Appendix D to Subpart E of Part 1980 - Alcohol Production Facilities Planning, Performing, Development and Project Control
7:14.1.1.1.9.2.12.55.20 : Appendix D
Appendix D to Subpart E of Part 1980 - Alcohol Production
Facilities Planning, Performing, Development and Project Control
(I) Design Policy. The borrower shall ensure or cause to
be ensured that:
(A) All project facilities are designed utilizing accepted
engineering practices and are conformed to applicable Federal,
State and local codes and requirements.
(B) Proven equipment and processes are employed in all project
facilities unless an exception is granted by the Administrator or
designee of Rural Development (“Administrator”) in accordance with
paragraph (B)(2) hereof and pilot equipment or processes are used
instead.
(1) Equipment and processes shall be considered “proven” if they
have been successfully employed in other commercial facilities.
(2) Equipment and processes shall be considered pilot if they
have not been used in a commercial operation but have been operated
on a scale such that all design and material problems have been
identified and resolved and operations maintained to demonstrate
that the equipment and process may be successfully applied to the
proposed commercial operation. Pilot equipment and processes may be
considered for use in the project subject to the following:
(a) The plans, specifications, and operational data for the
applicable facilities are reviewed by the Administrator or designee
and lender. If, in the opinion of Rural Development, the proposed
processes or equipment are insufficiently developed to assure
reliable and successful operation of the project, proven processes
and equipment will be utilized.
(b) If pilot processes or equipment are used, the Administrator
or designee will also require that:
(i) Reasonable provision is made in the project for conversion
to proven equipment or processes; and
(ii) The borrower agrees to convert to proven equipment or
processes if conversion is necessary to protect the interest of the
Government in the project. A reserve account for this conversion
may be required. This account will not be an eligible loan
purpose.
(C) Facility and equipment design incorporates cost-effective
primary fuel systems, energy recovery systems and conservation
measures to the maximum extent that this is feasible and consistent
with paragraphs (I), (A), and (B) of this appendix.
(II) Technical Services. (A) The borrower is responsible
for selecting engineering consultants with suitable experience,
training and professional competence in the design and construction
of the project to assure that the completed project will operate at
the prescribed levels of performance. In discharging its
responsibility the borrower will obtain or cause to be
obtained:
(1) Full engineering services for design and construction
inspection for all project facilities. Resident inspection by
qualified persons will be required.
(2) Agreements for engineering or design/build services which
describe the project facilities in terms of the parameters critical
to the successful operation of the project. The parameters shall
include input quantities, conversion efficiency, rate of production
and fuel consumption and product quality under normal operating
conditions. The design parameters will be mutually agreed upon by
the borrower, lender, the State Director and the project engineer,
and may not be modified without the written concurrence of each of
these parties. These agreements for engineering or design/build
services will require, or the borrower will otherwise obtain,
assurance satisfactory to the State Director that:
(a) The project engineer will maintain adequate insurance to
protect the borrower, lender and the Government from incurring
expenses resulting from errors and omissions of the engineer in
performance of engineering services.
(b) The project engineer will certify that only proven equipment
and processes will be utilized in the proposed development. The
State Director may request evidence of successful operations of
such proven equipment and process. If proven equipment or processes
are not used in the project, the project engineer will identify
these items and provide the information necessary for acceptance by
the Administrator, borrower and lender in accordance with paragraph
(I)(B)(2) of this appendix.
(c) If used equipment or existing facilities are incorporated
into the project, they must be inspected by the project engineer or
by another qualified engineer of the borrower. This engineer will
prepare a report describing the proposed facilities or equipment
and will comment on their suitability for use in the project. The
report will also identify the modifications necessary for
successful integration into the project. A cost estimate will also
be included comparing new equipment and facilities to the proposed
existing facilities or used equipment. Consideration must be given
to the relative energy requirements of used and new facilities and
their relative operation and maintenance costs.
(d) The project engineer or qualified individuals representing
the manufacturer of principal equipment (or the designer/builder if
the contractor has designed the plant) will visit the plant site at
reasonable intervals for a period of one year after substantial
completion of the project. Such personnel will be experienced in
the proper operation and maintenance of applicable plant
components. A report will be presented to the borrower within two
weeks of each site visit advising the borrower of operation and
maintenance deficiencies. A copy of each report will be forwarded
to the State Director and lender by the borrower.
(e) The project engineer will prepare or supervise the
preparation of a record drawing of all facilities. One copy will be
submitted to the lender and the borrower.
(f) The project engineer or another group acceptable to the
State Director and lender will prepare an operation and maintenance
manual and assist the borrower in the start-up of the project. The
operation and maintenance manual will describe the specific
operation and maintenance procedures which must be performed for
the project to operate at its rated capacity and efficiency and
outline product testing, quality control, plant safety and
emergency shut-down procedures.
(g) The project engineer will assist the borrower in determining
acceptability of materials, equipment and construction during the
construction period, review shop drawings, payment estimates and
change orders, and assist in determining substantial completion of
the project and final completion of individual contracts. (1) The
project is substantially complete when:
(i) Construction is sufficiently completed in accordance with
plans and specifications so that the project may be used for its
intended purpose, and;
(ii) The project is producing products of the quantity and
quality and at the conversion and energy efficiencies proposed in
the completed application submitted by the lender and borrower and
approved by the Rural Development.
(2) The State Director must concur that the project is
substantially complete. The following evidence, in form and
substance satisfactory to the State Director and lender, must be
submitted prior to such concurrence:
(i) A certificate from the project engineer stating that all
facilities are substantially complete. Engineers who design
specialized equipment or processes must also certify that
construction/fabrication is acceptable in accordance with plans and
specifications previously approved by them. The certification of
the project engineer must be based upon a project start-up
procedure where the complete project operates continuously to reach
steady-state operating conditions. During this period contractors
and engineers will identify and correct problems in operations,
malfunctions in equipment, failure in materials and defects in
workmanship. After this pre-startup, the certifying engineers will
monitor project operations for a continuous period of at least 72
hours or 3 consecutive batch runs as appropriate to assure that all
equipment is operating satisfactorily at rated capacity and
efficiency.
(ii) Copies of system operation and performance data obtained
during project start-up.
(iii) Exceptions to substantial completion and a list of
nonsubstantial items which must be completed prior to release of
any contractor's retainage.
(3) If the project is not producing products of the required
quantity or quality at the prescribed conversion efficiencies, even
though the project is otherwise physically complete in accordance
with paragraph (1)(i) of this subparagraph, the project engineer
will prepare a report identifying the corrective actions including
an estimate of costs and additional time necessary to meet
established performance criteria.
(4) The project must be certified to be substantially complete
by an independent engineer if any portion of the project has been
designed or constructed by the borrower or the project engineer has
participated in any portion of the construction.
(B) Modification of plans and specifications will not be made
without the written authorization of the project engineer.
(C) The Administrator, State Director or their representative's
acceptance or concurrence in feasibility studies, preliminary
engineering reports, plans, specifications, contract documents and
payment estimates will not be construed as a representation of the
adequacy of same, reliability of cost estimates or quality of
construction, nor will such acceptance or concurrence be deemed a
waiver of any of the Government's rights or remedies against any
person or party. Reviews and construction inspections by the
Administrator, State Director or their representatives are solely
for the benefit of the Government and do not relieve the lender or
borrower of their obligation to conduct project reviews and
inspections.
(III) Project Construction.
(A) Borrower will not award contracts for the construction of
any project facilities unless and until:
(1) The borrower obtains applicable construction permits,
right-of-ways, licenses and approvals of Federal, State and local
authorities for the construction of such facilities.
(2) The State Director concurs in applicable plans,
specifications and contract documents. Standard contract documents
prescribed for use in Federally assisted projects may be used as a
guide for determining the minimum standards for contract
acceptability. These standard documents are contained in Guides 18
and 19 of subpart A of part 1942 of this chapter (available in any
Rural Development office).
(B) The borrower has the responsibility, without recourse to the
Government, for the settlement and satisfaction of all contractual
and administrative issues arising out of procurements. This
includes, but is not limited to, disputes, claims, protests of
awards, or other matters of a contractual nature. Matters
concerning violation of laws are to be referred to such local,
State, or Federal authority as may have proper jurisdiction.
(C) The borrower's attorney will review executed contract
documents including applicable performance and payment bonds and
provide a certificate to the borrower and lender that they have
been properly executed and that the persons executing these
documents have been properly authorized to do so.
(D) In all contracts for construction or facility improvement
awarded in excess of $100,000, the borrower will require bonds and
a bank letter of credit or cash deposit in escrow, assuring
performance and payment of 100 percent of the contract cost. The
surety will normally be in the form of performance and payment
bonds. Such assurance shall remain in full force and effect through
any warranty period. Companies providing performance and payment
bonds must hold a certificate of authority as an acceptable
security on Federal bonds and eligible for listing in Treasury
circular 510 as amended and be legally doing business in the State
the project is located.
(E) Project Changes. Any change in the project which may affect
collateral, its ultimate financial viability or compliance with the
conditional commitment must have prior approval of the lender and
Rural Development.
(1) Construction contracts will require that change orders
receive prior approval from the lender when such changes:
(a) Increase or decrease contract price,
(b) Materially modify contract provisions,
(c) Increase or decrease time of completion,
(d) Affect project performance.
(2) All change orders will be recorded on a chronologically
numbered contract change order as they occur. Change orders will
not be included in payment estimates until approved by the
borrower, project engineer, the lender and concurred in by Rural
Development.
(F) Warranty.
(1) All major equipment must be guaranteed by the manufacturer
to be free from defects in workmanship and materials for a period
of one year after start-up of equipment.
(2) Equipment purchased by a construction contractor or design
builder and all other work shall be further warranted to be free
from defect in material and workmanship by the contractor or the
design builder for a period of one year after substantial
completion of the contract.
(3) Applicable provisions to this effect shall be included in
equipment purchase orders or construction contracts.
(G) Lease agreements. Where the right of use or control of any
property or equipment not owned by the borrower is essential to the
successful operation of the project during the life of the loan,
such right will be evidenced by written agreements or contracts
between the owner(s) of the property or equipment and the borrower.
Lease agreements shall not contain provisions for restricted use of
the site or facility, forfeiture or similiar cancellation clauses
and shall provide for the right to transfer and lease without
restriction. Such lease contracts or agreements shall be approved
by the lender and Rural Development.
(IV) Project Control.
(A) Lender will adopt project control procedures to assure that
loan funds are applied for costs or expenses properly attributable
to the project (“Eligible Project Costs”) as proposed in the
completed application submitted by the lender and borrower and
approved by the Rural Development. A project monitoring account
(“Project Monitoring Account”) will be developed by lender for this
purpose and concurred in by the State Director. This account will
be divided into sufficient budget categories to permit adequate
control of expenditures and identification of potential budget
overruns.
(B) The first advance (“First Advance”) of loan funds to the
borrower will not commence from the Project Monitoring Account
prior to lender's receipt of evidence that:
(1) The borrower has made adequate provisions for compliance
with measures established by Rural Development to mitigate adverse
historical and environmental impacts.
(2) Applicable engineering, design/build, construction
management, inspection and plant start-up service agreements have
been obtained and accepted by the State Director and lender.
(3) The project engineer has prepared a detailed cost estimate
and construction schedule for all facilities related to the
project. This estimate must indicate that the project can be
completed with the funds available as shown on the Form RD 449-1,
“Application for Loan and Guarantee.” A reasonable contingency
amount will be included in the estimate. This contingency shall be
at least 20 percent of the estimated project costs for which firm
bids have not been received plus 5 percent of project costs for
which firm bids have been received. Construction interest and
inspection costs will be based upon a reasonable contingency for
unforeseen delays in project completion. The estimate shall include
a listing with associated costs of any proposed leasing
arrangements for property or equipment that is essential to the
successful operation of the project.
(4) All funds necessary for construction of project facilities
will be available when needed.
(5) The borrower has retained a project manager with sufficient
experience and training to supervise project construction and
engineering services on behalf of the borrower.
(C) After the first advance, future advances may be made from
the Project Monitoring Account, in accordance with prudent lender
practice, for all Eligible Project Costs established in the Project
Monitoring Account, provided these payments are made in accordance
with the terms of applicable contracts and are approved by the
borrower and, when applicable, recommended by the project
engineer.
(D) Payments for Eligible Project Costs incurred by the borrower
prior to satisfaction of the conditions precedent to the first
advance shall be made with borrower's funds or other nonguaranteed
loan funds only. These payments however, may be reimbursed through
the Project Monitoring Account as authorized by the State Director
after compliance with Paragraph (IV)(B) hereof. The lender will not
advance and the borrower will not be entitled to loan funds for
reimbursement if such costs or expenses incurred by the borrower
prior to the first advance, or at anytime thereafter, were for
costs or expenses other than Eligible Project Costs. Costs and
expenses accruing from but not limited to, interest charges imposed
by construction, equipment, material or service contracts, penalty
payments, damage claims, awards or settlements are not Eligible
Project Costs unless specifically approved by the State
Director.
(E) The lender will monitor the progress of construction and
undertake the reviews and project inspections necessary to
reasonably assure that funds are paid for Eligible Project Costs
and that problems in project development are expeditiously reported
to the State Director.
(F) The lender will prepare a monthly report showing the
expenditures made from each budget category of the Project
Monitoring Account. This report will include a review of
construction progress including proposed and approved contract
change orders and, to the extend possible, identify problems or
delays in construction or other matters which might affect
successful startup of project. This report may be based upon
information received from the project engineer and borrower and/or
independent observations of the lender. The report will be
initialed by the borrower and project engineer and submitted to the
State Director.
(G) Transfer of loan funds between established or new categories
of the Project Monitoring Account or any change in the total amount
of funds committed to the project will be reported by the lender to
the State Director as these changes occur.