**§43.21 Payment.**

\(a\) *Scope.* This section prescribes the basic standard and the
methods under which a Federal agency will make payments to grantees, and
grantees will make payments to subgrantees and contractors.

\(b\) *Basic standard.* Methods and procedures for payment shall
minimize the time elapsing between the transfer of funds and
disbursement by the grantee or subgrantee, in accordance with Treasury
regulations at 31 CFR part 205.

\(c\) *Advances.* Grantees and subgrantees shall be paid in advance,
provided they maintain or demonstrate the willingness and ability to
maintain procedures to minimize the time elapsing between the transfer
of the funds and their disbursement by the grantee or subgrantee.

\(d\) *Reimbursement.* Reimbursement shall be the preferred method when
the requirements in paragraph (c) of this section are not met. Grantees
and subgrantees may also be paid by reimbursement for any construction
grant. Except as otherwise specified in regulation, Federal agencies
shall not use the percentage of completion method to pay construction
grants. The grantee or subgrantee may use that method to pay its
construction contractor, and if it does, the awarding agency's payments
to the grantee or subgrantee will be based on the grantee's or
subgrantee's actual rate of disbursement.

\(e\) *Working capital advances.* If a grantee cannot meet the criteria
for advance payments described in paragraph (c) of this section, and the
Federal agency has determined that reimbursement is not feasible because
the grantee lacks sufficient working capital, the awarding agency may
provide cash or a working capital advance basis. Under this procedure
the awarding agency shall advance cash to the grantee to cover its
estimated disbursement needs for an initial period generally geared to
the grantee's disbursing cycle. Thereafter, the awarding agency shall
reimburse the grantee for its actual cash disbursements. The working
capital advance method of payment shall not be used by grantees or
subgrantees if the reason for using such method is the unwillingness or
inability of the grantee to provide timely advances to the subgrantee to
meet the subgrantee's actual cash disbursements.

\(f\) *Effect* of *program income, refunds, and audit recoveries on
payment.*

\(1\) Grantees and subgrantees shall disburse repayments to and interest
earned on a revolving fund before requesting additional cash payments
for the same activity.

\(2\) Except as provided in paragraph (f)(1) of this section, grantees
and subgrantees shall disburse program income, rebates, refunds,
contract settlements, audit recoveries and interest earned on such funds
before requesting additional cash payments.

\(g\) *Withholding payments.*

\(1\) Unless otherwise required by Federal statute, awarding agencies
shall not withhold payments for proper charges incurred by grantees or
subgrantees unless:

\(i\) The grantee or subgrantee has failed to comply with grant award
conditions, or

\(ii\) The grantee or subgrantee is indebted to the United States.

\(2\) Cash withheld for failure to comply with grant award condition,
but without suspension of the grant, shall be released to the grantee
upon subsequent compliance. When a grant is suspended, payment
adjustments will be made in accordance with §43.43(c).

\(3\) A Federal agency shall not make payment to grantees for amounts
that are withheld by grantees or subgrantees from payment to contractors
to assure satisfactory completion of work. Payments shall be made by the
Federal agency when the grantees or subgrantees actually disburse the
withheld funds to the contractors or to escrow accounts established to
assure satisfactory completion of work.

\(h\) *Cash depositories.*

\(1\) Consistent with the national goal of expanding the opportunities
for minority business enterprises, grantees and subgrantees are
encouraged to use minority banks (a bank which is owned at least 50
percent by minority group members). A list of minority owned banks can
be obtained from the Minority Business Development Agency, Department of
Commerce, Washington, DC 20230.

\(2\) A grantee or subgrantee shall maintain a separate bank account
only when required by Federal-State agreement.

\(i\) *Interest earned on advances*. Except for interest earned on
advances of funds exempt under the Intergovernmental Cooperation Act (31
U.S.C. 6501, *et seq.*) and the Indian Self-Determination Act (23 U.S.C.
450), grantees and subgrantees shall promptly, but at least quarterly,
remit interest earned on advances to the Federal agency. The grantee or
subgrantee may keep interest amounts up to \$100 per year for
administrative expenses.