
contributions to contingency reserves at Sec. 627.435(e)(6),
particularly that they should be allowable if such contributions are
not made with Federal funds. The language on contingency reserves is
not changed since only those costs charged to the JTPA program are
regulated by this section and it does not extend to non-JTPA funds.
Amended Sec. 627.435(f) provides additional guidance on legal
costs. A number of commenters recommended changes in this area, with
most commenters opposed to the specific prohibition on the allowability
of costs for appeals to an Administrative Law Judge. Several commenters
suggested that the Department should review the Conference Report
language on this issue. A few commenters requested more specificity on
legal expenses, particularly settlement costs.
In response to the comments received on the specific prohibition on
the allowability of legal costs for appeals to an Administrative Law
Judge, the Department has reviewed the Conference Report (H.R. Conf.
Rep. No. 102-811, 102d Cong., 2d Sess., p. 137 (1992)) and engaged in
further dialogue on this subject. The discussion in section 221 of the
Conference Report pertained to title IV special programs for Migrants
and Seasonal Farmworkers and the Department does not view that language
as carrying through to the other titles of JTPA. The Department is also
aware that some Federal agencies are permitting the costs of appeals to
an ALJ as an allowable grant cost. The Department notes that, unlike
the process of the Department of Health and Human Services that is
referred to in the Conference Report, there are several opportunities
for informal resolution of disputes prior to the issuance of the
Department of Labor grant officer's final determination. In addition,
if the grant officer's decision is found, upon appeal, to be
substantially in error, there may be an opportunity for a grantee to
recover its legal costs under the provisions of the Equal Access to
Justice Act. Congress, in passing the Equal Access to Justice Act, has
set forth the conditions under which it is appropriate for parties in
contested administrative proceedings to recover their costs from the
federal government. The rule that is adopted in these regulations
maintains those conditions. Finally, it is the Department's position
that, absent any specific statutory direction, Federal taxpayers should
not bear the costs of both sides of a matter appealed to an ALJ. To do
so may increase the incidence of such costs and provides no incentive
for assuring that only matters of substantive merit are appealed.
With regard to the language on settlement costs, paragraph (f)(1)
of this section is changed to clarify that settlement costs are
allowable to the extent that the costs included in the settlement would
have been allowable if charged to the JTPA program at the time they
were incurred, e.g., if the settlement costs are for back pay then the
provisions of Sec. 627.435(e)(2) would control the allowability of the
settlement costs.
Section 627.435(h) of the interim final rule basically continued
the language on construction costs that has existed since the inception
of JTPA. However, a few commenters recommended changes to this
paragraph including that construction costs for alterations,
maintenance, and repairs should be allowable and that there is now a
conflict with amended Sec. 627.210(a)(3) concerning physical
accessibility, as required by section 504 of the Rehabilitation Act of
1973, as amended, and the Americans with Disabilities Act of 1990.
The Department agrees with these comments and the language on
construction costs is eliminated. The effect of this change is to allow
construction costs to the extent that such costs are necessary and
allocable to JTPA. Paragraph (h) of the final rule now contains
language on contributions to a reserve for self-insurance, as discussed
above in the discussion of Sec. 627.415(c), Insurance.
Governor's Guidelines on Allowable Costs
Section 627.435(i) requires the Governor to prescribe and implement
guidelines on allowable costs not otherwise treated in Sec. 627.435 and
contains a listing of selected items of costs in paragraph (i) for
which the Governor's allowable cost guidelines must, at a minimum,
prescribe treatment.
Many commenters responded to the provisions of this subsection.
ost of them saw it as a requirement for Governors to set actual
amounts for salaries and other commonly incurred JTPA costs and opposed
this subsection. One commenter recommended that the Department should
clarify the intent of this provision and a few commenters asked whether
the requirements of the regulation would be met if the OMB Circulars on
cost principles were adopted.
This provision is not basically different from the requirement, in
existence since the beginning of JTPA in 1983, that "[t]he Governor
shall issue guidelines on allowable costs for * * *." Such guidelines
should set parameters and guidance, rather than actual amounts. The
Department's intent is simply to ensure that the Governor's guidelines
cover at least the items included in the list, since issues have been
raised on each of these items during the past 10 years of JTPA.
Recognizing that SDA's retain some flexibility, within the Governor's
guidelines, to establish amounts for allowable costs such as personnel
compensation and travel, the final rule is changed by replacing the
words "and amounts" with "or the extent of allowability." In
addition, since other sections of the final rule now provide guidelines
on item No. 11, the extent of allowability for supportive services
costs and payments to participants, that item is removed from the list
in this section of the final rule.
For most States, the existing allowable cost guidelines of the
Governor already meet the requirements of this paragraph and few, if
any, changes are necessary. All States should review their current
allowable cost guidelines and ensure that each of the 16 listed cost
items are treated consistently, as well as any other cost items for
which the Governor thinks consistent treatment is necessary. A
commenter raised the question about whether the regulatory requirement
would be met if the OMB Circulars on Cost Principles were adopted. The
Department agrees that all 16 cost items would be covered if the
Circulars were adopted. The Department cautions, however, that: (1) It
does not intend to approve or disapprove any prior approval requests,
as required by the Circulars, and (2) the OMB Circulars contain
restrictive requirements in areas in which States, SDA's, and SSG's may
desire greater flexibility, e.g., staff compensation, fees/profits,
fund-raising.
Administrative Cost Pools
Section 627.440(a) is amended in the final rule to add language on
cost pools. Section 627.440(f) of the interim final rule required that
costs charged initially to a JTPA administrative cost pool (ACP) be
allocated, for JTPA Federal reporting purposes, to the benefitting
programs based on the benefits received by each program. The Department
recognized that this language represented a departure from previously
established policy on the manner in which pooled administrative costs
could be reported. Commenters were requested to identify the impact, if
any, of the revised requirement to allocate pooled administrative costs
solely on the basis of "benefits received".
Many commenters responded to the provisions of this paragraph. Most
of the responses fell into one of three groups. One group viewed the
ACP language as effectively prohibiting ACP's by requiring detailed
time distribution or some type of cost allocation process for each item
of joint administrative cost. These commenters thought the new
requirements involved too much recordkeeping, were an unreasonable
burden, inefficient, illogical, and went beyond the requirements of OMB
Circular A-87.
A second group expressed concerns about the effect of the ACP
requirement on the administrative cost limitations for each program and
that they would lose their ability to ensure cost limits are not
exceeded. They were also concerned programs would be overexpended. A
few commenters stated that there are not enough administrative funds
available for EDWAA at the State level to absorb its share of costs.
The third group of commenters made suggestions that included going
back to the old regulatory language, which allowed "true cost pools",
specifying that using direct expenditures was an acceptable
methodology, and requiring application of A-87 principles. One
commenter suggested eliminating any mention of ACP's in the regulations
and, instead, requiring JTPA entities to follow GAAP and section 108(a)
of the Act. In addition, a few commenters requested guidance on the use
of intake cost pools. Several commenters raised questions about the
proper charging of title II-B administrative costs at the State level.
Several commenters also raised questions about the "benefits
received" language of paragraph (a) in Sec. 627.440, which requires
all JTPA costs to be charged to the benefitting programs and cost
categories based on benefits received. That language has been a part of
the JTPA regulations since the inception of the program. A few
commenters recommended that this paragraph should specifically allow
cost pools.
The ACP language contained in Sec. 627.440(f) of the interim final
rule was not intended to eliminate the use of "true cost pools" in
accounting for the costs of JTPA programs. It was also not intended to
go beyond the requirements of section 108(a) of the Act, GAAP,
paragraph (a) of this section or similar provisions in OMB Circular A-
87. The final rule removes the specific ACP provisions in paragraph (f)
and adds a new sentence on cost pools within paragraph (a). The new
sentence is intended to be consistent with the A-87 meaning and
treatment of cost pools.
JTPA entities may continue to use ACP's. They may also continue to
use indirect cost pools, training cost pools, intake cost pools, pools
for supplies expense, and any other pool they find beneficial to have
in their accounting system, including intermediate cost pools for the
recording and temporary accumulation of joint or similar types of
costs, pending distribution (allocation) at a later date to the
benefitting cost objectives, e.g., programs and/or JTPA cost
categories.
Having, or using, a JTPA ACP has never been an issue and is not one
now. The issue is how to distribute or allocate those accumulated costs
back to the benefitting programs and whether allocation methodologies
other than "benefits received" by each of the benefitting programs
can be used. The "old" JTPA regulations did not address this issue.
Since the 1992 Amendments directly incorporate the requirement to
follow GAAP, and GAAP requires costs to be charged based on "benefits
received," the basic issue is whether the Department can waive a
specific statutory requirement, especially when it affects up to 20
percent of the funds.
It is the Department's experience that allocation based on
"benefits received" has not added much workload burden and
alternative methodologies have been developed by most JTPA entities.
For many JTPA entities, allocating administrative costs based on each
program's share of total direct costs, salaries and fringe benefits, or
total program costs compared to the total direct costs, total salaries
and fringe benefits, or total costs of all programs administered by an
entity are acceptable methodologies. The Department cautions, however,
that some of these methodologies may not be acceptable for particular
JTPA entities. Each organization is different and costs, particularly
direct costs, are charged differently. It will require a self-
examination by each entity to determine the best approach. Assistance
can also be obtained from the State's or SDA's auditor. The use of
financial-based methodologies is encouraged; however, the Department
will accept any treatment of pooled costs and allocation methodologies
that are consistent with GAAP applicable in each State. The Department
cautions that a methodology that is based solely on contribution to the
pool may be questioned in audits.
Finally, in response to the questions about the proper charging of
title II-B administrative costs at the State level, Sec. 627.440(b)
establishes the JTPA cost objectives for State-administered programs
and the State's overall administration of title II activities. To
clarify this issue, however, Sec. 627.440(b)(10) is revised in the
final rule to specifically include State administrative costs
associated with title II-B.
Classification of Costs
Section 627.440 establishes the minimum levels of accountability
for JTPA funds, provides the Secretary's definitions of the cost
categories, and provides specific treatment for the classification of
certain types of costs that have frequently been at issue in the JTPA
system.
At Sec. 627.440(c)(2), the regulations provide that incentive
funds, both title II-A and II-C, received by an SDA may be combined and
used without regard to cost categories or cost limitations. A number of
commenters on this provision were pleased with the treatment accorded
incentive funds, however, several commenters appeared to have missed or
misread this provision. No change is made to the final rule.
Within the definitions of the JTPA cost categories, at
Sec. 627.440(d), a number of comments expressed concern about the
treatment of tuition, work experience wages, insurance, and the
difference between public information costs and the costs of outreach.
Another frequent comment concerned the treatment of project directors
and other positions that perform both administrative and program
functions. Commenters on this subject fell into two groups. One group,
which appeared to have missed the provisions of paragraph (e)(1),
argued that the costs of such positions should not all be charged to
administration. Some requested that such positions be charged entirely
to training. The other group, focusing on paragraph (e)(1), commented
on the burden and mechanics of time distribution.
The Department agrees that the language in the preamble of the
interim final rule concerning tuition was somewhat inconsistent and
more restrictive than this section of the regulations. The Department's
intent is to permit costs frequently associated with tuition costs,
such as entrance fees, to also be charged to the direct training
category. The Department believes that the regulation adequately
expresses this intent. In addition, tuition, entrance fees, and other
usual and customary fees of other educational institutions, such as
postsecondary vocational institutions specified at section 481(c) of
the Higher Education Act, are another example of payments to vendors
that are appropriately charged to the direct training category. The
final rule removes the reference to section 141(d)(3)(B) of the Act to
clarify that such payments to any educational institution in a vendor
relationship that also satisfies the other criteria of paragraph
(d)(1)(vi)(B), are direct training costs.
Where tuition is part of a subrecipient agreement, rather than a
vendor relationship, and the agreement also includes other components,
the costs of tuition are chargeable to the direct training category.
A new paragraph (d)(1)(vii) is added to the final rule specifying
that payments to participants that represent hours spent in a direct
training activity (such as work experience) are direct training costs.
In addition, the word "insurance" is removed from the definition of
administration since this is a type of cost that should be charged or
allocated to each of the benefitting categories.
Some commenters raised the question of how the costs of curriculum
development or training materials should be charged. The Department
believes that these costs are properly charged to the direct training
cost category.
A few comments were received on public relations costs versus the
costs of outreach. These comments tended to view public relations as an
outreach cost and recommended that it be charged to the training
related and supportive services category. The Department agrees that
public relations can be an effective tool that enhances outreach
activity, but also believes that the costs of general public relations
is more appropriately a part of the overall costs of administration. No
change is made in the final rule.
The Department also agrees with commenters that time distribution
should be reasonable and not burdensome and that alternative
distribution bases should be allowable. Language is added to paragraphs
(d)(1)(i), (d)(3)(i), and (e)(1) to provide that other equitable cost
allocation methods may be used. Other equitable cost allocation methods
may be either financial based or non-financial based methods.
Limitations on Certain Costs
Section 627.445(d) of the interim final rule clarified the
provision made in section 141(d)(3)(C) of the Act for excluding
administrative costs incurred by CBO's or non-profit organizations from
the SDA's administrative cost limitation under certain criteria and
conditions specified in the Amendments. A number of commenters
responded to that provision and regulatory clarification. Most of these
commenters incorrectly perceived the 10-percent limitation as an
absolute ceiling on administrative costs for CBO's and other non-profit
service providers and requested relief from that ceiling. Other
commenters raised questions of whether the 90/10 provisions were based
on budget or actual expenditures and the effect on the 90/10 provision
if more than 10 percent is expended by the CBO or other non-profit
service provider for administrative costs.
The Department emphasizes that the provisions of section
141(d)(3)(C) of the Act and paragraph (d) of the regulations do not
constitute a mandatory ceiling on administrative costs for CBO's and
other non-profit service providers. The relief provisions apply to the
SDA's administrative cost limitation and are only applicable for those
situations in which the SDA and the CBO or other non-profit service
provider agree to the 90/10 arrangement. Where such agreement is
reached, the SDA may avail itself of the relief to total administrative
costs only if the actual expenditures of the CBO or other non-profit
service provider conforms to the 90/10 provisions. Costs charged to the
JTPA program for the costs of a CBO or other non-profit service
provider that are for less than 90 percent for direct training and
training-related and supportive services costs or for more than 10
percent for administrative costs negate the applicability of this
provision.
No changes other than grammar and deletion of the word "private"
are made to this section.
Program Income
Section 627.450 contains a definition of what is and what is not
program income for JTPA purposes, including the incorporation of the
new provisions of section 141(m) of the Act, and establishes timeframes
and requirements for the treatment and use of program income. The JTPA
cost categories and the administrative cost limitations are also made
applicable to program income.
A number of commenters responded to the provisions of this section.
The comments contained a number of suggestions, including: That the
Department should adopt the OMB Circular A-102 definition of program
income; that program income should not be subject to the cost
categories or administrative cost limitation; and that the regulations
should eliminate the presumption that a contractor is entitled to the
earned revenues by law, especially a contractor with whom the State or
SDA is no longer contracting. Other commenters raised the question of
whether earned program income must be used for the same program or
subtitle that earned it and still others requested clarification of the
time frame for use of program income.
It is the Department's intent to adopt the basic A-102 definition
of program income and to add to that definition the specific provisions
of section 141(m) of the Act. In addition, the Department recognizes
that the potential to earn significant amounts of program income exists
within the Act and these regulations. To avoid the possibility of
creating windfalls of administrative funds available to entities that
choose to use the new provisions in such a manner, the Department is
imposing the administrative cost limitation on program income.
Section 141(m) of the Act specifies that program income may be
retained by the entity that earned it and used for program purposes.
The Department believes that the regulations, as written, are
consistent with the statutory provision and that there is no authority
to empower any other entity to use the funds, as long as the entity
that earned the program income uses the funds for program purposes.
In response to the questions about whether program income must be
used for the same program or subtitle that earned it, or if it may be
used for any JTPA program or title, the Department agrees that
clarification is needed. While the interim final regulations limited
the use of program income to the particular JTPA grant or subgrant
under which it was earned, it is recognized that particular grants or
subgrants may provide funds for multiple programs or subtitles.
Therefore, paragraph (c) of this section of the final rule is amended
to also limit its use to the JTPA title under which it was earned. In
addition, language is added to paragraph (c)(3) to clarify that the
time period for the use of program income is the funding period,
usually up to three years.
It was brought to the Department's attention that section 141(m) of
the Act does not exempt interest earnings by States from the provisions
applicable to income under the Act and, therefore, the regulations
could not either. The Department agrees, however, the State is required
by the CMIA, codified at 31 U.S.C. 6503(c), to pay interest on advanced
funds from the time that the funds are deposited by the United States
to the State's account until the time that the funds are paid out by
the State for program purposes.
The Department believes that it is equitable that the State be able
to use the interest it may earn on these funds towards satisfying the
interest debt created by the CMIA and does not desire to cause States
to both meet any interest liability under the CMIA and provide
additional JTPA program services with the same interest earnings.
Therefore, paragraph (a)(v) is revised in the final rule to eliminate
the exception for interest earnings by States and paragraph (c), Use of
program income, is revised to permit the State's use of such income to
meet its CMIA liability. In addition, the application of the
administrative cost limitations in paragraph (c) is also revised to
exempt program income used by States to meet its CMIA liability from
the administrative cost limitation.
Reports Required
Section 627.455 requires financial reporting to be on a quarterly
basis and costs to be reported on an accrual basis by year of
appropriation. A few commenters asked whether participants must also be
reported by year of appropriation and several commenters asked whether
costs may be charged to the oldest available appropriation, i.e.,
first-in, first-out (FIFO) basis.
As specified in Sec. 627.455(a), reporting instructions are to be
issued by the Secretary. The statutory requirement to report by year of
appropriation is limited to financial data. With regard to FIFOing of
costs, the Department has no objections to an entity FIFOing costs it
incurs itself as long as obligational authority exists for multiple
years and the costs are for the same purposes and under the same terms
and conditions that accompanied each year's obligational authority.
This approach limits FIFOing to each individual JTPA entity and does
not include one entity FIFOing costs incurred by another entity, even
if the other entity is a subrecipient of the original one. Restated,
once a JTPA cost is recorded by any subrecipient, it must be recorded
against a given year of funds and remains a cost charged to that year
of funds. It may not be recorded or reported by another entity against
a different year of funds. No changes are made to the final rule.
Requirements for Records
Section 627.460(a) imposes the record retention requirements of
section 165(e) of the Act on State records and provides the State two
options for subrecipient records. A few commenters encouraged the
Department to drop the option for subrecipient records and require all
subrecipients to comply with the record retention provisions imposed on
subrecipients by the Act.
Since the Act is unclear about its effect on subrecipient records,
it is the Department's intent, by providing an option for retention of
subrecipient records, to allow each State to determine if subrecipients
of the State should each have its own clock for the starting point for
record retention, rather than having all records of all subrecipients
throughout a State controlled by the one State clock. This option
avoids requiring all subrecipients in a State to maintain records
beyond the prescribed period just because a claim, audit, or litigation
has started that affects only one or a few subrecipients. It also
enables JTPA subrecipients to maintain and dispose of JTPA records in
the same timeframes that apply to other records of the subrecipient
that are covered by applicable OMB Circulars. It is expected that
either approach will result in most JTPA records, other than property
records, being maintained for the same total 5-year period of time.
Subrecipients that are opposed to this approach should encourage their
State to not adopt the option provided.
Paragraph (a)(2) of this section is changed in the final rule to
add the statutory requirement for property records to be retained for
three years after final disposition.
Section 627.460(d) of the interim final regulations authorizes the
substitution of copies made by microfilming for original records. A few
commenters raised questions about the allowability of retaining records
in forms other than microfilming, such as computer imaging or scanning,
and other types of computer generated data and electronic files. In
response to these comments, the Department has revised this provision.
Instead of authorizing a particular medium for record retention, the
revised provision sets a standard that the method of retention must be
sufficient to assure that the record is useable as evidence in an audit
or any other JTPA proceeding. As before, the substitution of
microfilmed or photocopied records can continue to be used since these
media are generally accepted as admissible for evidentiary purposes.
The Department takes no position on the use of records stored on
electronic media and the revised regulation neither authorizes nor
specifically forbids their use. If electronic storage media were to be
considered for use, the user would have to be certain that there are
sufficient security safeguards and protections against tampering so
that a court would accept the record as evidence in a proceeding. As in
any case where a record is maintained, the burden of producing and
authenticating it is on the custodian of the record and the failure to
authenticate the record will lead to the custodian's being unable to
use the record for any evidentiary purpose. Thus, if an SDA maintains
its participant eligibility records on computer files and is unable to
show that the records were secure or were tamperproof, the records
could not be used to prove that participants were eligible for JTPA
services.
Public Access to Records
Section 165(a)(4) of the Act requires recipients to make available
to the public upon request certain records which are maintained by the
recipients pursuant to section 165(a)(1) of the Act. Section 637.463 of
the interim final rule was intended to merely reflect the statutory
requirement.
A number of comments were received expressing concerns that such
disclosure would result in the invasion of personal privacy and would
breach basic notions of customer confidentiality. In this same regard,
some comments contended that this requirement conflicts with State
privacy laws and that the statement in the regulation with this
requirement applied "notwithstanding the provisions of state or local
law" goes beyond the plain meaning of section 165(a)(4) of the Act.
Another comment asked for a definition of the word "clearly" in the
term "clearly unwarranted invasion of privacy". One comment
questioned the provision in the regulation "excepting" recipient and
subrecipient records from the Freedom of Information Act (5 U.S.C.
552). Several comments requested that the regulations place reasonable
time and place restrictions on the right of access.
Section 627.463 is revised to follow more closely the statutory
language. There is no intent to modify or expand on the plain meaning
of the statute.
It is clear that reasonable conditions can be placed on the
mechanics of providing access, including time and place restrictions.
It is preferable that such management details be developed at the State
and local levels and not in these regulations.
The statute and the regulations permit customer confidentiality by
excluding from mandatory disclosure information which would constitute
a clearly unwarranted invasion of personal privacy. A Federal
definition of that phrase is unnecessary since it is a term best
defined in local situations by State or local law. A State or local
privacy law or requirement which prohibits or restricts the disclosure
of information which constitutes an unwarranted invasion of personal
privacy would not be in conflict with the JTPA public access
requirement. On the other hand, the Act's requirement of public access
is a statutory condition to the receipt of grant funds and a
conflicting State requirement does not excuse a failure to comply. In
other words, if a State or local law applicable to all records exempts
certain specific kinds of identifying information (e.g., name, address,
social security number or other personal identifying information), it
could be applied to restrict the disclosure of some of the information
in a JTPA applicant's or participant's file. On the other hand, a State
or local law which prohibited disclosure of all employment and training
records would sweep so broadly that it would conflict with the Act's
disclosure requirement. In order to emphasize that requirement, the
informational provision in the regulation that the public access
requirement applies "notwithstanding the provision of the State or
local law" is retained in the final regulation.
The "informational" statement regarding the Freedom of
Information Act produced some confusion and is removed from the final
regulation. The only reason this statement was put into the interim
final regulation was that the coverage, or non-coverage, of the Federal
Freedom of Information Act has been a recurring subject of inquiry. The
Freedom of Information Act applies to the disclosure of records in the
custody of Federal agencies. In like manner, the Privacy Act (5 U.S.C.
552a) applies to records described in section 165 of the Act. Section
627.460 records are not Federal records until submitted to the
Secretary. Until then, they are not covered by federal "freedom of
information" or "privacy" requirements.
Property Management Standards
Section 627.465 reflects the requirements of section 141(r) of the
Act, which provides that the Federal requirements generally applicable
to Federal grants to States and local governments are the requirements
governing the title, use, and disposition of real property, equipment,
and supplies purchased with JTPA funds.
The Federal requirements generally applicable to Federal grants to
States and local governments are codified for Department of Labor grant
programs at 29 CFR part 97. Therefore, the provisions of those
regulations applicable to property requirements are incorporated into
this section for governmental recipients and subrecipients.
The Federal requirements generally applicable to Federal grants to
States and local governments provide that subrecipients that are
institutions of higher education, hospitals, and other nonprofit
organizations will follow the Federal agency regulations that implement
OMB Circular A-110, as codified in DOL regulations at 29 CFR part 95
(59 FR 38270 (July 27, 1994), therefore, those requirements are also
incorporated into this section for those types of entities. It is
expected that this approach will provide administrative relief for such
subrecipients since it will prevent an organization administering other
Federal grants or subgrants from having to follow two different sets of
requirements. In addition, the Federal requirements applicable to
intangible personal property have been incorporated into this section.
There are no Federal requirements generally applicable to
commercial subrecipients; therefore, Sec. 627.465(c) provides specific
JTPA requirements for these organizations.
A small number of commenters raised the question of whether prior
approval by the Department of Labor is necessary for property
acquisitions. Language is added to paragraphs (a) and (b) of this
section to waive any Department of Labor prior approvals relative to
property acquisitions.
Section 627.465 specifically provides that the new rules apply only
to property acquired after July 1, 1993. Several commenters inquired
about the rules applicable to property acquired prior to July 1, 1993.
It was the Department's intent in the interim final rule that such
property would continue to be governed by the rules in effect at the
time the property was acquired. To ensure that this intent is explicit,
the previous JTPA regulations on property are added as a new paragraph
(e) in the final rule. The only change is the citation for records
retention requirements.
The JTPA regulations in effect prior to July 1, 1993, provided that
the Governor was to maintain accountability for property in accordance
with State procedures, but applied three specific Federal requirements:
(1) A reservation of the Secretary's rights to such property; (2)
record retention requirements; and (3) either reimbursement to the JTPA
program of the fair-market value for any unneeded JTPA acquired
property retained for use in a non-JTPA program or the use of proceeds
from the sale of such property used for JTPA purposes.
It is recognized that the Department has no rights in property
acquired with title II or III funds awarded to States from the
inception of JTPA in 1983 through July 1, 1993, but that the Department
does have rights in property transferred to JTPA from CETA. Therefore,
as long as the proceeds from the sale of JTPA acquired property or the
fair-market value of such property transferred to other uses are
expended for JTPA purposes and records maintained accordingly, the
Department views any further requirements governing such property to be
the responsibility of the Governor. For CETA-acquired property
transferred to JTPA, the Department's rights in such property are
specified in the current Department regulations implementing the
applicable OMB Circulars. Recipients and subrecipients are expected to
follow those regulations in disposing of CETA-acquired property.
Performance Standards
In addition to adult and youth programs under title II-A and II-C
and dislocated workers under title III, Sec. 627.470 provides for the
establishment of performance standards for older worker programs under
section 204(d) of the Act. The standards for both adults and youth may
include standards for employment competencies which are to be based on
such factors as entry-level skills and other hiring requirements. The
purpose of the performance standards guidance set forth in these
regulations is to establish the general requirements for implementing
title II-A, title II-C, and title III performance standards. Specific
policy requirements will be developed in consultation with the JTPA
system and will be subject to a formal public comment process.
Several commenters asked when the new performance standards
requirements would take effect. Current performance standards measures
and implementing provisions, as specified in TEGL's 10-89, 7-91, and
11-92, will remain in effect through Program Year (PY) 1993. In
accordance with the transition provision of section 701(b) of the JTPA
Amendments, revised performance standards were published July 11, 1994
(59 FR 35381 (July 11, 1994); standards pertaining to 6-month retention
in unsubsidized employment shall not take effect before July 1, 1995.
In regard to setting 6-month retention standards, several
commenters advised the Department to conduct a study to identify and
address technical issues related to using Unemployment Insurance (UI)
wage records to document placement and retention of participants. In
preparation for developing and implementing policy in this regard, the
Department of Labor has already undertaken a study to examine the
technical and operational issues associated with the use of UI wage
records for the purpose of implementing performance standards related
to employment retention. The study was conducted in 16 States and
focused on such issues as quality of data, timing for incentives, and
out-of-State and uncovered employment. The results of the study will be
available in the fall of 1994 and will provide important input into the
decisionmaking process and guidelines for implementing the 6-month
retention standard. The Department recognizes that there will be a
variety of issues to be addressed in developing and implementing a
retention standard. When the results of the study are available, the
Department will work with State and local staff to introduce, wherever
feasible, alternative post-program measures.
In addition, it is important to note that interim credit, which a
few commenters believed should be incorporated in the performance
standards, will be considered in the development process. The
Department emphasizes, however, that there is no maximum participation
limit and no Department-imposed requirement that everyone be terminated
at the end of a given program year. Performance standards are based
only on those individuals who do, in fact, terminate.
A number of commenters provided advice on implementing the
performance standards required under section 204(d) of the Act, which
implies that these standards are to parallel those developed for title
II programs. While the specifics of older worker performance standards
will not be addressed in the regulations, the process for developing
these standards began in the summer of 1993. Program experts and
advocate groups for older workers were consulted in developing
performance standards for older workers programs.
In addition, in response to other comments recommending adoption of
performance standards for adults based on competency attainment, it is
important to note that skill acquisition for adults is included among
several possible performance standards factors identified in section
106(b)(3)(E) of the Act. In order to insure that any standards
established for skill acquisition are fair and practical, the
Department has begun to collect relevant administrative data and also
to examine experience with youth employment competencies and
initiatives, such as the Secretary's Commission on Achieving Necessary
Skills (SCANS) and apprenticeship programs. In addition, beginning in
1994 the Department will consult with academics and program
practitioners to determine practical approaches to defining adult
competencies. Performance standards for adult skill acquisition will be
issued in PY 1996, at the earliest.
With the exception of the older worker program, the Governor is
responsible for establishing an incentive policy that rewards
performance in title II programs and for: (1) Establishing a process
for adjusting performance standards to account for local conditions,
and (2) providing technical assistance to SDA's which fail to meet
performance standards for a given program year.
Several commenters voiced concern that a performance standard
relating to costs might be required. Accordingly, Sec. 627.470(c)(2) is
amended to clarify that Governors may not tie standards relating gross
program expenditures to performance measures in making incentive
awards. Governors are encouraged to make full use of available
expenditure and participant data in monitoring SDA fiscal practices; at
the same time, SDA's should closely monitor local service providers.
States and SDA's are encouraged to explore ways of relating overall
costs of job training to long-term employment, earnings and reductions
in welfare.
The final regulation also incorporates the requirement, in section
106(j) of the Act, for the imposition of a reorganization plan on SDA's
failing for 2 consecutive years to meet an appropriate proportion of
the performance standards, with the exception of the older worker
programs. The Governor is to notify the Secretary and the SDA of the
continued failure and to impose a reorganization plan within 90 days of
the end of the second program year; otherwise, the Secretary will
develop and impose the reorganization plan. As mentioned before, with
regard to the 90-day deadline for imposing sanctions, a few commenters
believed that 90 days was insufficient time for States to evaluate and
implement an effective reorganization plan. In addition, a few
commenters sought clarification of what might constitute the imposition
of a reorganization plan. The Department acknowledges that there may be
some difficulty in timing but points to the language in section
106(j)(5)(A) of the Act. In response to the latter comments and in an
attempt to alleviate the level of concern about the imposition of a
reorganization plan, the final rule is amended by adding a new
paragraph (c)(4)(iv) to Sec. 627.470 which provides the minimum
requirements for the imposition of a reorganization plan. The Secretary
will give the Governor and the SDA 30 days in which to comment to the
Secretary on the proposed reorganization plan prior to its imposition.
Further, the Secretary will recapture or withhold up to one-fifth of
the State's administration set-aside to provide technical assistance to
an SDA where the Secretary has imposed the reorganization plan or where
the Governor has not provided appropriate technical assistance.
Reorganization Plan Appeals
No comments were received on the provisions of this section and no
changes are made in the final rule.
Oversight and Monitoring
Several comments were received on oversight and monitoring. Section
627.475 summarizes the roles of each administrative level in a
comprehensive monitoring and oversight system. The monitoring
provisions are expanded to require the Governor to develop a monitoring
plan which requires that each SDA and SSG be monitored at least once
annually. The plan must also require the collection and review of
sufficient information to enable the Governor to determine whether
substate entities have demonstrated substantial compliance with the
oversight requirement to permit a waiver of the imposition of sanctions
authorized under section 164(e) of the Act, or to determine whether a
job training plan should be disapproved pursuant to section 105 of the
Act. The regulations also require the Governor to be responsible for
issuing standards to SDA's and SSG's for the development of a local
monitoring plan. Additionally, the regulations require the Governor to
develop general standards for PIC oversight responsibility for
inclusion in the Governor's coordination and special services plans.
One commenter requested that the Department of Labor provide
greater details regarding its own monitoring responsibilities as well
as those of the States. The Department is in the process of developing
guidance in this area and, when completed, will provide more detailed
information on monitoring and oversight through administrative
issuances.
One commenter observed that the emphasis in paragraph (b)(3) was
unnecessarily on criteria for disapproval of the plan when, in fact,
the Act called for the Governor to approve a plan unless it did not
meet certain criteria. The commenter suggested that paragraph (b)(3) be
revised to read "Determines that a job training plan shall be
disapproved if the plan does not meet the criteria established in
section 105(b)(1) of the Act which states in part, the Governor shall
approve the job training plan or modification thereof unless he finds
that the plan does meet the criteria found in section 105(b)(1)". The
Department concurs with this comment and, although the Department did
not adopt the suggestion in toto, paragraph (b)(3) is revised to better
reflect the statutory criteria for disapproval of the job training
plan.
A few commenters requested clarification of what elements of an
SDA's and SSG's operation must be monitored not less than once
annually. The Department believes that an effective monitoring program
is important to improving or maintaining high levels of program
performance. The Department wishes to provide states with flexibility
in designing the nature and extent of their monitoring programs while
assuring that monitoring is thorough. Paragraph (b)(5) is revised to
indicate that all aspects of the SDA and SSG program must be reviewed
annually, although the Department wishes to clarify that the degree of
emphasis placed upon the review of each area of a program may vary from
year to year.
A few commenters expressed concern with the PIC responsibility for
oversight as it relates to the Governor and the chief elected official.
The commenters suggested that the PIC should be allowed flexibility to
determine the type and amount of PIC oversight. Section 103(a) of the
Act states that it shall be the responsibility of the PIC to provide
policy guidance for, and exercise oversight with respect to, activities
under the job training plan for its SDA in partnership with the unit or
units of local government within its SDA. The Department agrees that it
is primarily the responsibility of the PIC to determine its monitoring
and oversight role. While the regulations give the Governor a role in
PIC oversight in an overall context, the Department does not expect any
guidelines issued by the Governor to be overly prescriptive. Therefore,
the PIC should have a great deal of flexibility in setting its
monitoring role. No change is made to the final regulation.
Governor's Authority to Remedy Violations
In reviewing the interim final regulations, the Department realized
that it had not fully implemented section 164(b) of the Act in the
regulations. Sections 627.477 and 627.607 are added to complete the
regulatory implementation of section 164(b) regarding the Governor's
actions where there are substantial violations of the Act or the
regulations and corrective actions have not been taken. Conforming
changes have been made in Secs. 627.601(b), 627.471(a) and 627.702.
These added provisions and changes are not intended to modify or expand
on the plain meaning of the statute.
Audits and Audit Resolution
Because there are both non-profit and commercial organizations
which are direct recipients of JTPA Title III program funds, the
language at Sec. 627.480(a)(2) and (3) is modified by the addition of
the term "recipients", as well as by substituting the term
"organizations" for "subrecipient" in paragraph (a)(2). The interim
final regulations implied that non-profit and commercial organizations
can only be subrecipients.
Audits of Commercial Organizations
Several commenters raised questions concerning the audit
requirement for "commercial organizations".
A few commenters wanted clarification concerning whether or not the
audits of proprietary schools, which are required by the U.S.
Department of Education because of their involvement with Pell grants
and other subsidies, would satisfy the JTPA audit requirement. One
commenter was concerned that the regulation did not provide a timeframe
within which these audits were to be completed, and another expressed
concern that the requirement for an annual audit was more frequent than
that for non-profit institutions. The regulation, at
Sec. 627.480(a)(3), is amended to provide for audit timeframes and
frequencies that are consistent with the OMB Circular A-133
requirements for non-profit organizations. This provision also provides
the option of either a Federal funds audit or an organization-wide
audit as long as the audit includes financial and compliance coverage
of the JTPA program within its scope. The option of a Federal funds
audit should be satisfied by the audit required by the U.S. Department
of Education so long as it includes financial and compliance coverage
of the JTPA program within its scope.
A few commenters requested clarification concerning the audit
requirement for OJT employers, commercial off-the-shelf training
packages, tuition-based individual referral contracts, and other
"vendor" type arrangements. The regulation imposes an audit
requirement only on organizations that are "subrecipients" and not on
those that are "vendors".
A few commenters asked if the regulation prohibited a Governor
(this would also apply to any awarding agency) from procuring a program
specific audit for commercial organizations and directing them to
exclude JTPA from their organization-wide audit. The regulation only
talks to the requirement to have an audit done, not to who will procure
and/or conduct the audit. If the awarding agency and its subrecipient
agree that the awarding agency will procure and/or conduct the audit,
the requirement of the regulation would be satisfied.
Responsibility for Subrecipient Audits
A few commenters had difficulty with the language at
Sec. 627.480(d). One of these commenters thought that the regulation
went beyond OMB Circular A-128 and required that debt collection be
completed within the 6-month resolution period. This is not the case.
When costs are disallowed and debt collection is the appropriate
sanction, those efforts should be initiated or started within the 6
month period. This often is accomplished by including appropriate
language in a final determination. However, the actual repayment most
often occurs after the 6-month resolution period. Also, debt collection
efforts are often put on hold when a final determination is appealed.
To address these concerns, the parenthetical reference in paragraph
(d)(2) is moved to the end, and the phrase "where appropriate," is
inserted. Paragraph (d)(3) is divided into two sentences.
Waivers of Liability
One commenter pointed out a conflict between Sec. 627.480(f) and
Sec. 627.704(a). Paragraph (f) is removed from this section and added
to Sec. 627.704. The remaining paragraphs of Sec. 627.480 are
redesignated.
Stand-in Costs
There were a number of commenters who raised concerns and questions
about Sec. 627.480(g), which is now redesignated as paragraph (f).
Several of these commenters were among those who commented on the
definition of "stand-in costs".
A few commenters indicated that stand-in costs should not have to
be from the same cost category as the unallowable costs. Others pointed
out the discrepancy between the definition and this regulation
concerning the time when such costs were incurred. As a result, the
last sentence of redesignated paragraph (f) is revised so that both it
and the definition at Sec. 626.5 state that the costs are to be from
the same program year and that the substitution cannot result in a
violation of the applicable cost limitations.
Several commenters stated that "stand-in costs" should be allowed
as substitutes regardless of the year or program/title that generates
them. Such an interpretation runs counter to the intuitive concept of
substituting to make whole the program that bore the cost of the
misexpenditures. It is also contrary to ETA's interpretation of the
General Accounting Office (GAO) Comptroller General decision which is
the basis for the position on "stand-in" costs. The GAO-decision
indicates that, when an audit reveals total allowable program costs
which exceed the total amount authorized and paid with program funds,
the resolving agency is obligated to accept those program costs as
substitutes for disallowed costs. This is true because funds which
become available due to the disallowance of costs should be treated as
funds never expended by the auditee. Thus, the stand-in process
constitutes a part of the totality of allowed and disallowed costs
which occurs at the audit resolution stage before a collectible debt is
established. The regulation, at Sec. 627.480(f), is written to
incorporate this concept of substitution for unallowable costs incurred
by the auditee when the stand-in costs are reported (on the JTPA
quarterly financial report form) and accounted for in the auditee's
financial system, and are included within the scope of the auditee's
audit report. Although potential stand-in costs are aggregated for
reporting purposes only, this does not create a pool of stand-in costs
at the higher tier when funds are merely passed through from one level
to the next (e.g., State to SDA or other government entity). When
"stand-in" costs are reported on the JTPA quarterly financial report
and included within the scope of an entity's audit, they are readily
identifiable and available to substitute for unallowable costs
identified in the same report. This is important because by the time an
audit report is finally resolved, the three-year availability period
for the costs disallowed has often lapsed or is nearing its end. By
having contemporaneous allowable JTPA costs incurred (but paid for with
local resources) during the same period as the unallowable costs, there
is no question about the propriety of the substitution.
A few commenters raised questions concerning the requirement to
report "stand-in costs". A few asked if they needed to be reported on
the quarterly reports required by the Department. One asked if these
costs could be reported after the fact only when needed, instead of
being reported whether or not an SDA is permitted to and/or needs use
them. Others suggested that they should be allowed even if not
reported. One suggested that the requirement to report exceeded the
statutory requirement that they be recorded. As explained above, it is
ETA's position that "stand-in costs" must be subjected to audit
coverage in order to be accepted. Imposing the requirement that the
costs be reported and providing a line for these costs on the JTPA
quarterly financial report(s), insures that these costs are included
within the scope of the audit report.
A few commenters suggested that the JTPA compliance supplements for
OMB Circulars A-128 and A-133 audits be revised to require that such
audits include a separate schedule for "stand-in costs" and to
specify the documentation requirements for same. The documentation
requirements, including retention requirements, are the same as for all
JTPA costs incurred. While the Department is not in a position to
dictate whether A-128 and A-133 audits include an additional schedule,
when the compliance supplements are revised, it may be possible to
suggest how "stand-in costs" should be treated in such audits.
Direct Appeals by SDA's
Several commenters suggested that Sec. 627.480(h) should be revised
to provide the right of a direct appeal by an SDA, especially in those
instances when a State chooses not to appeal. However, the initial and
final determination process utilized by the ETA Grant Officer imposes a
sanction on the direct recipient of funds from ETA, and it is that
recipient that ETA holds liable for the sanction. If the entity upon
whom the sanction is imposed chooses not to appeal, there is no dispute
between that entity and ETA. If an appeal of a Grant Officer's final
determination is taken, affected subrecipients are permitted to
intervene in the proceedings. An SDA has the right to appeal any
adverse determination against it within the State appeal system.
Audit Resolution
Section 627.481 is not changed from the interim final regulations.
One commenter suggested that Sec. 627.481(a)(1) should permit direct
recipients to have 6 months within which to submit their resolution
report. The Department believes that to do so would mean that the
recipient's audit would not be resolved with its awarding agency within
the 6 months required by the OMB Circulars. Another commenter suggested
that the title for the paragraph at Sec. 627.481(c) should be State
level audit resolution. However, this paragraph also applies to
resolution beyond the State level (e.g., the resolution of a service
provider audit by an SDA). A third commenter suggested that the
regulation at Sec. 627.481(c) should mandate that audit work papers be
accessible to the auditee. Since these audits are procured by the
auditee, it is within their purview, and not the Department's, to
include requirements concerning work papers in their agreement with the
auditors.
Closeout
One commenter suggested that waiting 3 years (the full period
during which funds are available for expenditure) to close out a grant
that can be closed in 1 to 1\1/2\ years is confusing and unnecessary.
It was also stated that this provision should allow closeout to occur
as soon as all of the funds are expended or within 90 days after the
end of the funding period. A second commenter suggested that the word
"timely" is a subjective term and that the provision should require
closeout to occur within 90 days after the end of the funding period,
unless the deadline is extended. This same commenter indicated that the
regulation should be clear that closeouts are based on year of
appropriation. Several of the comments indicated an apparent
misunderstanding that Sec. 627.485 applies to subrecipient awards. In
fact, this provision is intended to inform the direct recipients of the
Department's intention to close out each annual grant agreement within
a short period after the availability of the funds has lapsed. The
Department has determined that it is much more appropriate and less
confusing to close out all of the annual JTPA grant agreements
(described at Sec. 627.405 as the funding document for an individual
program year's funds) at the same time.
One commenter suggested that the language in the last sentence of
paragraph (b) should allow for additional revisions, as long as there
is a good reason that is adequately documented; further, the commenter
suggested such revisions could be handled through an increase or
decrease in the "carryover" amount. The first sentence of the
paragraph allows for a 90-day period within which revisions may be made
without a requirement for justification. The second sentence allows the
Grant Officer to extend the period for revisions if the recipient
requests an extension and provides a justification for same. The
Department sees no need for any change to this provision. Also, at the
end of the three-year funding period, there are no "carryover" funds,
only funds for which the three-year availability has lapsed. These
funds must be returned in accordance with paragraph (c) if they have
been drawn down, and will be deobligated by ETA.
Later Disallowances and Adjustments
One commenter stated that the final rule should identify the period
within which the Grant Officer has the authority to disallow costs.
Such an action is not necessary. If an audit or review is conducted
while the records are still available in accordance with the
requirements of Sec. 627.460 (i.e., 3 years after submittal of the
final expenditure report for the funding period) and there are
unallowable costs, then the Grant Officer can disallow those costs.
Collection of Amounts Due
One commenter indicated that this provision must acknowledge that
there are processes at the local level which impede collection of
disallowed costs and which prohibit collection efforts by the Federal
Government (or State) during the time when the State (or local)
collection actions are in process. Other sections of these regulations
(e.g., Sec. 627.485) contain provisions which allow recipients to
request additional time to complete such a process. However, once a
Federal debt is established against a recipient, it is that direct
recipient which the Department holds liable. The provision is not
changed.
Grievances and Sanctions
The interim final rule revised, redesignated, and reordered the
regulatory provisions formerly found at 20 CFR part 29, Subpart D--
"Grievances, Investigations, and Hearings" in a new part 627,
subparts E, F, G, and H. The interim final regulations more clearly
defined the various JTPA grievance procedures required to be
established by section 144 of the Act. The procedures applicable to a
particular grievance process level were consolidated into discrete
subparts.
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discussion of comments (III)" to continue]
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