this appendix. Additional cost determinations based on applicable law and regulations, must of course, be made on a projectby-project basis.

Costs Related to Subagreements

1. Allowable costs related to subagreements include:

a. The costs of subagreements for building the project;

b. The costs of complying with the procurement requirements of Part 33 of this subchapter other than the costs of self-certification under § 33.110;

c. The costs for establishing or using minority and women's business liaison services;

d. The costs of services incurred during the building of a project to ensure that it is built in conformance with the design drawings and specifications;

e. The costs (including legal, technical, and administrative costs) of assessing and defending against a contractor claim for increased costs under a subagreement provided:

(1) The claim arises from work within the scope of the grant;

(2) A formal grant amendment is executed specifically covering the costs before they are incurred; and

(3) The costs are not incurred to:

(i) Prepare documentation that should be prepared by the contractor to support his claim; or

(ii) Defend against claims that should be settled reasonably without arbitration or litigation;

f. Change orders and the costs of meritorious contractor claims for increased costs under subagreements as follows:

(1) Change orders and the costs of meritorious contractor claims provided the costs are:

(i) Within the scope of the project;

(ii) Not caused by the grantee's mismanagement; and

(iii) Not caused by the grantee's vicarious liability for the improper actions of others;

(2) Provided the requirements of paragraph f(1) are met, the following are examples of allowable change order and contractor claim costs:

(i) Building costs resulting from defects in the plans, design drawings and specifications, or other subagreement documents only to the extent that the costs would have been incurred if the subagreement documents on which the bids were based had been free of the defects, and excluding the costs of any rework, delay, acceleration, or disruption caused by such defects;

(ii) Costs of equitable adjustments under Clause 4, Differing Site Conditions, of the model subagreement clauses required under § 33.1030 of this Subchapter;

(3) Settlements, arbitration awards, and court judgments which resolve contractor

claims shall be reviewed by the grant award official and shall be allowable only to the extent that they meet the requirements of paragraph f(1), are reasonable, and do not attempt to pass on to EPA the cost of events that were the responsibility of the grantee, the contractor, or others.

g. The costs of the services of the prime engineer required by § 35.2214 during the first year following initiation of operation of the project.

2. Unallowable costs related to subagreements include:

a. The costs of architectural or engineering services incurred in preparing a facilities plan and the design drawings and specifications for a project;

b. Except as provided in 1.f. above, architectural or engineering services necessary to correct defects in a facilities plan, design drawings and specifications, or other subagreement documents; and

c. Bonus payments, not legally required, for completion of building before a contractual completion date.

Mitigation

1. Allowable costs include:

a. Costs necessary to mitigate only direct, adverse, physical impacts resulting from building of the treatment works.

b. The costs of site screening necessary to comply with NEPA related studies and facilities plans, or necessary to screen adjacent properties.

c. The cost of groundwater monitoring facilities necessary to determine the possibility of groundwater deterioration, depletion or modification resulting from building the project.

Privately or Publicly Owned Small and OnSite Systems

1. Allowable costs for small and on-site systems serving residences and small commercial establishments inhabited on or before December 27, 1977 include:

a. The cost of major rehabilitation, upgrading, enlarging and installing small and on-site systems serving principal residences; b. Conveyance pipes from property line to off-site treatment unit which serves a cluster of buildings;

c. Treatment and treatment residue disposal portions of toilets with composting tanks, oil flush mechanisms, or similar inhouse devices;

d. Treatment or pumping units from the incoming flange when located on private property and conveyance pipes, if any, to the collector sewer.

2. Unallowable costs for small and on-site systems include:

a. Modification to physical structure of homes or commercial establishments;

b. Conveyance pipes from the house to the treatment unit located on user's property;

c. Wastewater generating fixtures such as commodes, sinks, tubs, and drains.

Real Property

1. Allowable costs for land and rights-ofway include:

a. The cost (including associated legal, administrative and engineering costs) of land acquired or by lease or easement under grants awarded after October 17, 1972, that will be an integral part of the treatment process or that will be used for the ultimate disposal of residues resulting from such treatment provided the Regional Administrator approves it in the grant agreement, including:

(1) The cost of a reasonable amount of land considering irregularities in application patterns, and the need for buffer areas, berms, and dikes;

(2) The cost of land for sludge disposal with application at the maximum rate possible (generally five dry tons per acres per year or more);

(3) The cost of land acquired for soil absorption system for a group of two or more homes;

(4) The cost of land acquired for composting or temporary storage of compost residues which result from wastewater treatment;

(5) The cost of land acquired for storage of treated wastewater in land treatment systems before land application. The total land area for construction of a pond for both treatment and storage of wastewater is allowable if the volume necessary for storage is greater than the volume necessary for treatment. Otherwise the allowable cost will be determined by the ratio of the storage volume to the total volume of the pond.

b. The cost of complying with the requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (42 U.S.C. 4621 et seq., 4651 et seq.), under Part 4 of this chapter;

c. The cost of contracting with another public agency or qualified private contractor for part or all of the required acquisition and/or relocation services.

d. The cost associated with the preparation of the treatment works site before, during and, to the extent agreed on in the grant agreement, after building. These costs include:

(1) The cost of demolition of existing structures on the treatment works site (including rights-of-way) if building cannot be undertaken without such demolition;

(2) The cost (considering such factors as betterment, cost of contracting and useful life) of removal, relocation or replacement of utilities, provided the grantee is legally obligated to pay under state or local law;

(3) The cost of restoring streets, rights-ofway and individual system building sites to their original condition. The need for such restoration must result directly from the construction and is generally limited to repaving the width of trench;

e. The cost of acquiring all or part of an existing or publicly privately owned wastewater treatment works provided all the following criteria are met:

(1) The acquisition provides new pollution control benefits;

(2) The facility was not built with previous Federal or State financial assistance;

(3) The primary purpose of the acquisition is not the reduction, elimination, or redistribution of public or private debt; and

(4) The acquisition is not being used as a means to circumvent the requirements of the Act, these regulations, or other Federal, State or local requirements.

2. Unallowable costs for land and rightsof-way include:

a. The costs of acquisition (including associated legal, administrative and engineering etc.) of sewer rights-of-way, waste treatment plant sites (including small system sites), sanitary landfill sites and sludge disposal areas except as provided in paragraph 1.a. of this section.

b. Removal, relocation or replacement of utilities located on land by privilege, such as franchise.

Equipment, Materials and Supplies

1. Allowable costs of equipment, materials and supplies include:

a. The cost of a reasonable inventory of laboratory chemicals and supplies necessary to initiate plant operations and laboratory items necessary to conduct tests required for plant operation;

b. The costs for purchase and/or transportation of biological seeding materials required for expeditiously initiating the treatment process operation;

c. Cost of shop equipment installed at the treatment works necessary to the operation of the works;

d. The costs of necessary safety equipment, provided the equipment meets applicable Federal, State, local or industry safety requirements;

e. A portion of the costs of collection system maintenance equipment. The cost of the equipment shall be based on: (1) the portion of the total collection system paid for by the grant, (2) a demonstrable frequency of need, and (3) the need for the equipment to preclude the discharge or bypassing of raw sewage.

f. The cost of mobile equipment necessary for the operation of the overall wastewater treatment facility, transmission of wastewater or sludge, or for the maintenance of equipment; these items include:

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(1) Portable stand-by generators;

(2) Large portable emergency pumps to provide "pump-around" capability in the event of pump station failure or pipeline breaks; and

(3) Sludge or septage tanks, trailers, and other vehicles having as their sole purpose the transportation of liquid or dewatered wastes from the collector point (including individual or on-site systems) to the treatment facility or disposal site;

2. Unallowable costs of equipment, materials and supplies include:

a. The costs of equipment or material procured in violation of the procurement requirements of 40 CFR Part 33.

b. The cost of furnishings including draperies, furniture and office equipment;

c. The cost of ordinary site and building maintenance equipment such as lawnmowers and snowblowers.

d. The cost of vehicles for the transportation of the grantee's employees.

e. The cost of process equipment such as trickling filters and comminutors that use mercury seals.

Industrial and Federal Users

1. Allowable costs for industrial and Federal facilities include development of a municipal pretreatment program approvable under Part 403 of this chapter, and purchase of monitoring equipment and construction of facilities to be used by the municipal treatment works in the pretreatment program.

2. Unallowable costs for industrial and Federal facilities include:

a. The cost of developing an approvable municipal pretreatment program when performed solely for the purpose of seeking an allowance for removal of pollutants under Part 403 of this chapter;

b. The cost of monitoring equipment used by industry for sampling and analysis of industrial discharges to municipal treatment works;

c. All incremental costs for sludge management incurred as a result of the grantee providing removal credits to industrial users under 40 CFR 403.7 beyond those sludge mangement costs that would otherwise be incurred in the absense of such removal credits.

Miscellaneous Costs

1. Allowable costs include:

a. The costs of salaries, benefits and expendable materials the grantee incurs for the project;

b. Unless otherwise specified in this regulation, the costs of meeting specific Federal statutory requirements;

c. Costs for necessary travel directly related to accomplishment of project objectives. Travel not directly related to a specific

project, such as travel to professional meetings, symposia, technology transfer seminars, lectures, etc., may be recovered only under an indirect cost agreement;

d. Cost of royalties for the use of or rights in a patented process or product with the prior approval of the Regional Administrator;

e. Costs allocable to the water pollution control purpose of multiple purpose projects as determined by applying the Alternative Justifiable Expenditure (AJE) method described in CG82. Multiple purpose projects that combine wastewater treatment with recreation do not need to use the AJE method, but can be funded at the level of the most cost-effective single-purpose alternative;

f. The costs of preparing a corrective action report required by § 35.2214(d) provided a formal grant amendment is executed specifically covering the costs before they are incurred;

g. Costs of grantee employees attending training workshops/seminars that are necessary to provide instruction in administrative, fiscal or contracting procedures required to complete the construction of the treatment works, if approved in advance by the Regional Administrator;

2. Unallowable costs include:

a. Ordinary operating expenses of the grantee including salaries and expenses of elected and appointed officials and preparation of routine financial reports and studies; b. Preparation of applications and permits required by Federal, State or local regulations or procedures;

c. Administrative, engineering and legal activities associated with the establishment of special departments, agencies, commissions, regions, districts or other units of government;

d. Approval, preparation, issuance and sale of bonds or other forms of indebtedness required to finance the project and the interest on them;

e. Except as provided in § 35.2025(c) the cost of replacing, through reconstruction or substitution, treatment works: (1) that were built with Federal assistance awarded under the Federal Water Pollution Control Act as amended; or (2) that fail prior to initiation of operation or fail to meet project performance standards. A treatment works that fails at the end of its design life is not covered by this provision;

f. Personal injury compensation or damages arising out of the project;

g. Fines and penalties due to violations of, or failure to comply with, Federal, State or local laws, regulations or procedures;

h. Costs outside the scope of the approved project;

i. Costs for which grant payment has been or will be received from another Federal

This part implements section 213 of the Federal Water Pollution Control Act Amendments of 1972, as amended, by establishing policies and procedures to ensure that inability to borrow necessary funds from other sources on reasonable terms does not prevent the construction of any wastewater treatment works for which a grant has been, or will be, awarded in compliance with the Act. It provides for the guarantee by the Administrator of full and timely payment of principal and interest on any obligation of the State, municipality, or intermunicipal or interstate agency issued directly and exclusively to the Federal Financing Bank to finance the local share of the costs of any such project.

amended (Pub. L. 92-500, 33 U.S.C. 1281 et seq.).

(b) Bank. The Federal Financing Bank established pursuant to the Federal Financing Bank Act of 1973 (12 U.S.C. 2281 et seq.).

(c) Guaranteed Loan Program. The program established pursuant to Pub. L. 94-558 which amended the Act by adding section 213.

(d) Loan agreement. A written agreement between the Bank and the guaranteed borrower stating the terms of the loan.

(e) Loan guarantee agreement. A written agreement between EPA and the guaranteed borrower stating the terms of the loan guarantee.

(f) Local share. The amount of the total grant eligible and allowable project costs which a public body is obligated to pay under the grant.

(g) Note. An evidence of the debt, including a bond, obligation to pay, or other evidence of indebtedness where appropriate.

(h) Public body. A State, interstate agency, a municipality, or an intermunicipal agency, as defined below:

(1) State. A State, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Trust Territory of the Pacific Islands.

(2) Interstate agency. An agency of two or more States established by or pursuant to an agreement or compact approved by the Congress, or any other agency of two or more States, having substantial powers or duties pertaining to the control of water pollution.

(3) Municipality. A city, town, borough, county, parish, district, association, or other public body (including an intermunicipal agency of two or more of the foregoing entities) created by or pursuant to State law, or an Indian Tribe or an authorized Indian tribal organization, having jurisdiction over disposal of sewage, industrial wastes, or other wastes, or a designated and approved management agency under section 208 of the Act. This definition excludes a special district, such as a school district, which does not have as one of its principal responsibilities the treatment, transport, or disposal of liquid wastes.

(i) Reasonable terms. Rates determined by the Secretary of the Treasury with relationship to the current average yield on outstanding marketable obligations of municipalities of comparable maturity.

§ 39.110 Application.

(a) Who may apply. A public body which has applied for a grant under Title II of the Act (including grantees whose projects are eligible for reimbursement under section 206 of that title) or which has committed itself to finance the local share of any project(s) for which a grant has been awarded, or for which an application is being processed, may apply through the State agency to the appropriate Regional Administrator for a loan and the commitment to guarantee such loan to finance the local share of such project.

(b) Financing. Applications for loan guarantees will be limited to:

(1) Financing that portion of the local share for which permanent financing has not been arranged.

(2) Refinancing that portion of the local share of those projects on which construction has not been completed and for which the public body initially held a public solicitation on a bond issue, received no bids, and subsequently accepted or negotiated financing at interest rates greater than 10 percent.

(c) Application requirements. The application shall include documentation of the following:

(1) Inability to obtain necessary financing. The applicant shall document that it is unable to obtain on reasonable terms as defined in § 39.105(i) sufficient credit to finance the local share of the project(s). Such documentation shall include: (i) The results of any public solicitation for bids for obligations to finance the local share or (ii) a certification, acceptable to the Administrator, from a municipal bond underwriter(s), which submitted or might normally have submitted a bid for the obligations. An applicant with an obligation to pay the local share not in excess of $250,000 may obtain certification from two or more local or regional banks to meet paragraph (c)(1)(ii) of this section. An applicant

representing communities with a population of 10,000 or less must also submit a written statement from an authorized representative of the Farmers Home Administration that grants, loans, or loan guarantees are not available from Farmers Home Administration in an adequate amount or within a reasonable time, as determined by the Administrator.

(2) Ability to repay. The application for a loan guarantee shall be accompanied by an official statement intended to provide EPA with the information needed to reach an informed judgment as to whether there is reasonable assurance of repayment. The official statement must conform to the guidelines for such statement which are available to applicants from the EPA regional office upon request.

(3) Legal authority of applicant. The application shall be accompanied by a legal opinion establishing that the applicant has legal authority to obligate itself for payment of the local share, to comply with the loan conditions, and to issue the obligations, and that the obligations will be legal and binding obligations.

(4) Assurances. The application shall be accompanied by assurances set forth in an ordinance or other evidence of authority acceptable to the Administrator that it can and will comply with all of the conditions set forth in § 39.115.

(d) Fees. The following fees will be charged in order to make the program self-sustaining. These fees may be revised from time to time as determined by the Administrator.

(1) Application processing. EPA will charge a non-refundable minimum fee of $1,000 or % of one percent of the loan amount, whichever is greater, but not to exceed $25,000 for processing applications. This fee will be submitted with the application and will be retained by the EPA whether or not a loan is consummated.

(2) Fee for issuance of a commitment to guarantee. A fee will be charged for the issuance of a commitment to guarantee a loan. This fee will be 2 of 1 percent of the principal amount of the loan, and shall be placed in a contingency reserve to offset defaults. This fee is contingent upon the loan being