Federal Register Vol. 80, No.106,

Background

This proposed rule is part of the Administration's Export Control Reform (ECR) Initiative. The Initiative will enhance U.S. national and economic security, facilitate compliance with export controls, update the controls, and reduce unnecessary regulatory burdens on U.S. exporters. As part of this effort, this rulemaking proposes revisions to the Export Administration Regulations (EAR) to include the definitions of “technology,” “required,” “peculiarly responsible,” “proscribed person,” “published,” results of “fundamental research,” “export,” “reexport,” “release,” “transfer,” and “transfer (in-country)” to enhance clarity and ensure consistency with the International Traffic in Arms Regulations (ITAR), which is administered by the Department of State, Directorate of Defense Trade Controls (DDTC). This rulemaking also proposes amendments to the Scope part of the EAR to update and clarify application of controls to electronically transmitted and stored technology and software. The DDTC is concurrently publishing comparable proposed amendments to the ITAR's definitions of “technical data,” “required,” “peculiarly responsible,” “public domain,” results of “fundamental research,” “export,” “reexport,” “release,” and “retransfer” for the same reasons. Finally, this rulemaking proposes conforming changes to related provisions.

One aspect of the ECR Initiative includes amending the export control regulations to facilitate enhanced compliance while reducing unnecessary regulatory burdens. For similar national security, foreign policy, including human rights, reasons, the EAR and the ITAR each control, inter alia, the export, reexport, and in-country transfer of commodities, products or articles, technology, technical data, software, and services to various destinations, end users, and end uses. The two sets of regulations have been issued pursuant to different statutes, have been administered by different agencies with missions that are distinct from one another in certain respects, and have covered different items (or articles). For those reasons, and because each set of regulations has evolved separately over decades without much coordination between the two agencies regarding their structure and content, they often use different words, or the same words differently, to accomplish similar regulatory objectives.

Many parties are regulated by both the Commerce Department's EAR and the State Department's ITAR, particularly now that regulatory jurisdiction over many types of military items has been transferred from the ITAR to the EAR. Using common terms and common definitions to regulate the same types of items or actions is intended to facilitate enhanced compliance and reduce unnecessary regulatory burdens. Conversely, if different concerns between the two sets of export control regulations warrant different terms or different controls, then the differences should be clear for the same reason. Such clarity will benefit national security because it will be easier for exporters to know how to comply with the regulations and for prosecutors to be able to prosecute violations of the regulations. Such clarity will also enhance our economic security because it will reduce unnecessary regulatory burdens for exporters when attempting to determine the meaning of key words and phrases across similar sets of regulations. Finally, such harmonization and clarification is a necessary step toward accomplishing one of the ultimate objectives of the ECR initiative, which is the creation of a common export control list and common set of export control regulations.

BIS and DDTC have identified a series of similar terms in the EAR and the ITAR that are defined differently and that warrant either harmonization or the creation of similar structures that would identify more clearly the differences in how similar concepts are treated under the EAR and the ITAR. The proposed revisions to these terms are generally not intended to materially increase or decrease their existing scope. In particular, BIS and DDTC will continue to maintain their long-standing positions that “published” (or “public domain”) information and the results of “fundamental research” are excluded from the scope of “technology” subject to the EAR and the ITAR's “technical data.” Rather, the proposed changes are designed to clarify and update BIS policies and practices with respect to the application of the terms and to allow for their structural harmonization with their counterparts in the ITAR.

Harmonizing definitions does not mean making them identical. For example, under the EAR, technology may be “subject to” or “not subject to the EAR.” Technical data under the ITAR is subject to those regulations by definition. While the two terms have substantial commonality, they remain different terms used in different ways. This rulemaking proposes that, to the extent possible, similar definitions be harmonized both substantively and structurally. Substantive harmonization will mean using the same words for the same concepts across the two sets of regulations. Structural harmonization will mean setting forth similar definitions in a paragraph order that renders their similarities and differences clearly visible. This structural harmonization may require reserving certain paragraphs in an EAR definition if the corresponding paragraph does not exist in the ITAR definition, or vice versa.

A side-by-side comparison on the regulatory text proposed by both Departments is available on both agencies' Web sites: www.pmddtc.state.gov and www.bis.doc.gov.

An interim rule entitled “Export Administration Regulation; Simplification of Export Administration Regulations” (61 FR 12714) published March 25, 1996, established part 734, Scope of the Export Administration Regulations. The interim rule stated that part 734 “establishes the rules for determining whether commodities, software, technology, software, and activities of U.S. and foreign persons are subject to the EAR.” (61 FR at 12716) This rulemaking proposes to streamline and clarify part 734 while retaining its purpose and scope of control.

Section 734.2, currently titled “Important EAR terms and principles,” contains two sets of important definitions: A definition and description of “subject to the EAR,” and definitions of export, reexport, and a number of associated terms. This rulemaking proposes to retitle the section “Subject to the EAR,” retain the definition and description of that term, and create separate sections in part 734 to define “export,” “reexport,” “release,” and “transfer (in-country),” which will be described in greater detail below. This rulemaking proposes to remove current § 734.2(b)(7) regarding the listing of foreign territories and possessions in the Commerce Country Chart (Supplement No. 1 to part 738) because it duplicates current § 738.3(b).

Section 734.3(a) describes items (i.e., commodities, software, or technology) subject to the EAR. Paragraph (b) describes items that are not subject to the EAR. This rulemaking proposes minor revisions to paragraph (b)(3), which describes software and technology that is not subject to the EAR, to describe more fully educational and patent information that is not subject to the EAR, and to add a note to make explicit that information that is not “technology” as defined in the EAR is per se not subject to the EAR. These changes are part of an effort to make more clear throughout the EAR that “technology” is a subset of “information.” Only information that is within the scope of the definition of “technology” is subject to the EAR. If information of any sort is not within the scope of the definition of “technology,” then it is not subject to the EAR. This proposed rule makes no changes to the notes to paragraphs (b)(2) and (b)(3) that a printed book or other printed material setting forth encryption source code is not itself subject to the EAR, but that encryption source code in electronic form or media remains subject to the EAR. It also makes no changes to the note that publicly available encryption object code software classified under ECCN 5D002 is not subject to the EAR when the corresponding source code meets the criteria specified in § 740.13(e) of the EAR. (See proposed corresponding revisions to § 120.6(b) of the ITAR.)

Current § 734.7 sets forth that technology and software is “published” and thus not subject to the EAR when it becomes generally accessible to the interested public in any form, including through publication, availability at libraries, patents, and distribution or presentation at open gatherings.

This rulemaking proposes a definition of “published” with the same scope but a simpler structure. The proposed § 734.7(a) reads: “Except as set forth in paragraph (b), “technology” or “software” is “published” and is thus not “technology” or “software” subject to the EAR when it is not classified national security information and has been made available to the public without restrictions upon its further dissemination. This proposed definition is substantially the same as the wording of definitions adopted by the multilateral export control regimes of which the United States is a member: The Wassenaar Arrangement, Nuclear Suppliers Group, Missile Technology Control Regime, and Australia Group. The phrase “classified national security information” refers to information that has been classified in accordance with Executive Order 13526, 75 FR 707; 3 CFR 201 Comp., p. 298. The phrasing following the definition quoted above (“such as through”) means that the list that follows consists of representative examples taken from the list of such things that are in both the ITAR and the EAR and merged together. This is not an exhaustive list of published information. Section 734.7(b) keeps certain published encryption software subject to the EAR, a restriction currently found in § 734.7(c). BIS believes that the proposed revised section is easier to read and that the list of examples is easier to update than current text. The relevant restrictions do not include copyright protections or generic property rights in the underlying physical medium. (See proposed corresponding revisions to “public domain” in § 120.11 of the ITAR.)

The current § 734.8 excludes most information resulting from fundamental research from the scope of the EAR. The section is organized primarily by locus, specifically by the type of organization in which the research takes place. This proposed rule would revise § 734.8, but it is not intended to change the scope of the current § 734.8. The proposed revisions streamline the section by consolidating different provisions that involve the same criteria with respect to prepublication review, removing reference to locus unless it makes a difference to the jurisdictional status, and adding clarifying notes. The proposed revisions also consistently use the description “arises during or results from fundamental research” to make clear that technology that arises prior to a final result is subject to the EAR unless it otherwise meets the provisions of § 734.8. Comments regarding whether the streamlined § 734.8 text is narrower or broader in scope than the current text in § 734.8 are encouraged.

Proposed notes clarify that technology initially transferred to researchers, e.g., by sponsors, may be subject to EAR, and that software and commodities are not “technology resulting from fundamental research.” Additional notes clarify when technology is “intended to be published,” as it must be in order to be not subject to the EAR pursuant to this section.

Issued in 1985, National Security Decision Directive (NSDD)-189 established a definition of “fundamental research” that has been incorporated into numerous regulations, internal compliance regimes, and guidance documents. Therefore, in this rulemaking, BIS has proposed a definition of “fundamental research” that is identical to that in NSDD-189. However, BIS solicits comment on a simpler definition that is consistent with NSDD-189, but not identical. Specifically, the alternative definition would read: “`Fundamental research' means non-proprietary research in science and engineering, the results of which ordinarily are published and shared broadly within the scientific community.” BIS believes that the scope of this wording is the same as that of the wording in NSDD-189 and seeks comment on whether the final rule should adopt the simpler wording.

The proposed definition of “fundamental research” includes references to “basic” and “applied” research. For clarity, this rulemaking proposes definitions of those terms. The definition of “basic research” in proposed § 734.8 is that currently defined in the EAR (§ 772.1), and in the Wassenaar Arrangement's General Technology Note as “basic scientific research.” The proposed definition of “applied research” was drawn from the Defense Federal Acquisition Regulation Supplement (48 CFR part 31.205-18). A possible alternative definition of applied research is that found in the 2014 Office of Management and Budget Circular A-11: “Systematic study to gain knowledge or understanding necessary to determine the means by which a recognized and specific need may be met.” (See proposed corresponding § 120.49 of the ITAR.)

Current § 734.9 states that educational information released by instruction in a catalog course or associated teaching laboratory of an academic institution is not subject to the EAR. This rulemaking proposes moving this exclusion to § 734.3(b) and removing § 734.9. This proposed rule is not intended to change the scope of the current § 734.9.

This rulemaking proposes to revise current § 734.10, “Patent applications,” for clarity. For example, instead of an internal cross-reference to the section of the EAR identifying items not subject to the EAR the revised section directly states that “technology” is not “subject to the EAR” if it is contained in the patent-related documents described in the section. For the sake of structural consistency with the ITAR's treatment of information in patents, paragraph (a)(1) is added to state that a patent or an open (published) patent application available from or at any patent office is per se not subject to EAR. The proposed revisions do not, however, change the scope of current § 734.10. The existing footnote to the current § 734.10 is removed because it would be redundant of the proposed text.

This rulemaking proposes minor conforming edits to current § 734.11, which describes specific national security controls. The proposed revisions do not change the scope of current § 734.11. As described below, this rulemaking proposes to remove Supplement No. 1 to part 734, “Questions and Answers—Technology and Software Subject to the EAR.” Questions and answers are illustrative rather than regulatory and are thus more appropriately posted as Web site guidance than published as regulatory text.

In § 734.2(b) of the current EAR, there are definitions of export, export of technology or software, and export of encryption source code and object code software. Section 772.1 also defines “export” as follows: “Export means an actual shipment or transmission of items out of the United States.” This rulemaking proposes to consolidate the definitions of “export” and “export of technology and software,” while moving “export of encryption source code and object code software” to a new § 734.13.

Proposed § 734.13(a) would have six paragraphs. Paragraphs (a)(4) and (5) would be reserved. The corresponding paragraphs in the ITAR would contain provisions that are not relevant to the EAR.

Proposed paragraph (a)(1) of the definition of “export” uses the EAR terms “actual shipment or transmission out of the United States,” combined with the existing ITAR “sending or taking an item outside the United States in any manner.”

Paragraph (a)(2), specifying the concept of transfer or release of technology to a foreign national in the United States, or “deemed export,” reflects the long-standing BIS practice of treating software source code as technology for deemed export purposes.

Paragraph (a)(3) includes in the definition of “export” transferring by a person in the United States of registration, control, or ownership (i) of a spacecraft subject to the EAR that is not eligible for export under License Exception STA (i.e., spacecraft that provide space-based logistics, assembly or servicing of any spacecraft) to a person in or a national of any other country, or (ii) of any other spacecraft subject to the EAR to a person in or a national of a Country Group D:5 country.

Paragraphs (a)(4) and (a)(5) remain reserved, reflecting placeholders. The ITAR's parallel proposed provisions would control transfers to embassies within the United States and defense services. Neither topic is relevant to the EAR.

Paragraph (a)(6) defines as an export the release or other transfer of the means of access to encrypted data. This is intended to complement the exclusion of certain encrypted data from the definition of export, specified in proposed § 734.18(a)(4) and discussed below. Logically, providing the means to decrypt or otherwise access controlled technology or software that is encrypted should constitute a controlled event to the same extent as releasing or otherwise transferring the unencrypted controlled technology or software itself. Upon transfer of the means of access to encrypted technology or software, the technology or software would acquire the classification and control status of the underlying technology or software, as specified in proposed § 764.2(l). The meaning of “clear text” in the proposed definition is no different than an industry standard definition, e.g., information or software that is readable without any additional processing and is not encrypted. Comments are encouraged regarding whether a specific EAR definition of the term is warranted and, if so, what the definition should be.

Paragraph (a)(6) of export and paragraph (a)(4) of reexport in this proposed rule and the DDTC companion proposed rule present different formulations for this control and the agencies request input from the public on which text more clearly describes the control. The agencies intend, however, that the act of providing physical access to unsecured “technical data” (subject to the ITAR) will be a controlled event. The mere act of providing physical access to unsecured “technology” (subject to the EAR) will not, however, be a controlled event unless it is done with “knowledge” that such provision will cause or permit the transfer of controlled “technology” in clear text or “software” to a foreign national.

This provision is not confined to the transfer of cryptographic keys. It includes release or other transfer of passwords, network access codes, software or any other information that the exporter “knows” would result in the unauthorized transfer of controlled technology. As defined in current § 772.1 of the EAR, “knowledge” includes not only positive knowledge that a circumstance exists or is substantially certain to occur, but also an awareness of a high probability of its existence or future occurrence.

Paragraph (b) of § 734.13 would retain BIS's deemed export rule as set forth in current § 734.2(b). It would also codify a long-standing BIS policy that when technology or source code is released to a foreign national, the export is “deemed” to occur to that person's most recent country of citizenship or permanent residency. See, e.g., 71 FR 30840 (May 31, 2006).

Paragraph (c) would state that items that will transit through a country or countries or will be transshipped in a country or countries to a new country, or are intended for reexport to the new country are deemed to be destined to the new country. This provision would be moved without change from current § 734.2(b)(6).

The current definitions of reexport and reexport of technology or software in § 734.2(b) are shipment or transmission of items from one foreign country to another foreign country, and release of technology or source code to a foreign national “of another country.” This rulemaking proposes to move the definition of “reexports” to new § 734.14. In general, the provisions of the proposed definition of reexport parallel those of the proposed definition of export discussed above, except that reexports occur outside of the United States. Paragraphs (a)(1) and (a)(2) mirror the current definition but divide it into two paragraphs so that one paragraph pertains to actual reexports and another paragraph is specific to deemed reexports. Paragraph (a)(3) expands on the existing reference to transfer of registration or operational control over satellites in the definition of reexport in § 772.1 to include transferring by a person outside the United States of registration, control, or ownership (i) of a spacecraft subject to the EAR that is not eligible for reexport under License Exception STA (i.e., spacecraft that provide space-based logistics, assembly or servicing of any spacecraft) to a person in or a national of any other country, or (ii) of any other spacecraft subject to the EAR to a person in or a national of a Country Group D:5 country. Paragraph (a)(4) mirrors the proposed addition in the definition of “export” of the concept that releasing or otherwise transferring, in this case, outside the United States, the means to transfer to a foreign national controlled technology or software in readable form constitutes a “reexport.” (See proposed corresponding § 120.19 of the ITAR.)

This provision changes the existing definition of “release” in § 734.2(b)(3) and adds it to new § 734.15. Notably, while existing text provides that “visual inspection” by itself constitutes a release of technical data or source code, the proposed text provides that such inspection (including other types of inspection in addition to visual, such as aural or tactile) must actually reveal controlled technology or source code. Thus, for example, merely seeing an item briefly is not necessarily sufficient to constitute a release of the technology required, for example, to develop or produce it. This rulemaking proposes adding “written” to current “oral exchanges” as a means of release.

The proposed text also clarifies that the application of “technology” and “software” is a “release” in situations where U.S. persons abroad use personal knowledge or technical experience acquired in the United States in a manner that reveals technology or software to foreign nationals. This clarification makes explicit a long-standing EAR interpretation. This provision complements proposed new § 120.9(a)(5) of the ITAR, which would include in the definition of “defense service” the furnishing of assistance (including training) to the government of a country listed in § 126.1 of the ITAR in the development, production, operation, installation, maintenance, repair, overhaul or refurbishing of a defense article or a part, component, accessory or attachment specially designed for a defense article. The proposed definition does not use the existing phrase “visual inspection by foreign nationals of U.S.-origin equipment and facilities” because such inspections do not per se release “technology.” For example, merely seeing equipment does not necessarily mean that the seer is able to glean any technology from it and, in any event, not all visible information pertaining to equipment is necessarily “technology” subject to the EAR. (See proposed corresponding § 120.50 of the ITAR.)

The current definition of transfer (in-country) is the “shipment, transmission, or release of items subject to the EAR from one person to another person that occurs outside the United States within a single foreign country” (§ 772.1). There is no difference between this phrase and the phrase “in-country transfer” that is used in the EAR. Variations in the use of the term will be harmonized over time.

This proposed rule would remove the definition from § 772.1 and add a revised definition to new § 734.16. This rulemaking proposes: “a transfer (in-country) is a change in end use or end user of an item within the same foreign country.” This revision eliminates any potential ambiguity regarding whether a change in end use or end user within a foreign country is or is not a “transfer (in-country).” This new text would parallel the term “retransfer” in the ITAR. (See proposed corresponding definition of retransfer in § 120.51 of the ITAR.)

Proposed new § 734.17, export of encryption source code and object code software, would retain the text of § 734.2(b)(9). It would be moved to this section with only minor conforming and clarifying edits so that it is under the section of the regulations that would define when such an “export” occurs rather than under the existing “important EAR terms and principles.” Describing when an export occurs in the “export of encryption source code and object code software” section of the regulations is more clear than under a general “important EAR terms and principles” heading.

Proposed new § 734.18 gathers existing EAR exclusions from exports, reexports, and transfers into a single provision, and includes an important new provision pertaining to encrypted technology and software.

Paragraph (a)(1) reflects that by statute, launching a spacecraft, launch vehicle, payload, or other item into space is not an export. See 51 U.S.C. 50919(f).

Paragraph (a)(2), based on existing text in § 734.2(b)(2)(ii), would state that the release in the United States of technology or software to U.S. nationals, permanent residents, or protected individuals is not an export.

Paragraph (a)(3) would move from current § 734.2(b)(8) text stating that shipments between or among the states or possessions of the United States are not “exports” or “reexports.” The word “moving” and `transferring” were inserted next to “shipment” in order to avoid suggesting that the only way movement between or among the states or possessions would not be a controlled event was if they were “shipped.”

Paragraph (a)(4) establishes a specific carve-out from the definition of “export” the transfer of technology and software that is encrypted in a manner described in the proposed section. Encrypted information—i.e., information that is not in “clear text”—is not readable, and is therefore useless to unauthorized parties unless and until it is decrypted. As a result, its transfer in encrypted form consistent with the requirements of paragraph (a)(4) poses no threat to national security or other reasons for control and does not constitute an “actual” transmission of “technology” or “software.” Currently, neither the EAR nor the ITAR makes any distinction between encrypted and unencrypted transfers of technology or software for control or definitional purposes.

This section specifies the conditions under which this part of the definition would apply. An important requirement is that the technology or software be encrypted “end-to-end,” a phrase that is defined in paragraph (b). The intent of this requirement is that relevant technology or software is encrypted by the originator and remains encrypted (and thus not readable) until it is decrypted by its intended recipient. Such technology or software would remain encrypted at every point in transit or in storage after it was encrypted by the originator until it was decrypted by the recipient.

BIS understands that end-to-end encryption is not used in all commercial situations, particularly when encryption is provided by third party digital service providers such as cloud SaaS (software as a service) providers and some email services. However, in many such situations, technology or software may be encrypted and decrypted many times before it is finally decrypted and read by the intended recipient. At these points, it is in clear text and is vulnerable to unauthorized release. BIS considered this an unacceptable risk and therefore specified the use of end-to-end encryption as part of the proposed definition. A key requirement of the end-to-end provision is to ensure that no non-US national employee of a domestic cloud service provider or foreign digital third party or cloud service provider can get access to controlled technology or software in unencrypted form.

Paragraph (a)(4)(iii) describes encryption standards for purposes of the definition. In this proposed rule, use of encryption modules certified under the Federal Information Processing Standard 140-2 (FIPS 140-2), supplemented by appropriate software implementation, cryptographic key management and other procedures or controls that are in accordance with guidance provided in current U.S. National Institute for Standards and Technology publications, would qualify as sufficient security. FIPS 140-2 is a well understood cryptographic standard used for Federal Government procurement in the United States and Canada, as well as for many other uses, both in the United States and abroad. However, BIS understands that companies may use hardware and software that has not been certified by NIST or that does not conform to NIST guidelines (e.g., for internal use or conforming to other standards). To accommodate this, this paragraph allows for use of “similarly effective cryptographic means,” meaning that alternative approaches are allowable provided that they work. In such cases, the exporter is responsible for ensuring that they work. In contrast, the corresponding definition proposed by DDTC makes FIPS 140-2 conformity a baseline requirement. Hardware and software modules must be certified by NIST, and NIST key management and other implementation standards must be used. Alternatives are not permitted regardless of effectiveness.

This paragraph also specifically excludes from the definition technology and software stored in countries in Country Group D:5 and Russia for foreign policy reasons in light of the embargoes and policies of presumptive denial now in place with respect to such countries.

Logically, providing keys or other information that would allow access to encrypted technology or software should be subject to the same type of controls as the actual export, reexport, or transfer of the technology or software itself. This is specifically addressed in the proposed § 734.13(a)(6) as part of the definition of “export.” In addition, the proposed § 764.2(1) states that for enforcement purposes such an unauthorized release will constitute a violation to the same extent as a violation in connection with the actual export, reexport, or transfer (in-country) of the underlying “technology” or “software.”

Paragraph (c) confirms that the mere ability to access “technology” or “software” while it is encrypted in a manner that satisfies the requirements in the section does not constitute the release or export of such “technology” or “software.” This responds to a common industry question on the issue. (See proposed corresponding § 120.52 of the ITAR.)

Proposed § 734.20, activities that are not deemed reexports, merely codifies BIS's interagency-cleared Deemed Reexport Guidance posted on the BIS Web site dated October 31, 2013. This guidance was created so that the provisions regarding possible deemed reexports contained in §§ 124.16 and 126.18 of the ITAR would be available for EAR technology and source code.

Under this guidance and new § 734.20, release of technology or source code by an entity outside the United States to a foreign national of a country other than the foreign country where the release takes place does not constitute a deemed reexport of such technology or source code if the entity is authorized to receive the technology or source code at issue, whether by a license, license exception, or situations where no license is required under the EAR for such technology or source code and the foreign national's most recent country of citizenship or permanent residency is that of a country to which export from the United States of the technology or source code at issue would be authorized by the EAR either under a license exception, or in situations where no license under the EAR would be required.

Release of technology or source code by an entity outside the United States to a foreign national of a country other than the foreign country where the release takes place does not constitute a deemed reexport if: (i) The entity is authorized to receive the technology or source code at issue, whether by a license, license exception, or through situations where no license is required under the EAR; (ii) the foreign national is a bona fide regular and permanent employee (who is not a proscribed person under U.S. law) directly employed by the entity; (iii) such employee is a national exclusively of a country in Country Group A:5; and (iv) the release of technology or source code takes place entirely within the physical territory of any such country. This rulemaking also proposes a definition of “proscribed person” in § 772.1.

This paragraph corresponds to § 124.16 of the ITAR, but the reference to Country Group A:5 instead of the countries in the corresponding ITAR section varies slightly. This variation is a function of BIS's national security and foreign policy assessment of the application of this proposed rule to the nationals of Country Group A:5 and as part of a general BIS effort to reduce the number of variations in groups of countries identified in the EAR consistent with U.S. national security and foreign policy interests. South Korea and Argentina are in Country Group A:5, but not in ITAR § 124.16. Malta, Albania, and Cyprus are in § 124.16, but not in Country Group A:5.

For nationals other than those of Country Group A:5 countries, which are close military allies of the United States, other criteria may apply. In particular, the section specifies the situations in which the releases would not constitute deemed exports in a manner consistent with § 126.18 of the ITAR. An additional paragraph on scope of technology licenses included in the Web site would not be included in this proposed § 734.20. It would be included in proposed § 750.7, discussed below. For purposes of this section, “substantive contacts” would have the same meaning as it has in § 126.18 of the ITAR. The proposed phrase “permanent and regular employee” is a combination of BIS's definition of “permanent employee,” as set forth in a BIS advisory opinion issued on November 19, 2007, and the ITAR's definition of “regular employee” in § 120.39. This proposed rule adds specific text excluding persons proscribed under U.S. law to make clear that § 734.20 does not authorize release of technology to persons proscribed under U.S. law, such as those on the Entity List or the Specially Designated Nationals List, or persons denied export privileges, and defines “proscribed person” in § 772.1. The US-UK Exchange of Notes and US-Canadian Exchange of Letters referred to in the existing online guidance can be found on the State Department's Web site. The URL's for the letter are not proposed to be published in the EAR since URL addresses periodically change. Upon implementation of a final rule in this regard, BIS will place the URL references in an “FAQ” section of its Web site.

Like the current definition of “technology” in the EAR (§ 772.1), the definition proposed in this rulemaking is based on the Wassenaar Arrangement definition of technology. It continues to rest on the Wassenaar-defined sub-definitions of “development,” “production,” and “use,” which are currently defined in § 772.1 and which this rulemaking does not propose to change. This rulemaking also does not propose to change BIS's long-standing policy that all six activities in the definition of “use” (operation, installation (including on-site installation), maintenance (checking), repair, overhaul and refurbishing) must be present for an item to be classified under an ECCN paragraph that uses “use” to describe the ”technology” controlled. See 71 FR 30842, May 31, 2006. The proposed definition includes, as does the current EAR definition, the terms “operation, installation, maintenance, repair, overhaul, or refurbishing (or other terms specified in ECCNs on the CCL that control `technology') of an item” because such words are used as to describe technology controlled in multiple ECCNs, often with “or” rather than the “and” found in “use.”

This rulemaking proposes to incorporate the definitions of “technical data” and “technical assistance” into the definition of “technology” as illustrative lists. The note in the existing definition of “technology” that “technical assistance” “may take the forms such as instruction, skills training, working knowledge, and consulting services” is not repeated given that the proposed definition and its examples would include any “technology” in such circumstances and in a manner that is harmonized with the ITAR's definition of technical data.

This rulemaking proposes to add a note to address a common industry question about modification. This proposed rule also would add three exclusions to clarify the limits of the scope of the definition in a manner consistent with long-standing BIS policy and interpretation of existing scope of “technology.” The first two insertions parallel exclusions in the ITAR and the third, the exclusion of telemetry data, mirrors specific exclusions inserted into both the ITAR and the EAR as part of recent changes regarding the scope of U.S. export controls pertaining to satellites and related items. See 79 FR 27417 (May 13, 2014). Several paragraphs of this section are held in reserve merely to allow the entire section to mirror the corresponding ITAR provisions that are not relevant to the EAR. (See proposed corresponding revisions to § 120.10 of the ITAR.)

This rulemaking proposes to remove Supplement No. 1 to part 734, “Questions and Answers—Technology and Software Subject to the EAR.” Because the questions and answers are illustrative rather than regulatory, they are more appropriately posted as Web site guidance than included in the EAR.

This proposed rule retains the existing EAR definition of “required” in § 772.1, but proposes adding notes clarifying the application of the term. It removes the references in the existing definition to CCL Categories 4, 5, 6, and 9 to avoid the suggestion that BIS applies the definition of “required” only to the uses of the term in these categories. BIS has never had a separate definition of “required” used elsewhere in the EAR and this removal merely eliminates a potential ambiguity and reflects long-standing BIS policy.

To address common questions BIS has received regarding the meaning of the word “required,” BIS proposes adding two notes to address the questions. The first states that the references to “characteristics” and “functions” are not limited to entries on the CCL that use specific technical parameters to describe the scope of what is controlled. The “characteristics” and “functions” of an item listed are, absent a specific regulatory definition, a standard dictionary's definition of the item. It then includes examples of this point. The second refers to the fact that the ITAR and the EAR often divide within each set of regulations or between each set of regulations (a) controls on parts, components, accessories, attachments, and software and (b) controls on the end items, systems, equipment, or other articles into which those parts, components, accessories, attachments, and software are to be installed or incorporated. Moreover, with the exception of technical data specifically enumerated on the USML, the jurisdictional status of unclassified technical data or “technology” is the same as the jurisdictional status of the defense article or item to which it is directly related. Examples of this point are provided. (See proposed corresponding revisions to § 120.46 of the ITAR.)

This rulemaking proposes a definition of the currently undefined term “peculiarly responsible” in order to respond to common industry questions. The new definition would be modeled on the catch-and-release structure BIS adopted for the definition of “specially designed.” Thus, under the proposed definition, an item is “peculiarly responsible” for achieving or exceeding any referenced controlled performance levels, characteristics, or functions if it is used in “development,” “production,” “use,” operation, installation, maintenance, repair, overhaul, or refurbishing of an item subject to the EAR unless (a) the Department of Commerce has determined otherwise in a commodity classification determination, (b) it is identical to information used in or with a commodity or software that is or was in production and is EAR99 or described in an ECCN controlled only for Anti-Terrorism (AT) reasons, (c) it was or is being developed for use in or with general purpose commodities or software, or (d) it was or is being developed with “knowledge” that it would be for use in or with commodities or software described (i) in an ECCN controlled for AT-only reasons and also EAR99 commodities or software or (ii) exclusively for use in or with EAR99 commodities or software.

This rulemaking proposes to amend the temporary export of technology provisions of existing License Exception TMP by revising § 740.9(a)(3) to clarify that the “U.S. employer” and “U.S. persons or their employees” using this license exception are not foreign subsidiaries. The proposed paragraph streamlines current text without changing the scope. (See proposed corresponding revisions to § 125.4(b)(9) of the ITAR.)

This proposed revision would implement in the EAR the interagency-agreed boilerplate for all licenses that was posted on the BIS Web site and began appearing on licenses December 8, 2014. It is a slight revision to the existing § 750.7(a), which states that licenses authorize only the transaction(s) described in the license application and the license application support documents. This proposed revision would also codify the existing interpretation that a license authorizing the release of technology to an entity also authorizes the release of the same technology to the entity's foreign nationals who are permanent and regular employees of the entity's facility or facilities authorized on the license, except to the extent a license condition limits or prohibits the release of the technology to nationals of specific countries or country groups.

This rulemaking proposes adding a new paragraph (l) to § 764.2 “Violations.” This paragraph would provide that the unauthorized release of decryption keys or other information that would allow access to particular controlled technology or software would, for enforcement purposes, constitute a violation to the same extent as a violation in connection with the export of the underlying controlled “technology” or “software.” Under these and other related provisions, the decryption keys (or other technology), while subject to the EAR, do not themselves retain the classification of the technology that they could potentially release. This allows them to be secured and transmitted independently of the technology they could be used to release. (See proposed corresponding revisions to § 127.1(b)(4) of the ITAR.)

With the changes proposed in this rulemaking, there would be stand-alone sections in the EAR to address the scope and meaning of “publicly available information,” “publicly available technology and software,” and “technical data.” To avoid redundancy, the existing definitions in § 772.1 would be removed. In light of the changes described above, the definitions of “basic scientific research,” “export,” “reexport,” “required,” “technology,” and “transfer” would be revised accordingly. A clarifying note would be added at the bottom of the definition that the use of “transfer” does not apply to the unrelated “transfers of licenses” provision in § 750.10 or the antiboycott provisions in Supplement No. 8 to part 760 of the EAR. It also states that the term “transfer” may also be included on licenses issued by BIS. In that regard, the changes that can be made to a BIS license are the non-material changes described in § 750.7(c). Any other change to a BIS license without authorization is a violation of the EAR. See §§ 750.7(c) and 764.2(e). Finally, consistent with the explanations above, definitions for the terms “applied research,” “fundamental research,” “peculiarly responsible,” “publicly available encryption software,” “published,” and “release” would be added to § 772.1.

BIS welcomes comments on any aspects of this proposed rule. With respect to the proposed revisions, BIS would like to receive comments that are as specific and well-supported as possible. Particularly helpful comments will include a description of a problem or concern, available data on cost or economic impact, and a proposed solution. BIS also welcomes comments on aspects of this proposed rule that the public considers effective or well designed.

BIS specifically solicits comment on the following issues:

1. Whether the revisions proposed in this rulemaking create gaps, overlaps, or contradictions between the EAR and the ITAR, or among various provisions within the EAR;

2. Whether the alternative definition of fundamental research suggested in the preamble should be adopted;

3. Whether the alternative definition of applied research suggested in the preamble should be adopted, or whether basic and applied research definitions are needed given that they are subsumed by fundamental research;

4. Whether the questions and answers in existing Supplement No. 1 to part 734 proposed to be removed by this rulemaking have criteria that should be retained in part 734;

5. With respect to end-to-end encryption described in the proposed revision of the definition of “Activities that are Not Exports, Reexports, or Transfers,” whether the illustrative standard proposed in the EAR rulemaking also should be adopted in the ITAR rulemaking; whether the safe harbor standard proposed in the ITAR rulemaking also should be adopted in the EAR rulemaking; or whether the two bodies of regulations should have different standards;

6. Whether encryption standards adequately address data storage and transmission issues with respect to export controls; and

7. Whether the proposed definition of “peculiarly responsible” effectively explains how items may be “required” or “specially designed” for particular functions.

8. The public is asked to comment on the effective date of the final rule. Export Control Reform rules that revised categories of the USML and created new 600 series ECCNs have had a six-month delayed effective date to allow for exporters to update the classification of their items. In general, rules effecting export controls have been effective on the date of publication, due to the impact on national security and foreign policy. As this proposed rule, and the companion proposed rule from the Directorate of Defense Trade Controls, revise definitions within the ITAR and the EAR and do not make any changes to the USML or CCL, a 30-day delayed effective date is proposed to allow exporters to ensure continued compliance.

Although the Export Administration Act expired on August 20, 2001, the President, through Executive Order 13222 of August 17, 2001, 3 CFR, 2001 Comp., p. 783 (2002), as amended by Executive Order 13637 of March 8, 2013, 78 FR 16129 (March 13, 2013) and as extended by the Notice of August 7, 2014, 79 FR 46959 (August 11, 2014), has continued the Export Administration Regulations in effect under the International Emergency Economic Powers Act. BIS continues to carry out the provisions of the Export Administration Act, as appropriate and to the extent permitted by law, pursuant to Executive Order 13222 as amended by Executive Order 13637.

1. Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distribute impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This proposed rule has been designated a “significant regulatory action,” although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, this proposed rule has been reviewed by the Office of Management and Budget (OMB).

2. This proposed rule does not contain information collections subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA). Notwithstanding any other provision of law, no person is required to respond to, nor is subject to a penalty for failure to comply with, a collection of information, subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB control number.

3. This proposed rule does not contain policies with Federalism implications as that term is defined under E.O. 13132.

4. Pursuant to the Regulatory Flexibility Act, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 601 et seq., BIS has prepared the following initial Regulatory Flexibility Act analysis of the potential impact that this proposed rule, if adopted, would have on small entities.

The policy reasons for issuing this proposed rule are discussed in the background section of the preamble of this document, and are not repeated here.

The objective of this proposed rule (and a proposed rule being published simultaneously by the Department of State) is to provide greater clarity and precision in the EAR and the ITAR by providing common definitions and common terms to regulate the same types of actions. The proposed rule also seeks to express some concepts more clearly.

The proposed rule would alter definitions in the EAR. It also would update and clarify application of controls to electronically transmitted technology and software.

The legal basis for this proposed rule is 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.; E.O. 12938, 59 FR 59099, 3 CFR, 1994 Comp., p. 950; E.O. 13020, 61 FR 54079, 3 CFR, 1996 Comp., p. 219; E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783; E.O. 13637 of March 8, 2013, 78 FR 16129 (March 13, 2013); Notice of August 7, 2014, 79 FR 46959 (August 11, 2014); Notice of November 7, 2014, 79 FR 67035 (November 12, 2014).

No other Federal rules duplicate, overlap, or conflict with this proposed rule.

This proposed rule would apply to all persons engaged in the export, reexport, or transfer of commodities, technology or software that is regulated by the EAR. BIS does not maintain data from which it can determine how many of those persons are small entities as identified in the Small Business Administration size standards. Nevertheless, BIS recognizes that some of those persons are likely to be small entities.

This proposed rule is unlikely to increase the number of transactions that must be reported to BIS because EAR reporting requirements apply only in five specific situations, none of which would change as a result of this proposed rule. Those situations are: Exports that do not require a license of items on the Wassenaar Arrangement Sensitive List; Exports of High Performance Computers; Exports of certain thermal imaging cameras that do not require a license; Certain exports of Conventional Arms; and 600 series major defense equipment.

Because recordkeeping requirements already apply to all transactions that are subject to the EAR, BIS expects that this proposed rule would not expand recordkeeping requirements.

It is possible that some of these changes would increase the number of licenses that some small entities would have to seek from BIS although BIS is not aware of any specific instance in which additional licenses would be required.

The following discussion describes the changes that would be made by this proposed rule. It is divided into two sections: Changes that BIS believes would not impose any new regulatory obligations; and Changes that are not intended to imposed any new regulatory obligation, but that BIS cannot state with certainty would not do so.

This proposed rule would make certain changes to clarify and streamline the definitions of comparable terms, phrases, and concepts between the EAR and the ITAR. Many of these changes are technical in nature and attempt to consolidate and re-phrase the definitions to enhance readability and to parallel the structure of the ITAR's definition of the same term. However, there are a small number of new provisions, but these changes would not impose any new regulatory burdens. Specifically, this proposed rule would make the following changes:

Remove § 734.2(b) which currently defines export, reexport, release, transfer (in country) and export of encryption source code or object code software, because those terms would be defined in separate sections. Section 734.2(b) also states the policy of applying license requirements that apply to a country to its dependencies and possessions; this policy is currently stated elsewhere in the EAR.

Create new separate sections defining export, reexport, release and export of encryption source code or object code software. Those terms would be clarified and presented in a more organized manner, but substantively unchanged from the existing regulatory text.

Create a new section identifying activities that are not exports, reexports, or transfers. This section restates the transactions that are excluded from the definition of export in current regulatory text and adds two additional activities that would be expressly declared not to be exports, rexports or transfers: space launches and sending, taking or storing certain technology or software abroad using specified cryptographic techniques. The former, although not expressly in the current regulatory text, is required by statute (see 51 U.S.C. 50919(f)) and consistent with current BIS practice of not treating a space launch as an export, reexport or transfer. The latter is, in fact, new. However, by removing the transactions it describes from the definitions of exports, reexports, or transfers, it removes existing license requirements from those transactions.

Clarify without substantively changing the provisions related to patent applications and add specific text stating that technology contained in a patent available from or at any patent office is not subject to the EAR. The addition reflects BIS' long-standing interpretation. To the extent that it could be characterized as new, its only effect would be to appear to release from the EAR technology that some readers of the EAR might have (erroneously) concluded was subject to the EAR.

Add to License Exception TMP text to emphasize that foreign subsidiaries of U.S. companies are neither U.S. employers nor “U.S. persons or their employees” as those terms are used in the license exception. This additional text adds no restriction that is not already imposed by the definition of “U.S. persons” that currently appears in the text of License Exception TMP.

Add text codifying in the EAR limits on transactions authorized by a license that currently are imposed by conditions on the license itself.

Add text prohibiting the release or other transfer of information (e.g., decryption keys, passwords or access codes) with knowledge that such release or other transfer will result in an unauthorized export, reexport or transfer of other technology or software. This addition provides specific grounds for bringing charges with respect to one particular type of misconduct. However, existing EAR provisions, including the prohibition on causing, aiding or abetting a violation of the EAR or license, authorization or order could be used to bring charges for that same type of misconduct.

This proposed rule would add definitions for two new terms “applied research,” and “peculiarly responsible” and revise the definitions of two existing terms “required” and “transfer (in-country).” It also would adopt BIS' interpretative guidance regarding deemed reexports as regulatory text. These changes are not intended to impose any regulatory obligations on regulated entities, but BIS cannot state with certainty that there will be no impact. This proposed rule would make the following changes:

Add to the existing definition of “fundamental research” a new definition of “applied research.” The information arising from fundamental research is not subject to the EAR. Fundamental research consists of basic and applied research where the results are ordinarily published and shared broadly within the scientific community. This proposed rule would retain the overall concept of fundamental research that is currently in the EAR, but would remove certain limitations based on the type of institution in which the research takes place, relocate the definition of “basic research” from the definitions section of the EAR to the section dealing with fundamental research and provide a definition of applied research.

Add to the EAR a definition of the term “peculiarly responsible.” That currently undefined term appears in the definitions of “specially designed” and of “required” in the EAR. This proposed rule would define that term.

Add to the EAR a definition of “proscribed person.” This definition does not create any new regulated class. It simply provides a clear, shorthand reference to a person who is already prohibited from receiving items or participating in a transaction that is subject to the EAR without authorization by virtue of U.S. law, such as persons on the Entity List, Specially Designated Nationals, or debarred parties.

Remove from the definition of the term “required” references to CCL Categories 4, 5, 6 and 9 to accurately reflect BIS' long-standing interpretation that its definition applies wherever the EAR imposes a license requirement for technology “required” for a particular process or activity.

In the definition of “transfer (in-country),” replace the phrase “shipment, transmission, or release of items subject to the EAR from one person to another person that occurs outside the United States within a single foreign country” with “a change in end use or end user of an item within the same foreign country.” This new text would parallel the term “retransfer” in the ITAR and would eliminate any potential ambiguity that a change in end use or end user within a foreign country is or is not a “transfer (in-country).”

Each of the foregoing changes would serve the overall policy goals of reducing uncertainty and harmonizing the requirements of the ITAR and the EAR. In most instances, reduced uncertainty will be beneficial to persons who have to comply with the regulations, particularly persons who engage in transactions subject to both sets of regulations. They would be able to make decisions more quickly and have less need to contact BIS for advice. Additionally, by making these terms more explicit, the possibility of their being interpreted contrary to BIS' intent is reduced. Such contrary interpretations would have three undesirable effects. First, they would undermine the national security and foreign policy objectives that the EAR are intended to implement. Second, persons who are interpreting the regulations in a less restrictive manner than BIS intends may seek fewer licenses from BIS than their competitors who are interpreting the regulations consistent with BIS' intent or who are obtaining advice from BIS, thereby gaining a commercial advantage to the detriment of the relevant national security or foreign policy interests. Third, unnecessary regulatory complexity and unnecessary differences between the terminology of the ITAR and that of the EAR could discourage small entities from even attempting to export. The beneficial effects of making these terms more explicit justify any economic impact that might be incurred by small entities that would have to change their conduct because their contrary interpretations could no longer be defended given the clearer and more explicit terms in the regulations.

This proposed rule also would add to the EAR a description of activities that are not deemed reexports. This description currently appears as interpretative guidance on BIS' Web site and closely tracks the regulatory text of the ITAR. Deemed reexports are releases of technology or software source code within a single foreign country by a party located outside the United States to a national of a country other than the country in which the releasing party is located. The guidance describes three situations in which that party may release the technology or source code without obtaining a license from BIS.

By adopting this guidance as regulatory text that closely tracks the text governing the same activities in the ITAR, BIS reduces both complexity and unnecessary differences between the two sets of regulations with the salutary effects of faster decision making, reduced need to contact BIS for advice and reduced possibility that small entities would be discouraged from exporting as noted above.

As required by 5 U.S.C. 603(c), BIS' analysis considered significant alternatives. Those alternatives are: (1) The preferred alternative of altering definitions and updating and clarifying application of controls to electronically transmitted technology and software; (2) Maintaining the status quo and not revising the definitions or updating and clarifying application of controls to electronically transmitted technology and software; and (3) Establishing a size threshold below which entities would not be subject to the changes proposed by this rulemaking.

By altering definitions and updating and clarifying application of controls to electronically transmitted technology and software as this proposed rule would do, BIS would be reducing uncertainty for all parties engaged in transactions that are subject to the EAR. Potential ambiguities would be reduced; decisions could be made more quickly; the need to contact BIS for advice be reduced; and the possibility of inconsistent interpretations providing one party commercial advantages over others would be reduced. Persons (including small entities) engaged in transactions that are subject to the ITAR and transactions that are subject to the EAR would face fewer actual or apparent inconsistencies that must be addressed in their regulatory compliance programs. Although small entities, along with all other parties, would need to become familiar with the revised terminology, in the long run, compliance costs are likely to be reduced when compared to the present situation where the ITAR and the EAR use different terminology to regulate the same types of activity in the same manner. Therefore, BIS adopted this alternative.

If BIS chose to maintain the status quo, small entities and other parties would not have to incur the cost and effort of becoming familiar with the revised regulations and any party who is currently interpreting the regulations that would clearly be precluded by the more explicit interpretations would incur the cost of complying with the regulations consistent with their underlying intent and in the way that BIS believes most regulated parties do. However, the benefits of these proposed changes would be lost. Those benefits, greater clarity, consistency between the ITAR and the EAR, and reduced possibility of inconsistent application of the regulations by similarly situated regulated parties, would be foregone. Therefore, BIS has not adopted this alternative.

If BIS chose to create a size threshold exempting small entities as currently defined by the SBA size standards from the changes imposed by this proposed rule, those entities would face a more complicated regulatory environment than larger entities. The small entities would continue to be subject to the EAR as a whole but without the benefit of the clarifications introduced by this proposed rule. The only way to make a size threshold beneficial to entities falling below the threshold would be to exempt them from all or at least many of the requirements of the EAR. However, doing so would create a major loophole allowing commodities, software, and technology that are controlled for export for national security or foreign policy reasons to go, without restriction, to any party abroad, undermining the interests that the regulations are intended to protect. Therefore, BIS has not adopted this alternative.

For the reasons stated in the preamble, parts 734, 740, 750, 764, and 772 of the Export Administration Regulations (15 CFR subchapter C) are proposed to be amended as follows:

The revisions and additions read as follows:

FDA is announcing the availability of a draft revised GFI #120 entitled “Veterinary Feed Directive Regulation Questions and Answers.” The audience for this draft guidance is comprised of veterinarians issuing VFD orders, feed mills manufacturing VFD feeds and other distributors, animal producers who obtain VFD feeds for use in treating their animals, and others. This draft revised guidance reflects changes to the VFD requirements under the VFD final rule published elsewhere in this edition of the Federal Register.

In 1996, Congress enacted the Animal Drug Availability Act (ADAA) to facilitate the approval and marketing of new animal drugs and medicated feeds. In passing the ADAA, Congress created a new regulatory category for certain animal drugs used in animal feed called veterinary feed directive (VFD) drugs. VFD drugs are new animal drugs intended for use in or on animal feed which are limited to use under the professional supervision of a licensed veterinarian. FDA published final regulations implementing the VFD-related provisions of the ADAA in 2000.

Elsewhere in this edition of the Federal Register, FDA is publishing a VFD final rule that revises those VFD regulations and introduces clarifying changes to specified definitions. This draft revised guidance includes revisions that are consistent with the requirements in that final rule.

This level 1 draft guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The draft guidance, when finalized, will represent the Agency's current thinking on this topic. It does not establish any rights for or on any person and does is not binding on FDA or the public. An alternative approach may be used if such approach satisfies the requirements of the applicable statutes and regulations.

This draft guidance refers to previously approved collections of information found in FDA regulations. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The collections of information in 21 CFR 558.6 have been approved under OMB control number 0910-0363.

Interested persons may submit either electronic comments regarding this document to http://www.regulations.gov or written comments to the Division of Dockets Management (see ADDRESSES). It is only necessary to send one set of comments. Identify comments with the docket number found in brackets in the heading of this document. Received comments may be seen in the Division of Dockets Management between 9 a.m. and 4 p.m., Monday through Friday, and will be posted to the docket at http://www.regulations.gov.

Persons with access to the Internet may obtain the draft guidance at either http://www.fda.gov/AnimalVeterinary/GuidanceComplianceEnforcement/GuidanceforIndustry/default.htm or http://www.regulations.gov.

Posting of Public Comments

Please note that all comments received in response to this docket are considered part of the public record. They will, unless reasonable cause is given, be made available by the DEA for public inspection online at http://www.regulations.gov. Such information includes personal identifying information (such as your name, address, etc.) voluntarily submitted by the commenter. The Freedom of Information Act (FOIA) applies to all comments received. If you want to submit personal identifying information (such as your name, address, etc.) as part of your comment, but do not want it to be made publicly available, you must include the phrase “PERSONAL IDENTIFYING INFORMATION” in the first paragraph of your comment. You must also place the personal identifying information you do not want made publicly available in the first paragraph of your comment and identify what information you want redacted.

If you want to submit confidential business information as part of your comment, but do not want it to be made publicly available, you must include the phrase “CONFIDENTIAL BUSINESS INFORMATION” in the first paragraph of your comment. You must also prominently identify confidential business information to be redacted within the comment.

Comments containing personal identifying information and confidential business information identified as directed above will generally be made publicly available in redacted form. If a comment has so much confidential business information or personal identifying information that it cannot be effectively redacted, all or part of that comment may not be made publicly available. Comments posted to http://www.regulations.gov may include any personal identifying information (such as name, address, and phone number) included in the text of your online submission that is not identified as directed above as confidential.

An electronic copy of this document and supplemental information to this proposed rule are available at http://www.regulations.gov for easy reference.

Pursuant to 21 U.S.C. 811(a), this action is a formal rulemaking “on the record after opportunity for a hearing.” Such proceedings are conducted pursuant to the provisions of the Administrative Procedure Act (APA) (5 U.S.C. 551-559). 21 CFR 1308.41-1308.45, and 21 CFR part 1316 subpart D. In accordance with 21 CFR 1308.44 (a)-(c), requests for hearing, notices of appearance, and waivers of an opportunity for a hearing or to participate in a hearing may be submitted only by interested persons, defined as those “adversely affected or aggrieved by any rule or proposed rule issuable pursuant to section 201 of the Act (21 U.S.C. 811).” 21 CFR 1300.01. Such requests or notices must conform to the requirements of 21 CFR 1308.44 (a) or (b), and 1316.47 or 1316.48, as applicable, and include a statement of the interest of the person in the proceeding and the objections or issues, if any, concerning which the person desires to be heard. Any waiver must conform to the requirements of 21 CFR 1308.44(c) and 1316.49, including a written statement regarding the interested person's position on the matters of fact and law involved in any hearing.

The Drug Enforcement Administration (DEA) implements and enforces titles II and III of the Comprehensive Drug Abuse Prevention and Control Act of 1970, as amended. 21 U.S.C. 801-971. Titles II and III are referred to as the “Controlled Substances Act” and the “Controlled Substances Import and Export Act,” respectively, but they are collectively referred to as the “Controlled Substances Act” or the “CSA” for the purposes of this action. The DEA publishes the implementing regulations for these statutes in title 21 of the Code of Federal Regulations (CFR), chapter II. The CSA and its implementing regulations are designed to prevent, detect, and eliminate the diversion of controlled substances and listed chemicals into the illicit market while ensuring an adequate supply is available for the legitimate medical, scientific, research, and industrial needs of the United States. Controlled substances have the potential for abuse and dependence and are controlled to protect the public health and safety.

Under the CSA, each controlled substance is classified into one of five schedules based upon its potential for abuse, its currently accepted medical use in treatment in the United States, and the degree of dependence the drug or other substance may cause. 21 U.S.C. 812. The initial schedules of controlled substances established by Congress are found at 21 U.S.C. 812(c) and the current list of scheduled substances is published at 21 CFR part 1308.

Pursuant to 21 U.S.C. 811(a)(2), the Attorney General may, by rule, “remove any drug or other substance from the schedules if he [or she] finds that the drug or other substance does not meet the requirements for inclusion in any schedule.” The Attorney General has delegated scheduling authority under 21 U.S.C. 811 to the Administrator of the DEA, 28 CFR 0.100.

The CSA provides that proceedings for the issuance, amendment, or repeal of the scheduling of any drug or other substance may be initiated by the Attorney General (1) on his or her own motion, (2) at the request of the Secretary of the Department of Health and Human Services,1 or (3) on the petition of any interested party. 21 U.S.C. 811(a). This action was initiated at the request of the Assistant Secretary for Health of the HHS, and is supported by an evaluation of all relevant data by the HHS and the DEA. This action would remove the regulatory controls and administrative, civil, and criminal sanctions applicable to controlled substances, including those specific to schedule II controlled substances, on persons who handle or propose to handle [123I]ioflupane.

DaTscan is a single-dose, injectable diagnostic radiopharmaceutical for use in hospital settings with specialized gamma cameras. It was developed as a diagnostic tool for visualization of dopamine transporters (DAT) by using single photon emission computed tomography (SPECT) brain imaging. The Food and Drug Administration (FDA) approved the New Drug Application (NDA) for DaTscan on January 14, 2011, for the indication of visualizing striatal DATs in the brains of adult patients with suspected Parkinsonian syndromes (PS). [123I]Ioflupane is the active pharmaceutical ingredient (API) in DaTscan and it is a new molecular entity. However, [123I]Ioflupane is, by definition, a schedule II controlled substance because it is derived from cocaine, a schedule II substance, via ecgonine (a schedule II substance). See 21 U.S.C. 812(c), Schedule II, (a)(4). Each vial of DaTscan contains 0.325 micrograms (μg) of [123I]ioflupane per 2.5 milliliters (ml). The average and maximum amounts of non-radioactive ioflupane in each DaTscan vial are estimated to be between 0.21 μg and 0.31 μg. Although ioflupane, the non-radiolabeled API of the drug product DaTscan, binds to DAT and elicits behavioral effects similar to that of cocaine, based upon the available information and DaTscan's unique formulation-specific properties, DaTscan itself presents no practical possibility of abuse, misuse, diversion or clandestine production.

Pursuant to 21 U.S.C. 811(b), (c), and (f), the HHS recommended to the DEA on November 2, 2010, that FDA-approved products containing [123I]ioflupane be removed from schedule II of the CSA. HHS provided to DEA a scientific and medical evaluation document entitled “Basis for the Recommendation to Remove FDA Approved Products Containing [123I]Ioflupane from Schedule II of the Controlled Substances Act (CSA).” Pursuant to 21 U.S.C. 811(b), this document contained an eight-factor analysis of FDA-approved products containing [123I]ioflupane, along with the HHS's recommendation to remove FDA-approved products containing [123I]ioflupane from the schedules of the CSA.

In response, the DEA reviewed the scientific and medical evaluation and scheduling recommendation provided by the HHS, and all other relevant data. The DEA and HHS collaborated further regarding the available information. By letter dated February 2, 2015, the HHS provided detailed responses to specific inquiries from the DEA (submitted by letter dated September 16, 2014). Upon further review of all of the available information, the DEA completed its own eight-factor review document on FDA-approved diagnostic products containing [123I]ioflupane (currently, only DaTscan) pursuant to 21 U.S.C. 811(c). The FDA-approved diagnostic product, DaTscan, was used as the basis for the scientific and medical evaluation of FDA-approved diagnostic products containing [123I]ioflupane for both the HHS and DEA eight-factor analysis. Included below is a brief summary of each factor as analyzed by the HHS and the DEA, and as considered by the DEA in this proposed rule to remove [123I]ioflupane from the schedules of the CSA. Please note that both the DEA and HHS analyses and other relevant documents are available in their entirety under “Supporting and Related Material” of the public docket for this rule at http://www.regulations.gov under docket number DEA-415.

According to HHS and the DEA, there are no data demonstrating that individuals are administering quantities of DaTscan sufficient to create a hazard to their health or to the safety of other individuals or to the community. In clinical studies, DaTscan, due to its low concentrations of [123I]ioflupane lacked, central nervous activity (CNS) in humans.

According to HHS review of Sponsor's calculation regarding psychoactive doses of DaTscan, approximately 6,000 vials of DaTscan would be required to produce a subjective “high” in humans from exposure to [123I]ioflupane in this product. The volume of 6,000 vials is about 15 liters (L) of fluid, an amount that would be lethal if administered intravenously (i.v.). The short half-life of DaTscan (due to its radioactive decay) will prevent its extended storage for future use at the manufacturing, distributing, or radiopharmacy site; thereby limiting the amount available for diversion. It is highly unlikely that individuals will administer DaTscan on their own initiative since DaTscan has a very dilute and small dose of [123I]ioflupane, and possesses radioactivity. As a result, DaTscan will not have significant capability of creating hazards to the health of the user or to the safety of the community.

DaTscan blocks monoamine transporters, such as DAT and other monoamine transporters such as serotonin transporters. Ioflupane, the active pharmaceutical ingredient in DaTscan, was demonstrated to have an affinity to DAT that was approximately 10- and 100-fold greater than cocaine in rodent brain homogenates or in cells transfected with rat DAT (Neumeyer et al., 1996; Okada et al., 1998; Scheffel et al., 1997). As reported by HHS, non-radiolabeled ioflupane at doses >0.1 mg/kg, i.v. was able to substitute for cocaine in cocaine-trained rats (10 mg/kg, intraperitoneal administration) using a drug discrimination protocol which is predictive of subjective behavioral effects in humans.

HHS reviewed data from eight human clinical trials involving 942 subjects and nine years of post-approval use in Europe and found that there was not any clinical evidence of pharmacological effects resulting from DaTscan administration. The maximum dose of [123I]ioflupane in DaTscan that is administered to the patient prior to undergoing an imaging procedure is 0.325 μg (0.13 μg/ml). HHS extrapolated from the locomotor study and drug discrimination study on non-radiolabeled ioflupane and estimated that the lowest active dose of DaTscan for a 60 kg (132.2 lb) human to achieve a pharmacologic effect would be 288 μg or 886 vials of DaTscan. In addition, the recreational dose of DaTscan is estimated as 1921 µg or 5,910 vials.

Although [123I]ioflupane would be expected to have a pharmacological profile nearly identical to its non-radioactive form, its unique properties (i.e., manufacturing limits and radioactive properties) pose practical barriers to its abuse. Furthermore, according to HHS, the amount of [123I]ioflupane in DaTscan is significantly less than the amounts of ioflupane used to elicit the pharmacological response in preclinical studies with this compound.

The international non-proprietary name of [123I]ioflupane is methyl(1R, 2S, 3S, 5S)-8-(3-fluoropropyl)-3-(4-[123I]iodophenyl)-8-azabicyclo[3,2,1] octane-2-carboxylate. The molecular formula of [123I]ioflupane is C18H23F[123I]NO2 and the molecular weight is 427.28 g/mol. [123I]Ioflupane is a clear, colorless solution and is only present in a solution of ethanol and sodium acetate buffer. Non-radioactive ioflupane is a white solid with a melting point of 83 °C to 87 °C and soluble in water (less than 0.1 mg/ml), sodium acetate buffer (pH 7.4; 16 mg/ml), and ethanol (27 mg/ml).

HHS states that meaningful extraction of [123I]ioflupane from DaTscan would be impossible due to its limited production and availability and because extraction is technically complex and would require advanced equipment not available to the general public. Importantly, if extraction of ioflupane from [123I]ioflupane is accomplished, the ioflupane would be subject to schedule II controls under the CSA. According to HHS, the retrosynthesis of DaTscan to cocaine and ecgonine would be difficult. Production of DaTscan is technically complex as it requires specialized equipment, facilities, scientific training and expertise, making clandestine manufacturing particularly difficult. HHS indicated that the non-radiolabeled precursors needed for the synthesis of [123I]ioflupane (and DaTscan) are abusable. In addition, the non-radiolabeled precursors derived from cocaine or ecgonine are also schedule II controlled substances. However, even if an individual obtained the precursors, it is impractical and highly unlikely that they would synthesize the abusable compound into a radiolabeled formulation with a limited storage life that is not desired by drug users.

On January 14, 2011, FDA approved the NDA for DaTscan with the indication of visualizing striatal dopamine transporters in the brains of adult patients with suspected Parkinsonian syndromes using SPECT imaging. As such, any FDA-approved diagnostic product containing [123I]ioflupane has a currently accepted medical use in the United States.

According to HHS, there have been no reports of abuse of [123I]ioflupane. Over 168,000 doses of DaTscan have been administered to patients worldwide, and no pharmacological effects have been noted. Further, according to HHS, no single user has received more than 10 vials of DaTscan in a single day.

There have been no reports of abuse of [123I]ioflupane. According to the National Forensic Laboratory Information System (NFLIS) 2 and the System to Retrieve Information from Drug Evidence (STRIDE) 3 , there have been no reports of [123I]ioflupane seizures during the time period January 2010 to February 2015.

According to the HHS, because of the limited amounts of manufactured DaTscan, the low concentration of [123I]ioflupane per vial, and the existence of stringent regulatory controls (controls other than those imposed by the CSA and its implementing regulations, including regulation by the United States Nuclear Regulatory Commission under 10 CFR part 35 and/or by states) 4 on the manufacturing and handling of DaTscan, abuse of DaTscan is not possible as a practical matter. Thus, there is little to no practical risk to public health from DaTscan abuse.

As reviewed by HHS, non-radiolabeled ioflupane has cocaine-like properties. In a drug discrimination study in cocaine-trained rats, non-radiolabeled ioflupane produced cocaine-appropriate responding, which suggests that non-radiolabeled ioflupane may produce cocaine-like subjective effects in humans (HHS, 2010).

However, the available evidence suggests that there is no psychic or physiological dependence potential of FDA-approved diagnostic products containing [123I]ioflupane. The psychic or physiological dependence potential of FDA-approved diagnostic products is currently expected to be very limited due to the low exposure concentration of [123I]ioflupane, the aforementioned low potential for abuse (see Factor 1) and the extremely high and lethal quantities needed to achieve a subjective “high.”

[123I]Ioflupane is not an immediate precursor of a substance already controlled under the CSA.

Based on consideration of the scientific and medical evaluation and accompanying recommendation of the HHS and based on the DEA's consideration of its own eight-factor analysis, the DEA finds that the facts and all available and relevant data demonstrate that [123I]ioflupane does not possess abuse or dependence potential. Accordingly, the DEA finds that [123I]ioflupane does not meet the requirements for inclusion in any schedule and should be removed from control under the CSA.

The CSA outlines the findings required to place a drug or other substance in any particular schedule (I, II, III, IV, or V). 21 U.S.C. 812(b). The Assistant Secretary for Health of the HHS recommended removal of “FDA approved products containing [123I]ioflupane from schedule II of the” CSA. However, because the DEA finds no basis to remove only FDA approved products containing [123I]ioflupane from the schedules, this action proposes to remove the substance [123I]ioflupane from the CSA schedules. Historically, when new molecular entities are removed from control, the substance itself is removed from control rather than the specific FDA-approved drug product (e.g., naloxegol, 80 FR 3468; naloxone, 39 FR 44392). As summarized above, the data currently support removal of substances that contain [123I]ioflupane, primarily because [123I]ioflupane itself has a lethal radioactive barrier, and its manufacturing process is highly regulated and technically complex, thus making abuse highly unlikely.

After consideration of the analyses and recommendation of the Assistant Secretary for Health of the HHS and review of all relevant and available data, the Administrator of the DEA, pursuant to 21 U.S.C. 812(b)(5), finds that:

(1) [123I]Ioflupane has no comparable potential for abuse relative to substances in Schedule V.

(2) [123I]Ioflupane has a currently accepted medical use in treatment in the United States. FDA approved the New Drug Application for DaTscan on January 14, 2011, with the indication of visualizing striatal dopamine transporters in the brains of adult patients with suspected Parkinsonian syndromes using SPECT imaging.

(3) [123I]Ioflupane is not abusable, therefore, its use is not likely to lead to physical or psychological dependence.

Based on these findings, the Administrator of the DEA concludes that [123I]ioflupane does not warrant control under the CSA.

On November 25, 2014, DEA published an interim final rule waiving the requirement of DEA registration for certain entities that are authorized under other federal or state authorities to administer DaTscan. 79 FR 70085. If finalized, this proposal to remove [123I]ioflupane from the schedules of controlled substances would make such waivers unnecessary. Therefore, if this action is finalized, DEA intends to withdraw the regulations established through that interim final rule.

In accordance with 21 U.S.C. 811(a), this scheduling action is subject to formal rulemaking procedures done “on the record after opportunity for a hearing,” which are conducted pursuant to the provisions of 5 U.S.C. 556 and 557. The CSA sets forth the criteria for scheduling a drug or other substance and for removing a drug or substance from the schedules of controlled substances. Such actions are exempt from review by the Office of Management and Budget (OMB) pursuant to section 3(d)(1) of Executive Order 12866 and the principles reaffirmed in Executive Order 13563.

This regulation meets the applicable standards set forth in sections 3(a) and 3(b)(2) of Executive Order 12988 Civil Justice Reform to eliminate drafting errors and ambiguity, minimize litigation, provide a clear legal standard for affected conduct, and promote simplification and burden reduction.

This rulemaking does not have federalism implications warranting the application of Executive Order 13132. The rule does not have substantial direct effects on the States, on the relationship between the Federal Government and the States, or the distribution of power and responsibilities among the various levels of government.

This rule does not have tribal implications warranting the application of Executive Order 13175. This rule does not have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

The Administrator, in accordance with the Regulatory Flexibility Act (5 U.S.C. 601-612) (RFA), has reviewed this proposed rule and by approving it certifies that it will not have a significant economic impact on a substantial number of small entities. The purpose of this rule is to remove [123I]ioflupane from the list of schedules of the CSA. This action will remove regulatory controls and administrative, civil, and criminal sanctions applicable to controlled substances for handlers and proposed handlers of [123I]ioflupane. Accordingly, it has the potential for some economic impact in the form of cost savings.

If finalized, the proposed rule will affect all persons who would handle, or propose to handle, [123I]ioflupane. Due to the wide variety of unidentifiable and unquantifiable variables that potentially could influence the distribution and administration rates of new molecular entities, the DEA is unable to determine the number of entities and small entities which might handle [123I]ioflupane.

Although the DEA does not have a reliable basis to estimate the number of affected entities and quantify the economic impact of this proposed rule, a qualitative analysis indicates that, if finalized, this rule is likely to result in some cost savings for the healthcare industry. The affected entities will continue to meet existing Federal and/or state requirements applicable to those who handle radiopharmaceutical substances, including licensure, security, recordkeeping, and reporting requirements, which in many cases are more stringent than the DEA's requirements. However, the DEA estimates cost savings will be realized from the removal of the administrative, civil, and criminal sanctions for those entities handling or proposing to handle [123I]ioflupane, in the form of saved registration fees, and the elimination of additional physical security, recordkeeping, and reporting requirements.

Because of these facts, this rule will not result in a significant economic impact on a substantial number of small entities.

On the basis of information contained in the “Regulatory Flexibility Act” section above, the DEA has determined and certifies pursuant to the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1501 et seq., that this action would not result in any federal mandate that may result “in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted for inflation) in any one year * * * .” Therefore, neither a Small Government Agency Plan nor any other action is required under provisions of UMRA.

This action does not impose a new collection of information requirement under the Paperwork Reduction Act, 44 U.S.C. 3501-3521. This action would not impose recordkeeping or reporting requirements on State or local governments, individuals, businesses, or organizations. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

For the reasons set out above, 21 CFR part 1308 is proposed to be amended to read as follows:

The Directorate of Defense Trade Controls (DDTC), U.S. Department of State, administers the International Traffic in Arms Regulations (ITAR) (22 CFR parts 120 through 130). The items subject to the jurisdiction of the ITAR, i.e., “defense articles” and “defense services,” are identified on the ITAR's U.S. Munitions List (USML) (22 CFR 121.1). With few exceptions, items not subject to the export control jurisdiction of the ITAR are subject to the jurisdiction of the Export Administration Regulations (“EAR,” 15 CFR parts 730 through 774, which includes the Commerce Control List (CCL) in Supplement No. 1 to part 774), administered by the Bureau of Industry and Security (BIS), U.S. Department of Commerce. Both the ITAR and the EAR impose license requirements on exports and reexports. Items not subject to the ITAR or to the exclusive licensing jurisdiction of any other set of regulations are subject to the EAR.

BIS is concurrently publishing comparable proposed amendments (BIS companion rule) to the definitions of “technology,” “required,” “peculiarly responsible,” “published,” results of “fundamental research,” “export,” “reexport,” “release,” and “transfer (in-country)” in the EAR. A side-by-side comparison on the regulatory text proposed by both Departments is available on both agencies' Web sites: www.pmddtc.state.gov and www.bis.doc.gov.

The Department proposes to revise the definition of “defense article” to clarify the scope of the definition. The current text of § 120.6 is made into a new paragraph (a), into which software is added to the list of things that are a “defense article” because software is being removed from the definition of “technical data.” This is not a substantive change.

A new § 120.6(b) is added to list those items that the Department has determined should not be a “defense article,” even though they would otherwise meet the definition of “defense article.” All the items described were formerly excluded from the definition of “technical data” in § 120.10. These items are declared to be not subject to the ITAR to parallel the EAR concept of “not subject to the EAR” as part of the effort to harmonize the ITAR and the EAR. This does not constitute a change in policy regarding these items or the scope of items that are defense articles.

The Department proposes to revise the definition of “technical data” in ITAR § 120.10 in order to update and clarify the scope of information that may be captured within the definition. Paragraph (a)(1) of the revised definition defines “technical data” as information “required” for the “development,” “production,” operation, installation, maintenance, repair, overhaul, or refurbishing of a “defense article,” which harmonizes with the definition of “technology” in the EAR and the Wassenaar Arrangement. This is not a change in the scope of the definition, and additional words describing activities that were in the prior definition are included in parentheticals to assist exporters.

Paragraph (a)(1) also sets forth a broader range of examples of formats that “technical data” may take, such as diagrams, models, formulae, tables, engineering designs and specifications, computer-aided design files, manuals or documentation, or electronic media, that may constitute “technical data.” Additionally, the revised definition includes certain conforming changes intended to reflect the revised and newly added defined terms proposed elsewhere in this rule.

The proposed revised definition also includes a note clarifying that the modification of the design of an existing item creates a new item and that the “technical data” for the modification is “technical data” for the new item.

Paragraph (a)(2) of the revised definition defines “technical data” as also including information that is enumerated on the USML. This will be “technical data” that is positively described, as opposed to “technical data” described in the standard catch-all “technical data” control for all “technical data” directly related to a “defense article” described in the relevant category. The Department intends to enumerate certain controlled “technical data” as it continues to move the USML toward a more positive control list.

Paragraph (a)(3) of the revised definition defines “technical data” as also including classified information that is for the “development,” “production,” operation, installation, maintenance, repair, overhaul, or refurbishing of a “defense article” or a 600 series item subject to the EAR. Paragraph (a)(5) of the revised definition defines “technical data” as also including information to access secured “technical data” in clear text, such as decryption keys, passwords, or network access codes. In support of the latter change, the Department also proposes to add a new provision to the list of violations in § 127.1(b)(4) to state that any disclosure of these decryption keys or passwords that results in the unauthorized disclosure of the “technical data” or software secured by the encryption key or password is a violation and will constitute a violation to the same extent as the “export” of the secured information. For example, the “release” of a decryption key may result in the unauthorized disclosure of multiple files containing “technical data” hosted abroad and could therefore constitute a violation of the ITAR for each piece of “technical data” on that server.

Paragraph (b) of the revised definition of “technical data” excludes non-proprietary general system descriptions, information on basic function or purpose of an item, and telemetry data as defined in Note 3 to USML Category XV(f) (§ 121.1). Items formerly identified in this paragraph, principles taught in schools and “public domain” information, have been moved to the new ITAR § 120.6(b).

The proposed definition removes software from the definition of “technical data.” Specific and catch-all controls on software will be added elsewhere throughout the ITAR as warranted, as it will now be defined as a separate type of “defense article.”

The Department proposes a definition of “required” in a new § 120.46. “Required” is used in the definition of “technical data” and has, to this point, been an undefined term in the ITAR. The word is also used in the controls on technology in both the EAR and the Wassenaar Arrangement, as a defined term, which the Department is now proposing to adopt:

The proposed definition of “required” contains three notes. These notes explain how the definition is to be applied.

Note 1 provides that the definition explicitly includes information for meeting not only controlled performance levels, but also characteristics and functions. All items described on the USML are identified by a characteristic or function. Additionally, some descriptions include a performance level. As an example, USML Category VIII(a)(1) controls aircraft that are “bombers” and contains no performance level. The characteristic of the aircraft that is controlled is that it is a bomber, and therefore, any “technical data” peculiar to making an aircraft a bomber is “required.”

Note 2 states that, with the exception of “technical data” specifically enumerated on the USML, the jurisdictional status of unclassified “technical data” is the same as that of the commodity to which it is directly related. Specifically, it explains that “technical data” for a part or component of a “defense article” is directly related to that part or component, and if the part or component is subject to the EAR, so is the “technical data.”

Note 3 establishes a test for determining if information is peculiarly responsible for meeting or achieving the controlled performance levels, characteristics or functions of a “defense article.” It uses the same catch-and-release concept that the Department implemented in the definition of “specially designed.” It has a similarly broad catch of all information used in or for use in the “development,” “production,” operation, installation, maintenance, repair, overhaul, or refurbishing of a “defense article.” It has four releases that mirror the “specially designed” releases, and one reserved paragraph for information that the Department determines is generally insignificant. The first release is for information identified in a commodity jurisdiction determination. The second release is reserved. The third release is for information that is identical to information used in a non-defense article that is in “production,” and not otherwise enumerated on the ITAR. The fourth release is for information that was developed with knowledge that it is for both a “defense article” and a non-defense article. The fifth release is information that was developed for general purpose commodities.

In the companion rule, BIS proposes to make Note 3 into a stand-alone definition for “peculiarly responsible” as it has application outside of the definition of “required.” The substance of Note 3 and the BIS definition of “peculiarly responsible” are identical. DDTC asks for comments on the placement of this concept.

The Department proposes to add § 120.47 for the definition of “development” and § 120.48 for the definition of “production.” These definitions are currently in Notes 1 and 2 to paragraph (b)(3) in § 120.41, the definition of “specially designed.” Because “technical data” is now defined, in part, as information “required” for the “development” or “production” of a “defense article,” and these words are now used in the definition of a “defense service,” it is appropriate to define these terms. The adoption of these definitions is also done for the purpose of harmonization because these definitions are also used in the EAR and by the Wassenaar Arrangement.

The Department proposes to revise the definition of “public domain” in ITAR § 120.11 in order to simplify, update, and introduce greater versatility into the definition. The existing version of ITAR § 120.11 relies on an enumerated list of circumstances through which “public domain” information might be published. The Department believes that this definition is unnecessarily limiting in scope and insufficiently flexible with respect to the continually evolving array of media, whether physical or electronic, through which information may be disseminated.

The proposed definition is intended to identify the characteristics that are common to all of the enumerated forms of publication identified in the current rule—with the exception of ITAR § 120.11(a)(8), which is addressed in a new definition for “technical data that arises during, or results from, fundamental research”—and to present those common characteristics in a streamlined definition that does not require enumerated identification within the ITAR of every current or future qualifying publication scenario. Additionally, the proposed definition incorporates phrases such as “generally accessible” and “without restriction upon its further dissemination” in order to better align the definition found in the EAR and more closely aligned with the definition in the Wassenaar Arrangement control lists.

The proposed definition requires that information be made available to the public without restrictions on its further dissemination. Any information that meets this definition is “public domain.” The definition also retains an exemplary list of information that has been made available to the public without restriction and would be considered “public domain.” These include magazines, periodicals and other publications available as subscriptions, publications contained in libraries, information made available at a public conference, meeting, seminar, trade show, or exhibition, and information posted on public Web sites. The final example deems information that is submitted to co-authors, editors, or reviewers or conference organizers for review for publication to be “public domain,” even prior to actual publication. The relevant restrictions do not include copyright protections or generic property rights in the underlying physical medium.

Paragraph (b) of the revised definition explicitly sets forth the Department's requirement of authorization to release information into the “public domain.” Prior to making available “technical data” or software subject to the ITAR, the U.S. government must approve the release through one of the following: (1) The Department; (2) the Department of Defense's Office of Security Review; (3) a relevant U.S. government contracting authority with authority to allow the “technical data” or software to be made available to the public, if one exists; or (4) another U.S. government official with authority to allow the “technical data” or software to be made available to the public.

The requirements of paragraph (b) are not new. Rather, they are a more explicit statement of the ITAR's requirement that one must seek and receive a license or other authorization from the Department or other cognizant U.S. government authority to release ITAR controlled “technical data,” as defined in § 120.10. A release of “technical data” may occur by disseminating “technical data” at a public conference or trade show, publishing “technical data” in a book or journal article, or posting “technical data” to the Internet. This proposed provision will enhance compliance with the ITAR by clarifying that “technical data” may not be made available to the public without authorization. Persons who intend to discuss “technical data” at a conference or trade show, or to publish it, must ensure that they obtain the appropriate authorization.

Information that is excluded from the definition of “defense article” in the new § 120.6(b) is not “technical data” and therefore does not require authorization prior to release into the “public domain.” This includes information that arises during or results from “fundamental research,” as described in the new § 120.49; general scientific, mathematical, or engineering principles commonly taught in schools, and information that is contained in patents.

The Department also proposes to add a new provision to § 127.1 in paragraph (a)(6) to state explicitly that the further dissemination of “technical data” or software that was made available to the public without authorization is a violation of the ITAR, if, and only if, it is done with knowledge that the “technical data” or software was made publicly available without an authorization described in ITAR § 120.11(b)(2). Dissemination of publicly available “technical data” or software is not an export-controlled event, and does not require authorization from the Department, in the absence of knowledge that it was made publicly available without authorization.

“Technical data” and software that is made publicly available without proper authorization remains “technical data” or software and therefore remains subject to the ITAR. As such, the U.S. government may advise a person that the original release of the “technical data” or software was unauthorized and put that person on notice that further dissemination would violate the ITAR.

The Department proposes to move “fundamental research” from the definition of “public domain” in ITAR § 120.11(a)(8) and define “technical data that arises during, or results from, fundamental research” in a new ITAR § 120.49. The Department believes that information that arises during, or results from fundamental research is conceptually distinguishable from the information that would be captured in the revised definition of “public domain” that is proposed in this rule. Accordingly, the Department proposes to address this concept with its own definition. The new definition of “technical data that arises during, or results from, fundamental research” is consistent with the prior ITAR § 120.11(a)(8), except that the Department has expanded the scope of eligible research to include research that is funded, in whole or in part, by the U.S. government.

The Department proposes to revise the definition of “export” in ITAR § 120.17 to better align with the EAR's revised definition of the term and to remove activities associated with a defense article's further movement or release outside the United States, which will now fall within the definition of “reexport” in § 120.19. The definition is revised to explicitly identify that ITAR §§ 126.16 and 126.17 (exemptions pursuant to the Australia and UK Defense Trade Cooperation Treaties) have their own definitions of “export,” which apply exclusively to those exemptions. It also explicitly references the new § 120.49, “Activities that are Not Exports, Reexports, or Retransfers,” which excludes from ITAR control certain transactions identified therein.

Paragraph (a)(1) is revised to parallel the definition of “export” in proposed paragraph (a)(1) of § 734.13 of the EAR. Although the wording has changed, the scope of the control is the same. The provision excepting travel outside of the United States by persons whose personal knowledge includes “technical data” is removed, but the central concept is unchanged. The “release” of “technical data” to a foreign person while in the United States or while travelling remains a controlled event.

Paragraph (a)(2) includes the control listed in the current § 120.17(a)(4) (transfer of technical data to a foreign person). The proposed revisions replace the word “disclosing” with “releasing,” and the paragraph is otherwise revised to parallel proposed paragraph (a)(2) of § 734.13 of the EAR. “Release” is a newly defined concept in § 120.50 that encompasses the previously undefined term “disclose.”

Paragraph (a)(3) includes the control listed in the current § 120.17(a)(2) (transfer of registration, control, or ownership to a foreign person of an aircraft, vessel, or satellite). It is revised to parallel proposed paragraph (a)(3) of § 734.13 of the EAR.

Paragraph (a)(4) includes the control listed in the current § 120.17(a)(3) (transfer in the United States to foreign embassies).

Paragraph (a)(5) maintains the control on performing a “defense service.”

Paragraph (a)(6) is added for the “release” or transfer of decryption keys, passwords, and other items identified in the new paragraph (a)(5) of the revised definition of “technical data” in § 120.10. This paragraph makes “release” or transfer of information securing “technical data” an “export.” Making the release of decryption keys and other information securing technical data in an inaccessible or unreadable format an export allows the Department to propose that providing someone with encrypted “technical data” would not be an “export,” under certain circumstances. Provision of a decryption key or other information securing “technical data” is an “export” regardless of whether the foreign person has already obtained access to the secured “technical data.” Paragraph (a)(6) of the definitions of export and reexport in this rule and the BIS companion rule present different formulations for this control and the agencies request input from the public on which language more clearly describes the control. The agencies intend, however, that the act of providing physical access to unsecured “technical data” (subject to the ITAR) will be a controlled event. The mere act of providing access to unsecured technology (subject to the EAR) will not, however, be a controlled event unless it is done with “knowledge” that such provision will cause or permit the transfer of controlled “technology” in clear text or “software” to a foreign national.

Paragraph (a)(7) is added for the release of information to a public network, such as the Internet. This makes more explicit the existing control in (a)(4), which includes the publication of “technical data” to the Internet due to its inherent accessibility by foreign persons. This means that before posting information to the Internet, you should determine whether the information is “technical data.” You should review the USML, and if there is doubt about whether the information is “technical data,” you may request a commodity jurisdiction determination from the Department. If so, a license or other authorization, as described in § 120.11(b), will generally be required to post such “technical data” to the Internet. Posting “technical data” to the Internet without a Department or other authorization is a violation of the ITAR even absent specific knowledge that a foreign national will read the “technical data.”

Paragraph (b)(1) is added to clarify existing ITAR controls to explicitly state that disclosing “technical data” to a foreign person is deemed to be an “export” to all countries in which the foreign person has held citizenship or holds permanent residency.

The Department proposes to revise the definition of “reexport” in ITAR § 120.19 to better align with the EAR's revised definition and describe transfers of items subject to the jurisdiction of the ITAR between two foreign countries. The activities identified are the same as those in paragraphs (a)(1) through (4) of the revised definition of “export,” except that the shipment, release or transfer is between two foreign countries or is to a third country national foreign person outside of the United States.

The Department proposes to add § 120.50, the definition of “release.” This term is added to harmonize with the EAR, which has long used the term to cover activities that disclose information to foreign persons. “Release” includes the activities encompassed within the undefined term “disclose.” The activities that are captured include allowing a foreign person to inspect a “defense article” in a way that reveals “technical data” to the foreign persons and oral or written exchanges of “technical data” with a foreign person. The adoption of the definition of “release” does not change the scope of activities that constitute an “export” and other controlled transactions under the ITAR.

The Department proposes to add § 120.51, the definition of “retransfer.” “Retransfer” is moved out of the definition of “reexport” in § 120.19 to better harmonize with the EAR, which controls “exports,” “reexports” and “transfers (in country)” as discrete events. Under this new definition, a “retransfer” occurs with a change of end use or end user within the same foreign territory. Certain activities may fit within the definition of “reexport” and “retransfer,” such as the disclosure of “technical data” to a third country national abroad. Requests for both “reexports” and “retransfers” of “defense articles” will generally be processed through a General Correspondence or an exemption.

The Department proposes to add § 120.52 to describe those “activities that are not exports, reexports, or retransfers” and do not require authorization from the Department. It is not an “export” to launch items into space, provide “technical data” or software to U.S. persons while in the United States, or move a “defense article” between the states, possessions, and territories of the United States. The Department also proposes to add a new provision excluding from ITAR licensing requirements the transmission and storage of encrypted “technical data” and software.

The Department recognizes that ITAR-controlled “technical data” may be electronically routed through foreign servers unbeknownst to the original sender. This presents a risk of unauthorized access and creates a potential for inadvertent ITAR violations. For example, email containing “technical data” may, without the knowledge of the sender, transit a foreign country's Internet service infrastructure en route to its intended and authorized final destination. Any access to this data by a foreign person would constitute an unauthorized “export” under ITAR § 120.17. Another example is the use of mass data storage (i.e., “cloud storage”). In this case, “technical data” intended to be resident in cloud storage may, without the knowledge of the sender, be physically stored on a server or servers located in a foreign country or multiple countries. Any access to this data, even if unintended by the sender, would constitute an “export” under ITAR § 120.17.

The intent of the proposed ITAR § 120.52(a)(4) is to clarify that when unclassified “technical data” transits through a foreign country's Internet service infrastructure, a license or other approval is not mandated when such “technical data” is encrypted prior to leaving the sender's facilities and remains encrypted until received by the intended recipient or retrieved by the sender, as in the case of remote storage. The encryption must be accomplished in a manner that is certified by the U.S. National Institute for Standards and Technology (NIST) as compliant with the Federal Information Processing Standards Publication 140-2 (FIPS 140-2). Additionally, the Department proposes that the electronic storage abroad of “technical data” that has been similarly encrypted would not require an authorization, so long as it is not stored in a § 126.1 country or in the Russian Federation. This will allow for cloud storage of encrypted data in foreign countries, so long as the “technical data” remains continuously encrypted while outside of the United States.

The Department proposes to revise § 125.4(b)(9) to better harmonize controls on the “release” of controlled information to U.S. persons abroad and to update the provisions. The most significant update is that foreign persons authorized to receive “technical data” in the United States will be eligible to receive that same “technical data” abroad, when on temporary assignment on behalf of their employer. The proposed revisions clarify that a person going abroad may use this exemption to “export” “technical data” for their own use abroad. The proposed revisions also clarify that the “technical data” must be secured while abroad to prevent unauthorized “release.” It has been long-standing Department practice to hold U.S. persons responsible for the “release” of “technical data” in their possession while abroad. However, given the nature of “technical data” and the proposed exception from licensing for transmission of secured “technical data,” the Department has determined it is necessary to implement an affirmative obligation to secure data while abroad.

The Department proposes to add § 123.28 to clarify the scope of a license, in the absence of a proviso, and to state that authorizations are granted based on the information provided by the applicant. This means that while providing false information to the U.S. government as part of the application process for the “export,” “reexport,” or “retransfer” of a “defense article” is a violation of the ITAR, it also may void the license.

Proposed revisions of the “defense service” definition were published on April 13, 2011, RIN 1400-AC80 (see “International Traffic in Arms Regulations: Defense Services,” 76 FR 20590) and May 24, 2013 (see 78 FR 31444, RIN 1400-AC80). In those rules, the Department explained its determination that the scope of the current definition is overly broad, capturing certain forms of assistance or services that no longer warrant ITAR control.

The Department reviewed comments on that first proposed definition and, when the recommended changes added to the clarity of the regulation, the Department accepted them. For the Department's evaluation of those public comments and recommendations regarding the April 13, 2011, proposed rule (the first revision), see 78 FR 31444, May 24, 2013. The Department's evaluation of the written comments and recommendations in response to the May 24, 2013 proposed rule (the second revision) follows.

Parties commenting on the second revision expressed concern that the definition of “defense service” in paragraph (a)(1) was premised on the use of “other than public domain information.” The observation was made that with the intent of removing from the definition of a “defense service” the furnishing of assistance using “public domain” information, but not basing the assistance on the use of “technical data,” the Department was continuing to require the licensing of activities akin to those that were based on the use of “public domain” information. The Department has fully revised paragraph (a)(1) to remove the use of the “other than public domain information” or “technical data” from the determination of whether an activity is a “defense service.” Furthermore, the Department has added a new provision declaring that the activities described in paragraph (a)(1) are not a “defense service” if performed by a U.S. person or foreign person in the United States who does not have knowledge of U.S.-origin “technical data” directly related to the “defense article” that is the subject of the assistance or training or another “defense article” described in the same USML paragraph prior to performing the service. A note is added to clarify that a person will be deemed to have knowledge of U.S.-origin “technical data” if the person previously participated in the “development” of a “defense article” described in the same USML paragraph, or accessed (physically or electronically) that “technical data.” A note is also added to clarify that those U.S. persons abroad who only received U.S.-origin “technical data” as a result of their activities on behalf of a foreign person are not included within the scope of paragraph (a)(1). A third note is added to clarify that DDTC-authorized foreign person employees in the United States who provide “defense services” on behalf of their U.S. employer are considered to be included with the U.S. employer's authorization, and need not be listed on the U.S. employer's technical assistance agreement or receive a separate authorization for those services. The Department also removed the activities of design, development, and engineering from paragraph (a)(1) and moved them to paragraph (a)(2).

Commenting parties recommended revising paragraph (a)(1) to remove the provision of “technical data” as a “defense service,” because there are already licensing requirements for the “export” of “technical data.” The Department confirms that it eliminated from the definition of a “defense service” the act of furnishing “technical data” to a foreign person. Such activity still constitutes an “export” and would require an ITAR authorization. New paragraph (a)(1) is concerned with the furnishing of assistance, whereas the “export” of “technical data” alone, without the furnishing of assistance, is not a “defense service.” The “export” of “technical data” requires an authorization (Department of State form DSP-5 or DSP-85) or the use of an applicable exemption.

Commenting parties recommended the definition be revised to explicitly state that it applies to the furnishing of assistance by U.S. persons, or by foreign persons in the United States. The Department partially accepted this recommendation. However, the Department notes that ITAR § 120.1(c) provides that only U.S. persons and foreign governmental entities in the United States may be granted a license or other approval pursuant to the ITAR, and that foreign persons may only receive a “reexport” or “retransfer” approval or approval for brokering activities. Therefore, approval for the performance of a defense service in the United States by a foreign person must be obtained by a U.S. person, such as an employer, on behalf of the foreign person. Regarding a related recommendation, the Department also notes that the furnishing of a type of assistance described by the definition of a “defense service” is not an activity within the Department's jurisdiction when it is provided by a foreign person outside the United States to another foreign person outside the United States on a foreign “defense article” using foreign-origin “technical data.”

In response to commenting parties, the Department specified that the examples it provided for activities that are not “defense services” are not exhaustive. Rather, they are provided to answer the more frequent questions the Department receives on the matter. The Department removed these examples from paragraph (b) and included them as a note to paragraph (a).

A commenting party recommended that paragraphs (a)(5) and (a)(6), regarding the furnishing of assistance in the integration of a spacecraft to a launch vehicle and in the launch failure analysis of a spacecraft or launch vehicle, respectively, be removed, and that those activities be described in the USML categories covering spacecraft and launch vehicles, on the basis that a general definition should not have such program-specific clauses. As discussed in the May 13, 2014 interim final rule revising USML Category XV (79 FR 27180), the Department accepted this recommendation and revised paragraph (f) of USML Category XV and paragraph (i) of USML Category IV accordingly. The revision includes the recommendation of commenting parties to specifically provide that the service must be provided to a foreign person in order for it to be a licensable activity.

Commenting parties recommended the Department define the term “tactical employment,” so as to clarify what services would be captured by paragraph (a)(3). The Department determined that employment of a “defense article” should remain a controlled event, due to the nature of items now controlled in the revised USML categories. After ECR, those items that remain “defense articles” are the most sensitive and militarily critical equipment that have a significant national security or intelligence application. Allowing training and other services to foreign nationals in the employment of these “defense articles” without a license would not be appropriate. Therefore, the Department removed the word “tactical” and converted the existing exemption for basic operation of a “defense article,” authorized by the U.S. government for “export” to the same recipient, into an exclusion from paragraph (a)(3).

A commenting party recommended the Department address the instance of the integration or installation of a “defense article” into an item, much as it addressed the instance of the integration or installation of an item into a “defense article.” Previously, the Department indicated this would be the subject of a separate rule, and addressed the “export” of such items in a proposed rule (see 76 FR 13928), but upon review the Department accepted this recommendation, and revised paragraph (a)(2), the note to paragraph (a)(2), and the note to paragraph (a) accordingly. In addition, the Department has changed certain terminology used in the paragraph: instead of referring to the “transfer” of “technical data,” the paragraph is premised on the “use” of “technical data.” This change is consistent with removing from the definition of a “defense service” the furnishing of “technical data” to a foreign person when there is not also the furnishing of assistance related to that “technical data.”

A commenting party requested clarification of the rationale behind selectively excepting from the “defense services” definition the furnishing of services using “public domain” information. The Department did so in paragraph (a)(1), and now excludes those services performed by U.S. persons who have not previously had access to any U.S. origin “technical data” on the “defense article” being serviced. In contrast, the Department did not do so in paragraphs (a)(2) and (a)(3) and former paragraphs (a)(5) and (a)(6). In the case of paragraph (a)(2), the rationale for not doing so is that the activities involved in the development of a “defense article,” or in integrating a “defense article” with another item, inherently involve the advancement of the military capacity of another country and therefore constitute activities over which the U.S. government has significant national security and foreign policy concerns. To the extent that an activity listed in paragraph (a)(1), such as modification or testing, is done in the “development” of a “defense article,” such activities constitute “development” and are within the scope of paragraph (a)(2). With regard to paragraph (a)(3), the furnishing of assistance (including training) in the employment of a “defense article” is a type of activity that the Department believes warrants control as a “defense service,” due to the inherently military nature of providing training and other services in the employment of a “defense article” (changes to paragraph (a)(3) are described above). The services described in former paragraphs (a)(5) and (a)(6) (and now in USML Categories IV(i) and XV(f)) are pursuant to Public Law 105-261.

A commenting party recommended limiting paragraph (a)(2) to the integration of ECCN 9A515 and 600 series items into defense articles, saying that the regulations should focus on items subject to the EAR with a military or space focus. The Department's focus with this provision is in fact the “defense article.” Items that are to be integrated with a “defense article,” which may not themselves be defense articles, may be beyond the authority of the Department to regulate. The Department did not accept this recommendation.

A commenting party recommended limiting the definition of integration to changes in the function of the “defense article,” and to exclude modifications in fit. For the purposes of illustration, this commenting party used one of the examples provided by the Department in the note to paragraph (a)(2): The manufacturer of the military vehicle will need to know the dimensions and electrical requirements of the dashboard radio when designing the vehicle. In this instance, paragraph (a)(2) would not apply, as this example addresses the manufacture of a “defense article,” which is covered by paragraph (a)(1). If the radio to be installed in this vehicle is subject to the EAR, the provision to the manufacturer of information regarding the radio is not within the Department's licensing jurisdiction. In an instance of a service entailing the integration of an item with a “defense article,” where there would be modification to any of the items, the Department believes such assistance would inherently require the use of “technical data.” Therefore, this exclusion would be unacceptably broad. However, the Department has accepted the recommendation to clarify the definition and exclude changes to fit to any of the items involved in the integration activity, provided that such services do not entail the use of “technical data” directly related to the “defense article.” Upon review, changes to fit are not an aspect of integration, which is the “engineering analysis needed to unite a `defense article' and one or more items,” and therefore are not captured in paragraph (a)(2). The modifications of the “defense article” to accommodate the fit of the item to be integrated, which are within the activity covered by installation, are only those modifications to the “defense article” that allow the item to be placed in its predetermined location. Any modifications to the design of a “defense article” are beyond the scope of installation. Additionally, while minor modifications may be made to a “defense article” without the activity being controlled under (a)(2) as an integration activity, all modifications of defense articles, regardless of sophistication, are activities controlled under (a)(1) if performed by someone with prior knowledge of U.S.-origin “technical data.” “Fit” is defined in ITAR § 120.41: “The fit of a commodity is defined by its ability to physically interface or connect with or become an integral part of another commodity” (see, Note 4 to paragraph (b)(3)).

Commenting parties recommended revising paragraph (a)(2) to provide that such assistance described therein would be a “defense service” only if U.S.-origin “technical data” is exported. The law and regulations do not mandate this limitation. Section 38 of the Arms Export Control Act provides that the President is authorized to control the “export” of defense articles and defense services. The ITAR, in defining “defense article,” “technical data,” and “export,” does not provide the qualifier “U.S.-origin” (see ITAR §§ 120.6, 120.10, and 120.17, respectively). In the instance described by the commenting party, of the integration of a commercial item into a foreign-origin “defense article,” the Department retains jurisdiction when the service is provided by a U.S. person.

A commenting party recommended revising paragraph (a)(2) so that the paragraph (a)(1) exception of the furnishing of assistance using “public domain” information is not nullified by paragraph (a)(2), as most of the activities described in paragraph (a)(1) involve integration as defined in the note to paragraph (a)(2). The Department believes each of the activities described in paragraphs (a)(1) and (a)(2) are sufficiently well defined to distinguish them one from the other. Therefore, the Department does not agree that paragraph (a)(2) nullifies the intention of paragraph (a)(1), and does not accept this recommendation.

A commenting party requested clarification that providing an item subject to the EAR for the purposes of integration into a “defense article” is not a “defense service.” The provision of the item in this instance, unaccompanied by assistance in the integration of the item into a “defense article,” is not within the scope of “the furnishing of assistance,” and therefore is not a defense service.

Commenting parties recommended clarification on whether the servicing of an item subject to the EAR that has been integrated with a “defense article” would be a “defense service.” The Department notes that such activity is not a “defense service,” provides it as an example of what is not a “defense service” in the note to paragraph (a), and also notes that it would be incumbent on the applicant to ensure that in providing this service, “technical data” directly related to the “defense article” is not used.

Commenting parties expressed concern over the potential negative effect of paragraph (a)(2) and the definition in general on university-based educational activities and scientific communication, and recommended clarification of the relationship between the definition of “defense services” and the exemption for the “export” of “technical data” at ITAR § 125.4(b)(10). Disclosures of “technical data” to foreign persons who are bona-fide and full time regular employees of universities continue to be exports for which ITAR § 125.4(b)(10) is one licensing exemption. The Department believes that, in most cases, the normal duties of a university employee do not encompass the furnishing of assistance to a foreign person, in the activities described in paragraph (a). Therefore, in the context of employment with the university, the Department does not perceive that the foreign person's use of the “technical data” would be described by ITAR § 120.9(a)(2), or any part of paragraph (a).

In response to the recommendation of one commenting party, the Department added a note clarifying that the installation of an item into a “defense article” is not a “defense service,” provided no “technical data” is used in the rendering of the service.

A commenting party recommended clarification of the licensing process for the “export” of an EAR 600 series item that is to be integrated into a “defense article.” The Department of Commerce has “export” authority over the 600 series item, and the exporter must obtain a license from the Department of Commerce, if necessary. The exporter must also obtain an approval from the Department of State to provide any “defense service,” including integration assistance pursuant to paragraph (a)(2).

A commenting party recommended removing “testing” as a type of “defense service,” stating it was not included in the definition of “organizational-level maintenance.” In including testing as part of the former definition but not of the latter, the Department does not perceive an inconsistency or conflict. To the extent that certain testing is within the definition of organization-level maintenance, that testing is explicitly excluded, as organizational-level maintenance is not covered under the definition of a “defense service.” However, all other testing remains a “defense service.” The Department intends for the furnishing of assistance to a foreign person, whether in the United States or abroad, in the testing of defense articles to be an activity requiring Department approval under the conditions of paragraph (a)(1). The Department did not accept this recommendation.

Commenting parties provided recommendations for revising the definitions of “public domain” information and “technical data.” Those definitions are proposed in this rule as well. To the extent that evaluation of the proposed changes to “defense services” hinges on these terms, the Department invites commenting parties to submit analyses of the impact of these revised definitions on the revised “defense service” definition in this proposed rule.

Commenting parties recommended clarification of the regulation regarding the furnishing of assistance and training in organizational-level (basic-level) maintenance. The Department harmonized paragraph (a)(1) and the example regarding organizational-level maintenance by revising the Note to Paragraph (a), which sets forth activities that are not “defense services,” so that it specifically provides that “the furnishing of assistance (including training) in organizational-level (basic-level) maintenance of a defense article” is an example of an activity that is not a defense service.

In response to commenting parties, the Department clarifies that the example of employment by a foreign person of a natural U.S. person as not constituting a “defense service” is meant to address, among other scenarios, the instance where such a person is employed by a foreign defense manufacturer, but whose employment in fact does not entail the furnishing of assistance as described in ITAR § 120.9(a). By “natural person,” the Department means a human being, as may be inferred from the definition of “person” provided in ITAR § 120.14.

In response to the recommendation of a commenting party, the Department confirms that, as stated in a Department of Commerce notice, “Technology subject to the EAR that is used with technical data subject to the ITAR that will be used under the terms of a Technical Assistance Agreement (TAA) or Manufacturing License Agreement (MLA) and that would otherwise require a license from [the Department of Commerce] may all be exported under the TAA or MLA” (see 78 FR 22660). In DDTC publication Guidelines for Preparing Electronic Agreements (Revision 4.2), Section 20.1.d., the following conditions are stipulated: The technology subject to the EAR will be used with “technical data” subject to the ITAR and described in the agreement, and the technology subject to the EAR will be used under the terms of a TAA or MLA (see http://www.pmddtc.state.gov/licensing/agreement.html).

The Department invites public comment on any of the proposed definitions set forth in this rulemaking. With respect to the revisions to ITAR § 120.17, the Department recognizes the increasingly complex nature of telecommunications infrastructure and the manner in which data is transmitted, stored, and accessed, and accordingly seeks public comment with special emphasis on: (1) How adequately the proposed regulations address the technical aspects of data transmission and storage; (2) whether the proposed regulations mitigate unintended or unauthorized access to transmitted or stored data; and (3) whether the proposed regulations impose an undue financial or compliance burden on the public.

The public is also asked to comment on the effective date of the final rule. Export Control Reform rules that revised categories of the USML and created new 600 series ECCN have had a six-month delayed effective date to allow for exporters to update the classification of their items. In general, rules effecting export controls have been effective on the date of publication, due to the impact on national security and foreign policy. As this proposed rule and the companion proposed rule from the Bureau of Industry and Security revise definitions within the ITAR and the EAR and do not make any changes to the USML or CCL, the Department proposes (should the proposed rule be adopted) a 30-day delayed effective date to allow exporters to ensure continued compliance.

The Department of State is of the opinion that controlling the import and export of defense articles and services is a foreign affairs function of the U.S. government and that rules implementing this function are exempt from sections 553 (rulemaking) and 554 (adjudications) of the Administrative Procedure Act (APA). Although the Department is of the opinion that this proposed rule is exempt from the rulemaking provisions of the APA, the Department is publishing this rule with a 60-day provision for public comment and without prejudice to its determination that controlling the import and export of defense services is a foreign affairs function.

Since the Department is of the opinion that this proposed rule is exempt from the rulemaking provisions of 5 U.S.C. 553, there is no requirement for an analysis under the Regulatory Flexibility Act.

This proposed amendment does not involve a mandate that will result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any year and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 (the “Act”), a major rule is a rule that the Administrator of the OMB Office of Information and Regulatory Affairs finds has resulted or is likely to result in: (1) An annual effect on the economy of $100,000,000 or more; (2) a major increase in costs or prices for consumers, individual industries, federal, state, or local government agencies, or geographic regions; or (3) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and foreign markets.

The Department does not believe this rulemaking will have an annual effect on the economy of $100,000,000 or more, nor will it result in a major increase in costs or prices for consumers, individual industries, federal, state, or local government agencies, or geographic regions, or have significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and foreign markets. The proposed means of solving the issue of data protection are both familiar to and extensively used by the affected public in protecting sensitive information.

This proposed amendment will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with Executive Order 13132, it is determined that this proposed amendment does not have sufficient federalism implications to require consultations or warrant the preparation of a federalism summary impact statement. The regulations implementing Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities do not apply to this proposed amendment.

Executive Orders 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributed impacts, and equity). The executive orders stress the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This proposed rule has been designated a “significant regulatory action,” although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, the proposed rule has been reviewed by the Office of Management and Budget (OMB).

The Department of State has reviewed the proposed amendment in light of sections 3(a) and 3(b)(2) of Executive Order 12988 to eliminate ambiguity, minimize litigation, establish clear legal standards, and reduce burden.

The Department of State has determined that this rulemaking will not have tribal implications, will not impose substantial direct compliance costs on Indian tribal governments, and will not preempt tribal law. Accordingly, Executive Order 13175 does not apply to this rulemaking.

This rule does not impose any new reporting or recordkeeping requirements subject to the Paperwork Reduction Act, 44 U.S.C. Chapter 35; however, the Department of State seeks public comment on any unforeseen potential for increased burden.

Accordingly, for the reasons set forth above, title 22, chapter I, subchapter M, parts 120, 123, 125, and 127 are proposed to be amended as follows:

The Homeless Emergency Assistance and Rapid Transition to Housing Act of 2009 (HEARTH Act) (Division B of Pub. L. 111-22), enacted into law on May 20, 2009, amended the McKinney-Vento Homeless Assistance Act (42 U.S.C. 11371 et seq.) (McKinney-Vento Act) to consolidate the following homeless programs—the Supportive Housing Program, the Shelter Plus Care program, and Moderate Rehabilitation Single Room Occupancy program—into a single program, the Continuum of Care Program. The HEARTH Act also revised the Emergency Shelter Grants program and renamed it the Emergency Solutions Grants (ESG) program, which is the subject of this notice.

The HEARTH Act broadened the emergency shelter and homelessness prevention activities of the Emergency Solutions Grants program beyond those of its predecessor program, the Emergency Shelter Grants program, and added short- and medium-term rental assistance and services to rapidly re-house persons experiencing homelessness. The change in the program's name reflects the change in the program's focus from addressing the needs of homeless people in emergency or transitional shelters to assisting people to quickly regain stability in permanent housing after experiencing a housing crisis or becoming homeless.

On December 5, 2011, at 76 FR 75954, HUD published an interim rule for ESG entitled “Homeless Emergency Assistance and Rapid Transition to Housing: Emergency Solutions Grants Program and Consolidated Plan Conforming Amendments.” 1 The interim rule revised the regulations for the Emergency Shelter Grants Program by establishing the new requirements for the Emergency Solutions Grants Program at 24 CFR part 576 and making corresponding amendments to HUD's Consolidated Plan regulations at 24 CFR part 91.

The interim rule took effect on January 4, 2012, and the public comment period for the interim rule ended on February 3, 2012. HUD has carefully reviewed all comments received in response to the interim rule. However, since the issuance of the interim rule, communities have gained valuable experience implementing the Emergency Solutions Grants (ESG) program, and HUD has been working with and hearing from ESG recipients, ESG subrecipients, Continuums of Care (CoCs), interest and advocacy groups, and other stakeholders to gather information about this experience. As is the case with any new program, ESG recipients and subrecipients have raised questions and issues about various components of the interim rule. HUD appreciates the questions and feedback provided to date, and consequently has decided to re-open the public comment period on the interim rule for the purpose of seeking broader input on implementation of the interim rule, before HUD makes final decisions for the final rule. In fact, HUD is raising many of the issues for consideration in this notice in order to be able to more clearly establish in the final rule what is or is not eligible and what the limitations are with ESG funds, in many cases based on recipient or subrecipient feedback. This notice offers an opportunity for ESG recipients and subrecipients, the public, and all interested parties to provide their feedback about particular issues in the interim rule.

Re-opening public comment period for the interim rule supports HUD's goals of increasing public access to and participation in developing HUD regulations and other related documents, and promoting more efficient and effective rulemaking through public involvement.

Since HUD issued the ESG interim rule, the following significant statutory or regulatory changes have occurred or are in progress, which will impact the ESG program:

a. MAP-21. On July 18, 2012, President Obama signed into law the “Moving Ahead for Progress in the 21st Century Act” (MAP-21) (Pub. L. 112-141, 126 Stat. 405), which changed the program requirements in the following four areas:

• Changed the applicable environmental review requirements from 24 CFR part 50 back to part 58.

• Defined the term “local government” to include an instrumentality of a unit of general purpose local government (other than a public housing agency) to act on behalf of the local government with regard to ESG activities, and to include a combination of general purpose local governments.

• Defined the term “State” to include an instrumentality of a State to act on behalf of the State with regard to ESG activities.

• Allowed a metropolitan city and urban county that each receive an ESG allocation and are in the same Continuum of Care (CoC) to receive a joint allocation of ESG funds.

HUD's ESG final rule will incorporate these statutory changes, which are in effect now. Later in this notice, HUD seeks comment on specifics related to implementing joint allocations and instrumentalities.

b. VAWA 2013. The Violence Against Women Reauthorization Act (VAWA) of 2013 (Pub. L. 113-4, 127 Stat. 54) was enacted on March 7, 2013. On August 6, 2013, at 78 FR 47717, HUD issued a Federal Register notice that provided an overview of the applicability of VAWA 2013 to HUD programs. This notice listed the HUD programs—including the ESG program—that VAWA 2013 added to the list of covered programs, described the changes that VAWA 2013 made to existing VAWA protections, and identified certain issues for which HUD specifically sought public comment. VAWA will be implemented through notice and comment rulemaking and a proposed rule was published in the Federal Register on April 1, 2015. However, the core protections of VAWA—not denying or terminating assistance to victims of domestic violence and expanding the VAWA protections to victims of sexual assault—are in effect, and do not require notice and comment rulemaking for compliance. Recipients and subrecipients should proceed to comply with the basic VAWA protections, and HUD's program offices have advised program participants of the immediate applicability of the core protections.2 The ESG regulations will reflect all applicable VAWA protections following promulgation of a VAWA final rule.

c. OMB OmniCircular. On December 26, 2013, at 78 FR 78590, the Office of Management and Budget (OMB) issued final guidance on administrative costs, cost principles and audit requirements for federal awards. This final guidance supersedes and streamlines requirements from OMB Circulars A-21, A-87, A-110, and A-122 and Circulars A-89, A-102, and A-133. OMB has finalized the guidance in Title 2 of the Code of Federal Regulations (CFR). OMB charged federal agencies with adopting the policies and procedures in the final guidance by December 26, 2014. HUD is in the process of adopting such guidance in regulation and, when adopted, the ESG regulations will cross-reference to the applicable regulations addressing these award requirements.

d. Equal Access rule. The “Equal Access to Housing in HUD Programs—Regardless of Sexual Orientation or Gender Identity” final rule (77 FR 5662) was published on February 3, 2012. It amends 24 CFR 5.105 to create a new regulatory provision that generally prohibits HUD's assisted and insured housing programs, including ESG, from considering a person's marital status, sexual orientation, or gender identity (a person's internal sense of being male or female) in making housing assistance available. CPD Notice 15-02, “Appropriate Placement for Transgender Persons in Single-Sex Emergency Shelters and Other Facilities,” published in February 2015, provides guidance on how recipients of ESG funding can ensure compliance with this rule.

e. Definition of Chronically Homeless. HUD intends to finalize the definition of “chronically homeless,” which affects 24 CFR part 91 (the Consolidated Plan regulations). Once published, it will apply to part 91, and the current definition will be amended. This will establish a consistent definition of chronically homeless across HUD's homeless assistance programs.

f. HMIS final rule. HUD intends to publish a final rule for Homeless Management Information Systems (HMIS). Once published, this rule will apply to all entities using the CoC's HMIS, including Consolidated Plan jurisdictions (both those that receive ESG funds and those that do not) and ESG subrecipients. The ESG regulations will reflect applicable HMIS requirements following promulgation of the HMIS final rule.

In re-opening the public comment period for the ESG rule, HUD strives to present a structure to this notice that is informative and encourages meaningful public input to the questions posed by HUD. Accordingly, this notice commences with solicitation of comments on definitions and then generally follows the organization of the regulations in the interim rule. This notice describes specific areas of the interim rule on which HUD seeks additional public comment, in order to assist HUD in deciding policy for the final ESG rule. In addition to seeking additional feedback and comment on certain provisions of the ESG interim rule, for some provisions, HUD proposes specific language for comment. This notice contains some regulatory language to provide context to certain questions or proposed language presented by HUD, but it may be helpful to the reader to review this notice in conjunction with the interim rule. HUD appreciates and values the feedback that commenters provide, particularly feedback that draws on their experience with the interim rule.

The issues addressed in this notice are limited; there are several reasons for this. First, HUD has received public comments on numerous issues, and many of these comments are sufficient for HUD to be able to make a decision—in some cases, a change—for the final rule. Such issues are not specifically addressed in this notice. For example, HUD is planning to change the income requirement for re-evaluation from “at or below 30 percent AMI” to “below 30 percent AMI” to match the requirement at initial intake, because many people have been confused by the distinction. Second, some issues—including the definition of “homeless,” the corresponding recordkeeping requirements, and the definition of “chronically homeless”—are not subject to further public comment. Public comment for the definition of “homeless” and the corresponding recordkeeping requirements were addressed in the Defining Homeless final rule published in the December 5, 2011, Federal Register. Likewise, please note that there are some elements of the ESG program that HUD cannot change because they are statutory, such as the cap on Street Outreach and Emergency Shelter program components, or the fact that public housing agencies (PHAs) cannot be recipients or subrecipients (with limited exceptions). Lastly, HUD requests that commenters not resubmit any comments already submitted in the first public comment period unless they provide new information or insights based on research or experience with the program. As mentioned above, HUD has already carefully considered the first set of comments. These are all available online at: www.regulations.gov/#!docketDetail;D=HUD-2011-0153. When the final rule is published, HUD will provide a response to each comment received in either comment period. Please take these factors into consideration when developing and submitting comments.

HUD seeks comments on possible changes to several definitions included in the interim rule at §§ 91.5 and 576.2.

1. At risk of homelessness (§§ 91.5 and 576.2): HUD received many comments requesting further elaboration about the condition referenced at § 576.2(1)(iii)(G), which states: “Otherwise lives in housing that has characteristics associated with instability and an increased risk of homelessness, as identified in the recipient's approved Consolidated Plan.” HUD recognizes that, given the variety of types, characteristics, and conditions of housing in urban, suburban, and rural areas around the country, this definition could encompass many different housing situations. However, it is important to note that this condition focuses on characteristics of the housing, not the household. For example, in a housing unit that does not have the capacity for utilities (e.g., broken water pipes, non-functional wiring for electricity, etc.), the lack of utilities would be a characteristic of the housing. Other examples might include a leaking roof or damage from rodents. On the other hand, if the utilities have been shut off in a housing unit, due to the household's inability to pay, HUD considers this a characteristic of the household, not a characteristic of the housing (of course, that household might still be able to receive ESG assistance under a different category of the At Risk of Homelessness definition).

HUD is considering adding specificity to this condition in the ESG final rule, and seeks comments on the following questions:

a. What types of housing conditions exist in your region that would support this interpretation, or what housing conditions exist that would necessitate different regulatory language?

b. What characteristics, if any, should be added to this portion of the definition of “At Risk of Homelessness” to aid recipients in determining who is at risk of homelessness?

2. Emergency shelter (§§ 91.5 and 576.2): The definition of “emergency shelter” in the interim rule states: “Any facility, the primary purpose of which is to provide a temporary shelter for the homeless in general or for specific populations of the homeless, and which does not require occupants to sign leases or occupancy agreements. Any project funded as an emergency shelter under a Fiscal Year 2010 Emergency [Shelter] Grant may continue to be funded under ESG.” HUD is considering revising the definition in § 576.2 to address several issues, and seeks comment on the following proposed definition (italicized language added or changed from the interim rule definition): “Emergency shelter means any facility (including any building or portion of a building), the primary purpose of which is to provide a temporary shelter for homeless individuals or families in general or for specific populations of homeless individuals or families. If occupancy creates rights of tenancy under state or local law, the primary purpose is not temporary shelter. The use of the building as an emergency shelter must not be inconsistent with applicable state and local law, including zoning and building codes.” Each of the proposed changes addressed by the above language is described in greater detail below, with some alternatives discussed. Further, HUD seeks comment on an additional clause for inclusion in the definition: adding to the definition that the facility (building or portion of a building) must also be designated as an emergency shelter on the CoC's most recent Housing Inventory Count.

HUD's proposed changes to the definition of emergency shelter are designed to convey the following: (1) It is not solely the structure of the building that makes something an emergency shelter, it is its purpose—essentially temporary sleeping accommodation—and local zoning laws and building codes determine whether a particular use or structure is allowed in an area; (2) The primary purpose of emergency shelter is to provide a habitable place for a homeless individual or family to sleep, and occupancy by an individual or family in an emergency shelter is temporary (no rights of tenancy are conferred by occupancy); and (3) The homeless shelter provider and program participant relationship is fundamentally different than that of a landlord-tenant relationship.

Below is a discussion of the intent of the proposed changes as well as specific questions for public comment.

a. Adding “building or portion of a building.” HUD recognizes that an emergency shelter can take many shapes, especially in rural areas and during local emergencies (e.g. hypothermia season), and communities need flexibility to ensure that all homeless persons have a safe place to sleep at night. In light of this recognition, HUD is considering changing the definition of emergency shelter to include the term “building or portion of a building.” This change is intended to clarify that an emergency shelter might consist of a building (such as one designed as an emergency shelter facility or a residential-style building), or it might consist of only a portion of a building, such as a wing, room, or floor of a building, or even one or more apartment units, in which homeless families or individuals are given temporary shelter, as evidenced by restrictions on occupancy and use. HUD intends for each of these possible arrangements to be covered under the emergency shelter definition, and HUD invites comments as to whether adding “building or portion of a building” would be helpful clarification.

The requirements that apply to each emergency shelter would apply to each building or portion of a building used as an emergency shelter. Further, each separate building would be considered a separate emergency shelter, even if multiple buildings are located on the same site. However, multiple emergency shelters (whether whole buildings or portions of buildings) could comprise a single emergency shelter project if the recipient or subrecipient decides to group the shelters together under HUD's proposed definition of “project” (discussed below). Consequently, the recipient or subrecipient could apply a single set of written standards to all emergency shelters that are classified as the same emergency shelter project. HUD will consider other requirements that could apply when determining where the word “project” is to be used in the final rule, with the goal of improving the ease of administering a “project” for recipients and subrecipients. However, note that any ESG requirement that uses “emergency shelter” but not “project” would apply on a shelter-by-shelter basis, not project-wide. For example, a subrecipient might be able to group two or more shelters under one emergency shelter project for purposes of funding and written standards, but could not group the shelters together for purposes of meeting the involuntary family separation prohibition, which uses “emergency shelter,” not “project.”

With respect to this idea, HUD seeks comment on the following specific questions:

(1) If HUD were to add “building or portion of a building” to the definition of “emergency shelter,” are there any particular issues or challenges that it would cause for ESG recipients and subrecipients, and if so, what are they? Or, would this be a helpful addition, and if so, how?

(2) Alternatively, HUD is considering adding “building, buildings, or portions(s) of a building.” However, in order to consider multiple buildings to be a single emergency shelter, HUD would need to make additional qualifications to be consistent with the nondiscrimination and other ESG requirements. HUD seeks comment on the following questions related to this proposal:

(a) Should HUD require the shelter buildings to be within a certain distance of each other to be considered the same emergency shelter? For example, could two emergency shelter buildings on opposite sides of a large urban county be considered a single emergency shelter, or should HUD set a distance limit? Is there a circumstance under which there would be an advantage—either administrative or otherwise—to consider two emergency shelter buildings as a single shelter, especially if they can be administered as the same project, with the same written standards and other rules?

(b) Should HUD require the buildings to be operated by the same subrecipient to be considered the same emergency shelter?

(c) Are there any other requirements HUD should establish in order to establish commonalities that makes the different buildings a single emergency shelter?

(d) If multiple shelter buildings could be considered a single project, would it make a significant difference in your community if HUD were to adopt “building, buildings, or portion” of a building, as opposed to “building or portion of a building?”

(3) Are there any other considerations about this distinction that are important for HUD to take into account in determining the final rule on this topic?

b. Clarifying that occupancy in an emergency shelter must not create any rights of tenancy under state or local law. In formally recognizing that a facility could include an apartment or other building to serve as an emergency shelter, HUD aims to distinguish emergency shelter provided by a recipient or subrecipient where the shelter resident is sleeping in an apartment or other standard unit from the provision of rental assistance. This bolsters the requirement that emergency shelter is temporary. Therefore, HUD is considering adding the following sentence to the definition of emergency shelter: “If occupancy creates rights of tenancy under state or local law, the primary purpose is not temporary shelter.” In other words, if the shelter resident's occupancy of a space creates a right of tenancy or entitlement to occupancy to that space, it is not temporary and, therefore, it is not emergency shelter. HUD seeks comment on this proposal, in particular: In communities that have “right to shelter” laws, would this addition create any conflicts? If any problems could arise, what are they?

c. Establishing a clearer distinction between emergency shelter and transitional housing, including removing “leases or occupancy agreements” from the definition. The primary distinction between emergency shelter and transitional housing is incorporated into the statutory definitions of these terms in the McKinney-Vento Act, as follows: The purpose of an emergency shelter is to provide temporary shelter; the purpose of transitional housing is “to facilitate the movement of individuals and families experiencing homelessness to permanent housing within 24 months.” HUD's proposed definition incorporates two related issues for the public to consider:

(1) In the ESG and CoC Program interim rules, HUD attempted to further clarify for recipients the distinction between the two by stating that transitional housing projects must require a lease or occupancy agreement and emergency shelters could not. HUD received many questions about what constitutes an occupancy agreement, and has since determined that this is not necessarily the best way to make this distinction. This is in part because an occupancy agreement is, simply, a document that is a contract between two parties that is not a legal lease under local landlord/tenant law (though in some communities an occupancy agreement meets the requirements of a lease). Therefore, HUD is proposing removing the phrase “and which does not require occupants to sign leases or occupancy agreements” from the definition of emergency shelter.

(2) In its place, HUD is considering adding to the definition a requirement that each emergency shelter must be designated as such on the most recent Housing Inventory Count (HIC) for the applicable CoC for the geographic area, in order to establish a clear and consistent location to identify the status for each emergency shelter or transitional housing project each year. Under this proposal, each recipient or subrecipient would be required to choose the status of a particular project, based on the primary purpose of the project, as either emergency shelter or transitional housing, and indicate this designation formally on the HIC. Per this proposal, the purpose of the project would become the distinguishing factor, as designated on the HIC. This designation would only apply to the project's eligibility for funding under HUD's CoC or ESG Programs.

HUD recognizes that in some ESG-funded “transitional shelter” projects, program participants tend to stay for longer than 3 or 6 months, and the program has a heavy service focus. HUD intends to require these types of projects to carefully consider their purpose. HUD also notes that if a subrecipient's emergency shelter contains overnight sleeping accommodations (i.e. not a day shelter), it could operate a rapid re-housing project in conjunction with that emergency shelter, to help move program participants to permanent housing. The primary purpose of the emergency shelter bed would be to provide temporary shelter, and the primary purpose of the rapid re-housing project would be to help program participants move quickly into permanent housing (whereas the primary purpose of a transitional housing project is to provide housing for up to 24 months while facilitating the movement to permanent housing). In addition, any emergency shelter that has used ESG funds for renovation and is under a 3- or 10-year minimum period of use requirement would be required to be designated as an emergency shelter. Likewise, any building rehabilitated under the transitional housing component of the CoC Program would be required to be designated as transitional housing.

If included in the final rule, HUD plans to issue guidance to help recipients and subrecipients make this determination. This Notice is not intended to provide that guidance; rather, it is intended to introduce this concept, and seek public comment on it in order to determine whether to move forward with it in the ESG final rule, and in the CoC final rule. HUD seeks public comment on including a requirement in the definition of emergency shelter for recipients and subrecipients to designate emergency shelter projects on the HIC; specifically the following questions:

(a) Would it be helpful to include a provision making the HIC the required place for designating whether a particular bed is considered emergency shelter or transitional housing? Or would it create an unnecessary burden, or would it make no difference since emergency shelters must be designated on the HIC already?

(b) If added, should it be included in the definition of emergency shelter or elsewhere in the final rule (e.g. the emergency shelter requirements section at § 576.102 or documentation section at § 576.500)? Alternatively, should it be required elsewhere, such as in the subrecipient agreement?

(c) Finally, HUD has considered that there may be an ESG subrecipient with an emergency shelter in an area that is either not covered by a CoC or where the CoC has not submitted a HIC, for some reason. Has this scenario occurred? Should HUD address this in the final rule?

d. Removing or altering the concept of “grandfathering in” projects in the interim rule. The ESG interim rule includes the following language, “Any project funded as an emergency shelter under a Fiscal Year 2010 Emergency [Shelter] Grant may continue to be funded under ESG.” The current language was intended to continue funding of “transitional shelters” which were included in the definition of “emergency shelter” under the Emergency Shelter Grants Program. HUD is considering whether to remove, alter, or maintain this clause in the definition, based on the changes described above which more clearly define an emergency shelter versus transitional housing.

If HUD were to remove this clause, HUD recognizes that there may be some facilities currently classified as emergency shelters that would not meet the revised definition of emergency shelter as proposed, and these facilities would not be eligible for continued funding under the ESG Program. HUD seeks comment on the following questions related to this issue:

(1) If removing the “grandfathering” clause would not affect your project or community, what strategies have you undertaken to meet the needs without providing ESG-funded transitional shelter or transitional housing?

(2) If removing the “grandfathering” clause would affect your project or your community, please describe the significance of the impact, specifically the number of beds that would lose ESG funding as a result. Also, what is it about the project that makes it not temporary, or what is the purpose of the project or activities provided that make it overlap between transitional housing and emergency shelter?

(3) How could HUD change the definition of emergency shelter—specifically, the “grandfathering clause”—to ensure that beds that are truly needed as emergency shelter in the community can continue to receive ESG funds in the future?

e. Ensuring that emergency shelters are placed in locations that are not inconsistent with an area's zoning and building code. Especially as HUD clarifies that buildings such as apartment buildings can be used as emergency shelters, HUD wants to ensure that recipients and subrecipients fully understand that the use of a building as emergency shelter (e.g., the designation as such) must be in compliance with state and local laws. For this reason, HUD is considering adding the following language either to the definition of emergency shelter or to the requirements in § 576.102, to emphasize it: “The use of the building as an emergency shelter must not be inconsistent with the applicable state and local law, including zoning and building codes.” If HUD were to adopt such language in the final rule:

(1) Would it be helpful in ensuring that all recipients and subrecipients understand the context in which emergency shelter must be provided, especially if it is a building or portion of a building that is not traditionally used as emergency shelter, or would including this language make no practical difference?

(2) If HUD were to include this requirement, would it be most appropriate in the definition or the elsewhere in the final rule (e.g. § 576.102(a))?

(3) Additionally, would it be helpful to remind recipients and subrecipients in the final rule that all emergency shelters must be operated consistently with state or local law? If so, should that reminder be incorporated into the definition of emergency shelter or elsewhere in the final rule?

f. Other comments. In addition to the specific feedback requested above, HUD seeks any additional feedback on this the revised, proposed definition of emergency shelter.

3. Local government and State (Instrumentalities) (§ 576.2): MAP-21 expanded the statutory definition of “local government” to include an instrumentality of the unit of general purpose local government, other than a public housing agency, provided that the instrumentality is established pursuant to legislation and designated by the chief executive to act on behalf of the local government regarding activities funded under title IV of the McKinney-Vento Act. MAP-21 also expanded the statutory definition of “state” to include any instrumentality of a state that is designated by the governor to act on behalf of the state.

HUD is considering the following standards for recognizing instrumentalities under ESG and seeks comments on the following proposals, specifically how burdensome it would be to obtain this information:

a. Instrumentality of a State. For HUD to recognize an instrumentality as the state for ESG, the state must submit the following to the local HUD field office:

(1) The governor's written designation of the instrumentality to act on behalf of the state with respect to activities funded under ESG; and

(2) A legal opinion from the attorney general of the state that the instrumentality either:

(a) Meets each of the following criteria:

(i) Is used for a governmental purpose and performs a governmental function;

(ii) Performs its function on behalf of the state;

(iii) The state has the authority to appoint members of the governing body of the entity, or the control and supervision of the entity is vested in the state government;

(iv) Statutory authority is needed by the state to create and/or use the entity; and

(v) No part of the net earnings inures to the benefit of any private shareholder, member or individual; or

(b) The entity otherwise qualifies as an instrumentality of the state under its state law.

b. Instrumentality of a local government. For HUD to recognize an instrumentality as the metropolitan city or urban county for ESG, the metropolitan city/urban county must submit the following to the local HUD field office:

(1) The chief executive's written designation of the instrumentality to act on behalf of the metropolitan city/the urban county with respect to activities funded under ESG; and

(2) Certification by the metropolitan city or urban county (chief executive or authorized attorney for the metropolitan city or urban county) that:

(a) The instrumentality is established pursuant to legislation to act on behalf of the metropolitan city/the county with regard to homeless assistance activities, but is not a public housing authority/agency; and

(b) The instrumentality either:

(i) Meets the following criteria:

(A) The entity is used for a governmental purpose and performs a governmental function;

(B) The entity performs its function on behalf of the metropolitan city/the county;

(C) The metropolitan city/the county has the authority to appoint members of the governing body of the entity or the control and supervision of the entity is vested in the metropolitan city/the county;

(D) State or local statutory authority is needed to create and/or use the entity; and

(E) No part of the net earnings inures to the benefit of any private shareholder, member or individual; or

(ii) Otherwise qualifies as an instrumentality of the metropolitan city/urban county under its state or local law.

4. Project (§ 576.2): HUD is considering adding a definition of “project,” in order to establish a clear meaning for the term's primary use in the ESG final rule. HUD is considering that this definition read as follows:

HUD seeks comment on the following questions related to the definition of “project:”

(1) HUD could allow each recipient or subrecipient to self-define the project in accordance with HUD's definition (such as the one proposed above), such as in a recipient's Annual Action Plan, in a subrecipient's request for funding from the recipient, or in the subrecipient agreement. Should HUD require recipients or subrecipients to formally define or declare each project, and should HUD define how it should be done? If so, what should that requirement be?

(2) What are the potential effects—positive and negative—of adopting the proposed definition?

(3) Are there suggestions for alternate definitions or changes to this definition?

5. Rapid Re-housing (§ 91.5): HUD is reviewing whether to revise the definition in § 91.5 as follows (italicized text replaces current language):

1. Submission of Action Plans—Timing (§ 91.15 and § 91.115): HUD is considering revising the Consolidated Plan regulations to prohibit Consolidated Plan jurisdictions from submitting Action Plans to HUD before formula allocations have been announced for each fiscal year, as explained in CPD Notice 2014-015, published on October 21, 2014.3 However, this CPD Notice identified ways in which a jurisdiction could initiate citizen participation on its proposed plan before the jurisdiction knows its actual allocation amounts for a given year. HUD solicits comments on whether HUD should revise the regulations governing citizen participation (§ 91.105 and § 91.115) to reflect the CPD Notice; that is, to allow a jurisdiction to conduct citizen participation on a proposed plan that does not reflect actual allocation amounts, but only if the proposed plan provides “contingency language” explaining how the jurisdiction will adjust the proposed plan to reflect actual allocation amounts once known. (See also the discussions of § 570.200 and § 91.500 in sections II.B.2 and II.B.7 of this Notice, respectively.)

2. Reimbursement for Pre-Agreement Costs in the Entitlement Community Development Block Grant (CDBG) Program (§ 570.200(h)): In conjunction with CPD Notice 2014-15 HUD issued a waiver to certain CDBG Entitlement grantees to allow them to reimburse themselves for costs incurred as of the earlier of the grantee's program year start date or the date the Consolidated Plan/Action Plan is received by HUD. Should HUD revise the Consolidated Plan rule to prohibit submission of Action Plans before formula allocations have been announced, as described above, HUD would also pursue a conforming revision to the Entitlement CDBG program regulations; such a change would permanently adopt the alternative requirements provided by the waiver. HUD seeks comment on this proposal. (See also the discussions of §§ 91.15 and 91.115, and § 91.500 in sections II.B.1 and II.B.7 of this Notice, respectively.)

3. Area-Wide Systems Coordination Requirements—Consultation and Coordination (§ 91.100(a)(2) and (d), § 91.110(b) and (e), § 576.400(a), (b), and (c)): See Section II.C.12 of this Notice for more detail.

4. Housing and Homeless Needs Assessment (§ 91.205 and § 91.305):

a. “Nearing the termination of rapid re-housing assistance” (§ 91.205(b)(1)(i)(K) and § 91.305(b)(1)(i)(K)). HUD is reconsidering the inclusion of the following element in the housing needs assessment (currently required as a narrative in the Consolidated Plan): “Formerly homeless families and individuals who are receiving rapid re-housing assistance and are nearing the termination of that assistance.” HUD originally included this element to encourage Consolidated Plan jurisdictions to identify those households who are housed but who might be more likely to become homeless again than other households, and to focus on helping these families stay housed after their rapid re-housing assistance ends. HUD received a comment indicating that the requirement to obtain this data is too burdensome for states, and is considering removing the requirement for both states and local governments due to the difficulty in obtaining consistent and accurate data. Alternatively, HUD could attempt to clarify the requirement by changing it to “Formerly homeless families and individuals who are receiving ESG or CoC-funded rapid re-housing assistance and are within 30 days of the end of that assistance.” HUD seeks comment on the following questions:

(1) Is this information useful as a part of a jurisdiction's analysis of housing needs and its planning process? If so, in what ways? If not, should HUD eliminate this as a requirement in the final rule for states, local governments, or both?

(2) Is there a better way for HUD to encourage jurisdictions to identify and focus efforts on the households most likely to become homeless again? HUD seeks suggestions about how the requirement could be changed to make it easier to capture this or similar information.

b. Estimating needs for States (§ 91.305(b)(1)(i)). For states, the interim rule also added a requirement to estimate the number and type of families in need of housing assistance for public housing residents (paragraph (b)(1)(i)(F)) and families on the public housing and Housing Choice Voucher tenant-based waiting list (paragraph (b)(1)(i)(G)). HUD received a comment that it is too burdensome for states to collect this data, and is reconsidering the inclusion of both of these elements for states. HUD seeks comment on the following questions:

(1) Is this information useful as a part of a state's analysis of housing needs and its planning process? If so, in what ways?

(2) How are states collecting this data? Are states obtaining reliable estimates on these elements?

(3) Should HUD remove either of these elements from the housing needs assessment of the Consolidated Plan for states, and why or why not?

c. Estimation of homeless data (§ 91.305(c)(i) and § 91.205(c)(i)). The interim rule requires Consolidated Plan jurisdictions to include, in their Housing and Homeless Needs Assessment, the following:

HUD expects Consolidated Plan jurisdictions to obtain this data from CoCs, and CoCs will be able to obtain most elements from the local HMIS and the PIT count. However, CoCs must ensure that the data reflects the boundaries of the Consolidated Plan jurisdiction rather than the boundaries of the CoC. The HMIS Data Standards Manual at https://www.hudexchange.info/resources/documents/HMIS-Data-Standards-Manual.pdf, released in 2014, establishes certain data elements to be collected in HMIS that enable jurisdictions to report on the above-required measures. However, HUD recognizes that communities are currently working towards setting up their HMIS solutions in order to fully meet these requirements, and that some of this data may only be based on estimates until the new data standards are fully implemented. When a CoC's claimed geographic area includes multiple Consolidated Plan jurisdictions that CoC will need to disaggregate CoC-wide data for each Consolidated Plan jurisdiction. States, territories, and local Consolidated Plan jurisdictions with multiple CoCs need to compile relevant data from all of CoCs within their geographic area. HUD recognizes that some Consolidated Plan jurisdictions might have encountered challenges related to collecting data for the Homeless Needs Assessment of the Consolidated Plan due to the overlap of CoC boundaries and Consolidated Plan jurisdictions. HUD seeks feedback about how jurisdictions are currently providing estimates for these measures, specifically:

(1) What steps are CoCs currently carrying out to disaggregate CoC-wide data for the Consolidated Plan jurisdiction, when their geographies do not align?

(2) What are the barriers to obtaining accurate data for these measures at the Consolidated Plan jurisdiction level?

(3) Are Consolidated Plan jurisdictions using this data for planning or other purposes, and how?

(4) Based on the information above, should HUD make any additional changes to the regulation? If so, what would be most helpful?

d. Scope of Consolidated Plan Data for States (§ 91.305). In its Action Plan, each state is required to describe “. . . the geographic areas of the state . . . in which it will direct assistance during the ensuing program year, giving the rationale for the priorities for allocating investment geographically . . .” (required at § 91.320(f) for the Action Plan and found in the eCon Planning Suite on screen AP-50). Because the information gathered for the Consolidated Plan Housing and Homeless Needs Assessment establishes the need in the state and is the basis for the Strategic Plan and Action Plan, it is important for the public and for HUD to understand the scope of data being reported. However, there might be great variance in the universe of data that states report in their Needs Assessment: Some states include data from entitlement jurisdictions that receive their own allocation of Community Development Block Grant (CDBG), HOME Investment Partnerships (HOME), ESG, and/or Housing Opportunities for Persons With AIDS (HOPWA) funding, some only report data on non-entitlement jurisdictions, and some states include partial data from entitlement jurisdictions. In fact, the eCon Planning Suite pre-populates some default data in compliance with different program regulations that require entitlement jurisdictions' data to be either included or excluded for different parts of the Consolidated Plan Needs Assessment. Because homeless data is not pre-populated in the eCon Planning Suite, it might be unclear whether, and which, data from entitlements are included in the state's Consolidated Plan Homeless Needs Assessment.

In the final rule, HUD is considering adding one of the following requirements to § 91.305 to help obtain the most precise data possible so that each state can better demonstrate how it is tracking and addressing homelessness in its area, and seeks comments on which option HUD should select, if any:

(1) The state has the option to include in its Homeless Needs Assessment data on entitlement jurisdictions within its boundaries, and must cite all data sources. If the state's Needs Assessment includes data from any entitlement jurisdictions, it must cite which entitlement jurisdictions' data is included and the source of that data (if appropriate, the state could reference the applicable entitlement jurisdiction's Consolidated Plan). If the state's Homeless Needs Assessment is limited to non-entitlement areas' data, then the Consolidated Plan must indicate this; or

(2) The state must only report non-entitlement data in its Homeless Needs Assessment. If a state intends to allocate funds to an entitlement jurisdiction, the state would be required to incorporate the entitlement jurisdiction's data in its Homeless Needs Assessment by reference only (e.g., provide a link to a Web site or to the jurisdiction's Consolidated Plan containing the data).

e. Funding services to people on tribal lands (§§ 91.205, 91.305). HUD intends to provide ESG recipients with the discretion to choose whether or not to use ESG to fund nonprofit organizations serving people living on tribal lands. HUD is considering adding the following language: “An ESG recipient may fund activities in tribal areas located within the recipient's jurisdiction, provided that the recipient includes these areas in its Consolidated Plan.” HUD seeks comment on this proposal—specifically:

(1) What effects will this requirement have?

(2) How are ESG recipients already including tribal areas in their consolidated planning process?

(3) If included, should this language be added at part 91 or in part 576?

f. States' use of HMIS and PIT data (§ 91.305(c)(1)). The interim rule does not include the following requirement for states, which is in the regulation for local governments: “At a minimum, the recipient must use data from the Homeless Management Information System (HMIS) and data from the Point-In-Time (PIT) count conducted in accordance with HUD standards.” HUD is considering including this requirement for states in the final rule, because most states are already obtaining this data from CoCs and HMIS systems, and this change would make the collection consistent with the requirement for metropolitan cities and urban counties. HUD seeks comment on this addition.

g. Coordination between the Con Plan jurisdiction and CoC on Planning (24 CFR 91.100(a)(2)(i) and 91.110(b)(1)). Currently, the consultation provisions at 24 CFR 91.100(a)(2)(i) and 91.110(b)(1) require each Consolidated Planning jurisdiction to consult with the applicable CoC(s) when preparing the portions of the consolidated plan describing the jurisdiction or state's homeless strategy and the resources available to address the needs of homeless persons and persons at risk of homelessness. In order to develop this strategy, Con Plan jurisdictions must assess the needs and identify available resources to address those needs. For the final rule, HUD is considering specifying that the consultation requirements include a requirement for the Con Plan jurisdiction to consult with the applicable CoC(s) on the following homeless-specific aspects of the Con Plan: the jurisdiction's homeless needs assessment (§§ 91.205(c) and 91.305(c)), one-year goals and specific action steps for reducing and ending homelessness (§§ 91.220(i)(1) and 91.320(h)(1)), and performance reports (§ 91.520).

HUD expects that in many places, especially where the geographic boundaries of CoCs and Con Plan jurisdiction are coterminous, CoCs and Con Plan jurisdictions are already coordinating to align the strategies in the Con Plan and CoC plan. HUD has received questions about what acceptable consultation, participation, and collaboration consist of, between the CoCs and Con Plan jurisdictions, and especially for states. The purpose of proposing this requirement would be to specify the requirements and ensure that Con Plan jurisdictions and CoCs are collaborating on all aspects of the plan that directly impact the homeless goals and strategies, in order to develop a more complete and cohesive strategy to end homelessness in these overlapping plans.

HUD seeks comment on this concept, specifically:

(1) Would this requirement facilitate or improve collaboration and coordination between CoCs and Con Plan jurisdictions on homelessness activities? If so, how? If not, why not?

(2) Are the current consultation requirements in the interim rule sufficient for Con Plan jurisdictions to establish the needs and strategies for addressing homelessness in the jurisdiction?

(3) Should HUD include this requirement, or are there other ways that HUD could, in the final rule, facilitate better coordination between CoCs and Con Plan jurisdictions to ensure that their plans establish closely aligned and complementary goals to end homelessness?

5. Process for Making Subawards (§§ 91.220(l)(4)(iii) and 91.320(k)(3)(iii)):

HUD received comments from numerous respondents recommending that HUD require ESG recipients to describe how they will use performance data to select subrecipients. Based on these comments, HUD is considering including language in the final rule that would implement this suggestion, and seeks comments on what impact this would have on ESG recipients. For those recipients that currently select subrecipients based on performance data, HUD seeks feedback about processes currently used, including any specific performance indicators. Additionally, HUD seeks comment on whether there are any further requirements that HUD should include related to selecting subrecipients based on performance to help recipients implement this proposed requirement.

6. Written Standards for ESG Recipients (§ 91.220(l)(4) and § 91.320(k)(3), and § 576.400(e)): See section II.C.14 of this Notice for more detail.

7. HUD Approval of Action Plans (§ 91.500): HUD is considering amending the list of examples of substantially incomplete Action Plans at § 91.500(b), to include plans which do not reflect a jurisdiction's actual allocation amounts for that year. HUD envisions that this would also cover situations in which a jurisdiction submits a proposed plan on which it has conducted citizen participation, which neither reflects actual allocation amounts nor contains contingency language on how the jurisdiction will adjust its plan to reflect actual amounts. (See also the discussions of §§ 91.15 and 91.115, and § 570.200 in sections II.B.1 and II.B.2 of this Notice, respectively.)

8. Performance Reports Related to Homelessness for ESG Recipients (§ 91.520(g)): HUD proposes to require that ESG recipients and subrecipients use HMIS (except those subrecipients that are prohibited from doing so under VAWA) in compliance with the forthcoming HMIS rule, to collect and report on data in the Consolidated Annual Performance Evaluation Report (CAPER), as specified by HUD, and seeks comments on this proposal.

1. Emphasis on Rapid Re-housing: HUD has been encouraging ESG recipients to spend more of their funds on rapid re-housing, since it is often a cost-effective way to make a significant impact on homelessness in a community and help achieve the national goal of ending homelessness. HUD is considering ways to continue this policy, and seeks feedback on what requirements and/or incentives could be established in the final rule for recipients to focus more on rapid re-housing, or whether HUD should simply continue to encourage this focus through guidance.

HUD received several comments recommending that HUD limit the amount of funds that an ESG recipient can spend on homelessness prevention activities. However, HUD cannot place a cap on homelessness prevention activities without a statutory change. Instead, HUD seeks creative ways to encourage more rapid re-housing—possibly through the final rule. For example, if a recipient intended to spend funds on homelessness prevention, HUD could require the recipient to justify, in the Consolidated Plan, how meeting the needs of persons at risk of homelessness is more effective at ending homelessness (without this justification, the Consolidated Plan would be determined substantially incomplete and could not be approved). Another option could be to establish performance measures and link the local CoC application scoring to ESG recipients' achievement of those measures. Another option could be to require only the rent reasonableness standard for rapid re-housing activities, but require both the Fair Market Rent (FMR) and rent reasonableness standard for homelessness prevention activities. HUD seeks comments on whether to adopt these or suggestions for other methods to increase the amount of funds recipients spend on rapid re-housing activities.

2. Street Outreach and Emergency Shelter Components (§ 576.101 and § 576.102):

a. Essential services under the Emergency Shelter Component (§ 576.102(a)). The interim rule states that ESG funds may be used for costs of providing essential services to individuals and families in an emergency shelter. HUD has received feedback that this could be interpreted in two different ways:

(1) Only individuals and families who spent the prior night in an emergency shelter can receive ESG-funded essential services, no matter where those services are provided; or

(2) Anyone who meets the homeless definition can receive essential services, as long as the services are provided in the emergency shelter.

HUD proposes to clarify who can receive essential services under the Emergency Shelter component—including in day shelters—by changing the language as follows (proposed portions italicized):

In other words, if an individual or family meets Category 1 of the homeless definition (excluding those in transitional housing) and is staying in an overnight or day shelter, they can receive eligible essential services in that shelter. Otherwise, if an individual or family meets Category 1 of the homeless definition (excluding those in transitional housing) and is referred by a shelter, they can receive eligible essential services at any provider's location. This change would widen the array of essential services that can be provided to those most in need—expanding the language to allow ESG funds to be used to pay for facility-based essential services to most persons sleeping on the street. HUD would require the referral from an emergency shelter as a linkage to the Emergency Shelter component, under which the services will be provided. HUD would consider this change in order to improve service coordination and also to ensure that the services charged to the grant are necessary and appropriate to the individual or family. HUD wants to encourage, to the extent possible, that non-facility-based services are provided by mainstream programs, not ESG. HUD seeks comment on this proposed change.

b. “Unavailable” and “Inaccessible” Services (§ 576.101(a) and § 576.102(a)). Under the Street Outreach and Emergency Shelter components of the interim rule, ESG funds may only be used for certain essential services “to the extent that other appropriate [emergency health services, emergency mental health services, mental health services, outpatient health services, legal services, substance abuse treatment services] are unavailable or inaccessible within the community.” HUD has received questions and comments about this requirement, specifically, what it means to be “unavailable or inaccessible.” HUD had originally included this restriction in order to prioritize ESG funds for housing rather than services that should be available through mainstream systems. However, HUD recognizes that sometimes services are necessary and not provided by any other resource; in these cases, certain essential services are eligible under ESG. HUD is not considering removing this restriction from the regulation in the final rule, but is considering changes to help communities implement the requirement and document compliance. HUD specifically seeks additional comment on:

(1) Whether HUD should define or set a standard for “unavailable” and “inaccessible” within the rule, and if so, what definition or standard would best help recipients and subrecipients implement this requirement?

(2) Whether only one term should be used, and if so, which one and why?

(3) How have recipients and subrecipients implemented this requirement under the interim rule? Have they documented it for each program participant, or generally at the community level, and why? What can HUD learn from these experiences that it should implement in the final rule?

c. Day shelters (§ 576.102(a)). While a shelter that provides temporary daytime accommodations and services can be funded as an emergency shelter under the ESG interim rule, HUD receives questions about day shelters and is therefore considering explicitly stating in the final rule that day shelters are emergency shelters, and specifying the conditions under which a day shelter may receive funding under the Emergency Shelter component, including several requirements to ensure that ESG funds are used for homeless persons most in need. HUD is considering adding the following language at 576.102(a):

(1) What impact would adding these requirements for day shelters have in your community? For instance, would this require any changes to emergency shelter policies or procedures in your community?

(2) What changes, if any, would need to be made to this provision of the regulation so that your community can fund or continue to fund day shelters with ESG?

(3) Are there any changes to the documentation requirements for program participants in emergency shelters that would be needed for day shelters?

d. Involuntary family separation (§ 576.102(b)). This requirement states that “The age of a child under age 18 must not be used as a basis for denying any family's admission to an emergency shelter that uses ESG funding or services and provides shelter to families with children under age 18.” HUD interprets this provision to mean that if a shelter serves any families with children, the shelter must serve all members of a family with children under 18, regardless of age or gender. HUD is not proposing to change this provision because it is statutory. However, HUD is considering possible regulatory changes that would help recipients and subrecipients implement the statutory provision, and seeks ideas based on actual issues that have occurred in communities.

HUD is also proposing that a shelter must serve all members of the family together if the members of the family so choose (e.g. it may not separate adult men from women and children in a family and serve them on a different floor or in a different building). HUD seeks comments on this proposal.

e. Fees in emergency shelters (§ 576.102). In the past, HUD has allowed emergency shelters to charge reasonable fees for staying in the shelter. HUD is considering revising this policy, in the final rule, to explicitly allow emergency shelters to charge reasonable occupancy fees, but specify that the amount of the fee charged must account for the capacity of the client to afford to pay the fee, and the fee itself cannot be a barrier to occupancy in the shelter, and this fee must be counted as program income. Additionally, HUD will consider adding language prohibiting recipients or subrecipients providing Rapid Re-housing or Homelessness Prevention assistance to charge program participants any costs above any required contribution to rent payments. This change would increase consistency between the requirements of the ESG Program and the CoC Program. HUD seeks comment on these ideas.

f. Minimum Period of Use—Street Outreach component (§ 576.101(b)). The current minimum period of use requirement states: “The recipient or subrecipient must provide services to homeless individuals and families for at least the period during which ESG funds are provided.” This language comes from the statute, which requires that the recipient certify, with respect to the Street Outreach and Emergency Shelter components, that it will “provide services or shelter to homeless individuals and families for the period during which such assistance is provided, without regard to a particular site or structure as long as the same general population is served.” HUD is considering clarifying the regulatory language to help recipients and subrecipients understand how to comply with this requirement, as follows: “The recipient or subrecipient providing the street outreach services must provide the street outreach services to homeless individuals and families for at least as long as that organization is expending ESG funds for street outreach activities.”

g. Minimum Period of Use—Emergency Shelter component (§ 576.102(c)). HUD seeks comment on the following:

(1) Essential services and shelter operations. Similar to the minimum period of use change being considered under the Street Outreach component, HUD is considering clarifying the language at 576.102(c)(2) as follows (changed language is italicized) to help recipients and subrecipients understand how to comply with this requirement: “Where the recipient or subrecipient uses ESG funds solely for essential services or shelter operations, the recipient or subrecipient must provide services or shelter to homeless individuals and families for at least as long as it is expending ESG funds for essential services or shelter operations, without regard to a particular site or structure so long as the site or structure serves the same type of persons originally served with the assistance (e.g. families with children, unaccompanied youth, disabled individuals or victims of domestic violence) or serves homeless persons in the same area where the recipient or subrecipient originally provided the services or shelter.”

(2) Renovation. Under the Emergency Shelter component, HUD is proposing the following language at § 576.102(c)(1), to account for partial building renovations and renovations of seasonal shelters (proposed portions italicized): “Each building or portion of a building for which ESG funds are used for renovation must be maintained as a shelter for not less than a period of 3 or 10 years, depending on the type of renovation and the value of the building or portion of the building being renovated. In the case of a seasonal shelter for which ESG renovation funds were used, it must be operated as a seasonal shelter (e.g., 5 months every year) for 3 or 10 calendar years, as applicable.”

(3) Subrecipient agreement. HUD is considering requiring that the applicable period of use must be stated in the subrecipient agreement.

(4) Requirements that apply during minimum period of use. HUD is considering revising § 576.102(c)(1) and (2) to clarify and expand the requirements that apply during the minimum period of use when emergency shelters expend ESG funds for Operating Costs, Essential Services for a shelter project, or Renovation, as follows (as a reminder, for Operating Costs and Essential Services, the minimum period of use is the period during which the ESG services are provided; for Renovation, it is 3 or 10 years, as applicable):

(i) Each person who stays in the shelter must be homeless as defined under § 576.2;

(ii) Program participant and shelter data must be entered into the local HMIS (or comparable database, as applicable) as required under § 576.400(f);

(iii) The shelter must meet the minimum habitability standards for emergency shelters under § 576.403(b);

(iv) The recipient or subrecipient must maintain records for the shelter and the shelter applicants and program participants as required under § 576.500, including documentation of each program participant's eligibility and homeless status (§ 576.500(b)) and confidentiality requirements for survivors of domestic violence (§ 576.500(x));

(v) The shelter must meet the faith-based activities requirements under § 576.406 and the nondiscrimination requirements and affirmative outreach requirements in § 576.407.

h. Essential Services for Street Outreach, Case Management (§ 576.101(a)(2)) and Emergency Shelter, Case Management (obtaining identification documents) (§ 576.102(a)(1)(i)). HUD is considering explicitly allowing ESG funds to be used to pay for recipient or subrecipient staff time to help program participants obtain identification documents such as birth certificates and social security cards, and for the cost of such documents, if they are necessary to help a program participant obtain public benefits, employment, housing, or other mainstream resources.

i. Local Residency Requirements. HUD is considering establishing a requirement, in the final rule, that recipients must not deny services or shelter funded under the Emergency Shelter and Street Outreach components based on whether or not their last permanent residence was in the jurisdiction. That is, if a person is homeless on the streets of a jurisdiction and is seeking emergency shelter there, they must be able to receive ESG-funded assistance, regardless of whether their last residence was inside or outside of the jurisdiction. HUD seeks comment on this idea, and feedback about any issues that this might raise with the implementation of ESG or communities' efforts to end homelessness.

3. Rapid Re-housing component (defining “rapid” and “as quickly as possible”) (§ 576.104): This section states, “ESG funds may be used to provide housing relocation and stabilization services and short- and/or medium-term rental assistance as necessary to help a homeless individual or family move as quickly as possible into permanent housing and achieve stability in that housing.” HUD has received questions about what “rapid” and “as quickly as possible” mean in practice, and is considering whether to establish a standard or time limit in which an individual or family could be rapidly re-housed. HUD is considering the following options: Setting the standard at a particular number of days (possibly 7, 30, or some other time limit over 30 days) per individual; setting a standard at an average number of days for an ESG recipient; requiring communities to set a standard based on local data and systems; or continuing the current policy and not setting such a standard. HUD seeks comments on:

(1) Should HUD establish a standard or time limit for rapid re-housing? Why or why not?

(2) If HUD should set such a standard or time limit, what would be an appropriate limit, based on local experiences with rapid re-housing?

(3) If HUD should set a standard at a particular number of days, at what point would the “clock” start—at the initial intake assessment, at the point the program participant is determined eligible and enrolled in the program, or other? Should HUD define it or allow the recipient or subrecipient to define it?

(4) What impact the proposed number of days would have on local program administration. For example, would this conflict with any local goals or other program requirements?

(5) If implemented, what should the consequence be if a recipient or subrecipient does not meet the standard?

4. Housing Relocation and Stabilization Services (§ 576.105):

a. Late fees. HUD is considering explicitly allowing late fees on the program participant's utility and rental payments (other than late fees associated with the 6 months of rental arrears, which are already allowed) and utility reconnection fees for the program participant to be included as an allowable cost under housing relocation and stabilization services, and seeks comment on this proposal.

b. Court costs (§ 576.105(b)(4)). HUD is considering allowing, as a legal services activity under § 576.105(b)(4), court costs incurred by the landlord during an eviction proceeding as an eligible ESG cost, so long as it is necessary for the program participant to pay them in order to be stabilized in their housing. HUD is considering adding this because payment of this cost may help prevent homelessness for the program participant and it may be an incentive for landlords to work with the program participant. HUD seeks comment on this proposal, specifically:

(1) Should HUD allow a property owner's court costs to be eligible under ESG? Why or why not?

(2) Should HUD allow ESG to be used to pay a property owner's court costs only when a court orders the tenant to pay those costs?

(3) If HUD should allow such costs, how would recipients/subrecipients determine and document that the costs are “necessary” to stabilize a program participant's housing? Should HUD impose any limits on the amount of such costs that may be paid with ESG funds?

c. Trash removal (§ 576.105(a)(5)). HUD is considering including trash removal as an eligible utility cost at § 576.105(a)(5), in part to be consistent with the definition of utility used to calculate gross rent for purposes of FMR, and in part because in some places, particularly rural areas, tenants are required to pay for trash removal. HUD seeks comment on this proposal.

d. Mediation (§ 576.105(b)(3)). Under the interim rule, mediation cannot be used to help eligible individuals and families (including homeless youth) move back into housing they have left, when that might be the best placement for them, and the option they would choose. As such, HUD is considering adding language at § 576.105(b)(3) to allow ESG funds to pay for mediation services—under both the Rapid Re-housing and Homelessness Prevention components—to help individuals and families move back into their former housing and/or move in with friends or family members, after they have already moved to an emergency shelter, the streets, or another place described in paragraph (1) of the homeless definition or, for homelessness prevention, after the program participant has moved to other, temporary, housing. HUD proposes the following language (italicized language added): “ESG funds may be used pay for mediation between the program participant and the owner or person(s) with whom the program participant is living or proposes to live, to help the program participant move into, return to, or remain in housing.” HUD seeks comment on this proposal; specifically:

(1) What impact would this rule change have?

(2) Are there other concerns HUD should be aware of regarding placing individuals and families in such housing situations?

e. Broker fees (§ 576.105(b)(1)). HUD is considering explicitly allowing ESG to pay for fees to real estate agents, or “broker fees,” so long as the fee is reasonable and necessary for the household to obtain appropriate permanent housing, by including language at § 576.105(b)(1), Housing Search and Placement activities. HUD seeks comment on this proposal; specifically, is this a necessary cost in order to quickly move individuals and families to permanent housing?

f. Housing Stability Case Management (§ 576.105(b)(2)). HUD has received numerous questions about the language in the interim rule stating that for ESG housing stability case management, “. . . assistance cannot exceed 30 days during the period the program participant is seeking permanent housing . . .” HUD included this provision recognizing that many clients are enrolled in Rapid Re-housing while residing in shelters, but intentionally limited it, for two main reasons. First, HUD intended this restriction as an incentive to quickly re-house program participants, since any case management over 30 days would have to be paid with non-Federal funds or, if applicable, charged under the Street Outreach component or Emergency Shelter component, which are subject to an expenditure cap. Second, HUD intended that recipients/subrecipients that provide case management to persons in shelter under the Rapid Re-housing program focus on placing these program participants into housing. HUD aims to ensure that recipients/subrecipients are helping program participants obtain housing and not just charging essential services costs for persons in shelter to the Rapid Re-housing component in order to get around the Emergency Shelter/Street Outreach cap. However, HUD recognizes that sometimes it takes longer than 30 days to rapidly re-house a program participant. In addition, one recipient noted that HUD allows the payment of storage fees for up to 3 months under the Rapid Re-housing component and requires monthly case management to be provided during that time, but only allows housing stability case management to be charged to the Rapid Re-housing component for up to 30 days. Therefore, HUD seeks comment on the following questions related to this provision of the rule:

(1) For program participants who are receiving assistance under both the Emergency Shelter and Rapid Re-housing components (i.e., those staying in a shelter and receiving services to get rapidly re-housed), how are recipients/subrecipients currently determining when to charge the case management costs to each component?

(2) Has the 30-day limit on charging housing stability case management to the Rapid Re-housing component had an effect on increasing the rates at which program participants find housing? If not, why not?

(3) If HUD were to change the limit to 90 days, what impact would this have?

(4) If HUD eliminated this restriction, is there a different way to distinguish between housing stability case management and case management under the emergency shelter component, which is subject to the cap?

g. Credit reports (§ 576.105(b)(5) and § 576.105(b)(2)). At § 576.105(b)(5), Credit Repair, and § 576.105(b)(2), Housing Stability Case Management, HUD is considering allowing ESG funds to be used to pay for a credit report for program participants being assisted under the Homelessness Prevention and Rapid Re-housing components, if the program participant has exhausted all opportunities to receive a free credit report in a given year and if the report is necessary to stabilize the individual or family in their current housing or quickly move them to permanent housing. HUD seeks comments from providers' experience on whether this would be a helpful addition to the rule, or whether it would not make a difference if included.

5. Short-Term and Medium-Term Rental Assistance (§ 576.106):

a. Rental assistance in shared housing—general. HUD proposes to clarify in the final rule that ESG funds may be used to provide rental assistance in shared housing. Except for the FMR requirements (established under § 576.106(d)(1) and addressed below), all ESG requirements that apply to rental assistance would apply to rental assistance provided in shared housing. Among other things, these requirements include the following:

• There must be a legally-binding, written lease between the owner and the program participant;

• There must be a rental assistance agreement between the recipient or subrecipient and the owner;

• The housing must meet ESG habitability standards;

• The program participant must meet the eligibility requirements for either Rapid Re-housing or Homelessness Prevention assistance;

• The rental assistance must be provided in accordance with the applicable written standards;

• Rental assistance may not be provided to a program participant who is receiving tenant-based rental assistance, or living in a housing unit receiving project-based rental assistance or operating assistance, through other public sources; and

• The shared housing must meet the rent reasonableness standards.

HUD seeks comments on these ideas; specifically:

(1) Whether HUD should adopt these policies for rental assistance in shared housing, and, if so, any concerns or issues that may arise in implementation;

(2) Suggestions about documentation that HUD should require in order to reduce fraud or ensure that the landlord is not a “support network” that can assist the program participant without rental or financial assistance, such as a family member or friend;

(3) Whether HUD should include all of the above or whether any elements should be added or deleted from the list; and

(4) How could providing ESG rental assistance to individuals and families that share housing work under state or local law? How do recipients/subrecipients currently make this type of arrangement work, especially with respect to a program participant's lease, and if the other renters are not ESG program participants?

b. Rental assistance in shared housing—FMR. With respect to the FMR for shared housing, HUD is considering establishing the following standard: When assisting an individual or family with rental assistance in shared housing, recipients and subrecipients would be required to use an adjusted FMR that is the household's pro-rata share of the FMR for the shared housing unit size. For example, in the case of a single-person household who will occupy one bedroom in a 4-bedroom house, the FMR used would be the household's pro-rata share of the 4-bedroom FMR (i.e. 1/4 of the 4-bedroom FMR). Note that HUD's ultimate determination on this issue for the final rule will be influenced by the comments received, and the decision made, regarding the related FMR issue discussed below. HUD seeks comment on this idea, or whether there is an alternate calculation that HUD should use for determining the FMR in shared housing.

c. Rent restrictions (Fair Market Rent) (§ 576.106(d)): The ESG interim rule states that “rental assistance cannot be provided unless the rent does not exceed the FMR established by HUD, as provided under 24 CFR part 888, and complies with HUD's standard of rent reasonableness, as established under 24 CFR 982.507.” HUD received feedback expressing concern that, unlike the Housing Choice Voucher program, the ESG program uses FMR to limit the units for which rental assistance may be provided, and this does not provide enough flexibility for recipients and subrecipients to quickly find available units. Two of HUD's goals are to ensure that the units for which ESG assistance is provided will be affordable to program participants after the assistance ends, and limit the amount that may be expended on a given household so that more program participants can be assisted. However, HUD is considering alternatives for changes to the final rule to provide recipients and subrecipients with more flexibility in order to quickly find appropriate units. The options HUD is considering to include in the final rule, on which HUD seeks feedback are as follows:

(1) ESG funds could be used to pay rental assistance for units where the rent is at or below the payment standard set by the PHA for the area (i.e. up to the FMR, up to 110 percent of FMR if that is the PHA's payment standard, or higher if HUD has provided a waiver to the PHA).

(2) ESG funds could be used to pay rental assistance for units where the rent is above FMR, but ESG funds could only be used to pay up to the FMR amount (any amount of rent above the FMR would have to be paid by either the program participant, or the recipient/subrecipient with non-ESG funds). However, HUD is concerned that allowing program participants to pay for the cost of a unit above FMR might disadvantage those who need the ESG assistance most, since it might be easier to find units above the FMR and therefore, those who are more able to contribute to the rent would be more likely to receive ESG assistance. Therefore, HUD also seeks comments as to as the extent of this risk and if there are any requirements that can be put into place to prevent this practice.

(3) ESG could require only the rent reasonableness standard for rapid re-housing, but require both the FMR and rent reasonableness standard for homelessness prevention assistance. This might be one way to both increase flexibility and also encourage recipients and subrecipients to provide more rapid re-housing assistance.

(4) HUD could adopt the standard used in the HOPWA program, described at 24 CFR 574.320(a), which allows recipients (or possibly subrecipients) to establish a rent standard that is no more than the published FMR used for Housing Choice Vouchers or the “HUD-approved community-wide exception rent for the unit size. However, on a unit by unit basis, the [recipient] may increase that amount by up to 10 percent for up to 20 percent of the units assisted.”

(5) HUD could maintain the FMR and/or rent reasonableness standards but add in some other type of flexibility—HUD seeks suggestions for additional options.

Note that in all cases HUD is planning to continue to require that the unit at least meet the rent reasonableness standard. Finally, one of HUD's primary concerns is that the program participants be able to remain in the unit after the assistance ends. If HUD included one of the above options to provide more flexibility to recipients and subrecipients by paying higher rents, how could they ensure that the units would remain affordable to program participants without housing assistance?

In addition, HUD is considering only allowing a recipient to pay rent over the FMR if the recipient includes its proposal to do so in the Consolidated Plan/Action Plan. That way, the recipient would be required to obtain and assess citizen feedback as to whether additional flexibility is necessary in its area before being able to pay rents above FMR.

d. Last month's rent, security deposits, and rental arrears (§§ 576.105(a) and 576.106).

(1) HUD is considering re-categorizing “last month's rent” and “security deposit” as rental assistance, rather than housing relocation and stabilization services (financial assistance), because last month's rent is counted in the maximum-allowed 24 months of assistance, which could be confusing. Last month's rent is often paid at the same time as the security deposit, so it might make sense to consider them together. If this change is made, the FMR/rent reasonableness standards and lease and rental assistance agreement requirements would apply when security deposits and last month's rent are used to move a program participant into a unit. HUD will also consider consistency with the CoC Program in making a final decision. HUD seeks comment about this proposal, specifically whether the proposal would reduce confusion and improve administrative ease or whether there are potential negative consequences, and if so, what are they?

(2) HUD is considering explicitly stating that the FMR and rent reasonableness standards apply when rental arrears are being paid for a unit in which the program participant is staying, but not when the rental arrears are being paid for a unit in which the program participant no longer lives or is leaving. HUD seeks comment on this and any potential issues that could arise if HUD were to adopt this policy.

e. Providing subrecipients with discretion to set caps and conditions (§ 576.106(b)). HUD is considering changing the language as follows, to enable subrecipients to set caps on the assistance provided to a household (italicized language added): “Subject to the requirements of this section, the recipient or subrecipient may set a maximum amount or percentage of rental assistance that a program participant may receive, a maximum number of months that a program participant may receive rental assistance, or a maximum number of times that a program participant may receive rental assistance. The recipient or subrecipient may also require program participants to share in the costs of rent.” HUD seeks comments on this; in particular, any concerns that recipients might have with providing subrecipients with this discretion.

f. Rental Assistance Agreement requirements (§ 576.106(e)).

(1) HUD is considering listing the elements that must, at a minimum, be included in the rental assistance agreement. The following two elements are already required in the interim rule, and HUD plans to keep them in the final rule:

• The same payment due date, grace period, and late payment penalty requirements as the program participant's lease; and

• A provision requiring the owner to give the recipient/subrecipient a copy of any notice to the program participant to vacate the housing unit, or any complaint used under state or local law to commence an eviction action against the program participant.

HUD seeks comment on which, if any, of the following new requirements to include, and seeks suggestions on any others that should be required:

• The term of the assistance (e.g., number months for which it is being provided);

• The type of assistance being provided (e.g., tenant- or project-based rental assistance, rental arrears);

• The amount of funds to be paid by the recipient/subrecipient and the amount to be paid by the tenant;

• the address of the property for which payments are being made; and

• the signature and date of both the recipient/subrecipient representative and the property owner.

(2) The interim rule states that “a recipient or subrecipient may make rental assistance payments only to an owner with whom the recipient or subrecipient has entered into a rental assistance agreement.” HUD proposes to specify in the final rule that when ESG Rapid Re-housing assistance, either project-based or tenant-based, is used to assist a program participant to move into housing owned by a recipient or subrecipient, a rental assistance agreement is not required. However, under this proposal, the organization would be required to document and maintain on file the elements required to be included in a rental assistance agreement. HUD seeks comment on this proposal.

g. Lease (§ 576.106(g)). HUD is proposing to add the following requirement to the lease provision of the ESG final rule, for tenant-based rental assistance (it currently only applies to PBRA), and seeks comments on this proposal: “The program participant's lease must not condition the term of occupancy on the provision of rental assistance payments or the household's participation in the ESG program.”

h. Using ESG funds for an unoccupied unit. HUD is considering allowing ESG recipients to choose to continue to assist a current program participant with ESG funds, in tenant- or project-based rental assistance, when a program participant is in an institution (such as a hospital or jail) during a portion of the time they are receiving ESG assistance. If implemented, ESG funds could be used for up to 90 days while that program participant is in the institution. However, if the recipient/subrecipient has knowledge that the program participant will not exit the institution before 90 days (e.g., if the program participant's jail sentence is for longer than 90 days), then the month in which the program participant enters the institution is the last month for which ESG funds may be used for the program participant's unit. This change would ensure consistency with the CoC Program. HUD seeks comment on this proposal.

i. Advance payments of rental assistance (§ 576.105(a)(3)). HUD is considering prohibiting payments of rental assistance to a property owner for more than 1 month at a time in advance (except when providing an advance payment of the last month's rent under section § 576.105(a)(3)), and seeks comments on this idea.

j. Subleasing. Under the interim rule, subleasing—that is, the person or organization that holds the primary lease with the owner enters into a lease with an individual to rent the unit—is not allowed, for either tenant-based or project-based rental assistance. If HUD allowed subleasing in the final rule:

(1) Would this allow recipients to more effectively serve program participants?

(2) Would it make a significant difference for program participants? In what ways would it help them?

(3) What language could HUD include in the final rule that would ensure that (a) program participants' rights are protected, and (b) the appropriate payments are made to the owner?

k. Tenant-based rental assistance (TBRA) (§ 576.106(h)). HUD has received numerous questions about whether recipients may provide ESG assistance outside their Con Plan jurisdiction, allow program participants to move outside their jurisdiction, or limit assistance to residents of the jurisdiction. HUD is considering changing the language at § 576.106(h)(2) to specify the circumstances under which any of the options listed above may be carried out. HUD is considering the following revisions, and seeks comment on them:

(1) Under ESG TBRA, the program participant must be able to choose the unit in which they will live, with the following specifications:

(i) The recipient may allow a program participant to choose a unit outside of the recipient's jurisdictional boundaries, may limit TBRA to the recipient's jurisdictional boundaries, or, when necessary to facilitate the coordination of supportive services, may limit TBRA to a designated geographic area that encompasses, overlaps, or falls within the recipient's jurisdictional boundaries.

(ii) Unless otherwise specified by the recipient, a unit of general purpose local government that administers TBRA as a subrecipient may allow a program participant to choose a unit outside of the local government's jurisdictional boundaries, may limit TBRA to the local government's jurisdictional boundaries, or, when necessary to facilitate the coordination of supportive services, may limit TBRA to a designated geographic area—such as the CoC's geographic area—that encompasses, overlaps, or falls within the recipient's jurisdictional boundaries.

(iii) Unless prohibited by the recipient, a private nonprofit organization that administers TBRA as a subrecipient may allow a program participant to choose a unit outside of the recipient's jurisdictional boundaries or, when necessary to facilitate the coordination or provision of services, may limit TBRA to a designated geographic area—such as the CoC's geographic area or a smaller area within the recipient's jurisdiction—that encompasses, overlaps, or falls within the recipient's jurisdictional boundaries.

(2) The amount or type of assistance cannot be conditioned on the program participant moving outside the jurisdiction's boundaries (that is, a recipient or subrecipient may not require that a program participant move outside the jurisdiction in order to receive the rental assistance).

(3) HUD is considering establishing a requirement, in the final rule, that recipients must not deny ESG Rapid Re-housing assistance to homeless individuals and families based on whether or not their last permanent residence was in the recipient's jurisdiction. That is, if a person is homeless on the streets or in an emergency shelter in a jurisdiction and is seeking ESG-funded Rapid Re-housing assistance, they must be able to be assessed for, and, if eligible, receive, ESG Rapid Re-housing assistance, regardless of whether their last residence was inside or outside of the jurisdiction. HUD seeks comment on this idea, and feedback about any issues that this might raise with the implementation of ESG or communities' efforts to end homelessness.

l. Project-based rental assistance (PBRA) (§ 576.106(i)). HUD received many comments about how to implement PBRA for the Rapid Re-housing and Homelessness Prevention components. HUD recognizes that using ESG funds to provide PBRA for these types of assistance is challenging; however, including PBRA as an option for recipients and subrecipients to use when providing assistance is statutorily required. Therefore, HUD is looking for ways to further align the rule with TBRA and eliminate some of the burdensome requirements. However, at its core, PBRA is a different type of housing solution and carries with it special considerations. Below are issues related to PBRA about which HUD is considering revisions to the rule and on which HUD seeks additional public comment. HUD welcomes other suggestions on ways to improve the administration of PBRA as well.

(1) HUD is considering defining “project-based rental assistance” as follows: “Project-based rental assistance, for purposes of the ESG program, means rental assistance that a recipient or subrecipient provides for individuals or families who live in a specific housing development or unit, and the assistance is attached to the development or unit.”

(2) Some commenters recommended that HUD remove the 1-year lease requirement and allow for a lease like TBRA with a flexible term. HUD is considering adopting this recommendation, but seeks additional comment on potential impacts that this policy would have.

(3) The interim rule, at § 576.106(i)(4), provides that if the project-based rental assistance payments are terminated for a particular program participant, the household may stay in its unit (subject to the terms of the lease) and the rental assistance may be moved to another unit in the same building. HUD is considering allowing the assistance to be transferred to another unit in a different building in the same development, and seeks comment on this idea, particularly whether it would increase flexibility.

6. Administrative Activities (§ 576.108) & Indirect Costs (§ 576.109):

a. Training. For § 576.108(a)(2), HUD is considering changing the language in the final rule to allow ESG to pay for the costs of a subrecipient to attend a training provided by the recipient on ESG, and more clearly establish the limits of the training allowed under ESG, as follows: “Eligible training costs include the costs of providing training on ESG requirements and attending HUD-sponsored, HUD-approved, or recipient-sponsored ESG training.”

b. Other comments. HUD seeks other feedback regarding changes it should make for the final rule about eligible Administrative costs and indirect costs. However, note that the 7.5 percent cap on Administrative costs is statutory and therefore HUD is prohibited from changing it. Also, HUD must also comply with the OMB requirements on cost principles when making any changes to the language.

7. Submission Requirements and Grant Approval (Joint Agreements) (§ 576.200): MAP-21 included a provision allowing the following: “A metropolitan city and an urban county that each receive an allocation under such title IV [of the McKinney-Vento Homeless Assistance Act] and are located within a geographic area that is covered by a single continuum of care may jointly request the Secretary of Housing and Urban Development to permit the urban county or the metropolitan city, as agreed to by such county and city, to receive and administer their combined allocations under a single grant.” In the final rule, HUD is considering establishing the requirements for recipients to request a joint allocation of ESG funds, and seeks comment on the following ideas:

a. Coordination with CDBG. A jurisdiction may only enter into a joint agreement with another jurisdiction for ESG if it will also have a joint agreement with that jurisdiction for CDBG for the same program year. Also, under the CDBG program, only a single metropolitan city and urban county may enter into a joint agreement; therefore, this limitation would apply to ESG as well. That is, only a metropolitan city and urban county that each receives an ESG allocation, which are located within a geographic area that is covered by a single CoC and which receive a joint allocation for CDBG, may enter into joint agreements.

b. Timing of the joint agreement. The first time the jurisdictions enter into a joint agreement, the entities may enter into a joint agreement for any program year (that is, they would not have to wait until the next time the urban county requalifies as an urban county to enter into a joint agreement). However, the duration of the agreement must be until the next time the urban county requalifies as an urban county (currently this occurs every 3 years).

c. Lead entity responsibilities. The recipients must select a “lead entity” for the joint grant, which must be the lead entity for CDBG. The responsibilities of the lead entity are as follows:

(1) The lead entity, as the ESG recipient, assumes full responsibility for the execution of the ESG program under 24 CFR part 576, with respect to the Consolidated Plan requirements at 24 CFR part 91, and with respect to the joint grant. HUD will hold the lead entity accountable for the accomplishment of the ESG program, for following its Consolidated Plan, the grant agreement, and for ensuring that actions necessary for such accomplishment are taken by all subrecipients; and

(2) The lead entity is required to submit the ESG portions of the Action Plan and the CAPER for the entire geographic area encompassed by the joint agreement.

d. Cooperation agreement. The jurisdictions must execute a legally binding “cooperation agreement” that establishes each recipient's desire to combine their grant allocations and administer a joint ESG program, establishes which government will be the lead entity, identifies and authorizes the lead entity to act in a representative capacity for the other government for the purposes of the joint ESG program, and provides that the lead entity assumes overall responsibility for ensuring the joint ESG program is carried out in compliance with the requirements of 24 CFR part 576.

e. Requirements of the joint request. The lead entity must submit the joint request to HUD before the entities start their Consolidated Plan in the eCon Planning Suite (this is because a single identification is required in the system). At a minimum, the joint request must include:

(1) A letter from the lead entity that identifies which governments seek to combine their grant allocations and administer a joint ESG program for their jurisdictions and indicates which federal fiscal year(s) grants the governments seek to combine;

(2) A copy of the cooperation agreement; and

(3) Documentation that shows the lead entity has sufficient authority and administrative capacity to administer the joint grant on behalf of the other government (if the joint agreement arrangement requires the lead entity to provide assistance outside its jurisdiction, the lead entity may want to consider including this in the documentation, specifically).

f. Approval of the joint request. A joint request will be deemed approved unless HUD notifies the city and the county otherwise within 45 days following submission of the joint request.

g. Consolidated Plan requirements.

(1) The metropolitan city and urban county must align their Consolidated Plan program years (done via the process at § 91.10).

(2) For the program year that the jurisdictions enter into a joint agreement, HUD is reviewing whether to require the lead entity to submit a new Consolidated Plan (because the former Consolidated Plan would no longer reflect the correct recipient and information). However, in the case that entities enter into a joint agreement in the middle of an urban county requalification period, this would not “restart the clock” for that time period.

i. Grant amount total. When two or more entities enter into a cooperation agreement and sign a joint grant agreement with HUD, the grant amount is the sum of the amounts authorized for the individual ESG recipients.

j. ESG subrecipient. An urban county or metropolitan city that has entered into a joint agreement under the ESG program is permitted to apply to the state for ESG funds, if the state allows.

8. Matching Requirement (§ 576.201):

HUD has received numerous questions seeking clarifications on the match requirements. HUD is carefully reviewing whether and how to amend and clarify this section, with the goal of helping recipients better understand the match requirement and be able to meet it. HUD seeks comment on the following ideas:

a. Additional sources of matching contributions. HUD received a comment requesting that HUD reconsider § 576.201(c)(1), in which all matching contributions must meet all requirements that apply to the ESG funds provided by HUD . . .” HUD is considering adding exceptions to this rule—that is, HUD is considering providing a list of activities that are not eligible to be paid for with ESG funds but could be used as match, because they are technically eligible according to the statute, but not by rule. This list would include costs such as: Training costs for ESG recipients/subrecipients at ESG-related (but not HUD-sponsored) conferences such as those hosted by the National Alliance to End Homelessness or the Council of State Community Development Agencies (COSCDA); or the cash value of donated household furnishings and furniture for program participants to help establish them in housing, which can contribute to stability. HUD seeks comment on this proposal and suggestions for other items to include on this list.

b. Cash match. HUD is considering additional ways to enable subrecipients to contribute match to the recipient's program to meet the matching requirement. Section 416 of the McKinney-Vento Homeless Assistance Act states that recipients are “required to supplement the [ESG funding] . . . with an equal amount of funds from sources other than [ESG].” HUD has interpreted this requirement to mean that the matching funds must be contributed to and used to support the recipient's ESG program. Any policy designed to improve flexibility must meet this statutory requirement. Given this restriction, HUD seeks feedback and ideas for ways to clarify or expand the current regulatory language to improve recipients' ability to meet the matching requirement. One possible scenario HUD is considering changing the regulation to allow is where a subrecipient conducts two (or more) ESG-eligible activities—for example, emergency shelter and rapid re-housing—but only has an agreement with the recipient to receive ESG funds for one—for example, rapid re-housing. HUD is considering changing the rule to allow the funds spent on emergency shelter activities (in this example) to be used to meet the matching requirement, if the activity is conducted in accordance with all ESG requirements and if the recipient includes this emergency shelter activity as a part of the recipient's overall program design (e.g. in the Action Plan and CAPER). HUD might even consider requiring it to be included in the subrecipient's funding agreement, but seeks comment on whether this would be too burdensome. Would this be helpful? Are there any other issues HUD should consider in determining whether and how to change this policy?

c. Noncash contributions (depreciation of donated buildings) (§ 576.201(d)(2)). The interim rule does not allow the depreciation of the value of a donated building to be used as match, because currently, for donated buildings, match only includes the purchase value of the building in the year it was donated. HUD is considering allowing depreciation of donated buildings to be used as a source of in-kind match in the final rule, by changing the language at § 576.201(d)(2) to the following:

d. Memorandum of understanding for noncash services as match. For noncash services (e.g., volunteer services), HUD is also considering adopting the CoC Program requirement (at § 578.73(c)(3)), requiring a memorandum of understanding between the recipient or subrecipient and the third party that will provide the services. This would provide for consistency with the CoC Program and also ensure that the amounts used as match are consistently applied.

e. When to count matching funds. HUD proposes to clarify that the matching funds are counted as match for the ESG program when the allowable cost is incurred, or, for in-kind match, when the donated service is actually provided to the recipient/subrecipient or the donation is used for the program.

f. Other programs as match for ESG. Sometimes, other programs cannot be used as match for ESG because their requirements conflict with ESG requirements. For example, HOME TBRA funds may be used for more than 24 months, whereas ESG funds are capped at 24 months of assistance (also, HOME TBRA funds must not require services, whereas ESG requires monthly case management under the interim rule—see section II.C.15.b. of this Notice). In the final rule, HUD is considering specifying that when HOME TBRA, or any program where the program time limit may be extended beyond 24 months, is used as match for the ESG Program funds, any renewal to extend that other program's assistance beyond 24 months would not invalidate its use as match for ESG for up to 24 months. In other words, the ESG recipient would be able to count as match the HOME TBRA funds that meet all of the ESG requirements for up to 24 months (if the case management requirement is removed, as discussed below), but not count any funds expended beyond that time period. HUD seeks comment on this idea.

9. Obligation, Expenditure, and Payment Requirements (§ 576.203(a)(i)):

a. State as HMIS lead. To account for situations where the state is the HMIS lead, HUD is considering augmenting the state obligation requirement, as follows: “With respect to funds for HMIS: if the state is the HMIS lead, this requirement may be met by a procurement contract or written designation of a department within the state government to directly carry out HMIS activities.”

b. Exceptions. HUD is considering adding an exception to § 576.203, to allow HUD to grant a recipient an extension of up to 3 months for the obligation requirements and up to 12 months for the expenditure deadline, for good cause.

c. Subrecipient agreements. HUD is considering establishing, in the final rule, minimum elements that must be included in any subrecipient agreement. Although 2 CFR part 200 includes certain elements that must be provided to subrecipients at the time of the award (at 2 CFR part 200.331), the ESG rule contains more specific language about the ESG requirements that apply to subrecipients and language that must be included in the subrecipient agreement (such as any written standards the recipient requires the subrecipient to develop), so it might be helpful to include them all in one place. HUD seeks comment on whether it would be most helpful to include the minimum required elements for a subrecipient agreement in the regulation (e.g. to improve ease of recipients for monitoring their subrecipients and/or reduce burden for recipients), or whether to instead issue guidance, such as a sample subrecipient agreement.

10. Pre-Award Costs (§ 576.204): HUD is reviewing whether to explicitly allow pre-award costs in the final rule, and to describe requirements that must be met before charging them to the grant. HUD is considering including the following language:

11. Reallocations (§§ 576.301, 576.302, and 576.303):

a. Timeframe for substantial amendments (§ 576.301(c), § 576.302(c), and § 576.303(d)). HUD is considering lengthening the time allowed for a recipient to submit a substantial amendment to its Consolidated Plan when the recipient has received reallocated funds, from 45 days after the date of notification to 60 or 90 days after the date of notification, or even allowing state recipients to reallocate the funds within its normal Consolidated Plan allocation process. This would allow recipients to have more time and flexibility to align the substantial amendment and funds with the following year's Consolidated Plan/Action Plan. HUD seeks comment on this proposal.

b. Reallocation of State ESG funds (§ 576.302). HUD is also considering changes to the process when a State declines its ESG allocation, which is described at § 576.302. HUD seeks comment on the following two options:

(1) Remove the paragraph at § 576.302(a)(2), which requires HUD to make ESG funds available to all of the non-urban counties in a state. HUD is considering this change because it believes it might be administratively infeasible for a number of reasons, including that each of the non-urban counties would be required to develop and submit an abbreviated Consolidated Plan that meets HUD's requirements. It is likely that the metropolitan cities and urban counties that already receive an allocation of CDBG funds are those best suited for, and capable of, administering the ESG program; or

(2) Change the requirement so that the funds declined by a state are distributed by formula to other state recipients.

c. Reallocation of local government ESG funds (§ 576.301(d)). HUD is considering the following change related to reallocation of grant funds returned by a metropolitan city or an urban county, under § 576.301(d) (changed or added sections italicized):

12. Area-Wide Systems Coordination Requirements—Consultation and Coordination (§ 91.100(a)(2) and (d), § 91.110(b) and (e), § 576.400(a), (b), and (c)):

a. ESG recipient Consultation with Continuums of Care. HUD recognizes that for some ESG recipients, such as states that must coordinate with many CoCs and metropolitan cities/urban counties that must coordinate with regional CoCs, the requirements in this section of the regulation can present a challenge. However, HUD believes that this consultation process is critical for the ESG recipient to be able to plan for the best use of resources in the relevant area(s). HUD has received many questions about how ESG recipients should consult with the CoC(s) to meet the current requirements effectively. Based on these questions, HUD seeks general comment on the following questions to inform the inclusion of any additional consultation requirements in the final rule:

(1) The practices and processes that recipients and CoCs have used to meet the consultation requirements and feedback, positive and negative, based on local experiences with the consultation process. HUD seeks constructive suggestions on how to improve local consultation, particularly through changes to the final rule.

(2) HUD received a comment that it may be particularly difficult for ESG recipients to consult and coordinate with Balance of State CoCs. HUD is interested in hearing from other state recipients on whether they are experiencing a similar challenge. HUD also seeks comment on whether there are any requirements that could be added or removed from the interim rule to alleviate this issue.

(3) With respect to reallocation of funds under § 576.301, HUD is considering adding a stronger role for CoCs, in particular to help decide where the funds should be allocated. HUD is considering requiring that a state ESG recipient consult with the CoC covering the jurisdiction that returned the funds, and, if funds remain after the state distributed funds in accordance with § 576.301(d)(1), then the state must consult with CoCs covering other areas of the state in which it proposes to distribute the funds in accordance with § 576.301(d)(2). HUD seeks comment on this potential requirement.

(4) Should HUD specify different standards for consultation for different types or sizes of jurisdictions? For example, when the metropolitan city's or urban county's jurisdiction covers the exact geographic area as the CoC, HUD could require monthly consultation; for a county-based CoC with more than one ESG recipient, HUD could require consultation four times per year with each ESG recipient; for a state ESG recipient that includes multiple CoCs, HUD could require a lower level of consultation. HUD seeks feedback on this concept.

(5) Should HUD require an MOU between the CoC and the Consolidated Plan jurisdiction detailing how they will collaborate?

b. Defining “consultation,” “coordinating,” and “integrating.” HUD received several comments requesting a definition of “consultation” with CoCs (§ 576.400(a)), examples of “coordinating and integrating” ESG-funded activities with other programs targeted to homeless people in the area covered by the CoC (§ 576.400(b)) and with mainstream resources for which homeless and persons at risk of homelessness might be eligible (§ 576.400(c)). Therefore, HUD seeks comment on the following questions:

(1) Should definitions of “consultation,” “coordinating,” and “integrating” be included in HUD's regulations in 24 CFR part 91 and/or 24 CFR part 576? Considering the manner in which your jurisdiction currently consults, coordinates, and integrates, what should the definition(s) include? HUD is particularly interested in how an ESG recipient whose jurisdiction is incorporated into multiple CoCs' geographic areas, especially states, meets these requirements and what sort of definition would work best for these recipients.

(2) Instead of establishing one definition, HUD could require jurisdictions to define these terms themselves in their Consolidated Plan, and meet their own requirements. Would jurisdictions prefer this option? HUD specifically requests examples of definitions that jurisdictions would implement.

(3) Should HUD set a different standard for states? If so, how should it be different?

c. Improving collaboration between ESG recipients and CoCs. HUD is considering a change to the CoC Program interim rule and the ESG interim rule that would require all CoC boards to include a member from at least one Emergency Solutions Grants program (ESG) recipient's staff located within the CoC's geographic area. HUD would consider this change in order to promote meaningful collaboration between CoCs and ESG recipients. For states and other recipients whose jurisdictions cover more than one CoC, this might mean that a representative of the recipient would be required to be on multiple CoC boards. When a CoC's geographic area contains multiple ESG recipients' jurisdictions, it might mean that not all ESG recipients will be required to be on the CoC's board. However, when asked to participate on the CoC's board, ESG recipients would be required to participate. Ultimately, it is the responsibility of the CoC to develop a process for selecting the board. HUD is requesting comment on this proposed requirement for ESG recipients, including potential challenges. Ensuring that ESG recipients are coordinating closely with the CoC is important to HUD; therefore, in communities where ESG recipients and/or CoCs do not believe that this requirement is feasible, HUD asks commenters to provide suggestions for how ESG recipients can be involved in the CoC at one of the core decision-making levels.

d. Consulting with tribal groups. HUD received several comments requesting that HUD include tribal groups as a part of the required consultation process. Should HUD require consultation with tribal groups to the extent that the recipient intends to fund organizations serving people or activities on tribal lands?

e. Requiring coordination with CoC and Rural Housing Stability Programs (§ 576.400(b)). HUD proposes to add the CoC and Rural Housing Stability Programs to the list of “other targeted homeless services” with which ESG recipients must coordinate, at § 576.400(b).

f. Other feedback. In general, with respect to the consultation and coordination requirements:

(1) HUD seeks suggestions about particular provisions of the regulation that could be added or removed to assist with implementation and to make the process more useful for jurisdictions and CoCs.

(2) HUD also seeks feedback about current experiences with the consultation requirements, including what processes and procedures recipients are currently using to meet the requirements, how well these are working in the community, and whether there are specific impediments with the current consultation requirements.

13. Area-Wide Systems Coordination Requirements—Coordinated Assessment (§ 576.400(d)): HUD received numerous comments on the coordinated assessment requirement in the first public comment period, particularly related to what costs are eligible and how to charge them to the ESG grant. HUD is considering addressing these issues in guidance or including clarifications in the final rule. In addition, HUD intends to change the term “coordinated assessment” to “coordinated entry” in both the ESG and CoC final rules, and therefore uses the term “coordinated entry” in this Notice. However, HUD has also received questions about the following issues, and seeks comment as to whether any changes should be made in the final rule with respect to these questions:

a. Coordinated entry for walk-ins. How would coordinated entry work under circumstances where the recipient or subrecipient conducts intake based on who walks in—for example, legal services provided on site at a courthouse? Are there special considerations for such instances that HUD should consider in the final rule?

b. Coordinated entry and Street Outreach. Section 576.400(d): HUD is considering changing § 576.400(d) to clarify that that use of the coordinated entry is not required when providing services under the Street Outreach component. However, the use of coordinated entry will continue to be required by recipients and subrecipients of all other forms of ESG assistance.

14. Area-Wide Systems Coordination Requirements—Written Standards for ESG Recipients (§§ 91.220(l)(4) and 91.320(k)(3), and 576.400(e)): In its Action Plan, each ESG recipient must establish and consistently apply, or, if it is a state, elect to require that its subrecipients establish and consistently apply, written standards for providing ESG assistance, in accordance with § 91.320(k)(3) for states and § 91.220(l)(4) for metropolitan cities and urban counties and territories. HUD seeks comment on the following questions related to the required written standards:

a. When subrecipients receive ESG funds from multiple recipients. An ESG recipient or subrecipient could be subject to differing, or even conflicting, written standards. For example, this could occur when a nonprofit subrecipient receives ESG funds from both a state and local government and is subject to two sets of written standards. HUD seeks comments on recipient and subrecipient experiences with multiple funding sources and complying with conflicting written standards. Specifically:

(1) What have recipients and subrecipients done to resolve any conflicts or prevent confusion?

(2) Has this been a significant issue? Should HUD address this issue in the final rule, and if so, how? One option could be for HUD to require the local (metropolitan city or urban county) recipient's standards to supersede the state's standards when there is a conflict. What issues might arise if HUD were to establish this requirement?

b. Asset policy. Under the former Homelessness Prevention and Rapid Re-Housing Program (HPRP), HUD recommended that grantees and subgrantees develop policies to evaluate a household's assets, as a part of considering the full array of “resources and support networks” available to a program participant. HUD also recommended that this policy be consistent throughout the CoC. Under the ESG written standards, HUD is considering requiring recipients to develop such a policy regarding the treatment of assets, in order to more consistently and completely assess a household's resources during the initial and reevaluation for Homelessness Prevention and reevaluations for Rapid Re-housing assistance. HUD seeks comment on local experiences with this under HPRP and whether adding this as a requirement in the written standards would help provide consistency in assessing resources and assets during the initial evaluation and reevaluations for ESG assistance.

c. Written standards for subrecipients of local governments. In order to provide a greater amount of local flexibility in limiting and prioritizing eligibility for ESG assistance, HUD is considering allowing ESG recipients that are local governments and territories to pass the requirement to establish written standards down to their subrecipients, similar to the regulation for states at §§ 91.320(k)(3) and 576.400(e)(2).

d. Other feedback. HUD will carefully consider the written standards to be included in the final rule, and seeks feedback about the current written standards, based on recipient and subrecipient experiences. Specifically:

(1) How have the existing written standards helped the recipient or subrecipient design and run its ESG program?

(2) Are there other written standards that HUD should be require? Are there any that are not useful?

(3) Are there any where a slight clarification in the language would help recipients understand and implement the requirement more effectively?

e. Written standards for projects. If HUD were to adopt the definition of “project” proposed earlier in this Notice, HUD would consider allowing written standards to be established at the project level. The purpose of doing this would be to improve the ease of administering the program, for recipients and subrecipients. For example, if an emergency shelter project consists of more than one emergency shelter buildings, allowing a recipient—or even a subrecipient—to establish written standards at the project level may be administratively easier. HUD seeks comment on whether this would be helpful, or whether there might be any problems with adopting written standards at the project level.

f. Limiting eligibility and targeting ESG assistance. HUD proposes to specify, in the final rule (either in the written standards at § 576.400(e) or at § 576.407), when and how recipients and subrecipients may establish stricter criteria for eligibility and target assistance to particular groups and subpopulations of homeless persons. Under the interim rule, the recipient, or subrecipient, under limited circumstances, may only allow targeting or limiting of eligibility via the written standards; if not included with sufficient specificity, subrecipients may not target program participants or impose stricter eligibility criteria. For example, a project designed for homeless veterans and their families must serve homeless persons who are not veterans unless the applicable written standards explicitly authorize that project or project type to limit eligibility to veterans and their families. HUD seeks to make this process simpler, and establish clearer guidelines. HUD is considering allowing subrecipients to target and set stricter eligibility criteria with the approval of the recipient—without requiring that the policy be included in the written standards—or allowing the recipient to establish a policy for targeting or setting stricter eligibility criteria for all subrecipients in the written standards.

Specifically, HUD seeks comment on the following questions regarding the requirements at § 576.400(e) related to establishing stricter eligibility criteria or prioritizing ESG assistance:

(1) At what level should decisions about targeting and eligibility for homelessness prevention and rapid re-housing be made—the recipient level, the CoC level, the subrecipient level, or some combination? Have the existing requirements to include such decisions in the applicable written standards created an impediment to the recipient's or subrecipient's flexibility? If so, how?

(2) Likewise, at what level should decisions about emergency shelter and street outreach be made—the local government recipient level, the CoC level, the subrecipient level, or some combination?

(3) Is it burdensome for recipients to include specific policies for setting stricter eligibility criteria or targeting assistance in their written standards in the Action Plan?

(4) What impact would these proposed policies have on the program participants?

(5) HUD welcomes other feedback and thoughts about the targeting/eligibility proposal described above.

15. Evaluation of Program Participant Eligibility and Needs (§ 576.401):

a. Initial evaluations (§ 576.401(a)). HUD is reviewing whether to distinguish between an initial evaluation under the Street Outreach and Emergency Shelter components and an initial evaluation under the Homelessness Prevention and Rapid Re-housing components. Specifically, HUD is considering providing that, while an initial evaluation will still be required under Street Outreach and Emergency Shelter, the recipient/subrecipient will not be required to determine “the amount and type of assistance the individual or family needs to regain stability in permanent housing” as a part of the evaluation for assistance. HUD seeks feedback as to whether this would be helpful, or if any important information could be lost if HUD does not require this.

b. Housing stability case management requirements (§ 576.401(e)(i)). The interim rule requirements for monthly meetings with a case manager and developing a housing stability case plan are intended to help ensure that the ESG-funded emergency, short-, or medium-term assistance will be effective in assisting program participants regain long-term housing stability and avoid relapses into homelessness. It also has the effect of emphasizing that ESG is intended to serve those who are most in need of the assistance. Finally, it helps recipients ensure that they are spending scarce ESG funds on program participants that are still in the units. However, HUD received many comments about this requirement, and has also determined that this case management requirement prevents recipients and subrecipients from using HOME TBRA funds as match for ESG because services must not be mandatory when providing HOME TBRA assistance. HUD seeks additional comment on the following questions:

(1) HUD requests that recipients/subrecipients inform HUD about their experiences with these requirements; for example, how does your organization fulfill these requirements? If HUD were to clarify in the final rule that a meeting by phone or videoconference would suffice (which is allowed now but not explicit in the rule), does that make a difference? If HUD were to allow the monthly meeting to simply consist of a brief check-in or follow-up with the program participant (but still be charged as a case management activity), would that help?

(2) If HUD should change the requirement, what would be a more preferable case management requirement? For example, HUD could change the language to require program participants to meet with a case manager “at a frequency appropriate to the client's needs.” What might be the positive and negative effects of making this change?

(3) Are these requirements effective in assisting the program participants to achieve stability? Do they encourage recipients/subrecipients to serve those who are most in need? If not, then knowing that the intended purpose of case management is to ensure that the ESG-funded emergency, short- or medium-term assistance will be effective in helping program participants regain long-term housing stability and avoid relapses into homelessness, is there a requirement that could be added—instead of case management—that would meet the intended purpose, but not require recipients or subrecipients to conduct monthly case management?

16. Shelter and Housing Standards (§ 576.403): HUD received significant feedback and comment about the “habitability standards,” and seeks comments on the following proposals:

a. Essential services only (emergency shelters). Under the interim rule, if a shelter only receives ESG funds for essential services costs, it is not currently required to meet the minimum standards for emergency shelters at § 576.403(a). HUD is reviewing whether to require an emergency shelter to meet these minimum standards if the emergency shelter receives ESG funding for essential services. This would include emergency shelters, including day shelters that receive non-ESG funds for operating expenses but use ESG for the provision of essential services to persons in the shelter. It would not include a subrecipient that receives ESG for essential services only but is not an emergency shelter (e.g., a legal services provider).

b. Housing Relocation and Stabilization Services only (Homelessness Prevention assistance to remain in unit). HUD is considering removing the requirement that a unit must meet the minimum habitability standards for permanent housing when homelessness prevention assistance, under § 576.105(b) (services only), is used to help a program participant remain in the unit. Alternatively, HUD could allow ESG funds to be used to help a program participant remain in their unit for a short time (up to 30 days) before an inspection is performed. In this case, if the unit does not meet the habitability standards at the time of inspection, recipients/subrecipients would be prohibited from using any additional ESG assistance to help the program participant remain in their unit; however, ESG funds could be used to help the program participant move to a new unit. HUD seeks comment on these two options.

c. Housing Quality Standards. Some recipients might prefer to use HUD's Housing Quality Standards (HQS) instead of the ESG habitability standards; however, HQS is less stringent in the areas of fire safety and interior air quality, which is why it cannot be used to meet the habitability standards under the interim rule. However, HUD recognizes that HQS is the standard used for other HUD programs, and allowing it to be used may reduce the burden of meeting this requirement for some recipients and subrecipients. Therefore, for the final rule, HUD is considering explicitly allowing a certification that a particular permanent housing unit meets HQS to qualify as meeting the minimum standards for permanent housing under ESG.

17. Conflicts of Interest (§ 576.404):

a. Organizational conflicts of interest (§ 576.404(a)). Based on experiences with HPRP, HUD included a provision in the ESG interim rule that was intended to ensure that recipients or subrecipients would not “feather their own nests”—that is, steer program participants into housing that they own or only serve those that are already in housing that they own. This provision, at § 576.404(a), states: “No subrecipient may, with respect to individuals or families occupying housing owned by the subrecipient, or a parent or subsidiary of the subrecipient, carry out the initial evaluation required under § 576.401 or administer homelessness prevention assistance under § 576.103.” With respect to this conflict of interest provision:

(1) HUD is considering including recipients in this conflict of interest requirement. Based on recipient/subrecipient experiences, is this an issue that warrants concern?

(2) For rapid re-housing only, HUD is considering removing this provision altogether. That is, HUD could allow recipients/subrecipients to rapidly re-house “Category 1” homeless program participants into housing that they or their parent/subsidiary organization owns, because in some cases, these providers might be some of the most well-suited in the community to provide the assistance that persons being rapidly re-housed need. Are there any potential issues with this? Should HUD leave the requirement in place as-is, to prevent potential steering or conflicts of interest?

(3) For homelessness prevention assistance and rapid re-housing assistance (if HUD retains the conflict of interest requirement for rapid re-housing), HUD is considering adding a provision to prohibit recipients/subrecipients from providing housing search and placement services to assist program participants to move into housing that the recipient/subrecipient owns. HUD seeks comment on this idea.

b. Individual conflicts of interest (§ 576.404(b)). It is generally HUD's policy under its homeless programs to prohibit personal conflicts of interest. For example, if a city staff member makes decisions about grants and also sits on the board of directors of a potential subrecipient, this should be a conflict of interest that requires an exception from HUD. This was omitted from the ESG interim rule; HUD is considering including this provision in the final rule. HUD seeks comment on how significant an issue this type of conflict of interest is, based on the experience of recipients, subrecipients, and other stakeholders in the community, and whether HUD should prohibit it without requiring an exception.

18. Other Federal Requirements—Limiting Eligibility and Targeting (§ 576.407): The emergency shelter or housing may be limited to a specific subpopulation so long as the recipient/subrecipient does not discriminate against any protected class under federal nondiscrimination laws in 24 CFR 5.105 (e.g., the housing may be limited to homeless veterans and their families, victims of domestic violence and their families, or chronically homeless persons and families), and does comply with the nondiscrimination and equal access requirements under 24 CFR 5.109, and § 576.406. HUD seeks comment on the following policies proposed for inclusion in the final rule, for permanent housing and for emergency shelters:

a. Rapid Re-housing and Homelessness Prevention. A project 4 may limit eligibility to or provide a preference to subpopulations of individuals and families who are homeless or at risk of homelessness and need the specialized services offered by the project (e.g., substance abuse addiction treatment, domestic violence services, or a high intensity package designed to meet the needs of hard-to-reach homeless persons). While the project may offer services for a particular type of disability, no otherwise eligible individuals with disabilities or families including an individual with a disability, who may benefit from the services provided, may be excluded on the grounds that they do not have a particular disability.

b. Emergency shelters. Recipients and subrecipients may exclusively serve a particular homeless subpopulation in emergency shelter if the shelter addresses a need identified by the recipient and meets one of the following conditions:

(1) The emergency shelter may be limited to one sex where it consists of a single structure with shared bedrooms or bathing facilities such that the considerations of personal privacy and the physical limitations of the configuration of the emergency shelter make it appropriate for the shelter to be limited to one sex;

(2) The shelter may be limited to families with children, but if it serves families with children, it must serve all families with children (it may not separate based on the age of a child under 18, regardless of gender);

(3) If the shelter serves at least one family with a child under the age of 18, the shelter may exclude registered sex offenders and persons with a criminal record that includes a violent crime from the project so long as the child is served in the shelter; and

(4) An emergency shelter may limit admission to or provide a preference to subpopulations of homeless individuals and families who need the specialized services provided (e.g., substance abuse addiction treatment programs; victim service providers that serve both men and women; veterans and their families). While the shelter may offer services for a particular type of disability, no otherwise eligible individuals with disabilities or families including an individual with a disability, who may benefit from the services provided, may be excluded on the grounds that they do not have a particular disability.

19. Recordkeeping and Reporting Requirements (§ 576.500):

a. At risk of homelessness (§ 576.500(c)(1)(iv)). Under the “at risk of homelessness” recordkeeping requirements at § 576.500(c)(1)(iv), HUD is considering including, in the final rule, specific documentation standards for each of the seven conditions that would be required for a program participant to qualify for assistance under this definition. Note that HUD will consider comments received here with the other comments requested on this characteristic earlier in this document. The changes are as follows:

(A) Has moved because of economic reasons two or more times during the 60 days immediately preceding the application for homelessness prevention assistance. Acceptable documentation includes, but is not limited to: Certification by the individual or head of household and any available supporting documentation that the individual or family moved two or more times during the 60-day period immediately preceding the date of application for homeless assistance, and that the reasons for the moves were economic. Such supporting documentation could include:

(1) For documentation of “two or more moves:” Recorded statements or records obtained from each owner, renter, or provider of housing in which the individual or family resided; proof of address and dates of residency at two or more locations, such as a utility bill or lease;

(2) For documentation of “economic reasons:” Other third-party verification to document that the reasons for the moves were economic, including notifications of job termination or reduction in hours, documentation of different jobs in different locations (e.g., migratory workers), or job applications; bills and statements, such as utility bills or medical bills, demonstrating a sudden increase in expenses; bank statements demonstrating that the household could not afford rent; or, where such statements or records are unobtainable, a written record of the intake worker's due diligence in attempting to obtain these statements or records.

(B) Is living in the home of another because of economic hardship. Acceptable documentation includes, but is not limited to: Certification by the individual or head of household and any available supporting documentation that the individual or family is living in the home of another because of economic hardship. Such supporting documentation could include: Written/recorded statements or records obtained from the owner or renter in which the individual or family resides and proof of homeownership or the lease by that owner or renter; other third-party verification to document that the reasons the individual or family is living there is because of economic hardship, including notifications of job termination or reduction in hours, or job applications, bills and statements, such as utility bills or medical bills, demonstrating a sudden increase in expenses, bank statements demonstrating that the household could not afford rent; or, where these statements or records are unobtainable, a written record of the intake worker's due diligence in attempting to obtain these statements or records.

(C) Has been notified in writing that their right to occupy their current housing or living situation will be terminated within 21 days after the date of application for assistance. Acceptable documentation is:

(1) For living arrangements where there is a written or oral lease agreement under states law: A court order resulting from an eviction action that requires the individual or family to leave their residence within 21 days after the date of their application for homeless assistance; or the equivalent notice under applicable state law; or

(2) For informal living arrangements, staying with a family or friend (i.e., “love evictions”): An oral statement by the individual or head of household that the owner or renter of the housing in which they currently reside will not allow them to stay for more than 21 days after the date of application for homeless assistance. The intake worker must record the statement and certify that it was found credible. To be found credible, the oral statement must either:

(i) Be verified by the owner or renter of the housing in which the individual or family resides at the time of application for homeless assistance and documented by a written certification by the owner or renter or by the intake worker's recording of the owner or renter's oral statement; or

(ii) if the intake worker is unable to contact the owner or renter, be documented by a written certification by the intake worker of their diligence in attempting to obtain the owner or renter's verification and the written certification by the individual or head of household seeking assistance that their statement was true and complete.

(D) Lives in a hotel or motel and the cost of the hotel or motel stay is not paid by charitable organizations or by Federal, State, or local government programs for low-income individuals. Acceptable documentation includes, but is not limited to: Certification by the individual or head of household and any available supporting documentation that the individual or family is living in a hotel or motel not paid by a charitable organization or government program, such as receipts from the motel/hotel or a written statement from the motel/hotel management; or, where these statements or records are unobtainable, a written record of the intake worker's due diligence in attempting to obtain these statements or records.

(E) Lives in a single-room occupancy or efficiency apartment unit in which there reside more than two persons or lives in a larger housing unit in which there reside more than 1.5 persons per room, as defined by the U.S. Census Bureau. Acceptable documentation includes, but is not limited to: Certification by the individual or head of household and any available supporting documentation that the individual or family is living in a severely overcrowded situation, such a written statement from the intake worker who visited the unit and witnessed the severely overcrowded unit or evidence thereof.

(F) Is exiting a publicly funded institution, or system of care. Acceptable documentation is: Certification by the individual or head of household and any available supporting documentation that the individual or family is exiting a publicly-funded institution or system of care. Such documentation could include: Discharge paperwork or a written or oral referral from a social worker, case manager, or other appropriate official of the institution, stating the beginning and end dates of the time residing in the institution. All oral statements must be recorded by the intake worker; or, where these statements or records are unobtainable, a written record of the intake worker's due diligence in attempting to obtain these statements or records.

(G) Otherwise lives in housing that has characteristics associated with instability and an increased risk of homelessness, as identified in the recipient's approved Consolidated Plan. Acceptable documentation includes, but is not limited to: A statement, in the approved Consolidated Plan/Annual Action Plan, identifying these characteristics, and available supporting documentation that the individual or family is living in housing that has characteristics associated with instability and an increased risk of homelessness, which must follow HUD's order of priority for documentation: third-party documentation first, intake worker observations second, and certification from the person seeking assistance third.

b. Determinations of ineligibility—Street Outreach (§ 576.500(d)). HUD is proposing that for the Street Outreach component, HUD will not require recipients/subrecipients to keep documentation of the reason(s) for determinations of ineligibility, in order to reduce a recordkeeping burden. HUD seeks comment on any issues that may arise if this requirement is eliminated.

c. Maintenance of effort recordkeeping requirement (§ 576.500(l)). The interim rule states: “The recipient and its subrecipients that are units of general purpose local government must keep records to demonstrate compliance with the maintenance of effort requirement, including records of the unit of the general purpose local government's annual budgets and sources of funding for street outreach and emergency shelter services.” This might be an overly burdensome recordkeeping requirement for recipients and subrecipients that are in compliance with this requirement—that is, how does a local government demonstrate that it is not using ESG funds to replace other local government funds? Therefore, HUD is considering removing this from the recordkeeping section. HUD would continue to monitor to ensure that recipients are meeting the requirements of § 576.101(c); this change would simply eliminate a difficult and potentially ineffective recordkeeping requirement. HUD seeks comment on this idea.

d. Records of services and assistance provided (§ 576.500(l)). Currently, only recipients are required to “keep records of the types of essential services, rental assistance, and housing stabilization and relocation services provided under the recipient's program, and the amounts spent on these services and assistance.” HUD is considering adding “and subrecipients” to this recordkeeping requirement, and seeks comment on whether this change would be burdensome or useful.

e. Period of record retention (§ 576.500(y)(2) and (3)). Under the interim rule, records for major renovation or conversion must be retained until 10 years after the date ESG funds are first obligated, but the minimum period of use requirements, at § 576.102(c)(1), begin at the date of first occupancy after the completed renovation. HUD is considering whether to change the record retention requirements so that they are the same as the “minimum period of use” requirements in § 576.102(c), as follows: “Where ESG funds are used for the renovation or conversion of an emergency shelter, the records must be retained for a period that is not less than the minimum period of use.” HUD seeks comment on this proposal.

20. Recipient Sanctions (§ 576.501(c)): Under the interim rule, at § 576.501(c), when a recipient reallocates or reprograms ESG funds as a part of subrecipient sanctions, these funds must be expended by the same deadline as all other funds. HUD is considering removing this expenditure requirement to provide recipients, especially states, with additional flexibility in situations where a subrecipient compliance issue or other impediment causes delays in the recipient's ability to expend all of the funds by the 24-month deadline. HUD seeks comment on this proposal.

The BSEE published a notice of proposed rulemaking on Blowout Preventer Systems and Well Control on April 17, 2015 (80 FR 21504). This proposed rule is intended to consolidate equipment and operational requirements that are common to other subparts pertaining to offshore oil and gas drilling, completions, workovers, and decommissioning. This proposed rule would focus, at this time, on blowout preventer (BOP) requirements, including incorporation of industry standards and revision of existing regulations. The proposed rule would also include reforms in the areas of well design, well control, casing, cementing, real-time well monitoring, and subsea containment. The proposed rule would address and implement multiple recommendations resulting from various investigations of the Deepwater Horizon incident. This proposed rule would also incorporate guidance from several Notices to Lessees and Operators (NTLs) and revise provisions related to drilling, workover, completion, and decommissioning operations to enhance safety and environmental protection.

After publication of the proposed rule, BSEE received requests from various stakeholders asking BSEE to extend the comment period on the proposed rule. The majority of those requests sought extensions of 120 days, which would triple the length of the original 60-day comment period. One comment requested a 30-day extension. BSEE also received a written comment from another stakeholder urging BSEE not to extend the comment period because the proposed rule has been in development since the Deepwater Horizon incident, is based on recommendations resulting from that incident, and represents a critical regulatory improvement that should be finalized without delay.

The BSEE has considered those requests and has determined that extending the original 60-day comment period by an additional 30 days will provide sufficient additional time for review of and comment on the proposal without unduly delaying a final rulemaking decision. Accordingly, written comments must be submitted by the extended due date of July 16, 2015. The BSEE may not fully consider comments received after this date.

Public Comment Procedures

If you wish to comment, you may submit your comments by any one of several methods: Mail: You may mail comments to U.S. Department of the Interior, Director (630), Bureau of Land Management, Mail Stop 2134LM, 1849 C Street NW., Washington, DC 20240, Attention: 1004-AE41. Personal or messenger delivery: Bureau of Land Management, 20 M Street SE., Room 2134 LM, Attention: Regulatory Affairs, Washington, DC 20003. Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions at this Web site.

Please make your comments as specific as possible by confining them to issues directly related to the content of the ANPR, and explain the basis for your comments. The comments and recommendations that will be most useful and likely to influence agency decisions are:

1. Those supported by quantitative information or studies; and

2. Those that include citations to, and analyses of, the applicable laws and regulations.

The BLM is not obligated to consider or include in the Administrative Record for the rule comments received after the close of the comment period (see DATES) or comments delivered to an address other than those listed above (see ADDRESSES).

Comments, including names and street addresses of respondents, will be available for public review at the address listed under ADDRESSES during regular hours (7:45 a.m. to 4:15 p.m.), Monday through Friday, except holidays.

Before including your address, telephone number, email address, or other personal identifying information in your comment, be advised that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask in your comment to withhold from public review your personal identifying information, we cannot guarantee that we will be able to do so.

The ANPR was published on April 21, 2015 (80 FR 22148), with a 45-day comment period closing on June 5, 2015. The ANPR poses questions and seeks information related to potential updates and changes to the BLM's existing regulations governing Federal onshore oil and gas leases related to royalty rates, annual rental payments, minimum acceptable bids, bonding requirements, and civil penalty assessments. Following publication of the ANPR, the BLM received requests for extension of the comment period. In response to those requests, the BLM has decided to extend the comment period on the rule for 14 days, until June 19, 2015.

I. Background

DoD, GSA, and NASA are proposing to revise the FAR to implement regulatory changes made by the Small Business Administration (SBA) in its final rule which was published in the Federal Register at 78 FR 61113 on October 2, 2013, concerning contract consolidation and bundling. SBA's final rule implements the statutory requirements set forth at sections 1312 and 1313 of the Small Business Jobs Act of 2010 (Jobs Act) (Pub. L. 111-240). This proposed rule will encompass the acquisition of commercial items, including commercially available off-the-shelf (COTS) items.

Section 1312 of the Jobs Act amends the Small Business Act at 15 U.S.C. 644(q) to require Federal agencies to include in each solicitation for any multiple-award contract above the substantial bundling threshold of the Federal agency a provision soliciting bids from any responsible source, including responsible small business teaming arrangements or joint ventures of small business concerns. Section 1312 requires the FAR be amended to establish a Governmentwide policy regarding contract bundling, including regarding the solicitation of teaming and joint ventures, and to require agencies to publish said policy on their agency Web site. Section 1312 also requires the head of the Federal agency to publish on the Web site of the Federal agency a list and rationale for any bundled contract for which the Federal agency solicited bids or that was awarded by the agency.

Section 1313 amends the Small Business Act at 15 U.S.C. 657q to define the term “consolidation of contract requirements” to mean the use of a solicitation to obtain offers for a single contract or a multiple-award contract to satisfy two or more requirements of the Federal agency for goods or services that have been provided to or performed for the Federal agency under two or more separate contracts, each of which was lower in cost than the total cost of the contract for which the offers are solicited. The National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013 (2013 NDAA), Public Law 112-239, section 1671 further amended the definition of consolidation to include construction requirements.

Further, section 1313 prohibits the agency from carrying out an acquisition strategy that includes consolidation of contract requirements of the Federal agency with an estimated total value exceeding $2 million, unless the Senior Procurement Executive or Chief Acquisition Officer for the Federal agency, before carrying out the acquisition strategy—

• Conducts market research;

• Identifies any alternative contracting approach that would involve a lesser degree of consolidation of contract requirements;

• Makes a written determination that the consolidation of contract requirements is necessary and justified;

• Identifies any negative impact by the acquisition strategy on contracting with small business concerns; and

• Ensures that steps will be taken to include small business concerns in the acquisition strategy.

Amendments to the FAR are proposed by this rule. The proposed changes are summarized in the following paragraphs.

A. FAR Subpart 2.1, Definitions. This subpart is amended to revise the definition of “bundling” for clarity, incorporating the definition of “bundled contract”, and to add a new definition for “consolidation, consolidation of contract requirements, consolidated contract or consolidated requirement”. In keeping with SBA's final rule and section 1671 of the NDAA for FY 2013, Public Law 112-239, the latter definition also encompasses the consolidation of construction requirements. This subpart is also amended to add a definition for “small business teaming arrangement”.

B. FAR Subpart 5.2, Synopses of Proposed Contract Actions. A conforming cross-reference has been added at FAR 5.205(g).

C. FAR Subpart 7.1, Acquisition Plans.

• FAR 7.103—This section is amended to clarify that agencies are to ensure that unnecessary and unjustified consolidation is avoided.

• FAR 7.104—This section is amended to remove the substantial bundling thresholds at FAR 7.104. The substantial bundling thresholds are relocated to the proposed new section FAR 7.107-4, Substantial Bundling, for clarity and consistency with the new proposed structure of FAR 7.107. An additional revision was made to clarify that small business is to be a discipline that is represented in the acquisition planning team.

• FAR 7.105—This section is amended by adding a reference to the statutory authority for limiting the use of acquisition strategies involving the consolidation of contract requirements.

• FAR 7.107—This section is amended by revising the title of the section and adding the statutory authority for the consolidation of contract requirements. This section also proposes to clarify that if a requirement is considered both consolidated and bundled, the agency must follow the guidance regarding bundling. In addition, this section is amended by restructuring FAR 7.107 to add proposed subsections FAR 7.707-1, General, FAR 7.107-2, Consolidation of contract requirements, FAR 7.107-3 Bundling, FAR 7.107-4 Substantial Bundling, FAR 7.107-5 Notifications, and 7.107-6 Solicitation provision. The proposed revisions are as follows:

○ FAR 7.107-1—General. This proposed new section provides information relevant to both consolidation and bundling, such as evaluation of benefits, substantial benefits, and applicability.

○ FAR 7.107-2—Consolidation of contract requirements. This proposed new section is added to clarify that an agency may not conduct an acquisition exceeding $2 million that is a consolidation of contract requirements unless the agency's Senior Procurement Executive or Chief Acquisition Officer: (1) Justifies the consolidation by showing that the benefits of the consolidated acquisition substantially exceed the benefits of each possible alternative approach that would involve a lesser degree of consolidation and (2) identify any negative impact by the acquisition strategy on contracting with small business concerns.

○ FAR 7.107-3—Bundling. This proposed new section clarifies language regarding the requirements a contracting officer must adhere to prior to conducting an acquisition strategy that involves the bundling of contract requirements.

○ FAR 7.107-4—Substantial Bundling. This proposed new section includes the substantial bundling thresholds relocated from FAR 7.104(d) and existing documentation requirements.

○ FAR 7.107-5—Notifications. This proposed new section is added to require Federal agencies to: (1) Notify current small business contractors of an agency's intent to bundle a contract requirement that was not previously bundled at least 30 days prior to the issuance of the solicitation; (2) provide public notification of an agency's intent to bundle by publishing on the agency's Web site a list and rationale for any bundled requirement for which the agency solicited offers or issued an award; (3) require the agency to notify SBA of a follow-on bundled or consolidated contract requirement; and (4) publish the Governmentwide policy regarding contract bundling, including regarding the solicitation of teaming and joint ventures, on their agency Web site.

○ FAR 7.107-6—Solicitation Provision. This proposed new section is added to prescribe a new provision 52.207-XX “Solicitation of Offers from Small Business Concerns and Small Business Teaming Arrangements or Joint Ventures (Multiple-Award Contracts)”, in solicitations for multiple-award contracts that are estimated to be above the agency's substantial bundling threshold.

D. FAR Subpart 8.4, Federal Supply Schedules. Proposed revisions to FAR 8.404(c)(2) are necessary to apply consolidation requirements to orders.

E. FAR Part 10, Market Research. Proposed revisions to FAR 10.001 are necessary to add references to the statutory authority for the consolidation of contract requirements.

F. FAR Subpart 12.3, Solicitation Provisions and Contract Clauses for the Acquisition of Commercial Items. Proposed revisions to FAR 12.301(d)(4) are necessary to add a reference to the new provision for multiple-award contracts over the substantial bundling thresholds at FAR 52.207-XX, Solicitation of Offers from Small Business Concerns and Small Business Teaming Arrangements or Joint Ventures (Multiple-Award Contracts).

G. FAR Subpart 15.3, Source Selection.

• FAR 15.304, Evaluation factors and significant subfactors. This section is amended by adding references to the consolidation of contract requirements.

H. FAR Subpart 16.5, Indefinite-Delivery Contracts.

• FAR 16.505, Ordering. This section is amended to apply consolidation requirements to orders.

• FAR 16.506, Solicitation provisions and contract clauses. This section is amended by adding a cross-reference to the prescription in FAR Subpart 7.1 for a new provision “Solicitation of Offers from Small Business Concerns and Small Business Teaming Arrangements or Joint Ventures (Multiple-Award Contracts)”.

I. Subpart 19.2, Policies.

• FAR 19.201 General policy and 19.202-1 Encouraging small business participation in acquisitions. These sections are amended by adding references to the consolidation of contract requirements.

J. FAR Subpart 52.2, Text of Provisions and Clauses.

• FAR 52.207-XX, Solicitation of Offers from Small Business Concerns and Small Business Teaming Arrangements or Joint Ventures (Multiple-Award Contracts). This section is amended to include this provision in solicitations for multiple-award contracts when the estimated contract value is expected to exceed the agency's substantial bundling threshold. The agency shall consider offers from any responsible source, including responsible small business concerns and teaming arrangements or joint ventures of small business concerns.

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

The change may have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The Initial Regulatory Flexibility Analysis (IRFA) is summarized as follows:

The Regulatory Secretariat has submitted a copy of the IRFA to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the IRFA may be obtained from the Regulatory Secretariat. DoD, GSA, and NASA invite comments from small business concerns and other interested parties on the expected impact of this rule on small entities.

DoD, GSA, and NASA will also consider comments from small entities concerning the existing regulations in subparts affected by the rule in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite 5 U.S.C. 610 (FAR Case 2014-015), in correspondence.

The rule does not contain any information collection requirements that require the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 2, 5, 7, 8, 10, 12, 15, 16, 19, and 52 as set forth below:

The revised and added text reads as follows: