(c) For an additional 15 percent when the project is at least 90 percent completed,

(d) For the remaining grant sums when EDA approves a final audit of the eligibility of the project costs, unless such audit indicated another amount is due. § 305.88 Construction account for grant funds.

Grantees shall establish a construction account in accordance with applicable Federal law, into which grant funds shall be deposited and from which payments therefrom shall be made. Payments from this account may not be made for change orders without specific EDA approval. § 305.89 Variance in cost of grant and

loan projects.

After the EDA offer of financial assistance has been accepted by the applicant, EDA will schedule a planning conference to explain EDA requirements for administration of projects. If representatives of the grantee or borrower, who have been authorized by EDA to attend such conference, must travel to an EDA Regional Office, the costs of such travel shall be eligible for proportionate reimbursement as a project cost.

§ 305.92 Financial systems.

(a) Grantees shall establish financial management systems in accordance with applicable Federal law.

(b) Borrowers shall establish such systems as are necessary in accounting for revenues to be applied to the payment of the loan and for the allocation of expenses.

shall be due and unpaid to EDA or its successor agency or agencies and for at least 3 years thereafter, with the following qualifications:

(a) If EDA audit findings have not been resolved, these records are to be retained beyond the 3 year period;

(b) Records for nonexpendable property shall be retained for 3 years after its final disposition;

(c) The retention period starts from the date of the submission of the final expenditure report;

(d) In nonconstruction grants and loans, or for construction contracts for less than $100,000, the grantee or borrower shall utilize the retention requirements set by State or local law, as applicable.

§ 305.94

Construction project bonding. Where construction contracts exceed $100,000, the minimum bonding requirements shall be as follows:

(a) A bid guarantee is required from each bidder equivalent to 5 percent of the bid price,

(b) A performance bond is required on the part of the contractor for 100 percent of the contract price, and

(c) A payment bond is required on the part of the contractor for 100 percent of the contract price.

§ 305.95 Procurement.

Recipients may use their own procurement procedure regulations which reflect applicable State and local law, rules, and regulations, provided that procurements made with Federal grant funds adhere to the following standards:

(a) The recipient shall maintain a code of standards of conduct which shall govern the performance of its officers, employees or agents in contracting with and expending Federal funds. Such persons shall not accept gratuities, favors or anything of monetary value from potential contractors. Such code or standards shall provide for penalties, sanctions or other disciplinary actions for violations;

(b) All procurement procedures shall provide for maximum open and free competition to avoid organizational conflicts of interest or noncompetitive practices; and

(c) Procurement procedures shall meet the following minimum requirements:

(1) Avoidance of unnecessary or duplicatory items is required.

(2) Clear and accurate description requirements are necessary ("Brand Name-or-Equal" may be used).

(3) Utilization of small business and minority owned business sources of supplies and services is required.

(4) Procurement contracts shall be appropriate for the particular procurement and the project. The "cost-plus-apercentage-of-cost" contract shall not be

used.

(5) Formal advertising shall be required unless negotiation, as permitted in subparagraph 6 of this paragraph, is necessary. Procurements of $2,500 or less need not be so advertised. Awards shall be made to the responsible bidder whose bid is responsive to the invitation, price, and other factors considered. Any and all bids may be rejected when it is in the grantee's interest and such action is in accord with applicable law.

(6) Competition shall be obtained to the maximum extent possible. However, procurements may be negotiated under the following circumstances and if EDA gives prior approval. When:

(i) There is a sole source procurement;

(ii) The procurement is less than $2,500;

(iii) The contract is for personal or professional services or the service is to be rendered by an educational institution:

(iv) No acceptable bids have been received after formal advertising; or

(v) Federal law authorizes negotiated procurement.

(7) Procurement records for contracts for more than $2,500 shall include at least the justification for the use of negotiation and contractor selection and the basis for the cost or price negotiated.

(8) A system for contract administration shall be maintained to assure contractor performance is consistent with the terms, conditions, and specifications of the contract, and to assure timely follow-up by the recipient of all purchases.

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(b) Contracts in excess of $2,500 shall contain provisions for termination for default as well as for circumstances beyond the control of the contractor.

(c) Contracts and subcontracts shall contain substantially the same provisions contained in the grant and/or loan and which are appropriate to the contractor and subcontractor, such as requirements for compliance with applicable labor standards. The recipient shall establish procedures to assure compliance and to assure that violations are investigated.

(d) Contractors and subcontractors. shall maintain records for audit and examination by EDA and the Comptroller General of the United States, as required by § 309.9 of this chapter.

§ 305.97 Title to real property.

(a) Grantees and Borrowers shall comply with such additional requirements as are incidental to or explicitly required by the grant and/or loan.

(b) The tabulation of project costs. attached to or made a part of the loan. or grant or letter transmitting the loan or grant is the controlling budget for the project. Transfer of funds between line items therein may not be made without EDA approval.

(c) Requests by grantees or borrowers. for amendments to the grant or loan shall be submitted in writing to the Regional Office for processing, and shall contain such information and documentation necessary to justify the request.

(d) All contract change orders must have prior EDA approval.

(e) A final inspection will be scheduled by the grantee or borrower, with EDA concurrence and/or participation, when the project has been completed and is functional and when all deficiencies. have been corrected.

(f) Proposed subcontractors must submit a properly executed EDA "Cer-

tification Regarding Equal Employment Opportunity."

(g) Subcontractors shall submit evidence which will satisfy Federal labor standards statutes.

§ 305.99 Termination for default or for the convenience of recipient.

(a) An appropriate official of the recipient may request EDA to cancel or terminate a public works or development facility project. This request must be accompanied by a certified resolution or ordinance authorizing the requesting party to make such request. Before agreeing to such request, EDA will determine the legal sufficiency of such request.

(b) EDA may initiate a cancellation or termination action for failure by the recipient to proceed or for failure to adhere to the requirements of the grant and/or loan.

§ 305.100 Liquidation and administration of loans and evidences of indebtedness.

In the event that the Assistant Secretary determines that it is necessary or desirable to take actions to protect or further the interests of EDA in connection with loans or guarantees made or evidences of indebtedness purchased under the Act, the Assistant Secretary may:

(a) Assign or sell at public or private sale, or otherwise dispose of for cash or credit, in his discretion and upon such terms and conditions as he shall determine to be reasonable, any evidence of debt, contract, claim, personal or real property, or security assigned to or held by him in connection with loans made or evidences of indebtedness purchased under the Act,

(b) Collect or compromise all obligations assigned to or held by him in connection with such loans or evidences of indebtedness until such time as such obligations may be referred to the Attorney General for suit or collection, and

(c) Take any and all other actions determined by him to be necessary or desirable in purchasing, servicing, compromising, modifying, liquidating, or otherwise administratively dealing with or realizing on loans made or evidences of indebtedness purchased under the Act.

(b) Such approval must include a determination that the project is consistent with the redevelopment area's approved OEDP, except, areas which will be designated under a "sudden-rise" criteria of the Act or redevelopment areas or economic development districts which do not have a currently approved OEDP will be evaluated if :

(i) The area will be designated within a reasonable period of time, or

(ii) Appropriate steps have been taken to secure the approval by EDA of an OEDP.

(c) Such approval of an agency or instrumentality shall be in a form satisfactory to EDA.

§ 306.7 Alleviation of unemployment.

A project for a business development loan must reasonably provide more than temporary alleviation of unemployment or underemployment within the redevelopment area in which the project will be located.

§ 306.8 Financing.

A business development applicant must provide evidence that other financing is not available on terms and conditions which, in the opinion of the Assistant Secretary, would permit completion of the project and that other lenders will not participate in the EDA business development loan. Such evidence will include:

(a) Letters from at least two qualified lending institutions declining to finance any part of the project or to participate in EDA's share of the financing.

(1) In the event only one qualified lending institution is located in the project area or lends in the project area, a letter from one qualified lending institution will be sufficient.

(2) In the event no qualified lending institutions are located in the project area or lend in the project area, certification to that effect will be sufficient.

(b) Evidence that no qualified lending institution will participate in the project financing other than on a first lien basis.

(c) Evidence that other Federal financial assistance is not available to the project.

(d) In the event that the applicant is a large corporation which would normally have its own funds available or

No business development loan or purchase of indebtedness will be made unless the Assistant Secretary has determined there is a reasonable assurance of repayment. The applicant shall provide, at a minimum, the following financial information to permit the Assistant Secretary to make this determination, unless the Assistant Secretary determines certain or all of such information is not necessary:

(a) Current audited financial statements of the applicant, including balance sheets, an income statement with auditors' footnotes, and supporting statements for the three most recent fiscal years.

(b) Audited consolidated financial statements and income statements, with auditors' footnotes, of parent and subsidiaries for the three most recent fiscal years.

(c) Audited financial statements including balance sheets, income statements, and auditors' footnotes, of all affiliated companies for the three most recent fiscal years.

(d) Most recent interim financial statements of all entities listed in paragraphs (a) and (b) of this section, certified to by officers of the respective companies and maintained current during EDA loan processing.

(e) Projected pro forma balance sheets, income statements, cash flow, and supporting statements of the applicant quarterly from the date of the latest interim financial statements to the date of the commencement of project operations.

(f) Projected pro forma balance sheet at the commencement of project operations, and pro forma balance sheets, income statements, cash flow and supporting statements of the applicant monthly, for the first 12 months of project operations and annually for the three succeeding 12-month periods. Such statements and balance sheets should reflect applicant's ability to repay debt principal out of earnings commencing within the first 3 years of operations.

Loans and evidences of indebtedness purchased under this subpart will bear interest at a rate not less than a rate determined by the Secretary of the Treasury taking into consideration the current average market yield on outstanding marketable obligations of the United States with remaining periods to maturity comparable to the average maturities of such loans, adjusted to the nearest one-eighth of 1 percent, plus such additional charge, if any, toward covering other costs of the program as the Assistant Secretary may determine to be consistent with its purpose. § 306.12

Allowable project costs.

Allowable costs includible in the total project cost for purposes of EDA financing may include the cost of land, building, machinery and equipment, and reasonable contingency reserves to cover the possibility of cost increases during processing of the application and during construction.

(a) In arriving at the total fixed asset cost of the project, EDA cannot, under the Act, include any item which is considered as properly allocable to working capital.

(b) Other types of costs which cannot be financed include: leasehold interests, mineral reserves, patents, organization expenses, preproduction costs, research and development expenses, goodwill, trade or brand names, franchises, and licenses.

(c) Land, building, machinery, and equipment already owned by the applicant lien-free may be included in project costs and be treated as an in-kind equity injection by the applicant, provided they will be an integral part of the expanded operation. However, such in-kind equity credit will be limited to the lesser of (1) appraised fair market value, or (2) net book value (cost less