#  USAID GRANT AGREEMENT NO.

GR-611-010-G-06-0000

APPROP: 7295X2750

AMOUNT: 22,735,000

MILLENNIUM CHALLENGE ACCOUNT THRESHOLD PROGRAM

STRATEGIC OBJECTIVE GRANT AGREEMENT

BETWEEN THE

UNITED STATES OF AMERICA

AND

THE GOVERNMENT OF THE REPUBLIC OF ZAMBIA

TO

PROMOTE SOUND ECONOMIC GOVERNANCE BY

REDUCING BARRIERS TO TRADE AND INVESTMENT

DATED:

# ABBREVIATIONS/ACRONYMS

+-------------+--------------------------------------------------------+
| # ACC       | # **Anti-Corruption Commission**                       |
+-------------+--------------------------------------------------------+
| # COMESA    | # **Common Market for Eastern and Southern Africa**    |
+-------------+--------------------------------------------------------+
| # DDP       | # **District Development Plan**                        |
+-------------+--------------------------------------------------------+
| # EBZ       | # **Export Board of Zambia**                           |
+-------------+--------------------------------------------------------+
| # ECZ       | # **Environmental Council of Zambia**                  |
+-------------+--------------------------------------------------------+
| # FIAS      | # **Foreign Investment Advisory Service**              |
+-------------+--------------------------------------------------------+
| # GDP       | # **Gross Domestic Product**                           |
+-------------+--------------------------------------------------------+
| # HIPC      | # **Heavily Indebted Poor Countries Initiative**       |
+-------------+--------------------------------------------------------+
| # LIMS      | # **Lands Information Management System**              |
+-------------+--------------------------------------------------------+
| # MACO      | # **Ministry of Agriculture and Co-operatives**        |
+-------------+--------------------------------------------------------+
| # MCA       | # **Millennium Challenge Account**                     |
+-------------+--------------------------------------------------------+
| # MCC       | # **Millennium Challenge Corporation**                 |
+-------------+--------------------------------------------------------+
| # MCTI      | # **Ministry of Commerce Trade and Industry**          |
+-------------+--------------------------------------------------------+
| # NCPP      | # **National                                           |
|             | Corruption Prevention Plan (currently in draft form)** |
+-------------+--------------------------------------------------------+
| # NDP       | # **National Development Plan**                        |
+-------------+--------------------------------------------------------+
| # NGBS      | # **National Governance Baseline Survey**              |
+-------------+--------------------------------------------------------+
| # OAG       | # **Office of the Auditor General**                    |
+-------------+--------------------------------------------------------+
| # PACRO     | # **Patents and Companies Registration Office**        |
+-------------+--------------------------------------------------------+
| # PEMFA     | # **Public                                             |
|             |  Expenditure Management and Financial Accountability** |
+-------------+--------------------------------------------------------+
| # PCU       | # **Program Coordinating Unit**                        |
+-------------+--------------------------------------------------------+
| # PMU       | # **Program Management Unit**                          |
+-------------+--------------------------------------------------------+
| # PSD       | # **Private Sector Development**                       |
+-------------+--------------------------------------------------------+
| # SADC      | # **Southern Africa Development Committee**            |
+-------------+--------------------------------------------------------+
| # SEDB      | # **Small Enterprise Development Board**               |
+-------------+--------------------------------------------------------+
| # SPS       | # **Sanitary and Phyto-Sanitary**                      |
+-------------+--------------------------------------------------------+
| # TIZ       | # **Transparency International Zambia**                |
+-------------+--------------------------------------------------------+
| # TNDP      | # **Transitional National Development Plan**           |
+-------------+--------------------------------------------------------+
| # WTO       | # **World Trade Organization**                         |
+-------------+--------------------------------------------------------+
| # ZABS      | # **Zambia Bureau of Standards**                       |
+-------------+--------------------------------------------------------+
| # ZBF       | # **Zambia Business Forum**                            |
+-------------+--------------------------------------------------------+
| # ZCC       | # **Zambia Competition Commission**                    |
+-------------+--------------------------------------------------------+
| # ZDA       | # **Zambia Development Agency**                        |
+-------------+--------------------------------------------------------+
| # ZIC       | # **Zambia Investment Center**                         |
+-------------+--------------------------------------------------------+
| # ZPA       | # **Zambia Privatization Agency**                      |
+-------------+--------------------------------------------------------+
| # ZRA       | # **Zambia Revenue Authority**                         |
+-------------+--------------------------------------------------------+

**Millennium Challenge Account Threshold Program**

STRATEGIC OBJECTIVE GRANT AGREEMENT

[Table of Contents]{.underline}

[Page]{.underline}

Article 1: Purpose 1

Article 2: Strategic Objective and Results 1

Section 2.1. The Strategic Objective. 1

Section 2.2. Results. 1 Section 2.3. Annex 1, Amplified Description. 2

Article 3: Contributions of the Parties 2

Section 3.1. USAID Contribution 2

Section 3.2. Grantee Contribution 2

Article 4: Completion Date 3

Article 5: Conditions Precedent to Disbursement 3

Section 5.1. First Disbursement 3

Section 5.2. Notification 3

Section 5.3. Terminal Dates for Conditions Precedent 4

Article 6: Special Covenants 4

Section 6.1. Adequate Support for the Strategic Objective 4

Section 6.2. Salaries of Government Officials 4

Article 7: Miscellaneous 4

Section 7.1. Financial Disbursements 4

Section 7.2. Communications 5

Section 7.3. Representatives 5

Section 7.4. Standard Provisions Annex 5

Section 7.5. Amendments 5

**Millennium Challenge Account Threshold Program**

STRATEGIC OBJECTIVE GRANT AGREEMENT

Dated:

Between

The United States of America, acting through the United States Agency
for International Development (\"USAID\")

And

The Government of the Republic of Zambia, acting through the Ministry of
Finance and National Planning ( \"Grantee\")

For

The Strategic Objective ("S010"), Millennium Challenge Account Threshold
Program.

Article 1: [Purpose.]{.underline}

The purpose of this Strategic Objective Grant Agreement (\"Agreement\")
is to set out the understanding of the parties named above (the
\"Parties\") about the Strategic Objective described below.

Article 2: [Strategic Objective and Results.]{.underline}

Section 2.1. [Strategic Objective]{.underline}. The Strategic Objective
(\"Objective\") aims to Promote Sound Economic Governance by Reducing
Barriers to Trade and Investment through the following activities:

I. Ruling Justly: Promoting Greater Transparency and Reducing
Opportunities for Corruption. Activities include:

(a) Capacity building for the Anti-Corruption Commission;

(b) Implementation of institutionally tailored regulatory reforms;

(c) Establishment of internal watchdog units within three institution;
    and

(d) Creation of efficient citizens' monitoring and reporting mechanisms.

II\. Economic Freedom. Activities include:

(e) Establish the Zambia Development Agency operating framework;

(f) Rationalize and simplify the economic regulatory framework;

(g) Establish Patents and Companies Registration offices in provincial
    capitals; and

(h) Capacity building for the Program Coordinating Unit.

II\. Economic Freedom, Border Management. Activities include:

(i) Capacity Building in modern customs techniques and integrated border
    control and management;

(j) Strengthen capacity of the Sanitary and Phyto-Sanitary Services
    unit; and

(k) Strengthen capacity of Import and Export quality Monitoring,
    Standardization, and Certification system.

This Section 2.1 may not be changed except by formal written amendment
to this Agreement by the Authorized Representatives, as defined in
Section 7.3.

Section 2.2. [Results]{.underline}. In order to achieve that Objective,
the Parties agree to work together to achieve the following results:

-   Faster access to permits, quicker and less onerous customs
    procedures, and greater customer satisfaction with the targeted
    institutions.

-   Frequent reporting of corruption within the target institutions, and
    more effective deterrence.

-   Effective public complaints mechanisms and a more informed Zambian
    public, who perceive the target institutions as having reduced
    corrupt practices.

-   Reduced number of days to start a business.

-   Positive public perception of quality of public services.

-   Reduced number of days to export.

-   Reduced number of days to import

Within the limits of the definition of the Objective in Section 2.1,
this Section 2.2 may be changed by written agreement of the authorized
representatives of the Parties without formal amendment to the
Agreement.

Section 2.3. [Annex 1, Amplified Description]{.underline}. Annex 1,
attached, amplifies the above Objective and Results. Within the limits
of the above definition of the Objective in Section 2.1, Annex 1 may be
changed by written agreement of the authorized representatives of the
Parties without formal amendment of this Agreement.

Article 3: [Contributions of the Parties]{.underline}.

Section 3.1. [USAID Contribution]{.underline}.

> \(a\) The Grant. To help achieve the Objective set forth in this
> Agreement, USAID, pursuant to the Foreign Assistance Act of 1961, as
> amended and Section 616 of the Millennium Challenge Act of 2003,
> hereby grants to the Grantee under the terms of the Agreement not to
> exceed Twenty-Two Million, Seven Hundred Thirty-Five Thousand United
> States Dollars (U.S. \$22,735,000) (the \"Grant\").
>
> \(b\) I f at any time USAID determines that its contribution under
> Section 3.1 (a)
>
> exceeds the amount which reasonably can be committed for achieving the
> Objective or Results or Activities during the current or next U.S.
> fiscal year, USAID may, upon written notice to the Grantee, withdraw
> the excess amount, thereby reducing the amount of the Grant as set
> forth in Section 3.1(a).

Section 3.2. [Grantee Contribution]{.underline}.

> \(a\) The Grantee agrees to provide or cause to be provided all
> resources, in addition to those provided by USAID and any other donor
> identified in Annex 1, required to complete, on or before the
> Completion Date, all activities necessary to achieve the Results.
>
> \(b\) The Host Country Contribution Requirement of at least 25
> percent, as stated in Section 110 of the United States Foreign
> Assistance Act, 1961, as amended, is being waived under this
> Agreement. However, the Grantee will cooperate in and support the
> achievement of the Strategic Objective and Results called for under
> this Agreement. Such cooperation and support may include, but not be
> limited to, contributions of in-kind resources to the activities being
> undertaken, the provision of an enabling environment for these
> activities to operate, and Grantee's commitment to support policies,
> laws and programs that contribute to the Objective.

Article 4: [Completion Date]{.underline}.

> \(a\) The Completion Date, which is 30 September 2008, or such other
> date as the Parties may agree to in writing, is the date by which the
> Parties estimate that all the activities necessary to achieve the
> Objective and Results will be completed.
>
> \(b\) Except as USAID may otherwise agree to in writing, USAID will
> not issue or approve documentation which would authorize disbursement
> of the Grant for services performed or goods furnished after the
> Completion Date.
>
> \(c\) Requests for disbursement, accompanied by necessary supporting
> documentation prescribed in Implementation Letters, are to be received
> by USAID no later than nine (9) months following the Completion Date,
> or such other period as USAID agrees to in writing before or after
> such period. After such period USAID, at any time or times, may give
> notice in writing to the Grantee and reduce the amount of the Grant by
> all or any part thereof for which requests for disbursement,
> accompanied by necessary supporting documentation prescribed in
> Implementation Letters, were not received before the expiration of
> such period.

Article 5: [Conditions Precedent to Disbursement]{.underline}.

Section 5.1. [First Disbursement]{.underline}. Prior to the first
disbursement under the Grant, or to the issuance by USAID of
documentation pursuant to which disbursement will be made, the Grantee
will, except as the Parties may otherwise agree in writing, furnish to
USAID in form and substance satisfactory to USAID:

> \(a\) An opinion of counsel acceptable to USAID that this Agreement
> has been duly authorized or ratified by, and executed on behalf of the
> Grantee, and that it constitutes a valid and legally binding
> obligation of the Grantee in accordance with all of its terms; and
>
> \(b\) A statement in the name of the person holding or acting in the
> office of the Grantee specified in Section 7.2, and of any additional
> representatives, together with a specimen signature of each person
> specified in such statement.

Section 5.2. [Notification]{.underline}. USAID will promptly notify the
Grantee when USAID has determined that a condition precedent has been
met.

Section 5.3. [Terminal Dates for Conditions Precedent]{.underline}. The
terminal date for meeting the conditions specified in Section 5.1 is
sixty (60) days from the date of this Agreement or such later date as
USAID may agree to in writing before or after the above terminal date.
If the conditions precedent in Section 5.1 have not been met by the
above terminal date, USAID, at any time, may terminate this Agreement by
written notice to the Grantee.

Article 6: [Special Covenants]{.underline}.

Section 6.1: [Adequate Support for the Special Objective]{.underline}.
The Grantee and its concerned public institutions and the Ministry of
Finance and National Planning, will continue to provide adequate
support, and pursue policies and practices for achieving the goals and
objectives of Millennium Challenge Account Threshold Program.

Section 6.2. [Salaries of Government Officials]{.underline}. The Grantee
agrees that no individuals whose salaries are paid from the funds
provided under this Agreement will, at the same time, draw a Government
of the Republic of Zambia (GRZ) salary or receive government benefits.

Article 7: [Miscellaneous]{.underline}.

Section 7.1. [Financial Disbursement]{.underline}. The Parties agree
that the activities contemplated under this Agreement will be undertaken
in conformity with United States Government rules, regulations, policies
and procedures, and that USAID shall disburse all funds under this
Agreement to Implementing Partners (as defined in Annex 1) consistent
with such rules, regulations, policies and procedures.

Section 7.2. [Communications]{.underline}. Any notice, request,
document, or other communication submitted by either Party to the other
under this Agreement will be in writing or by facsimile, and will be
deemed duly given or sent when delivered to such Party at the following
address:

To USAID:

Mail Address:

The Mission Director

United States Agency for International Development

351 Independence Avenue

Lusaka, Zambia

Facsimile: 254-532

To the Grantee:

Mail Address:

The Permanent Secretary (Budget and Economic Affairs)

Ministry of Finance and National Planning

PO Box 50062

> Lusaka, Zambia

Facsimile: 253-344

All such communications shall be in English.

Other addresses may be substituted for the above upon the giving of
written notice by the parties.

Section 7.3. [Representatives]{.underline}. For all purposes relevant to
this Agreement, the Grantee will be represented by the individual
holding or acting in the Office of the Permanent Secretary (Budget and
Economic Affairs) of the Ministry of Finance and National Planning, and
USAID will be represented by the individual holding or acting in the
Office of Director, USAID Mission to Zambia, each of whom, by written
notice, may designate additional representatives for all purposes other
than signing formal amendments to the Agreement or exercising the power
under Sections 2.2 or 2.3 to revise the Results or Annex 1. The names of
the representatives of the Grantee, with specimen signatures, will be
provided to USAID, which may accept as duly authorized any instrument
signed by such representatives in implementation of this Agreement,
until receipt of written notice of revocation of their authority.

Section 7.4. [Standard Provisions Annex]{.underline}. A \"Standard
Provisions Annex\" (Annex 2) is attached to and forms part of this
Agreement.

Section 7.5. [Amendments]{.underline}. Unless otherwise specified
herein, the Parties may amend this Agreement only by a formal written
amendment signed by the Authorized Representatives.

**IN WITNESS WHEREOF**, the United States of America acting through
USAID and the Grantee, each acting through its duly authorized
representatives, have caused this Millennium Challenge Account Threshold
Program Strategic Objective Grant Agreement to be signed in their names
and delivered as of the day and year first above written.

UNITED STATES OF AMERICA GOVERNMENT OF THE

REPUBLIC OF ZAMBIA

By: \_[\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_]{.underline} By:
[\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_]{.underline}

Name: Lloyd O. Pierson Name: Nga'ndu Peter Magande, MP

Title: Assistant Administrator for Title: Minister of Finance and

Bureau for Africa National Planning

Date: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Date:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

**Annex 2**

**Standard Provisions**

Table of Contents

Article A: Definitions and Implementation Letters.

Section A.1. Definitions.

Section A.2. Implementation Letters.

Article B: General Covenants.

Section B.1. Consultation.

Section B.2. Execution of Agreement.

Section B.3. Utilization of Goods and Services.

Section B.4. Taxation.

Section B.5. Reports and Information, Agreement Books and Records,
Audits, and Inspections.

Section B.6. Completeness of Information.

Section B.7. Other Payments.

Section B.8. Information and Marking.

Article C: Procurement Provisions.

Section C.1. Source and Origin.

Section C.2. Eligibility Date.

Section C.3. Plans, Specifications and Contracts.

Section C.4. Reasonable Price.

Section C.5. Notification to Potential Suppliers.

Section C.6. Shipping.

Section C.7. Insurance.

Section C.8. U.S. Government-Owned Excess Property.

Article D. Disbursements.

Section D.1. Disbursements.

Section D.2. Rate of Exchange.

Article E. Termination; Remedies.

Section E.1. Suspension and Termination.

Section E.2. Refunds.

Section E.3. Nonwaiver of Remedies.

Section E.4. Assignment.

Article F: Miscellaneous.

Section F.1. Investment Promotion.

Section F.2. Voluntary Family Planning.

Section F.3. Prohibition of Assistance to Drug Traffickers.

Section F.4. Workers' Rights.

Standard Provisions

Article A: Definitions and Implementation Letters.

Section A.1. Definitions. As used in this Annex, the \"Agreement\"
refers to the Strategic Objective Grant Agreement, including Annex 1
thereto, to which this Annex is attached and of which this Annex forms a
part. Capitalized terms used and not otherwise defined in this Annex
have the same meaning or reference as in the Agreement.

Section A.2. Implementation Letters. To assist the Grantee in the
implementation of the Agreement, USAID, from time to time, will furnish
additional information about matters stated in this Agreement. The
Parties may also issue jointly agreed-upon Implementation Letters to
confirm and record their mutual understanding on aspects of the
implementation of this Agreement. Implementation Letters can also be
issued to record revisions or exceptions which are permitted by the
Agreement.

Article B: General Covenants.

Section B.1. Consultation. The Parties will cooperate to assure that the
Objective and Results of this Agreement will be accomplished. To this
end, the Parties, at the request of either, will exchange views on
progress towards the Objective and Results, the performance of
obligations under this Agreement, the performance of any consultants,
contractors, or suppliers engaged under the Agreement, and other matters
relating to the Agreement.

Section B.2. Execution of Agreement. The Grantee will:

(a) Carry out the Agreement or cause it to be carried out with due
diligence and efficiency, in conformity with sound technical, financial,
and management practices, and in conformity with those documents, plans,
specifications, contracts, schedules, or other arrangements, and with
any modifications therein, approved by USAID pursuant to this Agreement;
and

(b) Provide qualified and experienced management for, and train such
staff as may be appropriate for the maintenance and operation of
activities financed under the Agreement, and, as applicable for
continuing activities, cause those activities to be operated and
maintained in such manner as to assure the continuing and successful
achievement of the Objective and Results of the Agreement.

Section B.3. Utilization of Goods and Services.

(a) Any goods and services financed under this Agreement, unless
otherwise agreed in writing by USAID, will be devoted to the Agreement
until the completion or termination of the Agreement, and thereafter (as
well as during any period of suspension of the Agreement) will be used
to further the Objective of the Agreement and as USAID may direct in
Implementation Letters.

(b) Goods or services financed under this Agreement, except as USAID may
otherwise agree in writing, will not be used to promote or assist a
foreign aid project or activity associated with or financed by a country
not included in USAID Geographic Code 935 as in effect at the time of
such use.

Section B.4. Taxation.

(a) General Exemption. The Agreement and the assistance thereunder are
free from any taxes imposed under laws in effect in the territory of the
Grantee.

(b) Except as provided otherwise in this provision, the General
Exemption in subsection (a) applies to, but is not limited to (1) any
activity, contract, grant or other implementing agreement financed by
USAID under this Agreement; (2) any transaction or supplies, equipment,
materials, property or other goods (hereinafter collectively \"goods\")
under (1) above; (3) any contractor, grantee, or other organization
carrying out activities financed by USAID under this Agreement; (4) any
employee of such organizations; and (5) any individual contractor or
grantee carrying out activities financed by USAID under this Agreement.

(c) Except as provided otherwise in this provision, the General
Exemption in subsection (a) applies to, but is not limited to, the
following taxes:

(1) Exemption 1. Customs duties, tariffs, import taxes, or other levies
on the importation, use and re-exportation of goods or the personal
belongings and effects (including personally-owned automobiles) for the
personal use of non-national individuals or their family members.
Exemption 1 includes, but is not limited to, all charges based on the
value of such imported goods, but does not include service charges
directly related to services performed to transfer goods or cargo.

(2) Exemption 2. Taxes on the income, profits or property of all (i)
non-national organizations of any type, (ii) non-national employees of
national and non-national organizations, or (iii) non-national
individual contractors and grantees. Exemption 2 includes income and
social security taxes of all types and all taxes on the property,
personal or real, owned by such non-national organizations or persons.
The term \"national\" refers to organizations established under the laws
of the Grantee and citizens of the Grantee, other than permanent
resident aliens in the United States.

(3) Exemption 3. Taxes levied on the last transaction for the purchase
of goods or services financed by USAID under this Agreement, including
sales taxes, value-added taxes (VAT), or taxes on purchases or rentals
of real or personal property. The term \"last transaction\" refers to
the last transaction by which the goods or services were purchased for
use in the activities financed by USAID under this Agreement.

(d) If a tax has been levied and paid contrary to the provisions of an
exemption, USAID may, in its discretion, (1) require the Grantee to
refund to USAID or to others as USAID may direct the amount of such tax
with funds other than those provided under the Agreement, or (2) offset
the amount of such tax from amounts to be disbursed under this or any
other agreement between the Parties.

\(e\) In the event of a disagreement about the application of an
exemption, the Parties agree to promptly meet and resolve such matters,
guided by the principle that the assistance furnished by USAID is free
from direct taxation, so that all of the assistance furnished by USAID
will contribute directly to the economic development of the country of
the Grantee.

Section B.5. Reports and Information, Agreement Books and Records,
Audits, and Inspections.

(a) Reports and Information. The Grantee shall furnish USAID accounting
records and such other information and reports relating to the Agreement
as USAID may reasonably request.

(b) Grantee Agreement Books and Records. The Grantee shall maintain
accounting books, records, documents and other evidence relating to the
Agreement, adequate to show, without limitation, all costs incurred by
the Grantee under the Agreement, the receipt and use of goods and
services acquired under the Agreement by the Grantee, agreed-upon cost
sharing requirements, the nature and extent of solicitations of
prospective suppliers of goods and services acquired by the Grantee, the
basis of award of Grantee contracts and orders, and the overall progress
of the Agreement toward completion (\"Agreement books and records\").
The Grantee shall maintain Agreement books and records in accordance
with generally accepted accounting principles prevailing in the United
States, or at the Grantee\'s option, with approval by USAID, other
accounting principles, such as those (1) prescribed by the International
Accounting Standards Committee (an affiliate of the International
Federation of Accountants) or (2) prevailing in the country of the
Grantee. Agreement books and records shall be maintained for at least
three years after the date of last disbursement by USAID or for such
longer period, if any, required to resolve any litigation, claims or
audit findings.

(c) Grantee Audit. If \$300,000 or more of USAID funds are expended
directly by the Grantee in its fiscal year under the Agreement, the
Grantee shall have financial audits made of the expenditures in
accordance with the following terms, except as the Parties may otherwise
agree in writing:

(1) With USAID approval, the Grantee shall use its Supreme Audit
Institution or select an independent auditor in accordance with the
\"Guidelines for Financial Audits Contracted by Foreign Recipients\"
issued by the USAID Inspector General (\"Guidelines\"), and the audits
shall be performed in accordance with the \"Guidelines\"; and

(2) The audit shall determine whether the receipt and expenditure of the
funds provided under the Agreement are presented in accordance with
generally accepted accounting principles agreed to in section (b) above
and whether the Grantee has complied with the terms of the Agreement.
Each audit shall be completed no later than nine months after the close
of the Grantee\'s year under audit.

(d) Sub-recipient Audits. The Grantee, except as the Parties may
otherwise agree in writing, shall submit to USAID, in form and substance
satisfactory to USAID, a plan for the audit of the expenditures of
\"covered\" sub-recipients, as defined below, that receive funds under
this Agreement pursuant to a direct contract or agreement with the
Grantee.

(1) A \"covered\" sub-recipient is one who expends \$300,000 or more in
its fiscal year in \"USAID awards\" (i.e., as recipients of USAID cost
reimbursable contracts, grants or cooperative agreements and as
sub-recipients under USAID strategic objective and other grant
agreements with foreign governments).

(2) The plan shall describe the methodology to be used by the Grantee to
satisfy its audit responsibilities for covered sub-recipients. The
Grantee may satisfy such audit responsibilities by relying on
independent audits of the sub-recipients; expanding the scope of the
independent financial audit of the Grantee to encompass testing of
sub-recipients\' accounts; or a combination of these procedures.

(3) The plan shall identify the funds made available to covered
sub-recipients that will be covered by audits conducted in accordance
with other audit provisions that would satisfy the Grantee\'s audit
responsibilities. (A nonprofit organization organized in the United
States is required to arrange for its own audits. A for-profit
contractor organized in the United States that has a direct contract
with USAID is audited by the cognizant U.S. Government Agency. A private
voluntary organization organized outside the United States with a direct
grant from USAID is required to arrange for its own audits. A
host-country contractor should be audited by the Grantee's auditing
agency.)

(4) The Grantee shall ensure that covered sub-recipients under direct
contracts or agreements with the Grantee take appropriate and timely
corrective actions; consider whether sub-recipients\' audits necessitate
adjustment of its own records; and require each such sub-recipient to
permit independent auditors to have access to records and financial
statements as necessary.

(e) Audit Reports. The Grantee shall furnish or cause to be furnished to
USAID an audit report for each audit arranged for by the Grantee in
accordance with this Section within 30 days after completion of the
audit and no later than nine months after the end of the period under
audit.

(f) Other Covered Sub-recipients. For \"covered\" sub-recipients who
receive funds under the Agreement pursuant to direct contracts or
agreements with USAID, USAID will include appropriate audit requirements
in such contracts or agreements and will, on behalf of the Grantee,
conduct the follow-up activities with regard to the audit reports
furnished pursuant to such requirements.

(g) Cost of Audits. Subject to USAID approval in writing, costs of
audits performed in accordance with the terms of this Section may be
charged to the Agreement.

(h) Audit by USAID. USAID retains the right to perform the audits
required under this Agreement on behalf of the Grantee by utilizing
funds under the Agreement or other resources available to USAID for this
purpose, conduct a financial review, or otherwise ensure accountability
of organizations expending USAID funds regardless of the audit
requirement.

(i) Opportunity to Audit or Inspect. The Grantee shall afford authorized
representatives of USAID the opportunity at all reasonable times to
audit or inspect activities financed under the Agreement, the
utilization of goods and services financed by USAID, and books, records
and other documents relating to the Agreement.

(j) Sub-recipient Books and Records. The Grantee will incorporate
paragraphs (a), (b), (d), (e), (g), (h) and (i) of this provision into
all sub-agreements with non-U.S. organizations which meet the \$300,000
threshold of paragraph (c) of this provision. Sub-agreements with
non-U.S. organizations, which do not meet the \$300,000 threshold,
shall, at a minimum, incorporate paragraphs (h) and (i) of this
provision. Sub-agreements with U.S. organizations shall state that the
U.S. organization is subject to the audit requirements contained in OMB
Circular A-133.

Section B.6. Completeness of Information. The Grantee confirms:

(a) that the facts and circumstances of which it has informed USAID, or
caused USAID to be informed, in the course of reaching agreement with
USAID on the Agreement, are accurate and complete, and include all facts
and circumstances that might materially affect the Agreement and the
discharge of responsibilities under this Agreement; and

(b) That it will inform USAID in timely fashion of any subsequent facts
and circumstances that might materially affect, or that it is reasonable
to believe might so affect, the Agreement or the discharge of
responsibilities under this Agreement.

Section B.7. Other Payments. Grantee affirms that no payments have been
or will be received by any official of the Grantee in connection with
the procurement of goods or services financed under the Agreement,
except fees, taxes, or similar payments legally established in the
country of the Grantee.

Section B.8. Information and Marking. The Grantee will give appropriate
publicity to the Agreement as a program to which the United States has
contributed, identify Agreement activity sites, and mark goods financed
by USAID, as described in Implementation Letters.

Article C: Procurement Provisions.

Section C.1. Source and Origin.

\(a\) Disbursements under this Agreement will be used exclusively to
finance the costs of goods and services required for the Agreement
having, with respect to goods, their source and origin and, with respect
to the suppliers of goods and services, their nationality, in countries
included in Geographic Code 935 as in effect at the time orders are
placed or contracts entered into for such goods or services, except as
USAID may otherwise agree in writing and as follows:

(1) Ocean transportation costs shall be financed under the Agreement
only on vessels under flag registry of countries included in Geographic
Code 935. Also see Section C.6 on use of U.S. flag vessels.

(2) The country of the Grantee is an eligible source for marine
insurance.

\(b\) The source and origin of ocean and air shipping will be deemed to
be the ocean vessel\'s or aircraft\'s country of registry at the time of
shipment.

(c) Provisions concerning restricted and ineligible goods and services
may be provided in an Implementation Letter.

(d) Transportation by air of property or persons financed under this
Agreement will be on carriers holding United States certification, to
the extent service by such carriers is available under the Fly America
Act. This requirement may be further described by USAID in
Implementation Letters.

Section C.2. Eligibility Date. No goods or services may be financed
under the Agreement which are procured pursuant to orders or contracts
firmly placed or entered into prior to the date of this Agreement,
except as the Parties may otherwise agree in writing.

Section C.3. Plans, Specifications and Contracts. In order for there to
be mutual agreement on the following matters, and except as the Parties
may otherwise agree in writing:

(a) The Grantee will furnish to USAID upon preparation:

(1) Any plans, specifications, procurement or construction schedules,
contracts, or other documentation between the Grantee and third parties,
relating to goods or services to be financed under the Agreement,
including documentation relating to the prequalification and selection
of contractors and to the solicitation of bids and proposals. Material
modifications in such documentation will likewise be furnished USAID on
preparation; and

(2) Such documentation will also be furnished to USAID, upon
preparation, relating to any goods or services, which, though not
financed under the Agreement, are deemed by USAID to be of major
importance to the Agreement. Aspects of the Agreement involving matters
under this subsection (a) (2) will be identified in Implementation
Letters.

(b) Documents related to the prequalification of contractors, and to the
solicitation of bids or proposals for goods and services financed under
the Agreement will be approved by USAID in writing prior to their
issuance, and their terms will include United States standards and
measurements;

(c) Contracts and contractors financed under the Agreement for
engineering and other professional services, for construction services,
and for such other services, equipment, or materials as may be specified
in Implementation Letters, will be approved by USAID in writing prior to
execution of the contract. Material modifications in such contracts will
also be approved in writing by USAID prior to execution; and

(d) Consulting firms used by the Grantee for the Agreement but not
financed under the Agreement, the scope of their services and such of
their personnel assigned to activities financed under the Agreement as
USAID may specify, and construction contractors used by the Grantee for
the Agreement but not financed under the Agreement, shall be acceptable
to USAID.

Section C.4. Reasonable Price. No more than reasonable prices will be
paid for any goods or services financed, in whole or in part, under the
Agreement. Such items will be procured on a fair and, to the maximum
extent practicable, competitive basis.

Section C.5. Notification to Potential Suppliers. To permit all United
States firms to have the opportunity to participate in furnishing goods
and services to be financed under the Agreement, the Grantee will
furnish to USAID such information with regard thereto, and at such
times, as USAID may request in Implementation Letters.

Section C.6. Shipping/Transportation

(a) In addition to the requirements in Section C.1(a), costs of ocean or
air transportation and related delivery services may not be financed
under the Grant, if the costs are for transportation under an ocean
vessel or air charter which has not received prior USAID approval.

(b) Unless USAID determines that privately owned United States-flag
commercial ocean vessels are not available at fair and reasonable rates
for such vessels, or otherwise agrees in writing:

(1) At least fifty percent (50%) of the gross tonnage of all goods
(computed separately for dry bulk carriers, dry cargo liners and
tankers) financed by USAID which may be transported on ocean vessels
will be transported on privately owned United States-flag commercial
vessels; and

(2) At least fifty percent (50%) of the gross freight revenue generated
by all shipments financed by USAID and transported to the territory of
the Grantee on dry cargo liners shall be paid to or for the benefit of
privately owned United States-flag commercial vessels. Compliance with
the requirements of (1) and (2) of this subsection must be achieved with
respect to both any cargo transported from U.S. ports and any cargo
transported from non-U.S. ports, computed separately.

Section C.7. Insurance.

(a) Marine insurance on goods financed by USAID which are to be
transported to the territory of the Grantee may be financed under this
Agreement provided (1) such insurance is placed at the most advantageous
competitive rate; (2) such insurance is placed in a country which is
authorized under Section C.1(a); and (3) claims thereunder are payable
in U.S. dollars or any freely convertible currency unless USAID agrees
otherwise in writing.

If the Grantee (or the government of the Grantee), by statute, decree,
rule, regulation, or practice discriminates with respect to
USAID-financed procurement against any marine insurance company
authorized to do business in any State of the United States, then all
goods shipped to the territory of the Grantee financed by USAID
hereunder shall be insured against marine risks and such insurance shall
be placed in the United States with a company or companies authorized to
do marine insurance business in the United States.

(b) Except as USAID may otherwise agree in writing, the Grantee will
insure, or cause to be insured, goods financed under the Agreement
imported for the Agreement against risks incident to their transit to
the point of their use under the Agreement; such insurance will be
issued on terms and conditions consistent with sound commercial practice
and will insure the full value of the goods. Any indemnification
received by the Grantee under such insurance will be used to replace or
repair any material damage or any loss of the goods insured or will be
used to reimburse the Grantee for the replacement or repair of such
goods. Any such replacement will be of source and origin of countries
listed in USAID Geographic Code 935 as in effect at the time of
replacement and, except as the Parties may agree in writing, will be
otherwise subject to the provisions of the Agreement.

Section C.8. U.S. Government-Owned Excess Property. The Grantee agrees
that wherever practicable, United States Government-owned excess
personal property, in lieu of new items financed under the Grant, should
be utilized. Funds under the Agreement may be used to finance the costs
of obtaining such property.

Article D. Miscellaneous.

Section D.1. Disbursements. No disbursements to the Grantee are
contemplated under this Agreement. Should disbursements to the Grantee
be required, disbursements will be made through such means as the
Parties agree to in writing or as set forth in Annex 1.

Section D.2. Rate of Exchange. If funds provided under the Agreement are
introduced into the territory of the Grantee by USAID or any public or
private agency for purposes of carrying out the obligations of USAID
hereunder, the Grantee will make such arrangements as may be necessary
so that such funds may be converted into local currency at the highest
rate of exchange which, at the time the conversion is made, is not
unlawful in the country of the Grantee to any person for any purpose.

Article E. Termination; Remedies

Section E.1. Suspension and Termination

\(a\) Either Party may terminate this Agreement in its entirety by
giving the other Party 30 days' written notice. USAID also may terminate
this Agreement in part by giving the Grantee 30 days' written notice,
and suspend this Agreement in whole or in part upon giving the Grantee
written notice. In addition, USAID may terminate this Agreement in whole
or in part, upon giving the Grantee written notice, if (i) the Grantee
fails to comply with any provision of this Agreement, (ii) an event
occurs that USAID determines makes it improbable that the Objective or
Results of the Agreement or the assistance program will be attained or
that the Grantee will be able to perform its obligations under this
Agreement, or (iii) any disbursement or use of funds in the manner
herein contemplated would be in violation of the legislation governing
USAID or the Grant whether now or hereafter in effect.

\(b\) Except for payment which the Parties are committed to make
pursuant to noncancelable commitments entered into with third parties
prior to such suspension or termination, suspension or termination of
this entire Agreement or part thereof will suspend (for the period of
the suspension) or terminate, as applicable, any obligation of the
Parties to provide financial or other resources to the Agreement, or to
the suspended or terminated portion of the Agreement, as applicable. Any
portion of this Agreement which is not suspended or terminated shall
remain in full force and effect.

\(c\) In addition, upon such full or partial suspension or termination,
USAID may, at USAID\'s expense, direct that title to goods financed
under the Agreement, or under the applicable portion of the Agreement,
be transferred to USAID if the goods are in a deliverable state.

Section E.2. Refunds.

(a) In the case of any disbursement which is not supported by valid
documentation in accordance with this Agreement, or which is not made or
used in accordance with this Agreement, or which was for goods or
services not used in accordance with this Agreement, USAID,
notwithstanding the availability or exercise of any other remedies under
this Agreement, may require the Grantee to refund the amount of such
disbursement in U.S. dollars to USAID within sixty (60) days after
receipt of a request therefor.

(b) If the failure of the Grantee to comply with any of its obligations
under this Agreement has the result that goods or services financed or
supported under the Agreement are not used effectively in accordance
with this Agreement, USAID may require the Grantee to refund all or any
part of the amount of the disbursements under this Agreement for or in
connection with such goods or services in U.S. dollars to USAID within
sixty (60) days after receipt of a request therefor.

(c) The right under subsections (a) or (b) to require a refund of a
disbursement will continue, notwithstanding any other provision of this
Agreement, for three years from the date of the last disbursement under
this Agreement.

(d) (1) Any refunds under subsections (a) or (b), or (2) any refund to
USAID from a contractor, supplier, bank or other third party with
respect to goods or services financed under the Agreement, which refund
relates to an unreasonable price for or erroneous invoicing of goods or
services, or to goods that did not conform to specifications, or to
services that were inadequate, will (A) be made available first for the
Agreement, to the extent justified, and (B) the remainder, if any, will
be applied to reduce the amount of the Grant.

(e) Any interest or other earnings on funds disbursed by USAID to the
Grantee under this Agreement prior to the authorized use of such funds
for the Agreement will be returned to USAID in U.S. dollars by the
Grantee, unless USAID otherwise agrees in writing.

Section E.3. Nonwaiver of Remedies. No delay in exercising any right or
remedy accruing to a Party in connection with its financing under this
Agreement will be construed as a waiver of such right or remedy.

Section E.4. Assignment. The Grantee agrees upon request, to execute an
assignment to USAID of any cause of action which may accrue to the
Grantee in connection with or arising out of the contractual performance
or breach of performance by a party to a direct U.S. dollar contract
which USAID financed in whole or in part out of funds granted by USAID
under this Agreement.

Article F: Miscellaneous

Section F.1. Investment Promotion.

\(a\) Except as specifically set forth in the Agreement or otherwise
authorized by USAID in writing, no funds or other support provided
hereunder may be used for any activity that involves investment
promotion in a foreign country.

\(b\) In the event the Grantee is requested or wishes to provide
assistance in the above area or requires clarification from USAID as to
whether the activity would be consistent with the limitation set forth
above, the Grantee must notify USAID and provide a detailed description
of the proposed activity. The Grantee must not proceed with the activity
until advised by USAID that it may do so.

\(c\) The Grantee must ensure that its employees and subcontractors and
sub-recipients providing investment promotion services hereunder are
made aware of the restrictions set forth in this clause and must include
this clause in all subcontracts and other sub-agreements entered into
hereunder.

Section F.2. Voluntary Family Planning. The Parties agree that all USAID
funds provided under this Agreement shall be used in accordance with
applicable United States policy and statutory requirements relating to
voluntary family planning projects, and that none of the USAID funds
provided under this Agreement, or goods or services financed by such
funds, may be used for

\(a\) the performance of abortion as a method of family planning or to
motivate or coerce any person to practice abortions;

\(b\) the performance of involuntary sterilizations as a method of
family planning or to coerce or provide any financial incentive to any
person to undergo sterilizations; or

\(c\) any biomedical research which relates, in whole or in part, to
methods of, or the performance of, abortions or involuntary
sterilizations as a method family planning.

USAID will issue implementation letters that more fully describe the
requirements of this section.

Section F.3. Prohibition on Assistance to Drug Traffickers. USAID
reserves the right to terminate this Agreement or take other appropriate
measures if the Grantee or a key individual of the Grantee is found to
have been convicted of a narcotics offense or to have been engaged in
drug trafficking as defined in 22 Code of Federal Regulations (CFR) Part
140.

Section F.4. Workers' Rights.

\(a\) Except as specifically set forth in the Agreement or otherwise
authorized by USAID in writing, no funds or other support provided
hereunder may be used for any activity that involves workers' rights in
a foreign country.

\(b\) In the event the Grantee is requested or wishes to provide
assistance in the above area or requires clarification from USAID as to
whether the activity would be consistent with the limitation set forth
above, the Grantee must notify USAID and provide a detailed description
of the proposed activity. The Grantee must not proceed with the activity
until advised by USAID that it may do so.

\(c\) The Grantee must ensure that all employees and subcontractors and
sub-recipients providing employment-related services hereunder are made
aware of the restrictions set forth in this clause and must include this
clause in all subcontracts and other sub-agreements entered into
hereunder.