Proposed Rule2026-08387
Cost Standards and Procedures; Purchasing and Property Management
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Published
April 30, 2026
Issuing agencies
Legal Services Corporation
Abstract
This proposed rule revises the Legal Services Corporation's (LSC) regulations governing cost allowability, prior approval requirements, and property and procurement standards applicable to LSC recipients. Through these amendments, LSC seeks to clarify existing requirements, reduce administrative burden, promote consistent oversight and enforcement, and strengthen accountability in the use of federal funds.
Full Text
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<title>Federal Register, Volume 91 Issue 83 (Thursday, April 30, 2026)</title>
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[Federal Register Volume 91, Number 83 (Thursday, April 30, 2026)]
[Proposed Rules]
[Pages 23228-23231]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-08387]
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LEGAL SERVICES CORPORATION
45 CFR Parts 1630 and 1631
Cost Standards and Procedures; Purchasing and Property Management
AGENCY: Legal Services Corporation.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This proposed rule revises the Legal Services Corporation's
(LSC) regulations governing cost allowability, prior approval
requirements, and property and procurement standards applicable to LSC
recipients. Through these amendments, LSC seeks to clarify existing
requirements, reduce administrative burden, promote consistent
oversight and enforcement, and strengthen accountability in the use of
federal funds.
DATES: Comments must be submitted by 11:59 p.m. Eastern on June 29,
2026.
ADDRESSES: You may submit comments by any of the following methods:
[ssquf] Email: <a href="/cdn-cgi/l/email-protection#315d425243445d545c505a585f56715d42521f565e47"><span class="__cf_email__" data-cfemail="7f130c1c0d0a131a121e141611183f130c1c51181009">[email protected]</span></a>. Include ``Comments on
Revisions to Parts 1630 and 1631'' in the subject line of the message.
[ssquf] Mail: Brittany Sims Nwankwoala, Assistant General Counsel,
Legal Services Corporation, 1825 I St. NW, Ste. 800, Washington, DC
20006, ATTN: Parts 1630 and 1631 Rulemaking.
[ssquf] Hand Delivery/Courier: Brittany Sims Nwankwoala, Assistant
General Counsel, Legal Services Corporation, 1825 I St. NW, Ste. 800,
Washington, DC 20006, ATTN: Parts 1630 and 1631 Rulemaking.
Instructions: Electronic submissions are preferred via email with
attachments in Acrobat PDF format. LSC will not consider written
comments sent to any other address or received after the end of the
comment period.
FOR FURTHER INFORMATION CONTACT: Brittany Sims Nwankwoala, Assistant
General Counsel, Legal Services Corporation, 1825 I St. NW, Ste. 800,
Washington, DC 20006; (202) 295-1599 (phone), or <a href="/cdn-cgi/l/email-protection#9ef0e9fff0f5e9f1fff2fffcdef2edfdb0f9f1e8"><span class="__cf_email__" data-cfemail="38564f5956534f575954595a78544b5b165f574e">[email protected]</span></a>.
[[Page 23229]]
SUPPLEMENTARY INFORMATION:
I. Background
The Legal Services Corporation Act of 1974 authorizes LSC to
establish regulations governing the use of grant funds and to ensure
appropriate stewardship of Federal resources. See 42 U.S.C 2996g(e).
LSC sets forth its cost standards and prior approval requirements in 45
CFR part 1630 and its procurement and property management requirements
in part 1631.
In 2017, LSC revised part 1630 to provide uniform standards that
require costs to be actually incurred, reasonable in amount, allocable
to the grant, and consistent with generally accepted accounting
principles and the recipient's accounting practices. Additionally, part
1630 establishes requirements for prior written approval and questioned
cost proceedings to ensure fair and timely resolution of disputes over
cost allowability. LSC also updated the prior approval threshold from
$10,000 to $25,000 in response to requests from grantees to increase
the threshold to account for inflation.
During the same rulemaking, LSC moved its property acquisition and
management policies into the Code of Federal Regulations at 45 CFR part
1631. The purpose of the regulation is to ensure that property and
service contracts funded in whole or in part by LSC grants are managed
in accordance with standards that safeguard their use. This includes
requirements for appropriate charging of goods or services to third
parties that engage in activities restricted by the LSC Act. These
provisions mirror long-standing federal procurement and property
management principles and are designed to safeguard LSC's interests
while still permitting grantees to efficiently deliver legal services.
In 2022, LSC conducted a retrospective review of its regulations to
assess whether existing provisions were clear, effective, and aligned
with current programmatic and compliance realities. That review
identified several provisions in parts 1630 and 1631 that recipients
and LSC staff have found difficult to administer consistently or that
lack sufficient clarity for grantees and oversight staff. Subsequent
discussions with the Office of Compliance and Enforcement (OCE), the
Office of Inspector General (OIG), and other internal stakeholders
confirmed those concerns. LSC is proposing to revise parts 1630 and
1631 to ameliorate these inconsistencies.
LSC believes regulatory action is justified at this time to address
these ambiguities in its cost standards, prior approval requirements,
and property and procurement regulations that have resulted in
inconsistent interpretation and application by recipients and LSC
oversight staff. Since LSC last substantively revised parts 1630 and
1631 in 2017, changes in recipient operations, procurement practices,
and fiscal environments have exposed limitations in the current
regulatory framework that guidance alone cannot resolve.
On January 22, 2026, the Operations and Regulations Committee
(``Committee'') voted to recommend that the Board authorize LSC to
engage in rulemaking on parts 1630 and 1631. The Board accepted the
recommendation and voted on January 27, 2026, to authorize LSC to
engage in rulemaking. On March 19, 2026, the Committee voted to
recommend that the Board authorize publication of this NPRM for notice
and comment. On March 23, the Board voted to authorize LSC to publish
this NPRM for notice and comment.
II. Clarification of Prior Approval Requirements
LSC proposes to revise its prior approval framework to eliminate
ambiguity regarding when recipients must seek approval to use LSC funds
for purchases or procurements. Currently, some provisions require prior
approval when recipients expend $25,000 or more of LSC funds, while
related provisions require approval when recipients use more than
$25,000 of LSC funds. Compare 45 CFR 1630.6(b)(1) (``Without LSC's
prior written approval, a recipient may not expend $25,000 or more of
LSC funds on any of the following[.]'') with 1631.8(a) (``As required
by 45 CFR 1630.6 and 1631.3, a recipient using more than $25,000 of LSC
funds to purchase or lease personal property or contract for services
must request and receive LSC's prior approval.''). The language in the
latter quote mirrors the language from the previous version of the
prior approval rule and is the language that LSC intended to adopt in
each provision applicable to the prior approval requirement.
The phrasing inconsistency between these provisions creates
uncertainty about when a recipient must seek prior approval. LSC
proposes to align these provisions and to clarify that recipients must
obtain prior written approval before they incur a legal obligation to
expend LSC funds in excess of the applicable threshold. This
clarification reflects LSC's existing enforcement practice and will
provide recipients with clearer guidance for procurement planning.
III. Increase in the Prior Approval Threshold
LSC also proposes to increase the monetary threshold that triggers
the requirement to obtain prior written approval. The $25,000 threshold
has remained unchanged since 2017, notwithstanding inflation, changes
in procurement practices, and the increasing complexity of recipient
operations. As a result, transactions that may once have warranted
individualized review now routinely exceed the $25,000 threshold,
potentially diverting staff resources from higher-risk matters without
corresponding compliance benefits. By increasing the threshold, LSC
seeks to focus oversight resources on higher-risk expenditures while
reducing the administrative burden on recipients.
LSC also seeks comment on whether it should apply a higher
threshold to contracts awarded under special grants. The Office of
Program Performance (OPP) already reviews and approves special grant
budgets that include information on proposed contracts and purchases
and the related anticipated costs through the competitive grant
process, potentially reducing the marginal value of additional prior
approval under parts 1630 and 1631.
IV. Treatment of Fundraising Proceeds
LSC proposes to clarify how recipients must treat proceeds from
fundraising activities that LSC funds support in whole or in part. In
2017, LSC added Sec. 1630.5(i) to codify its longstanding policy
permitting recipients to use LSC funds for allowable fundraising
activities and to use funds raised to carry out the purposes of the LSC
grant. The OIG has urged LSC to require recipients to treat fundraising
proceeds as derivative income or, alternatively, to require recipients
to reimburse the LSC account for allowable fundraising costs before
allocating remaining proceeds to other accounts. After considering
those recommendations, LSC Management is maintaining its position that
fundraising proceeds do not constitute derivative income. The
definition of derivative income adopted in the 1997 final rule limits
that term to income generated by activities directly supported by
Federal grant funds and excludes grants, contracts, or contributions
from non-LSC sources.
Consistent with that framework, LSC proposes to state explicitly
that fundraising income is not derivative but requires recipients to
reimburse the LSC account from the proceeds of fundraising activities
supported with
[[Page 23230]]
LSC funds in proportion to the amount of LSC funds used. This approach
will ensure that recipients use LSC funds only for authorized purposes
while preserving incentives for recipients to leverage LSC funding to
generate additional resources for legal services.
V. Flexibility in Review Timelines for Prior Approval Requests
LSC proposes to revise part 1631 to allow LSC to extend review
timelines for complex or atypical prior approval requests. Under the
current regulations, fixed review periods limit LSC's ability to obtain
and evaluate additional information necessary to assess unusual or
nonstandard transactions. By clarifying its authority to adjust review
timelines when circumstances warrant, LSC seeks to improve the quality
of its reviews while maintaining transparency and accountability.
VI. Revision of Accounting Submission Deadlines
LSC proposes to revise the deadline for submission of required
accountings under Sec. 1631.19. The current regulation requires
recipients to submit accountings ``no later than April 30,'' a fixed
date that assumes a December 31 fiscal year-end. However, many
recipients operate on fiscal years ending in June or September, and the
fixed deadline has caused confusion and delayed submissions.
LSC proposes to replace the fixed date with an event-based deadline
tied to the close of the recipient's fiscal year or the completion of
the annual audit. This change will promote consistency, improve
timeliness, and better accommodate recipients with varying fiscal
calendars.
V. Proposed Changes
Part 1630--Cost Standards and Procedures
Sec. 1630.5 Standards Governing Allowability of Costs Under LSC Grants
or Contracts
LSC proposes revising Sec. 1630.5(i) to explicitly state that
fundraising proceeds are not derivative income, and that grantees are
required to reimburse the LSC account with allowable and allocable LSC
costs from the fundraising proceeds.
Sec. 1630.6 Prior Approval
LSC proposes revising Sec. 1630.6(b) to state that recipients may
not expend more than the set amount without prior approval and to
increase the prior approval threshold from $25,000 to $50,000. LSC also
proposes to revise Sec. 1630.6(b)(1) and (3) to state that the
requirement applies when the cost allocated to the LSC fund is greater
than $50,000. Furthermore, LSC proposes to clarify in Sec.
1630.6(b)(5) that LSC prior approval is required before recipients
incur a legal obligation to expend LSC funds in excess of this
threshold.
Part 1631--Purchasing and Property Management
Sec. 1631.3 Prior Approval Process
LSC proposes to revise paragraphs (b)(1) and (b)(2) of Sec. 1631.3
to clarify that LSC could need to request additional information to
make decisions regarding prior approval of purchases or leases of
personal property, contracts for services, capital improvements, and
real estate to support a request outside of the 20-day required
timeframe to initially inform a recipient whether more information is
needed. LSC also proposes to revise Sec. 1631.3(d)(1) by increasing
the $25,000 prior approval threshold to $50,000.
Sec. 1631.8 Requests for Prior Approval
LSC proposes to revise Sec. 1631.8(a) by increasing the prior
approval threshold from $25,000 to $50,000. Additionally, LSC proposes
to revise Sec. paragraph (b)(3) to clarify that the requirement to
provide ``[d]ocuments showing that a recipient followed its procurement
policies and procedures in soliciting, reviewing, and approving the
purchase, lease, or contract for services[,]'' refers to documentation
a recipient has included in their procurement files to demonstrate
adherence with a recipient's policies and procedures. This change is
needed to address confusion over the type of supporting documentation
needed and avoid the common need for recipients to supplement their
requests after submission.
Sec. 1631.19 Accounting and Reporting to LSC
LSC proposes to revise Sec. 1631.19 by changing the April 30
deadline for recipients to provide the accounting report to LSC. LSC
proposes to require recipients to submit the report by the date
recipients are required to submit their annual audited financial
statements to LSC's Office of Inspector General. Additionally, LSC
proposes to clarify that this accounting needs to reflect the
cumulative amount of LSC funds used to pay for acquisition costs,
financing, and capital improvement, rather than just the amount spent
in the reporting year.
LSC also wishes to clarify the types of costs that should be
included in the accounting under Sec. 1631.19. In the preamble to the
2017 NPRM for part 1631, LSC stated that ``[c]osts that recipients
should account for include, but are not limited to, acquisition costs
in the year of purchase; mortgage payments; insurance, maintenance, and
taxes; and costs associated with capital improvements made using LSC
funds[.]'' Legal Services Corporation, Definitions; Cost Standards and
Procedures; Purchasing and Property Management, 81 FR 75006 (Oct. 28,
2016). However, the rule text requires recipients to include only the
amount of LSC funds used to pay for acquisition costs, financing, and
capital improvements in the accounting. In the years since LSC
promulgated part 1631, LSC has required grant recipients to include
only the costs identified in the rule text. LSC uses this information
to ensure accurate accounting of the amount of LSC funds a grant
recipient invests in real property so that when the recipient sells the
property, the amount of proceeds attributable to the investment of LSC
funds is returned to LSC. LSC does not include the costs of insurance
and maintenance in its assessment of LSC's interest in real estate
purchased or improved using LSC funds. While the costs of insurance and
maintenance allocated to the LSC grant need to be reasonable and
necessary, LSC has determined that the costs associated with including
those costs in the accounting required by this section exceed the
benefit to LSC of including them.
List of Subjects
45 CFR Part 1630
Accounting, Government contracts, Grant programs--law, Hearing and
appeal procedures, Legal services, Questioned costs.
45 CFR Part 1631
Government contracts, Grant programs--law, Legal services, Real
property acquisition.
For the reasons set forth in the preamble, the Legal Services
Corporation proposes to amend parts 1630 and 1631of title 45 of the
Code of Federal Regulations as follows:
PART 1630--COST STANDARDS AND PROCEDURES
0
1. The authority citation for part 1630 continues to read:
Authority: 42 U.S.C. 2996g(e).
0
2. Amend Sec. 1630.5 by revising paragraph (i) to read as follows:
[[Page 23231]]
Sec. 1630.5 Standards governing allowability of costs under LSC
grants or contracts.
* * * * *
(i) Fundraising. (1) Costs associated with fundraising for the
purpose of increasing recipient funds available to carry out the
purposes of the LSC grant are allowable and allocable to the LSC grant
if they meet the requirements of this section.
(2) A recipient that charges fundraising costs to the LSC grant
shall reimburse its LSC account from the fundraising proceeds in an
amount equal to the amount charged to the LSC grant.
(3) Fundraising proceeds are not derivative income within the
meaning of Sec. Sec. 1630.2(b) and 1630.17(c).
* * * * *
0
3. Amend Sec. 1630.6 by revising paragraphs (b)(1), (3) and (5) to
read as follows:
Sec. 1630.6 Prior approval.
* * * * *
(b) Costs requiring prior approval.
(1) Without LSC's prior written approval, a recipient may not
expend more than $50,000 of LSC funds on any of the following:
(2) * * *
(3) For costs apportioned between LSC funds and one or more other
funding sources, this requirement applies when the cost allocable to
LSC funds is greater than $50,000.
(4) * * *
(5) Recipients must obtain LSC's prior approval before incurring a
legal obligation to expend LSC funds in excess of the applicable
threshold.
* * * * *
PART 1631--PURCHASING AND PROPERTY MANAGEMENT
0
1. The authority citation for part 1631 continues to read as follows:
Authority: 42 U.S.C. 2996g(e).
0
2. Amend Sec. 1631.3 by revising paragraphs (b)(1), (b)(2), and (d)(1)
to read as follows:
Sec. 1631.3 Prior approval process.
* * * * *
(b)(1) For purchases or leases of personal property, contracts for
services, and capital improvements, LSC will make a decision to approve
or deny a request for prior approval within 30 days of receiving
materials LSC deems sufficient to decide. LSC will inform a recipient
within 20 days of receiving the prior approval request whether LSC
needs additional information to make a decision and initiate the
collection of this information.
(b)(2) For purchases of real estate, LSC will make a decision
within 60 days of receiving materials LSC deems sufficient to decide.
LSC will inform a recipient within 20 days of receiving the initial
prior approval request whether LSC needs additional information to make
a decision and re-initiate the collection of this information.
(3) * * *
(c) * * *
(d) Exigent circumstances. (1) A recipient may use more than
$50,000 of LSC funds to purchase personal property or award a contract
for services without seeking LSC's prior approval if the purchase or
contract is necessary;
* * * * *
0
3. Amend Sec. 1631.8 by revising paragraphs (a) and (b) to read as
follows:
Sec. 1631.8 Requests for prior approval.
(a) As required by 45 CFR 1630.6 and 1631.3, a recipient using more
than $50,000 of LSC funds to purchase or lease personal property or
contract for services must request and receive LSC's prior approval.
(b) * * *
(3) Documentation showing that the recipient followed its
procurement policies and procedures in soliciting, reviewing, and
approving the purchase, lease, or contract for services (i.e., the
documents recipients have in their procurement files to demonstrate
adherence with the recipient's policies and procedures).
0
4. Revise Sec. 1631.19 to read as follows:
Sec. 1631.19 Accounting and reporting to LSC.
A recipient must maintain an accumulative accounting of the amount
of LSC funds it uses to pay for acquisition, financing, and capital
improvements costs for each of its LSC-funded properties. The recipient
must provide the accounting to LSC annually by no later than the date
recipients are required to submit their annual audited financial
statements to LSC's Office of Inspector General.
Dated: April 27, 2026.
Stefanie K. Davis,
Deputy General Counsel and Ethics Officer, Legal Services Corporation.
[FR Doc. 2026-08387 Filed 4-29-26; 8:45 am]
BILLING CODE 7050-01-P
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