PURPOSE: This rule establishes requirements for loans from state funding for financing construction improvements at public water systems.

1. (1) General Requirements.

   1. (A) The department may make direct loans to public water systems by purchasing the general obligation bonds, revenue bonds, short-term notes or other acceptable obligation of any qualified applicant for the planning, design or construction, or any combination of these, of an eligible project.
   2. (B) In addition to the requirements of this rule, the department may require the recipient to include those assurances and clauses in the loan agreements and bond resolutions as deemed necessary to protect the interest of the state and comply with applicable state and federal requirements.
   3. (C) If at any time during the loan period the facility(ies) financed under this rule is sold, either outright or on contract for deed, the loan becomes due and payable upon transfer unless otherwise approved by the department.
   4. (D) This rule sets out the general format for loans from state funds. The commission and the department shall have the authority to make specific refinements, variations or additional requirements as may be necessary or desirable in connection with the efficient operation of the loan process.
   5. (E) If at any time during the loan period the facility financed under this rule is sold, either outright or on contract for deed, the loan becomes due and payable upon transfer unless otherwise approved by the department.

2. (2) Eligibility.

   1. (A) Eligible Systems. Public water supply districts and rural community water systems located in Missouri are eligible to apply. Eligibility to apply does not guarantee assistance or eligibility for assistance.

   2. (B) Eligible Projects.

      1. 1. Assistance may be provided for

expenditures (not including monitoring, operation, and maintenance expenditures) of a type or category which will facilitate compliance with national primary drinking water regulations applicable to the system or otherwise significantly further the health protection objectives of the federal Safe Drinking Water Act (SDWA).

1. 2. Projects to address federal SDWA

health standards identified in the intended use plan or in the loan priority point criteria that have been exceeded and projects to prevent future violations of the rules are eligible for funding. These include projects to maintain compliance with existing regulations for contaminants with acute health effects (such as the Surface Water Treatment Rule, the Total Coliform Rule, and nitrate standard) and regulations for contaminants with chronic health effects (such as Lead and Copper Rule, Phases I, II, and V Rules, and safety standards for total trihalomethanes, arsenic, barium, cadmium, chromium, fluoride, mercury, selenium, combined radium-226, -228, and gross alpha particle activity).

1. 3. Projects to address imminent federal

SDWA health standards (identified in the annual intended use plan) that have been exceeded or to prevent future violations of the anticipated rules are eligible for funding.

1. 4. Projects to replace aging infrastruc-

ture are eligible if they are needed to maintain compliance or further the public health protection objectives of the federal SDWA. Examples of these include projects to:

1. A. Rehabilitate or develop sources to

replace contaminated sources or sources of inadequate capacity;

1. B. Install or upgrade treatment facili-

ties if, in the department’s opinion, the project would improve the quality of drinking water to comply with primary or secondary standards;

1. C. Install or upgrade storage facili-

ties, including finished water reservoirs, to prevent microbiological contaminants from entering the water system or improve water pressure to safe levels; and

1. D. Install or replace transmission and

distribution pipes to prevent contamination caused by leaks or breaks in the pipe, or improve water pressure to safe levels.

1. 5. Projects to consolidate water supplies

(for example, when individual homes or other public water supplies have a water supply that is contaminated, or the system is unable to maintain compliance for financial or managerial reasons) are eligible for loan assistance.

1. 6. The purchase of a portion of another

system’s capacity is eligible for a loan if it is the most cost-effective solution.

1. (3) Application Procedures.

   1. (A) Applicants must have previously submitted a preliminary project proposal on forms provided by the department by the deadline established by the department and have received an invitation from the department to apply for financial assistance.

   2. (B) Applications must be postmarked or received by the Public Drinking Water Program by the calendar date established in the annual application package as the application deadline. The department may extend this deadline if insufficient applications are received to use all of the funds expected to be available. Applicants shall provide:

      1. 1. A completed application form provid-

ed by the department;

1. 2. Documentation that they have a chief

operator certified at the appropriate level, or expect to have prior to loan award;

1. 3. Documentation that they have an

emergency operating plan, or expect to have prior to loan award;

1. 4. Any additional information requested

by the department for priority point award or project evaluation;

1. 5. Any additional information request by

the department to determine the applicant’s compliance history and technical, managerial and financial capacity; and

1. 6. Any additional information for deter-

mination of financial capability of the applicant. This may include but is not limited to: changes in economic growth, changes in population growth, depreciation, existing debt, revenues, project costs, and effects of the project on user charge rates.

1. (C) Unsuccessful applicants requesting funds during a given fiscal year who have completed the requirements in subsection (3)(B) of this rule shall be considered for funding the next fiscal year and need not reapply.
2. (D) By submission of its application, the applicant certifies and warrants that the applicant has not, nor will through the loan amortization period, violate any of its bond covenants.

1. (4) Evaluation and Priority Point Award.

   1. (A) Projects will be assigned priority points in accordance with the Drinking Water Revolving Fund (DWRF) loan priority point criteria approved by the commission under 10 CSR 60-13.020(1)(E)1. Projects will be listed in priority order according to the number of priority points assigned to the project. Projects accumulating the same total number of priority points will be ranked using the tiebreaking criteria in the DWRF loan priority point criteria.
   2. (B) The department shall prepare and seek public comment on an annual intended use plan that includes the list of proposed projects. The commission may hold one or more public meetings or public hearings on the intended use plan for loans. Any applicant aggrieved by his/her standing may appeal to the commission during the public comment process.
   3. (C) No direct loan assistance shall be provided to a public water system that does not have the technical, managerial, and financial

2. (TMF) capacity to ensure compliance with the federal SDWA, unless the owner or operator of the system agrees to undertake feasible and appropriate changes to ensure that the system has TMF capacity.

   1. (D) No direct loan assistance shall be provided to a public water system that is in significant noncompliance with any requirement of a national primary drinking water regulation or variance unless use of the assistance will ensure compliance.
3. (5) Loan Fees. The department may charge annual loan fees not to exceed one percent (1%) of the outstanding loan balance of each loan. These fees are intended to reimburse the department for the costs of loan origination, loan servicing and administration of the program. In addition to this fee, additional administrative fees may be assessed by the department at the time the administration fee is calculated for failure by a recipient to submit approved documents to the department (examples include but may not be limited to: operation and maintenance manuals, plan of operation, enacted user charge and water-use ordinances and executed contract documents) in accordance with the time frames provided under the agreement entered into by the recipient. The additional fee will be an additional one-tenth percent (.1%) per month that the document remains delinquent. The additional fee will be collected only during the year in which the document is not submitted.

4. (6) Interest Rates.

   1. (A) The interest rate charged by the department on direct loans will not be less than zero percent (0%) nor more than market rate as determined by the Twenty-Five Revenue Bond Index published by the Bond Buyers Index of Twenty Bonds rounded to the nearest one-tenth (0.1) of one percent (1%). The department will use the Twenty-Five Revenue Bond Index most recently published prior to the date on which the project assistance is provided for all loans except those secured by general obligation bonds. For these transactions, the rate published immediately preceding filing with the State Auditor’s Office will be used.
   2. (B) Interest on construction loans will begin accruing on the last day of the month in which a construction advance is made and will be compounded at the end of each month after that until such time as the construction loan along with all interest accrued is paid in full.

5. (7) Amortization Schedules. The department shall use the following guidelines to establish amortization schedules for obligations purchased under this rule:

   1. (A) The bonds, notes or other debt obligations shall be fully amortized in no more than twenty (20) years after initiation of operation;
   2. (B) The payment frequency on any debt obligations shall be no less than semiannual with the first payment no later than one (1) year after the initiation of operation;
   3. (C) The amortization schedule may either be straightline or declining schedules for the term of the debt obligation; and
   4. (D) Repayment of principal shall begin not later than one (1) year after initiation of operation.
   5. (E) If the department is the bond owner, the participant’s bonds may be called and reissued.

6. (8) Requirements for Loan Recipients.

   1. (A) Project Design. Design of projects for community water systems shall conform with accepted engineering practices. A preliminary design submittal, including the design criteria and facilities layout sheet, may be required at approximately the twenty percent (20%) design stage. 10 CSR 60-13

   2. (B) Public Participation. The public must be allowed an opportunity to exchange ideas with the applicant during project development. Public participation must be preceded by timely distribution of information and must occur sufficiently in advance of decision making to allow the recipient to assimilate public views into action.

      1. 1. A public meeting shall be conducted

to discuss the alternative engineering solutions.

1. 2. Prior to approval of the draft user

charge ordinance, a public meeting shall be conducted to address the proposed user charge rates. Public notice of the meeting should be published at least thirty (30) days prior to the meeting date in one (1) or more local newspaper, as needed to cover the project service area. The recipient shall prepare a transcript, recording or other complete record of the proceeding along with proof of publication and submit it to the department and make it available at no more than cost to anyone who requests it. A copy of the record should be available for public review.

1. (C) Binding Commitment. In order for the department to offer to enter into a binding commitment, all documents and information required here must be submitted to the department at least sixty (60) days prior to the applicant’s binding commitment deadline established by the department.

   1. 1. Engineering report.

      1. A. Engineering reports must be in

accordance with accepted engineering practices and applicable rules. References such as the current Design Guide for Community Water Systems and Ten State Standards should be considered as design standards.

1. B. The most feasible, economic and

environmentally sound alternatives for providing safe drinking water must be studied and evaluated.

1. C. An estimate of the average user

charge including documentation of the basis of the estimate must be included.

1. D. An assessment of the environmen-

tal conditions and impact of the proposed project on the environment is required.

1. 2. Detailed project budget.

2. 3. Project schedule.

   1. A. Construction start defined as date

of issuance of notice to proceed.

1. B. Construction completion.
2. C. Initiation of operation.
3. D. Project completion.

4. (D) Loan Closing. After the department has entered into a binding commitment with the applicant and the requirements of subsections (8)(B) and (8)(C) have been met, the following additional requirements must be met before loan closing can occur. All documents and information must be submitted to the department in sufficient time to allow adequate time for review and must be approved sixty (60) days prior to the loan closing date established by the department. The department may extend deadlines if justified.

   1. 1. Final document submittal. The fol-

lowing documents must be submitted to and approved by the department:

1. A. Resolution identifying the autho-

rized representative by name. Applicants for assistance shall provide a resolution by the governing body designating a representative authorized to file the application for assistance, reimbursement requests and act in behalf of the applicant in all matters related to the project;

1. B. Any and all changes to the pro-

posed project schedule;

1. C. Draft engineering contract as

described in this rule;

1. D. Plans and specifications certified

by a registered professional engineer licensed in Missouri;

1. E. Certification of easements and real

property acquisition. Recipients of assistance shall have obtained title or option to the property or easements for the project prior to loan closing;

1. F. Draft user charge and water use

ordinances as described in this rule; and

1. G. Other information or documenta-

tion deemed necessary by the applicant or the department to ensure the proper expenditure of loan funds.

1. 2. Projects serving multiple water sys-

tems. Prior to closing, if the project serves two (2) or more public water systems, the applicant shall submit executed agreements or contracts between the public water systems for the financing, construction and operation of the proposed facilities. At a minimum, the agreement or contract shall include:

1. A. The operation and maintenance

responsibilities of each party upon which the costs are allocated;

1. B. The formula by which the costs are

allocated; and

1. C. The manner in which the costs are

allocated.

1. 3. User charge (water rate) ordinance.

   1. A. Loan recipients are required to

maintain, for the useful life of the project, user charge ordinances approved by the department. User charge ordinances, at a minimum, shall be adopted prior to financing and implemented by the initiation of operation of the financed project. A copy of the enacted ordinances shall be submitted prior to initiation of operation.

1. B. The user charge system shall be

designed to produce adequate revenues required for the operation and maintenance, including a reserve for equipment replacement. It shall be proportional and based upon actual use. A one hundred ten percent (110%) debt service reserve may be required. Each user charge system shall include an adequate financial management system that will accurately account for revenues generated by the system, debt service and loan fee costs and expenditures for operation and maintenance, including replacement based on an adequate budget identifying the basis for determining the annual operation and maintenance costs and the costs of personnel, material, energy and administration. The user charge system shall provide that the costs of operation and maintenance not directly attributable to users be distributed equally among the users. The system shall provide for an annual review of charges.

1. 4. Additional requirements for privately-

owned public water systems. Privately-owned public water systems must provide documentation from the Missouri Department of Economic Development showing an allocation under Missouri’s private activity bond cap and must obtain any necessary approvals from the Public Service Commission.

1. (E) Operation and Maintenance.

   1. 1. Plan of operation.

      1. A. If required by the department, the

recipient of assistance for construction of public water systems must make provision satisfactory to the department for the development of a plan of operation designed to assure operational efficiency be achieved as quickly as possible. A plan of operation must be submitted by fifty percent (50%) construction completion and approved by ninety percent (90%) construction completion.

1. B. The recipient will ensure that the

schedule of tasks as outlined in the approved plan of operation is implemented and completed in accordance with the schedules and prior to final inspection of the project. Plan of operations must be approved by the official project start-up date.

1. 2. Operation and maintenance manual.

The recipient must make provision satisfactory to the department for assuring effective operation and maintenance of the constructed project throughout its design life. If required by the department, recipients of assistance for construction of mechanical facilities must make provision satisfactory to the department to develop for approval an operation and maintenance manual in accordance with departmental guidelines. A draft operation and maintenance manual must be submitted by fifty percent (50%) construction completion. At ninety percent (90%) construction, the final operation and maintenance manual must be approved.

1. 3. Start-up training. At fifty percent

(50%) construction completion, a start-up training proposal (if required) and proposed follow-up services contract must be submitted. This contract must be approved by ninety percent (90%) construction completion.

1. 4. Personnel. The recipient must make

provision satisfactory to the department for assuring that operator(s) and maintenance personnel are hired in accordance with an approved schedule.

1. 5. System certification. One (1) year

after initiation of operation of the constructed public water system, the recipient shall certify to the department whether or not the public water system meets the project performance standards. Any statement of noncompliance must be accompanied by a corrective action report containing an analysis of the cause of the project’s inability to meet performance standards, actions necessary to bring it into compliance and reasonably scheduled date for positive certification of the project. Timely corrective action shall be executed by the recipient.

1. (F) Accounting and Audits. Applicants are required to have a dedicated source for repayment of any loans and an adequate financial management system and audit procedure for the project which provides efficient and effective accountability and control of all property, funds and assets related to the project. The applicant’s financial system is subject to state or federal audits to assure fiscal integrity of public funds.

   1. 1. Each recipient is expected to have an

adequate accounting system for the project which provides efficient and effective accountability and control of all property, funds and assets.

1. A. The recipient is responsible for

maintaining a financial management system which will adequately provide for an accurate, current and complete disclosure of the financial results of each loan project. Accounting for project funds will be in accordance with generally accepted government accounting principles and practices, consistently applied, regardless of the source of funds.

1. B. An acceptable accounting system

includes books and records showing all financial transactions related to the construction project. The system must document all receipt and disbursement transactions. It also must group them by type of account (for example, asset, revenue, expense, etc.) and by individual expense account (for example, personnel salaries and wages, subcontract costs, etc.). The recipient shall maintain books, records, documents and other evidence and accounting procedures and practices, sufficient to reflect properly the amount, receipt and disposition by the recipient for all assistance received for the project and the total costs of the project of whatever nature incurred for the performance of the project for which the assistance was awarded. Minimum standards for an adequate accounting system include—

1. (I) The accounting system should

be on a double entry basis with a general ledger in which all transactions are recorded in detail or in summary from subordinate accounts;

1. (II) Recording of transactions per-

taining to the construction project should be all inclusive, timely, verifiable and supported by documentation;

1. (III) The system must disclose the

receipt and use of all funds received in support of the project;

1. (IV) Responsibility for all project

funds must be placed with a project manager;

1. (V) Responsibility for accounting

and control must be segregated from project operations. The accounting system and related procedures should be documented for consistent application;

1. (VI) The accrual basis of account-

ing is strongly recommended for construction projects as it provides an effective measure of costs and expenditures;

1. (VII) Inventories of property and

equipment should be maintained in subordinate records controlled by the general ledger and should be verified by physical inventory at least biennially; (VIII) The accounting system must identify all project costs and differentiate between eligible and ineligible costs;

1. (IX) Accounts should be set up in a

way to identify each organizational unit, function or task providing services to the construction project;

1. (X) An important project manage-

ment objective of the system is the derivation of information regarding actual versus budgeted costs by project task and performing organization; and

1. (XI) Financial reports should be

prepared monthly to provide project managers with a timely, accurate status of the construction project and costs incurred.

1. 2. Audits. The recipient must comply

with the provisions of OMB Circular A-128 governing the audit of state and local government.

1. (G) Record Retention Requirements.

   1. 1. Construction-related activities. At a

minimum, the recipient must retain all financial, technical and administrative records related to the planning, design and construction of the project for a minimum period of seven (7) years following receipt of the final construction payment or the recipient’s acceptance of construction, whichever is later. Records shall be available to state officials for audit purposes during normal business hours during that period.

1. 2. Post-construction financing activities.

At a minimum, the recipient must retain all financial and administrative records related to post-construction project financing for a minimum period of seven (7) years following full repayment of assistance.

1. (H) Minimum Requirements for Architectural or Engineering Contracts.

   1. 1. The subagreement must:

      1. A. Be necessary for and directly relat-

ed to the accomplishment of the project;

1. B. Be a lump sum or cost plus fixed

fee contract in the form of a bilaterally executed written agreement;

1. C. Be for monetary consideration;
2. D. Not be in the nature of a grant or

gift;

1. E. State a time frame for perfor-

mance;

1. F. State a cost which cannot be

exceeded except by amendment; and

1. G. State provisions for payment.
2. 2. The nature, scope and extent of work

to be performed during construction should include, but not be limited to, the following:

1. A. Preparing a plan of operation if

required by the department that meets the requirements of this rule;

1. B. Preparing an operation and mainte-

nance manual if required by the department that meets the requirements of this rule;

1. C. Assisting the recipient in letting

bids;

1. D. Assisting the recipient in review-

ing and analyzing construction bids and making recommendations for award;

1. E. Inspecting during construction to

ensure conformance with the construction contract documents unless waived by the department; and

1. F. Assisting with facility operation for

purposes of certifying that the facility is operating properly one (1) year after start-up.

1. 3. The final approved executed engi-

neering contract must be submitted prior to the first reimbursement request.

1. (I) Procurement of Engineering Services.

   1. 1. Contracts for architectural, engineer-

ing and land surveying services shall be negotiated on the basis of demonstrated competence, qualifications for the type of services required and at fair and reasonable prices. The procedures and procurement require- 10 CSR 60-13

ments in sections 8.285–8.291, RSMo apply unless the applicant elects to use the design/build option described in this rule.

1. 2. Use of the same architect or engineer

during construction. If the recipient is satisfied with the qualifications and performance of the architect or engineer who provided any or all of the facilities planning or design services for the project and wishes to retain that firm or individual during construction of the project, the recipient may do so without further public notice and evaluation of qualifications, provided the recipient selected the firm using, at a minimum, the procedures in sections 8.285–8.291, RSMo.

1. (J) Specifications. The construction specifications must contain the following:

   1. 1. Recipients must incorporate in their

specifications a clear and accurate description of the technical requirements for the material, product or service to be procured. The description, in competitive procurement, shall not contain features which unduly restrict competition unless the features are necessary to test or demonstrate a specific thing or to provide for interchangeability of parts and equipment. The description shall include a statement of the qualitative nature of the material, product or service to be procured and, when necessary, shall set forth those minimum essential characteristics and standards to which it must conform if it is to satisfy its intended use;

1. 2. The recipient shall avoid the use of

detailed product specifications if at all possible;

1. 3. When in the judgment of the recipient

it is impractical or uneconomical to make a clear and accurate description of the technical requirements, recipients may use a brand name or equal description as a means to define the performance or other salient requirements of a procurement. The recipient need not establish the existence of any source other than the named brand. Recipients must state clearly in the specification the salient requirements of the named brand which must be met by offerers;

1. 4. Sole source restriction. A specifica-

tion shall not require the use of structures, materials, equipment or processes which are known to be available only from a sole source, unless the department determines that the recipient’s engineer has adequately justified in writing to the department that the proposed use meets the particular project’s minimum needs;

1. 5. Experience clause restriction. The

general use of experience clauses requiring equipment manufacturers to have a record of satisfactory operation for a specified period of time or of bonds or deposits to guarantee replacement in the event of failure is restricted to special cases where the recipient’s engineer adequately justifies any such requirement in writing. Where this justification has been made, submission of a bond or deposit shall be permitted instead of a specified experience period. The period of time for which the bond or deposit is required shall not exceed the experience period specified;

1. 6. Domestic products procurement law.

In accordance with sections 34.350–34.359, RSMo, the bid documents shall require all manufactured goods or commodities used or supplied in the performance of any contract or subcontract awarded on a loan project to be manufactured, assembled or produced in the United States, unless obtaining American-made products would increase the cost of the contract by more than ten percent (10%) and in accordance with section 71.140, RSMo, preference shall be given to Missouri products;

1. 7. Bonding. On construction contracts

exceeding one hundred thousand dollars ($100,000), the bid documents shall require each bidder to furnish a bid guarantee equivalent to five percent (5%) of the bid price. In addition, the bid documents must require the successful bidder to furnish performance and payment bonds, each of which shall be in an amount not less than one hundred percent (100%) of the contract price;

1. 8. State wage determination. The bid

documents shall contain the current prevailing wage determination issued by the Missouri Department of Labor and Industrial Relations, Division of Labor Standards, if otherwise required by law;

1. 9. Right of entry to the project site shall

be provided for representatives of the department and the Environmental Improvement and Energy Resources Authority so they may have access to the work wherever it is in preparation or progress; and

1. 10. The specifications must include the

following statement: “The owner shall make payment to the contractor in accordance with section 34.057, RSMo.”

1. (K) Construction Equipment and Supplies Procurement. This section describes the minimum procurement requirements which the recipient must use unless the applicant elects to use the design/build option described in subsection (8)(L) of this rule.

   1. 1. Small purchases. A small purchase is

the procurement of materials, supplies and services when the aggregate amount involved in any one (1) transaction does not exceed twenty-five thousand dollars ($25,000). The small purchase limitation of twenty-five thousand dollars ($25,000) applies to the aggregate total of an order, including all estimated handling and freight charges, overhead and profit to be paid under the order. In arriving at the aggregate amount involved in any one (1) transaction, all items which should properly be grouped together must be included. Department approval and a minimum of three (3) quotes must be obtained prior to purchase.

1. 2. Bidding requirements. This paragraph

applies to procurement of construction equipment, supplies and construction services in excess of twenty-five thousand dollars ($25,000) awarded by the recipient. No contract shall be awarded until the department has approved the formal advertising and bidding.

1. A. Formal advertising.

   1. (I) Adequate public notice. The

recipient will cause adequate notice to be given of the solicitation by publication in newspapers of general circulation beyond the recipient’s locality (preferable statewide), construction trade journals or plan rooms, inviting bids on the project work and stating the method by which bidding documents may be obtained or examined.

1. (II) Adequate time for preparing

bids. A minimum of thirty (30) days shall be allowed between the date when public notice, publication, insertion or document availability in a plan room is first published and the date by which bids must be submitted. Bidding documents shall be available to prospective bidders from the date when the notice is first published or provided.

1. B. Bid document requirements and

procedure.

1. (I) The recipient shall prepare a

reasonable number of bidding documents (Invitations for Bids) and shall furnish them upon request on a first-come, first-served basis. The recipient shall maintain a complete set of bidding documents and shall make them available for inspection and copying by any party. The bidding documents shall include, at a minimum:

1. (a) A completed statement of the

work to be performed or equipment to be supplied and the required completion schedule;

1. (b) The terms and conditions of

the contract to be awarded;

1. (c) A clear explanation of the

method of bidding and the method of evaluation of bid prices and the basis and method for award of the contract or rejection of all bids;

1. (d) Responsibility requirements

and criteria which will be employed in evaluating bidders;

1. (e) The recipient shall provide

for bidding by sealed bid and for the safeguarding of bids received until public opening;

1. (f) If a recipient desires to amend

any part of the bidding documents during the period when bids are being prepared, addenda shall be communicated in writing to all firms which have obtained bidding documents in time to be considered before the bid opening time. All addenda must be approved by the department prior to award of the contract;

1. (g) A firm which has submitted a

bid shall be allowed to modify or withdraw its bid before the time of bid opening;

1. (h) The recipient shall provide

for a public opening of bids at the place, date and time announced in the bidding documents. Bids received after the announced opening time shall be returned unopened;

1. (i) Award shall be to the lowest,

responsive, responsible bidder. After bids are opened, the recipient shall evaluate them in accordance with the methods and criteria set forth in the bidding documents. The recipient shall award contracts only to responsible contractors that possess the potential ability to perform successfully under the terms and conditions of a proposed contract. A responsible contractor is one that has financial resources, technical qualifications, experience, organization and facilities adequate to carry out the contract or a demonstrated ability to obtain these. The recipient may reserve the right to reject all bids. Unless all bids are rejected for good cause, award shall be made to the lowest, responsive, responsible bidder. The recipient shall have established protest provisions in the specifications. These provisions shall not include the department as a participant in the protest procedures. If the recipient intends to make the award to a firm which did not submit the lowest bid, the recipient shall prepare a written statement before any award, explaining why each lower bidder was deemed nonresponsible or nonresponsive and shall retain the statements in its files. The recipient shall not reject a bid as nonresponsive for failure to list or otherwise indicate the selection of subcontractor(s) or equipment unless the recipient has clearly stated in the solicitation documents that the failure to list shall render a bid nonresponsive and shall cause rejection of a bid; and

1. (j) Departmental concurrence

with contract award must be obtained prior to actual contract award. Recipients shall notify the department in writing of each proposed construction contract which has an aggregate value over twenty-five thousand dollars ($25,000). The recipient shall notify the department within ten (10) calendar days after the bid opening for each construction subagreement. The notice shall include:

1. I. Proof of advertising;
2. II. Tabulation of bids;
3. III. The bid proposal from the

bidder that the recipient wishes to accept, including justification if the recommended successful bidder is not also the lowest bidder;

1. IV. Recommendation of

award;

1. V. Any addenda not submitted

previously and bidder acknowledgment of all addenda;

1. VI. Copy of the bid bond;
2. VII. One (1) set of as-bid

specifications;

1. VIII. Revised financial capa-

bility worksheet and certification if bids exceed prebid estimates by more than fifteen percent (15%); and

1. IX. Site certification, if not

previously submitted.

1. (L) Design/Build Projects. Applicants may elect to use the design/build method of procuring design and construction services in lieu of the procurement methods described in subsection (8)(K) of this rule.

   1. 1. Additional application requirements.

The applicant must provide the department with:

1. A. A legal opinion of the applicant’s

counsel stating that the design/build procurement method is not in violation of any state or local statutes, charters, ordinances or rules pertaining to the applicant; and

1. B. A bid package that is sufficiently

detailed to ensure that the bids received for the design/build work are complete, accurate, comparable and will result in the most cost-effective operable facility which meets the design requirements of the department. The “Design Guide for Community Water Systems” or the “Ten State Standards” shall be considered for design standards. The prebid package shall contain, at a minimum, the clauses in paragraphs (8)(J)6.–8. of this rule, if applicable.

1. 2. Bidding procedures. Bidding shall be

conducted in accordance with the procedures described in paragraph (8)(K)2. of this rule.

1. 3. Contract type. Design/build contracts

shall be lump sum contracts for the cost associated with design and construction. No increases to contract price for design and construction services shall be permitted. Recipients are encouraged to incorporate facility operations into the contract. When included in the contract, the cost of operations for an established time period may be included in the criteria for evaluating bids and selecting the lowest, responsible, responsive bidder.

1. 4. Review and oversight. The recipient

shall procure engineering services to oversee the design work performed by the design/build contractor and to provide resident inspection of construction. The department may require the recipient to submit plans, specifications and documentation during design and construction as necessary to ensure that the facility meets state standards for design and construction.

1. 5. Department approvals and permits.

Prior to construction start, the recipient must obtain approval of the construction plans and specifications and obtain a construction permit from the department.

1. (M) Conflict of Interest.

   1. 1. No employee, officer or agent of the

recipient shall participate in the selection, award or administration of a subagreement supported by state or federal funds if a conflict of interest, real or apparent, would be involved. This conflict would arise when—

1. A. Any employee, officer or agent of

the recipient, any member of their immediate families or their partners have a financial or other interest in the firm selected for a contract; or

1. B. An organization which may receive

or has been awarded a subagreement employs, or is about to employ, any employee, officer or agent of the recipient, any member of their immediate families or their partners.

1. 2. The recipient’s officers, employees or

agents shall neither solicit nor accept gratuities, favors or anything of substantial monetary value from contractors, potential contractors or other parties to subagreements.

1. (N) Changes in Contract Price or Time. The contract price or time may be changed only by a change order. The value of any work covered by a change order or of any claim for increase or decrease in the contract price shall be determined by the methods set forth in the following:

   1. 1. Unit prices.

      1. A. Unit prices previously approved

are acceptable for pricing changes of original bid items. However, when changes in quantities exceed fifteen percent (15%) of the original bid quantity and the total dollar change of that bid item is greater than twenty-five thousand dollars ($25,000), the recipient shall review the unit price to determine if a new unit price should be negotiated.

1. B. Unit prices of new items shall be

negotiated;

1. 2. A lump sum to be negotiated; and
2. 3. Cost reimbursement. The actual cost

for labor, direct overhead, materials, sup- 10 CSR 60-13

plies, equipment and other services necessary to complete the work plus an amount to cover the cost of general overhead and profit.

1. (O) Progress Payments to Contractors.

   1. 1. Recipients should make prompt

progress payments to prime contractors and prime contractors should make prompt progress payments to subcontractors and suppliers for eligible construction, supplies and equipment costs.

1. A. For purposes of this section,

progress payments are defined as follows:

1. (I) Payments for work in place; and
2. (II) Payments for materials or

equipment which have been delivered to the construction site or which are stockpiled in the vicinity of the construction site in accordance with the terms of the contract, when conditional or final acceptance is made by or for the recipient. The recipient shall assure that items for which progress payments have been made are adequately insured and are protected through appropriate security measures.

1. 2. Appropriate provisions regarding

progress payments must be included in each contract and subcontract.

1. 3. Retention from progress payments.

The recipient may retain a portion of the amount otherwise due the contractor. The amount the recipient retains shall be in accordance with section 34.057, RSMo.

1. (P) Classification of Costs.

   1. 1. Eligible project costs. Loans shall not

exceed the total eligible project costs described in this subsection (8)(P) less any amounts financed by any means other than through the direct loan program. All project costs will be eligible if they are reasonable and cost effective and are necessary for the approved project, including required mitigation. Eligible costs include, at a minimum:

1. A. Engineering services and other

services incurred in planning and in preparing the design drawings and specifications for the project. These services and their related expenses can be reimbursed based on actual invoices to be submitted after loan closing or by means of an allowance. For invoice reimbursement, the department must have a copy of the executed engineering contract for planning and design of the project. Allowance reimbursement for these services will be based on a percentage of the total eligible construction contract amounts at bid opening as determined from Table 1 or 2 (as applicable) plus land, equipment, materials and supplies identified or referenced in the approved engineering report. For phased or segmented projects, incremental allowance calculations and corresponding reimbursements may be made;

1. B. The reasonable cost of engineering

services incurred during the building and initial operation phase of the project to ensure that it is built in conformance with the design drawings and specifications. A registered professional engineer licensed in Missouri or a person under the direction and continuing supervision of a registered professional engineer licensed in Missouri must provide inspection of construction for the purpose of assuring and certifying compliance with the approved plans and specifications. Eligible construction phase and initial operation phase service are limited to—

1. (I) Office engineering;
2. (II) Construction surveillance;
3. (III) Stakeout surveying;
4. (IV) As-built drawings;
5. (V) Special soils/materials testing;
6. (VI) Operation and maintenance

manual;

1. (VII) Follow-up services and the

cost of start-up training for operators of mechanical facilities constructed by the project to the extent that these costs are incurred prior to this department’s final inspection. Costs shall be limited to on-site operator training tailored to the facilities constructed or onor off-site training may be provided by the equipment manufacturer if this training is properly procured; (VIII) User charge ordinance; and

1. (IX) Plan of operation;
2. C. Abandoning costs. The reasonable

and necessary cost of abandoning drinking water facilities no longer in use. Generally, these costs will be limited to the demolition and disposal of the structures, and abandoning unused wells owned by the recipient in accordance with 10 CSR 23-3.110, and final grading and seeding of the site;

1. D. Change orders and the costs of

meritorious contractor claims for increased costs under subagreements as follows:

1. (I) Within the allowable scope of

the project;

1. (II) Costs of equitable adjustments

due to differing site conditions;

1. (III) Settlements, arbitration awards

and court judgments which resolve contractor claims shall be allowable only to the extent that they are not due to the mismanagement of the recipient;

1. E. Costs necessary to mitigate only

direct, adverse, physical impacts resulting from building of the water works;

1. F. The costs of site screening neces-

sary to comply with environmental studies and facilities plans or necessary to screen adjacent properties;

1. G. Equipment, materials and sup-

plies.

1. (I) The cost of a reasonable inven-

tory of laboratory chemicals and supplies necessary to initiate plant operations and laboratory items necessary to conduct tests required for plant operation.

1. (II) Cost of shop equipment

installed at the public water system necessary to the operation of the works.

1. (III) The costs of necessary safety

equipment, provided the equipment meets applicable federal, state, local or industry safety requirements.

1. (IV) The costs of mobile equipment

necessary for the operation of the overall public water system, or for the maintenance of equipment. These items include: portable standby generators; large portable emergency pumps; trailers and other vehicles having as their purpose the transportation or application, or both, of liquid or dewatered water treatment plant residuals; and replacement parts identified and approved in advance;

1. H. Costs of royalties for the use of or

rights in a patented process or product with the prior approval of the department;

1. I. Land, easements or rights of way

when the acquisition of real property or interests therein is integral to the project and the purchase is from a willing seller. Eligibility shall be limited to fair market value;

1. J. Force account work for construc-

tion oversight and engineering planning and design. If force account is used for planning and design, all engineering services during construction must be provided through force account;

1. K. The cost of preparing an environ-

mental impact statement if required under 10 CSR 60-13.030;

1. L. Costs of issuance, capitalized

interest, EIERA application fees, and contracted project administration costs; and

1. M. Debt service reserve deposits.
2. 3. Noneligible costs include, but are not

limited to:

1. A. The cost of ordinary site and

building maintenance equipment such as lawnmowers and snowblowers;

1. B. The cost of general purpose vehi-

cles for the transportation of the recipient’s employees;

1. C. Costs allowable in subparagraph

(8)(P)2.I. of this rule that are in excess of just compensation based on the appraised value;

1. D. Ordinary operating expenses of the

recipient including salaries and expenses of elected and appointed officials and preparation of routine financial reports and studies, and any permit fees necessary for the normal operation of the constructed facility;

1. E. Preparation of applications and

permits required by federal, state or local regulations or procedures;

1. F. Administrative, engineering and

legal activities associated with the establishment of special departments, agencies, commissions, regions, districts or other units of government;

1. G. Personal injury compensation or

damages arising out of the project;

1. H. Fines and penalties due to viola-

tions of, or failure to comply with, federal, state or local laws, regulations or procedures;

1. I. Costs outside the scope of the

approved project;

1. J. Costs for which grant or loan pay-

ment have been or will be received from another state or federal agency;

1. K. Force account work except that

listed in subparagraph (8)(P)2.J. of this rule; and

1. L. Costs associated with acquisition

of easements and land except that listed in subparagraph (8)(P)2.I. Table I—Maximum Eligible Amount for Facilities Planning and Design Allowance as a Percentage Construction Cost of Construction Cost* $ 100,000 or less 120,000 150,000 175,000 200,000 250,000 300,000 350,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 1,200,000 1,500,000 1,750,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 12,000,000 15,000,000 17,500,000 20,000,000 25,000,000 30,000,000 35,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 90,000,000 100,000,000 120,000,000 150,000,000 175,000,000 200,000,000

*Interpolate between values. Note: These tables shall not be used to determine the compensation for facilities planning or design services. The compensation for facilities planning for design services should be based upon the nature, scope and complexity of the services required by the community. 14.49 14.11 13.66 13.36 13.10 12.68 12.35 12.08 11.84 11.46 11.16 10.92 10.71 10.52 10.36 10.09 9.77 9.55 9.37 9.07 8.83 8.63 8.47 8.20 7.98 7.81 7.66 7.52 7.41 7.22 6.99 6.83 6.70 6.48 6.31 6.17 6.06 5.86 5.71 5.58 5.47 5.38 5.30 5.16 4.99 4.88 4.79 10 CSR 60-13

Table 2—Maximum Eligibile Amount—Design Only

Allowance as a Percentage

Construction Cost of Construction Cost*

$ 100,000 or less 120,000 150,000 175,000 200,000 250,000 300,000 350,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 1,200,000 1,500,000 1,750,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 12,000,000 15,000,000 17,500,000 20,000,000 25,000,000 30,000,000 35,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 90,000,000 100,000,000 120,000,000 150,000,000 175,000,000 200,000,000 8.57 8.38 8.16 8.01 7.88 7.67 7.50 7.36 7.24 7.05 6.89 6.77 6.66 6.56 6.43 6.34 6.17 6.05 5.96 5.80 5.67 5.57 5.48 5.33 5.21 5.12 5.04 4.96 4.90 4.79 4.67 4.58 4.51 4.39 4.29 4.21 4.14 4.03 3.94 3.87 3.81 3.75 3.71 3.63 3.53 3.46 3.41

1. (Q) Trustee or Paying Agent. The department may require the recipient to contract with a trustee or paying agent to provide all or part of the following services:

   1. 1. Make joint assistance payments to the

recipient and their contractors;

1. 2. Ensure that payments are only

released to those recipients whose contractors have a project contract approved by the department;

1. 3. Ensure that none of the recipient’s

contractors receive more in assistance payments than approved by the department; and

1. 4. Maintain financial records of credits

and debits for the construction project.

1. (9) Construction Loans.

   1. (A) The department may award construction loans to qualified applicants in order to provide interim financing during construction of their project. Construction loans will contain clauses and provisions determined by the department to be necessary to protect the interests of the state.
   2. (B) With exception of substate revolving funds and projects receiving financing through the leveraged loan program, the construction loan will remain in force throughout the construction period. However, it must be paid in full in accordance with the closing deadline provided in the construction loan agreement.
   3. (C) If the department is to provide longterm financing under this rule, then the construction loan must contain an agreement by the department and the recipient that the department will purchase the recipient’s general obligation, revenue bonds or other acceptable debt obligation after construction is completed. If a construction loan is awarded, the permanent financing amount will be limited in amount to the sum of the payments drawn from the construction loan for eligible project costs plus interest accrued on the construction loan plus the reasonable costs of issuance which can be financed under Missouri statutes.

   4. (D) Unless specifically addressed in the loan documents, the recipient may request construction loan payments no more often than monthly. The maximum construction advance shall be the sum of all eligible costs incurred to date. Each payment shall include the information listed here and any other information deemed necessary by the department to ensure proper project management and expenditure of public funds:

      1. 1. Completed reimbursement request

form;

1. 2. Construction pay estimates signed by

the construction contractor, the recipient and the resident inspector, if applicable; and

1. 3. Invoices for other eligible services,

equipment and supplies for the project.

1. (E) If the department is satisfied that the payment request accurately reflects the eligible cost incurred to date on the project, the department will request that a state payment check be issued to the recipient.
2. (F) The department shall purchase revenue bonds, general obligation bonds or other acceptable debt obligations from the loan recipient by the closing deadline contained in the construction loan agreement.

1. (10) Project Bypass, Project Removal and Modification of Funding. This section applies to loan applicants on a fundable priority list. In order to assure best use of the loan funds in a reasonably expeditious manner, projects may be bypassed or removed from a fundable priority list or loan amounts may be modified. The department will confer and negotiate with affected applicants prior to making or recommending decisions on project bypass, project removal or modification of loan amounts.

   1. (A) Project Bypass.

      1. 1. Eligibility for bypass. A project may

be bypassed if the project is not, in the opinion of the department, making satisfactory progress toward satisfying requirements for assistance.

1. 2. Bypass criteria.

   1. A. Any project on the fundable prior-

ity list may be by-passed if the applicant fails to submit the documents required for assistance at least sixty (60) days prior to the beginning of the quarter for which the assistance is anticipated.

1. B. Individual schedules developed by

the department may be used to determine whether a project is making satisfactory progress during the fiscal year. A project may be bypassed for failure to meet the schedule.

1. 3. Bypass procedures.

   1. A. Bypassed projects will be removed

from the fundable priority list and, if the application is still valid, will be placed on a project list, in priority order, for funding consideration in the next fiscal year.

1. B. Funds recovered through project

bypass will be considered uncommitted and available for distribution to the next priority project.

1. (B) Project Removal. Projects may be removed from the fundable priority list at the request of the applicant, upon a finding by the department that the project is ineligible for direct loan assistance, upon a finding that the applicant’s credit is not adequate for participation in the direct loan program, or if, after the second intended use plan cycle, the applicant has not closed on the loan. If an applicant is removed, it may reapply only after it has secured its debt issuance authorization.
2. (C) Modification of Funding. In order to maximize use of the aggregate funds available to the state for drinking water infrastructure improvements, the commission may remove projects or modify funding amounts upon a finding by the department that the applicant is eligible for funding from other government programs (such as USDA Rural Development, the Department of Economic Development’s Community Development Block Grant Program, or the Environmental Improvement and Energy Resources Authority) or when deemed necessary by the department based on bids received. The department will coordinate with the other funding agencies to arrive at equitable and workable funding options for the applicant. The department reserves the right to limit the maximum loan amount awarded.

AUTHORITY: sections 640.100 and 640.140, RSMo 2000.* Original rule filed Jan. 19, 2001, effective Sept. 30, 2001. *Original authority: 640.100, RSMo 1939, amended 1978, 1981, 1982, 1988, 1989, 1992, 1993,1995, 1996, 1998, 1999; and 640.140, RSMo 1978.