Appendix A to Subpart I of Part 35 - Determination of Allowable Costs
40:1.0.1.2.32.4.126.62.7 : Appendix A
Appendix A to Subpart I of Part 35 - Determination of Allowable
Costs
(a) Purpose. The information in this appendix represents
Agency policies and procedures for determining the allowability of
project costs based on the Clean Water Act, EPA policy, appropriate
Federal cost principles of 2 CFR part 200 and reasonableness.
(b) Applicability. This cost information applies to grant
assistance awarded on or after the effective date of this
regulation. Project cost determinations under this subpart are not
limited to the items listed in this appendix. Additional cost
determinations based on applicable law and regulations must of
course be made on a project-by-project basis. Those cost items not
previously included in program requirements are not mandatory for
decisions under grants awarded before the effective date. They are
only to be used as guidance in those cases.
A. Costs Related to Subagreements
1. Allowable costs related to sub- agreements include:
a. The costs of subagreements for building the project.
b. The costs of complying with the procurement standards in 2
CFR 200.317 through 200.326 and 2 CFR 1500.9 and 1500.10.
c. The cost of legal and engineering services incurred by
grantees in deciding procurement protests and defending their
decisions in protest appeals in 2 CFR 200.318.
d. The costs for establishing or using minority and women's
business liaison services.
e. 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.
f. The costs (including legal, technical, and administrative
costs) of assessing the merits of or negotiating the settlement of
a claim by or against a grantee 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;
(3) The costs are not incurred to prepare documentation that
should be prepared by the contractor to support a claim against the
grantee; and
(4) The Regional Administrator determines that there is a
significant Federal interest in the issues involved in the
claim.
g. 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 g(1) are met, the
following are examples of allowable change orders 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 g(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.
h. The costs of the services of the prime engineer required by §
35.2218 during the first year following initiation of operation of
the project.
i. The cost of development of a plan of operation including an
operation and maintenance manual required by § 35.2106.
j. Start-up services for onsite training of operating personnel
in operation and control of specific treatment processes,
laboratory procedures, and maintenance and records management.
k. The specific and unique costs of field testing an innovative
or alternative process or technique, which may include equipment
leasing costs, personnel costs, and utility costs necessary for
constructing, conducting, and reporting the results of the field
test.
2. Unallowable costs related to sub- agreements include:
a. The costs of architectural or engineering services incurred
in preparing a facilities plan and the design drawings and
specifications for a project. This provision does not apply to
planning and design costs incurred in the modification or
replacement of an innovative or alternative project funded under §
35.2032(c).
b. Except as provided in 1.g. above, architectural or
engineering services or other services necessary to correct defects
in a facilities plan, design drawings and specifications, or other
subagreement documents.
c. The costs (including legal, technical and administrative) of
defending against a contractor claim for increased costs under a
subagreement or of prosecuting a claim to enforce any subagreement
unless:
(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;
(3) The claim cannot be settled without arbitration or
litigation;
(4) The claim does not result from the grantee's
mismanagement;
(5) The Regional Administrator determines that there is a
significant Federal interest in the issues involved in the claim;
and
(6) In the case of defending against a contractor claim, the
claim does not result from the grantee's responsibility for the
improper action of others.
d. Bonus payments, not legally required, for completion of
building before a contractual completion date.
e. All incremental costs due to the award of any subagreements
for building significant elements of the project more than 12
months after the Step 3 grant award or final Step 2 + 3 approvals
unless specified in the project schedule approved by the Regional
Administrator at the time of grant award.
B. 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.
2. Unallowable costs include:
a. The costs of solutions to aesthetic problems, including
design details which require expensive building techniques and
architectural features and hardware, that are unreasonable or
substantially higher in cost than approvable alternatives and that
neither enhance the function or appearance of the treatment works
nor reflect regional architectural tradition.
b. The cost of land acquired for the mitigation of adverse
environmental effects identified pursuant to an environmental
review under NEPA.
C. Privately or Publicly Owned Small and Onsite Systems
1. Allowable costs for small and onsite systems serving
residences and small commercial establishments inhabited on or
before December 27, 1977, include a. through e. below.
Alternatively, the two-thirds rule at 40 CFR 35.2116(b) may be used
to determine allowable residential flows to be served by publicly
owned small and alternative wastewater systems, including a.
through e. below:
a. The cost of major rehabilitation, upgrading, enlarging and
installing small and onsite systems, but in the case of privately
owned systems, only for principal residences.
b. Conveyance pipes from property line to offsite 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 in-house
devices.
d. Treatment or pumping units from the incoming flange when
located on private property and conveyance pipes, if any, to the
collector sewer.
e. The cost of restoring individual system building sites to
their original condition.
2. Unallowable costs for small and onsite 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 or from the house to the property line if the
treatment unit is not located on that user's property.
c. Wastewater generating fixtures such as commodes, sinks, tubs,
and drains.
D. Real Property
1. Allowable costs for land and rights-of-way include:
a. The cost (including associated legal, administrative and
engineering costs) of land acquired in fee simple 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. These costs include:
(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 acquired for a soil absorption system for a
group of two or more homes;
(3) The cost of land acquired for composting or temporary
storage of compost residues which result from wastewater
treatment;
(4) 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 then 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 for land necessary for the building of
treatment works.
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; and
(3) The cost of restoring streets and rights-of-way 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 publicly or
privately owned wastewater treatment works provided all the
following criteria are met:
(1) The acquisition, in and of itself, considered apart from any
upgrade, expansion or rehabilitation, provides new pollution
control benefits;
(2) The acquired treatment works 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 does not circumvent the requirements of the
Act, these regulations, or other Federal, State or local
requirements.
2. Unallowable costs for land and rights-of-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
paragraphs 1. a. and b. of this section.
b. Any amount paid by the grantee for eligible land in excess of
just compensation, based on the appraised value, the grantee's
record of negotiation or any condemnation proceeding, as determined
by the Regional Administrator.
c. Removal, relocation or replacement of utilities located on
land by privilege, such as franchise.
E. 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 portion of allowable costs shall be the total
equipment cost less the cost attributable to the equipment's
anticipated use on existing collection sewers not funded on the
grant. This calculation 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 untreated wastewater.
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:
(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 tankers, 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.
g. Replacement parts identified and approved in advance by the
Regional Administrator as necessary to assure uninterrupted
operation of the facility, provided they are critical parts or
major systems components which are:
(1) Not immediately available and/or whose procurement involves
an extended “lead-time;”
(2) Identified as critical by the equipment supplier(s); or
(3) Critical but not included in the inventory provided by the
equipment supplier(s).
2. Unallowable costs of equipment, materials and supplies
include:
a. The costs of equipment or material procured in violation of
the procurement standards in 2 CFR 200.317 through 2 CFR 200.326
and 2 CFR 1500.9 and 1500.10.
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 grantees'
employees.
e. Items of routine “programmed” maintenance such as ordinary
piping, air filters, couplings, hose, bolts, etc.
F. Industrial and Federal Users
1. Except as provided in paragraph F.2.a., allowable costs for
treatment works serving 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 treatment works serving 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 management costs that would
otherwise be incurred in the absence of such removal credits.
G. Infiltration/Inflow
1. Allowable costs include:
a. The cost of treatment works capacity adequate to transport
and treat nonexcessive infiltration/inflow under § 35.2120.
b. The costs of sewer system rehabilitation necessary to
eliminate excessive infiltration/inflow as determined in a sewer
system study under § 35.2120.
2. Unallowable costs include:
a. When the Regional Administrator determines that the flow rate
is not significantly more than 120 gallons per capita per day under
§ 35.2120(c)(2)(ii), the incremental cost of treatment works
capacity which is more than 120 gallons per capita per day.
H. 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 procedures.
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. The costs of additions to a treatment works that was assisted
under the Federal Water Pollution Control Act of 1956 (Pub. L.
84-660), or its amendments, and that fails to meet its project
performance standards provided:
(1) The project is identified on the State priority list as a
project for additions to a treatment works that has received
previous Federal funds;
(2) The grant application for the additions includes an analysis
of why the treatment works cannot meet its project performance
standards; and
(3) The additions could have been included in the original grant
award and:
(a) Are the result of one of the following:
(i) A change in the project performance standards required by
EPA or the State;
(ii) A written understanding between the Regional Administrator
and grantee prior to or included in the original grant award;
(iii) A written direction by the Regional Administrator to delay
building part of the treatment works; or
(iv) A major change in the treatment works' design criteria that
the grantee cannot control; or
(b) Meet all the following conditions:
(i) If the original grant award was made after December 28,
1981, the treatment works has not completed its first full year of
operation;
(ii) The additions are not caused by the grantee's mismanagement
or the improper actions of others;
(iii) The costs of rework, delay, acceleration or disruption
that are a result of building the additions are not included in the
grant; and
(iv) The grant does not include an allowance for facilities
planning or design of the additions.
(4) This provision applies to failures that occur either before
or after the initiation of operation. This provision does not cover
a treatment works that fails at the end of its design life.
e. Costs of royalties for the use of or rights in a patented
process or product with the prior approval of the Regional
Administrator.
f. Costs allocable to the water pollution control purpose of
multiple purpose projects as determined by applying the Alternative
Justifiable Expenditure (AJE) method described in the CG
series. 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.
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. The costs of replacing, through reconstruction or
substitution, a treatment works that was assisted under the Federal
Water Pollution Control Act of 1956 (Pub. L. 84-660), or its
amendments, and that fails to meet its project performance
standards. This provision applies to failures that occur either
before or after the initiation of operation. This provision does
not apply to an innovative and alternative treatment works eligible
for funding under § 35.2032(c) or a treatment works that fails at
the end of its design life or to a failed rotating biological
contactor eligible for funding under § 35.2035.
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 agency.
j. Costs of treatment works for control of pollutant discharges
from a separate storm sewer system.
k. The cost of treatment works that would provide capacity for
new habitation or other establishments to be located on
environmentally sensitive land such as wetlands or floodplains.
l. The costs of preparing a corrective action report required by
§ 35.2218(c).
I. Design/Build Project Grants
1. Allowable costs include:
a. The costs of supplementing the facilities plan to prepare the
pre-bid package including the cost of preliminary boring and site
plans, concept and layout drawings, schematic, general material and
major equipment lists and specifications, instructions to builders,
general and special conditions, project performance standards and
permit limits, applicable State or other design standards, any
requirements to go into bid analyses, and other contract documents,
schedules, forms and certificates.
b. The costs for building the project, including:
(1) Project costs based on the lowest responsive, responsible
competitive design/build project bid.
(2) Construction management services including detailed plans
and specifications review and approval, change order review and
approval, resident inspection, shop drawing approval and
preparation of an O & M manual and of user charge and sewer use
ordinance systems.
(3) Any adjustments to reflect the actual reasonable and
necessary costs for preparing the pre-bid package.
(4) Post-construction activities required by project performance
certification requirements.
(5) Contract and project administration activities including the
review of contractor vouchers and payment requests, preparation of
monitoring reports, grant administration and accounting services,
routine legal costs, cost of eligible real property.
(6) Contingencies.
2. Unallowable costs include:
a. All costs in excess of the maximum agreed Federal share.
b. Costs of facilities planning where the grantee has received a
Step 1 grant.
[49 FR 6234, Feb. 17, 1984, as amended at 50 FR 45896, Nov. 4,
1985; 55 FR 27098, June 29, 1990; 79 FR 76057, Dec. 19, 2014]