Rd instruction 1942-a table of Contents

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(Added 01-10-97, SPECIAL PN)

(02-06-85) PN 956

RD Instruction 1942-A

§1942.18 (e) (Con.)

(3) Separate contracts. Arrangements which split responsibility of contractors (separate contracts for labor and material, extensive subcontracting and multiplicity of small contracts on the same job), should be avoided whenever it is practical to do so. Contracts may be awarded to suppliers or manufacturers for furnishing and installing certain items which have been designed by the manufacturer and delivered to the job site in a finished or semifinished state such as prefabricated buildings and lift stations. Contracts may also be awarded for material delivered to the job site and installed by a patented process or method.
(f) Utility purchase contracts. Applicants proposing to purchase water or other utility service from private or public sources shall have written contracts for supply or service which are reviewed and approved by the Rural Development State Director or designee. To the extent practical, Rural Development review and approval of such contracts should take place prior to their execution by the owner. Form RD 442-30, "Water Purchase Contract," may be used when appropriate. If the Rural Development loan will be repaid from system revenues, the contract will be pledged to Rural Development as part of the security for the loan. Such contracts will:
(1) Include a commitment by the supplier to furnish, at a specified point, an adequate quantity of water or other service and provide that, in case of shortages, all of the supplier's users will proportionately share shortages. If it is impossible to obtain a firm commitment for either an adequate quantity or sharing shortages proportionately, a contract may be executed and approved provided adequate evidence is furnished to enable Rural Development to make a determination that the supplier has adequate supply and/or treatment facilities to furnish its other users and the applicant for the foreseeable future; and
(i) The supplier is subject to regulations of the Federal Energy Regulatory Commission or other Federal or State agency whose jurisdiction can be expected to prevent unwarranted curtailment of supply; or
(ii) A suitable alternative supply could be arranged within the repayment ability of the borrower if it should become necessary; or
(iii) Prior approval is obtained from the National Office. The following information should be submitted to the National Office:
(A) Transmittal memorandum including:
(1) Alternative supplies considered; and


(2-6-85, PN 956)

§1942.18 (f) (1) (iii) (A) (Con.) RD Instruction 1942-A

(2) Recommendations and comments; and
(3) Any other necessary supporting information.
(B) Copies of the following:
(1) Proposed letter of conditions; and
(2) Form RD 442-7, "Operating Budget"; and
(3) Form RD 442-3, "Balance Sheet"; and
(4) Preliminary Engineering Report; and
(5) Proposed Contract.
(C) Owner and Rural Development engineer's comments and recommendations.
(D) Documentation and statement from the supplier that it has an adequate supply and treatment facilities available to meet the needs of its users and the owner for the foreseeable future.
(2) Set out the ownership and maintenance responsibilities of the respective parties including the master meter if a meter is installed at the point of delivery.
(3) Specify the initial rates and provide some kind of escalator clause which will permit rates for the association to be raised or lowered proportionately as certain specified rates for the supplier's regular customers are raised or lowered. Provisions may be made for altering rates in accordance with the decisions of the appropriate State agency which may have regulatory authority.
(4) Run for a period of time which is at least equal to the repayment period of the loan. State Directors may approve contracts for shorter periods of time if the supplier cannot legally contract for such period, or if the owner and supplier find it impossible or impractical to negotiate a contract for the maximum period permissible under State law, provided:
(i) The supplier is subject to regulations of the Federal Energy Regulatory Commission or other Federal or State agency whose jurisdiction can be expected to prevent unwarranted curtailment of supply; or


RD Instruction 1942-A

§1942.18 (f) (4) (Con.)

(ii) The contract contains adequate provisions for renewal; or
(iii) A determination is made that in the event the contract is terminated, there are or will be other adequate sources available to the owner that can feasibly be developed or purchased.
(5) Set out in detail the amount of connection or demand charges, if any, to be made by the supplier as a condition to making the service available to the owner. However, the payment of such charges from loan funds shall not be approved unless Rural Development determines that it is more feasible and economical for the owner to pay such a connection charge than it is for the owner to provide the necessary supply by other means.
(6) Provide for a pledge of the contract to Rural Development as part of the security for the loan.
(7) Not contain provisions for:
(i) Construction of facilities which will be owned by the supplier. This does not preclude the use of money paid as a connection charge for construction to be done by the supplier.
(ii) Options for the future sale or transfer. This does not preclude an agreement recognizing that the supplier and owner may at some future date agree to a sale of all or a portion of the facility.
(g) Sewage treatment and bulk water sales contracts. Owners entering into agreements with private or public parties to treat sewage or supply bulk water shall have written contracts for such service and all such contracts shall be subject to Rural Development concurrence. Paragraph (f) of this section should be used as a guide to prepare such contracts. (Revised 3-1-88, SPECIAL PN.)
(h) Performing construction. Owners are encouraged to accomplish construction through contracts with recognized contractors. Owners may accomplish construction by using their own personal and equipment provided the owners possess the necessary skills, abilities and resources to perform the work and provided a licensed engineer or architect prepares design drawings and specifications and inspects construction and furnishes inspection reports as required by paragraph (o) of this section. For other than utility-type facilities, inspection services may be provided by individuals as approved by the Rural Development State Director. In either case, the requirements of paragraph (j) of this section apply. Payments for construction will be handled under §1942.17(p)(5) of this part.
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