TREATIES AND OTHER INTERNATIONAL ACTS SERIES 13-828

________________________________________________________________________

ECONOMIC ASSISTANCE

Millennium Challenge Compact 

Between the 

UNITED STATES OF AMERICA

and HONDURAS

Signed August 28, 2013

with

Annexes 
 NOTE BY THE DEPARTMENT OF STATE

 Pursuant to Public Law 89—497, approved July 8, 1966

(80 Stat. 271; 1 U.S.C. 113)—

“. . .the Treaties and Other International Acts Series issued

under the authority of the Secretary of State shall be competent

evidence . . . of the treaties, international agreements other than

treaties, and proclamations by the President of such treaties and

international agreements other than treaties, as the case may be, 

therein contained, in all the courts of law and equity and of maritime

jurisdiction, and in all the tribunals and public offices of the

United States, and of the several States, without any further proof

or authentication thereof.”
 HONDURAS

 Economic Assistance

 Millennium Challenge Compact

 signed August 28, 2013;

 Entered into force August 28, 2013.

 With annexes.

 
EXECUTION VERSION

MILLENNIUM CHALLENGE ACCOUNT THRESHOLD PROGRAM

GRANT AGREEMENT

BETWEEN

THE UNITED STATES OF AMERICA,

ACTING THROUGH THE MILLENNIUM CHALLENGE CORPORATION

AND

THE REPUBLIC OF HONDURAS,

ACTING THROUGH THE MINISTRY OF THE PRESIDENCY

Dated August 28, 2013
TABLE OF CONTENTS

Page

Article 1. Goal and Objectives 1

Section 1.1 Program Goal 1

Section 1.2 Program Objective 1

Section 1.3 Project Objectives 1

Article 2. Program Funding 2

Section 2.1

Section 2.2

Section 2.3

Section 2.4

Section 2.5

Program Funding 2

Interest 2

Government Resources; Budget 2

Use of the Grant 2

Taxes 3

Article 3. Government Representations and Obligations 4

Section 3.1 Government Representations 4

Section 3.2 Government Responsibilities 4

Article 4. Implementation Framework 6

Section 4.1 Program Implementation Plan 6

Section 4.2 Monitoring and Evaluation 7

Section 4.3 Procurement and Grants 8

Section 4.4 Fiscal Accountability 8

Section 4.5 Environmental, Gender and other Program Guidelines 8

Section 4.6 Reports 9

Section 4.7 Records; Accounting; Providers; Access 9

Section 4.8 Audits; Reviews 10

Section 4.9 Required MCC Approvals 11

Section 4.10 Implementation Letters 12

Article 5. Disbursement of Grant Funding 12

Section 5.1 Disbursement Process 12

Section 5.2 Conditions Precedent to the Initial Disbursement 14

Section 5.3 Conditions Precedent to Each Disbursement 14

Article 6. Completion Date; Termination and Suspension 16

Section 6.1 Completion Date 16

Section 6.2 Termination and Suspension; Expiration 16

Section 6.3 Refunds 17

Article 7. Governing Law; Amendments; General 18

Section 7.1 Governing Law 18

Section 7.2 Consultations 18

Section 7.3 Representatives 18

Section 7.4 Communications 18

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
Section 7.5 MCC Status 19

Section 7.6 No Assurance of Future Assistance 19

Section 7.7 Amendment 19

Section 7.8 Survival 20

Section 7.9 Definitions; Interpretation 20

Section 7.10 References to MCC Website 20

Section 7.11 Signatures 20

Section 7.12 Grant Reference 20

Article 8. Entry Into Force 21

Annex I: Program Description

Annex II: Conditions Precedent to Disbursements

Annex III: Allocation of Grant Funding

Annex IV: Definitions

Toc - ii

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
THRESHOLD PROGRAM GRANT AGREEMENT

This THRESHOLD PROGRAM GRANT AGREEMENT (this "Agreement"), dated

August 28, 2013, is made between the United States of America, acting through the Millennium

Challenge Corporation ("MCC'), and the Republic of Honduras ("Honduras"), acting through

the Ministry of the Presidency (the "Government," and, collectively with MCC, the "Parties"

and each, individually, a "Party").

RECITALS

WHEREAS, MCC has authorized a program to provide assistance under Section 616 of

the Millennium Challenge Act of 2003, as amended, to selected candidate countries that have

demonstrated a commitment to strengthening good governance, economic freedom and

investments in people in order to assist such countries to become eligible for a Millennium

Challenge Compact (the "Threshold Program"); and

WHEREAS, MCC has selected Honduras as eligible for the Threshold Program; and

WHEREAS, the Parties wish to implement the program described herein to achieve the

goals and objectives described herein (as such program description and objectives may be

amended from time to time in accordance with the terms hereof, the "Program");

NOW, THEREFORE, the Parties agree as follows:

ARTICLE 1.

GOAL AND OBJECTIVES

Section 1.1 Program Goal. The goal of this Agreement is to assist Honduras to become

eligible for a Millennium Challenge Compact by supporting the implementation of critical

institutional and policy reforms that address binding constraints to economic growth in Honduras

(the "Program Goal"). MCC's assistance will be provided in a manner that strengthens good

governance, economic freedom and investments in the people of Honduras.

Section 1.2 Program Objective. The objective of the Program (the "Program Objective") is

to increase the efficiency and transparency of the Government. The Program consists of the

projects described in Annex I (each, a "Project" and collectively, the "Projects").

Section 1.3 Project Objectives. The objective of each of the Projects (each, a "Project

Objective" and collectively, the "Project Objectives") is as follows:

(a) The objective of the Public Financial Management Project is to increase the

efficiency and transparency of public financial management in Honduras by supporting activities

designed to improve budget formulation and execution, planning, payment, procurement

capacity and controls, audit capacity and civil society oversight.

(b) The objective of the Public -Private Partnerships Project is to improve the

efficiency and transparency of public-private partnerships ("PPPs") in Honduras by supporting

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
activities designed to increase the Government's capacity to develop, negotiate, implement and

oversee PPPs.

ARTICLE 2.

PROGRAM FUNDING

Section 2.1 Program Funding.

(a) MCC hereby grants to the Government, subject to the terms of this Agreement, an

amount not to exceed Fifteen Million Six Hundred and Fifty Thousand United States dollars

(US$15,650,000) (the "Grant") to support implementation of the Program, as such Program is

described in greater detail in Annex I.

(b) The Government agrees that MCC may directly administer and manage a portion

of the Grant in order to implement certain activities (the "MCC-Administered Activities") related

to the Public Financial Management Project, as further described in Annex I.

(c) Other than the portion of the Grant to be utilized for the MCC-Administered

Activities, the Grant will be disbursed from time to time (each, a "Disbursement') in accordance

with the terms of this Agreement, including any conditions to disbursement contained in this

Agreement.

(d) The Grant will be allocated as described in Annex III, or as otherwise agreed in

accordance with this Agreement.

Section 2.2 Interest. Unless MCC agrees otherwise, the Government will pay or transfer to

MCC, in accordance with this Agreement, any interest or other earnings that accrue on the Grant

before such funding is used for a Program purpose.

Section 2.3 Government Resources; Budget.

(a) The Government will provide all funds and other resources, and will take all

actions, that are necessary to carry out the Government's responsibilities and obligations under

this Agreement.

(b) The Government will use its best efforts to ensure that the amount of the Grant

that it receives or is projected to receive in each of its fiscal years is fully accounted for in its

annual budget.

(c) Unless the Government discloses otherwise to MCC in writing, the Grant will be

in addition to the resources that the Government would otherwise receive or budget for the

activities implemented under the Program.

Section 2.4 Use of the Grant.

(a) The Government will ensure that the Grant and any assets or services funded by

the Grant, in whole or in part, will be used solely in furtherance of this Agreement and the

Program.

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HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
(b) The Government also will ensure that no Grant funding will be used for any

purpose that would violate United States law or policy, as specified in this Agreement or as

further notified to the Government in writing by MCC, including but not limited to the following

purposes:

(i) for assistance to, or training of, the military, police, militia, national guard

or other quasi-military organization or unit;

(ii) for any activity that is likely to cause a substantial loss of United States

jobs or a substantial displacement of United States production;

(iii) to undertake, fund or otherwise support any activity that is likely to cause

a significant environmental, health or safety hazard, as further described in the "Environmental

and Social Assessment Guidelines" posted at www.mcc.gov (the "MCC Website") or otherwise

made available by MCC to the Government ("MCC Environmental Guidelines") (to the extent

applicable to the Threshold Program and as further instructed by MCC from time to time); or

(iv) to pay for the performance of abortions as a method of family planning or

to motivate or coerce any person to practice abortions, to pay for 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 to pay for any biomedical research which relates, in whole

or in part, to methods of, or the performance of, abortions or involuntary sterilization as a means

of family planning.

Section 2.5 Taxes.

(a) Unless the Parties agree otherwise, the Government will ensure that the Grant is

free from the payment or imposition of any existing or future taxes, duties, levies, contributions

or other similar charges (but not fees or charges for services that are generally applicable in

Honduras, reasonable in amount and imposed on a non-discriminatory basis) ("Taxes") of or in

Honduras (including any such Taxes imposed by a national, regional, local or other

governmental or taxing authority of or in Honduras). Specifically, and without limiting the

generality of the foregoing, the Grant will be free from the payment of (i) any tariffs, customs

duties, import taxes, export taxes and other similar charges on any goods, works or services

introduced into Honduras in connection with the Program; (ii) sales tax, value-added tax, excise

tax, property transfer tax and other similar charges on any transactions involving goods, works or

services in connection with the Program; (iii) taxes and other similar charges on ownership,

possession or use of any property in connection with the Program; and (iv) taxes and other

similar charges on income, profits or gross receipts attributable to work performed in connection

with the Program and related social security taxes and other similar charges on all natural or

legal persons performing work in connection with the Program except (A) natural persons who

are citizens or permanent residents of Honduras; and (B) legal persons formed under the laws of

Honduras (but excluding the Accountable Entity and any other entity formed for the purpose of

implementing the Government's obligations hereunder).

(b) The Government and MCC may enter into one or more agreements setting forth

the mechanisms that the Government will use to implement the tax exemption required by this

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HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
Section 2.5. Such mechanisms may include exemptions from the payment of Taxes that have

been granted in accordance with applicable law, refund or reimbursement of Taxes by the

Government to MCC, the Accountable Entity or to the taxpayer, or payment by the Government

to the Accountable Entity or MCC, for the benefit of the Program, of an agreed amount

representing any collectible Taxes on the items described in this Section 2.5.

(c) If a Tax has been paid contrary to the requirements of this Section 2.5, the

Government will refund promptly to MCC (or to another party designated by MCC) the amount

of such Tax in United States dollars or the currency of Honduras within thirty (30) days (or such

other period as may be agreed in writing by the Parties) after the Government is notified in

writing (whether by MCC or the Accountable Entity) that such Tax has been paid.

(d) The Grant, including any proceeds thereof or Program Assets, may not be applied

by the Government in satisfaction of its obligations under this Section 2.5.

ARTICLE 3.

GOVERNMENT REPRESENTATIONS AND OBLIGATIONS

Section 3.1 Government Representations. The Government hereby represents to MCC that

the information provided to MCC by or on behalf of the Government in the course of reaching

this Agreement is true, correct, and complete in all material respects.

Section 3.2 Government Responsibilities.

(a) Principal Responsibility. The Government is responsible for overseeing and

managing the implementation of the Program.

(b) Accountable Entity. The Government hereby designates the entity known as

MCA-Honduras to implement the Program and to exercise and perform the Government's right

and obligation to oversee, manage and implement the Program, including without limitation,

managing the implementation of the Projects, allocating resources and managing procurements.

Such entity will: (i) be referred to herein as the "Accountable Entity;" (ii) have the authority to

bind the Government with regard to the Program (including, without limitation, the legal

authority to execute contracts, grants, cooperative agreements or other, similar arrangements);

and (iii) act in accordance with MCC's "Guidelines for Accountable Entities and Implementation

Structures" provided by MCC or posted on the MCC Website (the "MCC Governance

Guidelines") (to the extent applicable to the Threshold Program and as further instructed by

MCC from time to time). The designation of the Accountable Entity contemplated by this

Section 3.2(b) will not relieve the Government of any obligations or responsibilities hereunder or

under any related agreement, for which the Government remains fully responsible. MCC hereby

acknowledges and consents to the designation in this Section 3.2(b). With the prior written

consent of MCC, the Government may designate one or more additional entities to implement

the Program and to exercise and perform the Government's right and obligation to oversee,

manage and implement the Program.

(c) Policy Performance. In addition to undertaking the specific policy, legal and

regulatory reform commitments identified in Annex I, Annex II or elsewhere in this Agreement

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HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
(if any), the Government will seek to maintain and to improve its level of performance under the

policy criteria identified in Section 607 of the Millennium Challenge Act of 2003, as amended.

(d) Program Assets. Unless MCC agrees otherwise, the Government will ensure that

any Program Assets or services funded in whole or in part (directly or indirectly) by the Grant

are used solely in furtherance of this Agreement and the Program.

(e) Achievement of Program Objective. The Government will take all necessary or

appropriate steps to achieve the Program Objective and the Project Objectives prior to the

Completion Date (including, without limitation, funding all costs that exceed the Grant and are

required to carry out the terms hereof and achieve such objectives, except as MCC otherwise

agrees).

Intellectual Property. The Government grants to MCC a perpetual, irrevocable,

royalty-free, worldwide, fully paid, assignable right and license to practice or have practiced on

its behalf (including the right to produce, reproduce, publish, repurpose, use, store, modify or

make available) any portion or portions of Intellectual Property as MCC sees fit in any medium,

now known or hereafter developed, for any purpose whatsoever.

(g) Impoundment; Liens or Encumbrances. The Government will ensure that neither

the Grant nor any asset acquired with Grant funding will be subject to any impoundment,

rescission, sequestration, liquidation, lien, attachment, enforcement of judgment, pledge, or

encumbrance of any kind (each a "Lien"), except with MCC's prior written approval. In the

event any Lien is nonetheless imposed, the Government will promptly seek the release of such

Lien and, if such Lien is imposed by a final non-appealable court order, will pay any amounts

due in order to obtain such release; provided, however, that the Government will not apply any

portion of the Grant funding or any other funds received from MCC (or assets acquired with

funds provided by MCC) to satisfy any of its obligations under this Section 3.2(h).

(h) Insurance; Performance Guaranties. The Government will ensure to MCC's

satisfaction that any assets acquired with Grant funding are insured and will arrange such other

appropriate insurance to cover against risks or liabilities associated with the Program and the

transactions contemplated thereby, including by requiring Providers or Covered Providers to

obtain adequate insurance and to post adequate performance bonds or other guaranties. The

Government or the Accountable Entity will be named as the payee (or an additional insured, as

the case may be) on any such insurance and the beneficiary of any such guaranty or bonds. The

Government will promptly notify MCC of the payment of any proceeds from claims paid under

such insurance or guaranty, and will ensure that any such proceeds will be used to replace or

repair any lost, stolen, or damaged assets acquired with Grant funding; provided, however, that,

at MCC's election, such proceeds will be deposited in an account as designated by or as

otherwise directed by MCC.

(i) Autonomy. The Government will ensure that (i) no decision of the Accountable

Entity is modified, supplemented, unduly influenced, or rescinded by any governmental

authority, except by a non-appealable judicial decision or as otherwise approved by MCC, and

(ii) the authority of the Accountable Entity will not be expanded, restricted, or otherwise

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HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
modified, except in accordance with this Agreement or as otherwise agreed by the Parties in

writing.

(j) Performance Liabilities. No Grant funding or any other funding received from

MCC (or assets acquired with funds provided by MCC) may be used to pay any damages,

including any indemnification-related payments, incurred or owed by the Government or the

Accountable Entity under any agreement between the Government or the Accountable Entity, on

the one hand, and any third party.

(k) Publicity. The Government will give appropriate publicity to this Agreement as a

program to which the United States of America, through MCC, has contributed, including by

posting this Agreement, in English, as MCC may request, on an agreed website, identifying the

Grant activity sites and marking assets acquired with the Grant, all in accordance with MCC's

"Standards for Global Marking" provided by MCC or posted on the MCC Website (the "MCC

Marking Standards"); provided, however, that any press release or announcement regarding

MCC or the fact that MCC is making the Grant or any other publicity materials referencing MCC

will be subject to MCC's prior written approval. MCC may post this Agreement on the MCC

Website. MCC may also freely use any information it receives in any report or document

provided to it with respect to the Program, the Grant or this Agreement.

(1) Further Assurances. The Government will promptly do and perform such other

and further acts, and take all necessary and appropriate actions, including using its best efforts to

obtain all necessary approvals and consents to otherwise effectively carry out the obligations of

the Government set forth in this Agreement.

ARTICLE 4.

IMPLEMENTATION FRAMEWORK

Section 4.1 Program Implementation Plan. The framework for implementation for the

Program will be further elaborated in a set of documents, in form and substance approved by

MCC, consisting of: (i) the Detailed Financial Plan; (ii) one or more Procurement Plans; (iii) a

Work Plan; and (iv) an Audit Plan (each, an "Implementation Plan Document" and,

collectively, the "Implementation Plan"). The Government will submit its proposed

Implementation Plan for review and approval by MCC by the timeframes set forth in this

Agreement and at least on an annual basis thereafter (or in such other interval as may be required

by the Program Guidelines). MCC will review the proposed Implementation Plan and as

necessary may request the Government to submit clarifications or adjustments. The Government

will submit an updated Implementation Plan or updated Implementation Plan Document during

any quarter in which significant changes or modifications are made to a Project or to the

Program, or when the Government determines that the expected results, Targets and milestones

for the specified year are not likely to be achieved; provided, however, that an updated Detailed

Financial Plan will be submitted each quarter and an updated Procurement Plan will be submitted

at least every six months. In such instances, the Government will submit to MCC for approval a

proposed revised Implementation Plan or updated Implementation Plan Document (as

applicable) on the same date as the next Disbursement Request is due. The Government will

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HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
ensure that the implementation of the Program is conducted in accordance with the

Implementation Plan.

(a) Detailed Financial Plan. Unless MCC agrees otherwise, the Government will

develop, adopt and implement a detailed financial plan (as approved by MCC) in accordance

with the MCC Reporting Guidelines (to the extent applicable to the Threshold Program and as

further instructed by MCC from time to time) (as supplemented or otherwise modified from time

to time, the "Detailed Financial Plan"). The Detailed Financial Plan will set forth the funding

requirements for each Activity of the Program (including administrative costs) and for each

Project, broken down to the Activity level and projected both on a commitment and cash

requirement basis. Annex III, attached hereto, sets forth the allocation of Grant funding for the

Program. Annex III may be modified from time to time by agreement of the Parties in

accordance with the terms of this Agreement.

(b) Procurement Plan. The Government will develop a procurement plan covering

each procurement relating to the Program (each, a "Procurement Plan"), and submit such

Procurement Plan to MCC for approval before commencing the relevant procurement. Each

Procurement Plan will identify, among other things, the method of procurement for the goods,

works, or services to be procured. The Government will ensure that all goods, works or services

will be procured using the procurement method as approved in each Procurement Plan, and will

comply with the method of procurement outlined in such Procurement Plan.

(c) Work Plan. The Government will develop, adopt and implement a work plan, in

form and substance satisfactory to MCC, for the overall administration of the Program (the

"Work Plan"). In addition, the Government will develop, adopt and implement such other work

plans relating to the Projects and/or Activities as MCC may request from time to time.

(d) Audit Plan. The Government will develop, adopt and implement a plan, in

accordance with the MCC Audit Guidelines (to the extent applicable to the Threshold Program

and as further instructed by MCC from time to time), for the audit of the expenditures of the

entities that are subject to audit pursuant to the MCC Audit Guidelines (the "Audit Plan"). The

Audit Plan will be in form and substance satisfactory to MCC and will be developed no later

than sixty (60) days before the end of the first period to be audited. Unless MCC agrees

otherwise in writing, the Government will engage one or more auditors as contemplated in the

MCC Audit Guidelines (each, an "Auditor") to undertake the audits contemplated by the Audit

Plan.

Section 4.2 Monitoring and Evaluation. The Government will develop, adopt and implement

a monitoring and evaluation plan (the "M&E Plan") that will serve as the primary governing

document for monitoring and evaluation activities for the Program. The M&E Plan will be

developed and updated in accordance with the "MCC Policy for Monitoring and Evaluation of

Compacts and Threshold Programs" provided by MCC or posted on the MCC Website (the

"M&E Policy").

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HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
Section 4.3 Procurement and Grants.

(a) The Government will ensure that the procurement of all goods, works and

services required to implement the Program will be consistent with the "MCC Program

Procurement Guidelines" provided by MCC or posted on the MCC Website (the "MCC Program

Procurement Guidelines") (to the extent applicable to the Threshold Program and as further

instructed in writing by MCC from time to time). The MCC Program Procurement Guidelines

include, among others, the following requirements:

(i) open, fair and competitive procedures must be used in a transparent

manner to solicit, award and administer contracts and to procure goods, works and services;

(ii) solicitations for goods, works and services must be based upon a clear and

accurate description of the goods, works and services to be acquired;

(iii) contracts must be awarded only to qualified contractors that have the

capability and willingness to perform the contracts in accordance with their terms on a cost

effective and timely basis;

(iv) no more than a commercially reasonable price, as determined, for

example, by a comparison of price quotations and market prices will be paid to procure goods,

works and services.

(b) Unless MCC agrees otherwise, the Government will ensure that any grant issued

in furtherance of the Program (each, a "Program Grant") is awarded, implemented and managed

pursuant to open, fair and competitive procedures administered in a transparent manner

acceptable to MCC. In furtherance of this requirement, and prior to the issuance of any Program

Grant, the Government and MCC will agree upon written procedures to govern the identification

of potential recipients, including without limitation appropriate eligibility and selection criteria

and award procedures.

Section 4.4 Fiscal Accountability. Unless MCC agrees otherwise, the Government will

develop, adopt and implement a manual (as approved by MCC) setting forth the principles,

mechanisms and procedures (the "Fiscal Accountability Plan") that will be used to ensure

appropriate fiscal accountability and compliance with the "Cost Principles for Government

Affiliates Involved in MCC Compact Implementation" provided by MCC or posted on the MCC

Website (the "MCC Cost Principles") (to the extent applicable to the Threshold Program and as

further instructed in writing by MCC from time to time) for the use of the Grant funding. The

Fiscal Accountability Plan will include, among other things, requirements with respect to:

(a) budgeting; (b) accounting; (c) cash management; (d) financial transactions (receipts and

payments); (e) opening and managing Permitted Accounts; (f) personnel and payroll; (g) travel

and vehicle use; (h) asset and inventory control; (i) audits; and (j) reporting. The Fiscal

Accountability Plan will be revised periodically, subject to review and approval by MCC.

Section 4.5 Environmental, Gender and other Program Guidelines.

(a) Unless MCC agrees otherwise, the Government will ensure that activities

undertaken, funded or otherwise supported in whole or in part (directly or indirectly) by Grant

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HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
funding comply with the MCC Environmental Guidelines (to the extent applicable to the

Threshold Program and as further instructed in writing by MCC from time to time).

(b) Unless MCC agrees otherwise, the Government will ensure that activities

undertaken, funded or otherwise supported in whole or in part (directly or indirectly) by Grant

funding comply with the MCC Gender Policy and the MCC Gender Integration Guidelines and

Operational Procedures (in each case, to the extent applicable to the Threshold Program and as

further instructed in writing by MCC from time to time).

(c) Unless MCC agrees otherwise, the Government will ensure that activities

undertaken, funded or otherwise supported in whole or in part (directly or indirectly) by Grant

funding comply with the Program Guidelines (in each case, to the extent applicable to the

Threshold Program and as further instructed by MCC from time to time).

Section 4.6 Reports.

(a) Periodic Reports. Unless MCC agrees otherwise, the Government will provide to

MCC the periodic reports required by the "MCC Guidance on Quarterly MCA Disbursement

Request and Reporting Package" provided by MCC or posted on the MCC Website (the "MCC

Reporting Guidelines") (as applicable to the Threshold Program and as further instructed in

writing by MCC from time to time), in each case timely delivered and in form and substance

satisfactory to MCC.

(b) Additional Reports. In addition to the reports required by Section 4.6(a), the

Government will provide to MCC within thirty (30) days of a written request by MCC, or as

otherwise agreed by the Parties in writing, such other reports or documents as MCC may request

from time to time as related to any component of the Implementation Plan, the Fiscal

Accountability Plan or in connection with any Activity or Disbursement.

Section 4.7 Records; Accounting; Providers; Access.

(a) Records. The Government will maintain, and will use its best efforts to ensure

that the Accountable Entity and any Covered Providers maintain, accounting books, records,

documents, and other evidence relating to the Program adequate to show, to MCC's satisfaction,

the use of all Grant funding (collectively, the "Records"). The Government will furnish or cause

to be furnished to MCC upon MCC's request originals or copies of all such Records.

(b) Accounting. The Government will maintain, and will use its best efforts to ensure

that the Accountable Entity and any Covered Providers maintain, Records in accordance with

generally accepted accounting principles prevailing in the United States, or at the Government's

option and with MCC's prior written approval, other accounting principles, such as those (i)

prescribed by the International Accounting Standards Board or (ii) then prevailing in Honduras.

Records must be maintained for at least five (5) years after the end of the term of this Agreement

or for such longer period, if any, required to resolve any litigation, claims or audit findings, or

any statutory requirements.

(c) Providers. Unless MCC agrees otherwise, (i) a "Provider" is (A) any entity of the

Government that receives or uses Grant funding or any other asset purchased with Grant funding

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HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
in carrying out activities in furtherance of this Agreement or (B) any third party that receives at

least US$50,000 in the aggregate of Grant funding (other than as salary or compensation as an

employee of an entity of the Government) during the term of this Agreement; and (ii) a "Covered

Provider" is (A) a non-United States Provider that receives (other than pursuant to a direct

contract or agreement with MCC) US$300,000 or more of Grant funding in any Government

fiscal year or any other non-United States person or entity that receives, directly or indirectly,

US$300,000 or more of Grant funding from any Provider in such fiscal year, or (B) any United

States Provider that receives (other than pursuant to a direct contract or agreement with MCC)

US$500,000 or more of Grant funding in any Government fiscal year or any other United States

person or entity that receives, directly or indirectly, US$500,000 or more of Grant funding from

any Provider in such fiscal year.

(d) Access. Upon MCC's request, the Government, at all reasonable times, will

permit, or cause to be permitted, authorized representatives of MCC, the Inspector General of

MCC ("Inspector General"), the United States Government Accountability Office, any auditor

responsible for an audit contemplated herein or otherwise conducted in furtherance of this

Agreement, and any agents or representatives engaged by MCC or the Government to conduct

any assessment, review or evaluation of the Program, the opportunity to audit, review, evaluate

or inspect facilities, assets and activities funded in whole or in part by Grant funding.

Section 4.8 Audits; Reviews.

(a) Government Audits. Unless MCC agrees otherwise, the Government will, on an

annual basis (or on a more frequent basis if requested by MCC in writing), conduct, or cause to

be conducted, financial audits of all disbursements of Grant funding covering the period from

signing of this Agreement until the following December 31 and covering each twelve-month

period thereafter ending December 31, until the Completion Date. In addition, upon MCC's

request, the Government will ensure that such audits are conducted by an independent auditor

approved by MCC and named on the list of local auditors approved by the Inspector General or a

United States—based certified public accounting firm selected in accordance with the Guidelines

for Financial Audits Contracted by the Millennium Challenge Corporation's Accountable

Entities (the "MCC Audit Guidelines") issued and revised from time to time by the Inspector

General, which are posted on the MCC Website. Audits will be performed in accordance with

the MCC Audit Guidelines and be subject to quality assurance oversight by the Inspector

General. Each audit must be completed and the audit report delivered to MCC no later than 90

days after the applicable audit period, or such other period as the Parties may otherwise agree in

writing.

(b) Audits of Other Entities. The Government will ensure that MCC-financed

agreements between the Government or any Provider, on the one hand, and (i) a United States

nonprofit organization, on the other hand, state that the United States nonprofit organization is

subject to the applicable audit requirements contained in OMB Circular A-133, Audits of States,

Local Governments, and Non-Profit Organizations, issued by the United States Office of

Management and Budget; (ii) a United States for-profit Covered Provider, on the other hand,

state that the United States for-profit organization is subject to audit by the applicable United

States Government agency, unless the Government and MCC agree otherwise in writing; and

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HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
(iii) a non-United States Covered Provider, on the other hand, state that the non-United States

Covered Provider is subject to audit in accordance with the MCC Audit Guidelines.

(c) Corrective Actions. The Government will use its best efforts to ensure that each

Covered Provider (i) takes, where necessary, appropriate and timely corrective actions in

response to audits, (ii) considers whether the results of the Covered Provider's audit necessitates

adjustment of the Government's records, and (iii) permits independent auditors to have access to

its records and financial statements as necessary.

(d) Audit by MCC. MCC will have the right to arrange for audits of the

Government's use of Grant funding.

Section 4.9 Required MCC Approvals. Each of the following transactions, agreements and

documents will require MCC's prior written approval:

(a) any Disbursement and each Disbursement Request;

(b) the Implementation Plan (including each element or component thereof), the

Fiscal Accountability Plan and the M&E Plan, and any modification of any of the foregoing;

(c) agreements between the Government and the Accountable Entity, and agreements

in which any of the following are appointed, hired or otherwise engaged (each of the foregoing, a

"Material Agreement"):

(i) Auditor;

(ii) Bank;

(iii) a member of the Accountable Entity's board of directors (including any

observer) or any Officer of the Accountable Entity (including agreements regarding

compensation for any such person);

(d) any modification, termination or suspension of a Material Agreement, or any

action that would have equivalent effect;

(e) any agreement or transaction of the Accountable Entity that is not arm's-length;

(f) any pledge of any Grant funding or any Program Assets, or any incurrence of

material indebtedness, or any guarantee, directly or indirectly of any indebtedness;

(g) any decree, legislation, regulation, charter, contractual arrangement or other

document establishing or governing (other than public laws of general application to all public

institutions), or relating to the formation, organization or governance of, the Accountable Entity,

and any amendment, supplement, modification, repeal or other alteration thereof or thereto (each,

a "Governing Document");

11

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
(h) any disposition, in whole or in part, liquidation, dissolution, winding up,

reorganization or other change of the Accountable Entity, including any revocation or

modification of or supplement to any Governing Document related thereto;

(i) any change in character or location of any Permitted Account;

(j) (i) any change of any member of the Accountable Entity's board of directors, any

observer, the chairperson of the board, the composition or size of the board or the filling of any

vacant seat on the board, or the replacement of any observer; (ii) any change of any Officer of

the Accountable Entity or in the composition or size of its management unit (other than positions

that receive no Grant funding), and the filling of any vacant position of any Officer of the

Accountable Entity;

(k) any decision by the Accountable Entity to engage, accept or manage any funds in

addition to the Grant (including from any donor agencies or organizations) prior to the

Completion Date, or to engage in any activities or undertake any duties or responsibilities other

than those contemplated under this Agreement or any related agreement or document;

any agreement, transaction, decision or other action or document for which MCC

approval is required under any of the Program Guidelines, including the MCC Program

Procurement Guidelines; and

(m) any decision to amend, supplement, replace, terminate or otherwise change any of

the foregoing documents or arrangements.

Section 4.10 Implementation Letters. From time to time, MCC may provide guidance or

instructions to the Government in writing on any matters relating to this Agreement, the Grant or

implementation of the Program (each, an "Implementation Letter"). The Government will use

such guidance or instructions in implementing the Program. The Parties may also issue jointly

agreed-upon Implementation Letters to confirm and record their mutual understanding on aspects

related to the implementation of this Agreement or other related agreements.

ARTICLE 5.

DISBURSEMENT OF GRANT FUNDING

Section 5.1 Disbursement Process.

(a) Disbursement Requests. The Government may request Disbursements of the

Grant (other than the portion of the Grant to be utilized for the MCC-Administered Activities) by

submitting a written request to MCC substantially in the form of the "Disbursement Request"

provided by MCC or posted on the MCC Website (each, a "Disbursement Request"), duly

completed, not later than 20 days (or such other period of time as may be agreed by MCC) prior

to the commencement of each Disbursement Period. Unless MCC agrees otherwise, the

Government may submit only one Disbursement Request for each calendar quarter (such quarter,

or any other period of time as agreed by MCC, the "Disbursement Period").

12

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT

terms and operation of the Permitted Accounts will be set forth in the Fiscal Accountability Plan

and the Bank Agreement.

(ii) Unless MCC agrees otherwise, Grant funding held in a Permitted Account

will accrue interest or other earnings in accordance with the applicable Bank Agreement. On a

quarterly basis and upon the termination or expiration of this Agreement or the relevant Bank

Agreement, the Government will ensure the transfer to MCC of any interest accrued on amounts

held in a Permitted Account.

(iii) Unless MCC agrees otherwise, no other funds will be commingled in a

Permitted Account other than funding from MCC and accrued interest thereon. MCC will have

the right, among other things, to view any Permitted Account statements and activity directly online, and where such viewing is not feasible, the Government will provide copies of such

statements to MCC upon its request.

(iv) Unless MCC agrees otherwise, if Grant funding is held in any Permitted

Account other than the Local Account, the Government will ensure that such Grant funding will

be denominated in United States dollars prior to release. To the extent that any amount of Grant

funding held by the Bank in United States dollars must be exchanged into the currency of

Honduras for any purpose, the Government will ensure that such exchange is consistent with the

requirements of the Bank Agreement or as otherwise agreed in writing by the Parties.

Section 5.2 Conditions Precedent to the Initial Disbursement. Unless waived or deferred by

MCC in writing, the conditions set forth in this Section 5.2 and the conditions set forth in Section

5.3 must have been met to MCC's satisfaction prior to the initial Disbursement of the Grant:

(a) Legal Opinion. The Government has delivered to MCC a signed legal opinion by

counsel acceptable to MCC.

(b) Implementation Plan. The Government has developed and adopted the

Implementation Plan Documents (other than the Work Plan).

(c) Permitted Account. To the extent that any portion of the Disbursement will be

held in a Permitted Account, the Government has established the Local Account and any other

required Permitted Account.

(d) Fiscal Accountability Plan. The Government has developed and adopted the

Fiscal Accountability Plan (or an interim version).

(e) Officers. Each of the Officers has been selected and engaged by the Accountable

Entity and approved by MCC or if an Officer has not been selected, the Government is actively

engaged, to MCC's satisfaction, in recruiting for the vacant position.

Section 5.3 Conditions Precedent to Each Disbursement. Unless waived or deferred in

writing by MCC, the following conditions must have been met to MCC's satisfaction prior to

each Disbursement of the Grant (including the initial Disbursement of the Grant):

14

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
(a) Deliverables. The Government has delivered to MCC the following documents,

in form and substance satisfactory to MCC:

(i) a completed Disbursement Request, together with the periodic reports

required under Section 4.6 of this Agreement, covering the related Disbursement Period; and

(ii) a certificate from the Accountable Entity, dated as of the date of such

Disbursement Request, substantially in the form provided by MCC.

(b) Other Conditions Precedent. MCC has determined in its sole discretion that:

(i) any applicable conditions precedent in Annex II have been duly satisfied,

deferred or waived pursuant to the terms of this Agreement;

(ii) the Government's representations set forth in Section 3.1 of this

Agreement are true and correct on and as of the date of such Disbursement Request as though

made on and as of such date;

(iii) no material breach of any responsibility, covenant or obligation by the

Government, the Accountable Entity or any other Government entity has occurred and is

continuing under this Agreement or any related agreement or document;

(iv) the activities to be funded with such Disbursement will not violate any

applicable law or regulation;

(v) the Implementation Plan Documents and Fiscal Accountability Plan are

current and updated and are in form and substance satisfactory to MCC, and there has been

progress satisfactory to MCC on the components of the Implementation Plan related to such

Disbursement;

(vi) there has been progress satisfactory to MCC on the M&E Plan (including

the Targets set forth therein, any related Baseline data collection requirements set forth therein or

any applicable reporting requirements set forth therein for the relevant Disbursement Period);

(vii) there has been no material negative finding in any financial audit report

delivered in accordance with this Agreement and the Audit Plan for the prior two quarters (or

such other period as the Audit Plan may require);

(viii) any Taxes paid with Grant funding through the date ninety (90) days prior

to the start of the applicable Disbursement Period have been reimbursed by the Government in

full in accordance with Section 2.5; and

(ix) each of the Officers remains engaged, or if a position is vacant, the

Government is actively engaged, to MCC's satisfaction, in recruiting a replacement.

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HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
ARTICLE 6.

COMPLETION DATE; TERMINATION AND SUSPENSION

Section 6.1. Completion Date. Unless the Parties agree otherwise, August 31, 2017, is the date

by which the Parties estimate that all of the activities related to the implementation of the

Program and the achievement of the Program Objective and the Project Objectives will be

completed (the "Completion Date"). Unless MCC agrees otherwise, Grant funding may not be

used for expenditures incurred after the Completion Date.

Section 6.2. Termination and Suspension; Expiration.

(a) Either Party may terminate this Agreement without cause in its entirety by giving

the other Party 30 days' written notice; provided, however, that notwithstanding such

termination, this Agreement will continue to be effective with respect to any activity for which a

Disbursement has already been issued or approved by MCC.

(b) MCC may, upon written notice to the Government, immediately suspend or

terminate this Agreement or the Grant, in whole or in part, and any obligation related thereto, if

MCC determines that any circumstance identified by MCC, as a basis for suspension or

termination (whether in writing to the Government or by posting on the MCC Website) has

occurred, which circumstances include but are not limited to the following:

(i) the Government fails to comply with its commitments under this

Agreement or any other agreement or arrangement entered into by the Government in connection

with this Agreement or the Program;

(ii) an event or series of events has occurred that MCC determines makes it

improbable that the Program can be performed, that the Program Objective or Project Objectives

will be achieved before the Completion Date or that the Government will be able to perform its

obligations under this Agreement;

(iii) a use of the Grant or continued implementation of this Agreement would

violate applicable law or United States Government policy, whether now or hereafter in effect;

(iv) the Government or any other person or entity receiving Grant funding or

using assets acquired in whole or in part with Grant funding is engaged in activities that are

contrary to the national security interests of the United States of America;

(v) an act has been committed or an omission or an event has occurred that

would render Honduras ineligible to receive United States economic assistance under Part I of

the Foreign Assistance Act of 1961, as amended (22 U.S.C. 2151 et seq.), by reason of the

application of any provision of the Foreign Assistance Act of 1961 or any other provision of law;

(vi) the Government has engaged in a pattern of actions inconsistent with the

criteria used to determine the eligibility of Honduras for assistance under the Threshold Program;

and

16

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
(vii) a person or entity receiving Grant funding or using assets acquired in

whole or in part with Grant funding is found to have been convicted of a narcotics offense or to

have been engaged in drug trafficking.

(c) All Disbursements will cease upon expiration, suspension or termination of this

Agreement; provided, however, that Grant funding may be used, in compliance with this

Agreement, to pay for: (i) reasonable expenditures for goods, works or services that are properly

incurred under or in furtherance of this Agreement before expiration, suspension or termination

of this Agreement; and provided, further, that the request for such expenditures is submitted

within 90 days after such expiration, suspension or termination; and (ii) reasonable expenditures

(including administrative expenses) properly incurred in connection with the winding up of the

Program within 120 days after the expiration, suspension or termination of this Agreement.

(d) Subject to Section 6.2(c), upon the expiration, suspension or termination of this

Agreement: (i) any amounts of the Grant not disbursed by MCC will be automatically released

from any obligation in connection with this Agreement without any action from the Government

or MCC; and (ii) any amounts of the Grant disbursed by MCC to the Government but not

expended before such expiration, suspension or termination of this Agreement, including any

amounts in a Permitted Account, plus accrued interest thereon, will be returned to MCC within

30 days after the Government receives MCC's request for such return, and the Government will

ensure that such amount will be returned promptly to such account(s) designated by MCC.

(e) At least one year prior to the expiration, or upon termination, of this Agreement,

the Parties will consult in good faith with a view to reaching agreement in writing on (i) the

treatment of the Accountable Entity after the Program, (ii) the process for ensuring the refunds of

Disbursements that have not yet been released from a Permitted Account or committed in

accordance with Sections 6.2(c) and (d), and (iii) any other matter related to the winding up of

the Program, including the proper disposition of all Program Assets. If the Accountable Entity

continues operations after the Completion Date, or following the termination of this Agreement,

with sources of funding other than the Grant, the Accountable Entity will cease to use the name

and logo that it used during implementation of the Program, except as otherwise agreed in

writing by MCC.

(0 MCC and the Government recognize that the effects of the Program will be longranging and its impact may not be measurable for several years after the Completion Date.

Accordingly, MCC and the Government agree to cooperatively monitor the results and evaluate

the impacts of the Program in Honduras after the termination or expiration of this Agreement.

Section 6.3. Refunds. MCC may reinstate any suspended or terminated portion of the Grant

under this Agreement if MCC determines that the Government, or other relevant person or entity,

has committed to correct each condition for which the Grant was suspended or terminated.

(a) If any Grant funding, any interest or earnings thereon, or any asset acquired in

whole or in part with Grant funding is used for any purpose in violation of the terms of this

Agreement, then MCC may require the Government to repay to MCC in United States dollars the

value of the misused portion of the Grant, interest, earnings or asset, plus interest within 30 days

after the Government's receipt of MCC's request for repayment. The Government will not use

17

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
Grant funding, proceeds thereof or any other funds received from MCC (assets acquired with

Grant funding or with any such other funds) to make such payment.

(b) Notwithstanding any other provision in this Agreement or any other existing

agreement to the contrary, MCC's right under this Section 6.3 to obtain a refund will continue

during the term of this Agreement and for a period of (i) five years thereafter or (ii) one year

after MCC receives actual knowledge of such violation, whichever is later.

ARTICLE 7.

GOVERNING LAW; AMENDMENTS; GENERAL

Section 7.1 Governing Law. This Agreement is an international agreement and as such will be

governed by the principles of international law.

Section 7.2 Consultations. Either Party may, at any time, request consultations relating to the

interpretation or implementation of this Agreement. Such consultations will begin at the earliest

possible date.

Section 7.3 Representatives. For all purposes relevant to implementation of this Agreement,

the Government will be represented by the individual holding the position of, or acting as, the

Minister of the Presidency, and MCC will be represented by the individual holding the position

of, or acting as, the Vice President of the Department of Policy and Evaluation (each of the

foregoing, a "Principal Representative"). Each Party, by written notice to the other Party, may

designate one or more additional representatives (each, an "Additional Representative") for all

purposes of this Agreement except for purposes of Section 7.7(a). A Party may change its

Principal Representative to a new representative that holds a position of equal or higher authority

upon written notice to the other Party.

Section 7.4 Communications. Any document or communication required or submitted by

either Party to the other under this Agreement must be submitted in writing and, unless MCC

agrees otherwise, in English, to such Party's Principal Representative, and, if applicable, to such

Party's Additional Representative(s). For this purpose, the address of each Party is set forth

below.

To MCC:

Millennium Challenge Corporation

Attention: Vice President, Department of Policy and Evaluation

(with a copy to the Vice President and General Counsel)

875 Fifteenth Street NW

Washington, DC 20005

United States of America

Facsimile: +1 (202) 521-3700

Telephone: +1 (202) 521-3600

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HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
Email: VPPolicyEvaluation@mcc.gov (Vice President, Department of Policy and

Evaluation); (with a copy to VPGeneralCounsel@mcc.gov (Vice President and General

Counsel))

To the Government:

Ministry of the Presidency

Attention: Minister of the Presidency

Edificio Ejecutivo Las Lomas, 2do piso

Tegucigalpa MDC; Honduras, C.A.

Facsimile: +504 22356608

Telephone: +504 22321611

Section 7.5 MCC Status. MCC is a United States government corporation acting on behalf of

the United States Government in the implementation of this Agreement and the Program. MCC

and the United States Government assume no liability for any claims or loss arising out of

activities or omissions under this Agreement. The Government waives any and all claims

against MCC or the United States Government or any current or former officer or employee of

MCC or the United States Government for all loss, damage, injury, or death arising out of

activities or omissions under this Agreement, and agrees that it will not bring any claim or legal

proceeding of any kind against any of the above entities or persons for any such loss, damage,

injury, or death. The Government agrees that MCC and the United States Government or any

current or former officer or employee of MCC or the United States Government will be immune

from the jurisdiction of all courts and tribunals of Honduras for any claim or loss arising out of

activities or omissions under this Agreement.

Section 7.6 No Assurance of Future Assistance. Nothing contained in this Agreement will be

construed as creating an obligation on the part of MCC to provide any further funding or

assistance, other than the Grant, in relation to any other project or program in Honduras.

Section 7.7 Amendment.

(a) This Agreement may be amended by written agreement of the Parties. Such

agreement will specify how it enters into force.

(b) Notwithstanding subsection (a) of this Section, the Parties agree that the

Government and MCC may by written agreement which will enter into force upon signature (i)

modify any Annex to this Agreement to, in particular, but without limitation, (A) suspend,

terminate or modify any Activity described in Annex I or create a new Activity, (B) add, delete

or waive any condition precedent described in Annex II, or (C) modify the designation or

allocation of funds among the activities identified in Annex III; or (ii) extend the Completion

Date; provided that, in each case, any such modification (A) is consistent in all material respects

with the Program Objective and the Project Objectives, (B) does not cause the amount of the

Grant to exceed the aggregate amount specified in Section 2.1(a), and (C) does not cause the

Government's responsibilities or contribution of resources to be less than as specified in this

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HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
Agreement. Any such modification pursuant to this subsection (b) will not be deemed an

amendment of this Agreement pursuant to subsection (a).

Section 7.8 Survival. The Government's obligations under Sections 2.4, 2.5, 3.2, 4.6, 6.2, 6.3,

7.1, and this Section 7.8 will survive the expiration, suspension, or termination of this Agreement.

Section 7.9 Definitions; Interpretation.

(a) Except as otherwise expressly provided herein, capitalized terms used in this

Agreement will have the respective meanings given to such terms in Annex IV.

(b) Any reference to the term "including" in this Agreement will be deemed to mean

"including, without limitation," except as expressly provided otherwise. Unless the context

requires otherwise: (i) each definition of or reference to any agreement, instrument, law,

regulation, policy, guideline, or similar document in this Agreement (or any other agreement

entered into in connection with this Agreement), unless otherwise expressly set forth herein, will

be construed as a reference to such agreement, instrument, law, regulation, policy, guideline, or

similar document as it may, from time to time, be amended, revised, replaced, or extended, and

will include any agreement, instrument, law, regulation, policy, guideline, or similar document

issued under or otherwise applicable or related to such agreement, instrument, law, regulation,

policy, guideline, or similar document; (ii) the words "herein," "hereof' and "hereunder," and

words of similar import, will be construed to refer to this Agreement in its entirety and not to any

particular provision hereof; (iii) all references herein to Articles, Sections, and Annexes will be

construed to refer to the Articles and Sections of, and Annexes to, this Agreement, all of which

form an integral part of this Agreement; (iv) any reference to the phrases "Unless MCC agrees

otherwise" or "Unless the Parties agree otherwise" in this Agreement will be deemed to be

followed by "in writing," except as expressly provided otherwise; (v) any approval right granted

to MCC herein will only be satisfied upon the prior written approval of MCC.

Section 7.10 References to MCC Website. Each reference in this Agreement, or any other

agreement entered into in connection with this Agreement, to a document or information

available on, or notified by posting on, the MCC Website will be deemed a reference to such

document or information as updated or substituted on the MCC Website by MCC from time to

time.

Section 7.11 Signatures. Signatures to this Agreement and to any amendment to this

Agreement (and to any other legally binding international agreement related to this Agreement)

will be original signatures appearing on the same page or in an exchange of letters or diplomatic

notes. With respect to all other documents arising out of this Agreement and amendments thereto,

signatures may be delivered by facsimile or electronic mail and in counterparts and will be

binding on the Party delivering such signature to the same extent as an original signature would

be.

Section 7.12 Grant Reference. In all notices, requests, reports or correspondence in connection

with Grant funding, the following number should appear on any such document as the grant

reference: THR13HND13001.

20

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
ARTICLE 8.

ENTRY INTO FORCE

This Agreement will enter into force on the date of signature by the Parties.

SIGNATURE PAGE FOLLOWS ON NEXT PAGE.

21

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
IN WITNESS WHEREOF, the undersigned, duly authorized by their respective

Governments have signed this Agreement.

FOR THE UNITED STATES OF AMERICA, FOR THE REPUBLIC OF HONDURAS,

ACTING THROUGH THE MILLENNIUM ACTING THROUGH THE MINISTRY OF

CHALLENGE CORPORATION THE PRESIDENCY

(2-17c3,

Name: Sheila W. Hen-ling Name: Maria Antonieta Guillen

Title: Vice President Title: Minister of the Presidency

Department of Policy and Evaluation

Date: August 28, 2013 Date: August 28, 2013

SIGNATURE PAGE TO MILLENNIUM CHALLENGE THRESHOLD PROGRAM GRANT AGREEMENT

BETWEEN THE UNITED STATES OF AMERICA, ACTING THROUGH THE MILLENNIUM CHALLENGE CORPORATION

AND THE REPUBLIC OF HONDURAS, ACTING THROUGH THE MINISTRY OF THE PRESIDENCY
ANNEX I

PROGRAM DESCRIPTION

Unless the Parties agree otherwise, the assistance provided under this Agreement will be utilized

by the Government to support the following Program.

A. SUMMARY OF PROGRAM

The Program includes the following Projects and activities (each, an "Activity"):

1. Public Financial Management Project.

The objective of the Public Financial Management Project is to increase the efficiency and

transparency of public financial management in Honduras by supporting activities designed to

improve budget formulation and execution, planning, payments, procurement capacity and

controls, audit and civil society oversight.

The proposed Activities under this Project include:

(a) Activity 1.1: Budget and Treasury Management.

This Activity is designed to strengthen budget formulation and execution in the executive and

legislative branches by:

• Supporting technical assistance and training for the Ministry of Finance and line

ministries to improve budget analysis and treasury management, including without

limitation, budget forecasting, establishing adequate controls, strengthening the Treasury

Single Account and payment prioritization; and

• Supporting technical assistance and training for the Congressional Budget Committee to

improve congressional budget oversight capacity; improve congressional budget

discipline by developing safeguards to ensure planned deficit targets are not breached;

and provide better analysis and transparency regarding the cost implications of

congressional mandates.

(b) Activity 1.2: Improving Procurement Capacity, Planning and Controls.

This Activity is designed to increase the transparency, accountability and quality of public

procurement and service delivery by:

• Supporting technical assistance for the Regulatory Office of Contracting and Acquisitions

of Honduras ("ONCAE") and other Government entities to improve procurement

transparency and controls by promoting compliance with existing national law and

international agreements and, where needed, changing norms and/or current practices and

providing training in areas such as sole source contracting, proper oversight of contract

modifications and ensuring fund availability;

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
• Supporting the expansion of ONCAE's online supply catalog (an application within

Honduras's e-procurement system, HonduCompras) to enable ministries to purchase

goods and services at lower prices and with reduced administrative burden and fiduciary

risk; and •

• Increasing coordination between ONCAE and the Tribunal Superior de Cuentas to

ensure that established procurement norms are properly audited to ensure compliance.

(c) Activity 1.3: Improving Capacity of the Tribunal Superior de Cuentas ("TSC").

This Activity is designed to strengthen the capacity of the TSC in specialized auditing and to

support audits of the new controls introduced under the Public Financial Management Project.

Proposed interventions include:

• Support for specialized audit training, including without limitation training in

management audits, forensic audits (in coordination with the Public Ministry) and

procurement audits, as well as the potential provision of associated equipment. In each

case, Grant funding will not be used for a training under this Activity until the TSC has

established a plan acceptable to MCC for how such new skills will be utilized in future

audits, detailing the timeline and staff for such audits; and

• Support for specific audits of new controls introduced, either under the Program or by the

Government, in procurement, budget commitments, payments or other areas of public

financial management.

(d) Activity 1.4: Grant Facility for Social Accountability.

This Activity is designed to increase demand for greater accountability and responsiveness from

Honduran public officials and service providers with the ultimate objective of improving national

and/or municipal government efficiency and/or effectiveness. To do so, the Activity will support

grants to Honduran civil society organizations ("CSOs") to undertake social accountability

projects that assess the quality of spending and service delivery in order to increase government

accountability. Unless otherwise agreed by MCC, it is anticipated that:

• Selected CSOs will receive financial support, training and external expertise to undertake

a social accountability activity with the objective of improving the delivery of a specific

national or municipal service. Because social accountability mechanisms are particularly

effective when designed to give stronger voice to women and vulnerable groups, selected

CSOs will be required to demonstrate how women and vulnerable groups will be

involved; and

• The operating rules, selection and eligibility criteria, funding limitations and application

procedures for the grant facility will be memorialized in a grants manual, which will be

subject to MCC prior approval. However, the Parties agree that the grant facility will be

managed by the Accountable Entity, subject to oversight by a grant committee consisting

of three representatives from civil society, whose selection and compensation must be

approved by MCC. In addition, all invitations to submit proposals will be publicly posted

ANNEX I - 2

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
and grants will be limited to no more than US$150,000. Grant awards under the facility

must be approved by a majority of the members of the grant committee, and in each case

will be subject to MCC prior approval.

2. Public-Private Partnerships Project.

The objective of the Public-Private Partnerships Project is to improve the efficiency and

transparency of PPPs in Honduras by supporting activities designed to increase the

Government's capacity to develop, negotiate, implement and oversee PPPs.

The proposed Activities under this Project include:

(a) Activity 2.1: Develop Core PPP Capacity.

This Activity is designed to improve the capacity of, and procedures utilized by, Government

agencies with key PPP responsibilities to develop and implement PPPs in accordance with best

practice. Proposed interventions include:

• Support for the Commission for the Promotion of Public Private Partnerships

("COALIANZA") to develop manuals and internal procedures needed to properly: (i)

select, prioritize, structure and award PPP projects, and (ii) disseminate information about

PPP projects in order to sustain public support and investor interest in PPPs; and

• Support for the Ministry of Finance to properly identify and manage fiscal risks in its

PPP portfolio, including, without limitation, the development of internal procedures and

manuals and implementation of related training.

(b) Activity 2.2: Design and Implementation of PPPs.

In order to institutionalize best practices and reinforce Activity 2.1, this Activity will support

specific current and potential PPPs by:

• Providing specialized technical assistance for the Government regarding the

administration of current PPPs, specifically, the logistical corridor and tourist corridor

concessions, in accordance with best practice;

• Funding a study to identify and analyze options for structuring a new PPP related to

Honduras' electricity sector. Subject to MCC approval of an action plan from the

Government demonstrating the Government's commitment to proceeding with the new

PPP recommended by the study, this Activity will also assist the Government in

developing the selected PPP; and

• Assisting the Government with implementation of a proposed PPP between a Honduran

nongovernmental organization, FundaciOn para la Inversion y Desarrollo de

Exportaciones ("FIDE"), and the Government pursuant to which FIDE would provide egovernment solutions sustained by user fees. Specifically, FIDE would develop and

manage a single window for exports and would expand current efforts to use the global

ANNEX I - 3

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
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B. IMPLEMENTATION ARRANGEMENTS

The Program in Honduras will be implemented through a combination of the Accountable Entity

(with MCC oversight) and direct MCC administration. The roles and responsibilities of the

various entities involved in implementation are:

1. MCC.

MCC will take all appropriate actions to carry out its responsibilities in connection with this

Agreement and the Program, including, without limitation, exercise of its approval rights. In

addition, pursuant to Section 2.1(b) of this Agreement, MCC may directly administer a portion

of the Grant to implement the MCC-Administered Activities. To do so, MCC may enter into

contracts, grants, cooperative agreements or any other, similar arrangements with providers of

goods and/or services in order to carry out the MCC-Administered Activities.

2. The Government and the Accountable Entity.

The Government will take all appropriate actions to carry out its responsibilities in connection

with this Agreement and the Program. To do so, the Government has designated the

Accountable Entity pursuant to Section 3.2(b) to implement the Program and to exercise and

perform the Government's right and obligation to oversee, manage and implement the Program,

including without limitation, managing the implementation of the Projects, allocating resources

and managing procurements.

The Grant will support compensation for the following positions (each an "Officer" and

collectively, "Officers") at the Accountable Entity:

• General Director;

• Legal Counsel;

• Finance and Administrative Director;

• Procurement Director or Specialist;

• M&E Director and M&E Specialist; and

• Threshold Program Director and Deputy Director or Specialist.

The Government will ensure that Government ministries, departments, agencies and entities

cooperate with the Accountable Entity in the implementation of the Program. As needed, the

Accountable Entity and such other Government ministries, departments, agencies and entities

will enter into appropriate agreements to memorialize such cooperation and to assure the

sustainability and maintenance of any Program Assets.

As needed, the Accountable Entity will enter into contracts, grants, cooperative agreements or

any other, similar arrangements with providers of goods and/or services in order to carry out the

Program.

ANNEX I - 4

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
C. MONITORING AND EVALUATION

1. General.

In accordance with this Agreement, MCC and the Government will formulate and agree to, and

the Government will adopt and implement, an M&E Plan that specifies: (a) how progress toward

the Program Goal, the Program Objective and the Project Objectives will be monitored

("Monitoring Component"); (b) a process and timeline for the monitoring of planned, ongoing

or completed Activities to determine their efficiency and effectiveness; and (c) a methodology

for assessment and rigorous evaluation of the outcomes and impact of the Program ("Evaluation

Component"). The actual content and form of the M&E Plan will be agreed to by MCC and the

Government in accordance with MCC's M&E Policy. In addition, the M&E Plan may be

modified from time to time as outlined in MCC's M&E Policy with MCC approval and without

requiring an amendment to this Agreement. Information regarding the Program's performance,

including the M&E Plan, and any amendments or modifications thereto, as well as progress and

other reports, will be made publicly available.

The M&E Plan will be finalized within six months of the beginning of implementation, after

Activity-level work plans have been developed and adopted. In any case, the M&E Plan must

be finalized prior to the third Disbursement of the Grant.

In addition, MCC and the Government agree to monitor and evaluate the achievement of the

Program Goal and Program Objective through the following key Program Goal indicators set

forth in Table 1 below. The details for measuring and operationalizing these indicators,

including the Baselines that are identified in Table 1 as "TBD," will be included in the M&E

Plan.

ANNEX I - 5

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
Result Statement

Table 1: Threshold

Indicator

Program Coal Indicators

Definition Unit Baseline

Year 3

Target

Implementation of

critical institutional and

policy reforms that

address binding

constraints to economic

growth in Honduras

Public expenditures and

financial management

assessment scores (as

determined by the Public

Expenditure and Financial

Accountability Program

("PEFA"))

Continued improvement

on subscores of the

PEFA Public

Expenditure and

Financial Assessment

--

2012

PEFA

subscores

Sustained

improvement

over Baseline

Perceptions of corruption

Percent of stakeholders

(including vendors to

government) who cite

corruption and lack of

transparency as a

significant problem

within the targeted

institutions and the

Government. The M&E

Plan will define

questionnaire and

stakeholders to sample

for Project surveys.

Percent

To be

determined

("TBD")

Sustained

improvement

over Baseline

Prompt payments

Value of delinquent

payments at the end of

the quarter

disaggregated by

delinquency (1, 30, 90,

180, 365 days)

U.S.

dollars TBD

Sustained

reduction over

Baseline

Perceptions of Government

effectiveness

Percent of stakeholders

(including government

employees) who cite

improved focus and

accountability for results

and public financial

management within

targeted Government

institutions. The M&E

Plan will define

questionnaire and

stakeholders to sample

for Project surveys.

Percent TBD

Sustained

improvement

over Baseline

ANNEX - 6

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
2. Program Logic.

The M&E plan will be built on a logic model which illustrates how the Program, Projects and

Activities contribute to the Program Goal, the Program Objective and the Project objectives.

3. Monitoring Component.

The Government will be responsible for developing the M&E Plan, with support from MCC and,

in most cases, the relevant implementing agencies or partners. To monitor progress toward the

achievement of the impact and outcomes of the Program, the Monitoring Component of the

M&E Plan will identify: (i) the Indicators (as defined below), (ii) the definitions of the

Indicators, (iii) the sources and methods for data collection, (iv) the frequency for data collection,

(v) the party or parties responsible for collecting and analyzing relevant data, and (vi) the

timeline for reporting on each Indicator to MCC.

(a) Indicators.

The M&E Plan will measure the results of the Program using quantitative, objective and reliable

data (each, an "Indicator"). Each Indicator will have benchmarks that specify the expected

value and the expected time by which that result will be achieved (each, a "Target"). All

Indicators will be disaggregated by gender and beneficiary types to the extent practicable.

Subject to prior written approval from MCC, the Government may add Indicators or refine the

definitions and Targets of existing Indicators.

The M&E Plan will also establish baselines that measure the situation prior to a development

intervention, against which progress can be assessed or comparisons made (each, a "Baseline").

The Government will collect Baselines on the selected Indicators or verify already collected

Baselines where applicable and as set forth in the M&E Plan.

(b) Data Collection and Reporting.

The M&E Plan will establish guidelines for data collection and reporting, and identify the

responsible parties. Compliance with data collection and reporting timelines will be conditions

for Disbursements for the relevant Activities. The M&E Plan will specify the data collection

methodologies, procedures and analysis required for reporting on results at all levels. The M&E

Plan will describe any interim MCC approvals for data collection, analysis, and reporting plans.

(c) Data Quality Reviews.

As determined in the M&E Plan, or as otherwise requested by MCC, the quality of the data

gathered through the M&E Plan will be reviewed to ensure that data reported are as valid,

reliable, and timely as resources will allow. The objective of any data quality review will be to

verify the quality and the consistency of performance data across different implementation units

and reporting institutions. Such data quality reviews also will serve to identify where those

levels of quality are not possible, given the realities of data collection.

ANNEX I - 7

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
4. Evaluation Component.

The Evaluation Component of the M&E Plan will describe the purpose of the evaluation,

methodology, timeline, required MCC approvals, and the process for collection and analysis of

data for each evaluation. The results of all evaluations will be made publicly available in

accordance with MCC's M&E Policy.

MCC will commission independent evaluations of the Program to examine the effectiveness and

sustainability of the Projects. The evaluation section of the M&E Plan will outline key

evaluation questions, and will focus its efforts on understanding the extent to which:

• Activities were undertaken and fully implemented;

• Activities led to outcomes;

• The likelihood that outcomes will be sustained over the short- and long-term; and

• Cost effectiveness of the Program activities, where feasible.

ANNEX I - 8

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
ANNEX II

CONDITIONS PRECEDENT TO DISBURSEMENTS

1. Prior to the second Disbursement of the Grant, the Government must have

changed the legal name of MCA-Honduras to a name that has no relation to the MCC Compact

or to MCC; provided, however, that the Accountable Entity may, subject to MCC approval in

writing, use the name MCA-Honduras for activities related to the Program.

2. Prior to the third Disbursement of the Grant, the Government must have

developed and adopted a Work Plan pursuant to Section 4.1(c), in form and substance acceptable

to MCC.

3. Prior to third Disbursement of the Grant, the Government must have developed

and adopted an M&E Plan pursuant to Section 4.2, in form and substance acceptable to MCC.

4. Prior to any Disbursement of the Grant that includes, in whole or in part, funding

for specialized audit training under Activity 1.3 (Improving Capacity of the Tribunal Superior de

Cuentas), the Government must have submitted a plan, in form and substance acceptable to MCC,

describing how the new skills to be introduced by the specialized audit training will be utilized

by the Government in future audits, including, without limitation, staffing and resource

allocations and a detailed timeline for such future audits.

5. Prior to any Disbursement of the Grant that includes, in whole or in part, funding

for Activity 1.4 (Grant Facility for Social Accountability), the Government must have adopted a

grants manual, in form and substance acceptable to MCC, for the overall administration of the

grants facility, including, without limitation, establishment of the grants committee, selection and

eligibility criteria, funding limitations and application procedures. In addition, prior to any

Disbursement of the Grant that includes, in whole or in part, funding for a specific Program

Grant, the grants committee and MCC must have approved the proposed recipient of the

Program Grant.

6. Prior to any Disbursement of the Grant that includes, in whole or in part, funding

for the development of a new PPP project related to the electricity sector of Honduras under

Activity 2.2 (Design and Implementation of PPPs), the Government must have submitted an

action plan, in form and substance acceptable to MCC, demonstrating the Government's

commitment to proceeding with the selected PPP project.

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
ANNEX III

ALLOCATION OF GRANT FUNDING

Honduras

g., ''Si '' 4.,-a

Public Financial Management Project' 8,600,000

Activity 1.1 Budget and Treasury Management 4,200,000

Activity 1.2 Improving Procurement Capacity, Planning and Controls 3,000,000

Activity 1.3 Improving Capacity of the Tribunal Superior de Cuentas 1,000,000

Activity 1.4 Grant Facility for Social Accountability 400,000

Public-Private Partnerships Project 5,500,000

Activity 2.1 Develop Core PPP Capacity 1,500,000

Activity 2.2 Design and Implementation of PPPs 4,000,000

Program Administration and Monitoring and Evaluation 1,550,000

Program Administration 850,000

Monitoring and Evaluation 700,000

Total T 15,650,000

I Pursuant to Section 2.1(b), MCC may administer and manage up to $4,500,000 of this Project.

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
ANNEX IV

DEFINITIONS

The following compendium of capitalized terms that are used herein is provided for the

convenience of the reader. To the extent that there is a conflict or inconsistency between the

definitions in this Annex IV and the definitions elsewhere in the text of this Agreement, the

definition elsewhere in this Agreement will prevail over the definition in this Annex IV.

Accountable Entity has the meaning provided in Section 3.2(b).

Activity has the meaning provided in Part A of Annex I.

Additional Representative has the meaning provided in Section 7.3.

Agreement has the meaning provided in the Preamble.

Audit Plan has the meaning provided in Section 4.1(d).

Auditor has the meaning provided in Section 4.1(d).

Bank has the meaning provided in Section 5.1 (c)(i

Bank Agreement has the meaning provided in Section 5.1(c) (1).

Baseline has the meaning provided in paragraph 3(a) of Part C of Annex I.

COALIANZA has the meaning provided in paragraph 2(a) of Part A of Annex I.

Common Payment System has the meaning provided in Section 5.1 (b)(iii).

Completion Date has the meaning provided in Section 6.1.

Covered Provider has the meaning provided in Section 4.7(c).

CSOs has the meaning provided in paragraph 1(d) of Part A of Annex I

Detailed Financial Plan has the meaning provided in Section 4.1(a).

Disbursement has the meaning provided in Section 2.1(c).

Disbursement Period has the meaning provided in Section 5.1(a).

Disbursement Request has the meaning provided in Section 5.1(a).

Evaluation Component has the meaning provided in paragraph 1 of Part C of Annex I.

FIDE has the meaning provided in paragraph 2(b) of Part A of Annex I.

Fiscal Accountability Plan has the meaning provided in Section 4.4.

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
Governing Document has the meaning provided in Section 4.9(g).

Government has the meaning provided in the Preamble.

Grant has the meaning provided in Section 2.1(a).

Honduras has the meaning provided in the Preamble.

Implementation Letter has the meaning provided in Section 4.10.

Implementation Plan has the meaning provided in Section 4.1.

Implementation Plan Document has the meaning provided in Section 4.1.

Indicator has the meaning provided in paragraph 3(a) of Part C of Annex I.

Inspector General has the meaning provided in Section 4.7(d).

Intellectual Property means all registered and unregistered trademarks, service marks, logos, names,

trade names and all other trademark rights; all registered and unregistered copyrights; all patents,

inventions, shop rights, know how, trade secrets, designs, drawings, art work, plans, prints, manuals,

computer files, computer software, hard copy files, catalogues, specifications, and other proprietary

technology and similar information; and all registrations for, and applications for registration of any of

the foregoing, that are financed, in whole or in part, using the Grant.

Lien has the meaning provided in Section 3.2(g).

Local Account has the meaning provided in Section 5.1 (c)(i).

M&E Plan has the meaning provided in Section 4.2.

M&E Policy has the meaning provided in Section 4.2.

Material Agreement has the meaning provided in Section 4.9(c).

MCC has the meaning provided in the Preamble.

MCC-Administered Activities has the meaning provided in Section 2.1(b).

MCC Audit Guidelines has the meaning provided in Section 4.8(a).

MCC Cost Principles has the meaning provided in Section 4.4.

MCC Environmental Guidelines has the meaning provided in Section 2.4(b)(iii).

MCC Gender Integration Guidelines and Operational Procedures means MCC's Gender Integration

Guidelines and Operational Procedures, as such may be posted on MCC's Website from time to time.

MCC Gender Policy means the MCC Gender Policy (including any guidance documents issued in

connection with the guidelines) posted from time to time on the MCC Website or otherwise made

available to the Government.

ANNEX IV - 2

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
MCC Governance Guidelines has the meaning provided in Section 3.2(b).

MCC Marking Standards has the meaning provided in Section 3.2(k).

MCC Program Procurement Guidelines has the meaning provided in Section 4.3(a).

MCC Reporting Guidelines has the meaning provided in Section 4.6(a).

MCC Website has the meaning provided in Section 2.4(b)(iii).

Monitoring Component has the meaning provided in paragraph 1 of Part C of Annex I.

Officer or Officers has the meaning provided in paragraph 2 of Part B of Annex I.

ONCAE has the meaning provided in paragraph 1(b) of Part A of Annex I.

Party or Parties has the meaning provided in the Preamble.

Permitted Account has the meaning provided in Section 5.1 (c)( i).

PPPs has the meaning provided in Section 1.3(b).

Principal Representative has the meaning provided in Section 7.3.

Procurement Plan has the meaning provided in Section 4.1(b).

Program has the meaning provided in the Recitals.

Program Asset means any assets, goods or property (real, tangible or intangible) purchased or financed

in whole or in part (directly or indirectly) by the Grant, including any Intellectual Property.

Program Goal has the meaning provided in Section 1.1.

Program Grant has the meaning provided in Section 4.3(b).

Program Guidelines means collectively the MCC Audit Guidelines, the MCC Cost Principles, the MCC

Environmental Guidelines, the MCC Gender Policy, the MCC Gender Integration Guidelines and

Operational Procedures, the MCC Governance Guidelines, the MCC Marking Standards, the MCC

Program Procurement Guidelines, the MCC Reporting Guidelines, the M&E Policy, (including any

successor to any of the foregoing) and any other guidelines, policies or guidance papers relating to the

administration of a Threshold Program, and, in each case, as from time to time published on the MCC

Website.

Program Objective has the meaning provided in Section 1.2.

Project or Projects has the meaning provided in Section 1.2.

Project Objective or Project Objectives has the meaning provided in Section 1.3.

Provider has the meaning provided in Section 4.7(c).

Records has the meaning provided in Section 4.7(a).

ANNEX IV - 3

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT
Target has the meaning provided in paragraph 3(a) of Part C of Annex I.

Taxes has the meaning provided in Section 2.5(a).

Threshold Program has the meaning provided in the Recitals.

TSC has the meaning provided in paragraph 1(c) of Part A of Annex I.

Work Plan has the meaning provided in Section 4.1(c).

ANNEX IV - 4

HONDURAS THRESHOLD PROGRAM GRANT AGREEMENT