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The Grants Committee of the Federal Bar Association is pleased to provide the following information describing highlights in grants law from the past year. Section I covers Major Federal statutes and legislation; Section II covers Executive Branch actions; and Section III covers Federal cases. Please note that the terms "grant" and "financial assistance" are used interchangeably.
I. Major Federal Statutes and Legislation
A. Implementation of the Federal Financial Assistance Management Improvement Act of 1999, Public Law 106-107
Federal agencies made significant efforts toward implementing the Federal Financial Assistance Management Improvement Act this year. This Act requires Federal agencies that administer financial assistance programs to develop and implement a plan by May 20, 2001, that must, among other things, simplify grant program procedures through common application and reporting requirements for similar programs of different agencies, and allow applicants to apply for and report on awards electronically.
Twenty-six Federal agencies have jointly developed an initial plan to implement these requirements. This plan was submitted to Congress and the Director of the Office of Management and Budget on May 18, 2001. Information about Federal agencies' work in implementing this law and a copy of theinitial plan are available at: www.financenet.gov/financenet/fed/cfo/grants/grants.html.
In addition, this statute requires Federal agencies to report annually on their implementation and performance under the statute, and it requires the General Accounting Office to submit an evaluation of the effectiveness of the law to OMB and Congress by November 20, 2005. The law "sunsets" or expires on November 20, 2007.
Implementation of the Federal Financial Assistance Management Improvement Act is taking place within the context of another Federal statute, the Government Paperwork Elimination Act, Public Law 105-277. Among other things, GPEA requires most Federal agencies to allow individuals or entities that deal with Federal agencies the option to submit information or transact with the agency electronically and to maintain records electronically, when practicable, by October 21, 2003. More information is available at: http://cio.gov/docs/library.html.
B. Faith-Based and Community Initiatives Legislation
A bill that would, if enacted, mark a notable change in many Federal financial assistance programs is under consideration in the U.S. House of Representatives. The Charitable Choice Act of 2001, which is contained within H.R. 7/H.R. 1284, the Community Solutions Act of 2001, seeks to prohibit discrimination against religious organizations in the administration and distribution of government assistance under specified programs. It authorizes religious organizations to participate in certain Federal financial assistance programs, so long as the program is implemented consistent with religion clauses in the U.S. Constitution.
A copy of this bill and related handouts have been provided separately on the Grants Committee's listserv, and will be available at the panel discussion on faith-based Federal funding that the Grants Committee is sponsoring at the National Grants Management Association Conference on May 23-24.
II. Executive Branch Actions
A. Nonprocurement Suspension and Debarment Rules
This year an Interagency Suspension and Debarment Committee made significant progress toward revisions of the existing common rule on this topic. In 1999, the Office of Management and Budget had asked this Committee to propose amendments to the common rule that would resolve unnecessary technical differences between the procurement and nonprocurement systems; adopt a plain language style and format; and make other improvements.
The Bush Administration has supported the Committee's efforts. OMB directed affected agencies to prepare draft rulemaking notices by May 18, 2001, andto be prepared to submit signed copies of the agency adoptions of the notices byJune 1, 2001. At this time, the Committee expects agencies to meet OMB's publication deadline. The planned revisions would:
· Adopt a different approach to the structure and format of the common rule. The proposed new rule is formatted so that matters common to a particular class of readers, or to a particular subject, appear together. The proposed rule would also contain tables and a chart to assist the reader in locating or clarifying information presented in the text of the rule.
· Incorporate some changes that are designed to bring the procurement and nonprocurement debarment rules into greater conformity with each other. The Committee recommended against issuing a single consolidated rule, or adopting uniform application of the rule, however, as impractical and confusing.
Instead, the Committee limited the rule to contain the same level of substantive due process as contained in the Federal Acquisition Regulation: (a) applying the same minimum criteria to suspend or propose debarment; (b) notifying respondents of actions; (c) making a record to support a decision; (d) providing for fact-finding; (e) addressing mitigating and other factors; (f) applying evidentiary standards; and (g) issuing decisions.
· Give agencies flexibility in determining how many tiers below any nonprocurement transaction a debarment or suspension would be effective. The determinations would depend upon the degree of risk of misconduct under an agency's programs at the lower tiers.
· Give agencies flexibility in determining how they would obtain compliance with the proposed rule. Methods for acquiring compliance could range from obtaining certifications from lower tier participants to reliance on terms and conditions in the initial non-procurement award document.
· Clarify the threshold for coverage of lower tier nonprocurement transactions. It would remain at $25,000.
B. Labor Relations and Federal Construction Projects, Executive Order 13202
On February 17, 2001, President Bush issued Executive Order 13202, " Preservation of Open Competition and Government Neutrality Towards Government Contractors' Labor Relations on Federal and Federally Funded Construction Projects." This order requires executive agencies providing financial assistance for construction projects to ensure that recipients shall not: (1) require or prohibit bidders, offerors, contractors, or subcontractors to enter into or adhere to agreements with one or more labor organizations on the same or other related construction project(s); or (2) otherwise discriminate against bidders, offerors, contractors, or subcontractors for becoming or refusing to become or remain signatories or otherwise adhere to agreements with one or more labor organizations, on the same or other related construction project(s).
On April 6, 2001, President Bush issued an amendment to the Executive Order providing that the head of an agency may exempt a particular project from the requirements of the order if the agency head finds that (1) any of the requirements or prohibitions set forth above existed as of the date of the order and (2) that one or more construction contracts subject to such requirements or prohibitions had been awarded as of the date of the order.
It is significant to note that, in the case of financial assistance, the terms of the Executive Order apply to construction contracts awarded after the date of the order under existing grant awards. Presumably, executive agencies will take appropriate action to ensure compliance with the order by existing grantees for construction contracts awarded after February 17, 2001.
C. Faith-Based and Community Initiatives, Executive Orders 13198 and 13199
On January 29, 2001, the President issued Executive Order 13198, "Agency Responsibilities with Respect to Faith-Based and Community Initiatives," and Executive Order 13199, "Establishment of White House Office of Faith-Based and Community Initiatives." These Executive Orders direct five agencies (Justice, Education, Labor, Health and Human Services, and Housing and Urban Development) to each establish within their respective departments a Center for Faith-Based and Community Initiatives.
In addition, all executive departments and agencies are to designate an agency employee to serve as the liaison and point of contact with the newly established White House Office of Faith-Based and Community Initiatives. Each agency is to cooperate with that office and, to the extent permitted by law, provide such support, information, and assistance as it may request.
The primary purpose of this effort is to eliminate regulatory, contracting, and other programmatic obstacles to the participation of faith-based and other community organizations in the delivery of Federally-funded social services.
D. Office of Management and Budget Circular A-21
OMB revised Circular A-21, Cost Principles for Educational Institutions, effective August 8, 2000, to add a standard format for submitting facilities and administrative rate proposals, so that the government can better collect data on these costs and rates. The revised Circular is available at: http://www.whitehouse.gov/omb/circulars/a021/a021.html
E. Office of Management and Budget Circular A-133
OMB revised the Compliance Supplement to Circular A-133 to reflect updated practices in March 2001. The revised Supplement is available at: http://www.whitehouse.gov/omb/circulars/a133_compliance/01toc.html.
III. Federal Case Law Review
The following Federal cases are among those from the past year that may be of interest to the Federal grants community. These brief descriptions are provided for general information, not legal guidance. For further information, readers should review in full the cases themselves, as well as subsequent histories, which are not cited, and related cases.
A. U.S. Supreme Court Cases
Mitchell v. Helms The U.S. Supreme Court issued an opinion last June that has an impact on government funding programs that aid religious organizations. In this case, 530 U.S. 793 (2000), the Court held that a Federal statute providing government aid to both public and private schools was not unconstitutional when the statute did not result in religious indoctrination by the government, did not define its recipients by reference to religion, and did not advance religion in violation of the Constitution's Establishment Clause.
Vermont Agency of Natural Resources v. United States. The U.S. Supreme Court issued an opinion last May that affects fraud lawsuits in federal funding programs. In this case, 529 U.S. 165 (2000), the Court held that a private individual may not bring suit in federal court on behalf of the United States against a State (or state agency) under the False Claims Act. Under this Act, 31 U.S.C. § 3730, a private person (called a "relator") may bring a qui tam civil action in the name of the Federal government, regarding any person who knowingly presents to the Government a false or fraudulent claim for payment, and the relator can receive a share of the proceeds recovered. The Court determined that a State or agency is not a "person" subject to qui tam liability under the statute.
B. Federal Appeals Court Cases
MD/DC/DE Broadcasters Association v. Federal Communications Commission Federal requirements that entities engage in outreach targeted at racial or ethnic minorities might be subject to a "strict scrutiny" standard of legal review under some circumstances as a result of a D.C. Circuit Court of Appeals decision this January in MD/DC/DE Broadcasters Association v. Federal Communications Commission, 236 F.3d 13 (D.C.Cir. 2001).
In this case, the Court held unconstitutional an FCC rule encouraging broadcasters to engage in outreach in order to generate a larger percentage of applications from minority candidates. The Court determined that as a result of the FCC rule, prospective non-minority applicants who would have learned of the job opportunities but for the rule were deprived of the opportunity to compete simply because of their race. The FCC required licensees to report the race and source of referral of each applicant and indicated that it would investigate any licensee that reported few or no applications from minorities. The Court noted the coercive effect of a licensing authority's threat to investigate. The Court concluded that since the FCC rule created pressure on broadcasters to target recruitment efforts at racial or ethnic minorities, it constituted a racial classification subjecting persons of different races to unequal treatment.
Under the standard established in Adarand Constructors v. Pena, 515 U.S. 200 (1995), the FCC rule was subject to "strict scrutiny," and must be narrowly tailored to further a compelling governmental interest to comply with the Equal Protection clause of the U.S. Constitution. The Court found that the FCC rule failed to meet that standard. At this time, the Department of Justice has not issued any guidance to agencies regarding the applicability of this decision to agencies other than the FCC.
ABT Associates, Inc. v. JHPIEGO Corp. In this case, 2001 U.S.App. LEXIS 9751 (4th Cir. May 17, 2001), several organizations entered into a "teaming agreement" to apply for a U.S. State Department financial assistance program for overseas health care efforts. The organization leading the team was subsequently issued an award, with other team members participating through subtier arrangements. An organization that collaborated in preparing the funding application, negotiated with the team, and entered into a "pre-subagreement," sued for breach of contract when the parties were unable to agree to terms after the award was issued. The Court determined that the record did not support an enforceable agreement in these circumstances.
Yonkers-Branch-NAACP v. City of Yonkers In this case, 2001 U.S.App. LEXIS 8586 (2nd Cir. May 9, 2001), a City was a recipient of Federal financial assistance for schools, and a State sought half of the aid to implement court-ordered desegregation, the costs of which were to be split between the City and State. A Federal appeals court ruled that the City should keep the funds since the City applied for it, and this approach provided maximum incentive to both parties to explore outside sources of funds to pay the desegregation costs. Only cities, not states, were eligible for the grant program.
James Island Public Service District v. City of Charleston In this case, 2001 U.S.App. LEXIS 8494 (4th Cir. May 7, 2001), a rural fire service operating with Federal financial assistance obtained an injunction to prohibit a nearby city that had been annexing rural land from curtailing the City's fire service, and to require the City to allocate tax revenues from the annexed properties to cover expenses. The City argued that it did not consent to the conditions of the Federal aid program, and that the application violated the Tenth Amendment of the U.S. Constitution, which establishes powers for States. The Court ruled that the financial assistance program conditions were a valid exercise of Congress' spending power, and were not unconstitutional.
Transit Express, Inc. v. Ettinger In this case, 2001 U.S.App. LEXIS 6173 (7th Cir. Apr. 12, 2001), a recipient of Federal transportation assistance spent funds on vans rather than on subtier agreements to provide transportation services to the elderly and disabled, as it had in past years. The subtier party claimed that is was improperly excluded from funding for that year under the program's competition requirements, due to conflicts of interest and overly restrictive insurance requirements. The Appeals Court affirmed a lower court decision to dismiss the case because no "Federal question" arose. It noted that the competition requirements did not apply to service contracts that were not assisted with Federal funds, and they did not apply when the Federal funding was spent on capital expenditures instead of service providers. The Court determined that the Federal government's strong interest in providing efficient transportation did not extend to contracts between private companies providing transportation services and those non-profit organizations that made use of such services.
Westmoreland Human Opportunities, Inc. v. Walsh In this case, 2001 U.S.App. LEXIS 6061 (3d Cir. Apr. 10, 2001), a debtor non-profit community service organization's interest in a Federal grant relationship was not "property of the estate" as defined in the bankruptcy code, thus triggering a fiduciary duty to the estate. The court took into consideration a Federal agency's strong interest in safeguarding the effective administration of its funds, as demonstrated by rigorous controls imposed on the grant relationship. This case included noteworthy discussion relating to Federal grants and bankruptcy.
Pederson v. Louisiana State University This case, 213 F.3d 858 (5th Cir. 2000), involved Title IX of the Education Amendments Act, which prohibits universities from discriminating against women. A Federal Appeals Court concluded, among other things, that a State waives its sovereign immunity under the U.S. Constitution when it accepts Federal funding under Title IX. The case included some discussion on how Federal funding programs operate like contracts.
Arapahoe County Public Airport Authority v. Federal Aviation Administration In this case, 242 F.3d 1213 (10th Cir. 2001), the FAA suspended a county airport authority's eligibility for discretionary Federal grants due to claimed violations of Federal statutes and terms of a grant award. The recipient sued to set aside this decision, because its actions were consistent with an earlier Colorado Supreme Court opinion. The Court affirmed the FAA's order, ruling that the FAA was not required to give preclusive effect to the state Supreme Court decision, and that the strong policy of Federal supremacy in the field of aviation should prevail in this situation.
City of Los Angeles v. Federal Aviation Administration This case, 239 F.3d 1033 (9th Cir. 2001), involved an FAA statute that required airport operators accepting Federal grants to be subject to indefinite restrictions on the use of revenues from sources such as water and mineral rights on off-airport property used for airport-related purposes. When the recipient, the City of Los Angeles, accepted grants, it gave revenue-use assurances for only 20 years, as required by then-exiting law, rather than for an indefinite time. The Appeals Court determined that the case should have been reviewed by a lower court first, which hadn't happened, and transferred the case to District Court for further action.
Area Transporation, Inc. v. Ettinger In this case, 219 F.3d 671 (7th Cir. 2000), a transportation company sued a Federal agency, seeking a declaration that a bus service (not a party to the lawsuit) was ineligible for future grants due to past violations of a grant condition. It also sought an order directing the bus service to repay grant funds received while in violation of the grant agreement. The Appeals Court determined that the suing party did not have "standing" to sue. Also, it deemed too speculative the propositions that the agency's action caused the grantee economic injury, and that imposing harsher penalties against the non-party bus company would alleviate this injury.
Kansas v. United States In this case, 214 F.3d 1196 (10th Cir. 2000), a State sought relief from restrictions imposed by a Federal financial assistance program involving block grants for child support, claiming that Congress violated the Spending Clause of the U.S. Constitution, and the Tenth Amendment, which establishes State powers. The State argued that a large Federal grant accompanied by a set of conditional requirements was coercive because of the powerful incentive it creates for states to accept it. The Court determined that Congress did not violate its authority under the Spending Clause because the program provided for the general welfare, the State was not coerced and knowingly took the funds, and providing funds was related to Federal child support enforcement requirements.
Metcalf v. Daley In this case, 214 F.3d 1135 (9th Cir. 2000), the Department of Commerce conducted an environmental assessment required by the National Environmental Policy Act after entering into a cooperative agreement with a Native American tribe in support of the tribe's whaling proposal. The Department found no significant environmental impact, and environmental groups and others challenged the Department's decision. The Court determined that the Department prepared the environmental assessment too late in the decision-making process, after committing its resources, and a new assessment was required.
C. Other Federal Court Cases
Kelly v. Medical College of Ohio In this case, 2001 U.S.Dist. LEXIS 2496 (N.D.Ohio Mar. 6, 2001), a medical student sued a medical school, student financial aid director, professor, and the U.S. Department of Education, claiming discrimination under a Federal law that prohibits discrimination by Federal financial assistance recipients. Among other conclusions, the Court determined that the student financial aid director and professor were immune from the lawsuit because the educational institution received the Federal grants, not the employees.
Alabama v. Shalala In this case, 124 F.Supp.2d 1250 (M.D.Ala. 2000), the U.S. Department of Health and Human Services determined that a financial assistance recipient violated Federal cost principles by transferring funds from a State insurance fund to the State treasury for unrelated purposes. The Court upheld the Department's disallowance of costs, and rejected arguments regarding the application and promulgation of a Federal budget circular, the character of the funding transfers, and the calculation of the Federal share of the funds.
Hodges v. Shalala In this case, 121 F.Supp.2d 854 (D.S.C. 2000), a State filed suit to prevent the U.S. Department of Health and Human Services from penalizing it for failing to meet certain conditions tied to its receipt of Federal financial assistance. The Court determined that the Department lacked discretion under the relevant statutory authority, the Child Support Enforcement Act, to afford the State the relief that it sought.
Arizona v. Shalala In this case, 121 F.Supp.2d 40 (D.D.C. 2000), six States sought to prevent enforcement of a directive from the U.S. Department of Health and Human Services that applied existing cost allocation principles to a block grant program providing temporary assistance to needy families. The Court ruled that the Department's interpretative guide did not exceed its authority and was valid interpretative guidance, not inconsistent with the program's statutory authority, and as first interpretation, the guidance was validly issued without public notice and comment.
National A-1 Advertising v. Network Solutions, Inc. In this case, 121 F.Supp.2d 156 (D.N.H. 2000), an Internet domain name provider operating under a Federal financial assistance award was sued by a corporation and an individual after the provider declined to register several sexually explicit domain names. The suing parties asserted that their constitutional free speech rights were violated. The Court considered the relationship between the Federal agency and the recipient, and determined that the domain name provider was not acting for the government when it rejected the proposed names for registration. Therefore, it concluded, the suing parties' constitutional claim was not supportable. A similar case is Island Online, Inc. v. Network Solutions, 119 F.Supp.2d 289 (2000).
Pennsylvania Department of Public Welfare v. United States In this case, 48 Fed.Cl. 785 (E.D.N.Y.2001), a party receiving a Federal grant for its child and family services plan alleged that a Federal agency agreed that grant funds could be used to support the recipient's juvenile justice services. The Court found that no enforceable contract existed because the recipient failed to allege that any relevant government representative has actual authority, express or implied, to bind the agency in contract.
Westside Mothers v. Haveman In this case, 133 F.Supp.2d 549 (E.D.Mich. 2001), the suing parties claimed that a State and some of its officers failed to provide services to all eligible children, as required under a Federal law. The Court determined that the State had constitutional sovereign immunity from suit. It stated that the Medicaid program at issue was the result of a voluntary contract between two sovereigns, a State and the Federal government. Thus, it was not of the same legal nature as action by the Federal government in its capacity as the supreme sovereign compelling behavior by individuals. The Court determined that the State officials carrying out the program, who were sued to avoid the immunity issue, were legally indistinguishable from the State. The case included discussion of whether a cooperative agreement is a "contract."
U.S.Department of Housing and Urban Development v. Capolino In this case, 2001 U.S.Dist. LEXIS 5825 (S.D.N.Y. May 7, 2001), the U.S. Department of Housing and Urban Development sought to prevent Federal financial assistance funds from being used to satisfy a judgment in a defamation case. A Federal Court granted an injunction to HUD to prevent the release of the funds for this purpose. The Court discussed the nature of Federal funds in the hands of a grantee, which remain the property of the Federal government until the grantee expends them in accordance with the terms of the grant. Also, the Court noted, unless the Federal government consents, sovereign immunity prevents such funds from being subject to attachment or garnishment proceedings.
Jana Gagner, Steven Laughton, Staci LeBlanc, Eric Moll, Ed Sharp, and Peter Wathen-Dunn contributed to this paper.
The Federal Bar Association's Grants Committee
The Grants Committee of the Federal Bar Association's Government Contracts Section hopes you find this paper helpful. If you are an attorney, we invite you to join us. If you are not an attorney, please encourage the attorneys you encounter that practice in the grants law field to join us.
As the professional organization for private and government lawyers and judges involved in Federal practice, the FBA has offered an unmatched array of leadership opportunities and services for more than 75 years. The Grants Committee, part of the FBA's Government Contracts Section, meets monthly for a Brown Bag luncheon at a downtown Washington, D.C. law firm convenient to Metro. The Committee sponsors a variety of programs, including a panel presentation on a timely legal issue at the National Grants Management Association's annual training conference. The Committee also sponsors an Internet listserv on grants law matters, to which non-members may also subscribe.
To add yourself to the listserv, or for more information about the Grants Committee, contact the Committee Chair, Edward Sharp, at (301) 713-2175, e-mail: esharp@doc.gov. You may obtain information about joining the FBA at www.fedbar.org.