Tap any paragraph to write a margin note. Your notes collect in the Desk below the text and file under cases with @. The side-by-side margin rail opens on a larger screen.

§
Marginalia
Code · REGISTER · 2007-10-31 · PROPOSED RULES · Unknown

Unknown. Final rule

39,165 words·~178 min read·/register/2007/10/31/07-5353

A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

--- schema: federal-register doc_type: fedreg source_file: FR-2007-10-31.xml --- 72 210 Wednesday, October 31, 2007 Contents Advisory Advisory Council on Historic Preservation See Historic Preservation, Advisory Council Agriculture Agriculture Department See Food and Nutrition Service See Forest Service See Rural Business-Cooperative Service NOTICES Agency information collection activities; proposals, submissions, and approvals, 61606-61607 E7-21360 Antitrust Antitrust Division NOTICES Competitive impact statements and proposed consent judgments:
Hilton Hotels Corp. et al., 61679-61680 07-5390 Architectural Architectural and Transportation Barriers Compliance Board NOTICES Meetings: Access Board, 61608 E7-21343 Arts Arts and Humanities, National Foundation See National Foundation on the Arts and the Humanities Centers Centers for Disease Control and Prevention NOTICES Agency information collection activities; proposals, submissions, and approvals, 61652-61655 E7-21415 E7-21416 E7-21423 Reports and guidance documents; availability, etc.:
Sanitation inspection of cruise ships; fees; correction, 61655 E7-21398 Centers Centers for Medicare & Medicaid Services RULES Medicare: Survey and certification activities; user fee program, 61540-61545 07-5400 Children Children and Families Administration NOTICES Grants and cooperative agreements; availability, etc.: Child Support Enforcement Research Demonstration Program et al., 61655-61656 E7-21344 Civil Civil Rights Commission NOTICES Meetings; State advisory committees:
Hawaii, 61608 E7-21405 Coast Guard Coast Guard RULES Ports and waterways safety; regulated navigation areas, safety zones, security zones, etc.: Nawiliwili Harbor, Kauai, HI, 61518-61522 07-5413 PROPOSED RULES Ports and waterways safety; regulated navigation areas, safety zones, security zones, etc.: Nawiliwili Harbor, Kauai, HI, 61584-61585 07-5412 Commerce Commerce Department See Industry and Security Bureau See International Trade Administration See National Institute of Standards and Technology See National Oceanic and Atmospheric Administration Copyright Copyright Royalty Board, Library of Congress PROPOSED RULES Copyright royalty funds:
Preexisting subscription and satellite digital audio radio services; rates and terms adjustment, 61585-61588 E7-21473 Defense Defense Department PROPOSED RULES Federal Acquisition Regulation (FAR): Governmentwide Enterprise Software Licensing Program (SmartBUY), 61603-61605 07-5405 NOTICES Arms sales notification; transmittal letter, etc., 61625-61629 07-5399 Employment Employment and Training Administration NOTICES Adjustment assistance; applications, determinations, etc.: AGC Chemicals Americas, Inc., et al., 61683-61684 E7-21352 Columbia Lighting, 61684 E7-21350 Hewlett Packard, 61684 E7-21349 Intasco USA et al., 61684-61686 E7-21353 Manpower Inc., 61686 E7-21356 Meco Corp., 61686 E7-21351 Mortgage Guaranty Insurance Corp., 61686-61689 E7-21354 Philip Morris Products International, LLC, 61689-61690 E7-21355 Energy Energy Department See Federal Energy Regulatory Commission EPA Environmental Protection Agency RULES Air programs; approval and promulgation;
State plans for designated facilities and pollutants: Nevada, 61533-61535 E7-21449 Air quality implementation plans; approval and promulgation; various States: California, 61525-61528 E7-21318 New York, 61528-61531 E7-21241 North Carolina, 61531-61533 E7-21234 Pesticides; tolerances in food, animal feeds, and raw agricultural commodities: Commodity vocabulary data base; nomenclature changes; technical amendment Correction, 61535-61536 E7-21471 PROPOSED RULES Air programs; approval and promulgation;
State plans for designated facilities and pollutants: Nevada, 61590 E7-21448 Air quality implementation plans; approval and promulgation; various States: California, 61588-61589 E7-21320 North Carolina, 61589-61590 E7-21235 NOTICES Confidential business information and data transfer, 61633-61634 E7-21090 Meetings: National Drinking Water Advisory Council, 61634-61635 E7-21444 Science Advisory Board, 61635-61636 E7-21446 E7-21450 Pesticide, food, and feed additive petitions: Syngenta Crop Protection, 61637-61638 E7-21436 Reports and guidance documents; availability, etc.:
Pesticides— Label statements regarding third-party endorsements and cause marketing claims, 61638-61640 E7-21468 Toxic and hazardous substances control: New chemicals— Receipt and status information, 61640-61644 E7-21439 Equal Equal Employment Opportunity Commission NOTICES Meetings; Sunshine Act, 61644 07-5438 Farm Farm Credit Administration PROPOSED RULES Farm credit system: Funding and fiscal affairs, loan policies and operations, and funding operations— Capital adequacy; Basel Accord, 61568-61574 E7-21422 FAA Federal Aviation Administration RULES Class E airspace, 61509-61510 07-5353 Standard instrument approach procedures, 61510-61512 E7-21134 PROPOSED RULES Airworthiness directives:
PILATUS AIRCRAFT LTD, 61580-61582 E7-21421 Reims Aviation S.A., 61578-61580 E7-21400 NOTICES Exemption petitions; summary and disposition, 61703 E7-21426 FCC Federal Communications Commission PROPOSED RULES Radio broadcast services: Multichannel video and cable television service; program access rules and examination of programming tying arrangements, 61590-61603 07-5388 Federal Emergency Federal Emergency Management Agency RULES Disaster assistance: Flood mitigation assistance, 61720-61750 E7-21265 Hazard mitigation planning and hazard mitigation grant program, 61552-61565 E7-21264 Insurance and hazard mitigation:
Flood mitigation assistance program; implementation, 61545-61552 E7-21263 Federal Energy Federal Energy Regulatory Commission NOTICES Electric rate and corporate regulation combined filings, 61631-61632 E7-21413 Hydroelectric applications, E7-21387 61632-61633 E7-21391 *Applications, hearings, determinations, etc.:* Alaska Power & Telephone Co., 61629 E7-21389 Apple Group, LLC, 61629-61630 E7-21481 Croft, David R. and McCarthy, Ellen D., 61630 E7-21390 Enbridge Energy Co., Inc. et al., 61630 E7-21388 High Sierra Power Marketing, LLC et al., 61631 E7-21392 FMC Federal Maritime Commission NOTICES Agreements filed, etc., 61644-61645 E7-21458 Ocean transportation intermediary licenses:
Air-Oceanic Services, Inc., et al., 61645 E7-21459 Fast Dispatch, Inc. et al., 61645-61646 E7-21457 I.C.S. Customers Service, Inc., 61646 E7-21460 Federal Reserve Federal Reserve System NOTICES Agency information collection activities; proposals, submissions, and approvals, 61646-61647 E7-21385 Banks and bank holding companies: Formations, acquisitions, and mergers, 61647 E7-21411 Permissible nonbanking activities, 61647 E7-21410 Meetings; Sunshine Act, 61647-61648 07-5430 Federal Retirement Federal Retirement Thrift Investment Board NOTICES Meetings;
Sunshine Act, 61648 07-5436 FTC Federal Trade Commission NOTICES Agency information collection activities; proposals, submissions, and approvals, 61648-61652 E7-21399 Federal Transit Federal Transit Administration NOTICES Environmental statements; availability, etc.: Los Angeles, CA; Regional Connector transit corridor, 61703-61706 E7-21424 Meetings: Eastside Extention Phase II Transit Corridor of Los Angeles, CA, 61706-61708 07-5406 Reports and guidance documents; availability, etc.:
Metropolitan Planning and State Planning and Research Program Grants et al.; proposed guidance circulars, 61708-61709 E7-21462 Financial Financial Management Service See Fiscal Service Fiscal Fiscal Service NOTICES Surety companies acceptable on Federal bonds: Commercial Alliance Insurance Co., 61713-61714 07-5414 Food Food and Drug Administration NOTICES Reports and guidance documents; availability, etc.: Antiretroviral drug development; role of HIV resistance testing, 61656-61657 E7-21403 Public availability of advisory committee member's financial interest information and waivers, 61657-61658 07-5408 Food Food and Nutrition Service RULES Child nutrition programs:
National School Lunch, School Breakfast, and Special Milk programs; procurement requirements, 61479-61495 E7-21420 Foreign Foreign Assets Control Office RULES Global terrorism sanction regulations: Palestinian Authority; transaction authorization, 61517-61518 E7-21357 Sudanese sanctions regulations: Miscellaneous amendments, 61513-61517 E7-21443 Forest Forest Service NOTICES Environmental statements; notice of intent: Apache-Sitgreaves National Forests, AZ; motorized travel management plan; correction, 61607 07-5396 Meetings:
Resource Advisory Committees— Davy Crockett National Forest, 61607 07-5398 GSA General Services Administration RULES Federal travel: Miscellaneous amendments, 61536-61540 E7-21254 PROPOSED RULES Federal Acquisition Regulation (FAR): Governmentwide Enterprise Software Licensing Program (SmartBUY), 61603-61605 07-5405 NOTICES Federal Management Regulation: California wildfires; Government owned and leased vehicles; premium fuel purchases due to market shortages, 61652 E7-21418 Reports and guidance documents; availability, etc.:
California wildfires; temporary duty and relocation travel of employees to impacted areas; waivers, 61652 E7-21393 Health Health and Human Services Department See Centers for Disease Control and Prevention See Centers for Medicare & Medicaid Services See Children and Families Administration See Food and Drug Administration See National Institutes of Health Historic Historic Preservation, Advisory Council NOTICES Meetings: Historic Preservation Advisory Council, 61606 07-5409 Homeland Homeland Security Department See Coast Guard See Federal Emergency Management Agency NOTICES Agency information collection activities; proposals, submissions, and approvals, 61662-61663 E7-21361 Housing Housing and Urban Development Department NOTICES Grants and cooperative agreements; availability, etc.:
Community Development Block Grant Program— Disaster recovery grants provided to States; waivers and alternative requirements, 61788-61789 E7-21440 Industry Industry and Security Bureau RULES Export administration regulations: Commerce Control List— China; export and reexport license requirements, 61512-61513 E7-21465 NOTICES Export privileges, actions affecting: Megatech Engineering & Services Pvt. Ltd. et al., 61609-61620 07-5382 Meetings: Transportation and Related Equipment Technical Advisory Committee, 61620-61621 07-5407 Interior Interior Department See Land Management Bureau See National Park Service NOTICES Meetings:
Exxon Valdez Oil Spill Trustee Council, 61663 E7-21406 IRS Internal Revenue Service PROPOSED RULES Income taxes: Consolidated returns; intercompany obligations Correction, 61582 E7-21464 Procedure and administration: Actuarial services, enrollment; user fees, 61583-61584 07-5428 NOTICES Committees; establishment, renewal, termination, etc.: Tax Exempt and Government Entities Advisory Committee, 61714 E7-21359 Meetings: Advisory Council, 61714-61715 E7-21358 International International Trade Administration NOTICES Antidumping:
Honey from— China, 61622 E7-21452 Antidumping and countervailing duties: Administrative review requests, 61621-61622 E7-21453 International International Trade Commission NOTICES Import investigations: Hot-rolled steel products from— Various countries, 61676-61677 E7-21337 Sodium hexametaphosphate from— China, 61677-61678 E7-21396 Justice Justice Department See Antitrust Division See Justice Programs Office NOTICES Pollution control; consent judgments: Amery Wirtshafter, 61678 07-5418 Metropolitan Government of Nashville and Davidson County, 61678-61679 07-5416 Nuthen's Perfect, Inc., 61679 07-5417 Theochem Laboratories, Inc. et.al., 61679 07-5415 Justice Justice Programs Office NOTICES Agency information collection activities; proposals, submissions, and approvals, 61680-61681 E7-21427 Labor Labor Department See Employment and Training Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 61681-61683 E7-21419 E7-21451 E7-21456 Land Land Management Bureau NOTICES Realty actions; sales, leases, etc.:
California, 61664 E7-21395 Library Library of Congress See Copyright Royalty Board, Library of Congress NASA National Aeronautics and Space Administration PROPOSED RULES Federal Acquisition Regulation (FAR): Governmentwide Enterprise Software Licensing Program (SmartBUY), 61603-61605 07-5405 National National Council on Disability NOTICES Committees; establishment, renewal, termination, etc.: Youth Advisory Committee, 61690 E7-21461 National Credit National Credit Union Administration RULES Credit unions:
Organization and operations— Federal credit union bylaws, 61495-61509 E7-21397 National Foundation National Foundation on the Arts and the Humanities NOTICES Meetings: Arts and Humanities, President's Committee, 61690 E7-21445 Humanities National Council, 61690-61691 E7-21441 National Institute National Institute of Standards and Technology NOTICES Agency information collection activities; proposals, submissions, and approvals, 61623 E7-21371 NIH National Institutes of Health NOTICES Inventions, Government-owned; availability for licensing, 61658-61660 E7-21370 Meetings:
National Institute of Arthritis and Musculoskeletal and Skin Diseases, 61660 07-5391 National Institute of Child Health and Human Development, 61661 07-5395 National Institute of Mental Health, 61660-61661 07-5393 07-5394 National Institute on Drug Abuse, 61660 07-5392 Reports and guidance documents; availability, etc.: Research involving recombinant DNA molecules; final actions under NIH guidelines, 61661-61662 E7-21404 NOAA National Oceanic and Atmospheric Administration RULES Fishery conservation and management:
Atlantic highly migratory species— Atlantic bluefin tuna, 61565-61567 E7-21442 NOTICES Agency information collection activities; proposals, submissions, and approvals, 61623-61624 E7-21373 E7-21375 National Park National Park Service NOTICES Agency information collection activities; proposals, submissions, and approvals, 61664-61666 E7-21377 Native American human remains, funerary objects; inventory, repatriation, etc.: Agriculture Department, Forest Service, Wallowa-Whitman National Forest, Hells Canyon National Recreation Area, Baker City, OR, et al., 61666-61668 E7-21367 E7-21368 Denver Museum of Nature & Science, Denver CO, 61668-61669 E7-21365 E7-21366 Milwaukee Public Museum, Milwaukee, WI, 61669-61670 E7-21369 Oregon State University Anthropology Department, Corvallis, OR, 61670-61672 E7-21378 Pennsylvania State Museum, Harrisburg, PA; correction, 61672 E7-21364 Robert S.
Peabody Museum of Archaeology, Phillips Academy, Andover, MA, 61672-61674 E7-21374 E7-21376 E7-21381 Southwest Museum of the American Indian, Autry National Center, Los Angeles, CA, 61674-61675 E7-21379 Wistar Institute, Philadelphia, PA, and Pu’uhonua o Honaunau National Historical Park, Honaunau, HI, 61675-61676 E7-21380 National Science National Science Foundation NOTICES Antarctic Conservation Act of 1978; permit applications, etc., 61691 E7-21362 Nuclear Nuclear Regulatory Commission NOTICES Decommissioning plans; sites:
Cabot Corp. Site, Reading, PA, 61692-61693 E7-21428 Environmental statements; availability, etc.: Crow Butte Resources, Inc., 61693-61694 E7-21429 Meetings: Nuclear Waste and Materials Advisory Committee, 61694 E7-21430 Reactor Safeguards Advisory Committee, 61694 E7-21432 *Applications, hearings, determinations, etc.:* NRG South Texas LP et al., 61691-61692 E7-21433 Postal Postal Service RULES Domestic Mail Manual: International rate schedules; Marshall Islands and Micronesia, 61524-61525 E7-21487 International Mail Manual:
Marshall Islands and Micronesia; International rate schedules reverted to domestic mail service, 61522-61523 E7-21486 Public Public Debt Bureau See Fiscal Service Rural Rural Business-Cooperative Service NOTICES Agency information collection activities; proposals, submissions, and approvals, 61607-61608 E7-21466 SEC Securities and Exchange Commission NOTICES Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc., 61694-61696 E7-21383 Chicago Stock Exchange, Inc., 61696-61697 E7-21384 International Securities Exchange, LLC, 61697-61699 E7-21386 Philadelphia Stock Exchange, Inc., 61699-61701 E7-21382 SBA Small Business Administration PROPOSED RULES Business loans:
Lender Oversight Program, 61752-61785 E7-20932 Small business size regulations: Fuel oil dealers industries, 61574-61578 E7-21401 NOTICES Disaster loan areas: California, 61701-61702 E7-21412 Minnesota, 61702 E7-21414 New York, 61702 E7-21408 Meetings: National Small Business Development Center Advisory Board, 61702 E7-21409 Small business size standards: Nonmanufacturer rule; waivers— Irradiation apparatus manufacturing, 61702-61703 E7-21407 Transportation Transportation Department See Federal Aviation Administration See Federal Transit Administration Treasury Treasury Department See Fiscal Service See Foreign Assets Control Office See Internal Revenue Service See United States Mint NOTICES Meetings:
Auditing Profession Advisory Committee; discussion outline, 61709-61713 E7-21402 U.S. Mint United States Mint NOTICES U.S. Mint 2004 Lewis and Clark Coin and Pouch Sets that may contain pouches that are not authentic American Indian products; refund offer, 61715-61716 E7-21463 Veterans Veterans Affairs Department NOTICES Meetings: Joint Biomedical Laboratory Research and Development and Clinical Science Research and Development Services Scientific Merit Review Board, 61716-61717 07-5401 Separate Parts In This Issue Part II Homeland Security Department, Federal Emergency Management Agency, 61720-61750 E7-21265 Part III Small Business Administration, 61752-61785 E7-20932 Part IV Housing and Urban Development Department, 61788-61789 E7-21440 Reader Aids Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, reminders, and notice of recently enacted public laws.
To subscribe to the Federal Register Table of Contents LISTSERV electronic mailing list, go to http://listserv.access.gpo.gov and select Online mailing list archives, FEDREGTOC-L, Join or leave the list (or change settings); then follow the instructions. 72 210 Wednesday, October 31, 2007 Rules and Regulations DEPARTMENT OF AGRICULTURE Food and Nutrition Service 7 CFR Parts 210, 215 and 220 [FNS-2007-0003] RIN 0584-AD38 Procurement Requirements for the National School Lunch, School Breakfast and Special Milk Programs AGENCY:
Food and Nutrition Service, USDA. ACTION: Final rule. SUMMARY: The Food and Nutrition Service
(FNS)is revising the regulations governing procedures related to the procurement of goods and services in the National School Lunch Program, School Breakfast Program and Special Milk Program to remedy deficiencies identified in audits and program reviews. This final rule makes changes in a school food authority's responsibilities for proper procurement procedures and contracts, limits a school food authority's use of nonprofit school food service account funds to costs resulting from proper procurements and contracts, and clarifies a State agency's responsibility to review and approve school food authority procurement procedures and contracts. This final rule also amends the Special Milk Program and School Breakfast Program regulations to make the procurement and contract requirements consistent with the National School Lunch Program regulations. These changes are intended to promote full and open competition in school food authority procurements, clarify State agency responsibilities, and ensure that only allowable contract costs are paid with nonprofit school food service account funds. DATES: This rule is effective November 30, 2007. However, implementation will be phased in for existing contracts. Implementation timeframes are discussed more fully in section III of the SUPPLEMENTARY INFORMATION . FOR FURTHER INFORMATION CONTACT: Melissa Rothstein, Branch Chief, or Lynn Rodgers-Kuperman, Program Analyst, Child Nutrition Division, Program Analysis and Monitoring Branch, Food and Nutrition Service, Department of Agriculture, 3101 Park Center Drive, Room 640, Alexandria, Virginia 22302-1500. FAX
(703)305-2879; telephone
(703)305-2590. SUPPLEMENTARY INFORMATION: I. Background On December 30, 2004, FNS published a Notice of Proposed Rulemaking (proposed rule) in the **Federal Register** (69 FR 78340) intended to remedy the deficiencies in school food authority procurement practices that are undermining full and open competition and resulting in unallowable uses of nonprofit school food service account funds. The December 2004 rule proposed to:
(1)Clarify allowable nonprofit school food service account expenditures for costs resulting from cost reimbursable contracts or cost reimbursable contract provisions;
(2)prohibit contract terms that allow payments from the nonprofit school food service account in excess of the contractor's actual net allowable costs, computed by deducting certain rebates, discounts and other credits; and
(3)require State agency review and approval of all contracts between school food authorities and food service management companies prior to their execution. As discussed in the preamble to the proposed rule, most school food authorities manage the National School Lunch Program, School Breakfast Program and Special Milk Program on their own. However, some school food authorities choose to contract with a commercial enterprise to manage the programs. These commercial enterprises are collectively known as food service management companies. In regulations published on January 18, 1969, FNS first permitted school food authorities operating under contract with a food service management company to participate in the National School Lunch Program under a pilot program (34 FR 807). On March 1, 1969, FNS issued prototype agreements for use by these school districts (34 FR 3704-3709). At that time, the only form of payment to a food service management company was a fixed price per plate or other meal equivalency served or delivered that included the contractor's full costs and profit. The food service management company was required to purchase food for the school food authority with invoices sent directly to the school food authority for payment. The cost of such food purchases was limited to the amount agreed upon between the food service management company and the school food authority (34 FR 3704). In effect, this contract was a cost reimbursable contract with a cap on costs plus a fixed management fee. Over time, the limit on costs was abandoned. Currently, food service management company contracts are either an inclusive fixed price per meal, or cost reimbursable with a fixed fee (without a cap on costs) contracts. We understand that the majority of all food service management company contracts are cost reimbursable with a fixed fee. School food authorities use funds from the nonprofit school food service account to pay for costs incurred under both self-managed and food service management company-contracted programs. The funds in the nonprofit school food service account come from federal and nonfederal sources. The federal funds are provided as reimbursements from the U.S. Department of Agriculture (Department) for meals and milk meeting the requirements in 7 CFR 210.10, 215.7 and 220.8 that are served to eligible children. The primary sources of nonfederal revenue are student payments, adult payments and a la carte sales revenue. Additional funding sources include State and local funds and sales revenue from vending and catering activities. Regardless of the source, the school food authority must retain all of these revenues in the restricted nonprofit school food service account and may only expend these revenues for the allowable costs of the school food authority's nonprofit school food service program. When procuring goods or services, including the use of a food service management company, school food authorities must conduct procurements in a manner that provides full and open competition. Full and open competition is necessary to provide a “level playing field” so that all potential contractors have the opportunity to win the contract award. Competition is impaired when potential contractors lack the necessary information to properly identify allowable and unallowable costs and establish the best and most responsive price, or when the procurement is written in a way that inhibits the ability of potential contractors to submit bids. A properly conducted procurement results in the school food authority obtaining the best product at the best price. Cost allowability is determined using the applicable program and Departmental regulations (7 CFR parts 210, 215, 220, 3016 and 3019, as applicable) and Office of Management and Budget
(OMB)Cost Circulars (A-87 Cost Principles for State, Local Governments and Indian Tribal Governments, or A-122 Cost Principles for Non-profit Organizations, as applicable). The determination regarding allowability is made, in part, based on the character of the recipient (i.e., school food authority) incurring the costs under the Federal program. As school food authorities are generally local governmental entities, all costs would, therefore, be subject to the principles found under OMB Circular A-87. In cases where the school food authority is a private non-profit (e.g., in the case of a parochial school), OMB Circular A-122 would apply. Further discussion of this matter is found later in this preamble (see *Applicability of the OMB Cost Circulars to school food authority contracts* under Section II of this preamble). The proposed rule clarified that only costs resulting from cost reimbursable contracts or cost reimbursable contracts or cost reimbursable contract provisions that meet applicable cost allowability requirements are allowable nonprofit school food service account expenditures. The proposed rule required that allowable contractor costs paid from the nonprofit school food service account be net of all discounts, rebates and applicable credits. In addition, the proposed rule required contractors to provide sufficient information to permit the school food authority to identify allowable and unallowable costs and the amount of all such discounts, rebates and credits on invoices and bills presented for payment to the school food authority. This requirement serves to make the identification of discounts, rebates and credits more transparent to school food authorities and allows for proper use of nonprofit school food service account funds. This requirement should not place an additional burden on contractors as they already track the costs that are billed to school food authorities and have accounting and billing systems in place for school food authority contracts. Under Generally Accepted Accounting Principles and good business practices, these contractors also must maintain systems to track and report discounts, rebates and credits. OIG Audit Reports The proposed rule was prompted in part by two audits released by the Office of Inspector General
(OIG)in 2002, both of which identified deficiencies in school food authority procurement practices that are undermining full and open competition and resulting in unallowable uses of nonprofit school food service account funds. The first audit, released in February 2002 as Audit Report 27010-3-AT, identified a number of instances where a cooperative buying group, using nonprofit school food service account funds, failed to conduct procurement transactions in a manner that provided for full and open competition. For example, one cooperative buying group failed to include all items to be purchased in its bid solicitation and instead purchased items directly from the contractor outside of the terms of the contract. To purchase directly from the contractor without the benefit of a proper procurement limits full and open competition, as other potential contractors are eliminated from consideration. The second audit (OIG Audit Report 207601-0027-CH, released in April 2002) revealed problems in several cost reimbursable contracts between school food authorities and food service management companies. OIG found contracts between school food authorities and food service management companies that lacked controls as to exactly how the company would determine the allowability of costs charged to the school food authority, including how the company would provide the school food authority with the benefits of purchase discounts, rebates, and credits in the determination of net costs. The failure of a school food authority to describe its cost reporting requirements fully in its solicitation document undermines full and open competition by placing unreasonable burdens on potential contractors. Without adequate details on how it must report costs to the school food authority, a potential contractor lacks the information needed to properly establish the fixed price component (management fee) of its offer. In addition, school food authorities cannot determine whether nonprofit school food service account funds may be used to pay all or only part of the costs billed by the contractor. In other cases, OIG found that even though the school food authority's procurement documents required the return of such discounts, rebates, and applicable credits, the food service management company was permitted to keep the discounts and rebates earned through purchases billed to the school food authority. Allowing the food service management company to keep these funds was a material change to the contract; material changes require a rebidding of the contract. The net effect is that excess charges are made against the food service account, thereby diminishing food service resources. Comments in General FNS received 16 comments on the proposed rule within the allotted 60-day comment period. Of the 16 commenters, seven were State agencies, three were food service management companies, and the rest were trade and professional organizations and consultants. The proposed rulemaking allowed interested parties the opportunity to request further information from FNS. Three interested parties (food service management companies and their representatives) requested and received the opportunity to meet with FNS in lieu of requesting the information via other means. These meetings were for informational purposes only. None of the discussions at those meetings constituted comments on the proposed rulemaking. Fourteen of the sixteen commenters supported either one or both of the proposed rule's goals of improving full and open competition in school food service procurements and limiting nonprofit school food service account expenditures to net allowable costs. All but two commenters raised concerns or objections to one or more of the proposed rule's provisions or requested additional guidance. One commenter only addressed long term beverage contracts and one commenter disagreed that the identification of credits and rebates in cost reimbursable procurement solicitations and contracts would foster greater competition in school food service procurements. No specific comments were received on the proposal to make the procurement and contract requirements and the consequences for failing to take corrective action in the Special Milk Program and School Breakfast Program regulations consistent with the National School Lunch Program regulations. II. Discussion of the Rule's Provisions and Related Comments Definitions The proposed rule added definitions of “Applicable credits,” “Contractor,” and “Nonprofit school food service account” to 7 CFR 210.2, 215.2 and 220.2. All subsequent references to regulatory sections are to title 7, Code of Federal Regulations, unless otherwise indicated. “Applicable credits” was defined with a cross-reference to definitions provided in OMB Circulars A-87 and A-122. The proposed rule at §§ 210.21(e)(1)(i), 215.14a(d)(1)(i) and 220.16(e)(1)(i) required that cost reimbursable contracts include a provision that costs paid to the school food authority's contractor be net of all discounts, rebates and other applicable credits received by the contractor. Examples of applicable credits are discount incentives for volume purchases, credits for returned goods, and rebates paid for the purchase of specific goods. Several commenters asked for clarification on whether earned income would be considered an “applicable credit” under the proposed definition. In general, earned income is a payment from the manufacturer to the distributor for work performed by the distributor on behalf of the manufacturer. Some examples of earned income include payments made to a distributor for promoting new products, hosting trade shows, distributing promotional information, or carrying a particular product in inventory. In each of these cases, the distributor must perform some service to receive the payment from the manufacturer. This type of earned income is not related to purchases made by a school food authority using its nonprofit school food service account and, therefore, is not considered an applicable credit. Three commenters asked for clarification on whether a prompt payment discount would be considered an applicable credit. A prompt payment discount is an applicable credit to the nonprofit school food service account only if the school food authority earns the reduction by paying the bill or by providing advance funds to another party to pay the bill on its behalf. We understand that in the majority of school food authority cost reimbursable contracts, distributors and food service management companies obtain goods from suppliers, are billed by those suppliers, pay the suppliers and then deliver the goods at some later point in time to the school food authority. In these arrangements, the prompt payment discounts are not applicable credits to the school food authority. On the proposed definition of “contractor,” a number of commenters asked for confirmation that the definition includes all contractors to the school food authority, not just food service management companies. The commenters are correct. Commenters also wanted clarification on whether a purchasing cooperative meets the definition of a contractor. A school food service purchasing cooperative, an organization formed by school food authorities to conduct purchases, is not a contractor to its school food authority members, but instead acts as their purchasing agent. As an agent, the purchasing cooperative must follow the same rules in acquiring goods and services that its school food service members would follow should the members make the acquisitions themselves. Another type of purchasing cooperative is a cooperative buying group, which is an already existing public, for-profit or nonprofit buying group which usually requires the payment of a fee to become a member. In exchange for the membership fee, the cooperative buying group offers its members pre-selected items at prices that are generally lower than the price paid at retail establishments for the same items. While the purchase of a membership from the cooperative buying group might create a contractual relationship between the cooperative buying group and the school food authority, a cooperative buying group is not considered a “contractor” under the program regulations. One comment was received on the proposed rule's definition of “Nonprofit school food service account.” The proposed rule established the definition of “Nonprofit school food service account” to mean the restricted account in which all of the revenue from the food service operations conducted by the school food authority principally for the benefit of school children is retained and used only for the operation or improvement of the nonprofit school food service. The commenter requested the word “restricted” be further defined. No change to this definition is being made in this final rule because the nature of the restrictions on the use of nonprofit school food service account funds are explained within the definition itself and at § 210.14(a). In addition to the requests for clarification discussed above, commenters also requested that definitions be added to the final rulemaking for “cost contract,” “fixed price contract,” “cost reimbursable contract” and “fixed fee.” The terms “cost reimbursable contract” and “fixed fee” have been defined in this final rule, because FNS will need to use these terms in regulatory language. However, we did not define the other two terms. The term “cost contract” is already defined in Department regulation 7 CFR 3016.3. FNS does not see the need to use the term “fixed price contract” in the National School Lunch, Special Milk or School Breakfast Program regulations, and has therefore elected not to define that term in regulatory language. (Please note, however, that while the term “fixed price contract” is not used in the regulations, it is a commonly used type of contract in these programs, and will be used at various times in this preamble.) Thus, the final rule adds definitions for “cost reimbursable contract” and “fixed fee” based on existing regulations, accounting definitions and previously issued policy and guidance. Accordingly, the three definitions proposed for “applicable credit,” “contractor,” and “nonprofit school food service account” are adopted without changes, and definitions for “cost reimbursable contract” and “fixed fee” are added to this final rulemaking for the National School Lunch, Special Milk and School Breakfast Programs at §§ 210.2, 215.2 and 220.2, respectively. Procurement Procedures As a general rule, all procurements in the School Nutrition Programs, whether for goods or services, must be competitive. Sections 210.21(c), 215.14a(c), and 220.16(c) of the proposed rule included the requirement that, in conducting procurements, State agencies and school food authorities may use their own procurement procedures which reflect applicable state and local laws and regulations, as long as procurements made with nonprofit school food service account funds meet the standards set forth in the program regulations and §§ 3016.36(b) through 3016.36(i), § 3016.60 and §§ 3019.40 through 3019.48, as applicable, and in the applicable OMB Cost Circulars. We have modified the language of §§ 210.21(c), 215.14a(c) and 220.16(c) to more accurately reflect the provisions of §§ 3016.36(a) and 3016.60(a), which specify that State grantees may elect to follow either the State laws, policies and procedures, or the procurement standards for other governmental grantees and subgrantees in accordance with § 3016.60(b) through (i). Regardless of the option selected, States must ensure that all contracts include any clauses required by Federal statutes and executive orders and that the requirements of § 3016.60(b) and
(c)are followed. Two commenters raised issues with procurement procedures in general. The first asked that we consider permitting cost plus percentage of cost contracts. The commenter's rationale for allowing this procurement method was that this form of contract costing may be the most cost effective procedure for school food authority bidding. In a cost plus percentage of cost contract, the contractor earns its fee based on a percentage of the cost of goods it sells under the contract. This contract cost method is prohibited government-wide because this form of contract pricing provides a financial incentive for the contractor to increase costs. The second commenter expressed concern that our position that competition is required for all procurements would prevent school food authorities from taking advantage of “value added” products or consider factors other than price in awarding a contract. Although the proposed rule did not directly address this issue, this comment reflects a misunderstanding of procurement practices which we will address briefly in this preamble and in future guidance and training. While a potential contractor may indeed have a better (“value added”) product, if that product does not meet solicitation specifications, the school food authority cannot use the phrase “value added” to circumvent proper procurement procedures. It is not appropriate for a school food authority to select products that do not meet solicitation requirements. If the school food authority determines that the value added product is more appropriate than the product it specified in its procurement solicitation, the school food authority must issue a new solicitation or wait until its next bid cycle to change its specifications. This does not mean, however, that a school food authority must consider a product that does not meet the specifications even if that product has the lowest cost. Another concern raised by this commenter and others was that school food authorities could be penalized if they failed to use either sealed bidding or competitive proposals to purchase every item needed during the school year. This is not the case, but does represent a common misunderstanding that the term “competitive procurement” means that either the sealed bid or competitive proposal method must be used. Some form of competition is required for every purchase, but not every purchase is subject to the formal (sealed bid or competitive proposal) solicitation methods. There are many items that are purchased in such small quantities that it is not cost effective for the school food authority to conduct a formal procurement to acquire these items. However, just because a purchase will not meet the formal procurement threshold does not mean the school food authority is exempt from competitively procuring the purchase. In these situations, the school food authority would use simplified small purchase procedures. Simplified small purchase procedures are those relatively simple and informal procurement methods for securing services, supplies, or property that may be used when the anticipated acquisition will fall below the Federal simplified acquisition threshold currently set at $100,000. Informal or small purchase procedures, discussed at § 3016.36(d), are relatively simple and informal practices that are not as rigorous as formal procurement procedures, but that still provide competition. For example, a school food authority seeking to purchase several thousand dollars worth of office supplies would not have to issue a formal solicitation document and publicize it widely. Rather, the school food authority could simply fax its list of needed supplies to at least three local suppliers, and then compare the prices received from each. School food authorities must determine and apply any State or local thresholds that are lower, and therefore more restrictive, than the current Federal small procurement threshold of $100,000. Provisions Required in Cost Reimbursable Contracts The proposed rule required, in §§ 210.21(e)(1), 215.14a(d)(1), and 220.16(e)(1), that school food authorities include specific solicitation and contract provisions in cost reimbursable contracts or contracts with cost reimbursable terms. These proposed provisions included the requirement that allowable costs be paid to the contractor net of all discounts, rebates, and applicable credits; and that the contractor individually identify on bills and invoices, and maintain documentation of, discounts, rebates, and applicable credits. In addition, the proposed provisions included the requirement that the contractor separately identify for each cost submitted for payment to the school food authority the amount of the cost that is allowable (i.e., can be paid from the nonprofit school food service account) and the amount that is unallowable, as determined in accordance with the applicable regulations and OMB cost circulars. These proposals, taken together, are intended to provide school food authorities with the information they need to identify the net allowable portion of their contract costs that can be funded from the nonprofit school food service account, and the amount of unallowable contract costs that must be funded from other sources. These proposals are also intended to inform contractors about these reporting requirements up front. Applicability of Contract Provisions to Different Contract Types A number of comments were received regarding the applicability of these solicitation and contract terms to fixed price contracts or to the fixed fee components of cost reimbursable contracts. A fixed price contract is a contract cost method that establishes a fixed price, usually on a per unit basis, for the goods and/or services provided by the contractor for the duration of the contract, including renewals. A fixed fee is often one component of a cost reimbursable contract. We did not propose, nor does this final rule require that these same solicitation and contract provisions relating to discounts, rebates, and applicable credits be included in fixed price solicitations or in the resulting fixed price contracts, because contractors have already taken discounts, rebates and other credits into consideration when formulating their prices for fixed price contracts. The same holds true for the fixed fee component of a cost reimbursable contract. However, the cost reimbursable components of any contract would be subject to the requirement that specific provisions relative to discounts, rebates and applicable credits be included. One commenter asked whether fixed fee contracts or the fixed fee components of cost reimbursable contracts that were adjusted over time would be subject to the proposed rulemaking. As long as these changes result from contractually agreed-upon adjustment factors, such as changes in the reimbursement rates for the School Meal Programs or changes in other third-party cost or price indices, the adjustments would not be subject to the contract terms set forth in this rulemaking. Several commenters suggested that FNS mandate the use of fixed price contracts. Based on anecdotal information, some State procurement statutes and regulations already limit public school food authorities to fixed price contracting, while other State agencies have mandated this form of contracting for specific acquisitions, such as acquiring the services of a food service management company. However, mandating the use of fixed price contracts on a national basis is not in the best interest of the school nutrition programs. State agencies and school food authorities, not FNS, should determine whether acquisitions are best suited to fixed price or cost reimbursable contracts. Commenters also expressed concern that by not subjecting fixed price contracts to the provisions of the proposed rule, school food authorities would not be required to determine the allowability of costs resulting from fixed price contracts. As stated above, fixed price contracts are not subject to the provision of the proposed rule requiring that allowable contractor costs paid from the nonprofit school food service account be net of all discounts, rebates, and applicable credits because contractors have already taken into consideration factors such as discounts, rebates and other credits when formulating their prices for fixed price contracts. However, the net cost factor is only one aspect used in determining allowable costs. Expenditures from the nonprofit school food service account for fixed price contracts must still meet the general requirements for allowable costs. To be allowable, a cost must be necessary, reasonable, and allocable. For example, a school seeks to contract for janitorial supplies for the entire school building through a single procurement solicitation. The contract will be awarded on a fixed price per item basis. Under the allowable cost rules, the costs associated with the janitorial supplies purchased for use by the school food service would be an allowable expenditure from the nonprofit school food service account, but costs associated with the janitorial supplies purchased for the rest of the school would not, as they are not allocable to the nonprofit school food service account. The fact that the contract was fixed price would not supersede the cost requirement that to be allowable, a cost must be necessary, reasonable and allocable to the nonprofit school food service. The same principles would apply to the fixed price fee of a cost reimbursable with fixed fee contract. One commenter raised the issue of the risks contractors, particularly food service management companies, incur when including guaranteed return provisions in contracts, and requested that contracts containing such provisions be considered fixed price for purposes of the final rulemaking. The commenter asserted that providing a guaranteed return causes its company to take profit and loss risks similar to what it assumes in fixed price contracts. The commenter further offered that since a company assumes financial risk by agreeing to the guaranteed return provision, it would be inequitable to treat the contract as cost reimbursable. Instead, the commenter indicated the contract should be viewed as fixed price, thus eliminating the need for the company to include discounts, rebates, and other applicable credits on bills and invoices submitted to the school food authority. We disagree. Guaranteed return provisions do not substantially alter the terms of a contract enough to convert it from cost reimbursable to fixed price. Furthermore, guaranteed return provisions are neither new nor unique to the School Meal Programs, nor are these provisions limited to cost reimbursable contracts. By entering into contracts with guaranteed return provisions, the contractor willingly agrees to accept the risk. In their current form, most of these guaranteed return provisions do not place successfully performing contractors at risk. As the commenter noted, guaranteed return provisions provide a financial assurance that certain contractual promises made to the school food authority will be met. There is no Federal requirement that a contract be drafted to eliminate all possible risk to a contractor, nor is a school food authority required to indemnify its contractor against all potential risks that might occur, particularly those that the contractor has agreed to accept. No changes are being made in this final rule based on these comments. Payment of net allowable costs from the nonprofit school food service account Most commenters supported the proposed rule's provisions limiting expenditures from the nonprofit school food service account to net allowable costs. However, there did appear to be some misunderstanding of this proposal. Some commenters asserted that we were proposing that discounts, rebates, and other applicable credits must be returned to the school food authority. Another commenter asserted that the proposal that contractors identify allowable and unallowable costs on invoices would substantially alter the current economic structuring of transactions between food service management companies and school food authorities. To clarify, this provision does not prevent a school food authority from entering into a contract that results in unallowable costs. It does, however, prohibit the school food authority from using nonprofit school food service account funds to pay any amount above net allowable costs. The decision regarding whether discounts, rebates, and other applicable credits are returned to the school food authority is a decision between the school food authority and its contractor. However, the school food authority can only use nonprofit school food service account funds to pay for costs that are net of discounts, rebates, and applicable credits. To prevent any future misunderstanding of this distinction, we have amended this final rule at §§ 210.21(f)(1)(i), 215.14a(d)(1)(i) and 220.16(e)(1)(i) to clarify that the limitations on the payment of allowable and unallowable costs pertain only to expenditures from the nonprofit school food service account. Confidentiality and Disclosure of Discounts, Rebates, and Credits One commenter requested confirmation that contractors would be required to disclose discounts, rebates, and other applicable credits whether the amounts were received by the contractor itself, a subsidiary or an affiliate of the contractor. The commenter is correct. The commenter also requested confirmation that the disclosure of such amounts would apply whether the contractor's headquarters is in the United States or otherwise or when these amounts are received by entities under the control of the same parent corporation as the contractor. Again, the commenter is correct. The intent is to promote full and open competition and limit expenditures of the nonprofit school food service account to allowable costs. That would not be achieved if contractors could use their corporate structures to circumvent the disclosure requirements of this rulemaking. Three commenters raised concerns with the protection of confidential business arrangements when reporting discounts, rebates and other applicable credits. FNS is sensitive to the commenters' concerns related to confidential business relationships. We agree with the commenters that the reporting of discounts, rebates and other applicable credits should not compromise business relationships that have been promised confidentiality. We were aware that such confidential business relationships could exist and we considered these relationships in developing the proposed regulation. For this reason, we proposed that the contractor individually identify discounts, rebates or applicable credits on the bills and invoices, but did not propose that the contractor identify the source of the discount, rebate or other applicable credit on the invoice. There are a number of ways for a contractor to provide sufficient information on its billing documents about the nature of the amounts reported without compromising its confidential business relationships. The contractor could provide the school food authority with a list of products upon which a discount, rebate, or other applicable credit could be earned during the term of the contract and then report the amount of discounts, rebates and other applicable credits in aggregate on billing documents to the school food authority; the contractor could identify the discount, rebate, or other applicable credit by earning period, e.g. for products purchased during the month of April the contractor could identify the discount, rebate, or applicable credit by invoice number. Since not all contractors will use the same method to record and report discounts, rebates, and other applicable credits within their corporate recordkeeping systems, FNS does not want to prescribe the specific method that should be used to identify these amounts on school food authority billing documents. Although this final rule does not require the reporting of confidential business information on bills and invoices, it does require that the contractor maintain records and source documents in support of the costs and discounts, rebates and other applicable credits included on bills and invoices to the school food authority and make them available to the school food authority, State agency and Department upon request. This record retention requirement is no different from the existing requirements found in Department regulations at §§ 3016.36(i)(10) and 3019.48(d). Contractors have always been required to maintain source documents in support of the costs charged to school food authorities. The intent of the provisions at §§ 210.21(f)(1)(iv), 215.14a(d)(1)(iv) and 220.16(e)(1)(iv) and the record retention requirements in the Department's regulations is to provide sufficient information to permit a school food authority to determine the costs billed by its contractors that can be paid from the nonprofit school food service account, and to permit a subsequent review of the contractor's source documents to verify that the costs, discounts, rebates, and other applicable credits were properly reported under the terms of the contract. To eliminate the possibility that readers could misinterpret this requirement, this final rule amends §§ 210.21(f)(1)(iv), 215.14a(d)(1)(iv) and 220.16(e)(1)(iv) to clarify that contractors are only required to identify the amount of each discount, rebate or applicable credit on the bill or invoice and whether the amount is a discount, rebate, or in the case of some other form of applicable credit, the nature of that credit. Timing Several commenters expressed concerns with the timing of the reporting required of contractors to identify discounts, rebates and other applicable credits on all bills and invoices sent to the school food authority. Presumably, this would occur on a monthly basis. In commenting on the timing, one commenter suggested requiring potential contractors to include this information up front, by bidding prices as if the discount, rebate or other applicable credit had already been earned, with a subsequent reconciliation at the end of the contract. We considered the option of requiring prices to be bid less discounts, rebates and other applicable credits. However, we do not believe this will improve full and open competition nor will such a requirement maintain the integrity of the nonprofit school food service account given the current state of school food authority procurements, as this information may not always be available to the contractor at the time of bidding. However, since FNS is encouraging State agencies to take a more active role in school food authority procurements, this final rule amends §§ 210.21(f)(1)(iv), 215.14a(d)(1)(iv) and 220.16(e)(1)(iv) to permit State agencies to approve reporting on other than a monthly basis, but not less frequently than annually. A State agency may choose to establish reporting timeframes on an individual contract basis or on a Statewide basis. Other commenters on the issue of timing addressed the reporting of discounts, rebates and other applicable credits that result from contract activity, but are not earned or received by the contractor until after the contract has ended. While some discounts, rebates, and other applicable credits will be known to the contractor when bills are issued to the school food authority, others, particularly volume discounts, may not be known until some point in the future. For example, a volume purchase discount is earned when sales of a particular item reach an established target. The contractor may not reach the target sales volume until after the school food authority's contract has ended, even though the purchases by the school contributed to reaching the target volume. This could occur when the timing of the school food authority's contract does not coincide with the timing of the volume discount earning period, or even when the timing of the contract and the volume discount earning period is the same but the contractor does not receive the benefit of a volume discount, rebate or other applicable credit until after the school food authority's contract has concluded. The method for providing the discount, rebate, or other applicable credit amount in this situation depends on whether the contractor and the school food authority maintain an on-going, uninterrupted, contractual relationship, *i.e.* , a subsequent or renewal contract is in place. When the contractor and the school food authority's contractual relationship is uninterrupted, the contractor can include the discount, rebate, or other applicable credit in the next reporting period after it is received. For those situations in which the contractor and the school food authority do not maintain an uninterrupted contractual relationship, the amount of the discount, rebate or applicable credit must be provided to the school food authority once these amounts are known to the contractor. Depending upon the school food authority's financial management practices, the school food authority may need the contractor to identify the period in which the discount, rebate, or other applicable credit was earned so that it can adjust its accounting records accordingly. In such cases, the contractor would need to provide sufficient information for the school food authority to identify the appropriate accounting period requiring adjustment. We agree that the proposed regulatory provisions should be clarified to address this issue. Therefore, we are amending §§ 210.21(f), 215.14a(d) and 220.16(e)(1) to require school food authorities to include specific directions in solicitations and contracts for reporting discounts, rebates, and applicable credits after the close of the contract to which the cost reductions apply. Identification of Allowable and Unallowable Costs on Invoices The provision of the proposed rule requiring contractors to identify allowable and unallowable costs on invoices was added to provide school food authorities with the information they need to determine what may be paid out of the nonprofit school food service account. We considered four alternatives when developing this provision of the proposed rule, including:
(1)Maintaining the status quo of not requiring specific documentation;
(2)requiring that contractors provide source documentation to school food authorities for all costs charged;
(3)requiring that contractors have an annual audit for each cost contract with a school food authority to determine allowable and unallowable costs; or
(4)requiring that contractors include only allowable costs on invoices. Maintaining the status quo was rejected because OIG audits and investigations indicated that nonprofit school food service account funds have been expended for unallowable costs because the school food authority had insufficient information to identify unallowable costs included on invoices. The requirement that contractors provide source documentation for all costs charged was rejected because it would be excessively burdensome on contractors to provide this information. Similarly, an annual audit requirement was rejected because it would be both burdensome and cost prohibitive for contractors to incur annual audit costs for each of its cost reimbursable contracts with school food authorities. Finally, the fourth alternative of requiring that contractors include only allowable costs on invoices was rejected in developing the proposed rule because it would interfere with the school food authority's right to enter into contracts that contained costs that were unallowable nonprofit school food service account expenditures, but nevertheless represented costs the school food authority was willing to fund from other sources. However, FNS has now reconsidered this fourth alternative (requiring that contractors include only allowable costs on invoices) because a school food authority can elect to contract only for allowable costs. If, in our previous example, the janitorial supplies contract was cost reimbursable instead of fixed price, pursuant to the provisions of this final rule, the contractor would appropriately identify all of the janitorial supplies sold to the school food authority as allowable costs on its monthly invoice. The contractor's identification of allowable and unallowable costs on the invoice does not mean that the school food authority can fund the entire cost of its janitorial supplies contract from its nonprofit school food service account. Because the school food authority, not the contractor, is ultimately responsible for ensuring that expenditures from the nonprofit school food service account are allowable costs as determined in accordance with the applicable OMB cost circular, the school food authority would still be required to fund only its share of the allowable and allocable janitorial supply costs from its nonprofit school food service account. As a result of this reconsideration, this final rule amends §§ 210.21(f)(1)(ii), 215.14a(d)(1)(ii) and 220.16(e)(1)(ii) to allow school food authorities to choose between two cost reporting provisions for solicitation documents and contracts. The first cost reporting provision finalizes the provision contained in the proposed rulemaking that contractors identify allowable and unallowable costs on billing documents. The second cost reporting provision requires contractors to exclude unallowable costs from billing documents and to certify that only allowable costs are submitted for payment and that records have been established that maintain the visibility of unallowable costs, including directly associated costs, in a manner suitable for contract cost determination and verification. Regardless of the cost provision chosen, contractors would still be required to report discounts, rebates and other applicable credits, and school food authorities would still be required to limit expenditures of nonprofit school food service account funds to net allowable costs. Applicability of the OMB Cost Circulars to School Food Authority Contracts Two comments were received on the proposed rule's provision that allowable costs be identified by the contractor in accordance with applicable OMB Cost Circulars (A-87 Cost Principles for State, Local Governments and Indian Tribal Governments and A-122 Cost Principles of Non-profit Organizations). These commenters asserted that the cost principles contained within the Federal Acquisition Regulations
(FAR)should be used to determine allowable costs that result from contracts with commercial organizations rather than cost principles contained in the OMB Cost Circulars applicable to public and private nonprofit school food authorities. The governing Department regulations (§§ 3016.22(b) and 3019.27) make clear that for each type of organization there is a set of Federal principles for determining allowable costs. The determination is made based on the type of recipient incurring the costs under the Federal program. Since commercial organizations are not eligible recipients of the school nutrition funds provided by FNS, their only role can be that of a contractor to an eligible recipient ( *i.e.* , a school food authority). As an eligible recipient of federal funds, a public school food authority must use OMB Circular A-87 to determine whether costs are allowable, while a private nonprofit school food authority ( *e.g.* , in the case of a parochial school) must use OMB Circular A-122 to make this determination. Only when a commercial organization is contracting directly with the Federal government would the FAR (48 CFR part 31, Subpart 31.2) and its applicable Cost Accounting Standards (48 CFR 9901.306) be used to determine allowable costs. Ultimately, the school food authority, not its contractor, is responsible for ensuring that expenditures from the nonprofit school food service account are allowable costs as determined in accordance with the applicable OMB cost circular. This is not a new requirement. School food authorities have been subject to the OMB cost circulars since November 10, 1981, when the Department issued 7 CFR 3015, Uniform Federal Assistance Regulations (46 FR 55640). Further, limitations on claiming only allowable costs have been in place for school food authorities since at least January 1, 1967 (32 FR 33). A related issue concerning the applicability of the FAR to school food service contracts is the recovery of administrative cost overhead charges from retained discounts and rebates. In this case, one commenter asserted that contractors should be allowed to retain rebates and discounts to cover those corporate indirect costs that are not included in the fixed fee component of their cost reimbursable contracts, and that such actions were permissible for contractors subject to the FAR at 48 CFR part 31, Subpart 31.2. The commenter further asserted that FNS should allow such practices. We disagree. As discussed above, the FAR does not apply to any school food service contracts. Therefore, these suggested practices are not adopted in this final rule. The same commenter also asserted that even if the FAR did not apply to contracts with school food authorities, the OMB cost circulars would allow the contractor to retain the discounts, rebates, and other applicable credits earned on the cost component of its contracts in order to offset its administrative costs charged through its fixed fee. Again, the Department disagrees. The effect of the commenter's position could unnecessarily increase nonprofit school food service expenditures. A cost reimbursable with fixed fee contract consists of the cost component and the fixed fee component. The rebates, discounts and other applicable credits subject to the rulemaking are earned through the cost component of the contract, not the contractor's fixed fee component. If FNS accepted the commenter's position, potential contractors could have an unfair advantage over school food authorities. Without full disclosure of the costs a contractor will actually charge, full and open competition is compromised because the school food authority cannot determine which of the respondents has made the most advantageous offer, taking into consideration price and other factors. The outcome of the commenter's position would be that a school food authority could not rely on the price a contractor bid or the contractual agreement into which it entered. This final rulemaking does not affect how a contractor establishes its full administrative costs in its fixed fee since this is a business decision. However, the principle of a fixed price is that the price is fixed in the manner and for the period of time specified in the contract. We are not aware of any cost principle or procurement provision that permits a contractor to increase the fixed price component of a contract without disclosure of the change and the agreement of the other party to the contract. When a potential contractor submits a fixed price offer, is awarded a contract based on the price, and then contractually agrees to that price, the contractor may not violate the terms of its contract by increasing that price by retaining undisclosed rebates, discounts or other applicable credits. This confirms one of the key points underlying the issuance of the proposed rule as well as this final rule, which is that school food authorities must clearly specify how costs must be billed to the school food authority in order for a potential contractor to determine which costs should be included in its fixed fee. In order to clarify what can be included in fixed fees, the newly added definition of “fixed fee” at §§ 210.2, 215.2 and 220.2 specifies that the contractor's direct and indirect administrative costs and profit allocable to the contract may be included. A potential contractor is free to determine what portion of its overhead and indirect administrative costs is allocable to a contract in its fixed fee component. However, if a potential contractor chooses to exclude such costs from the fixed fee component, attempting to recover these costs by retaining discounts, rebates and other applicable credits earned through the cost reimbursable portion of the contract is unallowable. If a school food authority permits the contractor to retain these discounts, rebates, and applicable credits the school food authority is responsible for ensuring that the amount that these discounts, rebates, and credits represent is returned the nonprofit school food service account. Contractor Administrative Costs One commenter asserted that contractors should have the option of charging the school food authority a fee for late payments. The commenter did not explain why he believed such charges were prohibited or how the proposed rule would interfere in a contractor's right to include a provision requiring payment of late fees in a contract with a school food authority. There is no provision in this final rule or elsewhere in any of the Child Nutrition Program or Department regulations that would prevent a contractor from negotiating an agreement that imposes a fee when the school food authority fails to pay its debts in a timely manner. In the past, FNS has affirmed the right of contractors to request and enforce provisions addressing the imposition of late payment fees in contracts, as long as such provisions do not conflict with applicable State and local procurement laws and regulations. However, we also continue to maintain the position that the school food authority may not use its nonprofit school food service account funds to pay the cost of such fees. These fees represent fines and penalties, which are unallowable costs under the applicable OMB cost circulars. In keeping with the provisions of this final rulemaking, the contractor would be required to identify any late payment charge on its billing documents as an unallowable cost ( *i.e.* , a cost that cannot be funded from the nonprofit school food service account). Two commenters requested clarification that any added costs resulting from implementing this final rule would be allowable charges to school food authorities. Neither of the commenters specifically identified where they would incur increased costs or the amount of any increase, but we would expect any increased costs to be incurred in the allocation and records maintenance of discounts, rebates, and other applicable credits to school food authorities, and/or in the identification and reporting of allowable and unallowable costs. Contractors already track the costs that are billed to school food authorities and have accounting and billing systems in place for school food authority contracts. Further, under Generally Accepted Accounting Principles and good business practices, these contractors maintain systems to track and report discounts and rebates. Any additional cost incurred by contractors for implementing the provisions of this regulation is an element of a company's administrative expenses and is allocable and may be included in the fixed fee component of a cost reimbursable contract. The decision as to whether to record the expense as an overhead, accounting or management cost is a corporate financial management decision. State Agency Review of Procurement Documents Sections 210.16(a)(10), 210.19(a)(6), 215.14a(c)(1) and 220.7(d)(1)(ix) of the proposed rule required State agency review and approval of contracts and contract amendments between school food authorities and food service management companies prior to each contract's execution to ensure that such contracts comply with all program requirements. If a school food authority fails to make changes required by the State agency, then the proposed rule provided at §§ 210.19(a)(2), 215.a(c)(3) and 220.16(c)(3) that all costs associated with such contracts would be unallowable charges to the nonprofit school food service account. One commenter was concerned that the proposal for the State agency to review the school food authority's food service management company contract prior to its execution would place a substantial burden on the State agency. The commenter viewed this review as a new requirement. It is not. FNS only proposed to change the timing of this review, not its scope. Under current regulations, State agencies generally do not review school food authority contracts until after the contracts have been executed ( *i.e.* , signed by the school food authority and the contractor). Unfortunately, when the State agency finds problems with the terms of an already executed contract, it may be too late to remedy the problems for the current contract, except when State or local laws and procedures permit contract nullification. Since the school food authority is bound to fulfill its contract terms, in the most serious cases, the State agency's only recourse is to disallow all costs resulting from the contract. In this case, school food authorities may not use the nonprofit school food service account to pay these costs. One State agency suggested that a school food authority's compliance with procurement requirements be included in the Single Audit. Since an audit is conducted on a prior period, it would be too late to correct any deficiencies that are found. Generally the only option to respond to audit deficiencies is to disallow the costs associated with noncompliance and seek corrective action to prevent recurrence of the problem. Cost disallowances can seriously undermine the financial integrity of the school's nutrition programs for children. FNS' intent in moving the State agency review of food service management company contracts from after execution to before execution is to provide a means for identifying and correcting problems in contracts before they are signed. This approach helps ensure that school food authorities are not routinely subject to cost disallowances. Another State agency expressed concern that the proposed rule at § 210.19(a)(6) would require a State agency to review previously approved prototype food service management company contracts even when no changes had been made to the contract. This was not our intent, nor do we believe this will occur. This final rulemaking requires school food authorities using a State agency pre-approved prototype food service management company contract to obtain prior written approval of the State agency only when changes are made to that contract (§§ 210.16(a)(10) and 220.7(d)(1)(ix)). In response to this comment, we have added a corresponding sentence at § 210.19(a)(6) of this final rule to clarify that when a school food authority is using a State agency prototype food service management company contract, the State agency is only required to review the changes made to that prototype contract. A third State agency, which from the description of its current actions already has an extensive preapproval process for food service management company contracts, expressed concern that the proposed change would impose an additional review on top of the review it already performs. FNS will work with individual State agencies to ensure that any changes resulting from implementing this final rulemaking do not duplicate or diminish a State agency's current approval process. Two State agencies indicated that pre-execution reviews of food service management company contracts are already occurring; four additional commenters supported the proposal. One commenter suggested nonsubstantive rewording of certain sentences at § 210.16(a)(9) and (a)(10). We agree that the commenter's proposed changes make the provisions easier to read and have amended § 210.16(a)(9) and (a)(10) and the corresponding provisions at § 220.7(d)(1)(viii) and (d)(1)(ix) of this final rule accordingly. We also added language to § 210.19(a)(6) to clarify that State agency review of contracts includes review of the supporting documentation to the contract, including the request for proposal or invitation for bid. Other commenters requested that the regulation permit the State agency flexibility in establishing due dates for school food authority procurement documents. Two commenters requested more specific regulatory authority to withhold payments when school food authorities fail to comply with a request for timely submission of required documents. Currently, sufficient regulatory authority exists to permit State agencies to establish reasonable due dates consistent with their resource and work load limitations. However, this final rule amends §§ 210.16(a)(10), 210.19(a)(6) and 220.7(d)(1)(ix) to permit State agencies to establish due dates for submission of the documents needed for this approval. Failure of a school food authority to respond to these due dates would result in regulatory noncompliance, and the school food authority's failure to correct this deficiency could result in the withholding of reimbursement pursuant to current §§ 210.22 and 220.18. Miscellaneous Comments Several commenters expressed opinions on the provision in the proposed rule at § 210.16(b)(1) that permits a food service management company to submit the 21-day menu and requires compliance with the menu for the first 21 days of food service operations. FNS was not proposing any changes to this provision, but instead used the opportunity of the proposed rulemaking to restructure a cumbersome sentence. One commenter questioned FNS' legal authority to issue the proposed regulation. The Secretary's authority to issue regulations is found at 42 U.S.C. 1779 which authorizes the Secretary to prescribe such regulations as deemed necessary to carry out the provisions of the Child Nutrition Act of 1966 and the Richard B. Russell National School Lunch Act. One commenter suggested clarifying that FNS regulations implement applicable OMB circulars at § 210.21(a) and the deletion of the last sentence at § 210.21(c). We agree and have amended § 210.21(a) and
(c)as well as the corresponding provisions at §§ 215.14a(a), 215.14(a)(c), 220.16(a) and 220.16(c) accordingly. Another commenter requested clarification as to whether Department regulation 7 CFR part 3015 still applies to FNS's school nutrition programs. While the majority of the Department's requirements that apply to the school nutrition programs have been moved from 7 CFR part 3015 into 7 CFR parts 3106 and 3019, some requirements, particularly those affecting the award of discretionary grants, acknowledgment on audio visual materials and procedures for prior approval of costs, still remain in 7 CFR part 3015. One commenter requested clarification that the prohibition at § 3016.60(b) that contractors may not develop or draft specifications, requirements, statements of work, invitations for bid, requests for proposal, contract terms and conditions or other document for use by a school food authority would not apply to winning bidders negotiating contract terms since conducting a procurement does not include post-procurement activities. While 7 CFR part 3016 was not the subject of the proposed rulemaking, it is important to correct the commenter's misunderstanding of what constitutes the procurement process. The procurement process includes all phases of the process from the initial determination that goods and services are needed until the conclusion of the record retention period following the termination of the contract period. While negotiating contract terms is acceptable, potential contractors are not permitted to draft contract terms and conditions. This position is consistent with §§ 3016.36(b) and 3016.60(b), and with the direction provided in Conference Report 105-786 accompanying the William F. Goodling Child Nutrition Reauthorization Act of 1998 (Pub. L. 105-336). This same commenter also expressed concerns that under the Federalism principles it is inappropriate for FNS to assist State agencies in the development and drafting of procurement documents. Responding to requests for assistance from State agencies does not conflict with the principles of Federalism, nor does providing assistance to State agencies in their development of procurement documents run counter to the report language cited. It is unreasonable to expect State agencies to develop appropriate procurement materials without access to FNS's resources and expertise concerning federal procurement rules. Ethics in Long Term Beverage and Food Service Management Company Procurements The proposed rule requested comments on whether additional regulatory action is needed concerning ethical practices associated with the procurement of long term beverage and food service management company procurements. FNS did not propose new regulatory requirements to address ethics in contracting since minimum standards already exist within the Department's regulations (§ 3016.36(b)(3) and § 3019.42). Three commenters indicated their opinions that FNS needs to undertake additional efforts in this area. Commenters also supported the need for additional efforts by FNS to address long term beverage contracting issues. Some of these commenters were specific about ethical issues in the procurement of long term beverage and food service management contracts, while others addressed the ethics issue on a broader scale. One commenter requested that the final regulations prohibit contractors from offering incentive payments or providing payments in advance of contract execution since such payments could subvert full and open competition. We do not disagree with the commenter that an inducement to contract conflicts with full and open competition. However, because we did not propose to issue regulations addressing ethics at this time, it would be inappropriate for us to do so in a final rulemaking. Pursuant to the Department regulations, school food authorities are currently required to have a written code of conduct that prohibits unethical actions in the procurement process. Another commenter recommended that FNS require State agencies and school food authorities to obtain written financial interest statements from potential consultants which would require these consultants to disclose possible conflicts of interest before engaging in consulting and technical assistance efforts. Again, while we agree that such statements represent good business practice, it would be inappropriate at this time to issue final regulations requiring such statements. Given the comments received on the issue of ethics in contracting, FNS has determined it is appropriate to include a reference to its existing ethics and integrity requirements at §§ 210.21(c), 215.14a and 220.16(c). FNS will continue to monitor procurement ethics and integrity as this final rule is implemented and will evaluate if additional actions are needed to address these issues. III. Implementation FNS also received comments on implementation timeframes for a final rulemaking. Some of the commenters requested a moratorium on implementation for existing contracts between school food authorities and food service management companies until after all contract renewals had been completed. These commenters viewed the one-year term of a food service management company contract with up to four additional one-year renewals as a single contract. That is not correct. Food service management company contracts are one year in duration. The decision to renew the contract is an affirmative decision by both parties. Generally each renewal period is accompanied by some change in the contract terms, usually related to the change in FNS' school meal reimbursement rates. We are also aware that some contracts contain a provision that results in renewal unless notification of nonrenewal is provided. This type of provision does not create a multi-year contract. One commenter requested implementation over a period of time to permit an orderly process for school food authorities to develop appropriate procurement documents and provide sufficient time for State agencies to review those documents. We recognize that in some cases, immediate implementation of these regulatory changes would create an unreasonable burden on school food authorities, State agencies and contractors. However, delaying implementation for years is more unreasonable. In considering how best to implement the changes in procurements required under this final rulemaking, we have determined that there is no reason to delay implementation for procurements yet to be conducted, but consideration is needed for existing contracts. Such consideration would take into account the available renewal periods under those contracts and procurement solicitations that have been issued but not yet awarded as of the date this final rulemaking is effective. Each State agency should have flexibility in establishing implementation schedules within its own State. In balancing the critical need for prompt implementation against these considerations, we have established the following implementation schedule:
(1)The regulations are applicable for all new solicitations issued on or after the effective date of this final rule.
(2)For those solicitations for contracts issued prior to the effective date of this final rule: a. School food authorities and State agencies with contracts with a term of 12 months or fewer remaining are exempt from applying the provisions of this rulemaking to those contracts; b. With State agency approval, school food authorities with contracts that have annual renewal provisions may delay implementation until expiration of the current contract plus one 12-month renewal period; and c. With State agency approval, school food authorities with contracts that have a term of more than 12 months (i.e., contracts with entities other than food service management companies) may delay implementation up to 24 months from the effective date of this regulation when the solicitation for the contract was issued prior to the effective date of this regulation. The annual term of most school food authority food service management company contracts mirrors the July 1-June 30 school year. This means that a school food authority that entered into the first year of its contract effective for the July 1, 2007-June 30, 2008 school year may, with State agency approval, renew the contract for the July 1, 2008-June 30, 2009 school year, but must conduct a new procurement that meets the requirements of these regulations for the school year that begins on July 1, 2009. State agencies are free to establish shorter timeframes for implementation or may require some school food authorities to implement the requirements sooner than others. However, in no case may a school food authority be permitted to delay implementation beyond the timeframes specified above. IV. Technical Assistance Many commenters, particularly State administering agencies and the School Nutrition Association, requested training and technical assistance on this final rule as well as on procurement requirements and allowable costs in general. The Department agrees and will, within current resource constraints, do its best to provide training and technical assistance on this rule after publication. We will also continue to issue guidance as the need arises. However, neither the Department's planned training nor its guidance will address specific State and local procurement requirements. Public school food authorities must follow their own applicable State and local procurement procedures and will only revert to Federal requirements when applicable State and local requirements are less restrictive. FNS is not the appropriate source for interpreting State and local requirements or for providing training on these requirements. We encourage State administering agencies, school food authorities and industry partners to look for these resources within their own State and local jurisdictions. V. Procedural Matters Executive Order 12866 This rule has been determined to be significant and was reviewed by the Office of Management and Budget in conformance with Executive Order 12866. Regulatory Impact Analysis Need for Action This action is needed to remedy deficiencies in school food authority procurements that have been identified in audits and program reviews, and to make the procurement requirements and consequences for failing to take corrective action consistent in the National School Lunch, Special Milk and School Breakfast Programs. Benefits School food authorities will benefit from the provisions of this rule because they will better understand their responsibilities for conducting proper procurements and consequences for failing to conduct proper procurements. State agencies will have the authority to review school food authority procurement documents and procedures to identify deficiencies and obtain corrective action, thereby minimizing the potential for the misuse of program funds. Competition will be enhanced because potential contractors will be provided with more specific information that will allow them to prepare more appropriate and competitive responses to school food authority solicitations. Costs Any increases in costs resulting from this final rule are expected to result from the contractor's allocation and records maintenance of rebates, discounts, and other applicable credits to school food authorities and the identification and reporting of allowable and unallowable costs. However, contractors already have accounting, reporting and records maintenance systems in place to track and report the costs that are billed to school food authorities. Further, under generally accepted accounting principles and good business practices, these contractors maintain systems to track and report rebates and discounts. For these reasons, it is not expected that contractors will incur a significant increase in costs due to these requirements. However, any additional costs incurred by contractors for implementing the provisions of these regulations would be part of the contractor's administrative expenses and could be included in the fixed fee component of a cost reimbursable contract. Regulatory Flexibility Act This rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). Nancy Montanez Johner, Under Secretary for Food, Nutrition and Consumer Services has certified that this rule will not have a significant economic impact on a substantial number of small entities. This rule will affect school food authorities, State agencies and cost reimbursable contractors. School food authorities will be required to limit the expenditure of nonprofit school food service account funds to net allowable costs, while cost reimbursable contractors of school food authorities will be required to provide information to permit school food authorities to make this determination. State agencies will be required to review contracts between school food authorities and food service management companies prior to their execution. While the effect of this rule may require potential contractors, selected contractors and school food authorities to amend the bidding process and make adjustments to accountability activities during a contract period, these process changes will not have a significant economic impact on those small entities. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under Section 202 of the UMRA, the Department generally must prepare a written statement, including a cost/benefit analysis, for proposed and final rules with Federal mandates that may result in expenditures to State, local, or tribal governments in the aggregate, or to the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires the Department to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective or least burdensome alternative that achieves the objectives of the rule. This rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) that impose costs on State, local, or tribal governments or to the private sector of $100 million or more in any one year. This rule is, therefore, not subject to the requirements of sections 202 and 205 of the UMRA. Executive Order 12372 The National School Lunch Program, Special Milk Program and School Breakfast Program are listed in the Catalog of Federal Domestic Assistance under No. 10.555, 10.556, and 10.553, respectively. For the reasons set forth in the final rule in 7 CFR part 3015, Subpart V and related Notice published at 48 FR 29114, June 24, 1983, these programs are included in the scope of Executive Order 12372, which requires intergovernmental consultation with State and local officials. Executive Order 13132 Executive Order 13132 requires Federal agencies to consider the impact of their regulatory actions on State and local governments. Where such actions have federalism implications, agencies are directed to provide a statement for inclusion in the preamble to the regulations describing the agency's considerations in terms of the three categories called for under section (6)(b)(2)(B) of Executive Order 13132. FNS has considered the impact of this rule on State and local governments and has determined that this rule does not have Federalism implications. This rule does not impose substantial or direct compliance costs on State and local governments. Therefore, under Section 6(b) of the Executive Order, a federalism summary impact statement is not required. Executive Order 12988 This rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is intended to have preemptive effect with respect to any State or local laws, regulations or policies which conflict with its provisions or which would otherwise impede its full implementation. This rule is not intended to have a retroactive effect unless so specified in the DATES paragraph of this preamble. Prior to any judicial challenge to the provisions of this rule or the application of its provisions, all applicable administrative procedures must be exhausted. Civil Rights Impact Analysis Under Department Regulation 4300-4, Civil Rights Impact Analysis, FNS has reviewed this final rule to identify and address any major civil rights impacts the final rule might have on minorities, women, and persons with disabilities. After a careful review of the rule's intent and provisions, FNS has determined that this rule would not in any way limit or reduce participants' ability to participate in the Child Nutrition Programs on the basis of an individual's or group's race, color, national origin, sex, age or disability. FNS found no factors that would negatively and disproportionately affect any group of individuals. Paperwork Reduction Act FNS is revising the regulations governing procedures related to the procurement of goods and services in the National School Lunch Program, School Breakfast Program and Special Milk Program to remedy deficiencies identified in audits and program reviews. This final rule makes changes in a school food authority's responsibilities for proper procurement procedures and contracts, limits a school food authority's use of nonprofit school food service account funds to costs resulting from proper procurements and contracts, and clarifies a State agency's responsibility to review and approve school food authority procurement procedures and contracts. As a result, we are amending § 210.16(a) by adding two requirements for school food authorities that contract with food service management companies to manage their food service operations. First, § 210.16(a)(9) requires school food authorities to obtain written approval of invitations for bids and requests for proposals when required by the State agency and to incorporate all State agency changes before issuance. Second, § 210.16(a)(10) requires the school food authority to ensure that the State agency has reviewed and approved contract terms and to incorporate all changes before any contract or amendment to an existing contract is executed. We are also amending § 210.19(a)(6) to specify that State agencies must review contracts, including amendments, and all supporting documentation, before execution of the contract. Current regulations require State agencies to annually review each contract to ensure compliance, which is usually done after the contract has been executed. Since the current requirement does not specify the timing of the review, additional time will be needed to review the contract and its related documents. As outlined below, these sections contain specific public reporting and recordkeeping requirements that require clearance under the Paperwork Reduction Act of 1995. Respondents to this collection are State agencies and school food authorities that employ a food service management company in the operation of their nonprofit school food service. Burden associated with this rule has been approved by OMB under OMB Control Number 0584-0544. State agencies and school food authorities that operate the School Breakfast and Special Milk Programs also operate the National School Lunch Program; therefore, the burden will be merged into OMB #0584-0006, National School Lunch Program, once this rule becomes effective. *Title:* Procurement Requirements for the National School Lunch Title/section & collection description Annual number of respondents Frequency of response Average burden per response (hours) Estimated annual burden hours Recordkeeping: 210.19(a)(6)—State agency review and approve contracts prior to execution 57 21.78 0.167 207.324 Current Approved under #0584-0006 New Burden Requirements 57 30 .4 684 Difference 476.676 Reporting: 210.16(a)(9) & (10)—School food authority provide procurement documents to State agency for approval. Current Approved under #0584-0006 1,648 1 .25 412 New Burden Requirements 1,648 1 1.5 2,472 Difference 2,060 Total Burden Requested 2,537 E-Government Act Compliance FNS is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes. List of Subjects 7 CFR Part 210 Grant programs—education, Grant programs—health, Infants and children, Nutrition, Penalties, Reporting and recordkeeping requirements, School breakfast and lunch programs. 7 CFR Part 215 Food assistance programs, Grant programs—education, Grant programs—health, Infants and children, Milk, Reporting and recordkeeping requirements. 7 CFR Part 220 Grant programs—education, Grant programs—health, Infants and children, Nutrition, Penalties, Reporting and recordkeeping requirements, School breakfast and lunch programs. Accordingly, 7 CFR parts 210, 215 and 220 are amended as follows: PART 210—NATIONAL SCHOOL LUNCH PROGRAM 1. The authority citation for part 210 continues to read as follows: Authority: 42 U.S.C. 1751-1760, 1779. 2. In § 210.2, add, in alphabetical order, the definitions of “Applicable credits”, “Contractor”, “Cost reimbursable contract”, “Fixed fee” and “Nonprofit school food service account” to read as follows: § 210.2 Definitions. *Applicable credits* shall have the meaning established in Office of Management and Budget Circulars A-87, C(4) and A-122, Attachment A, A(5), respectively. For availability of OMB circulars referenced in this definition see 5 CFR 1310.3. *Contractor* means a commercial enterprise, public or nonprofit private organization or individual that enters into a contract with a school food authority. *Cost reimbursable contract* means a contract that provides for payment of incurred costs to the extent prescribed in the contract, with or without a fixed fee. *Fixed fee* means an agreed upon amount that is fixed at the inception of the contract. In a cost reimbursable contract, the fixed fee includes the contractor's direct and indirect administrative costs and profit allocable to the contract. *Nonprofit school food service account* means the restricted account in which all of the revenue from all food service operations conducted by the school food authority principally for the benefit of school children is retained and used only for the operation or improvement of the nonprofit school food service. 3. In § 210.16: a. Amend paragraph (a)(7) by removing the word “and” at the end of the paragraph; b. Amend paragraph (a)(8) by removing the period at the end of the paragraph and adding a semicolon in its place; c. Add paragraphs (a)(9) and (a)(10); and d. Amend paragraph (b)(1) by removing the second sentence and adding a new sentence in its place. The additions read as follows: § 210.16 Food service management companies.
(a)* * *
(9)Obtain written approval of invitations for bids and requests for proposals before their issuance when required by the State agency. The school food authority must incorporate all State agency required changes to its solicitation documents before issuing those documents; and
(10)Ensure that the State agency has reviewed and approved the contract terms and that the school food authority has incorporated all State agency required changes into the contract or amendment before any contract or amendment to an existing food service management company contract is executed. Any changes made by the school food authority or a food service management company to a State agency pre-approved prototype contract or State agency approved contract term must be approved in writing by the State agency before the contract is executed. When requested, the school food authority must submit all procurement documents, including responses submitted by potential contractors, to the State agency, by the due date established by the State agency.
(b)* * *
(1)* * * A school food authority with no capability to prepare a cycle menu may, with State agency approval, require that each food service management company include a 21-day cycle menu, developed in accordance with the provisions of § 210.10, with its bid or proposal. * * * 4. In § 210.19: a. Amend paragraph (a)(2) by adding two new sentences between sentences two and three; and b. Amend paragraph (a)(6) by removing the first sentence and adding four new sentences in its place. The additions read as follows: § 210.19 Additional responsibilities.
(a)* * *
(2)* * * All costs resulting from contracts that do not meet the requirements of this part are unallowable nonprofit school food service account expenses. When the school food authority fails to incorporate State agency required changes to solicitation or contract documents, all costs resulting from the subsequent contract award are unallowable charges to the nonprofit school food service account. * * *
(6)* * * Each State agency shall annually review each contract (including all supporting documentation) between any school food authority and food service management company to ensure compliance with all the provisions and standards set forth in this part before execution of the contract by either party. When the State agency develops a prototype contract for use by the school food authority that meets the provisions and standards set forth in this part, this annual review may be limited to changes made to that contract. Each State agency shall review each contract amendment between a school food authority and food service management company to ensure compliance with all the provisions and standards set forth in this part before execution of the amended contract by either party. The State agency may establish due dates for submission of the contract or contract amendment documents. * * * 5. In § 210.21: a. Revise paragraph (a); b. Revise paragraph (c); and c. Add a new paragraph (f). The revisions and addition read as follows: § 210.21 Procurement.
(a)*General.* State agencies and school food authorities shall comply with the requirements of this part and 7 CFR Part 3016 or 7 CFR Part 3019, as applicable, which implement the applicable Office of Management and Budget Circulars, concerning the procurement of all goods and services with nonprofit school food service account funds.
(c)*Procedures.* The State agency may elect to follow either the State laws, policies and procedures as authorized by §§ 3016.36(a) and 3016.37(a) of this title, or the procurement standards for other governmental grantees and all governmental subgrantees in accordance with § 3016.36(b) through
(i)of this title. Regardless of the option selected, States must ensure that all contracts include any clauses required by Federal statutes and executive orders and that the requirements of § 3016.60(b) and
(c)of this title are followed. A school food authority may use its own procurement procedures which reflect applicable State and local laws and regulations, provided that procurements made with nonprofit school food service account funds adhere to the standards set forth in this part and §§ 3016.36(b) through 3016.36(i), 3016.60 and 3019.40 through 3019.48 of this title, as applicable, and in the applicable Office of Management and Budget Circulars. School food authority procedures must include a written code of standards of conduct meeting the minimum standards of § 3016.36(b)(3) or § 3019.42 of this title, as applicable.
(1)*Pre-issuance review requirement.* The State agency may impose a pre-issuance review requirement on a school food authority's proposed procurement. The school food authority must make available, upon request by the State agency, its procurement documents, including but not limited to solicitation documents, specifications, evaluation criteria, procurement procedures, proposed contracts and contract terms. School food authorities shall comply with State agency requests for changes to procurement procedures and solicitation and contract documents to ensure that, to the State agency's satisfaction, such procedures and documents reflect applicable procurement and contract requirements and the requirements of this part.
(2)*Prototype solicitation documents and contracts.* The school food authority must obtain the State agency's prior written approval for any change made to prototype solicitation or contract documents before issuing the revised solicitation documents or execution of the revised contract.
(3)*Prohibited expenditures.* No expenditure may be made from the nonprofit school food service account for any cost resulting from a procurement failing to meet the requirements of this part.
(f)*Cost reimbursable contracts* —(1) *Required provisions.* The school food authority must include the following provisions in all cost reimbursable contracts, including contracts with cost reimbursable provisions, and in solicitation documents prepared to obtain offers for such contracts:
(i)Allowable costs will be paid from the nonprofit school food service account to the contractor net of all discounts, rebates and other applicable credits accruing to or received by the contractor or any assignee under the contract, to the extent those credits are allocable to the allowable portion of the costs billed to the school food authority; (ii)(A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or
(B)The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in a manner suitable for contract cost determination and verification;
(iii)The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars;
(iv)The contractor must identify the amount of each discount, rebate and other applicable credit on bills and invoices presented to the school food authority for payment and individually identify the amount as a discount, rebate, or in the case of other applicable credits, the nature of the credit. If approved by the State agency, the school food authority may permit the contractor to report this information on a less frequent basis than monthly, but no less frequently than annually;
(v)The contractor must identify the method by which it will report discounts, rebates and other applicable credits allocable to the contract that are not reported prior to conclusion of the contract; and
(vi)The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department.
(2)*Prohibited expenditures.* No expenditure may be made from the nonprofit school food service account for any cost resulting from a cost reimbursable contract that fails to include the requirements of this section, nor may any expenditure be made from the nonprofit school food service account that permits or results in the contractor receiving payments in excess of the contractor's actual, net allowable costs. § 210.24 [Amended] 6. In § 210.24, amend the first sentence by removing the words “7 CFR part 3016 and 7 CFR part 3019, as applicable” and adding in their place the words “Departmental regulations at § 3016.43 and § 3019.62 of this title.” PART 215—SPECIAL MILK PROGRAM 1. The authority citation for part 215 continues to read as follows: Authority: 42 U.S.C. 1772 and 1779. 2. In § 215.2, add paragraph (c), previously reserved, and paragraphs (e-3), (e-4), (e-5) and (r-1) to read as follows: § 215.2 Definitions.
(c)*Applicable credits* shall have the meaning established in Office of Management and Budget Circulars A-87, C(4) and A-122, Attachment A, A(5), respectively. For availability of OMB circulars referenced in this definition, see 5 CFR 1310.3. (e-3) *Contractor* means a commercial enterprise, public or nonprofit private organization or individual that enters into a contract with a school food authority. (e-4) *Cost reimbursable contract* means a contract that provides for payment of incurred costs to the extent prescribed in the contract, with or without a fixed fee. (e-5) *Fixed fee* means an agreed upon amount that is fixed at the inception of the contract. In a cost reimbursable contract, the fixed fee includes the contractor's direct and indirect administrative costs and profit allocable to the contract. (r-1) *Nonprofit school food service account* means the restricted account in which all of the revenue from the nonprofit milk service maintained for the benefit of children is retained and used only for the operation or improvement of the nonprofit milk service. 3. In § 215.14a; a. Revise paragraph (a); b. Revise paragraph (c); and c. Add a new paragraph (d). The revisions and addition read as follows: § 215.14a Procurement standards.
(a)*General.* State agencies and school food authorities shall comply with the requirements of this part and parts 3015, 3016 and 3019 of this title, as applicable, which implement the applicable Office of Management and Budget Circulars, concerning the procurement of all goods and services with nonprofit school food service account funds.
(c)*Procedures.* The State agency may elect to follow either the State laws, policies and procedures as authorized by §§ 3016.36(a) and 3016.37(a) of this title, or the procurement standards for other governmental grantees and all governmental subgrantees in accordance with § 3016.36(b) through
(i)of this title. Regardless of the option selected, States must ensure that all contracts include any clauses required by Federal statutes and executive orders and that the requirements of § 3016.60(b) and
(c)of this title are followed. The school food authority or child care institution may use its own procurement procedures which reflect applicable State or local laws and regulations, provided that procurements made with nonprofit school food service account funds adhere to the standards set forth in this part and §§ 3016.36(b) through 3016.36(i), 3016.60 and §§ 3019.40 through 3019.48 of this title, as applicable, and in the applicable Office of Management and Budget Circulars. School food authority procedures must include a written code of standards of conduct meeting the minimum standards of § 3016.36(b)(3) or § 3019.42 of this title, as applicable.
(1)*Pre-issuance review requirement.* The State agency may impose a pre-issuance review requirement on a school food authority's proposed procurement. The school food authority must make available, upon request of the State agency, its procurement documents, including but not limited to solicitation documents, specifications, evaluation criteria, procurement procedures, proposed contracts and contract terms. School food authorities shall comply with State agency requests for changes to procurement procedures and solicitation and contract documents to ensure that, to the State agency's satisfaction, such procedures and documents reflect applicable procurement and contract requirements and the requirements of this part.
(2)*Prototype solicitation documents and contracts.* The school food authority must obtain the State agency's prior written approval for any change made to prototype solicitation or contract documents before issuing the revised solicitation documents or execution of the revised contract.
(3)*Prohibited expenditures.* No expenditure may be made from the nonprofit school food service account for any cost resulting from a procurement failing to meet the requirements of this part.
(d)*Cost reimbursable contracts—*
(1)*Required provisions.* The school food authority must include the following provisions in all cost reimbursable contracts, including contracts with cost reimbursable provisions, and in solicitation documents prepared to obtain offers for such contracts:
(i)Allowable costs will be paid from the nonprofit school food service account to the contractor net of all discounts, rebates and other applicable credits accruing to or received by the contractor or any assignee under the contract, to the extent those credits are allocable to the allowable portion of the costs billed to the school food authority; (ii)(A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account), or
(B)The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in a manner suitable for contract cost determination and verification;
(iii)The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars;
(iv)The contractor must identify the amount of each discount, rebate and other applicable credit on bills and invoices presented to the school food authority for payment and identify the amount as a discount, rebate, or in the case of other applicable credits, the nature of the credit. If approved by the State agency, the school food authority may permit the contractor to report this information on a less frequent basis than monthly, but no less frequently than annually;
(v)The contractor must identify the method by which it will report discounts, rebates and other applicable credits allocable to the contract that are not reported prior to conclusion of the contract; and
(vi)The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department.
(2)*Prohibited expenditures.* No expenditure may be made from the nonprofit school food service account for any cost resulting from a cost reimbursable contract that fails to include the requirements of this section, nor may any expenditure be made from the nonprofit school food service account that permits or results in the contractor receiving payments in excess of the contractor's actual, net allowable costs. 4. Redesignate §§ 215.15 through 215.17 as §§ 215.16 through 215.18, respectively; and add a new § 215.15 to read as follows: § 215.15 Withholding payments. In accordance with Departmental regulations at § 3016.43 and § 3019.62 of this title, the State agency shall withhold Program payments in whole or in part, to any school food authority which has failed to comply with the provisions of this part. Program payments shall be withheld until the school food authority takes corrective action satisfactory to the State agency, or gives evidence that such corrective actions will be taken, or until the State agency terminates the grant in accordance with § 215.16. Subsequent to the State agency's acceptance of the corrective actions, payments will be released for any milk served in accordance with the provisions of this part during the period the payments were withheld. PART 220—SCHOOL BREAKFAST PROGRAM 1. The authority citation for part 220 continues to read as follows: Authority: 42 U.S.C. 1773, 1779, unless otherwise noted. 2. In § 220.2, add paragraphs (a-1), (d-1), (d-2), (g-1) and (o-3) to read as follows: § 220.2 Definitions. (a-1) *Applicable credits* shall have the meaning established in Office of Management and Budget Circulars A-87, C(4) and A-122, Attachment A, A(5), respectively. For availability of OMB circulars referenced in this definition see 5 CFR 1310.3. (d-1) *Contractor* means a commercial enterprise, public or nonprofit private organization or individual that enters into a contract with a school food authority. (d-2) *Cost reimbursable contract* means a contract that provides for payment of incurred costs to the extent prescribed in the contract, with or without a fixed fee. (g-1) *Fixed fee* means an agreed upon amount that is fixed at the inception of the contract. In a cost reimbursable contract, the fixed fee includes the contractor's direct and indirect administrative costs and profit allocable to the contract. (o-3) *Nonprofit school food service account* means the restricted account in which all of the revenue from all food service operations conducted by the school food authority principally for the benefit of school children is retained and used only for the operation or improvement of the nonprofit school food service. 3. In § 220.7, revise paragraph
(d)to read as follows: § 220.7 Requirements for participation. (d)(1) Any school food authority (including a State agency acting in the capacity of a school food authority) may contract with a food service management company to manage its food service operation in one or more of its schools. However, no school or school food authority may contract with a food service management company to operate an a la carte food service unless the company agrees to offer free, reduced price and paid reimbursable breakfasts to all eligible children. Any school food authority that employs a food service management company in the operation of its nonprofit school food service shall:
(i)Adhere to the procurement standards specified in § 220.16 when contracting with the food service management company;
(ii)Ensure that the food service operation is in conformance with the school food authority's agreement under the Program;
(iii)Monitor the food service operation through periodic on-site visits;
(iv)Retain control of the quality, extent, and general nature of its food service, and the prices to be charged the children for meals;
(v)Retain signature authority on the State agency-school food authority agreement, free and reduced price policy statement and claims;
(vi)Ensure that all federally donated foods received by the school food authority and made available to the food service management company accrue only to the benefit of the school food authority's nonprofit school food service and are fully utilized therein;
(vii)Maintain applicable health certification and assure that all State and local regulations are being met by a food service management company preparing or serving meals at a school food authority facility;
(viii)Obtain written approval of invitations for bids and requests for proposals before their issuance when required by the State agency. The school food authority must incorporate all State agency required changes to its solicitation documents before issuing those documents; and
(ix)Ensure that the State agency has reviewed and approved the contract terms and the school food authority has incorporated all State agency required changes into the contract or amendment before any contract or amendment to an existing food service management company contract is executed. Any changes made by the school food authority or a food service management company to a State agency pre-approved prototype contract or State agency approved contract term must be approved in writing by the State agency before the contract is executed. When requested, the school food authority must submit all procurement documents, including responses submitted by potential contractors, to the State agency, by the due date established by the State agency.
(2)In addition to adhering to the procurement standards under this part, school food authorities contracting with food service management companies shall ensure that:
(i)The invitation to bid or request for proposal contains a 21-day cycle menu developed in accordance with the provisions of § 220.8, to be used as a standard for the purpose of basing bids or estimating average cost per meal. A school food authority with no capability to prepare a cycle menu may, with State agency approval, require that each food service management company include a 21-day cycle menu, developed in accordance with the provisions of § 220.8, with its bid or proposal. The food service management company must adhere to the cycle for the first 21 days of meal service. Changes thereafter may be made with the approval of the school food authority; and
(ii)Any invitation to bid or request for proposal indicate that nonperformance subjects the food service management company to specified sanctions in instances where the food service management company violates or breaches contract terms. The school food authority shall indicate these sanctions in accordance with the procurement provisions stated in § 220.16.
(3)Contracts that permit all income and expenses to accrue to the food service management company and “cost-plus-a-percentage-of-cost” and “cost-plus-a-percentage-of-income” contracts are prohibited. Contracts that provide for fixed fees such as those that provide for management fees established on a per meal basis are allowed. Contractual agreements with food service management companies shall include provisions which ensure that the requirements of this section are met. Such agreements shall also include the following requirements:
(i)The food service management company shall maintain such records as the school food authority will need to support its Claim for Reimbursement under this part, and shall, at a minimum, report claim information to the school food authority promptly at the end of each month. Such records shall be made available to the school food authority, upon request, and shall be available for a period of 3 years from the date of the submission of the final Financial Status Report, for inspection and audit by representatives of the State agency, of the Department, and of the Government Accountability Office at any reasonable time and place. If audit findings have not been resolved, the records shall be retained beyond the three-year period (as long as required for the resolution of the issues raised by the audit);
(ii)The food service management company shall have State or local health certification for any facility outside the school in which it proposes to prepare meals and the food service management company shall maintain this health certification for the duration of the contract; and
(iii)No payment is to be made for meals that are spoiled or unwholesome at time of delivery, do not meet detailed specifications as developed by the school food authority for each food component specified in § 220.8, or do not otherwise meet the requirements of the contract. Specifications shall cover items such a grade, purchase units, style, condition, weight, ingredients, formulations, and delivery time.
(4)The contract between a school food authority and food service management company shall be of a duration of no longer than 1 year and options for the yearly renewal of the contract shall not exceed 4 additional years. All contracts shall include a termination clause whereby either party may cancel for cause with 60-day notification. 4. In § 220.16, a. Revise paragraphs
(a)and (c); and b. Add a new paragraph (e). The revisions and addition read as follows: § 220.16 Procurement standards.
(a)*General.* State agencies and school food authorities shall comply with the requirements of this part and parts 3015, 3016 and 3019 of this title, as applicable, which implement the applicable Office of Management and Budget Circulars, concerning the procurement of all goods and services with nonprofit school food service account funds.
(c)*Procedures.* The State agency may elect to follow either the State laws, policies and procedures as authorized by §§ 3016.36(a) and 3016.37(a) of this title, or the procurement standards for other governmental grantees and all governmental subgrantees in accordance with § 3016.36(b) through
(i)of this title. Regardless of the option selected, States must ensure that all contracts include any clauses required by Federal statutes and executive orders and that the requirements of § 3016.60(b) and
(c)of this title are followed. The school food authority may use its own procurement procedures which reflect applicable State and local laws and regulations, provided that procurements made with nonprofit school food service account funds adhere to the standards set forth in this part and §§ 3016.36(b) through 3016.36(i), 3016.60 and §§ 3019.40 through 3019.48 of this title, as applicable, and the applicable Office of Management and Budget Circulars. School food authority procedures must include a written code of standards of conduct meeting the minimum standards of § 3016.36(b)(3) or § 3019.42 of this title, as applicable.
(1)*Pre-issuance review requirement.* The State agency may impose a pre-issuance review requirement on a school food authority's proposed procurement. The school food authority must make available, upon request of the State agency, its procurement documents, including but not limited to solicitation documents, specifications, evaluation criteria, procurement procedures, proposed contracts and contract terms. School food authorities shall comply with State agency requests for changes to procurement procedures and solicitation and contract documents to ensure that, to the State agency's satisfaction, such procedures and documents reflect applicable procurement and contract requirements and the requirements of this part.
(2)*Prototype solicitation documents and contracts.* The school food authority must obtain the State agency's prior written approval for any change made to prototype solicitation or contract documents before issuing the revised solicitation documents or execution of the revised contract.
(3)*Prohibited expenditures.* No expenditure may be made from the nonprofit school food service account for any cost resulting from a procurement failing to meet the requirements of this part.
(e)*Cost reimbursable contracts* —(1) *Required provisions.* The school food authority must include the following provisions in all cost reimbursable contracts, including contracts with cost reimbursable provisions, and in solicitation documents prepared to obtain offers for such contracts:
(i)Allowable costs will be paid from the nonprofit school food service account to the contractor net of all discounts, rebates and other applicable credits accruing to or received by the contractor or any assignee under the contract, to the extent those credits are allocable to the allowable portion of the costs billed to the school food authority; (ii)(A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account), or;
(B)The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in a manner suitable for contract cost determination and verification;
(iii)The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars;
(iv)The contractor must identify the amount of each discount, rebate and other applicable credit on bills and invoices presented to the school food authority for payment and identify the amount as a discount, rebate, or in the case of other applicable credits, the nature of the credit. If approved by the State agency, the school food authority may permit the contractor to report this information on a less frequent basis than monthly, but no less frequently than annually;
(v)The contractor must identify the method by which it will report discounts, rebates and other applicable credits allocable to the contract that are not reported prior to conclusion of the contract; and
(vi)The contractor must maintain documentation of costs and discounts, rebates, and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department.
(2)*Prohibited expenditures.* No expenditure may be made from the nonprofit school food service account for any cost resulting from a cost reimbursable contract that fails to include the requirements of this section, nor may any expenditure be made from the nonprofit school food service account that permits or results in the contractor receiving payments in excess of the contractor's actual, net allowable costs. 4. Redesignate §§ 220.18 through 220.21 as §§ 220.19 through 220.22, respectively; and add a new § 220.18 to read as follows: § 220.18 Withholding payments. In accordance with Departmental regulations at § 3016.43 and § 3019.62 of this title, the State agency shall withhold Program payments, in whole or in part, to any school food authority which has failed to comply with the provisions of this part. Program payments shall be withheld until the school food authority takes corrective action satisfactory to the State agency, or gives evidence that such corrective actions will be taken, or until the State agency terminates the grant in accordance with § 220.19. Subsequent to the State agency's acceptance of the corrective actions, payments will be released for any breakfasts served in accordance with the provisions of this part during the period the payments were withheld. Dated: October 4, 2007. Nancy Montanez Johner, Under Secretary for Food, Nutrition and Consumer Services. [FR Doc. E7-21420 Filed 10-30-07; 8:45 am] BILLING CODE 3410-30-P NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 701 Federal Credit Union Bylaws AGENCY: National Credit Union Administration (NCUA). ACTION: Final rule. SUMMARY: NCUA is issuing a rule reincorporating the Federal Credit Union
(FCU)Bylaws into NCUA regulations. This change clarifies NCUA's ability to use a range of enforcement authorities, in appropriate cases, to enforce the FCU Bylaws. In addition, NCUA is adding a bylaw provision on director succession, an issue it has previously addressed in legal opinions, and is revising the introduction to the Bylaws to conform it to these changes. DATES: This rule is effective November 30, 2007. FOR FURTHER INFORMATION CONTACT: Elizabeth Wirick, Staff Attorney, Office of General Counsel, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428 or telephone:
(703)518-6540. SUPPLEMENTARY INFORMATION: A. Background On May 24, 2007, the Board issued a Notice and Request for comments on the proposed reincorporation of the Federal Credit Union Bylaws (proposal). 72 FR 30984 (June 5, 2007). The proposal also included bylaw provisions on director succession, an expedited approval process for bylaw amendments previously approved for other FCUs, and revisions to the Introduction to the FCU Bylaws to reflect these changes. *Id.* On July 2, 2007, the Board extended the original comment period an additional two weeks. 72 FR 37122 (July 9, 2007). NCUA is reincorporating the FCU Bylaws into NCUA regulations to clarify NCUA's authority to use a range of administrative actions to enforce bylaw violations in the rare cases where bylaw disputes cannot be resolved within an FCU. As discussed in the proposal, NCUA removed the Bylaws from its regulations in the 1980's. 72 FR 30984, 30985 (June 5, 2007). NCUA is concerned that the policy of requiring members to enforce rights granted in the Bylaws in state courts has resulted in members being unable to enforce rights granted in the Bylaws. The proposal limits NCUA intervention to cases where a fundamental, material member right is at issue and outlines a dispute resolution process. The **Federal Register** requires the FCU Bylaws to be published as an Appendix to Part 701 rather than being incorporated by reference in the regulatory text. Accordingly, § 701.2 of the final rule has been revised from the proposal and specifically reincorporates the FCU Bylaws into NCUA's regulations as an Appendix. B. Comments General NCUA received 32 comment letters in response to the proposal. Nine credit union members, nine state credit union leagues, eight federal credit unions, two national credit union trade organizations, one law firm, one consultant, and two other organizations submitted comments. Sixteen commenters supported reincorporating the Bylaws into NCUA regulations and 16 commenters opposed reincorporation. Both supporters and opponents of reincorporation sought changes to the revised Introduction to the FCU Bylaws, the standards for limiting NCUA's involvement, and the dispute resolution process. Many commenters also discussed the proposed bylaw provisions on director succession and the expedited approval process for certain bylaw amendments; the comments on these provisions overwhelmingly favored the proposal. Finally, several commenters asked NCUA to increase the cap on the number of members required to call a special meeting. The comments on each subject are discussed below. Reincorporation of FCU Bylaws Into NCUA Regulation, Standards for NCUA Involvement, and Dispute Resolution Process Most commenters opposing reincorporation cited concerns over increased regulation and oversight. The NCUA Board reiterates its position that reincorporating the Bylaws into NCUA's regulations imposes no new regulatory burden, as all FCUs are already required to have NCUA-approved bylaws. NCUA publishes form bylaw language and all FCUs have adopted some version of the form language. Further, as the preamble to the proposal stated, under the risk-based examination system in use for FCUs, examiners do not currently, nor will they once the Bylaws are incorporated in the regulations, inquire into an FCU's bylaws unless management raises the issue. In contrast, commenters supporting reincorporation cited the lack of other realistic options for bylaw enforcement and the potential for credit union boards to violate bylaws with impunity. The most common theme was dissatisfaction with NCUA's policy of requiring members to enforce bylaws under state contract law. Commenters cited the expense and time required to bring suit as well as the possibility courts will find members lack standing to litigate bylaw disputes. The commenters were split on the issue of whether NCUA needs to reincorporate the FCU Bylaws to clarify its ability to use its full range of enforcement actions. Five commenters expressed the view that NCUA already has authority to use its full range of enforcement actions to enforce the Bylaws. Three commenters stated the FCU Act gives no authority to NCUA to enforce bylaw violations other than by charter suspension or revocation. Based on its analysis of the FCU Act, the Board concludes reincorporating the Bylaws is necessary to provide clear authority for NCUA to use its full range of enforcement actions for Bylaw violations. NCUA does not agree with the commenters who assert its authority to enforce the Bylaws using the full range of administrative actions is clear under the current system. The FCU Act gives NCUA explicit authority to suspend or revoke the charter of any FCU, or place the FCU into involuntary liquidation, for a violation of any provision of its bylaws. 12 U.S.C. 1766(b)(1). A charter revocation or suspension, however, is a very extreme remedy and is unlikely to be an appropriate remedy for any bylaw violation. The resultant loss of credit union service would likely result in far more harm to members than the FCU's failure to follow its bylaws. The FCU Act also allows NCUA to place FCUs into conservatorship for reasons including protection of members' interests. 12 U.S.C. 1786(h)(1). Conservatorship, like charter suspension or liquidation, is an extreme remedy NCUA would prefer not to use if other enforcement options are available. The FCU Act, however, does not explicitly provide for such other options. In contrast, the FCU Act explicitly provides NCUA authority to take other, less severe administrative actions for other types of violations. A cease and desist order, for example, identifies the violation, gives the credit union a deadline to come into compliance, and may prescribe procedures to come into compliance. NCUA may issue cease and desist orders for violations of “a law, rule, or regulation.” 12 U.S.C. 1786(e)(1). Before promulgating its proposed regulation, NCUA considered whether the authority to issue cease and desist orders extended to bylaw violations that did not also violate a statutory or regulatory requirement or pose a threat to the safety and soundness of the FCU. As discussed in the proposal, previous Board actions removed the Bylaws from NCUA regulations. 72 FR 30984, 30985 (June 5, 2007). As a result, NCUA has concluded it should now reincorporate the Bylaws to give it clear authority to act if a bylaw violation threatens a fundamental, material credit union member right. Some commenters suggested NCUA simply change its policy on enforcement of Bylaws violations not involving another violation or a safety and soundness threat without adopting a regulation. Agencies are entitled to change their positions, as long as they explain the new position and the reasons necessitating the change. *Motor Vehicle Manufacturers Ass'n* v. *State Farm Ins. Co.,* 463 U.S. 29, 41-42 (1983). Courts take a dim view of reversals of agency positions adopted without public notice, such as agency interpretations adopted in the course of litigation. *Bowen* v. *Georgetown University Hosp.* , 488 U.S. 204, 212 (1988). NCUA believes an abrupt reversal of prior policy, could leave any enforcement action taken for a Bylaw violation not involving an issue of safety and soundness or violations of other regulations vulnerable to challenge. Instead, the Board is using the rulemaking process to adopt its revised policy—which is actually a return to the Bylaws' original status as a regulation—to allow for public notice and input. In summary, the FCU Act's explicit provisions for enforcing Bylaw violations include only limited and drastic options, and the Act's provisions for other, less severe remedies do not explicitly cover Bylaw violations. The Board has concluded that its authority in this area is not clear unless the Bylaws are again incorporated in NCUA regulations. Because the reincorporation of the Bylaws changes NCUA's most recent policy regarding Bylaws enforcement and returns the Bylaws to their original status as regulation, the Board is adopting the change using the rulemaking process. One commenter who argued NCUA's existing authority would allow the use of the full range of actions for bylaw violations suggested that if, in fact, the Act provided authority only to liquidate or conserve FCUs for bylaw violations, NCUA could not create authority to use other actions by adopting the Bylaws as a regulation. Several other commenters generally questioned NCUA's authority to adopt this rule reincorporating the Bylaws. NCUA disagrees with these comments, as the FCU Act provides separate authority for it to adopt regulations. Section 120 of the FCU Act gives the NCUA Board broad, general authority to “prescribe rules and regulations for the administration of [the FCU Act].” 12 U.S.C. 1766. This authority is in no way limited by the separate authority to suspend or revoke an FCU's charter or place an FCU into conservatorship for failing to follow its bylaws. Moreover, several provisions of the FCU Act clearly contemplate that FCUs will follow their bylaws. The FCU Act's references to bylaws include the following requirements: • FCUs must adopt bylaws prescribed by NCUA. 12 U.S.C. 1758. • FCUs may impose late charges as permitted by their bylaws. 12 U.S.C. 1757(10). • FCUs must hold their annual meetings at the time and place prescribed by their bylaws. 12 U.S.C. 1760. • An FCU's bylaws must prescribe the number of and the procedures for electing directors, and may provide for a credit committee. 12 U.S.C. 1761; 1761c(a), (b). • An FCU's bylaws must specify the number of board officers and identify the compensated officer, if any. 12 U.S.C. 1761a. • An FCU's board of directors must follow bylaw provisions allowing for an elected or appointed credit committee, the appointment of loan officers, the hiring and compensation of officers and employees, the appointment of an executive committee, and information it is required to review at monthly meetings. 12 U.S.C. 1761b(4), (5), (10), (11), (13), (15). • An FCU's supervisory committee may call a special meeting of the members to consider a bylaw violation. 12 U.S.C. 1761d. • The amount to be refunded to expelled members is to be determined according to the bylaws. 12 U.S.C. 1764(c). • Shares issued to minors are subject to conditions prescribed in the bylaws. 12 U.S.C. 1765. The FCU Act provisions noted above require an FCU's bylaws to provide procedures and rules for an FCU's structure and operation, at the time of chartering and going forward. Under its general rulemaking authority NCUA is charged with administering the FCU Act. This authority is not restricted by the separate authority for charter revocation or suspension, or conservatorship, for bylaw violations. The FCU Act's many references to the FCU Bylaws demonstrate the Act requires FCUs to follow their bylaws. As the FCU Act allows NCUA authority to administer its provisions, and the FCU Act requires FCUs to have and follow bylaws, the NCUA Board finds reincorporating the FCU Bylaws into NCUA regulations will assist in its administration of the FCU Act. Accordingly, the NCUA Board concludes reincorporating the Bylaws will clarify its authority without imposing any new regulatory burden on FCUs, and the final rule reincorporates the FCU Bylaws into NCUA regulations as an Appendix to Part 701. Commenters were also split on whether the proposal adequately defined and limited the situations in which NCUA has discretion to take action. Seven commenters found the standard adequate or supported limiting NCUA intervention to disputes involving fundamental, material member rights, as described in the preamble to the proposal. Eight other commenters found the standard too broad and expressed concern NCUA would start to intervene in all bylaw disputes. The NCUA Board reiterates the agency will limit its involvement to bylaw disputes involving a fundamental, material credit union member right, including the right to: Maintain a share account; maintain credit union membership; have access to credit union facilities; participate in the director election process; attend annual and special meetings; and petition for removal of directors and committee members. The proposal added language to the Introduction to the Bylaws explaining NCUA's discretion to intervene in disputes involving fundamental, material credit union member rights; the final rule includes minor revisions to this language to further clarify the Board's intent. The preamble to the proposal explained FCUs and FCU members should continue to attempt to resolve bylaw disputes within the credit union, and contact the regional office with jurisdiction for the FCU if a bylaw dispute cannot be resolved internally. 72 FR 30984, 30986 (June 5, 2007). Six commenters—both supporters and opponents of reincorporation—sought additional details regarding the resolution of bylaw disputes. Four commenters requested additional information on the internal procedures FCUs and their members should use to resolve bylaw disputes. FCUs and FCU members should attempt to resolve bylaw disputes with the usual procedures for addressing member complaints, such as requesting review by the supervisory committee. Every FCU must have a supervisory committee, appointed from among its members. 12 U.S.C. 1761(b). One of the supervisory committee's roles is reviewing member complaints, and the Board believes the supervisory committee is well-suited to address bylaw disputes, since it has substantial experience in investigating and resolving member complaints. Several commenters also raised questions about how NCUA will determine when to take an enforcement action related to a bylaw dispute. The NCUA Board reiterates NCUA's regional offices will analyze disputes to see if they affect a fundamental, material credit union member right. A determination that a fundamental, material member right may be affected allows NCUA the discretion to intervene, but does not require intervention. As noted previously in this preamble and in the preamble to the proposal, the Board's view is the agency will only become involved in bylaw disputes that involve fundamental, material credit union member rights. In considering whether to initiate formal administrative action, the agency will consider various factors, as it would with any regulatory violation, including the specific facts and circumstances in a case; alternatives, such as a supervisory letter; the willingness of the parties to cure a violation; and the seriousness of the violation. Two commenters sought clarification about who may report bylaw disputes to NCUA. As is presently the case, any FCU member or FCU official may report a bylaw dispute within an FCU. Likewise, any FCU, member, or official may report a bylaw dispute to NCUA. One commenter asked if FCU members must seek to enforce an FCU's bylaws as a contract, in court, before requesting NCUA intervention. The preamble to the proposal noted FCU members still have the right to seek enforcement of the Bylaws in court. 72 FR 30984, 30985 (June 5, 2007). The NCUA Board clarifies FCU members do not need to seek judicial relief before reporting a bylaw dispute to NCUA. Two commenters asked if regional directors' decisions on bylaw disputes may be appealed to the NCUA Board. The right to appeal a regional director's decision and to what forum will depend on the nature of the decision, namely, whether a regional director's decision involves formal administrative action. For example, if the agency takes formal administrative action by issuing an immediate cease and desist order directing an FCU to cease activity that violates the Bylaws or directing an FCU to undertake specific actions to cure a violation, then an FCU will have a right to challenge the order in federal court. 12 U.S.C. 1786(e), (f). The preamble to the proposal stated NCUA's intent that FCUs and their members continue to attempt to resolve bylaw disputes internally. 72 FR 30984, 30986 (June 5, 2007). Several commenters asked for a similar statement to be added to the Introduction to the Bylaws or the text of § 701.2. The Board agrees this would be helpful and the final rule revises the Introduction accordingly. Director Succession Amendments The only changes the proposal made to the FCU Bylaws were amendments on director succession; the amendments essentially incorporated NCUA legal opinions. The proposal added a new Section to Article IX to clarify the supervisory committee's responsibilities if an FCU has no remaining directors. If an entire board of directors resigns, is removed simultaneously, or for whatever circumstance is unable to serve, the supervisory committee has the responsibility to act as a board of directors until the members elect new directors. The proposal also cross-references this new language in Article XVI, Section 3, addressing removal of directors by members, and Article VI, Section 4, addressing board of director vacancies. Seven of eight commenters on this subject generally approved of the new language. Two commenters sought clarifications in the process and one of these commenters suggested alternative language for the amendment to Article IX. The commenter's alternative language would give the supervisory committee acting as the board the option of holding a special meeting to elect directors if the FCU's annual meeting is already scheduled or would usually occur within the next 45 days. The proposal had required the supervisory committee to serve as the board until the next annual meeting if the annual meeting were scheduled, or would usually occur, within the next 45 days. The final rule adopts the commenter's alternative, as NCUA agrees FCUs in this rare situation should have the option of formally electing directors as soon as possible, even if the next annual meeting will occur shortly. In addition, the final rule includes certain grammatical changes to the proposal. The proposal used the term “temporary board” to refer to the supervisory committee acting as the board and “interim board” to refer to the new directors elected at the special meeting. A commenter's suggested alternative deletes the references to “temporary” and “interim” boards in Article IX, and instead uses the terms “supervisory committee acting as the board” and “board.” The NCUA Board finds these suggestions improve the bylaw and has adopted them. The proposal prohibited the supervisory committee acting as the board from acting on policy matters. 72 FR 30984, 30987 (June 5, 2007). The intent of this prohibition was to ensure that an elected board makes decisions affecting the direction and future of an FCU. One commenter sought more explanation of permissible actions by the supervisory committee acting as the board, and another commenter requested the prohibition on acting on policy matters be modified to allow for policy action in exigent circumstances. Generally, the Board's view is the supervisory committee acting as the board should maintain the status quo and defer major decisions, such as opening new branches or launching new products, until the FCU's members elect a new board of directors. NCUA believes an exception for exigent circumstances is unnecessary given the short period of service that is likely and the fact that the limitation is only on policy matters. Also, an FCU where the supervisory committee is acting as the board will likely be in contact with its examiner and can seek advice on whether matters should be left to the elected board. NCUA also clarifies that newly chartered FCUs and FCUs defined as “troubled” under § 701.14 of NCUA's regulations must follow the procedures under § 701.14 and notify NCUA of changes in their boards. NCUA recognizes these bylaw provisions may not afford sufficient time to notify NCUA 30 days before the effective date of the change in board members as required by § 701.14, but the supervisory committee acting as the board should notify the Regional Office of the change as soon as possible. The regulation also provides a waiver of the prior notice requirement for board members elected at a members' meeting, if the Regional Office receives notice within 48 hours of the election. 12 CFR 701.14(c)(2)(i). A newly chartered or troubled FCU that loses all its directors will likely be in contact with its examiner and can seek further advice on compliance with § 701.14. The sole commenter opposing these provisions argued NCUA lacks authority to adopt them because they are inconsistent with the FCU Act's requirement for FCUs to be governed by a board of directors and for vacancies on the board to be filled by the remaining directors. NCUA believes the commenter misunderstood the proposal and its intent. The bylaw applies only in the rare circumstance of an FCU losing all its directors simultaneously and does not conflict with the FCU Act's requirement for director vacancies to be filled by other directors. The FCU Act is silent about how to proceed when an FCU has no remaining directors, leaving NCUA discretion to address this matter through regulation. Expedited Approval Process for Previously Approved Bylaw Amendments The proposed rule also outlined an expedited review process for bylaw amendments previously approved for other FCUs, which NCUA is adopting as proposed. NCUA will post the actual language of bylaw amendments approved since the last major revision of the FCU Bylaws in April 2006 on its website. Other FCUs seeking to adopt identical language will receive a response from NCUA's regional offices within 15 business days. All seven commenters on this topic endorsed the proposal. One commenter also suggested NCUA post the language for all previously approved bylaw amendments that remain consistent with current NCUA guidance, not only amendments approved since April 2006. Because NCUA's Office of General Counsel staff has received only a handful of requests for bylaw amendment language predating the 2006 revisions, the Board has determined posting actual language for all bylaw amendments would not be the most productive use of staff resources. Further, FCUs seeking exact language for an approved bylaw amendment that predates 2006 can access the Opinion Letters on NCUA's Web site and contact their regional office or the Office of General Counsel to obtain the exact language of any approved amendments. Number of Members Required To Call a Special Meeting Although the proposal did not explicitly ask for comments on the 750-member cap on the number of members required to call a special meeting, it noted the NCUA Board has decided it may consider individual FCUs' requests to increase this number through the bylaw amendment process outlined in the Introduction to the FCU Bylaws. 72 FR 30984, 30986 (June 5, 2007). Six of the eight commenters on this subject urged NCUA to adopt amendments to the FCU Bylaws increasing the cap to either a percentage of members, regardless of size, or a higher maximum number for larger credit unions. One commenter opposing an increase noted, although some increase in the cap may be appropriate for very large credit unions, setting the cap too high would disenfranchise members just as much as an FCU board ignoring the members' request for a special meeting. The NCUA Board understands concerns some commenters expressed about the potential for a relatively small number of members to make disruptive requests for special meetings. NCUA also agrees with the commenter who expressed concern about the potential for disenfranchisement of FCU members resulting from a higher cap. The cap recently increased from 500 to 750 members. 71 FR 24551, 24554 (April 26, 2006). More time is needed to assess the appropriateness of this figure for large FCUs. Obtaining 750 signatures to request a special meeting is a significant undertaking, and NCUA is not aware of any actual instances since 2006 where members obtained this number of signatures to require a board of directors to hold a special meeting for a frivolous reason. NCUA repeats any necessary changes in this area should be handled through the bylaw amendment process explained in the introduction to the Bylaws. Any FCU requesting such an amendment should have documented, verifiable reasons why an increase in the cap is necessary, such as a history of members' abuse of the special meeting request process at that particular FCU. C. Specific Changes to the FCU Bylaws The Federal Credit Union Bylaws, as amended by this final rule, are reprinted in their entirety as Appendix A to Part 701. The final rule made very few changes to the text of the FCU Bylaws, and these changes are listed below.
(1)The following paragraph was added to the end of Section 3 of Article IX: If all director positions become vacant simultaneously, the supervisory committee immediately assumes the role of the board of directors. The supervisory committee acting as the board must generally call and hold a special meeting to elect a board that will serve until the next annual meeting. The special meeting must occur at least 7 but no more than 14 days after all director positions became vacant, and candidates for the board at the special meeting may be nominated by petition or from the floor. However, if the next annual meeting has been scheduled and will occur within 45 days after all the director positions become vacant, the supervisory committee may decide to forego the special meeting and continue serving as the board until the election of new directors at the annual meeting. If the next annual meeting has not been scheduled, but the month and day of the previous year's meeting plus 7 days falls within 45 days after all the director positions become vacant, the supervisory committee acting as the board may decide to forego the special meeting to elect new directors. In this case, the supervisory committee must schedule the annual meeting within 7 days before or after the month and day of the previous annual meeting and continue to serve as the board until directors are elected at the annual meeting. The supervisory committee acting as the board may not act on policy matters. However, directors elected at a special meeting have the same powers as directors elected at the annual meeting.
(2)The following sentence was added to the end of Section 3 of Article XVI: If member votes at a special meeting result in the removal of all directors, the supervisory committee immediately becomes the temporary board of directors and must follow the procedures in Article IX, Section 3.
(3)The following sentence was inserted after the first sentence of Section 4 of Article VI: If all director positions become vacant simultaneously, the supervisory committee immediately becomes the temporary board of directors and must follow the procedures in Article IX, Section 3.
(4)The sixth paragraph of the Introduction was deleted and replaced with the following paragraph: Federal credit unions considering an amendment may find it useful to review the bylaws section of the agency Web site, which includes Office of General Counsel opinions about proposed bylaw amendments. Opinions issued after April 2006 will include the language of approved amendments. Even if an amendment has been previously approved, the credit union must submit a proposed amendment to NCUA for review under the procedure listed above to ensure the amendment is identical. Credit unions requesting previously approved amendments will receive notice of the regional office's decision within 15 business days of the receipt of the request.
(5)The last paragraph of the Introduction was deleted and replaced with the following two paragraphs: NCUA expects federal credit unions and their members will make every effort to resolve bylaw disputes using the credit union's internal member complaint resolution process. If a bylaw dispute cannot be resolved internally, however, credit union officials or members should contact the regional office with jurisdiction for the credit union for assistance in resolving the dispute. NCUA has discretion to take administrative actions when a credit union is not in compliance with its bylaws. If a potential violation is identified, NCUA will carefully consider all of the facts and circumstances in deciding whether to take enforcement action. NCUA will not take action against minor or technical violations, but emphasizes that it retains discretion to enforce the bylaws in appropriate cases, such as safety and soundness concerns or threats to fundamental, material credit union member rights.
(6)The first paragraph of the Introduction was replaced with the following paragraph: *Effective Date:* After consideration of public comment, the National Credit Union Administration
(NCUA)Board adopted these Bylaws and incorporated them as Appendix A to Part 701 of NCUA's regulations on [date of final]. Unless a federal credit union has adopted bylaws before [date of final] it must adopt these revised Bylaws. Regulatory Procedures Regulatory Flexibility Act The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a rule may have on a substantial number of small credit unions, defined as those under ten million dollars in assets. This rule incorporates the Bylaws into NCUA's regulations without imposing any regulatory burden, since the FCU Act requires FCUs to adopt NCUA-approved bylaws. The rule will not have a significant economic impact on a substantial number of small credit unions, and, therefore, a regulatory flexibility analysis is not required. Paperwork Reduction Act NCUA has determined the rule would not increase paperwork requirements under the Paperwork Reduction Act of 1995 and regulations of the Office of Management and Budget. 44 U.S.C. 3501 *et seq.* ; 5 CFR part 1320. Executive Order 13132 Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. In adherence to fundamental federalism principles, NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order. The rule would not have substantial direct effects on the states, on the connection between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined that this rule does not constitute a policy that has federalism implications for purposes of the executive order. The Treasury and General Government Appropriations Act, 1999—Assessment of Federal Regulations and Policies on Families NCUA has determined the rule would not affect family well-being within the meaning of § 654 of the Treasury and General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 2681 (1998). Small Business Regulatory Enforcement Fairness Act The Small Business Regulatory Enforcement Fairness Act of 1996, Pub. L. 104-121 (SBREFA), provides generally for congressional review of agency rules. A reporting requirement is triggered in instances where NCUA issues a final rule as defined by Section 551 of the APA. 5 U.S.C. 551. The Office of Management and Budget has determined that this rule is not a major rule for purposes of SBREFA. As required by SBREFA, NCUA will file the appropriate reports with Congress and the General Accounting Office so that the final rule may be reviewed. List of Subjects in 12 CFR Part 701 Credit unions. By the National Credit Union Administration Board on October 25, 2007. Mary F. Rupp, Secretary of the Board. Accordingly, NCUA amends 12 CFR part 701 as follows: PART 701—ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS 1. The authority citation for part 701 is revised to read as follows: Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 1761a, 1761b, 1766, 1767, 1782, 1784, 1786, 1787, 1789. Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also authorized by 15 U.S.C. 1601 *et seq.* ; 42 U.S.C. 1981 and 3601-3610. Section 701.35 is also authorized by 42 U.S.C. 4311-4312. 2. Part 701 is amended by adding § 701.2 to read as follows: § 701.2 Federal credit union bylaws.
(a)Federal credit unions must operate in accordance with their approved bylaws. The Federal Credit Union Bylaws are hereby published as Appendix A to part 701 pursuant to 5 U.S.C. 552(a)(1) and accompanying regulations. Federal credit unions may adopt amendments to their bylaws as provided in the Bylaws, with the approval of the Board.
(b)Copies of the Federal Credit Union Bylaws may be obtained at *http://www.ncua.gov* or by request addressed to *ogc-mail@ncua.gov* or National Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314.
(c)The National Credit Union Administration may issue revisions or amendments of the Federal Credit Union Bylaws from time to time. An historic file of amendments or revisions is maintained and made available for inspection at the National Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314. 3. Appendix A to 12 CFR Part 701 is added to read as follows: Appendix A to Part 701—Federal Credit Union Bylaws Introduction *A. Effective date.* After consideration of public comment, the National Credit Union Administration
(NCUA)Board adopted these Bylaws and incorporated them as Appendix A to Part 701 of NCUA's regulations on November 30, 2007. Unless a federal credit union has adopted bylaws before November 30, 2007, it must adopt these revised bylaws. *B. Adoption of all or part of these bylaws.* Although federal credit unions may retain any previously approved version of the bylaws, the NCUA Board encourages federal credit unions to adopt the revised bylaws because it believes they provide greater clarity and flexibility for credit unions and their officials and members. Federal credit unions may also adopt portions of the revised bylaws and retain the remainder of previously approved bylaws, but the NCUA Board cautions federal credit unions to be extremely careful. Federal credit unions must be careful because they run the risk of having inconsistent or conflicting provisions because of the various options the revised bylaws provide as well as other revisions in the text. *C. Bylaw amendments.* 1. The FCU Bylaws contain several provisions allowing FCU boards to select from an option or range of options and fill in a blank. Changes to “fill-in-the-blank” provisions are, in fact, changes to the FCU's bylaws and require a two-thirds vote of the board. As long as the FCU selects from the permissible options for completing the blank, the FCU need not submit the change for NCUA approval using the process outlined below. 2. Federal credit unions continue to have the flexibility to request other bylaw amendments if the need arises. NCUA must approve any bylaw amendments; federal credit unions may no longer adopt amendments from the “Standard Bylaw Amendments” booklet because the 1999 revisions to the bylaws included sufficient flexibility to make the separate list of standard bylaw amendments superfluous. Thus, NCUA no longer differentiates between “standard” and “nonstandard” bylaw amendments. 3. The procedure for approval of bylaw amendments is as follows: a. The federal credit union wishing to adopt a bylaw amendment must file a request with its regional director. b. The request must include the section of the bylaws to be amended; the reason for or purpose of the amendment, including an explanation of why the amendment is desirable and what it will accomplish for the credit union; and the specific, proposed wording of the amendment. c. After review by the regional director and consultation within the agency, the regional director will advise the credit union if a proposed amendment is approved. 4. Federal credit unions considering an amendment may find it useful to review the bylaws section of the agency Web site, which includes Office of General Counsel opinions about proposed bylaw amendments. Opinions issued after April 2006 will include the language of approved amendments. Even if an amendment has been previously approved, the credit union must submit a proposed amendment to NCUA for review under the procedure listed above to ensure the amendment is identical. Credit unions requesting previously approved amendments will receive notice of the regional office's decision within 15 business days of the receipt of the request. *D. The nature of the bylaws.* 1. The Federal Credit Union Act requires the NCUA Board to prepare bylaws for federal credit unions. 12 U.S.C. 1758. The bylaws address a broad range of matters concerning a credit union's organization and governance, the relationship of the credit union to its members, and the procedures and rules a credit union follows. The bylaws supplement the broad provisions of: A federal credit union's charter, which establishes the existence of a federal credit union; the Federal Credit Union Act, which establishes the powers of federal credit unions; and NCUA regulations, which implement the Federal Credit Union Act. As a legal matter, a federal credit union's bylaws must conform to and cannot be inconsistent with any provision of its charter, the Federal Credit Union Act, NCUA regulations or other laws or regulations applicable to its operations. 2. NCUA expects federal credit unions and their members will make every effort to resolve bylaw disputes using the credit union's internal member complaint resolution process. If a bylaw dispute cannot be resolved internally, however, credit union officials or members should contact the regional office with jurisdiction for the credit union for assistance in resolving the dispute. 3. NCUA has discretion to take administrative actions when a credit union is not in compliance with its bylaws. If a potential violation is identified, NCUA will carefully consider all of the facts and circumstances in deciding whether to take enforcement action. NCUA will not take action against minor or technical violations, but emphasizes that it retains discretion to enforce the bylaws in appropriate cases, such as safety and soundness concerns or threats to fundamental, material credit union member rights. Table of Contents Page Article I. Name—Purposes Article II. Qualifications for Membership Article III. Shares of Members Article IV. Meetings of Members Article V. Elections Article VI. Board of Directors Article VII. Board Officers, Management Officials and Executive Committee Article VIII. Credit Committee or Loan Officers Article IX. Supervisory Committee Article X. Organization Meeting Article XI. Loans and Lines of Credit to Members Article XII. Dividends Article XIII. Reserved Article XIV. Expulsion and Withdrawal Article XV. Minors Article XVI. General Article XVII. Amendments of Bylaws and Charter Article XVIII. Definitions BYLAWS Federal Credit Union, Charter No.______ (A corporation chartered under the laws of the United States) Article I. Name—Purposes Section 1. Name. The name of this credit union is as stated in Section 1 of the charter (approved organization certificate) of this credit union. Section 2. Purposes. This credit union is a member-owned, democratically operated, not-for-profit organization managed by a volunteer board of directors, with the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means. The purpose of this credit union is to promote thrift among its members by affording them an opportunity to accumulate their savings and to create for them a source of credit for provident or productive purposes. *The credit union may add business as one of its purposes by placing a comma after “provident” and inserting “business.”* Article II. Qualifications for Membership Section 1. *Field of membership* . The field of membership of this credit union is limited to that stated in Section 5 of its charter. Section 2. *Membership application procedures* . Applications for membership from persons eligible for membership under Section 5 of the charter must be signed by the applicant on forms approved by the board. The applicant is admitted to membership after approval of an application by a majority of the directors, a majority of the members of a duly authorized executive committee, or by a membership officer, and after subscription to at least one share of this credit union and the payment of the initial installment, and the payment of a uniform entrance fee if required by the board. If a person whose membership application is denied makes a written request, the credit union must explain the reasons for the denial in writing. Section 3. *Maintenance of membership share required* . A member who withdraws all shareholdings or fails to comply with the time requirements for restoring his or her account balance to par value in Article III, Section 3, ceases to be a member. By resolution, the board may require persons readmitted to membership to pay another entrance fee. Section 4. *Continuation of membership* . Once a member becomes a member that person may remain a member until the person or organization chooses to withdraw or is expelled in accordance with the Act and Article XIV of these bylaws. A member who is disruptive to credit union operations may be subject to limitations on services and access to credit union facilities. *A credit union that wishes to restrict services to members no longer within the field of membership should specify the restrictions in this section* . Staff commentary on qualifications for membership: *Entrance fee* —FCUs may not vary the entrance fee among different classes of members because the Act requires a uniform fee. FCUs may, however, eliminate the entrance fee for all applicants. Article III. Shares of Members Section 1. *Par value.* The par value of each share will be $___. Subscriptions to shares are payable at the time of subscription, or in installments of at least $___ per month. Section 2. *Cap on shares held by one person* . The board may establish, by resolution, the maximum amount of shares that any one member may hold. Section 3. *Time periods for payment and maintenance of membership share* . A member who fails to complete payment of one share within ___ of admission to membership, or within ___ from the increase in the par value of shares, or a member who reduces the share balance below the par value of one share and does not increase the balance to at least the par value of one share within ___ of the reduction will be terminated from membership. Section 4. *Transferability* . Shares may only be transferred from one member to another by an instrument in a form as the board may prescribe. Shares that accrue credits for unpaid dividends retain those credits when transferred. Section 5. *Withdrawals* . Money paid in on shares or installments of shares may be withdrawn as provided in these bylaws or regulation on any day when payment on shares may be made, provided, however, that
(a)The board has the right, at any time, to require members to give up to 60 days written notice of intention to withdraw the whole or any part of the amounts paid in by them.
(b)Reserved.
(c)No member may withdraw any shareholdings below the amount of the member's primary or contingent liability to the credit union if the member is delinquent as a borrower, or if borrowers for whom the member is comaker, endorser, or guarantor are delinquent, without the written approval of the credit committee or loan officer. Coverage of overdrafts under an overdraft protection policy does not constitute delinquency for purposes of this paragraph. Shares issued in an irrevocable trust as provided in Section 6 of this article are not subject to withdrawal restrictions except as stated in the trust agreement.
(d)The share account of a deceased member (other than one held in joint tenancy with another member) may be continued until the close of the dividend period in which the administration of the deceased's estate is completed.
(e)The board will have the right, at any time, to impose a fee for excessive share withdrawals from regular share accounts. The number of withdrawals not subject to a fee and the amount of the fee will be established by board resolution and will be subject to regulations applicable to the advertising and disclosure of terms and conditions on member accounts. Section 6. *Trusts* . Shares may be issued in a revocable or irrevocable trust, subject to the following: When shares are issued in a revocable trust, the settlor must be a member of this credit union in his or her own right. When shares are issued in an irrevocable trust, either the settlor or the beneficiary must be a member of this credit union. The name of the beneficiary must be stated in both a revocable and irrevocable trust. For purposes of this section, shares issued pursuant to a pension plan authorized by the rules and regulations will be treated as an irrevocable trust unless otherwise indicated in the rules and regulations. Section 7. *Joint accounts and membership requirements. Select one option and check the box corresponding to that option.* _ *Option A—Separate account not required to establish membership* Owners of a joint account may both be members of the credit union without opening separate accounts. For joint membership, both owners are required to fulfill all of the membership requirements including each member purchasing and maintaining at least one share in the account. _ *Option B—Separate account required to establish membership* Each member must purchase and maintain at least one share in a share account that names the member as the sole or primary owner. Being named as a joint owner of a joint account is insufficient to establish membership. Staff commentary on shares: *i. Installments* —FCUs may insert zero for the number of installments. The FCU Act allows membership upon the payment of the initial installment of a membership share, but NCUA no longer views this provision as requiring FCUs to offer the option of paying for the membership share in installments. *ii. Par value—* FCUs may establish differing par values for different classes of members or types of accounts, provided this action does not violate any federal, state or local antidiscrimination laws. For example, an FCU may want to establish a higher par value for recent credit union members, without requiring long-time members to bring their accounts up to the new par value. A differing par value may also be permissible for different types of accounts, such as requiring a higher par value for a member with only a share draft account. If a credit union adopts differing par values, all of the possible par values should be stated in Section 1. *iii. Reduction in share balance below par value* —When a member's account balance falls below the par value, Section 3 requires FCUs to allow members a minimum time period to restore their account balance to the par value before membership is terminated. FCUs may not delete this requirement or delete references to this requirement in Article II, Section 3. Article IV. Meetings of Members Section 1. *Annual meeting* . The annual meeting of the members must be held [insert time for annual meeting, for example, “during the month of March/on the third Saturday of April/ no later than March 31”], in the county in which any office of the credit union is located or within a radius of 100 miles of an office, at the time and place as the board determines and announces in the notice of the annual meeting. Section 2. *Notice of meetings required* . a. At least 30 but no more than 75 days before the date of any annual meeting or at least 7 days before the date of any special meeting of the members, the secretary must give written notice to each member. Notice may be by written notice delivered in person or by mail to the member's address, or, for members who have opted to receive statements and notices electronically, by electronic mail. Notice of the annual meeting may be given by posting the notice in a conspicuous place in the office of this credit union where it may be read by the members, at least 30 days before the meeting, if the annual meeting is to be held during the same month as that of the previous annual meeting and if this credit union maintains an office that is readily accessible to members where regular business hours are maintained. Any meeting of the members, whether annual or special, may be held without prior notice, at any place or time, if all the members entitled to vote, who are not present at the meeting, waive notice in writing, before, during, or after the meeting. b. Notice of any special meeting must state the purpose for which it is to be held, and no business other than that related to this purpose may be transacted at the meeting. Section 3. *Special meetings* . a. Special meetings of the members may be called by the chair or the board of directors upon a majority vote, or by the supervisory committee as provided in these bylaws. The chair must call a special meeting, meaning the meeting must be held, within 30 days of the receipt of a written request of 25 members or 5% of the members as of the date of the request, whichever number is larger. However, a request of no more than 750 members may be required to call a special meeting. b. The notice of a special meeting must be given as provided in Section 2 of this article. Special meetings may be held at any location permitted for the annual meeting. Section 4. *Items of business for annual meeting and rules of order for annual and special meetings* . The suggested order of business at annual meetings of members is—
(a)Ascertainment that a quorum is present.
(b)Reading and approval or correction of the minutes of the last meeting.
(c)Report of directors, if there is one. For credit unions participating in the Community Development Revolving Loan Program, the directors must report on the credit union's progress on providing needed community services, if required by NCUA Regulations.
(d)Report of the financial officer or the chief management official.
(e)Report of the credit committee, if there is one.
(f)Report of the supervisory committee, as required by Section 115 of the Act.
(g)Unfinished business.
(h)New business other than elections.
(i)Elections, as required by Section 111 of the Act.
(j)Adjournment. k. To the extent consistent with these bylaws, all meetings of the members will be conducted according to ______. The order of business for the annual meeting may vary from the suggested order, provided it includes all required items and complies with the rules of procedure adopted by the credit union. *The credit union must fill in the blank with one of the following authorities, noting the edition to be used: Democratic Rules of Order, The Modern Rules of Order, Robert's Rules of Order, or Sturgis' Standard Code of Parliamentary Procedure.* Section 5. *Quorum* . Except as otherwise provided, 15 members constitute a quorum at annual or special meetings. If no quorum is present, an adjournment may be taken to a date at least 7 but not more than 14 days thereafter. The members present at any adjourned meeting will constitute a quorum, regardless of the number of members present. The same notice must be given for the adjourned meeting as is prescribed in Section 2 of this article for the original meeting, except that the notice must be given at least 5 days before the date of the meeting as fixed in the adjournment. Article V. Elections *The Credit Union must select one of the four voting options. This may be done by printing the credit union's bylaws with the option selected or retaining this copy and checking the box of the option selected. All options continue with Section 3 of this article.* Option A1—In-Person Elections; Nominating Committee and Nominations From Floor Section 1. *Nomination procedures* . At least 30 days before each annual meeting, the chair will appoint a nominating committee of three or more members. It is the duty of the nominating committee to nominate at least one member for each vacancy, including any unexpired term vacancy, for which elections are being held, and to determine that the members nominated are agreeable to the placing of their names in nomination and will accept office if elected. Section 2. *Election procedures* . After the nominations of the nominating committee have been placed before the members, the chair calls for nominations from the floor. When nominations are closed, the chair appoints the tellers, ballots are distributed, the vote is taken and tallied by the tellers, and the results announced. All elections are determined by plurality vote and will be by ballot except where there is only one nominee for the office. Option A2—In-Person Elections; Nominating Committee and Nominations by Petition Section 1. *Nomination procedures* . a. At least 120 days before each annual meeting the chair will appoint a nominating committee of three or more members. It is the duty of the nominating committee to nominate at least one member for each vacancy, including any unexpired term vacancy, for which elections are being held, and to determine that the members nominated are agreeable to the placing of their names in nomination and will accept office if elected. b. The nominating committee files its nominations with the secretary of the credit union at least 90 days before the annual meeting, and the secretary notifies in writing all members eligible to vote at least 75 days before the annual meeting that nominations for vacancies may also be made by petition signed by 1% of the members with a minimum of 20 and a maximum of 500. The secretary may use electronic mail to notify members who have opted to receive notices or statements electronically. c. The written notice must indicate that the election will not be conducted by ballot and there will be no nominations from the floor when the number of nominees equals the number of positions to be filled. A brief statement of qualifications and biographical data in a form approved by the board of directors will be included for each nominee submitted by the nominating committee with the written notice to all eligible members. Each nominee by petition must submit a similar statement of qualifications and biographical data with the petition. The written notice must state the closing date for receiving nominations by petition. In all cases, the period for receiving nominations by petition must extend at least 30 days from the date that the petition requirement and the list of nominating committee's nominees are mailed to all members. To be effective, nominations by petition must be accompanied by a signed certificate from the nominee or nominees stating that they are agreeable to nomination and will serve if elected to office. Nominations by petition must be filed with the secretary of the credit union at least 40 days before the annual meeting and the secretary will ensure that nominations by petition, along with those of the nominating committee, are posted in a conspicuous place in each credit union office at least 35 days before the annual meeting. Section 2. *Election procedures.* a. All persons nominated by either the nominating committee or by petition must be placed before the members. When nominations are closed, the chair appoints the tellers, ballots are distributed, the vote is taken and tallied by the tellers, and the results announced. All elections are determined by plurality vote and will be by ballot except where there is only one nominee for each position to be filled. b. If sufficient nominations are made by the nominating committee or by petition to provide at least as many nominees as positions to be filled, nominations cannot be made from the floor. In the event nominations from the floor are permitted and result in more nominees than positions to be filled, when nominations have been closed, the chair appoints the tellers, ballots are distributed, the vote is taken and tallied by the tellers, and the results announced. When the number of nominees equals the number of positions to be filled, the chair may take a voice vote or declare each nominee elected by general consent or acclamation at the annual meeting. Option A3—Election by Ballot Boxes or Voting Machine; Nominating Committee and Nomination by Petition Section 1. *Nomination procedures.* a. At least 120 days before each annual meeting, the chair will appoint a nominating committee of three or more members. It is the duty of the nominating committee to nominate at least one member for each vacancy, including any unexpired term vacancy, for which elections are being held, and to determine that the members nominated are agreeable to the placing of their names in nomination and will accept office if elected. b. The nominating committee files its nominations with the secretary of the credit union at least 90 days before the annual meeting, and the secretary notifies in writing all members eligible to vote at least 75 days before the annual meeting that nominations for vacancies may also be made by petition signed by 1% of the members with a minimum of 20 and a maximum of 500. The secretary may use electronic mail to notify members who have opted to receive notices or statements electronically. c. The written notice must indicate that the election will not be conducted by ballot and there will be no nominations from the floor when the number of nominees equals the number of positions to be filled. A brief statement of qualifications and biographical data in a form approved by the board of directors will be included for each nominee submitted by the nominating committee with the written notice to all eligible members. Each nominee by petition must submit a similar statement of qualifications and biographical data with the petition. The written notice must state the closing date for receiving nominations by petition. In all cases, the period for receiving nominations by petition must extend at least 30 days from the date of the petition requirement and the list of nominating committee's nominees are mailed to all members. To be effective, nominations by petition must be accompanied by a signed certificate from the nominee or nominees stating that they are agreeable to nomination and will serve if elected to office. Nominations by petition must be filed with the secretary of the credit union at least 40 days before the annual meeting and the secretary will ensure that nominations by petition along with those of the nominating committee are posted in a conspicuous place in each credit union office at least 35 days before the annual meeting. Section 2. *Election procedures.* All elections are determined by plurality vote. The election will be conducted by ballot boxes or voting machines, subject to the following conditions:
(a)The board of directors will appoint the election tellers;
(b)If sufficient nominations are made by the nominating committee or by petition to provide more nominees than positions to be filled, the secretary, at least 10 days before the annual meeting, will cause ballot boxes and printed ballots, or voting machines, to be placed in conspicuous locations, as determined by the board of directors with the names of the candidates posted near the boxes or voting machines. The name of each candidate will be followed by a brief statement of qualifications and biographical data in a form approved by the board of directors;
(c)After the members have been given 24 hours to vote at conspicuous locations as determined by the board of directors, the ballot boxes or voting machines will be opened, the vote tallied by the tellers, the tallies placed in the ballot boxes, and the ballot boxes resealed. The tellers are responsible at all times for the ballot boxes or voting machines and the integrity of the vote. A record must be kept of all persons voting and the tellers must assure themselves that each person voting is entitled to vote; and
(d)The tellers will take the ballot boxes to the annual meeting. At the annual meeting, printed ballots will be distributed to those in attendance who have not voted and their votes will be deposited in the ballot boxes placed by the tellers, before the beginning of the meeting, in conspicuous locations with the names of the candidates posted near them. After those members have been given an opportunity to vote at the annual meeting, balloting will be closed, the ballot boxes opened, the vote tallied by the tellers and added to the previous count, and the chair will announce the result of the vote. Option A4—Election by Electronic Device (Including But Not Limited To Telephone and Electronic Mail) or Mail Ballot; Nominating Committee and Nominations by Petition Section 1. *Nomination procedures.* a. At least 120 days before each annual meeting, the chair will appoint a nominating committee of three or more members. It is the duty of the nominating committee to nominate at least one member for each vacancy, including any unexpired term vacancy, for which elections are being held, and to determine that the members nominated are agreeable to the placing of their names in nomination and will accept office if elected. b. The nominating committee files its nominations with the secretary of the credit union at least 90 days before the annual meeting, and the secretary notifies in writing all members eligible to vote at least 75 days before the annual meeting that nominations for vacancies may also be made by petition signed by 1% of the members with a minimum of 20 and a maximum of 500. The secretary may use electronic mail to notify members who have opted to receive notices or statements electronically. c. The notice must indicate that the election will not be conducted by ballot and there will be no nominations from the floor when the number of nominees equals the number of positions to be filled. A brief statement of qualifications and biographical data in a form approved by the board of directors will be included for each nominee submitted by the nominating committee with the notice to all eligible members. Each nominee by petition must submit a similar statement of qualifications and biographical data with the petition. The notice must state the closing date for receiving nominations by petition. In all cases, the period for receiving nominations by petition must extend at least 30 days from the date of the petition requirement and the list of nominating committee's nominees are mailed to all members. To be effective, nominations by petition must be accompanied by a signed certificate from the nominee or nominees stating that they are agreeable to nomination and will serve if elected to office. Nominations by petition must be filed with the secretary of the credit union at least 40 days before the annual meeting and the secretary will ensure that nominations by petition, along with those of the nominating committee, are posted in a conspicuous place in each credit union office at least 35 days before the annual meeting. Section 2. *Election procedures.* All elections are determined by plurality vote. All elections will be by electronic device or mail ballot, subject to the following conditions:
(a)The board of directors will appoint the election tellers;
(b)If sufficient nominations are made by the nominating committee or by petition to provide more nominees than positions to be filled, the secretary, at least 30 days before the annual meeting, will cause either a printed ballot or notice of ballot to be mailed to all members eligible to vote. Electronic mail may be used to provide the notice of ballot to members who have opted to receive notices or statements electronically;
(c)If the credit union is conducting its elections electronically, the secretary will cause the following materials to be transmitted to each eligible voter and the following procedures will be followed:
(1)One notice of balloting stating the names of the candidates for the board of directors and the candidates for other separately identified offices or committees. The name of each candidate must be followed by a brief statement of qualifications and biographical data in a form approved by the board of directors. Electronic mail may be used to provide the notice of ballot to members who have opted to receive notices or statements electronically.
(2)One mail ballot that conforms to Section 2(d) of this article and one instruction sheet stating specific instructions for the electronic election procedure, including how to access and use the system, and the period of time in which votes will be taken. The instruction will state that members without the requisite electronic device necessary to vote on the system may vote by submitting the enclosed mail ballot and specify the date the mail ballot must be received by the credit union. For members who have opted to receive notices or statements electronically, the mail ballot is not required and electronic mail may be used to provide the instructions for the electronic election procedure.
(3)It is the duty of the tellers of election to verify, or cause to be verified the name of the voter and the credit union account number as they are registered in the electronic balloting system. It is the duty of the teller to test the integrity of the balloting system at regular intervals during the election period.
(4)Ballots must be received no later than midnight, 5 calendar days before the annual meeting.
(5)The vote will be tallied by the tellers. The result must be verified at the annual meeting and the chair will make the result of the vote public at the annual meeting.
(6)In the event of malfunction of the electronic balloting system, the board of directors may in its discretion order elections be held by mail ballot only. The mail ballots must conform to Section 2(d) of this article and must be mailed once more to all eligible members 30 days before the annual meeting. The board may make reasonable adjustments to the voting time frames above, or postpone the annual meeting when necessary, to complete the elections before the annual meeting.
(d)If the credit union is conducting its election by mail ballot, the secretary will cause the following materials to be mailed to each member and the following procedures will be followed:
(1)One ballot, clearly identified as the ballot on which the names of the candidates for the board of directors and the candidates for other separately identified offices or committees are printed in random order. The name of each candidate will be followed by a brief statement of qualifications and biographical data in a form approved by the board of directors;
(2)One ballot envelope clearly marked with instructions that the completed ballot must be placed in that envelope and sealed;
(3)One identification form to be completed so as to include the name, address, signature and credit union account number of the voter;
(4)One mailing envelope in which the voter, following instructions provided with the mailing envelope, must insert the sealed ballot envelope and the identification form, and which must have postage prepaid and be preaddressed for return to the tellers;
(5)When properly designed with features that preserve the secrecy of the ballot, one form can be printed that represents a combined ballot and identification form, and postage prepaid and preaddressed return envelope;
(6)It is the duty of the tellers to verify, or cause to be verified, the name and credit union account number of the voter as appearing on the identification form; to place the verified identification form and the sealed ballot envelope in a place of safekeeping pending the count of the vote; in the case of a questionable or challenged identification form, to retain the identification form and sealed ballot envelope together until the verification or challenge has been resolved;
(7)Ballots mailed to the tellers must be received by the tellers no later than midnight 5 days before the date of the annual meeting;
(8)The vote will be tallied by the tellers. The result will be verified at the annual meeting and the chair will make the result of the vote public at the annual meeting. All Options Continue Here Section 3. *Order of nominations.* Nominations may be in the following order:
(a)Nominations for directors.
(b)Nominations for credit committee members, if applicable. Elections may be by separate ballots following the same order as the above nominations or, if preferred, may be by one ballot for all offices. Section 4. *Proxy and agent voting.* Members cannot vote by proxy. A member other than a natural person may vote through an agent designated in writing for the purpose. Section 5. *One vote per member.* Irrespective of the number of shares, no member has more than one vote. Section 6. *Submission of information regarding credit union officials to NCUA.* The names and addresses of members of the board, board officers, executive committee, and members of the credit committee, if applicable, and supervisory committees must be forwarded to the Administration in accordance with the Act and regulations in the manner as may be required by the Administration. Section 7. *Minimum age requirement.* Members must be at least _ years of age by the date of the meeting (or for appointed offices, the date of appointment) in order to vote at meetings of the members, hold elective or appointive office, sign nominating petitions, or sign petitions requesting special meetings. *The Credit Union's board should adopt a resolution inserting an age no greater than 18, or the age of majority under the state law applicable to the credit union, in the blank space.* *The Credit Union may select the absentee ballot provision in conjunction with the voting procedure it has selected. This may be done by printing the credit union's bylaws with this provision or by retaining this copy and checking the box.* _ Section 8. *Absentee ballots.* The board of directors may authorize the use of absentee ballots in conjunction with the other procedures authorized in this article, subject to the following conditions:
(a)The board of directors will appoint the election tellers;
(b)If sufficient nominations are made by the nominating committee or by petition to provide more than one nominee for any position to be filled, the secretary, at least 30 days before the annual meeting, will cause printed ballots to be mailed to all members of the credit union who are eligible to vote and who have submitted a written or electronic request for an absentee ballot;
(c)The secretary will cause the following materials to be mailed to each eligible voter who has submitted a written or electronic request for an absentee ballot:
(1)One ballot, clearly identified as the ballot on which the names of the candidates for the board of directors and the candidates for other separately identified offices or committees are printed in random order. The name of each candidate will be followed by a brief statement of qualifications and biographical data in a form approved by the board of directors;
(2)One ballot envelope clearly marked with instructions that the completed ballot must be placed in that envelope and sealed;
(3)One identification form to be completed so as to include the name, address, signature and credit union account number of the voter;
(4)One mailing envelope in which the voter, pursuant to instructions provided with the envelope, must insert the sealed ballot envelope and the identification form, and which must have postage prepaid and be preaddressed for return to the tellers;
(5)When properly designed with features that preserve the secrecy of the ballot, one form can be printed that represents a combined ballot and identification form, and postage prepaid and preaddressed return envelope;
(d)It is the duty of the election tellers to verify, or cause to be verified, the name and credit union account number of the voter as appearing on the identification form; to place the verified identification and the sealed ballot envelope in a place of safekeeping pending the count of the vote; in the case of a questionable or challenged identification form, to retain the identification form and the sealed ballot envelope together until the verification or challenge has been resolved; and in the event that more than one voting procedure is used, to verify that no eligible voter has voted more than one time;
(e)Ballots mailed to the tellers must be received by the tellers no later than midnight 5 days before the date of the annual meeting;
(f)Absentee ballots will be deposited in the ballot boxes to be taken to the annual meeting or included in a precount in accordance with procedures specified in Article V, Section 2; and
(g)If a member has chosen to receive statements and notices electronically, the credit union may provide notices required in this section by email and provide instructions for voting via electronic means instead of mail ballots. Staff commentary on the election process: *i. Eligibility Requirements:* The Act and the FCU Bylaws contain the only eligibility requirements for membership on an FCU's board of directors, which are as follows:
(a)The individual must be a member of the FCU before distribution of ballots;
(b)the individual cannot have been convicted of a crime involving dishonesty or breach of trust unless the NCUA Board has waived the prohibition for the conviction; and
(c)the individual meets the minimum age requirement established under Article V, Section 7 of the FCU Bylaws. Anyone meeting the three eligibility requirements may run for a seat on the board of directors if properly nominated. It is the nominating committee's duty to ascertain that all nominated candidates, including those nominated by petition, meet the eligibility requirements. *ii. Nomination Criteria for Nominating Committee:* The FCU Act and the FCU Bylaws do not prohibit a board of directors from establishing reasonable criteria, in addition to the eligibility requirements, for a nominating committee to follow in making its nominations, such as financial experience, years of membership, or conflict of interest provisions. The board's nomination criteria, however, applies only to individuals nominated by the nominating committee; they cannot be imposed on individuals who meet the eligibility requirements and are properly nominated from the floor or by petition. *iii. Candidates' Names on Ballots:* When producing an election ballot, the FCU's secretary may order the names of the candidates on the ballot using any method for selection provided it is random and used consistently from year to year so as to avoid manipulation or favoritism. *iv. Secret Ballots:* An FCU must establish an election process that assures members their votes remain confidential and secret from all interested parties. If the election process does not separate the member's identity from the ballot, FCUs should use a third-party teller that has sole control over completed ballots. If the ballots are designed so that members' identities remain secret and are not disclosed on the ballot, FCUs may use election tellers from the FCU. In any case, FCU employees, officials, and members must not have access to ballots identifying members or to information that links members' votes to their identities. *v. Plurality Voting:* At least one nominee must be nominated for each vacant seat. When there are more nominees than seats open for election, the nominees who receive the greatest number of votes are elected to the vacant seats. *vi. Minimum Age Requirement:* The age the board selects may not be greater than the age of majority under the state law applicable to the credit union. Article VI. Board of Directors Section 1. *Number of members.* The board consists of ___members, all of whom must be members of this credit union. The number of directors may be changed to an odd number not fewer than 5 nor more than 15 by resolution of the board. No reduction in the number of directors may be made unless corresponding vacancies exist as a result of deaths, resignations, expiration of terms of office, or other actions provided by these bylaws. A copy of the resolution of the board covering any increase or decrease in the number of directors must be filed with the official copy of the bylaws of this credit union. Section 2. C *omposition of board.* ___(Fill in the number, which may be zero) directors or committee members may be a paid employee of the credit union. ___(Fill in the number, which may be zero) immediate family members of a director or committee member may be a paid employee of the credit union. In no case may employees, family members, or employees and family members constitute a majority of the board. The board may appoint a management official who ___(may or may not) be a member of the board and one or more assistant management officials who ___(may or may not) be a member of the board. If the management official or assistant management official is permitted to serve on the board, he or she may not serve as the chair. Section 3. *Terms of office.* Regular terms of office for directors must be for periods of either 2 or 3 years as the board determines. All regular terms must be for the same number of years and until the election and qualification of successors. Regular terms must be fixed at the first meeting, or upon any increase or decrease in the number of directors, so that approximately an equal number of regular terms must expire at each annual meeting. Section 4. *Vacancies.* Any vacancy on the board, credit committee, if applicable, or supervisory committee will be filled as soon as possible by vote of a majority of the directors then holding office. If all director positions become vacant simultaneously, the supervisory committee immediately becomes the temporary board of directors and must follow the procedures in Article IX, Section 3. Directors and credit committee members appointed to fill a vacancy will hold office only until the next annual meeting, at which any unexpired terms will be filled by vote of the members, and until the qualification of their successors. Members of the supervisory committee appointed to fill a vacancy will hold office until the first regular meeting of the board following the next annual meeting of members, at which the regular term expires, and until the appointment and qualification of their successors. Section 5. *Regular and special meetings.* A regular meeting of the board must be held each month at the time and place fixed by resolution of the board. One regular meeting each calendar year must be conducted in person. If a quorum is present in person for the annual in person meeting, the remaining board members may participate using audio or video teleconference methods. The other regular meetings may be conducted using audio or video teleconference methods. The chair, or in the chair's absence the ranking vice chair, may call a special meeting of the board at any time and must do so upon written request of a majority of the directors then holding office. Unless the board prescribes otherwise, the chair, or in the chair's absence the ranking vice chair, will fix the time and place of special meetings. Notice of all meetings will be given in the manner the board may from time to time by resolution prescribe. Special meetings may be conducted using audio or video teleconference methods. Section 6. *Board responsibilities.* The board has the general direction and control of the affairs of this credit union and is responsible for performing all the duties customarily performed by boards of directors. This includes but is not limited to the following:
(a)Directing the affairs of the credit union in accordance with the Act, these bylaws, the rules and regulations and sound business practices.
(b)Establishing programs to achieve the purposes of this credit union as stated in Article I, Section 2, of these bylaws.
(c)Establishing a loan collection program and authorizing the chargeoff of uncollectible loans.
(d)Establishing a policy to address training for newly elected and incumbent directors and volunteer officials, in areas such as ethics and fiduciary responsibility, regulatory compliance, and accounting and determining that all persons appointed or elected by this credit union to any position requiring the receipt, payment or custody of money or other property of this credit union, or in its custody or control as collateral or otherwise, are properly bonded in accordance with the Act and regulations.
(e)Performing additional acts and exercising additional powers as may be required or authorized by applicable law. *If the credit union has an elected credit committee, you do not need to check a box. If the credit union has no credit committee check Option 1 and if it has an appointed credit committee check Option 2.* _ *Option 1 No Credit Committee.*
(f)Reviewing denied loan applications of members who file written requests for review.
(g)Appointing one or more loan officers and delegating to those officers the power to approve or disapprove loans, lines of credit or advances from lines of credit.
(h)In its discretion, appointing a loan review committee to review loan denials and delegating to the committee the power to overturn denials of loan applications. The committee will function as a mid-level appeal committee for the board. Any denial of a loan by the committee must be reviewed by the board upon written request of the member. The committee must consist of three members and the regular term of office of the committee member will be for two years. Not more than one member of the committee may be appointed as a loan officer. _ *Option 2. Appointed Credit Committee.*
(f)Appointing an odd number of credit committee members as provided in Article VIII of these bylaws. Section 7. *Quorum.* A majority of the number of directors, including any vacant positions, constitutes a quorum for the transaction of business at any meeting, except that vacancies may be filled by a quorum consisting of a majority of the directors holding office as provided in Section 4 of this article. Fewer than a quorum may adjourn from time to time until a quorum is in attendance. Section 8. *Attendance and removal.* a. If a director or a credit committee member, if applicable, fails to attend regular meetings of the board or credit committee, respectively, for 3 consecutive months, or 4 meetings within a calendar year, or otherwise fails to perform any of the duties as a director or a credit committee member, the office may be declared vacant by the board and the vacancy filled as provided in the bylaws. b. The board may remove any board officer from office for failure to perform the duties thereof, after giving the officer reasonable notice and opportunity to be heard. When any board officer, membership officer, executive committee member or investment committee member is absent, disqualified, or otherwise unable to perform the duties of the office, the board may by resolution designate another member of this credit union to fill the position temporarily. The board may also, by resolution, designate another member or members of this credit union to act on the credit committee when necessary in order to obtain a quorum. Section 9. *Suspension of supervisory committee members.* Any member of the supervisory committee may be suspended by a majority vote of the board of directors. The members of this credit union will decide, at a special meeting held not fewer than 7 nor more than 14 days after any suspension, whether the suspended committee member will be removed from or restored to the supervisory committee. Article VII. Board Officers, Management Officials and Executive Committee Section 1. *Board officers.* The board officers of this credit union are comprised of a chair, one or more vice chairs, a financial officer, and a secretary, all of whom are elected by the board and from their number. The board determines the title and rank of each board officer and records them in the addendum to this article. One board officer, the ______, may be compensated for services as determined by the board. If more than one vice chair is elected, the board determines their rank as first vice chair, second vice chair, and so on. The offices of the financial officer and secretary may be held by the same person. If a management official or assistant management official is permitted to serve on the board, he or she may not serve as the chair. Unless removed as provided in these bylaws, the board officers elected at the first meeting of the board hold office until the first meeting of the board following the first annual meeting of the members and until the election and qualification of their respective successors. Section 2. *Election and term of office.* Board officers elected at the meeting of the board next following the annual meeting of the members, which must be held not later than 7 days after the annual meeting, hold office for a term of 1 year and until the election and qualification of their respective successors: provided, however, that any person elected to fill a vacancy caused by the death, resignation, or removal of an officer is elected by the board to serve only for the unexpired term of that officer and until a successor is duly elected and qualified. Section 3. *Duties of Chair.* The chair presides at all meetings of the members and at all meetings of the board, unless disqualified through suspension by the supervisory committee. The chair also performs other duties customarily assigned to the office of the chair or duties he or she is directed to perform by resolution of the board not inconsistent with the Act and regulations and these bylaws. Section 4. *Approval required.* The board must approve all individuals who are authorized to sign all notes of this credit union and all checks, drafts and other orders for disbursement of credit union funds. Section 5. *Vice chair.* The ranking vice chair has and may exercise all the powers, authority, and duties of the chair during the chair's absence or inability to act. Section 6. *Duties of financial officer.* i. The financial officer manages this credit union under the control and direction of the board unless the board has appointed a management official to act as general manager. Subject to limitations, controls and delegations the board may impose, the financial officer will:
(a)Have custody of all funds, securities, valuable papers and other assets of this credit union.
(b)Provide and maintain full and complete records of all the assets and liabilities of this credit union in accordance with forms and procedures prescribed in regulations and other guidance approved by the Administration, including, for small credit unions, the Accounting Manual for Federal Credit Unions.
(c)Within 20 days after the close of each month, ensure that a financial statement showing the condition of this credit union as of the end of the month, including a summary of delinquent loans is prepared and submitted to the board and post a copy of the statement in a conspicuous place in the office of the credit union where it will remain until replaced by the financial statement for the next succeeding month.
(d)Ensure that financial and other reports the Administration may require are prepared and sent.
(e)Within standards and limitations prescribed by the board, employ tellers, clerks, bookkeepers, and other office employees, and have the power to remove these employees.
(f)Perform other duties customarily assigned to the office of the financial officer or duties he or she is directed to perform by resolution of the board not inconsistent with the Act, regulations and these bylaws. ii. The board may employ one or more assistant financial officers, none of whom may also hold office as chair or vice chair, and may authorize them, under the direction of the financial officer, to perform any of the duties devolving on the financial officer, including the signing of checks. When designated by the board, any assistant financial officer may also act as financial officer during the financial officer's temporary absence or temporary inability to act. Section 7. *Duties of management official and assistant management official.* The board may appoint a management official who is under the direction and control of the board or of the financial officer as determined by the board. The management official may be assigned any or all of the responsibilities of the financial officer described in Section 6 of this article. The board will determine the title and rank of each management official and record them in the addendum to this article. The board may employ one or more assistant management officials. The board may authorize assistant management officials under the direction of the management official, to perform any of the duties devolving on the management official, including the signing of checks. When designated by the board, any assistant management official may also act as management official during the management official's temporary absence or temporary inability to act. Section 8. *Board powers regarding employees.* The board employs, fixes the compensation, and prescribes the duties of employees as necessary, and has the power to remove employees, unless it has delegated these powers to the financial officer or management official. Neither the board, the financial officer, nor the management official has the power or duty to employ, prescribe the duties of, or remove necessary clerical and auditing assistance employed or used by the supervisory committee and, if there is a credit committee, the power or duty to employ, prescribe the duties of, or remove any loan officer appointed by the credit committee. Section 9. *Duties of secretary.* The secretary prepares and maintains full and correct records of all meetings of the members and of the board, which records will be prepared within 7 days after the respective meetings. The secretary must promptly inform the Administration in writing of any change in the address of the office of this credit union or the location of its principal records. The secretary will give or cause to be given, in the manner prescribed in these bylaws, proper notice of all meetings of the members, and perform other duties he or she may be directed to perform by resolution of the board not inconsistent with the Act, regulations and these bylaws. The board may employ one or more assistant secretaries, none of whom may also hold office as chair, vice chair, or financial officer, and may authorize them under direction of the secretary to perform any of the duties assigned to the secretary. Section 10. *Executive committee.* As authorized by the Act, the board may appoint an executive committee of not fewer than three directors to serve at its pleasure, to act for it with respect to the board's specifically delegated functions. When making delegations to the executive committee, the board must be specific with regard to the committee's authority and limitations related to the particular delegation. The board may also authorize any of the following to approve membership applications under conditions the board and these bylaws may prescribe: an executive committee; a membership officer(s) appointed by the board from the membership, other than a board member paid as an officer; the financial officer; any assistant to the paid officer of the board or to the financial officer; or any loan officer. No executive committee member or membership officer may be compensated as such. Section 11. *Investment committee.* The board may appoint an investment committee composed of not less than two, to serve at its pleasure to have charge of making investments under rules and procedures established by the board. No member of the investment committee may be compensated as such. Addendum: The board must list the positions of the board officers and management officials of this credit union. They are as follows: *Select Option 1 if the credit union has a credit committee and Option 2 if it does not have a credit committee.* Article VIII. Option 1 Credit Committee Section 1. *Credit committee members.* The credit committee consists of ___ members. All the members of the credit committee must be members of this credit union. The number of members of the credit committee must be an odd number and may be changed to not fewer than 3 nor more than 7 by resolution of the board. No reduction in the number of members may be made unless corresponding vacancies exist as a result of deaths, resignations, expiration of terms of office, or other actions provided by these bylaws. A copy of the resolution of the board covering any increase or decrease in the number of committee members must be filed with the official copy of the bylaws of this credit union. Section 2. *Terms of office.* Regular terms of office for elected credit committee members are for periods of either 2 or 3 years as the board determines: provided, however, that all regular terms are for the same number of years and until the election and qualification of successors. The regular terms are fixed at the beginning, or upon any increase or decrease in the number of committee members, that approximately an equal number of regular terms expire at each annual meeting. Regular terms of office for appointed credit committee members are for periods as determined by the board and as noted in the board's minutes. Section 3. *Officers of credit committee.* The credit committee chooses from their number a chair and a secretary. The secretary of the committee prepares and maintains full and correct records of all actions taken by it, and those records must be prepared within 3 days after the action. The offices of the chair and secretary may be held by the same person. Section 4. *Credit committee powers.* The credit committee may, by majority vote of its members, appoint one or more loan officers to serve at its pleasure, and delegate to them the power to approve application for loans or lines of credit, share withdrawals, releases and substitutions of security, within limits specified by the committee and within limits of applicable law and regulations. Not more than one member of the committee may be appointed as a loan officer. Each loan officer must furnish to the committee a record of each approved or not approved transaction within 7 days of the date of the filing of the application or request, and this record becomes a part of the records of the committee. All applications or requests not approved by a loan officer must be acted upon by the committee. No individual may disburse funds of this credit union for any application or share withdrawal which the individual has approved as a loan officer. Section 5. *Credit committee meetings.* The credit committee holds meetings as the business of this credit union may require, and not less frequently than once a month. Notice of meetings will be given to members of the committee in a manner as the committee may from time to time, by resolution, prescribe. Section 6. *Credit committee duties.* For each loan or line of credit, the credit committee or loan officer must inquire into the character and financial condition of the applicant and the applicant's sureties, if any, to ascertain their ability to repay fully and promptly the obligations incurred by them and to determine whether the loan or line of credit will be of probable benefit to the borrower. The credit committee and its appointed loan officers should endeavor diligently to assist applicants in solving their financial problems. Section 7. *Unapproved loans prohibited.* No loan or line of credit may be made unless approved by the committee or a loan officer in accordance with applicable law and regulations. Section 8. *Lending procedures.* Subject to the limits imposed by applicable law and regulations, these bylaws, and the general policies of the board, the credit committee, or a loan officer, determines the security, if any, required for each application and the terms of repayment. The security furnished must be adequate in quality and character and consistent with sound lending practices. When funds are not available to make all the loans and lines of credit for which there are applications, preference should be given, in all cases, to the smaller applications if the need and credit factors are nearly equal. Article VIII. Option 2 Loan Officers (No Credit Committee) Section 1. *Records of loan officer; prohibition on loan officer disbursing funds.* Each loan officer must maintain a record of each approved or not approved transaction within 7 days of the filing of the application or request, and that record becomes a part of the records of the credit union. No individual may disburse funds of this credit union for any application or share withdrawal which the individual has approved as a loan officer. Section 2. *Duties of loan officer.* For each loan or line of credit, the loan officer must inquire into the character and financial condition of the applicant and the applicant's sureties, if any, to ascertain their ability to repay fully and promptly the obligations incurred by them and to determine whether the loan or line of credit will be of probable benefit to the borrower. The loan officers should endeavor diligently to assist applicants in solving their financial problems. Section 3. *Unapproved loans prohibited.* No loan or line of credit may be made unless approved by a loan officer in accordance with applicable law and regulations. Section 4. *Lending procedures.* Subject to the limits imposed by law and regulations, these bylaws, and the general policies of the board, a loan officer determines the security if any required for each application and the terms of repayment. The security furnished must be adequate in quality and character and consistent with sound lending practices. When funds are not available to make all the loans and lines of credit for which there are applications, preference should be given, in all cases, to the applications for lesser amounts if the need and credit factors are nearly equal. Article IX. Supervisory Committee Section 1. *Appointment and membership.* The supervisory committee is appointed by the board from among the members of this credit union, one of whom may be a director other than the financial officer or the compensated officer of the board. The board determines the number of members on the committee, which may not be fewer than 3 nor more than 5. No member of the credit committee, if applicable, or any employee of this credit union may be appointed to the committee. Regular terms of committee members are for periods of 1, 2, or 3 years as the board determines: Provided, however, that all regular terms are for the same number of years and until the appointment and qualification of successors. The regular terms are fixed at the beginning, or upon any increase or decrease in the number of committee members, so that approximately an equal number of regular terms expires at each annual meeting. Section 2. *Officers of supervisory committee.* The supervisory committee members choose from among their number a chair and a secretary. The secretary of the supervisory committee prepares, maintains, and has custody of full and correct records of all actions taken by it. The offices of chair and secretary may be held by the same person. Section 3. *Duties of supervisory committee.* a. The supervisory committee makes, or causes to be made, the audits, and prepares and submits the written reports required by the Act and regulations. The committee may employ and use clerical and auditing assistance required to carry out its responsibilities prescribed by this article, and may request the board to provide compensation for this assistance. It will prepare and forward to the Administration required reports. b. If all director positions become vacant simultaneously, the supervisory committee immediately assumes the role of the board of directors. The supervisory committee acting as the board must generally call and hold a special meeting to elect a board that will serve until the next annual meeting. The special meeting must occur at least 7 but no more than 14 days after all director positions became vacant, and candidates for the board at the special meeting may be nominated by petition or from the floor. However, if the next annual meeting has been scheduled and will occur within 45 days after all the director positions become vacant, the supervisory committee may decide to forego the special meeting and continue serving as the board until the election of new directors at the annual meeting. c. If the next annual meeting has not been scheduled, but the month and day of the previous year's meeting plus 7 days falls within 45 days after all the director positions become vacant, the supervisory committee acting as the board may decide to forego the special meeting to elect new directors. In this case, the supervisory committee must schedule the annual meeting within 7 days before or after the month and day of the previous annual meeting and continue to serve as the board until directors are elected at the annual meeting. d. The supervisory committee acting as the board may not act on policy matters. However, directors elected at a special meeting have the same powers as directors elected at the annual meeting. Section 4. *Verification of accounts.* The supervisory committee will cause the verification of the accounts of members with the records of the financial officer from time to time and not less frequently than as required by the Act and regulations. The committee must maintain a record of this verification. Section 5. *Powers of supervisory committee—removal of directors and credit committee members.* By unanimous vote, the supervisory committee may suspend until the next meeting of the members any director, board officer, or member of the credit committee. In the event of any suspension, the supervisory committee must call a special meeting of the members to act on the suspension, which meeting must be held not fewer than 7 nor more than 14 days after the suspension. The chair of the committee acts as chair of the meeting unless the members select another person to act as chair. Section 6. *Powers of supervisory committee—special meetings.* By the affirmative vote of a majority of its members, the supervisory committee may call a special meeting of the members to consider any violation of the provisions of the Act, the regulations, or of the charter or the bylaws of this credit union, or to consider any practice of this credit union which the committee deems to be unsafe or unauthorized. Article X. Organization Meeting Section 1. *Initial meeting.* When application is made for a federal credit union charter, the subscribers to the organization certificate must meet for the purpose of electing a board of directors and a credit committee, if applicable. Failure to commence operations within 60 days following receipt of the approved organization certificate is cause for revocation of the charter unless a request for an extension of time has been submitted to and approved by the Regional Director. Section 2. *Election of directors and credit committee.* The subscribers elect a chair and a secretary for the meeting. The subscribers then elect from their number, or from those eligible to become members of this credit union, a board of directors and a credit committee, if applicable, all to hold office until the first annual meeting of the members and until the election and qualification of their respective successors. If not already a member, every person elected under this section or appointed under Section 3 of this article, must qualify within 30 days by becoming a member. If any person elected as a director or committee member or appointed as a supervisory committee member does not qualify as a member within 30 days of election or appointment, the office will automatically become vacant and be filled by the board. Section 3. *Election of board officers.* Promptly following the elections held under the provisions of Section 2 of this article, the board must meet and elect the board officers who will hold office until the first meeting of the board of directors following the first annual meeting of the members and until the election and qualification of their respective successors. The board also appoints a supervisory committee at this meeting as provided in Article IX, Section 1, of these bylaws and a credit committee, if applicable. The members so appointed hold office until the first regular meeting of the board following the first annual meeting of the members and until the appointment and qualification of their respective successors. Article XI. Loans and Lines of Credit to Members Section 1. *Loan purposes.* Loans may only be made to members and for provident or productive purposes in accordance with applicable law and regulations. *The credit union may add business as one of its purposes by placing a comma after “provident” and inserting “business.”* Section 2. *Delinquency.* Any member whose loan is delinquent may be required to pay a late charge as determined by the board of directors. Article XII. Dividends Section 1. *Power of board to declare dividends.* The board establishes dividend periods and declares dividends as permitted by the Act and applicable regulations. Article XIII. RESERVED Article XIV. Expulsion and Withdrawal Section 1. *Expulsion procedure; expulsion or withdrawal does not affect members' liability or shares.* A member may be expelled by a two-thirds vote of the members present at special meeting called for that purpose, but only after the member has been given the opportunity to be heard. A member also may be expelled under a nonparticipation policy adopted by the board of directors and provided to each member in accordance with the Act. Expulsion or withdrawal will not operate to relieve a member of any liability to this credit union. All amounts paid in on shares by expelled or withdrawing members, before their expulsion or withdrawal, will be paid to them in the order of their withdrawal or expulsion, but only as funds become available and only after deducting any amounts due to this credit union. Article XV. Minors Section 1. *Minors permitted to own shares.* Shares may be issued in the name of a minor. State law governs the rights of minors to transact business with this credit union. Article XVI. General Section 1. *Compliance with law and regulation.* All power, authority, duties, and functions of the members, directors, officers, and employees of this credit union, pursuant to the provisions of these bylaws, must be exercised in strict conformity with the provisions of applicable law and regulations, and of the charter and the bylaws of this credit union. Section 2. *Confidentiality.* The officers, directors, members of committees and employees of this credit union must hold in confidence all transactions of this credit union with its members and all information respecting their personal affairs, except when permitted by state or federal law. Section 3. *Removal of directors and committee members.* Notwithstanding any other provisions in these bylaws, any director or committee member of this credit union may be removed from office by the affirmative vote of a majority of the members present at a special meeting called for the purpose, but only after an opportunity has been given to be heard. If member votes at a special meeting result in the removal of all directors, the supervisory committee immediately becomes the temporary board of directors and must follow the procedures in Article IX, Section 3. Section 4. *Conflicts of interest prohibited.* No director, committee member, officer, agent, or employee of this credit union may participate in any manner, directly or indirectly, in the deliberation upon or the determination of any question affecting his or her pecuniary or personal interest or the pecuniary interest of any corporation, partnership, or association (other than this credit union) in which he or she is directly or indirectly interested. In the event of the disqualification of any director respecting any matter presented to the board for deliberation or determination, that director must withdraw from the deliberation or determination; and if the remaining qualified directors present at the meeting plus the disqualified director or directors constitute a quorum, the remaining qualified directors may exercise with respect to this matter, by majority vote, all the powers of the board. In the event of the disqualification of any member of the credit committee, if applicable, or the supervisory committee, that committee member must withdraw from the deliberation or determination. Section 5. *Records.* Copies of the organization certificate of this credit union, its bylaws and any amendments to the bylaws, and any special authorizations by the Administration must be preserved in a place of safekeeping. Copies of the organization certificate and field of membership amendments should be attached as an appendix to these bylaws. Returns of nominations and elections and proceedings of all regular and special meetings of the members and directors must be recorded in the minute books of this credit union. The minutes of the meetings of the members, the board, and the committees must be signed by their respective chairmen or presiding officers and by the persons who serve as secretaries of those meetings. Section 6. *Availability of credit union records.* All books of account and other records of this credit union must be available at all times to the directors and committee members of this credit union provided they have a proper purpose for obtaining the records. The charter and bylaws of this credit union must be made available for inspection by any member and, if the member requests a copy, it will be provided for a reasonable fee. Section 7. *Member contact information.* Members must keep the credit union informed of their current address. Section 8. *Indemnification.*
(a)The credit union may elect to indemnify to the extent authorized by (check one) [ ] law of the state of ____: [ ] Model Business Corporation Act: the following individuals from any liability asserted against them and expenses reasonably incurred by them in connection with judicial or administrative proceedings to which they are or may become parties by reason of the performance of their official duties (check as appropriate). [ ] current officials [ ] former officials [ ] current employees [ ] former employees
(b)The credit union may purchase and maintain insurance on behalf of the individuals indicated in
(a)above against any liability asserted against them and expenses reasonably incurred by them in their official capacities and arising out of the performance of their official duties to the extent such insurance is permitted by the applicable state law or the Model Business Corporation Act.
(c)The term “official” in this bylaw means a person who is a member of the board of directors, credit committee, supervisory committee, other volunteer committee (including elected or appointed loan officers or membership officers), established by the board of directors. Article XVII. Amendments of Bylaws and Charter Section 1. *Amendment procedures.* Amendments of these bylaws may be adopted and amendments of the charter requested by the affirmative vote of two-thirds of the authorized number of members of the board at any duly held meeting of the board if the members of the board have been given prior written notice of the meeting and the notice has contained a copy of the proposed amendment or amendments. No amendment of these bylaws or of the charter may become effective, however, until approved in writing by the NCUA Board. Article XVIII. Definitions Section 1. *General definitions.* When used in these bylaws the terms: “Act” means the Federal Credit Union Act, as amended. “Administration” means the National Credit Union Administration. “Applicable law and regulations” means the Federal Credit Union Act and rules and regulations issued thereunder or other applicable federal and state statutes and rules and regulations issued thereunder as the context indicates (such as The Higher Education Act of 1965). “Board” means board of directors of the federal credit union. “Immediate family member” means spouse, child, sibling, parent, grandparent, grandchild, stepparents, stepchildren, stepsiblings, and adoptive relationships. “NCUA Board” means the Board of the National Credit Union Administration. “Regulation” or “regulations” means rules and regulations issued by the NCUA Board. “Share” or “shares” means all classes of shares and share certificates that may be held in accordance with applicable law and regulations. [FR Doc. E7-21397 Filed 10-30-07; 8:45 am] BILLING CODE 7535-01-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 71 [Docket No. FAA-2007-28591; Airspace Docket No. 07-ASO-16] Amendment of Class E Airspace; Scottsboro, AL AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Final rule. SUMMARY: This action amends Class E airspace at Scottsboro, AL, to accommodate a new Standard Instrument Approach Procedure
(SIAP)that has been developed for Scottsboro Municipal—Word Field Airport. Additional controlled airspace is necessary for the safety and management of Instrument Flight Rules
(IFR)operations at Scottsboro Municipal—Word Field Airport. DATES: *Effective Date:* 0901 UTC, December 20, 2007. The Director of the Federal Register approves this incorporation by reference action under title 1, Code of Federal Regulations, part 51, subject to the annual revision of FAA Order 7400.9 and publication of conforming amendments. FOR FURTHER INFORMATION CONTACT: Mark. D. Ward, Manager, System Support Group, Eastern Service Center, Federal Aviation Administration, P.O. Box 20636, Atlanta, Georgia 30320; telephone
(404)305-5627. SUPPLEMENTARY INFORMATION: History On August 15, 2007, the FAA proposed to amend Title 14 Code of Federal Regulations (14 CFR) part 71 by amending Class E airspace at Scottsboro, AL, (72 FR 45700). This action provides adequate Class E airspace for IFR operations at Scottsboro Municipal—Word Field Airport, Scottsboro, AL. Designations for Class E airspace areas extending upward from 700 feet or more above the surface of the Earth are published in FAA Order 7400.9R, dated August 15, 2007, and effective September 15, 2007, which is incorporated by reference in 14 CFR part 71.1. The Class E designations listed in this document will be published subsequently in the Order. Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. No comments objecting to the proposal were received. The Rule This amendment to Title 14, Code of Federal Regulations (14 CFR) part 71 amends Class E airspace at Scottsboro, AL, to provide additional controlled airspace required to support new Area Navigation
(RNAV)Global Positioning System
(GPS)Runway
(RWY)4 and RWY 22 SIAP at Scottsboro Municipal—Word Field Airport. The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore,
(1)is not a “significant regulatory action” under Executive Order 12866;
(2)is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and
(3)does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. List of Subjects in 14 CFR Part 71 Airspace, Incorporation by reference, Navigation (Air). Adoption of the Amendment In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows: PART 71—[AMENDED] 1. The authority citation for part 71 continues to read as follows: Authority: 49 U.S.C. 106(g); 40103, 40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959-1963 Comp., p. 389. § 71.1 [Amended] 2. The incorporation by reference in 14 CFR 71.1 of Federal Aviation Administration Order 7400.9R, Airspace Designations and Reporting Points, dated August 15, 2007, and effective September 15, 2007, is amended as follows: Paragraph 6005 Class E airspace areas extending upward from 700 feet or more above the surface of the earth. ASO AL E5 Scottsboro, AL [Revised] Scottsboro Municipal—Word Field Airport, AL (Lat. 34°41′19″ N., long. 86°00′21″ W) Jackson County Hospital, Point in Space Coordinates (Lat. 34°39′47″ N, long. 86°01′54″ W) That airspace extending upward from 700 feet above the surface within a 6.5-mile radius of Scottsboro Municipal—Word Field Airport and within 4 miles each side of the 037° bearing from Scottsboro Municipal—Word Field Airport extending from the 6.5-mile radius to 10.9 miles northeast of the airport and within 4 miles each side of the 218° bearing from the Scottsboro Municipal—Word Field Airport extending from the 6.5-mile radius to 11 miles Southwest of the airport; and that airspace within a 6-mile radius of the point in space (lat. 34°39′47″ N, long. 86°01′54″ W) serving Jackson County Hospital. Issued in College Park, Georgia, on October 5, 2007. Lynda Otting, Acting Manager, System Support Group, Eastern Service Center. [FR Doc. 07-5353 Filed 10-30-07; 8:45 am]
Connectionstraces to 30
Traces to 30 documents
U.S. Code
24 references not yet in our index
  • 7 CFR 210.10
  • 7 CFR 210.2
  • 7 CFR 3016.3
  • 48 CFR 31
  • 48 CFR 9901.306
  • 7 CFR 3015
  • 7 CFR 3016
  • Pub. L. 105-336
  • 5 USC 601-612
  • Pub. L. 104-4
  • 7 CFR 210
  • 7 CFR 215
  • 7 CFR 220
  • 42 USC 1751-1760
  • 5 CFR 1310.3
  • 7 CFR 3019
  • 12 CFR 701
  • 463 U.S. 29
  • 488 U.S. 204
  • 5 CFR 1320
  • Pub. L. 105-277
  • Pub. L. 104-121
  • 42 USC 4311-4312
  • 14 CFR 71
Citation graph
cites case law
Unknown
Final rule
U.S.C.§ 1779
Fed. Reg.Notices
Fed. Reg.Notices
Fed. Reg.Proposed Rules
Fed. Reg.Notices
U.S.C.§ 1772
U.S.C.§ 1773
U.S.C.§ 1766
U.S.C.§ 1786
SCOTUS463 U.S. 29
SCOTUS488 U.S. 204
Cite7 CFR 210.10
Cites 54 · showing 12Cited by 0 across 0 sources
★   the supreme law of the land   ★
Don't Tread on Me
E Pluribus Unum — out of many, one

"If you don't know your rights, you don't have any."

Marginalia · a citizen's law index
A research desk, not legal advice. Always read the cited source before relying on a summary.
Questions or an issue? support@self-law.org
disclaimerMarginalia is a research index, not a law firm. Nothing on this site is legal, tax, or financial advice and no attorney–client relationship is formed by using it. Statutes, regulations, and case law change; summaries, search results, AI output, and member posts may be incomplete, out of date, or wrong. Any interpretation drawn from material on this site should be validated by a licensed attorney in your jurisdiction before you act on it.