81 FR 24544 - Subgrants and Membership Fees or Dues

LEGAL SERVICES CORPORATION

Federal Register Volume 81, Issue 80 (April 26, 2016)

The Legal Services Corporation (LSC or Corporation) proposes to revise its regulations governing subgrants to third parties. LSC published a Notice of Proposed Rulemaking (NPRM) on April 20, 2015, 80 FR 21692. In response to the NPRM, LSC received comments from five organizations. The commenters requested that LSC reconsider some of the proposed changes to the regulations. LSC has considered the comments and now proposes additional revisions to the rules. In this Further Notice of Proposed Rulemaking (FNPRM), LSC seeks comments on five proposed revisions to the NPRM.

[Federal Register Volume 81, Number 80 (Tuesday, April 26, 2016)]
[Proposed Rules]
[Pages 24544-24550]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-09384]


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LEGAL SERVICES CORPORATION

45 CFR Part 1627


Subgrants and Membership Fees or Dues

AGENCY: Legal Services Corporation.

ACTION: Further notice of proposed rulemaking.

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SUMMARY: The Legal Services Corporation (LSC or Corporation) proposes 
to revise its regulations governing subgrants to third parties. LSC 
published a Notice of Proposed Rulemaking (NPRM) on April 20, 2015, 80 
FR 21692. In response to the NPRM, LSC received comments from five 
organizations. The commenters requested that LSC reconsider some of the 
proposed changes to the regulations. LSC has considered the comments 
and now proposes additional revisions to the rules. In this Further 
Notice of Proposed Rulemaking (FNPRM), LSC seeks comments on five 
proposed revisions to the NPRM.

DATES: Comments must be submitted by June 10, 2016.

ADDRESSES: You may submit comments by any of the following methods:
    Email: [email protected]. Include ``Part 1627 FNPRM'' in 
the subject line of the message.
    Fax: (202) 337-6519, ATTN: Part 1627 FNPRM.
    Mail: Stefanie K. Davis, Assistant General Counsel, Legal Services 
Corporation, 3333 K Street NW., Washington, DC 20007, ATTN: Part 1627 
FNPRM.
    Hand Delivery/Courier: Stefanie K. Davis, Assistant General 
Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 
20007, ATTN: Part 1627 FNPRM.
    Instructions: Electronic submissions are preferred via email with 
attachments in Acrobat PDF format. LSC will not consider written 
comments received after the end of the comment period.

FOR FURTHER INFORMATION CONTACT: Stefanie K. Davis, Assistant General 
Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 
20007, (202) 295-1563 (phone), (202) 337-6519 (fax), [email protected].

SUPPLEMENTARY INFORMATION:

I. Introduction

    LSC provided a more complete history of this rulemaking in the 
April 20, 2015 NPRM. 80 FR 21692, Apr. 20, 2015. In brief, LSC 
initiated this rulemaking to address an issue identified by LSC's 
Office of Inspector General (OIG) through an audit of the Corporation's 
Technology Initiative

[[Page 24545]]

Grant (TIG) program. In its audit report, OIG disagreed with LSC 
management's (Management) interpretation and application of the rules 
governing subgrants and transfers of LSC funds because ``[t]he subgrant 
rule appears to have been written with the LSC's principal legal 
service grants in mind, such that ordinarily, programmatic activities 
consist of the provision of legal services, and business services can 
easily be classified as ancillary. This division is not as easy to make 
in the case of TIG grants, and the rule does not seem to have 
anticipated this problem.'' Audit of Legal Services Corporation's 
Technology Initiative Grant Program, Report No. AU-11-01, at 42, Dec. 
2010.
    LSC initiated this rulemaking in 2012 to resolve the conflict of 
opinions. In 2015, Management proposed expanding this rulemaking to 
update these rules more comprehensively. On April 12, 2015, the 
Operations and Regulations Committee (Committee) of the Board voted to 
recommend that the Board approve publication of an NPRM in the Federal 
Register for notice and comment. On April 14, 2015, the Board accepted 
the Committee's recommendation and approved publication of the NPRM. 
The NPRM was published in the Federal Register on April 20, 2015, with 
a comment closing date of May 20, 2015. 80 FR 21692, Apr. 20, 2015. 
After receiving a request to extend the comment period, LSC gave 
interested parties an additional 21 days to respond to the NPRM. 80 FR 
29600, May 22, 2015.

II. Request for Comments

    LSC received five comments during the comment period. One LSC-
funding recipient, Northwest Justice Project (NJP), and one non-LSC 
recipient, Metro Volunteer Lawyers (MVL), each submitted comments. The 
other three comments came from OIG, the National Legal Aid and Defender 
Association, through its Civil Policy Group and its Regulations and 
Policy Committee (NLADA), and the American Bar Association's Standing 
Committee on Legal Aid and Indigent Defense (SCLAID). In response to 
the comments received, LSC is considering several revisions to the 
proposed rule, including the ones described in this FNPRM.
    On April 18, 2016, the Committee authorized publication of this 
FNPRM in the Federal Register. This FNPRM is limited to soliciting 
additional comment on the proposed changes described herein. Commenters 
need not reiterate or resubmit comments in response to this 
supplemental notice that they previously submitted relating to these 
matters or other aspects of the proposed rule. LSC will consider all 
public comments submitted pursuant to the NPRM published on April 20, 
2015, and in response to this FNPRM, when drafting the final rule.

Proposed Change 1: Removing the Proposed Definition of ``Programmatic''

    The main purpose of this rulemaking is to clarify that part 1627 
applies only to third-party awards made by a recipient for the 
provision of legal assistance.\1\ The current rule defines 
subrecipient, in relevant part, as an entity that accepts Corporation 
funds from a recipient under a grant contract, or agreement to conduct 
certain activities specified by or supported by the recipient related 
to the recipient's programmatic activities. 45 CFR 1627.2(b)(1). LSC 
proposed simplifying the definition of subrecipient and adding a 
definition of the term programmatic that included an explicit reference 
to the LSC Act's definition of legal assistance:
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    \1\ The LSC Act defines ``legal assistance'' as ``the provision 
of any legal services consistent with the purposes and provisions of 
this subchapter.'' 42 U.S.C. 2996a(5). LSC incorporated that 
definition at 45 CFR 1600.1, and that definition applies to part 
1627. In contrast, LSC has defined the term ``legal assistance'' 
more narrowly in other contexts to mean legal analysis tailored to a 
client's particular issue as opposed to ``legal information'' that 
does not involve the application of law to a person's specific 
problem. 45 CFR 1614.3(e) and (f); LSC Case Service Report Handbook, 
p. 3 (2008, as amended 2011).

    Programmatic means activities or functions carried out to 
provide legal assistance, as defined in Sec.  1002 of the LSC Act, 
42 U.S.C. 2996a(5). Programmatic activities do not include the 
provision of goods or services by vendors or consultants in the 
normal course of business that the recipient would not be expected 
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to provide itself.

80 FR 21692, 21694, Apr. 20, 2015. LSC proposed this definition to 
clearly limit the term programmatic to those activities in which the 
subrecipient essentially stands in the recipient's shoes to provide 
legal assistance.
    NLADA and NJP both objected to the proposed definition. NLADA 
called the definition:

ambiguous as to what activities which involve the provision of legal 
services to eligible clients fall within LSC's definition of 
programmatic in order to be considered a subgrant rather than a 
procurement contract for goods or services. . . . The proposed 
definition is broad enough to encompass activities and services that 
do not involve the direct provision of legal services to eligible 
clients.

NJP similarly stated that it ``reads the definition of `programmatic' 
in subsection (b) as too broad and inconsistent for the purposes it 
appears intended to achieve.'' Both organizations commented that the 
definition could be read to include transactions such as leasing office 
space. NJP further read the definition as potentially including the 
payment of bar dues or travel reimbursements to staff, and ``providing 
fee-for-service contracts to lawyers or legal organizations that 
provide ongoing expertise in support of recipients' delivery of legal 
assistance, none of which are `vendors or consultants.'''
    Both commenters recommended that LSC replace the phrase 
``activities or functions carried out to provide legal assistance'' 
with ``the delivery of legal assistance to eligible clients.'' They 
both also recommended excluding ``activities conducted by entities not 
directly involved in the delivery of legal assistance to eligible 
clients'' from the definition. Finally, NLADA suggested that LSC expand 
the definition of programmatic to include ``the provision of services 
under a special LSC grant project.''
    LSC agrees that its proposed definition of the term programmatic 
creates more problems than it solves. Commenters identified several 
ambiguities with the proposed definition and suggested solutions, but 
LSC determined that the potential solutions themselves created 
problems. For example, both NLADA and NJP stated that LSC's proposed 
definition was too broad and unclear, so both organizations offered 
language they believe would clarify that programmatic means only the 
delivery of legal assistance to eligible clients. Both NLADA's and 
NJP's suggested language, however, would narrow the definition beyond 
what LSC intended.
    Additionally, both NLADA and NJP would exclude ``activities 
conducted by entities not directly involved in the delivery of legal 
assistance to eligible clients.'' It is unclear whether they meant 
entities not directly involved in the recipient's delivery of legal 
assistance to eligible clients or not directly involved in the delivery 
of legal assistance at all. LSC did not intend to limit the types of 
organizations with which recipients may contract. Rather, the changes 
to the rule focus on the nature of the work that is the subject of the 
third-party agreement.
    NLADA's proposal to include ``provision of services under a special 
LSC grant project'' in the definition of programmatic also appears to 
be inconsistent with LSC's intent. The proposed rule emphasizes the 
nature of the activity funded, rather than the method of funding. For 
example, if

[[Page 24546]]

``special LSC grant project'' includes TIG awards or disaster relief 
grants, then ``the provision of services under a special LSC grant 
project'' could include pure technology developments or construction 
activities paid for using those grant funds. LSC intends to exclude 
from the rule those types of activities when conducted by a third party 
using LSC funds. By contrast, awards to carry out legal services 
activities would still be included in the rule, even though the award 
is made through a TIG.
    Finally, NJP's inclusion of payments to experts ``in support of 
recipients' delivery of legal assistance'' suggests that the changes to 
the scope of the rule may not have been clear. LSC intended to limit 
the application of the subgrant rule to only those situations in which 
recipients provide funds to third parties to carry out legal assistance 
activities that recipients would otherwise be expected to provide. This 
limitation necessarily excludes contracts with experts who provide a 
service to recipients, whether the service is preparing the 
organization's taxes, developing software for an online intake system, 
or providing a recipient with technical expertise on a case.
    LSC has found it difficult to redefine programmatic with a degree 
of precision sufficient to give grantees clear guidance about the 
term's meaning. LSC determined that the outer boundaries of the term 
were the restrictive concept of ``direct provision of legal assistance 
and legal information to clients'' and the comprehensive concept of 
``anything that supports the delivery of legal assistance and legal 
information to clients,'' but could not develop a clear statement of 
where the line between programmatic and non-programmatic activities 
lay. LSC analyzed fact patterns using the five subgrant factors in the 
Uniform Guidance, 2 CFR 200.330. LSC intends to adopt this five-factor 
analysis in part 1627. LSC determined that the guidance provided by the 
factors is adequate to assess whether a particular arrangement with a 
third party should be considered a subgrant or a procurement contract. 
Including the term programmatic did not improve the factors' utility.
    In this FNPRM, LSC proposes to remove the proposed definition of 
programmatic in Sec.  1627.2 and to remove the term from the list of 
factors in proposed Sec.  1627.3(b)(2). In its place, LSC proposes to 
define the term procurement contract in Sec.  1627.2(b). LSC proposes 
to define and use this term for two reasons. The first is to highlight 
the distinction between subgrants, which involve provision of legal 
assistance, and procurement contracts, which are agreements to purchase 
goods or services that a recipient needs to carry out its LSC grant. 
The second is that LSC anticipates incorporating Uniform Guidance 
principles applicable to procurement contracts into part 1630 and the 
Property Acquisition and Management Manual (PAMM) through an ongoing 
rulemaking.

Proposed Change 2: Allowing Recipients To Use Property or Services 
Acquired in Whole or in Part With LSC Funds as Support for a Subgrant

    In the NPRM, LSC proposed to require that recipients support 
subgrant activities only with funds, rather than allowing for in-kind 
provision of property and services. 80 FR 21692, 21696, Apr. 20, 2015. 
With the exception of OIG, all commenters opposed the proposal. NLADA, 
NJP, MVL, and SCLAID all expressed concern that adopting this change 
would jeopardize longstanding private attorney involvement (PAI) 
arrangements between LSC recipients and bar associations or other legal 
aid providers because it would impose additional and unnecessary 
administrative burdens on both parties. They also opined that the 
proposal conflicts with the PAI rule, which explicitly allows 
recipients to support private attorneys by providing them with 
training, technical assistance, access to recipient facilities, and use 
of recipient libraries and other resources. 45 CFR 1614.4(b)(3). Their 
observations differed in some respects, but they all contended that the 
proposal had significant flaws.
    NLADA ``urge[d] LSC to carefully consider the possible adverse 
consequences the framework set out in [proposed Sec.  1627.3(c)] may 
have on the ability of LSC funded programs to effectively carry out 
their mission to promote equal access to justice and provide high-
quality civil legal assistance to low-income Americans.'' They viewed 
the proposed rule as placing a ``blanket prohibition on the provision 
of goods and services by recipients, that are in part or fully funded 
by LSC, to support an agreement with a third party to provide 
programmatic services.'' If this is LSC's intent, they continued,

a number of LSC funded programs would be prevented from using one of 
their most valuable assets--property they have invested in to 
provide economical office space for their operations. In a time of 
severe fiscal constraints, this non-monetary asset could be used in 
innovative ways to partner with community organizations, 
particularly pro bono programs, to enhance the availability of legal 
services for people who are poor and in need of legal services.

They concluded their discussion of this issue by expressing their 
understanding that LSC must be able to ensure that recipients spend 
their LSC funding only on permissible activities. NLADA urged LSC to 
consider alternatives that ``will not sever existing relationships or 
stifle further development based on in kind exchanges of goods and 
services funded in part or wholly by LSC.''
    MVL quoted NLADA's response at length in its letter objecting to 
this proposal. MVL provided a detailed description of their 
relationship with Colorado Legal Services (CLS):

    Colorado Legal Services provides support to MVL's mission 
through office space and intake personnel. CLS provides an in-kind 
donation of office space to house MVL's Executive Director, Family 
Law Court Program Coordinator, Legal Services Coordinator, Rovira 
Scholar (a fellowship position funded by a private benefactor), and 
the Program Assistant. Additionally, nearly all the cases that MVL 
handles are filtered first through CLS's intake team. CLS's intake 
team gathers essential information on the legal issues of 
prospective clients and passes that information to MVL to refer out 
to volunteer attorneys.

MVL stated that a ``major impact of the proposed rule would be 
increased costs of administration'' to both it and CLS. It also pointed 
out that the rule could impact organizations with similar arrangements 
by limiting or prohibiting the receipt of in-kind services to assist 
and alleviate costs for both organizations; maintaining proximity to 
and continuity with the referral source; maintaining flexibility to 
serve its community; and ``contending with LSC regulations contrary to 
organizational missions, objectives, and administration.'' MVL 
concluded by urging LSC to reject the proposed rule.
    SCLAID expressed its opinion that the proposal is inconsistent with 
the PAI rule. More specifically, SCLAID was concerned that 
``collaborative relationships that have been established with bar 
associations whose pro bono programs have been housed at a recipient's 
office for years could be greatly harmed by requiring that the pro bono 
program now enter into a subgrant arrangement.'' SCLAID stated that 
requiring bar-sponsored pro bono programs to enter into a subgrant and 
return some of the subgrant funds to the recipient for rent would be 
``overly burdensome and unnecessary.''
    NJP criticized LSC's proposal as ``seem[ing] to confuse cost 
allocation to PAI with the notion of a subgrant'' and as creating 
``gross ambiguity'' about

[[Page 24547]]

whether recipients may provide in-kind support to private attorneys 
under Sec.  1614.4(b)(3). Additionally, NJP noted that the language 
requiring subgrants to be supported with LSC funds is inconsistent with 
the PAI rule, which directs recipients to spend ``an amount equal to at 
least twelve and one-half percent (12.5%) of the recipient's annualized 
Basic Field-General award'' to PAI activities. 45 CFR 1614.2(a). NJP 
stated: ``If the goal is to ensure that subgrants mean the payment of 
LSC funds to a third party to carry out legal assistance activities, 
the definition of `subgrants' in proposed Sec.  1627.2(d)(1) is 
adequate to accomplish this purpose. . . . Moreover, accounting for the 
use of LSC funds through auditing both subgrants and PAI cost 
allocations is adequate to ensure that LSC funds are spent consistent 
with governing statutes and regulations.'' NJP suggested that LSC could 
revise the definition of subgrant to more specifically reference the 
use of LSC funds and requested that LSC not adopt proposed Sec.  
1627.3(c), which limits subgrant funding to LSC funds.
    Upon consideration of the comments received, LSC agrees that 
requiring recipients to support subgrant activities only with funds is 
burdensome and inefficient. LSC understands that many recipients' most 
valuable assets may be property and did not intend to disrupt 
longstanding relationships with bar associations and other 
organizations that rely on exchanges of property for services to carry 
out their legal services programs. LSC remains concerned, however, 
about accountability for LSC-funded resources and ensuring that 
recipients are not using LSC-funded property or services to support 
organizations that engage in restricted activities. LSC proposes 
several revisions to part 1627 designed to allow recipients to continue 
providing other organizations LSC-funded office space and other 
property and services to carry out legal assistance activities 
consistent with the requirements of the LSC Act, LSC appropriations 
statutes, LSC's other governing statutes, and LSC's regulations.
    First, LSC proposes to add a definition for the term property, 
which will encompass both real and personal property. Second, LSC 
proposes to remove proposed Sec.  1627.3(c), which required recipients 
to support all subgrants with funds, rather than goods or services. 
Third, LSC proposes to redesignate the definition of the term subgrant 
as Sec.  1627.2(e) and revise it to make clear that LSC funds and 
property or services acquired in whole or in part with LSC funds may be 
used to support a subgrant to a third party. Fourth, LSC proposes a new 
Sec.  1627.4(a)(2), which explains how recipients are to assess the 
value of the goods or services to be awarded to a third party to carry 
out a subgrant. Fifth, LSC proposes to add language reflecting the 
decision to permit in-kind subgrants in paragraph (d)(2), which 
pertains to a recipient's responsibility to ensure its subrecipient's 
proper use of, accounting for, and auditing of LSC resources. Lastly, 
LSC proposes to add a new paragraph (f) setting forth the requirements 
for accounting for in-kind subgrants.

 Proposed Change 3: Establishing a $15,000 Threshold at Which 
Recipients Must Seek LSC's Written Approval Before Awarding a Subgrant

    While considering whether to allow recipients to use goods and 
services purchased in whole or in part with LSC funds as the basis for 
subgrants, LSC also considered whether recipients should be required to 
seek prior approval of all such subgrants or only when the value of the 
goods or services supporting the subgrant exceeded a certain threshold. 
LSC understands that recipients have a wide range of arrangements with 
other organizations that assist in the recipients' delivery of legal 
assistance to eligible clients. Arrangements on one end of the spectrum 
could be quite limited and informal--for example, giving office space 
on a one-time basis to another legal aid provider to hold a legal 
information session on applying for public benefits. An example of an 
arrangement involving a greater investment of recipient resources would 
be one in which the recipient provides office space and administrative 
support to a bar association conducting a debt collection clinic for 
four hours every other Saturday. An arrangement representing a 
significantly greater investment of recipient resources would be 
housing another non-profit organization that takes referrals from the 
recipient and places the referrals with the organization's own roster 
of volunteers. While LSC must ensure accountability for the use of 
property or services acquired in whole or in part with LSC funds in all 
of these arrangements, the oversight tools that LSC uses may vary based 
on the amount of LSC-funded resources involved.
    Under existing part 1627, all subgrants are subject to the prior 
approval requirement, regardless of cost. In calendar year 2015, 
recipients entered into 77 subgrants. Fifteen of the subgrants were for 
less than $10,000, with the smallest being for $2,000. Ten of the 77 
subgrants originating in calendar year 2015 exceeded $100,000. LSC 
understands that recipients spend significant amounts of time and 
resources preparing subgrant applications for LSC's approval. LSC 
estimates that LSC itself spends between 10 and 20 work hours reviewing 
each subgrant application, with the time spent on the application 
varying based on the quality and complexity of the application and the 
necessity of involving several LSC offices in the review. LSC 
determined that, on balance, the burdens of prior approval on both 
sides do not outweigh the benefits of the increased oversight for 
subgrants costing $15,000 or more. Consequently, LSC proposes to 
redesignate paragraph (a) from the NPRM as paragraph (b) and introduce 
a new paragraph (a) establishing the thresholds for prior approval of 
subgrants.
    LSC wishes to emphasize two points about the proposed prior 
approval threshold. The first is that all awards qualifying as 
subgrants under Sec.  1627.3 are subject to 45 CFR part 1630 and the 
restrictions set forth at proposed Sec.  1627.5. Although subgrants for 
less than $15,000 will no longer be subject to the prior approval 
requirement, they continue to be governed by part 1630 and Sec.  
1627.5. The second point is that judicare arrangements and contracts 
with private attorneys to provide legal assistance to recipients' 
clients are not subject to the proposed prior approval threshold in 
Sec.  1627.4(a). LSC's longstanding policy, reflected in the NPRM, has 
been to consider such awards subgrants only when the cost of such 
awards exceeds $25,000. 80 FR 21692, 21695, Apr. 20, 2015. Although LSC 
sought comment in the NPRM about whether the threshold should be 
changed, LSC did not intend to change its policy toward these awards. 
Consequently, LSC will continue to consider judicare arrangements and 
contracts with private attorneys to provide legal assistance to a 
recipient's clients as subgrants only when such arrangements exceed the 
threshold stated in Sec.  1627.2(e)(2) for such awards, which LSC 
proposed in the NPRM to set at $60,000. All subgrants defined in Sec.  
1627.2(e)(2) will require prior approval, consistent with LSC's 
longstanding policy.
    In paragraph (a), LSC proposes to set the prior approval threshold 
at $15,000 for both cash and in-kind subgrants. LSC believes this 
amount represents a significant enough investment of LSC funding or 
LSC-funded property or services that LSC should have increased 
oversight over the award. In paragraph

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(a)(2)(i), LSC proposes to require recipients to seek prior approval 
for subgrants when either the fair market value or the actual cost to 
the recipient of the property or service that supports the subgrant 
exceeds $15,000. LSC also proposes to require recipients to obtain 
independent property appraisals to assess the fair market value of real 
property that it contributes to a subgrant. Because LSC believes that 
$15,000 represents the amount at which it should have increased 
oversight of subgrants, LSC wants recipients to evaluate the value of 
the asset being exchanged based on both the fair market value and their 
internal cost to determine whether an amount that represents $15,000 or 
more of LSC funds is being given to a third party to carry out legal 
assistance activities. In paragraph (a)(2)(ii), LSC proposes to adopt 
language from the Uniform Guidance that requires recipients to document 
and support the valuation of property or services acquired in whole or 
in part with LSC funds by the same methods used internally for its 
other in-kind valuations.
    LSC proposes a technical changes to Sec.  1627.4(b) to reflect its 
decision to allow in-kind subgrants. In paragraph (b), LSC proposes to 
insert language stating that for all subgrants exceeding the $15,000 
threshold, recipients must submit applications to LSC for prior written 
approval.

Proposed Change 4: Notifying Recipients of Decisions on Requests for 
Prior Approval of Subgrants

    In the NPRM, LSC proposed to revise the rules governing the 
subgrant approval process. In paragraph (a), LSC proposed to link the 
subgrant approval process for Basic Field Grants more closely to the 
annual grant competition process. LSC also proposed to formalize the 
procedures for recipients seeking to make subgrants under LSC's special 
grant programs and those who need to make subgrants in the middle of a 
funding year. LSC also proposed to eliminate the provision deeming 
subgrants approved if LSC does not respond within the 45-day period \2\ 
because LSC believed that the provision was both unnecessary to ensure 
timely responses from LSC and reflective of poor grants management 
policy.
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    \2\ Existing Sec.  1627.3(a)(2) states that if LSC fails to act 
on the subgrant proposal within 45 days of submission, the recipient 
``shall notify the Corporation of this failure'' and gives LSC seven 
additional days to respond to the proposal. The subgrant is deemed 
approved if LSC fails to respond within the additional seven days. 
For ease of reference, we refer to the entire Sec.  1627.3(a)(2) 
period as ``the 45-day period.''
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    NLADA objected to LSC's proposal. NLADA stated that the proposal 
``leaves programs in a state of fiscal uncertainty as to subgrant 
agreements,'' and recommended leaving the provision in the rule to 
``preserve[] an important backstop for recipients and subrecipients who 
depend on LSC-funding and who, without hearing in a timely fashion from 
LSC, may plan a budget as if the funding has been approved.'' NLADA 
further argued that ``it is important in keeping with LSC's focus on 
uniformity and consistent application of rules and regulations that all 
parties bear equitable burdens with regard to meeting LSC statutory and 
regulatory requirements.''
    LSC disagrees with NLADA's recommendation to leave the existing 
rule in place. NLADA's comments do not reflect the greater assurance of 
a timely response provided by the consolidation of the Basic Field 
Grant competition and subgrant approval processes. Nor do they 
acknowledge that responsible grants management practices do not permit 
expending or allowing the expenditure of funds without the approval of 
the funding agency.
    Although it is not binding on LSC, we look to the prior approval 
provisions of 2 CFR part 200 for guidance. The Uniform Guidance 
describes certain types of costs for which agencies may require prior 
written approval. 2 CFR 200.308. Grantees must obtain prior approval 
before incurring any of the listed costs, unless the awarding agency 
waives the requirement. Id. 200.308(d). Section 200.308(i) of the 
Uniform Guidance requires Federal agencies to respond to a request for 
prior approval within 30 days of receipt. Id. 200.308(i). If a decision 
is still pending at the end of the 30-day period, the agency must 
advise the requester in writing of the date by which the requester can 
expect a decision. Id. The Uniform Guidance does not include a 
provision deeming a request approved based on agency inaction.
    LSC considered four options for responding to NLADA's comments. The 
first was to retain the language proposed in the NPRM. The second was 
to reinstate the existing rule in its entirety. The third was to 
reinstate the 45-day limit, but include a provision stating that if LSC 
does not respond, the subgrant is deemed denied. The last option was to 
include either a waiver provision or a notice provision similar to the 
ones provided in the Uniform Guidance.
    LSC determined that waiving approval for subgrants was not an 
appropriate solution. LSC must exercise appropriate oversight over 
recipients' use of its funds, particularly when the recipient proposes 
to give a significant amount of funds to a third party to carry out 
legal assistance activities. LSC did not believe that it would be 
acting as a responsible steward of appropriated funds if it allowed 
recipients to make subgrants above the proposed $15,000 threshold 
amount without LSC's having approved the proposal. Nor did LSC believe 
that retaining the current rule demonstrates appropriate grants 
management policy because it would allow a recipient to devote a 
significant amount of LSC-funded resources to a subgrant absent LSC's 
explicit approval. LSC also did not think that restoring the 45-day 
time frame for approving subgrants with a provision deeming the 
subgrant denied, rather than approved, was a proper solution. This 
solution seemed unnecessarily negative and uninformative because it 
would leave a recipient wondering if its proposal was flawed and LSC 
simply had not told the recipient what it needed to do to fix the 
proposal or if LSC had reviewed the proposal at all.
    LSC proposes to respond to NLADA's comments by adopting a notice 
provision similar to the one used by OMB in the Uniform Guidance. LSC 
proposes to include in the notice described in paragraph (b) a 
statement that if LSC has not responded to a recipient's request for 
approval of a subgrant under paragraph (b)(2) or (b)(3) within the 
number of days specified in the notice, LSC will inform the recipient 
in writing of the date when the recipient may expect the decision. The 
notice will be given only for subgrant approvals requested as part of a 
special grant or during the mid-year grant process. LSC does not 
propose to include a similar provision for subgrant approvals requested 
during the Basic Field Grant competition process because the regulation 
already includes notification deadlines. According to proposed Sec.  
1627.4(a)(1)(ii), LSC will inform a recipient whether LSC has approved, 
denied, or is suggesting modifications to the subgrant at or about the 
same time as LSC informs the recipient of its decision on the 
recipient's application for Basic Field Grant funding. 80 FR 21692, 
21699, Apr. 20, 2015.

Proposed Change 5: Adopting a Flexible Timekeeping Requirement

    In the NPRM, LSC proposed to transfer existing 45 CFR 1610.7, which 
contains the requirements applicable to transfers of LSC funds, to part 
1627 and redesignate it as Sec.  1627.5. LSC also proposed to revise 
the existing timekeeping requirement in Sec.  1610.7(c)

[[Page 24549]]

to adopt the timekeeping standards applicable to recipients in part 
1635. LSC proposed this requirement to provide a consistent standard 
for recipients and subrecipients alike. LSC specifically sought comment 
on this proposal because LSC understood that some subrecipients, 
particularly smaller legal services programs, may have difficulty 
complying with the requirement. NJP and NLADA both objected to LSC's 
proposal to require all subrecipients to comply with part 1635's 
timekeeping requirements. OIG supported the proposal.
    NJP opposed the proposal for two reasons. First, NJP argued that 
``private attorney subrecipients must sufficiently document their time 
spent on recipient client activities to justify billings and payment 
under a fee-for-service contract.'' NJP opined that because private 
attorney subrecipients have their own timekeeping systems, there is no 
need for them to develop a timekeeping system that complies with part 
1635. Second, NJP argued that private attorneys would likely be both 
unwilling to allocate time to LSC-defined categories of cases, matters, 
and supporting activities and unwilling to agree to make their personal 
time records and timekeeping systems subject to examination by auditors 
and LSC representatives. NJP asserted that requiring private attorneys 
to make their private records available to LSC auditors and reviewers 
would ``create a significant disincentive'' for private attorneys to 
participate in judicare or other fee-for-service arrangements.
    NLADA objected to the proposal as a burdensome, one-size-fits-all 
approach contrary to LSC's interests in maximizing grantees' efficiency 
and effectiveness and encouraging collaborations with other 
organizations. NLADA asserted that ``[i]mposing one standard time 
keeping requirement for all subrecipients, who maintain accountability 
with their own timekeeping system, is counter-productive and will harm 
recipient's [sic] ability to maintain relationships with subrecipients 
who are unable or unwilling to conform their own timekeeping system to 
LSC requirements.'' NLADA urged LSC to adopt a ``flexible option'' that 
would ensure accountability for the use of LSC funds without imposing 
burdensome requirements on subrecipients of LSC funds.
    LSC understands NLADA's and NJP's concerns about the impact of the 
proposed rule on subrecipients that have their own timekeeping systems 
in place. LSC agrees that requiring such subrecipients to comply with 
LSC's particular timekeeping requirements may not be necessary to 
ensure that time subrecipients spend providing legal assistance and 
legal information is accounted for appropriately. Regardless of whether 
a subrecipient already has a timekeeping system in place, LSC believes 
that some level of timekeeping by either the subrecipient or the 
recipient is needed.
    LSC considered three options for responding to the comments. The 
first was to keep the proposed language without change. The second was 
to draft a rule providing minimum standards for timekeeping that LSC 
believes would provide it with the information it needs to ensure that 
subgrant funds are properly accounted for, but that does not prescribe 
how the recipient or subrecipient keeps time. The third option was to 
adopt part 1635-compliant timekeeping as the default, but to allow 
recipients to seek approval from LSC for an alternate timekeeping 
method that will ensure accountability for the use of subgrant funds. 
This option was similar to language LSC proposed deleting from existing 
Sec.  1627.3(c) that authorized recipients and subrecipients to propose 
alternative auditing methods. LSC proposed deleting that language 
simply because it had never been used, rather than because it was 
ineffective.
    LSC proposes adopting the second option. In paragraph (c), LSC 
proposes requiring that recipients be able to show how much time 
subrecipient attorneys and paralegals spent on cases and matters and 
aggregate information on pending and closed cases by legal problem 
type. LSC does not propose to require, however, that the subrecipient 
collect the information or otherwise dictate how the recipient and 
subrecipient collect and maintain the information. LSC proposes to 
leave those decisions to the recipient and subrecipient to negotiate as 
part of the subgrant agreement.
    LSC proposes one technical change to Sec.  1627.5(d) as proposed in 
the NPRM. To reflect LSC's decision to allow in-kind subgrants, LSC 
proposes to include language stating that the prohibitions and 
requirements of part 1610 apply only to the subgranted funds, goods, or 
services when the subgrant is for the sole purpose of funding private 
attorney involvement activities.

List of Subjects in 45 CFR Part 1627

    Grant programs, Legal services.

    For the reasons stated in the preamble, the Legal Services 
Corporation proposes to amend 45 CFR part 1627, as proposed to be 
amended at 80 FR 21692, April 20, 2015, as follows:

PART 1627--SUBGRANTS AND MEMBERSHIP FEES OR DUES

0
1. The authority citation is revised to read as follows:

    Authority:  42 U.S.C. 2996g(e).

0
2. Amend Sec.  1627.2 as proposed to be amended at 80 FR 21692, April 
20, 2015 by:
0
a. Revising paragraph (b);
0
b. Redesignating paragraphs (c) and (d) as paragraphs (d) and (e), 
respectively, and revising them;
0
c. Adding a new paragraph (c); and
0
d. Designating the undesignated paragraph captioned ``Subrecipient'' as 
paragraph (f).
    The revisions and additions read as follows:


Sec.  1627.2  Definitions.

* * * * *
    (b) Procurement contract means an agreement between a recipient and 
a third party under which the recipient purchases property or services 
for the benefit of the recipient that does not qualify as a subgrant as 
defined in paragraph (d)(1) of this section.
    (c) Property means real property or personal property.
    (d) Recipient as used in this part means any recipient as defined 
in section 1002(6) of the Act and any grantee or contractor receiving 
funds from LSC under section 1006(a)(1)(B) of the Act.
    (e)(1) Subgrant means an award of LSC funds or property or services 
purchased in whole or in part with LSC funds, from a recipient to a 
subrecipient for the subrecipient to carry out part of the recipient's 
legal assistance activities under the LSC grant, that has the 
characteristics set forth in Sec.  1627.3(b).
    (2) Subgrant includes judicare arrangements and contracts with 
private attorneys for the direct delivery of legal assistance under 45 
CFR part 1614 only when the cost of the arrangement or contract exceeds 
$60,000.
* * * * *
0
3. Amend Sec.  1627.3 as proposed to be amended at 80 FR 21692, April 
20, 2015 by revising paragraphs (a) and (b)(2), (3), and (5) to read as 
follows:


Sec.  1627.3  Characteristics of subgrants.

    (a) In determining whether an agreement between a recipient and 
another entity should be considered a subgrant or a procurement 
contract, the substance of the relationship is more important than the 
form of the agreement. All of the characteristics listed in paragraph 
(b) of this section

[[Page 24550]]

may not be present in all cases, and the recipient must use judgment in 
classifying each agreement as a subgrant or a procurement contract. The 
recipient must make case-by-case determinations whether each agreement 
that it makes with another entity constitutes a subgrant or a 
procurement contract.
    (b) Characteristics that support the classification of the 
agreement as a subgrant include when the other entity:
* * * * *
    (2) Has its performance measured in relation to whether objectives 
of the LSC grant were met;
    (3) Has responsibility for programmatic decision-making regarding 
the delivery of legal assistance under the recipient's LSC grant;
* * * * *
    (5) In accordance with its agreement, uses LSC funds or property or 
services acquired in whole or in part with LSC funds, to carry out a 
program for a public purpose specified in LSC's governing statutes and 
regulations, as opposed to providing goods or services for the benefit 
of the recipient.
* * * * *
0
4. Amend Sec.  1627.4 as proposed to be amended at 80 FR 21692, April 
20, 2015 by:
0
a. Redesignating paragraphs (a) through (e) as paragraphs (b) through 
(f), respectively;
0
b. Adding a new paragraph (a);
0
c. Revising the introductory text of newly redesignated paragraph (b);
0
b. Redesignating the newly redesignated paragraph (b)(5) as (b)(5)(i) 
and adding paragraph (b)(5)(ii);
0
c. Revising the newly redesignated paragraph (d)(2); and
0
d. Adding paragraph (g).
    The revisions and additions read as follows:


Sec.  1627.4  Requirements for all subgrants.

    (a) Threshold. (1) A recipient must obtain LSC's written approval 
prior to making a subgrant when the cost of the award is $15,000 or 
greater.
    (2) Valuation of in-kind subgrants. (i) If either the actual cost 
to the recipient of the transferred property or service or the fair 
market value of the transferred property or service exceeds $15,000, 
the recipient must seek written approval from LSC prior to making a 
subgrant. If the asset transferred involves leased space, the fair 
market value of the office space must be determined by an independent 
property appraisal.
    (ii) The valuation of the subgrant, either by fair market value or 
actual cost to the recipient of property or services, must be 
documented and to the extent feasible supported by the same methods 
used internally by the grantee.
    (b) Corporation approval of subgrants. Recipients must submit all 
applications for subgrants exceeding the $15,000 threshold to LSC in 
writing for prior written approval. LSC will publish notice of the 
requirements concerning the format and contents of the application 
annually in the Federal Register and on LSC's Web site.
* * * * *
    (5)
* * * * *
    (ii) If a subgrant did not require prior approval, and the 
recipient proposes a change that will cause the total value of the 
subgrant to exceed the threshold for prior approval, the recipient must 
obtain LSC's prior written approval before making the change.
* * * * *
    (d) * * *
* * * * *
    (2) The recipient must ensure that the subrecipient properly 
spends, accounts for, and audits funds or property or services acquired 
in whole or in part with LSC funds received through the subgrant.
* * * * *
    (g) Accounting for in-kind subgrants. (1) The value of property or 
services provided by a recipient to a subrecipient through a subgrant 
is subject to the audit and financial requirements of the Audit Guide 
for Recipients and Auditors and the Accounting Guide for LSC 
Recipients. Subgrants involving in-kind exchanges of property or 
services may be separately disclosed and accounted for, and reported 
upon in the audited financial statements of a recipient. The 
relationship between the recipient and subrecipient will determine the 
proper method of financial reporting following generally accepted 
accounting principles.
    (2) If accounting for in-kind subgrants is not practicable, a 
recipient may convert the subgrant to a cash payment and follow the 
accounting procedures in paragraph (d) of this section.
0
5. Amend Sec.  1627.5 as proposed to be amended at 80 FR 21692, April 
20, 2015 by revising paragraphs (c) and (d) to read as follows:


Sec.  1627.5  Applicability of restrictions, timekeeping, and recipient 
priorities; private attorney involvement subgrants.

* * * * *
    (c) Timekeeping. A recipient must account for how its subgrantees 
spend LSC funds. Accurate and contemporaneous time records must 
identify for each attorney and paralegal:
    (1) Time spent on each case or matter by date and in increments not 
greater than one-quarter of an hour;
    (2) The unique case name or identifier for each case;
    (3) The category of action on which time was spent for each matter; 
and
    (4) The legal problem type for each case or matter with a 
timekeeping system able to aggregate time record information on both 
closed and pending cases by legal problem type.
    (d) PAI subgrant. (1) The prohibitions and requirements set forth 
in 45 CFR part 1610 apply only to the subgranted funds or property or 
services acquired in whole or in part with LSC funds when the 
subrecipient is a bar association, pro bono program, private attorney 
or law firm, or other entity that receives a subgrant for the sole 
purpose of funding private attorney involvement activities (PAI) 
pursuant to 45 CFR part 1614.
    (2) Any funds or property or services acquired in whole or in part 
with LSC funds and used by a recipient as payment for a PAI subgrant 
are deemed LSC funds for purposes of this paragraph.
0
6. Amend Sec.  1627.6 as proposed to be amended at 80 FR 21692, April 
20, 2015 by revising paragraph (b) to read as follows:


Sec.  1627.6  Subgrants to other recipients.

* * * * *
    (b) The subrecipient must audit any funds or property or services 
acquired in whole or in part with LSC funds provided by the recipient 
under a subgrant in its annual audit and supply a copy of this audit to 
the recipient. The recipient must either submit the relevant part of 
this audit with its next annual audit or, if an audit has been recently 
submitted, submit it as an addendum to that recently submitted audit.
* * * * *

    Dated: April 19, 2016.
Stefanie K. Davis,
Assistant General Counsel.
[FR Doc. 2016-09384 Filed 4-25-16; 8:45 am]
 BILLING CODE 7050-01-P